Investment Companies Under 1940 Act

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Questions and Answers

All of the following are defined as investment companies under the Investment Company Act of 1940 EXCEPT:

Real Estate Investment Trust (correct)

Management Company

Face Amount Certificate Company

Unit Investment Trust

What is the Net Asset Value per share of a mutual fund?

Assets - Liabilities / Outstanding Shares (correct)

Assets - Redemption Fees / Issued Shares

Assets - Operating Expenses / Issued Shares

Assets - Management Fees / Outstanding Shares

Which statements are TRUE when comparing types of management companies?

II and III

I and III

I and IV (correct)

II and IV

Management companies are subclassified as either:

Open-end or closed-end Signup and view all the answers

The term 'mutual fund' is the common name for a(n):

Open end management company Signup and view all the answers

An open-end management company:

Continuously offers its own shares to investors Signup and view all the answers

An open end fund has a Net Asset Value of $10 per share. The minimum price at which a share can be purchased is:

$10 Signup and view all the answers

The term 'publicly traded fund' is the common name for a(n):

Closed end management company Signup and view all the answers

Which of the following terms apply to publicly traded fund shares?

I and III Signup and view all the answers

Publicly traded fund shares are:

I and III Signup and view all the answers

All of the following terms apply to publicly traded fund shares EXCEPT:

Redeemable Signup and view all the answers

The principal difference between an open end management company and a closed end management company is:

Capitalization Signup and view all the answers

A closed end fund has a Net Asset Value of $10 per share. The minimum price at which the shares can be purchased is:

Market price plus a commission Signup and view all the answers

Fixed unit investment trusts are not managed; the portfolio is fixed and does not change. All of the following terms apply to fixed unit investment trusts EXCEPT:

Managed Signup and view all the answers

A variable annuity is a(n):

Participating unit investment trust Signup and view all the answers

Which of the following investment company securities are redeemable?

I, III and IV Signup and view all the answers

Which of the following investment company securities is NOT redeemable?

Closed end fund shares Signup and view all the answers

The term 'negotiable' describes all of the following EXCEPT:

Mutual funds Signup and view all the answers

The purchase price of each of the following can be negotiated EXCEPT:

Variable annuity Signup and view all the answers

Which of the following can be purchased on margin?

Closed End Funds trading on the NYSE Signup and view all the answers

Study Notes

Investment Companies Under the Investment Company Act of 1940

An REIT (Real Estate Investment Trust) is not classified as an "investment company" under this Act because it primarily makes real estate investments rather than investing in securities.
Types of recognized investment companies include face amount certificate companies, unit investment trusts, and management companies.

Net Asset Value Calculation

Net Asset Value (NAV) per share is calculated as total assets minus total liabilities, divided by the number of outstanding shares.
NAV is key for determining the price of mutual fund shares during purchases.

Management Companies Types

Management companies are divided into open-end (mutual funds) and closed-end, with open-end funds continuously issuing and redeeming shares.
Closed-end management companies are publicly traded and issue shares only once, trading on exchanges like other stocks.

Characteristics of Mutual Funds

Mutual funds are a common name for open-end management companies, continuously issuing and redeeming shares.
These funds have shares sold at the computed NAV and can involve a sales load if it is a "load" fund.

Closed-End Funds Operation

Closed-end funds operate differently by issuing shares only once and then trading on the stock market.
The market price for closed-end fund shares can differ from NAV, and buyers pay a commission for the trades.

Publicly traded fund shares reflect an undivided interest in securities, structured to achieve specific investment objectives.
They involve a one-time issuance, cannot be redeemed directly from the fund, and are considered negotiable.

Investment Trusts and Annuities

Fixed unit investment trusts are non-managed portfolios, typically of bonds, that require SEC registration.
Variable annuities function as participating unit investment trusts, investing funds from contract holders in management companies.

Trading and Margin

Closed-end fund shares are not redeemable with the fund and trade like stocks; the purchase involves market prices and possible commissions.
New issues, including mutual funds and unit trusts, cannot be purchased on margin until they begin trading on an exchange.

Negotiability of Securities

Negotiable securities include common stock, preferred stock, and other financial instruments that trade in the public markets.
Non-negotiable securities must be purchased directly from the issuer and are redeemable only at that level, like mutual funds.

Pricing in Funds

The purchase price for variable annuities and mutual fund shares is based on the public offering price, typically involving a sales charge.
Unlike mutual funds, closed-end fund shares have variable pricing on the market, not linked directly to their NAV.

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Description

This quiz explores the definitions and characteristics of investment companies as outlined in the Investment Company Act of 1940. Focus is placed on understanding the differences between REITs and other types of investment companies. Test your knowledge on the classifications and regulations surrounding real estate investments.