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Which of these options are types of investment companies classified by the Investment Company Act of 1940? (Select all that apply)
Which of these options are types of investment companies classified by the Investment Company Act of 1940? (Select all that apply)
What is a Face Amount Certificate Company?
What is a Face Amount Certificate Company?
A type of investment company where an investor makes periodic payments and at the end of a specified period, the company pays the investor the face amount of the security.
What is a Unit Investment Trust?
What is a Unit Investment Trust?
Fixed - client purchases a certain number of shares in a fixed portfolio of stocks/bonds. Nonfixed - The UIT purchases shares of an underlying mutual fund.
FACs and UITs trade in the secondary market.
FACs and UITs trade in the secondary market.
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What is the difference between open-end and closed-end managed investment companies?
What is the difference between open-end and closed-end managed investment companies?
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How are mutual funds priced?
How are mutual funds priced?
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Paying a dividend and suffering a market decline both increase the net assets of a fund.
Paying a dividend and suffering a market decline both increase the net assets of a fund.
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Which class of shares uses a CDSC as the main sales charge?
Which class of shares uses a CDSC as the main sales charge?
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Which class of shares best suits large deposit investors?
Which class of shares best suits large deposit investors?
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Mutual fund shares are redeemable securities that trade privately on exchanges.
Mutual fund shares are redeemable securities that trade privately on exchanges.
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How many payments may a mutual fund investor receive during the year?
How many payments may a mutual fund investor receive during the year?
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What is a Variable Annuity?
What is a Variable Annuity?
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What does 'annuitization' refer to?
What does 'annuitization' refer to?
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What is a 12b-1 fee?
What is a 12b-1 fee?
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What is a Letter of Intent in the context of mutual funds?
What is a Letter of Intent in the context of mutual funds?
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What is meant by 'escrow'?
What is meant by 'escrow'?
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What are breakpoints in mutual funds?
What are breakpoints in mutual funds?
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How long does a mutual fund have to satisfy a request for a Statement of Additional Information?
How long does a mutual fund have to satisfy a request for a Statement of Additional Information?
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A full statutory prospectus must be given before a sale of mutual funds is made.
A full statutory prospectus must be given before a sale of mutual funds is made.
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When must the summary prospectus (Rule 498) be provided?
When must the summary prospectus (Rule 498) be provided?
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What is an Omitting Prospectus?
What is an Omitting Prospectus?
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Study Notes
Investment Company Act of 1940
- Classifies investment companies into three main types: Face-Amount Certificate (FAC) companies, Unit Investment Trusts (UIT), and Managed Investment Companies (both open-end and closed-end).
Face-Amount Certificate Company
- Investors make periodic payments for a specified period in exchange for the face amount of the security at maturity.
Unit Investment Trusts (UIT)
- Fixed UITs allow clients to purchase shares in a fixed portfolio of stocks/bonds.
- Non-fixed UITs invest in shares of an underlying mutual fund.
- UITs are characterized by a lack of active management.
FACs and UITs Trading
- Neither FACs nor UITs trade in the secondary market and can only be redeemed through the issuer.
- Portfolios are static once created and do not change, leading to no ongoing management.
Managed Investment Companies
- Open-end companies (mutual funds) operate exclusively in the primary market.
- Closed-end companies have a limited number of securities available for trading.
Mutual Fund Pricing
- Prices are determined at the end of each business day.
- Sellers receive the next calculated NAV (Net Asset Value), while buyers pay the next POP (Public Offering Price).
Impact on Net Assets
- Dividend payments and market declines reduce net assets without affecting the number of shares, resulting in a decline in NAV.
Class of Shares and Sales Charges
- Class C shares primarily utilize a Contingent Deferred Sales Charge (CDSC).
- Class A shares have a front-end sales charge; beneficial for large investors.
- Class B shares feature a back-end load that decreases over time; suited for both short and long-term investors.
- Class C shares have level loads, ideal for short-term investors; no-load shares have no sales charge, but may have other fees.
Redemption of Mutual Fund Shares
- Mutual fund shares are redeemable securities and do not trade on secondary markets, including exchanges or OTC.
Dividend Distribution Options
- Investors can receive up to five payments annually and may choose to reinvest these payments, avoiding any sales charges.
Variable Annuity
- Provides a return that varies based on mutual fund performance, placing investment risk on the investor rather than the insurance company.
Annuitization Process
- A one-time, irrevocable action where an investor forfeits asset ownership in exchange for guaranteed lifetime income from the insurance company.
12b-1 Fee
- A fee imposed by an investment company to cover marketing and promotional costs associated with a mutual fund.
Letter of Intent
- Investors can notify the investment company of their intent to invest additional funds to meet breakpoint requirements within 13 months.
- Fund holds shares purchased at the reduced charge in escrow until the investment is completed.
Escrow Definition
- Refers to the third-party holding of money, legal documents, and instructions until contract conditions are satisfied.
Breakpoints
- Quantity discounts on mutual fund shares; purchasing larger amounts results in lower sales charges.
Statement of Additional Information (SAI)
- Investors must receive a SAI copy upon request within three business days at no cost.
Prospectus Requirements
- Full statutory prospectus must be provided before a sale.
- Summary prospectus (Rule 498) must be given before or during the solicitation.
Omitting Prospectus
- An advertisement that displays performance figures without complete disclosure typically found in the full prospectus.
Costs Associated with Mutual Funds
- Includes maintaining shareholder records, providing shareholder services, and investment adviser fees.
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Description
Explore the Investment Company Act of 1940, which categorizes investment companies into Face-Amount Certificate companies, Unit Investment Trusts, and Managed Investment Companies. Learn the characteristics and trading methods of each type, including their operational frameworks and investor interactions. This quiz provides a comprehensive understanding of these investment structures.
