INVESTMENT COMPANY ACT 1940
Which of the following individuals would be considered a noninterested person in a mutual fund?
A member of the board of directors who does not hold another position within the investment company. *The Investment Company Act of 1940 defines an interested person as someone employed by or has a material business relationship with the fund, its adviser, or underwriter. Someone who owns 5% or more of the outstanding shares (an affiliated person) is also considered "interested". Merely sitting on the board does not make someone an interested person. Thus, a director with no other relationship with the fund qualifies as a noninterested person.
AFFILIATED PERSON IS:
Affiliated persons include investment company directors, officers, most employees, or owners of 5% or more of the voting stock and/or any persons controlling or controlled by such persons. Although the custodian bank could be considered an affiliated person, clerical personnel employed by that custodian would not be.
How often must an investment company file reports with the SEC as required by the Investment Company Act of 1940?
Annually Registered investment companies are similar to other publicly registered entities in that an annual audited report must be filed with the SEC.
Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that:
Contracts between funds and their advisers may not be terminated with more than 60 days notice and these contracts must be in writing. The initial contract is for a 2-year period and then renewed on an annual basis. Whether the fund can trade on margin is not a function of the management contract.
What are the 3 classifications used to identify investment companies?
Face-amount certificate companies, unit investment trusts, and management companies. -There are 3 classes of investment companies listed in the Investment Company Act of 1940: face-amount certificate companies, which issue debt certificates; unit investment trusts, which issue trust units that provide the holder with a share of ownership in a fixed portfolio of securities; and management companies, which trade the securities in the investment portfolio to achieve the investment objectives of the company, and which are subclassified into open-end and closed-end companies.
Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include: 1.filing an audited report with the SEC annually. 2.sending semiannual reports to shareholders. 3.notifying shareholders of changes in the portfolio as those changes occur.
I and II. Investment companies must file audited reports with the SEC annually and send at least semiannual reports to shareholders. They are not required to notify shareholders of changes in the portfolio as they occur.
The Investment Company Act of 1940 allows a majority vote of outstanding shares of a registered investment company to authorize the fund to: 1.borrow money from a commercial bank. 2.invest funds in securities consistent with the fund's objectives. 3.change the objectives of the fund. 4.change the nature of its business and cease to be an investment company.
I, III and IV. Under the Investment Company Act of 1940, a vote of the majority of outstanding shares may approve borrowing money from a bank, changing the investment objectives of the fund, and deciding to cease to be an investment company. Shareholder approval is not necessary to authorize the fund to invest consistent with the fund's objectives.
Under the Investment Company Act of 1940, which of the following statements about advisory contracts between an investment company and an outside adviser is TRUE?
The contract may not be unilaterally assigned to another adviser. All contracts between an investment company and an outside adviser must be in writing and must contain certain provisions; these include that the contract may not be unilaterally assigned to another adviser. The initial contract may be for two years, but it is subject to annual reapproval by a majority vote of the outstanding shares or the board of directors as well as a majority of the directors who are considered to be non-interested parties.
Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of:
a majority of the outstanding shares. *Changes in investment policy require a vote of the majority of outstanding shares for approval.
Usually, the fee received by the management company, from an investment company, depends on the:
average annual net assets of the fund. The adviser under contract to manage the fund receives a fee that is most commonly based on the amount of assets under management. It is true that the fee can be affected by the types of securities in the portfolio such as a lower fee for money market funds and a higher fee for small cap funds, but, in this case, the best answer is the one that applies universally.
All of the following purchases are permitted in a mutual fund's portfolio EXCEPT:
stock on margin. Mutual funds may not purchase securities on margin. A fund is not prohibited from buying options, low quality bonds, or other mutual funds, if the purchase is in line with the fund's objectives.
Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of:
the majority vote of the outstanding shares and a majority of that portion of the board of directors that are considered noninterested members. -The investment adviser's contract must be initially approved by a majority vote of the outstanding shares and a majority of the noninterested members of the board of directors. It is renewed annually by either a majority of the board or a majority of the outstanding shares. In addition, as with all contracts, initial and renewal, it requires a majority of the noninterested board members.