Investment Companies and Mutual Funds
Key facts on open-end, closed-end, and UIT structures plus NAV, POP, breakpoints, and share classes.
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Questions Covered in This Set
10 cards to master
What three types of investment companies does the Investment Company Act of 1940 define?
Face-amount certificate companies, unit investment trusts (UITs), and management companies (open-end and closed-end funds).
How is net asset value (NAV) per share calculated?
(Total assets − Total liabilities) ÷ Shares outstanding, computed at least once each business day at the close.
What is the formula for public offering price (POP)?
POP = NAV ÷ (1 − sales charge %). The sales charge is a percentage of POP, not of NAV.
What is the maximum sales charge FINRA allows on a mutual fund, and what must the fund offer to charge it?
8.5% of POP; the fund must offer breakpoints, rights of accumulation, and automatic reinvestment of dividends at NAV.
Which structure can trade at a premium or discount to NAV, be sold short, and be bought on margin?
Closed-end funds — they are negotiable securities that trade on an exchange or OTC based on supply and demand.
What makes a UIT unique among investment companies?
No investment manager, no board of directors, a fixed portfolio held to a termination date, units instead of shares, and no voting rights.
What is a letter of intent (LOI)?
A non-binding 13-month statement of intent to reach a breakpoint; it may be backdated up to 90 days, and shares are held in escrow if not completed.
How do rights of accumulation (ROA) work?
The current value of existing holdings counts toward breakpoints on future purchases, with no time limit.
What is a breakpoint sale violation?
Allowing or encouraging a customer to invest just below a breakpoint (e.g., $24,000 when $25,000 qualifies) without disclosing the discount.
Compare Class A, B, and C shares.
A: front-end load, low 12b-1, best for large long-term investments; B: back-end CDSC declining to zero then converting to A, higher 12b-1; C: level load, little/no front load, small short-term CDSC.
