investment company outline

Statement of additional information-if investment objectives met:

·        Mutual funds can invest in option contracts

·        Can borrow $

·        Can lend $

Investment Company Act of 1940

·        Recommend specific mutual fund MUST give prospectus

·        Full and fair disclosure

Prospectus requirements

·        Issue every 16mo

·        If customer requests, statement of additional information

·        Report to stockholders 2x per year-list current holdings-shares and bonds at market value

·        SEC must approve prospectus

Quarterly reports

·        Customer statements-show mutual fund stock and bond holdings at market value

·        For tax prep, report about dividend distribution and capital gain distribution

·        Tax prep form 1099 DIV has div distribution and cap gain distribution

·        Tax free dividends reported as tax free

·        Tax reports sent to holders by 01/31 of the next year

The objectives of a mutual fund can be changed if a majority of which of the following votes for the change?

·        Shares vote

·        Shareholders vote, get as many votes as shares

Regulated investment companies

·        IRS regulates all investment companies

·        Open end-regulated

·        Closed end-regulated

·        Special tax breaks-if pass through 90% of net income to shareholders, avoid 3x tax

·        Conduit theory-allow dividends and interest to flow through to investment company to holder without taxation when investment co. holds it.

An investment company that distributes at least 90% of its net investment income is called a:

·        Regulated investment company

·        90% of net income passed through to shareholders OR they are 3x taxed as a regular corporation