Investment Company Classification Under the Investment Company Act of 1940

What this video covers

• The three legal classifications under the Investment Company Act of 1940: face-amount certificate companies, unit investment trusts (UITs), and management companies
• Why UITs are described as fixed portfolios with no active manager, no board of directors, and a set termination date
• How open-end funds continuously issue and redeem shares at net asset value (NAV), while closed-end funds issue a fixed number of shares at initial public offering (IPO) and then trade on exchanges
• Why only closed-end funds can trade at a premium or discount to NAV, and why open-end funds are forward-priced at NAV plus any sales charge
• How closed-end funds may use leverage through preferred stock or debt, while open-end funds are generally prohibited from issuing senior securities
• The 75-5-10 diversification test: 75% of assets in regulated investments, no more than 5% of total assets in any single issuer within that 75%, and no more than 10% of outstanding voting securities of any single issuer within that 75%
• Why the 5% and 10% limits apply only to the 75% regulated portion, not to the remaining 25% wildcard slice