CONCEPT

C H E C K ☞

QUESTION 1

Consider these data from the December 31, 1999, balance sheet of the Index Trust 500 Portfolio mutual fund sponsored by the Vanguard Group. What was the net asset value of the portfolio?

Assets: $105,496 million
Liabilities: 844
million Shares: 773.3 million

4.2 TYPES OF INVESTMENT COMPANIES

In the United States, investment companies are classified by the Investment Company Act of 1940 as either unit investment trusts or managed investment companies. The portfolios of unit investment trusts are essentially fixed and thus are called "unmanaged." In contrast, managed companies are so named because securities in their investment portfolios contin-

I. Introduction 4. Mutual Funds and Other

Investment Companies

The McGraw−Hill

Companies, 2001

CHAPTER 4 Mutual Funds and Other Investment Companies 105

ually are bought and sold: The portfolios are managed. Managed companies are further classified as either closed-end or open-end. Open-end companies are what we commonly call mutual funds.

Unit Investment Trusts

Unit investment trusts are pools of money invested in a portfolio that is fixed for the life of the fund. To form a unit investment trust, a sponsor, typically a brokerage firm, buys a portfolio of securities which are deposited into a trust. It then sells to the public shares, or "units," in the trust, called redeemable trust certificates. All income and payments of prin- cipal from the portfolio are paid out by the funds trustees (a bank or trust company) to the shareholders. Most unit trusts hold