Series 6
Investment Companies - Restrictions on Mutual Fund Operations
The SEC prohibits a mutual fund from engaging in the following activities unless it meets strict financial and disclosure requirements:
Affiliated and Interested Parties
The 1940 Act and its amendments identify two types of people, defined as affiliated and interested parties, who may influence the investment company's management and operations and whose actions must therefore be regulated and restricted by the SEC. They may not borrow money from the investment company or sell any security or property to the investment company or companies the management company controls.
- Selling securities short
- Buying securities on margin
- Participating in joint investment or trading accounts
- Distributing its own securities, except through a sponsor
Affiliated and Interested Parties
The 1940 Act and its amendments identify two types of people, defined as affiliated and interested parties, who may influence the investment company's management and operations and whose actions must therefore be regulated and restricted by the SEC. They may not borrow money from the investment company or sell any security or property to the investment company or companies the management company controls.
- An affiliated person is someone who controls an investment company's operations in any way.
- An interested person includes those individuals who have a relationship with an affiliated person which the SEC deems influential in matters of fund operation. These people would include immediate family members of affiliated parties, legal counselors, broker-dealers, and so on.
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