investment company products

Question 1

3 types of investment companies

Answer 1

• face amount certificates
• UITs
• management companies

Question 2

describe a UIT

Answer 2

unit investment trust

• selects but does not manage assets
• fixed trust

Question 3

describe a management company

Answer 3

-company with a manager making decisions based on specified objectives

Question 4

what are the two types of management companies?

Answer 4

• open-ended

- closed-ended

Question 5

describe purchasable shares of an open-ended company

Answer 5

continuous primary offerings; every share is an IPO

Question 6

describe purchasable shares of a closed-ended company

Answer 6

the number of shares is fixed

Question 7

describe prospectus requirements with open-ended companies?

Answer 7

prospectus is required

Question 8

describe prospectus requirements with closed-ended companies?

Answer 8

no prospectus required after IPO

Question 9

describe what kind of shares open-ended companies can issue?

Answer 9

common shares only

Question 10

describe what kind of shares closed-ended companies can issue?

Answer 10

common, preferred, and bonds

Question 11

describe how customers can redeem shares with an open-ended company?

Answer 11

when a customer sells shares, the management company must buy them back. cannot sell on the open market

Question 12

describe how customers can redeem shares with a closed-ended company?

Answer 12

shares are not redeemable. to sell, customer has to sell on the open market

Question 13

describe secondary trading of shares in an open-ended company?

Answer 13

there is no secondary trading since company has to redeem shares.

Question 14

describe secondary trading of shares in a closed-ended company?

Answer 14

can trade in the secondary market in exchanges or OTC since shares are not redeemable by management company

Question 15

how do open-ended companies determine price?

Answer 15

priced by formula, forward pricing

net asset value + sales charge = POP

Question 16

how do closed-ended companies determine price?

Answer 16

priced by supply and demand

Question 17

how do open-ended companies make money on account?

Answer 17

they charge an 8.5% max sales charge

Question 18

how do closed-ended companies make money on account?

Answer 18

charge commissions

Question 19

describe how diversification of management company using the 75 5 10 rule

Answer 19

• 75% of assets invested so that:
• –no more than 5% of assets are invested in one issuer
• –fund owns no more than 10% of securities of any one issuer
• no restrictions on other 25%

Question 20

describe the 4 types of stock funds

Answer 20

• growth-low dividends but will grow
• income-pays good dividends, low growth
• growth and income-mix of both
• specialized-25% invested in one industry

Question 21

what is a balanced fund?

Answer 21

portfolio contains stocks and bonds

Question 22

describe money market funds

Answer 22

• stable values ($1 per share) -yield varies
• have management fees
• safe, liquid

Question 23

describe hedge funds

Answer 23

• not regulated by SEC
• aggressive investment techniques (short selling, margin)
• sophisticated investors only

Question 24

describe index funds

Answer 24

S&P index 500 securities

Question 25

describe global funds

Answer 25

portfolio contains both foreign/domestic stocks

Question 26

describe international funds

Answer 26

portfolio contains foreign stocks only

Question 27

how are ETFs classified?

Answer 27

legally classified as open-end funds but are not mutual funds

Question 28

how are ETFs priced?

Answer 28

continuous pricing

• can buy sell throughout day
• no forward pricing

Question 29

are ETFs marginable?

Answer 29

yes can buy on margin

Question 30

tax consequences of ETFs?

Answer 30

no tax until shares are sold

Question 31

describe a leveraged ETF

Answer 31

• very risky

- 4X investment gains and losses

Question 32

describe an inverse ETF

Answer 32

-bearish

Question 33

describe the structure of the board of directors for a mutual fund

Answer 33

• minimum 40% noninterested (public)

- if 12b-1 fee charged, public directors must make up more than 50%

Question 34

describe the custodian bank for a mutual fund

Answer 34

they are the safekeeper of fund assets

Question 35

describe the transfer agent for a mutual fund

Answer 35

they are the record keepers and customer service department for the fund

Question 36

describe underwriters of a mutual fund

Answer 36

• they market fund to broker/dealer

- share in sales charge with broker

Question 37

formula for NAV per share

Answer 37

(assets-liabilities) / number of common shares

Question 38

formula for POP

Answer 38

NAV / sales charge = POP

Question 39

what is the bid and ask in a mutual fund’s pricing

Answer 39

NAV-bid price

POP-ask price

Question 40

describe the three share types

Answer 40

• a shares- front end load
• b shares- back end load
• c shares- level load (annual charge)

Question 41

describe break point quatities

Answer 41

1-9999 = 8.5%
10000-24999- 7%
25000-49999-6%
50000-99999-4%

Question 42

letter of intent is good for?

Answer 42

13 months

Question 43

letter of intent can be backdated how many days?

Answer 43

90

Question 44

funds who charge 8.5% must offer what?

Answer 44

• breakpoints
• rights of accumulation
• reinvestments at NAV