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Flashcards in Investment Companies 7% Deck (62)
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What is the difference between an open-end and closed-end mutual funds?

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Describe the investment specifications for money market funds

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What are the shareholder's rights within a mutual fund?

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3

What are the functions of an investment adviser of a mutual fund's portfolio

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4

What are the components of the expense ratio?

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5

How is the sales charge of a mutual fund expressed and what is its maximum

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How do we calculate the sales load? the POP?

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How is the load charges on A shares? B shares? C shares?

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What is the difference between rights of accumulation and a letter of intent?

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9

What is dollar cost averaging?

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How is the current yield of a mutual fund calculated?

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How does a mutual fund differ from and ETF?

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How does a REIT differ from a management company?

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How does a mutual fund differ from a hedge fund?

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Describe investment company and name the three classifications

-an issuer on the business of investing, reinvesting, owning, holding, or trading in securitites
1. Management companies
2. Unit investment trusts
3. Face-amount certificates

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What did the Investment Company Act of 1940 setup?

-guidelines for the operation of investment companies and divided them into three types:
-Unit Investment Trusts (UIT)
-Face Amount Certificate Companies (issue debt certificates)
-Management Companies (mutual funds)

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Uniform Investment Trust

-a designated trustee supervises the company's operations
-its units are redeemable, which means no secondary trading and the units must be redeemed by the issuer (non-negotiable and non-marketable)
-usually feature a fixed portfolio
-not actively managed
-changes to the portfolio must be sent to the SEC in writing
-at maturity the proceeds are distributed to the investors on a per unit basis

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Face Amount Certificates

-issue debt certificates that offer predetermined interest rates.

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Management Companies

-employs an investment adviser (aka "fund manager") to manage a portfolio of securities in such a way as to achieve a specified investment objective(or guideline).

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Closed-end

-single ipo of a fixed number of shares
-full shares only
-after ipo, secondary market only
-Common, preferred(50% max) or debt securities(30% max)
-Priced at market supply and demand (NAV is calculated, but price in the market reflects supply and demand
-Shareholder rights
-voting
-dividends
-preemptive rights

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Open-End

-Continuous offering
-full or fractional shares
-no secondary market
-purchased from the company
-redeemed by the company
-common shares only
-Priced by formula NAV+SC = POP
Shareholder rights
-Voting
-Dividends

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What makes a fund "diversified"

-Must be invested according to the 1940 act as the "75-5-10" rule
-for at least 75% of the assets:
-no more than 5% is invested in any one company
-cannot own more than 10% of the voting stock of any target
company
-no restrictions on the remaining 25% of assets

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Blend funds vs Balanced

blend has no fixed income

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Function of the Board Directors

-establishment and implementation of a mutual fund's investment polices
-selected by the fund's shareholders
-1940 act states 40% of the board must be unaffiliated with the fund.

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max sales charge

-8.5% of POP
-6.25% if these three privileges are met:
-dividend reinvestment at NAV
-Breakpoints
-Rights of accumulation

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expense ratio

=total expenses/average net assets (which is assets minus expenses)

-sales charge or load is not included in the expense ratio, as it is not a direct operating expense of the mutual fund

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what is the max % for 12b-1 that allows a fund to still be called no load

.25%

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newspaper quotes symbols "p" and "r"

-p indicates 12b-1
-r indicates redemption fee
-t indicates both

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Letter of intent - Effect of incomplete investment

if the client doesn't fully fund to the breakpoint, they will be charged the higher sales charge. This is covered by holding a sufficient number of shares in escrow

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Mutual fund redemption methods

-written request
-telephonic
-check writing
-through a dealer