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Series 7 > Investment Companies 7% > Flashcards

Investment Companies 7% Flashcards

(62 cards)

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0
Q

Describe the investment specifications for money market funds

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1
Q

What is the difference between an open-end and closed-end mutual funds?

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2
Q

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

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3
Q

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

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4
Q

What are the components of the expense ratio?

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5
Q

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

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6
Q

How do we calculate the sales load? the POP?

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7
Q

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

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8
Q

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

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9
Q

What is dollar cost averaging?

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10
Q

How is the current yield of a mutual fund calculated?

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11
Q

How does a mutual fund differ from and ETF?

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12
Q

How does a REIT differ from a management company?

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13
Q

How does a mutual fund differ from a hedge fund?

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14
Q

Describe investment company and name the three classifications

A
  • 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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15
Q

What did the Investment Company Act of 1940 setup?

A
  • 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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16
Q

Uniform Investment Trust

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  • 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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17
Q

Face Amount Certificates

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-issue debt certificates that offer predetermined interest rates.

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18
Q

Management Companies

A

-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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19
Q

Closed-end

A
  • 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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20
Q

Open-End

A

-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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21
Q

What makes a fund “diversified”

A

-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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22
Q

Blend funds vs Balanced

A

blend has no fixed income

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23
Q

Function of the Board Directors

A
  • 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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24
max sales charge
- 8.5% of POP - 6.25% if these three privileges are met: - dividend reinvestment at NAV - Breakpoints - Rights of accumulation
25
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
26
what is the max % for 12b-1 that allows a fund to still be called no load
.25%
27
newspaper quotes symbols "p" and "r"
- p indicates 12b-1 - r indicates redemption fee - t indicates both
28
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
29
Mutual fund redemption methods
- written request - telephonic - check writing - through a dealer
30
when is a signature guarantee required(generally)
- wire transfers - addresses records - dollar amounts above certain limits
31
Timely paying by fund
inv co act of 40 requires that mutual funds pay redemption proceeds to customers within 7 calendar days
32
when is financial info in a prospectus to old?
when it is 16 months old
33
when a statement of add'l info is requested, when is it due?
within 3 days
34
What is constructive receipt?
-the IRS taxes mutual funds distributions in the distributed
35
Do payments from mutual funds come from dividends or cap gains first?
-Dividends
36
what info a custodian safeguards
- share ownership | - fund's securities
37
net investment income =
portfolio interest + dividends - fund expenses
38
what is the conduit or pipeline theory
- mutual fund must pay out at least 90% of its newt investment income to avoid taxation on the distributed portion - available through IRS Subchaper M
39
exchange traded funds
1
40
Leveraged ETF's
1
41
Inverse ETF's
- perform inverse to the market | - a hedge against a declining market without using a short position or without establishing a margin account
42
Exchange Traded Notes
- senior unsecured debt instruments issued by an underwriting bank - complex investments only suitable for experienced investors
43
Holding Company Depository Receipts (HOLDRs)
- Traded on the NYSE AMEX | - allow investors to trade one security comprised of a bucket of stocks
44
Equity Linked Securities (ELKS)
- hybrid debt instrument linked to the equity markets | - structured as annuities, mutual funds, or CDs
45
Real Estate Investment Trusts (REITs)
- Invest at least 75% in real estate or real estate related products - No active trading - have a finite life - Not an investment company - not subject to the 40 act
46
3 types of REITs
- Equity - Mortgage - Hybrid
47
Hedge Funds
- limited partnerships - not a mutual fund as defined by the 40 - appropriate only for experienced, sophisticated, wealthy investor
48
Private Equity Funds
- not investment companies as defined by the 40 - private capital with minimum investment requirements - invest in privately owned entities
49
experienced, aggressive investor, comfortable with a level level of risk seeking high return
hedge fund
50
retired couple, preservation of capital,
government bond fund (must accept a small rate of return)
51
investor approaching retirment, capital preservation and a reasonable return
balanced fund
52
experienced investor, with a diversified portfolio, who is interested in a particular industry
consider putting a small portion in a sector fund
53
concerned about expenses, skeptical investment adviser can consistently outperform the market
index fund
54
young investor saving for retirement
growth fund
55
investor with a time horizon shorter than 3 years
money market fund
56
wants stock market exposure, but wishes to stay at stable, high quality end of the stock spectrum
blue chip fund
57
successful investor, high tax bracket, max tax relief
- munis | - if time horizon less than 3 years, tax-free money market
58
small amount to invest, immediate exposure to several investments
fund of funds
59
monthly income,
GNMA bond fund, pays month principal and interest
60
Hedge against inflation
precious metals fund
61
avoid cap gains taxes
ETF

Series 7 (12 decks)

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