Flashcards in investment company products Deck (44):
3 types of investment companies
-face amount certificates
describe a UIT
unit investment trust
-selects but does not manage assets
describe a management company
-company with a manager making decisions based on specified objectives
what are the two types of management companies?
describe purchasable shares of an open-ended company
continuous primary offerings; every share is an IPO
describe purchasable shares of a closed-ended company
the number of shares is fixed
describe prospectus requirements with open-ended companies?
prospectus is required
describe prospectus requirements with closed-ended companies?
no prospectus required after IPO
describe what kind of shares open-ended companies can issue?
common shares only
describe what kind of shares closed-ended companies can issue?
common, preferred, and bonds
describe how customers can redeem shares with an open-ended company?
when a customer sells shares, the management company must buy them back. cannot sell on the open market
describe how customers can redeem shares with a closed-ended company?
shares are not redeemable. to sell, customer has to sell on the open market
describe secondary trading of shares in an open-ended company?
there is no secondary trading since company has to redeem shares.
describe secondary trading of shares in a closed-ended company?
can trade in the secondary market in exchanges or OTC since shares are not redeemable by management company
how do open-ended companies determine price?
priced by formula, forward pricing
net asset value + sales charge = POP
how do closed-ended companies determine price?
priced by supply and demand
how do open-ended companies make money on account?
they charge an 8.5% max sales charge
how do closed-ended companies make money on account?
describe how diversification of management company using the 75 5 10 rule
-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%
describe the 4 types of stock funds
-growth-low dividends but will grow
-income-pays good dividends, low growth
-growth and income-mix of both
-specialized-25% invested in one industry
what is a balanced fund?
portfolio contains stocks and bonds
describe money market funds
-stable values ($1 per share) -yield varies
-have management fees
describe hedge funds
-not regulated by SEC
-aggressive investment techniques (short selling, margin)
-sophisticated investors only
describe index funds
S&P index 500 securities
describe global funds
portfolio contains both foreign/domestic stocks
describe international funds
portfolio contains foreign stocks only
how are ETFs classified?
legally classified as open-end funds but are not mutual funds
how are ETFs priced?
-can buy sell throughout day
-no forward pricing
are ETFs marginable?
yes can buy on margin
tax consequences of ETFs?
no tax until shares are sold
describe a leveraged ETF
-4X investment gains and losses
describe an inverse ETF
describe the structure of the board of directors for a mutual fund
-minimum 40% noninterested (public)
-if 12b-1 fee charged, public directors must make up more than 50%
describe the custodian bank for a mutual fund
they are the safekeeper of fund assets
describe the transfer agent for a mutual fund
they are the record keepers and customer service department for the fund
describe underwriters of a mutual fund
-they market fund to broker/dealer
-share in sales charge with broker
formula for NAV per share
(assets-liabilities) / number of common shares
formula for POP
NAV / sales charge = POP
what is the bid and ask in a mutual fund's pricing
describe the three share types
-a shares- front end load
-b shares- back end load
-c shares- level load (annual charge)
describe break point quatities
1-9999 = 8.5%
letter of intent is good for?
letter of intent can be backdated how many days?