Packaged Products: Management Companies Flashcards
(37 cards)
Packaged Products: Management Companies GENERAL --------------------------------------------------- 1) A management company is formed when 1.1) example
- Fund Sponsor / Prospectus
2) who establishes the fund
3) The sponsor can be who
4) sponsor must register the fund with who before it can be sold
5) what is the SEC looking for a new fund and what needs to be included
5. 1) do clients get a prospectus
1) someone conceives an idea for an investment company objective that is needed by investors
1. 1) A fund targeted to investors who want absolute safety and income might have an objective of investing in U.S. Government and Agency securities.
2) “Sponsor” or underwriter
3) large investment firms,[Morgan Stanley] or a firm that specializes only in running funds [Dreyfus].
4) SEC
5) Prospectus,” which details the objective of the fund, the Board of Directors, the fees involved, the track record of the sponsor, open or closed-end
5. 1) yes
Packaged Products: Management Companies
GENERAL
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-Open-End Fund / Continuously Issued
1) if the fund is open or closed-end will be on what
2) continuously issued by the sponsor?
3) every purchaser must receive what
4) The Public Offering Price (POP) as stated in the prospectus is calculated how
- Closed-End Fund
5) capitalized like any regular corporate stock offering? 6) one-time issuance of stock
7) traded over the counter?
8) is prospectus required when initially sold
8. 1) how about when traded in secondary market?
1) perspective, given to SEC
2) yes
3) Prospectus
4) Net Asset Value (NAV) per share plus a Sales Charge (the equivalent of a spread)
5) yes
6) yes
7) no, listed and trade on an exchange
8) yes, no
8. 1) no
Packaged Products: Management Companies
GENERAL
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-Selling Group
1) Not required, but who can hire them
2) selling group does what
2.1) For this, the sponsor gives up what
- Investment Adviser / Management Fee
3) details on which “investment adviser” has been selected to manage the fund an be found where
4) they earn a management fee based on what
5) does the fee go up if the investment adviser is good [prestigious]
6) The adviser’s contract is initially set for how long [their term]
6. 1) after 2 years they can stay if what
1) underwriter
2) acts as an agent, selling the fund for the sponsor
2. 1) part of the sales charge as a selling concession
3) prospectus
4) AUM
5) yes
6) two years
6. 1) shareholder vote each year to keep them in
Packaged Products: Management Companies GENERAL --------------------------------------------------- -Custodian Bank 1) the custodian bank which has been selected to safeguard the assets can be found where 2) custodian bank usually acts as 3) they keep shareholder info such as 4) what do they get paid for their work
- Diversified Fund 75-5-10 Rule
5) funds are set up either diversified or not?
6) what is the 75-5-10 rule
1) prospectus
2) transfer agent for the fund, canceling old shares and issuing new shares,mailing reports, proxies etc.
4) custodial fee
5) yes
6-
-75% or more of its assets invested in securities;
- maximum of 5% of its assets invested in any one issuer; and
- the maximum holding of 10% of the voting securities in any one issuer.
Packaged Products: Management Companies
GENERAL
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-Types Of Diversification
1) A fund can be diversified among what
2) any diversification decision must be inline with what
1) different industries, or among companies in the same or similar industries (such as an energy fund investing in many different energy producers), or among different securities [bonds, cash, etcl]
2) fund’s investment objective
Packaged Products: Management Companies TYPES OF FUNDS --------------------------------------------------- -Growth Fund 1) Invests primarily in what
- Growth And Income Fund
2) This fund invests in - Income Fund
3) Invests in
4) Types Of Income Funds
1) securities of rapidly growing companies to achieve capital gains
2) “blue chip” equities that provide both dividend income and growth potential.
3)fixed income securities such as preferred stock and bonds
4
-U.S. Government Securities fund
-Municipal Bond fund
-Preferred Stock fund
-Corporate Bond fund
-Money Market Securities fund
Packaged Products: Management Companies
TYPES OF FUNDS
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-Balanced Fund
1) allocates assets among what
2) investor get income or capital gains potential
- Index Fund
3) this fund type matches its portfolio to what
4) why is the management fee lower for this - Special Situations Fund
5) Invests in
6) the benefit or upside
1) maintaining a “balance” of equities and fixed income securities
2) both
3) index, such as S&P 500
4) investment adviser is not researching and selecting the securities to be purchase
5) companies in bankruptcy or “takeover” candidates.
6) If the company emerges from bankruptcy or is taken over, there is large capital gains potential
Packaged Products: Management Companies TYPES OF FUNDS --------------------------------------------------- -Specialized Fund 1)invests in 2) example
1) a particular industry or geographic area 2)energy funds or gold funds are specialized by industry
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -Open-End Shares Continuously Issued / Redeemable 1) redeemable when 2) who do you redeem to 3) trade in the secondary market 4) negotiable, redeemable securities?
- Net Asset Value
5) when is NAV computed
6) how is it computed
7) NAV fluctuates based upon what 8)
1) anytime
2) sponsor of the fund
3) no
4) no
5) daily
6) all securities held by the fund are “marked to market”, total market value divided by the number of common shares outstanding
7) hanging value of the securities in the portfolio
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -No-Load 1) what is it meant by no-load 2)No-load funds are sold directly by
- Money Fund
3) most all are load or no load
4) net asset value is constant at what
5) viewed as temporary/ long term holding places for customer funds.
6) As the fund get earnings, what does earn do
1) no sales charge and customers can buy at net asset value
2) mutual fund sponsors who do not use selling groups or salesmen
3) no load
4) $1.00
5) short term
6) receives more shares worth $1.00 each
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-Maximum Sales Charge
1) Sales charge covers what
2) fee on top of the net asset value
3) Under FINRA rules, the maximum sales charge on mutual fund purchases is
4) because sales charged is based on public offering price, why is the % higher than 8 1/2 % of NAV
5) formula for sales Charge Percentage
5.1) solve= NAV $14.75, Ask $16.12
6) mutual fund marketplace is becoming more competitive which does what to sales charge
1) compensate a selling group or salesmen
2) yes
3) 8 ½% of the Public Offering Price
4) POP consists of both Net Asset Value and the appropriate sales charge
5) Ask-Bid / Ask
6) 16.12-14.75 /16.12= 8 1/2 6) going down
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -Forward Pricing 1) idea
- Sale proceeds
2) When a customer redeems, he must be paid within how many days
2. 1) industry practice usually results in a much shorter time frame
2. 2) this is a requirement of what
1) when you place an order [buy or sell] during market hours, you don’t know how many shares you’ll get/sell until after hours when NAV is computed.
2) 7 calendar days
2. 1) yes
2. 2) Investment Company Act of 1940,
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -Redemption Fee 1) can mutual funds charge this 2) is there a limit on how much
- In-Kind Redemption
3) what do fund managerd to meet the normal flow of redemption requests
3. 1) the problem if there is not enough cash in the account for redemptions
4) how does inkind redemption help with cash
4. 1) happen often?
1) yes
2) yes, all fees combined (Up-Front Sales Charge and Redemption Fee) cannot exceed 8 ½% of the POP under FINRA rules
3) keep a portion of the portfolio in cash
3. 1) rebalance to generate cash in a down market
4) manager can give the fund shareholder his or her pro-rata portion of the underlying portfolio positions, rather than cash
4. 1) no
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-Contingent Deferred Sales Charge (CDSC)
1) idea
2) apply to purchase to?
3)redemption chare is imposed under what class of shares
- 8 1/2% Fee under FINRA
4) In order for a fund to charge the maximum 8 ½% sales charge they must offer what three things
1) impose a sales charge only if the customer redeems his shares before a stated time period has elapsed
2) no
3) class B
4)
- Breakpoints
- Letter of intent
- Rights of accumulation
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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–8 1/2% Fee under FINRA: Breakpoints
1)A breakpoint is a reduced what
2) who sets breakpoint schedules?
2.1) they base fee on what
3) how do you compute revised offering price based on breakpoints
3.1) solve: customer bought $15,000 of John Hancock Bond Fund [nav $14.75], he would pay 7 ¾% on the entire $15,000 purchase, instead of the normal 8 ½% sales charge.
4) can investment clubs use breakpoints
1) sales charge for a large dollar purchase
2) FINRA
2. 1) considers to be “fair and reasonable
3) NAV /100% - sales charge %
3. 1) 14.75/ 100%-7 3/4= 15.99 per share
4) no
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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–8 1/2% Fee under FINRA: Letter Of Intent (LOI)
1) idea
2) you are allowed to backdate the letter to include purchases in the preceding how many days to get the breakpoint on those shares
3) LOI letter can only last for how long
4) The extra shares purchased under the breakpoint are held where and for how long
5) If the breakpoint level is not reached, what happens to those shares not purchased
6) Any asset appreciation that occurs over the 13-month life of the LOI, as well as any reinvested dividends, count in reaching the breakpoint amount set in the LOI. 7) If the mutual fund offers Rights of Accumulation this takes effect before/after the LOI is completed
1) if signed, customer says hell buy more of a fund, later on, to get the breakpoint price now; if he doesn’t complete the letter, breakpoint purchases are recalculated
2) 90 days
3) 13 months, inclusive of the 90-day backdate period
4) in escrow until the breakpoint level is reached
5) released from escrow
6) do not, must be a deposit of new money
7) after the LOI is completed
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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–8 1/2% Fee under FINRA: Rights Of Accumulation
1) idea 1.1) acculated means
- Dividend Reinvestment Net Asset Value
1) dividends are taxable when
2) whoe does not allow member firms to sell a mutual fund unless that fund offers dividend reinvestment at Net Asset Value
3) sales charge applied to reinvested distributions? 4)FINRA prohibits registered representatives from recommending to customers that they liquidate fund positions and use the proceeds to do what
1) As an investor builds a position in a mutual fund, his accumulated position counts towards the breakpoint
1. 1) current market value, not your basis [unless basis is higher]
1) when issued, whether reinvested or not
2) FINRA
3) no
4) buy more shares of the fund (which would then be subject to a sales charge)
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-Switching Between Funds In The Same “Fund Family”
1) No sales charge be imposed on switching from Jon hancock bond fund to john hancock growth fund?
2) FINRA requirement?
3) Switching between different funds is considered a “sale” under tax rules?
1) true
2) no, marketing
3) true
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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–Rule 12b-1
1) who passed this
2) was intended to “help out” who
3) what does 12b-1 allow
4) in order to allow it, who must approve [4]
5) what does this fee typically pay for
5) allows mutual funds to create shares with a CDSC, what is this?
6)can the fee be paid to salesperson
7) The typical 12b-1 fee is?
8) beings the 12b-1 fee is annual, can salesperson get a trailing commission
9)the fee cannot exceed what % of average annual net assets
10) if a fund doesn’t impose fees for account maintenance, what is the maximum sales charge they can do
10.1) how about if fund does impose service fees for account maintenance
11) FINRA rules state that a fund can call itself “no load” if it charges annual 12b-1 fees of no more than
12) are most money market funds no load
13) 12b-1 fee same as a management fee
14) All funds charge management fee?
15) pure no-load fund doesn’t have what fees
1)Sec
2) mutual funds
3) fund is permitted to charge the cost of soliciting new investment to the existing shares as “12b-1 fees.”
4) shareholders, the fund board of directors and the independent members of the board of directors.
5)mutual fund advertisement on TV, the internet or in print media
5) contingent Deferred Sales Charge, instead of an up-front sales charge.
6) yes
7).50% annually
8) yes
9) .75%
10) 7.25% [not 8 1/2] 10.1) 6.25%
11) .25%
12) yes
13) no
14- yes
15- pure no-load fund
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-Share Classes
*there is no such thing as a “free lunch”, WHY
- Class A Shares:
1) how does upfront load compare to 12b-1 fee
2) shares are most suitable for long-term investment, why - Class B Shares
3) how does upfront load compare to 12b-1 fee
4) shares are most suitable for what type of investor - Class C Shares
5) how does upfront load compare to 12b-1 fee
6) shares are most suitable for what type of investor
- you have a choice of paying higher up-front sales charges with low 12b-1 fees; or no up-front sales charge with high 12b-1 fees.
1) impose a higher “up-front” sales charge, but typically have no, or very low (about ¼%), annual 12b-1 fees 2) long term investor, up-front sales charge is a one-time event that will be recovered over time through a better rate of return achieved by the lower annual 12b-1 fee.
3) contingent deferred sales charge that declines to “0” the longer the investor stays in the fund, but impose a higher (about ½%) annual 12b-1 fee
4) intermediate-term investment.
5) no up-front sales charge similar to Class B shares, no “rear load”, have the highest (about ¾%) annual 12b-1 fees
6) short term investment since the higher 12b-1 fee will result in a major “drag” on returns as long as the investor stays in the fund
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-No Discounts From POP [public offering price] Other Than What Is In Prospectus
1)allowed to discount mutual fund shares on their own, nor can they sell them for more than the Public Offering Price
2) so public offering price, includes fees or are fees added to the public offering price
1) no
2) POP includes fees [ceinling]
Packaged Products: Management Companies
PROHIBITED MUTUAL FUND SALES PRACTICES
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-General
1)Breakpoint sales, Trading mutual fund shares, Inappropriate recommendation of Class B shares are prohibited by who
- Breakpoint Sales
2) idea
3) customer must be aware of the ability to get a reduces sales charge for large dollar purchases - Trading Mutual Fund Shares
4) why should broker not advise the client to trade MF
1)FINRA
2) not making a customer aware that he or she is close to meeting a breakpoint.
3) True
4) Mutual fund shares are a “buy and hold”, they are not traded, they are redeemed [not negotiable]
Packaged Products: Management Companies
PROHIBITED MUTUAL FUND SALES PRACTICES
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-Inappropriate Recommendation Of Class B Shares
1) A customer might believe that Class B shares are “cheaper” why
2) This can be much more expensive to what type of investor
3) a large investment might be better with what class
1) have no “up-front” sales charge. However, they do impose annual 12b-1 fees.
2) large dollar amount to invest over a long time horizon, 3) A [large load] as large buy in could reduce sales charge
Packaged Products: Management Companies
CLOSED-END FUNDS
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-One-Time Stock Issuance
1) how are they difrent from open-ended when it comes to trading
- General
2) valued like any other negotiable security?
3) can they trade at a premium or discount to NAV?
4) structures are used for portfolios of illiquid securities 5)Closed-end funds sell at a discount why
5. 1) sell at premiums because of
6) when sold [liquidated], what does the investor get
1) Open= traded on exchange; closed= redemmed at issuer
2) yes
3) yes
4) yes
5) they give a lesser rate of return relative to the market 5.1)give (or are expected to give) a superior return relative to the market rate of return
6) NAV
