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Series 62 > Packaged Securities > Flashcards

Flashcards in Packaged Securities Deck (27):

Companies engaged in investing, reinvesting, owning, holding or trading in securities are regulated by...

The 1940 Investment Company Act


What triggers a requirement for an investment company to register with the SEC?

Having more than 100 shareholders, unless every shareholder is a qualified investor


Any offer for mutual fund shares must have...

A current prospectus, stating the fundamental investment objectives

(Objectives may only be changed with approval of shareholder majority)


Key features of a Closed-End Investment Company...

- Fixed number of shares representing a specific interest in the underlying investment portfolio
- Share not redeemable by issuer
- Trade like equities, on an exchange or OTC


Where must Closed End Investment Companies register?

1940 Investment Company Act AND
Securities Act 1933


Open-end investment company also known as...

Mutual funds


Key features of mutual funds...

- Continuously issue new shares
- Redeem shares on demand at net asset value
- May only be purchased from and sold to the investment company
- Trade at public offering price / asked price (net asset value plus sales charge)


What's the relationship of spread to sales charge?

The spread is the difference between bid (net asset value) and ask (public offering price)

As a % of offering price, cannot exceed 8.5%


When is NAV calculated?

Once per day at close of NYSE
Orders to buy and sell during day are for the price to be calculated at end of the day


When must a mutual fund pay the proceeds of redemptions?

Within seven days.

Note SEC can order/allow suspension of redemptions during market turmoil that would make disposal impractical


Key features of money market funds?
List five

1. A type of mutual fund
2. Must register under 1933 Securities Act and 1940 Act
3. Require a prospectus
4. Relatively safe, liquid investment with competitive short term interest rates
5. NAV stable at $1/share and rates vary


Key features of an ETF?
List five

1. Basket of securities such as an index or sector
2. Price determined by supply and demand with continuous pricing
3. Low expenses, commission paid on purchase / sale
4. Can be bought in margin and sold short
5. Availability of options in these securities


Secondary market transactions in debt securities of one year or less (ie short term) make up the...

Money market


List five types of money market instrument...

1. Repurchase agreement (repo)
2. Commercial paper
3. Bankers Acceptances
4. CDs (Certificates of Deposit)
5. Federal Funds


What happens in a repo?

Dealer 1 borrows money by selling dealer 2 securities (usually T bills) with an agreement to repurchase.

Dealer 2 makes the difference between the initial purchase price and the price they sell back


List three features of commercial paper...

1. Short term corporate debt (max maturity of 270 days)
2. Unsecured – so only issued with corporations with highest ratings
3. Usually issued at a discount and redeemed at par at maturity (but sometimes has a coupon)


Who can issue CDs?

Banks – they are short term (minimum 7 days), interest bearing and secured by general credit of the issuing bank

Minimum of $100k but usually trade in denominations of $1m or more


Is there a a management fee on a UIT?

No – a unit investment trust is a portfolio of securities that is generally fixed so it is supervised but not managed


List three key features of a REIT

1. 75% of gross income must be from real property

2. If 90% of income is distributed to investors, the REIT itself doesn't pay taxes

3. Traded OTC and on exchanges - can trade below NAV


What types of stock can can be issued by Open / Closed End Investment Companies?

Open (mutual) - only common stock
Closed - common, preferred, bonds


What is the management fee paid to an investment advisor by a mutual fund based on?

Amount of assets under management


The top X ratings are investment grade... X=?

Moody's: Aaa Aa A Baa


What two factors increase interest rate risk?

Risk comes from rising rates pushing prices lower, so
TERM - long term means price falls more
COUPON - lower coupons have greater price volatility


Mnemonics for Open and Closed?

OCR - open / constant (issue) / redeemed

CFT - closed / fixed (# shares) / trade


Dividend policy on a money-market fund?

Declared daily and credited monthly


What's a certificate of beneficial interest?

Securities issued by trusts such as UITs and REITs


How do each of these trade in respect to interest?
Zero coupon bonds
Bankers acceptances

- T-bills - trade at discount without accrued interest
- Zero coupon bonds - don't pay interest
- CDs - trade with accrued interest
- Bankers acceptances - trade at discount without accrued interest