Unit 8

Question 1

An investment company that continuously offers new equity shares in an actively managed portfolio of securities

Answer 1

Mutual fund

Question 2

An investment company, either open or closed end, that trades various types of securities under the direction of its portfolio manager, in accordance with specific objectives stated in the prospectus

Answer 2

Management Company

Question 3

An investment company that sells redeemable shares in a professionally selected portfolio of securities

Answer 3

Unit investment trust (UIT)

Question 4

A company engaged in the business of pooling investors money and investing and reinvesting in securities.

Ex: face amount certificate companies, unit investment trusts, management companies

Answer 4

Investment company

Question 5

An investment company that issued certificates obligating it to pay an investor a stated amount of money on a specific future date. The investor pays into the certificate in periodic payments or in a lump sum

Answer 5

Face amount certificate company (FAC)

Question 6

A security that the issuer redeems upon the holders request.

Ex: shares in an open end investment company or Treasury Notes

Answer 6

Redeemable security

Question 7

NAV per share plus any applicable sales charge

Answer 7

Public offering price (POP)

Question 8

1. An indication by an investor, trader or dealer of a willingness to buy a security or commodity; the price at which an investor can sell to a BD
2. The price at which an investor can redeem shares of a mutual fund

Answer 8

Bid price

Question 9

An indication by a trader or dealer of a willingness to sell a security or a commodity; the price at which an investor can buy a security

Answer 9

Ask price

Question 10

An investment company that issued a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes and they are trades in the secondary marketplace either on an exchange or over the counter. The market price of the shares if determines by supply and demand

Answer 10

Closed end management company

Question 11

1. A class of mutual fund shares issued with a front end load
2. Shares of a company that have differing characteristics from other classes of stock

Answer 11

Class A share

Question 12

A no binding agreement between a purchaser of mutual funds and the fund underwriter that allows the investor up to 13 months to reach a specified dollar purchase

Answer 12

Letter of intent (LOI)

Question 13

The sale of mutual fund shares in an amount just below the level at which the purchaser would qualify for reduced sales charge. This violates the Conduct Rules

Answer 13

Breakpoint sale

Question 14

The schedule of sales charge discounts a mutual fund offers for lump sum or cumulative investments. Available to any person. Investment clubs or associations forms for the purpose of investing do not qualify.

Answer 14

Breakpoint

Question 15

A fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It is typically found with Class B shares (and for one year with Class C shares). It declines annually, decreasing to zero over an extended holding period, up to 8 years, as described in the prospectus

Answer 15

Back end load

Question 16

A mutual fund commission or sales charge that is included in the purchase price

Answer 16

Front end load

Question 17

A class of mutual fund shares issued with both a level load and a back end load

Answer 17

Class D

Question 18

A class of mutual fund shares issued with a level load

Answer 18

Class C

Question 19

A class of mutual fund shares issued with a back end load. A mutual fund offers different classes of shares to allow investors to choose the type of sales charge they will pay

Answer 19

Class B

Question 20

The term used to describe a mutual fund whose shares are offered without a sales charge

Answer 20

No load fund

Question 21

Fees used to cover the costs of marketing and distributing a fund to investors. Used to compensate registered representatives for servicing an account but should t be confused with sales charges

Answer 21

12b-1 Fees

Question 22

The source of an investment company’s dividend payments

Answer 22

Net investment income (NII)

Question 23

A mutual fund account where the investor commits to depositing amounts on a regular basis in addition to the initial sum invested

Answer 23

Voluntary accumulation plan

Question 24

A system of buying mutual fund shares in fixed dollar amounts at regular fixed intervals regardless of the shares price. The investor purchases more shares when prices are low and fewer shares when prices are high thus lowering the average cost per share over time

Answer 24

Dollar cost averaging

Question 25

A ratio for comparing a mutual funds efficiency by dividing the funds expenses by its net assets

Answer 25

Expense ratio

Question 26

The amount earned by a taxpayer when an asset is sold for a profit

Answer 26

Realized gain

Question 27

An investment company to which Subchapter M of the Internal Revenue Code grants special status that allows the flow through of tax consequences on a distribution to shareholders

Answer 27

Regulated investment company (RIC)

Question 28

A means for an investment company to avoid taxation on net investment income distributed to shareholders. If a mutual fund acts as a conduit for the distributor of net investment income, it may qualify as a regulated investment company and be taxed only on the income the fund retains

Answer 28

Conduit theory

Question 29

NII Formula

Answer 29

Dividends + interest - expense of fund (D+1-E)

Question 30

A diversified common stock funds that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research or development

Answer 30

Growth fund

Question 31

Total number of shares of common stock outstanding multiplied by the current market value per share

Answer 31

Market Capitalization

Question 32

Portfolio consists of companies with a market capitalization of more than $10 billion

Answer 32

Large cap Fund

Question 33

Also known as aggressive growth funds they are willing to take greater risk to maximize capital appreciation

Answer 33

Performance fund

Question 34

Less aggressive and have in their portfolios shares of companies with a market capitalization between $2 billion and $10 billion

Answer 34

Mid cap funds

Question 35

Focuses on companies whose stocks are currently undervalued

Answer 35

Value funds

Question 36

Primarily composed of stocks that stresses current income over growth

Answer 36

Equity income funds

Question 37

Buys securities of companies that may benefit from a change within the companies or in the economy Speculative

Answer 37

Special situation funds

Question 38

Offer high appreciation potential but may also pose higher risks to the investor as a result of the concentration of investments Speculative Includes gold, technology, pharmaceutical, biotechnology, geographic funds

Answer 38

Sector funds

Question 39

Invests in securities on which call options can be sold

Answer 39

Option income funds

Question 40

Stock funds with a portfolio comprising a number of different classes of stock. Allows investors to diversify their investment via management and securities in a single fund

Answer 40

Blend/Core funds

Question 41

Invests in securities that mirror a market index. Buys and sells securities in a manner that mirrors the composition of the selected index. Lower management costs

Answer 41

Index funds

Question 42

Worldwide funds that invest in securities of both the US and foreign countries Currency risk Political risk Purchased to diversity portfolio

Answer 42

Global funds

Question 43

Invest only in the securities of foreign companies. Headquarters is outside the US. Primary objective is long term appreciation Some seem current income

Answer 43

International funds

Question 44

Invest in stocks for appreciation and bonds for income. Securities purchased according to formula the manager can adjust to reflect market conditions. Conservative Aka: hybrid funds

Answer 44

Balanced funds

Question 45

Offers investors a guarantee of principal, adjusted for fund dividends and distributions on a set future date (maturity) while providing opportunities for higher returns through investment in higher risk and higher expected return asset classes such as equities

Answer 45

Principal protected mutual funds

Question 46

Corporations created by congress to foster a public purpose such as affordable housing

Answer 46

Government sponsored enterprises (GSE)

Question 47

A mutual fund whose investment objective is to provide current income while preserving safety of capital through investing ins e Curitiba backed by the US Treasury or issued by a government agency

Answer 47

US government and agency bond fund

Question 48

A mutual fund whose investment objective is to provide stable income with a minimal capital risk. It invests in come producing instruments that may include corporate, government or municipal bonds

Answer 48

Bond fund

Question 49

Designed to manage investment risk Does not provide guaranteed income Not risk free Date set closest to year an investor anticipates needing the money Aka: life cycle fund

Answer 49

Target date fund

Question 50

A mutual fund that splits its investment assets amount stocks, bonds and other vehicles with a view to provide a consistent return for the investor

Answer 50

Asset allocation fund

Question 51

What are the risks of ETFs?

Answer 51

Index risk Tracking risk

Question 52

What are the risks of CEFs?

Answer 52

Pricing risk Leverage risk

Question 53

What are the risks of UITs?

Answer 53

Market risk Interest rate risk

Question 54

What’s re the risks of mutual funds?

Answer 54

Market risk Interest rate risk Net redemptions Expense risk Tenure risk

Question 55

What are benefits of ETFs?

Answer 55

Taxation Expense ratio Portfolio specificity Exchange traded Leverage and inverse

Question 56

What are benefits of CEFs?

Answer 56

Exchange traded Pricing Leverage

Question 57

What are benefits of UITs?

Answer 57

Income Liquidity Rolling over proceeds

Question 58

What are the benefits of mutual funds?

Answer 58

Choice of objectives Convenience Liquidity Minimum initial investment Automated investing and withdrawal Convenient tax info Combination privilege Exchanges within family of funds Leveraged and inverse funds

Question 59

What are the uses of ETFs?

Answer 59

Asset allocation Following industry trends Balancing a portfolio Speculative trading Hedging

Question 60

A mutual fund that invests in short term debt instruments. Funds objective is to earn interest while maintaining a stable net asset value of $1 per share. Usually sold with no load, the fund may also offer draft writing privileges and low opening investments

Answer 60

Money market fund