Chapter 10: Investment Companies Flashcards
Open-End Investment Company
Also called a mutual fund. An investment company is an entity in which multiple investors pool their cash and then use this cash to buy securities.
- Shares purchased from fund itself through creation of more shares
- Shares are sold back to the fund through redemption (liquidation) of shares
Net Asset Value (NAV)
NAV = (Total assets - total liabilities) / number of shares outstanding
Many organizations categorize mutual funds according to common objectives. Is there a universal categorization model used by all fund companies?
No. The planner must make this judgement based on his knowledge of various organizations’ classification schemes.
Calculating the ask price of a mutual fund.
Closed-End Investment Company
Shares in a closed-end investment company can be bought and sold ONLY to another investor.
Common Stock Funds
Stock funds hold portfolios that consist primarily of common stocks and perhaps a small number of preferred stocks.
Mixed Portfolio Funds
A mutual fund that owns a portfolio of bonds, stocks, and other investment instruments.
Regular Dividend
The distribution of dividend and/or interest income that a mutual fund has accrued.
Contingent Deferred Sales Charge
A fee, calculated as a percentage of net asset value, that investors might pay to redeem their shares of a mutual fund depending on how long the shares are held.
Portfolio Turnover Ratio
The lesser of annual purchases or annual sales (excluding securities with less than one-year maturities) divided by the average monthly net assets.
Switching
When an investor moves money from one fund in a family to another fund in the same family.
Multi-Class Funds
Mutual funds that have more than one class of shares. Usually the classes are A, B, and C.
Lifeboat Provisions
Provisions offered by some closed-end funds specifying that the funds take some action to bolster their shares if they sell at a discount exceeding 10 percent for a specified period.
Income Share
One of the two types of shares issued by a dual purpose investment company. An income share is like a preferred stock with a maturity date.
Capital Appreciation Share
One of the two classes of shares in a dual purpose investment company. It promises no dividends during the life of the income shares.
Holding Company Depository Reciepts (HOLDRs)
Analogous to sector funds–that is, they are ETFs that, instead of mimicking an index, hold selected stocks in a particular industry.
Blind Pool
A form of investment venture in which the precise purposes of the venture are not revealed to the pool of investors until later.
Style Drift
A portfolio that is drifting away from what had been an established style for a mutual fund.
