Chapter 2-Regulation & Structure Flashcards
Tax-exempt or tax-free mutual funds must…
have 80% of assets in tax-free securities; 80% of income must be tax-free
“Balanced” mutual funds
Must have at least 25% in fixed income investments (preferred stocks, government bonds, municipal bonds, annuities, other dividend bearing stocks)
“Money market” mutual funds
Must comply with Rule 2A-7 regarding maturity, quality and diversification
If a mutual fund mentions a certain type of security,
80% of fund must be that type of security
A mutual fund with a specific country in the name should have …
80% of securities must be from that country (economically rated)
A mutual fund’s maturity date must be based on …
SEC dollar-weighted average maturity (WAM). Can be no more than 60 days to maturity as of 10/2024.
Shareholders of mutual funds may be asked to vote on things like …
- Changes in sales charges (ie from no load to load)
- Changes in advisory fees (ie from flat management fee to performance based fee)
- Changes in investment policy (ie expanding holdings from Japanese to more pacific rim holdings)
- Changes to name of mutual fund
- Mergers & other structural changes
What is included in a mutual fund’s prospectus?
- An explanation of fund’s goals & objectives
- A description of the fund’s strategy
- Types of risks
The SEC requires ___ fund fees to be summarized in a mutual fund’s prospectus.
All
What 3rd party maintains information about shareholder accounts as well as the calculation and distribution of dividends?
Transfer agent
A fund’s SAI (statement of additional information) includes
1) history-when the fund started and if it has ____
2) description, investments & ___-goes into more depth than prospectus
3) the names of ____ & their ____ from the fund, board member ____ of the fund, etc.
4) control persons & major shareholders who own ____ of shares
5) more depth on the ____ by the plan
6) _____ managers
7) Brokerage practices and how much brokers have earned from trades ______
8)______ of shares offered
9) More details on purchase, redemption and share ___
10) fund taxation-how the fund ensures ____ is maintained
11) Underwriters and their earnings from ___
12) Performance calculations-___ return formulas used and ____ yields for bonds
13) Recent ____ statements
1) changed its name
2) risks
3) board members; compensation; ownership
4) 5% or more
5) fees charged
6) Portfolio
7) the past 3 years
8) Types
9) pricing
10) pass-through tax status
11) past 3 years
12) total; 30-day
13) financial
A fund’s shareholder report includes ___.
a percentage breakdown of different asset categories owned
A fund’s shareholder report includes the following:
1) __ information
2) __ information (usually showing how $__ would perform)
3) Certain ___
4) Graphical representation of ___
5) Material __ changes
6) Changes if any to fund ___.
1) Expense
2) Performance; $10K
3) statistics
4) investments that the fund owns
5) fund
6) accountants
Practice exam question:
Total return figures are net of expenses but do not normally show ___
the impact of front-end loads or any redemption fees.
By 2018’s end, more than ___ was invested in open-end funds (____ in ETFs) with __ of households owning shares of at least one fund.
$22 trillion; $3.4 trillion; half
Brokers are required to find ___ investments for their clients. Most arbitration cases against brokers are based on claims of lack of ___.
suitability; suitability.
The 1996 National Securities Markets Improvement Act declared 1) Funds must only comply with ___registration requirements 2) that __ cannot regulate how funds operate 3) that the SEC alone regulates ____
1) SEC
2) states
3) prospectuses, shareholder reports, etc.
Roughly ___ of all IRA assets are invested in mutual funds compared to ___ of assets in defined contribution plans.
47%; 57%
Exchange-traded Funds (ETFs) are sold as shares through a brokerage firm. the price per share can change _____.
P. 41 of textbook says the first ETF began in ___.
every few seconds.
1995
5 SEC commissioners are ____ and serve staggered ___ terms with no more than ___ being from the same party at a time.
President; 5-year; 3
As of early 2018, US investment companies managed ___ in assets for ___ US investors (24% of households’ financial assets).
Worldwide, mutual funds manage $________.
over $22.5 trillion; 93 million; 49 trillion
Practice question:
A fund is either ___ or___ when it comes to structure.
a trust; incorporated
An industry survey showed independents comprised __ of all board seats for nearly ___ of companies
75%; 90%
Practice question:
What fund document is described as “part narrative, part grocery list, and part accounting ledger?”
Shareholder report
The SEC requires every fund company to prepare and issue a/an ___ shareholder report.
semiannual and annual
Mutual funds and ETFs who lend out securities can earn their fund investors an additional ___
.1% … according to page 63
Mutual funds determine ___ on the Record Date
the “shareholders of record” who are entitled to distributions on this date
The ex-dividend or ex-distribution date normally falls ___. The fund NAV ____and market movements that day may ____.
1 business day after the record date.
falls by the amount of distribution; affect NAV
The reinvestment date is normally the same as the ____. Distributions are ___ for shareholders who chose such an option.
“ex” date.
reinvested at NAV in full and/or fractional shares
On a mutual fund’s Payment Date, ____ anywhere from a few days to several weeks following the record date.
distributions are paid to those did not elect reinvestment; these distributions are made
