Chapter 5

Question 1

Defines an investment company as being held in the business of holding and managing a portfolio of securities for its investors or that has at least 40% of its total assets held in the investment securities. Company must have at least 100,000 and net assets and a clearly defined investment objective. Investment company with 100 investors or more must register with the SEC.

Answer 1

Investment company act of 1940 definition of an investment company

Question 2

Established or organized under a trust and denture. Operated by board of trustees who establish its investment objectives. A fixed portfolio. Has no manager, investors do not pay management fee. Units referred to as shares of beneficial interest. Redeemable with the issue were. Has a predetermined end date

Answer 2

Unit investment trust (UIT)

Question 3

Organized as a corporation operates under a direction of board of directors issues shares of undivided interest to investors. Managed by a professional investment advisor.

Answer 3

Management investment company or management company

Question 4

An open-end fund is also referred to as

Answer 4

Mutual fund

Question 5

I functions of the Board of Directors

Answer 5

Establish investment policy. Appoint officers to manage operations. Oversee professionals hired by the fun. Established a villain in capital gains policy. Approved 12 be one piece.

Question 6

Primary responsibility of the board of directors

Answer 6

Protect shareholder interest.

Question 7

Function of the investment advisor or fund manager

Answer 7

Manages the funds investment portfolio providing investment advice maintaining appropriate diversification. Managing day today trading. Research and analysis of individual securities.

Question 8

Contract for investment advisor is for how long

Answer 8

Initially a two-year contract after that the contract is reviewed annually by majority of voting shirts or diss interested board members

Question 9

How are investment advisors paid for their services

Answer 9

Pay the fee typically based on percentage of total assets under management. Usually the largest ongoing expense for the fund

Question 10

Functions of the investment advisor/fund manager

Answer 10

Manages the funds investment portfolio, research and analysis of financial economic trends, investment strategies, Provides tax information to share holders

Question 11

The funds operating expenses consist of;

Answer 11

Board of directors stipend, investment advisor management fees, custodial services, transfer agent fee, 12 B 1 feet, administrative including legal accounting and day today expenses

Question 12

True or false: Sales charges are fund expenses and part of the expense ratio

Answer 12

False

Question 13

Expense ratio formula

Answer 13

Fund expenses / by average net assets

Question 14

Mutual funds are capitalized with what?

Answer 14

Common stock

Question 15

What are closed end funds capitalized with?

Answer 15

Common stock, preferred stock, and bonds

Question 16

When can I series 6 representative sale closed end funds?

Answer 16

Only during the IPO

Question 17

Closed-end fund investors buy at the ? and sell at ? Price

Answer 17

Investors buy at the ask price and sell at the bid price

Question 18

An exchange listed product investing in portfolio of stocks that tracks a particular index such as the S&P 500. Passively managed and have lower ongoing expensive compared to actively managed portfolios.

Answer 18

Exchange traded fund (ETF)

Question 19

Are ETFs registered as open-end funds? or closed end funds?

Answer 19

They are registered as open-end funds(mutual fund)

Question 20

What is the difference between a mutual fund and an ETF?

Answer 20

ETFs can be traded during the day and ETFs can Bb bought on margin and sell them short. ETFs are passively managed, and charged a commission for purchases and sales

Question 21

Are leveraged ETFs used for short term or long term investing?

Answer 21

Short term

Question 22

Type of ETF received a return opposite of the market, Used as a hedge against market declines

Answer 22

Inverse ETF

Question 23

Registered as close end fund. They do not trade on exchanges. Illiquid.Required to offer a re-purchase of shares at set intervals. They are called tender offers.
Have higher fees have varying risks can only be redeemed on set dates and set percentages

Answer 23

Interval funds

Question 24

An investment company that distributes a minimum percentage of net investment income to investors. Eligible to transfer income tax liabilities on net investment income to shareholders

Answer 24

Regulated investment company (RIC)

Question 25

The ability to transfer the income tax liability to the investor

Answer 25

Conduit or pipeline theory

Question 26

Under subchapter M the IRS requires investment companies to pass at least how much percent of their net investment income to their investors

Answer 26

90%

Question 27

True or false: realized capital gains distributions are not part of net investment income

Answer 27

True

Question 28

Funds or trust that are offered by individual states or local governments

Answer 28

Municipal fund securities

Question 29

Municipal security that promise to keep pace with the tuition of in-state public colleges. Allow plan owners to lock in today’s tuition prices for the future. No risk to the principal amount invested.

Answer 29

529 prepaid tuition plan

Question 30

Who is the sponsor at 529 plans?

Answer 30

States

Question 31

Investment pools that are established by state or local government entities to allow for the investment of public funds

Answer 31

LG IP (Local government investment pools)