Chapter 5: Product Information - Investment Company Securities And Variable Contracts Flashcards
75% of a portfolio, 5% or less of assets into one company, 10% or less of one company’s outstanding voting shares owned
75-5-10 rule
Owns a piece of all the ingredients in the portfolio:
Undivided interest concept
Would keep track of all the dividends and capital gains distributions:
1099-DIV
Investors receive one semi-annual report and one annual report from the fund:
Mutual fund
Grow profits faster than competitors and/or overall stock market, P/E ratio, dividend income would be secondary goal:
Growth fund
Seek out companies valued much less than actually worth, high dividend yields, very conservative:
Value funds
More aggressive than value funds, and less volatile than growth funds, “middle of the road approach”, allows investors to get a diversified investment that can also maximize growth potential:
Blend/core funds
Buy equities that provide dependable income, dividend income is main reason for purchase, receiving dividends reduce the volatility of an investment
Equity income funds
Keeps large percentage of its assets in both the stock and bond markets:
Balanced fund
Invests in companies located anywhere but the US:
International fund
Invests in companies located and doing business anywhere in the world, including the US:
Global funds
Typically no sales charges and low expenses and management fees:
Index funds
Can’t do well during a slump and is considered volatile/high risk:
Specialty fund
If the investor is not in a high tax bracket of investing in an IRA, 401(k), etc., recommend:
Taxable bond funds
If the investor is in a taxable accountant wants to earn interest exempt from federal income tax, recommend:
Tax-exempt bond fund
Buy short-term obligations of states, counties, cities, school districts, etc., pay low rates of interest, should be sold to top marginal tax bracket investors:
Tax-exempt money market funds
Opened to sophisticated, accredited investors, illiquid (at least 1 year), risky strategies, charge high management fee and 20% of gains, private investment partnership (limited):
Hedge funds
Expensive, limits upside of profits made, for conservative investors who need a lump sum at a fixed point in the future, no income for a while, lock-up period (5-10 years), dividends/capital gains must be reinvested, sales charge and operating expenses are high:
Principal-protected funds
Has over $1 million in net worth and makes >$200,000 per year. A married couple, assets held jointly count toward the $1 million, and income needs to be >$300,000:
Accredited investor
Funds that are more rigid in their percentages compared to a balanced fund:
Asset allocation funds
A mutual fund that holds shares in a bunch of other mutual funds, expense ratios tend to be expensive, sales charges may be high:
Funds of funds
Provides information on the party managing the portfolio (investment adviser/portfolio manager):
Prospectus
Not all funds have sales charges or redemption fees, but all funds have expenses:
True
Indicates the administrative efficiency/effectiveness of the fund, may be a tiebreaker when choosing between similar funds:
Expense ratios
Cover distribution expenses and leaves a profit for the underwriter/sponsor/distributor of the fund:
Sales charge
The maximum allowed sales charge:
8.5%
Sales charge, redemption fee:
Shareholder fees
Management fee, 12b-1 fee, custodial fee, transfer agent fee, consulting and legal work, board of directors salaries:
Expenses
Capital appreciation, dividends, capital gains:
Total return
Are not short term investments:
Mutual funds
A mutual fund could be compared to another based on how much interest rate risk they take on (duration), or how aggressive they are in their stock selections (beta):
Quantitative risk measurements
Charge a front end load when the investor acquires them, long-term investor with $50,000+ to invest:
A-shares
Back-end load, percentage declines after second year until gone, converts to A-shares, contingent deferred sales charge, intermediate or long-term investor with small amount to invest, fund takes a higher 12b-1 fee every quarter:
B-shares
Can charge a 12b-1 fee as long as it doesn’t exceed (.25%) of the fund’s assets, can take an amount not exceeding 25 basis points every quarter:
No-load fund
Don’t charge an upfront load but do carry a high 12b-1 fee only charged for two or three years, some charge a contingent deferred sales charge if investor sales in less than 1 1/2 or less, short-term investor with <$500,000 to invest:
C-shares (Level load)
Sales charges and 12b-1 fees cover:
Distribution costs
To calculate the Sales Charge:
POP - NAV
To calculate the sales charge as a percentage:
POP - NAV ÷ POP