Chapter 8 Improvement Areas

Question 1

An investment company must make payment for shares tendered to it or its agent within how many days?

Answer 1

within 7 calendar days of tender

Question 2

Rights of Accumulation for a breakpoint

Answer 2

when a shareholder is entitled to a reduced sales charge when the accounts of spouses, children, IRAs, 401(k)s, 529’s, and living trusts can be combined in order to obtain discounts on new purchases.

Question 3

Dual purpose fund and the classes of shares it issues:

Answer 3

• only closed end
• issues two classes of shares:
  capital shares: receive all of the appreciation on securities in the portfolio
  income shares: receive all of the dividends and interest on securities in the portfolio

Question 4

Under the investment company act of 1940, what is an affiliated person?

Answer 4

• someone or directly or indirectly owns, controls, or holds 5% or more of outstanding voting securities of the fund, or any director, partner, co-partner, or member of an advisory board.

Question 5

Maximum single term which a director of investment company can be elected is how long?

Answer 5

5 years

Question 6

Performance based fees

Answer 6

• investment advisory contracts may provide for fees based on performance for clients with $2.1 mil net worth or more or $1m under management with the advisor.

Question 7

Hedge funds are limited to accredited investors, qualified investors, and semi-affluent investors. define accredited, qualified, and semi affluent investors

Answer 7

• accredited: net worth of $1M or more or income of 200k or more in each of the last 2 years with expectation it will exceed 200k in current year.
• qualified investors: net worth or 2.1mil or more or 1m in assets invested under the specific investment manager
• semi affluent investors: do not meet criteria of affluent or qualified, but meet minimum investment requirements. they may be required to deposit a minimum of 25k, and invest in certain types of hedge funds established as funds of funds or open end funds.

Question 8

How to calculate a leveraged ETF with 200% leverage.

Answer 8

• Long 100 shared of ABC ETF @ 28 (200% leverage)
• market value is $2800
• maintenance requirement = 2 (200% leverage) x .25 = .50.
• $2800x.50 = $1400 required maintenance