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Series 7 > Investment Companies > Flashcards

Investment Companies Flashcards

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Series 7 Top-off Exam flashcards
0
Q

Investment companies provide:

A

Offer investors diversification, liquidity, and professional management LONG TERM INVESTING not short term trading

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1
Q

Investment company:

A

Financial institution that is investing in securities, investors pool money and invest funds in securities. Regulated by sec ICA 1940

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2
Q

Face Amount certificate companies

A

Issue debt certificate at discount that pay purchasers a stated face value at maturity

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3
Q

Unit Investment Trusts( UITs):

A

Issue only REDEEMABLE units(not publicly traded). Fixed muni and corporate bonds. No manager. Funds not reinvested. Have indenture and board of trustees. Pay investor INTEREST. Trust terminated when bonds matured. Quantity discounts

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4
Q

Management companies:

A

Open end- issue and redeem shares every business day
Close-end- issue shares once, which are then publicly traded
Diversified: has at least 75% regulated, no more than 5% in one corp! and doesn’t own 10% Of voting stock. Most are diversified
Non-diversified: assets are not regulated.

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5
Q

Open end investment company:

A

Mutual fund
Redeemable shares, not traded in secondary market
Issue only voting common shares(no bonds or preferred)

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6
Q

NAV: net asset value

A

NAV per share equals the total assets of the fund less the total liabilities divided by the number of shares outstanding. Reflects the closing market value of all securities in the portfolio-plus any dividend or interest income.

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7
Q

Bid =

Ask =

A

NAV= redemption price

NAV + max sales load = offering price and is calculated daily, normally close of NYSE

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8
Q

Forward pricing

A

Is required when buying or selling shares, get next calculated bid or ask price after order is entered.

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9
Q

An increase in NAV

A

Best described as appreciation

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10
Q

No load fund:

A

Is a mutual funds that doesn’t not charge a sales load, thus bid and ask would be the same

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11
Q

Capitalization:

A

Constantly changes because shares are issued and redeemed daily, are issued shares are new issued and redeemed daily under 33 act prospectus delivery regulations

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12
Q

Net redemptions:

A

More investors have redeemed shares (sold) than purchased

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13
Q

Max sales load under Investment Company Act of 1940 and FINRA rules:

A 
ICA1940= 9%
FINRA= 8.5%
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14
Q

Closed end

A

Do not issue redeemable shares, shares trade on exchanged or OTC based on supply and demand.

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15
Q

Closed end fund NAV:

A

Bid and ask maybe higher or lower depending on the NAV

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16
Q

Whenever the NAV per share is __________ than the_______ the fund is a closed end fund.

A

Greater, ASK

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17
Q

On closed end fund there is __________charged, therefore ________are charged.

A

No sales load charged, commissions are charged

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18
Q

Closed end funds are

A

Fixed capitalizations which means number of shares fixed

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19
Q

The difference %

A

Last column of the quote, indicates the price is either higher or lower than the previous days closing price.

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20
Q

The major difference between closed end and open end funds is?

A

Capitalization, both are subject to market risk

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21
Q

What is a Diversified common stock fund?

A

Invest in many different companies in many different industries

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22
Q

What is a specialized/special situation/ sector fund?

A

Invest primarily in stock of corporation in one industry or one specific geographic area( riskiest)

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23
Q

What is a balanced fund?

A

Prospectus requires diversification in bonds, preferred stock, and common stock. It is most conservative and least volatile. And ,least amount of appreciation

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24
Q

Income fund is

A

To maximize current income

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25
Q

Growth funds is?

A

Objective is appreciation of capital, lower yields

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26
Q

Blue chip fund

A

Invest in blue chip stocks

27
Q

Gold fund:

A

Invest in gold industry, pay little or no dividends

28
Q

International fund(overseas fund)

A

Invest in stocks and bonds by foreign companies and governments generally produce higher income in USD when foreign interest rates are high. And US dollar is weak

29
Q

Global fund

A

Generally invest in stocks and bonds issued by us and foreign companies

30
Q

Index funds mirror_______

A

The portfolio of a particular index and do not have active managers, expense ratios are generally less

31
Q

Bond mutual fund:

A

Invest in corp, muni, govt. sensitive to interest rates

32
Q

Fund family:

A

Offers many different types of funds to investors by the same company.

33
Q

Money market funds

A

Short term securities 12 months or less
Management fees and advisory fees’ impact yield
Most liquid MF, liquidity(no penalty), safety
Credit dividend accounts daily, pay monthly
Full tax div.
no sales load / min w/draw set at 500.
Not covered by SIPC

34
Q

Hedge funds:

A

Not investment companies and not heavily regulated.

35
Q

Hedge funds are ___________that take on _____and______positions and use leverage and derivatives. Is it risky?

A

Limited partnerships or private investment partnerships. Long and short, yes.

36
Q

Liquidity of hedge fund are not normally_______as other ________. They allow for the sale or _________of hedge fund shares _____ _____ _____

A

As liquid, securities, redemption, monthly quarterly annually

37
Q

Accredited investors of hedge fund

A

Net worth of 1,000,000 or more or income of 200,000 or more last 2 years

38
Q

Qualified investors

A

Net worth of 1.5 million or 750,000 in assets

39
Q

Semi affluent investors

A

Investors might need to invest a minimum of 25k, invest in funds of funds, open end funds.

40
Q

ETFs:

A

Funds that are similar to index mutual funds, that mirror a specific index or industry sector basket of securities. Trade like common stocks

41
Q

Characteristics of ETFS

A

Bought sold normal trading hours, margin, sold short, commissions charged, no sale loads, T+3, trade options.

42
Q

Leveraged ETFS

A

These funds borrow capital with the goal of generating a greater percentage return. Funds returned will be higher than borrowing costs. Percentage gains/loss would be magnified.

43
Q

Inverse ETFS

A

Deliver the opposite of the performance of the index or benchmark. These funds profit if index declines, and lose money if the index rises. Leveraged, short ETFS. Hedging purposes. Rely more on derivatives.

44
Q

ETN

A

Are debt instruments issued by banks, banks repay principal amount

45
Q

ETN characteristics:

A

Unsecured debt securities, principal, not protected, appreciates in value. Participate in the appreciation less the investor fees, return of all principal is not guarantee. Trade like stock, sold short, do have final maturity date and can be callable.

46
Q

Differences bt ETFS and ETN

A

Because of debt instrument structure of an ETN and the liability to the issuing bank. ETN don’t have tracking errors. ETN is unsecured. If bank goes bankrupt ETN holder will become creditor.

47
Q

ETN taxation

A

Don’t pay dividends or have coupon rates, holders will pay capital gains or losses from their units. Can reap benefits of long term cap gain rates.

48
Q

If RR advises a client to reallocate their fund investments, the most cost effective move

A

Would generally be to stay within the same fund family

49
Q

Class A shares:

A

Charge upfront sales charge which cannot exceed 8.5% under FINRA rules, lowest annual expense charge

50
Q

Class B shares:

A

Back end loaded funds that have a contingent derferred sales load. Expense charges are higher than A charged on declining scale. Longer own shares the owner the sales load.

51
Q

Class C shares:

A

No upfront sales load and no back end load, have highest annual expense.

52
Q

What is the most reliable source for mutual funds

A

The prospectus, the funds objectives and Includes the funds performance statistics. It has met it’s stated objective and does not compare against other funds.

53
Q

R-squared

A

This statistic measures the 0-100 percentage of the funds movement, can be explained by its movement

54
Q

Also in the prospectus________purchase amounts and quantity ________must be disclosed

A

Minimum and discounts

55
Q

Mutual funds generally provide customers with?

A

Account statements, dividend reinvestment plans, withdrawal plans.

56
Q

Dollar cost averaging or dollar cost plan?

A

Method of purchasing a mutual fund by investing a fixed dollar amount at set intervals….the avg cost per share will always be lower than the avg price per share.

57
Q

Capital gains distributions:

A

Realized long term gains, appreciation is not taxable, long term investor always, cash or shares( taxable each year), must be paid out 100% once a year. When paid NAV of fund is reduced. If reinvested on sales load.

58
Q

Investment income or dividends

A

Are derived from dividends, interest and short term gains, always taxed as ordinary income, fund deducts it’s operating expenses prior to paying customer. Funds pay out at least 90% of the net investment income.

59
Q

A breakpoint occurs when?

A

An investor receives a reduced sales charge based on a quantity investment, they Are most effective when investor invest in same family fund

60
Q

Investment manager is also known as?

A

Portfolio manager and is paid a fee based on average daily net assets of the fund and the fee is deducted from the gross income

61
Q

Underwriter:

A

Buys shares from the funds at NAV

And sells to public with charge or to retail dealers

62
Q

Custodian is:

A

Clerical services, can also serve as transfer agent registrar and or dividend disbursing agent

63
Q

Safeguarding of cash and securities is done by?

A

Custodian, not transfer agent

64
Q

How many month period to reach breakpoint amount?

A

13

Series 7 (15 decks)

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