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Series 7 > Investment Companies 7% > Flashcards

Investment Companies 7% Flashcards

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Series 7 Top-off Exam flashcards
0
Q

Describe the investment specifications for money market funds

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1
Q

What is the difference between an open-end and closed-end mutual funds?

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2
Q

What are the shareholder’s rights within a mutual fund?

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3
Q

What are the functions of an investment adviser of a mutual fund’s portfolio

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4
Q

What are the components of the expense ratio?

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5
Q

How is the sales charge of a mutual fund expressed and what is its maximum

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6
Q

How do we calculate the sales load? the POP?

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7
Q

How is the load charges on A shares? B shares? C shares?

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8
Q

What is the difference between rights of accumulation and a letter of intent?

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9
Q

What is dollar cost averaging?

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10
Q

How is the current yield of a mutual fund calculated?

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11
Q

How does a mutual fund differ from and ETF?

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12
Q

How does a REIT differ from a management company?

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13
Q

How does a mutual fund differ from a hedge fund?

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14
Q

Describe investment company and name the three classifications

A
  • an issuer on the business of investing, reinvesting, owning, holding, or trading in securitites
    1. Management companies
    2. Unit investment trusts
    3. Face-amount certificates
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15
Q

What did the Investment Company Act of 1940 setup?

A
  • guidelines for the operation of investment companies and divided them into three types:
  • Unit Investment Trusts (UIT)
  • Face Amount Certificate Companies (issue debt certificates)
  • Management Companies (mutual funds)
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16
Q

Uniform Investment Trust

A
  • a designated trustee supervises the company’s operations
  • its units are redeemable, which means no secondary trading and the units must be redeemed by the issuer (non-negotiable and non-marketable)
  • usually feature a fixed portfolio
  • not actively managed
  • changes to the portfolio must be sent to the SEC in writing
  • at maturity the proceeds are distributed to the investors on a per unit basis
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17
Q

Face Amount Certificates

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-issue debt certificates that offer predetermined interest rates.

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18
Q

Management Companies

A

-employs an investment adviser (aka “fund manager”) to manage a portfolio of securities in such a way as to achieve a specified investment objective(or guideline).

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19
Q

Closed-end

A
  • single ipo of a fixed number of shares
  • full shares only
  • after ipo, secondary market only
  • Common, preferred(50% max) or debt securities(30% max)
  • Priced at market supply and demand (NAV is calculated, but price in the market reflects supply and demand
  • Shareholder rights
    • voting
    • dividends
    • preemptive rights
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20
Q

Open-End

A

-Continuous offering
-full or fractional shares
-no secondary market
-purchased from the company
-redeemed by the company
-common shares only
-Priced by formula NAV+SC = POP
Shareholder rights
-Voting
-Dividends

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21
Q

What makes a fund “diversified”

A

-Must be invested according to the 1940 act as the “75-5-10” rule
-for at least 75% of the assets:
-no more than 5% is invested in any one company
-cannot own more than 10% of the voting stock of any target
company
-no restrictions on the remaining 25% of assets

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22
Q

Blend funds vs Balanced

A

blend has no fixed income

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23
Q

Function of the Board Directors

A
  • establishment and implementation of a mutual fund’s investment polices
  • selected by the fund’s shareholders
  • 1940 act states 40% of the board must be unaffiliated with the fund.
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24
Q

max sales charge

A
  • 8.5% of POP
  • 6.25% if these three privileges are met:
    • dividend reinvestment at NAV
    • Breakpoints
    • Rights of accumulation
25
Q

expense ratio

A

=total expenses/average net assets (which is assets minus expenses)

-sales charge or load is not included in the expense ratio, as it is not a direct operating expense of the mutual fund

26
Q

what is the max % for 12b-1 that allows a fund to still be called no load

A

.25%

27
Q

newspaper quotes symbols “p” and “r”

A
  • p indicates 12b-1
  • r indicates redemption fee
  • t indicates both
28
Q

Letter of intent - Effect of incomplete investment

A

if the client doesn’t fully fund to the breakpoint, they will be charged the higher sales charge. This is covered by holding a sufficient number of shares in escrow

29
Q

Mutual fund redemption methods

A
  • written request
  • telephonic
  • check writing
  • through a dealer
30
Q

when is a signature guarantee required(generally)

A
  • wire transfers
  • addresses records
  • dollar amounts above certain limits
31
Q

Timely paying by fund

A

inv co act of 40 requires that mutual funds pay redemption proceeds to customers within 7 calendar days

32
Q

when is financial info in a prospectus to old?

A

when it is 16 months old

33
Q

when a statement of add’l info is requested, when is it due?

A

within 3 days

34
Q

What is constructive receipt?

A

-the IRS taxes mutual funds distributions in the distributed

35
Q

Do payments from mutual funds come from dividends or cap gains first?

A

-Dividends

36
Q

what info a custodian safeguards

A
  • share ownership

- fund’s securities

37
Q

net investment income =

A

portfolio interest + dividends - fund expenses

38
Q

what is the conduit or pipeline theory

A
  • mutual fund must pay out at least 90% of its newt investment income to avoid taxation on the distributed portion
  • available through IRS Subchaper M
39
Q

exchange traded funds

A

1

40
Q

Leveraged ETF’s

A

1

41
Q

Inverse ETF’s

A
  • perform inverse to the market

- a hedge against a declining market without using a short position or without establishing a margin account

42
Q

Exchange Traded Notes

A
  • senior unsecured debt instruments issued by an underwriting bank
  • complex investments only suitable for experienced investors
43
Q

Holding Company Depository Receipts (HOLDRs)

A
  • Traded on the NYSE AMEX

- allow investors to trade one security comprised of a bucket of stocks

44
Q

Equity Linked Securities (ELKS)

A
  • hybrid debt instrument linked to the equity markets

- structured as annuities, mutual funds, or CDs

45
Q

Real Estate Investment Trusts (REITs)

A
  • Invest at least 75% in real estate or real estate related products
  • No active trading
  • have a finite life
  • Not an investment company
  • not subject to the 40 act
46
Q

3 types of REITs

A
  • Equity
  • Mortgage
  • Hybrid
47
Q

Hedge Funds

A
  • limited partnerships
  • not a mutual fund as defined by the 40
  • appropriate only for experienced, sophisticated, wealthy investor
48
Q

Private Equity Funds

A
  • not investment companies as defined by the 40
  • private capital with minimum investment requirements
  • invest in privately owned entities
49
Q

experienced, aggressive investor, comfortable with a level level of risk seeking high return

A

hedge fund

50
Q

retired couple, preservation of capital,

A

government bond fund (must accept a small rate of return)

51
Q

investor approaching retirment, capital preservation and a reasonable return

A

balanced fund

52
Q

experienced investor, with a diversified portfolio, who is interested in a particular industry

A

consider putting a small portion in a sector fund

53
Q

concerned about expenses, skeptical investment adviser can consistently outperform the market

A

index fund

54
Q

young investor saving for retirement

A

growth fund

55
Q

investor with a time horizon shorter than 3 years

A

money market fund

56
Q

wants stock market exposure, but wishes to stay at stable, high quality end of the stock spectrum

A

blue chip fund

57
Q

successful investor, high tax bracket, max tax relief

A
  • munis

- if time horizon less than 3 years, tax-free money market

58
Q

small amount to invest, immediate exposure to several investments

A

fund of funds

59
Q

monthly income,

A

GNMA bond fund, pays month principal and interest

60
Q

Hedge against inflation

A

precious metals fund

61
Q

avoid cap gains taxes

A

ETF

Series 7 (12 decks)

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