investment company products Flashcards
3 types of investment companies
- face amount certificates
- UITs
- management companies
describe a UIT
unit investment trust
- selects but does not manage assets
- fixed trust
describe a management company
-company with a manager making decisions based on specified objectives
what are the two types of management companies?
- open-ended
- closed-ended
describe purchasable shares of an open-ended company
continuous primary offerings; every share is an IPO
describe purchasable shares of a closed-ended company
the number of shares is fixed
describe prospectus requirements with open-ended companies?
prospectus is required
describe prospectus requirements with closed-ended companies?
no prospectus required after IPO
describe what kind of shares open-ended companies can issue?
common shares only
describe what kind of shares closed-ended companies can issue?
common, preferred, and bonds
describe how customers can redeem shares with an open-ended company?
when a customer sells shares, the management company must buy them back. cannot sell on the open market
describe how customers can redeem shares with a closed-ended company?
shares are not redeemable. to sell, customer has to sell on the open market
describe secondary trading of shares in an open-ended company?
there is no secondary trading since company has to redeem shares.
describe secondary trading of shares in a closed-ended company?
can trade in the secondary market in exchanges or OTC since shares are not redeemable by management company
how do open-ended companies determine price?
priced by formula, forward pricing
net asset value + sales charge = POP
how do closed-ended companies determine price?
priced by supply and demand
how do open-ended companies make money on account?
they charge an 8.5% max sales charge
how do closed-ended companies make money on account?
charge commissions
describe how diversification of management company using the 75 5 10 rule
- 75% of assets invested so that:
- –no more than 5% of assets are invested in one issuer
- –fund owns no more than 10% of securities of any one issuer
- no restrictions on other 25%
describe the 4 types of stock funds
- growth-low dividends but will grow
- income-pays good dividends, low growth
- growth and income-mix of both
- specialized-25% invested in one industry
what is a balanced fund?
portfolio contains stocks and bonds
describe money market funds
- stable values ($1 per share) -yield varies
- have management fees
- safe, liquid
describe hedge funds
- not regulated by SEC
- aggressive investment techniques (short selling, margin)
- sophisticated investors only
describe index funds
S&P index 500 securities
describe global funds
portfolio contains both foreign/domestic stocks
describe international funds
portfolio contains foreign stocks only
how are ETFs classified?
legally classified as open-end funds but are not mutual funds
how are ETFs priced?
continuous pricing
- can buy sell throughout day
- no forward pricing
are ETFs marginable?
yes can buy on margin
tax consequences of ETFs?
no tax until shares are sold
describe a leveraged ETF
- very risky
- 4X investment gains and losses
describe an inverse ETF
-bearish
describe the structure of the board of directors for a mutual fund
- minimum 40% noninterested (public)
- if 12b-1 fee charged, public directors must make up more than 50%
describe the custodian bank for a mutual fund
they are the safekeeper of fund assets
describe the transfer agent for a mutual fund
they are the record keepers and customer service department for the fund
describe underwriters of a mutual fund
- they market fund to broker/dealer
- share in sales charge with broker
formula for NAV per share
(assets-liabilities) / number of common shares
formula for POP
NAV / sales charge = POP
what is the bid and ask in a mutual fund’s pricing
NAV-bid price
POP-ask price
describe the three share types
- a shares- front end load
- b shares- back end load
- c shares- level load (annual charge)
describe break point quatities
1-9999 = 8.5%
10000-24999- 7%
25000-49999-6%
50000-99999-4%
letter of intent is good for?
13 months
letter of intent can be backdated how many days?
90
funds who charge 8.5% must offer what?
- breakpoints
- rights of accumulation
- reinvestments at NAV
