Management Companies Flashcards by Isaac Kerry

How long is the investment adviser’s contract initially set at?

2 years

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What is the 75-5-10 rule for diversified funds?

75% or more of assets in securities

5% maximum of its assets invested in any one issuer

10% maximum holding of voting securities in one issuer

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Growth fund

invests primarily in equities of rapidly growing companies

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Growth and income

invests in “blue chip” equities that provide dividends and growth potential

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Income fund

invests in fixed income securities such as preferred stock and bonds

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5 types of income funds

US Government Securities
Municipal Bonds
Preferred Stock
Corporate Bonds
Money Market Securities

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Balanced fund

balances between equities and fixed income securities

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Index fund

matches portfolio composition to a recognized index; management fees are lower

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Specialized fund (sector fund)

invests in a particular industry or geographic area

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Special situation fund

invests in companies in bankruptcy or takeover candidates

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How is Net Asset Value calculated?

Total market value of underlying securities divided by number of common shares outstanding

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What does it mean if a fund is no-load?

Sold directly by sponsor, so there is no sales charge

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What is a money fund?

All shares prices locked at $1. As NAV increases, additional shares given out

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What does FINRA impose as the maximum sales charge for a open-ended fun?

8.5% of Public Offering Price

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How do you compute a sales charge?

Ask Price - Bid Price(NAV) / Ask Price

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If an open-ended fund share is redeemed, when must payment occur?

within 7 calendar days

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What is the limit to the Redemption fee a fund can charge?

Redemption fee + sales charge must not exceed 8.5% of POP

Breakpoints

Reduced sales charge for large dollar purchase

3 Breakpoint levels

0-$10k = 8.5%
$10k-$25k = 7.75%
$25k & over = 6.5%

Offering price formula with breakpoints

NAV/

100%-Sales Charge %

Letter of Intent

Allows a customer to indicate they will purchase a large amount of a fund over a period of time and they then get the breakpoint price

Can a letter of intent allow for backdating of past purchases?

Yes, up to 90 days

How long does a letter of intent last?

13 months

Can the breakpoint be met by asset appreciation?

yes

What are rights of accumulation?

Allow a customer to include current value of owned shares of a mutual fund when determining breakpoint pricing

What are 2 situations when a customer would not be charged a sales charge?

Reinvestment of profit into fund and moving to another fund in the same "fund family"

What are Rule 12b-1 fees?

Fees charged to mutual fund shares for purposes of promoting fund

What is the maximum sales charge for a Rule 12b-1 fund?

7.25% if no account maintenance fee; 6.25% if there is an account maintenance fee

Maximum of 12b-1 fee

.75%

Class A Shares

High sales charge; very low 12b-1 charge; good for long-term investment

Class B Shares

Contingent deferred sales charge, higher 12b-1 fee; good for intermediate term investors

Class C Shares

No sales charge, high 12b-1 fee; only suitable for short term investment

How does ETF pricing differ from mutual fund pricing?

Adjusted constantly, no sales charge

how to calculate a fund's expense ratio?

Total Expenses/Total Net Assets

How much income must a fund distribute to avoid taxation on that income?

97% of net investment income | 98% of capital gains

Formula for current yield before ex-date

Annual income/offering price

Current yield after ex-date

Annual income/ | offing price + prior year distributions

Front-end load fund vs no-load fund

Front-end load funds have a sales charge

Are ETFs open-end or close-end?

Open-end, but trade on exchanges

Which is more tax-efficient: ETFs or Mutual funds

ETFs because they do not pay out capital gains on a yearly basis

how often must mutual funds send our financial statements to shareholders?

2x per year