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Investment Companies > Management Companies > Flashcards

Management Companies Flashcards

1
Q

What is the Fund Sponsor?

A

This is the underwriter for a management company. They must register funds w/ the SEC prior to security sell

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2
Q

What is the Prospectus?

A

This discloses the structure of the fund, detailing when fees are involved, track record of sponsor, and the POP

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3
Q

What is the POP formula?

A

NAV + Max sales charge

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4
Q

Do selling groups act as agents or principals for the Sponsor?

A

AGENTS

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5
Q

Which type of fund REQUIRES a prospectus be sent to purchaser?

A

An OPEN-end fund.

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6
Q

Which type of fund does not need a prospectus?

A

A closed end fund does not need one after the shares trade in the secondary market

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7
Q

What does an investment adviser do?

A

Earns a MGMT fee based on % of AUM. The adviser’s contract is subject to shareholder vote every year after first contract ends

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8
Q

What is the role of a Custodian Bank?

A

Safeguard fund’s assets, and can act as transfer agent and paying agent

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9
Q

What are some requirements of a “diversified” fund?

A
  • 75% or more of assets invested in securities
  • Max of 5% of AUM w/ one issuer
  • Max of 10% for holding securities in one issuer
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10
Q

What makes up a growth fund?

A

Primarily equity securities of rapidly growing companies for capital gains

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11
Q

What makes up a Growth & Income Fund?

A

Invests primarily in Blue chip stocks. Blue chips provide both dividend income and growth potential

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12
Q

What makes up an Income fund?

A

Investments in fixed securities such as preferred stocks and bonds:

  • US Govt securities
  • Municipal bonds
  • Preferred stock
  • Corporate bonds
  • Money Markets
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13
Q

What is the definition of a balanced fund?

A

Provides both income and capital gains potential

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14
Q

What is the difference between a specialIZED and Special SITUATIONS fund?

A
  • Specialized: investment in particular industry or geographic area
  • Special situation: Bankruptcy, takeover, etc.
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15
Q

What types of shares are continuously issued?

A

Mutual fund shares

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16
Q

How often is NAV computed on mutual funds?

A

Every day, once a day. (marked to market)

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17
Q

What does it mean if a fund is No Load?

A

There is no sales charge, and the customer can buy the asset at NAV.

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18
Q

What type of fund is always no load?

A

Money market funds. The NAV is consistent at $1 always. If assets increase, shareholders just get more $1 shares

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19
Q

What is the maximum sales charge for mutual funds?

A

8 1/2% of POP. (All funds combined on a mutual fund cannot be greater than 8.5% per FINRA rules)

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20
Q

When a customer redeems shares, what is the max. length that a fund has to deliver the shares?

A

7 calendar days

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21
Q

What is a CDSC?

A

Contingent deferred sales charge. This applies to funds that do not have a sales charge to purchase shares, but if the investor redeems too early, a CDSC is charged

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22
Q

What 3 items MUST a fund have in order to charge the maximum 8.5% on a mutual fund?

A
  1. Breakpoints
  2. Letter of Intent
  3. Rights of Accumulation
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23
Q

What are breakpoints?

A

Reduced sales charge for a large dollar purchase. (these are not available to investment clubs)

24
Q

What is a Letter of Intent?

A

If it is signed, the customer is saying he will buy more of a fund later in order to get the breakpoint pricing before actually buying the required amount.

25
Q

How long does the LOI last?

A

Only 13 months, including the 90 day backdated period

26
Q

Does asset appreciation or dividends received count towards the LOI?

A

No

27
Q

What are rights of accumulation?

A

The investor’s accumulated position in the mutual fund counts toward future breakpoints for additional purchases

28
Q

What are Rights of accumulation based on?

A

Current market price or cost, whichever is higher

29
Q

What must a fund offer per FINRA rules regarding dividends?

A

The fund must allow a dividend reinvestment at NAV on divs received. There is no sales charge implaced

30
Q

What are 12B-1 funds?

A

These are funds that impose fees for the cost of soliciting new customers

31
Q

What is the maximum rate allowed on 12b-1 funds?

A

If no account maintenance fees: 7.25%
If there are account maint. fees: 6.50%

The FEE cannot exceed .75% of Average annual net assets

32
Q

What are Class A fund shares?

A

Higher up front sales charge, but low or no 12b-1 fees. These are suitable for LONG term investors

33
Q

What are Class B fund shares?

A

Impose a CDSC and 12b-1 fees. Suitable for INTERMEDIATE investors

34
Q

What are Class C fund shares?

A

Have the HIGHEST 12b-1 fee and usually no CDSC. These are for SHORT term investors

35
Q

Are any discounts allowed from the POP?

A

No - unless there is one listed in the Prospectus

36
Q

What are the 3 types of Systematic withdrawal plans?

A
  1. Fixed Dollar
  2. Fixed Shares
  3. Fixed Period (specific liquidation of account over period of time. Best for college education)
37
Q

What are some prohibited mutual fund sales practices?

A
  • Trading mutual fund shares
  • Breakpoint sales
  • Bad recommendation of Class B shares
  • Late trading
  • Market timing
38
Q

What are the characteristics of a closed end fund?

A
  • Trade-able
  • non-redeemable
  • NAV is liquidity value of the fund
39
Q

What are exchange traded funds (ETFs) legally classified as?

A

Open ended companies or UIT’s

40
Q

What do ETF’s do?

A

They issue shares in large blocks to institutions (about 50,000 share blocks) that are known as creation units.

41
Q

Do ETFs trade?

A

YES. Therefore, they are NOT mutual funds

42
Q

What are the advantages of an ETF over an Index Mutual fund?

A
  • Trade continuously throughout the day with the market price based on instant value in underlying index
  • Purchased/sold at any time of day
  • Can be purchased on margin and sold short
  • Generally lower expense
  • No tax liability on share appreciation
43
Q

What are the 4 main ETF’s?

A
  1. SPDRS - SP 500 depository receipts
  2. DIA’s - Dow Jones Industrials (Diamonds)
  3. QQQ’s - NASDAQ’s 100 Index (Q’s or Qubes)
  4. I-Shares - partner w/ Barclays
44
Q

What is a leveraged ETF?

A

A fund that borrows to MAGNIFY returns (and also losses). For example, a 300% Leveraged ETF will move 3x as fast a the index

45
Q

Do ETF’s require a prospectus?

A

They require either a prospectus or a product document w/ key info and where a prospectus can be obtained

46
Q

What are the characteristics of Hedge Funds?

A
  • Private
  • Only available to very wealthy/sophisticated investors
  • Lightly regulated
  • Take % of AUM and % of capital gains
47
Q

What is a Fund of Hedge Funds?

A
  • Mutual fund that makes selected investments in hedge funds
  • Double layer of fees
  • Inefficient investment vehicles
48
Q

How often must financial statements be sent to fund shareholders?

A

Semi annually

49
Q

What is the formula for net investment income?

A

Investment income - Expenses

50
Q

What are some basic expenses for funds?

A
  • Management fee (largest fee)
  • Shareholder servicing fee
  • Custodial fees
  • Printing fee
  • Legal and Audit fees
  • Distribution fees (12B-1)
51
Q

What is the formula for the expense ratio?

A

Total expenses/Total net assets

52
Q

What is a Regulated fund under subchapter M?

A

Regulated if a fund distributes 90% or more of its NII to shareholders. Only the remaining NII is taxed

53
Q

Who sets the Ex-date for mutual funds?

A

The Board of Directors!

54
Q

What is the formula for a mutual fund current yield?

A

Annual income/offering price

55
Q

What percent of the BOD must be “non-interested”

A

40%

Investment Companies (5 decks)

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