Packaged Products: Management Companies Flashcards
Packaged Products: Management Companies GENERAL --------------------------------------------------- 1) A management company is formed when 1.1) example
- Fund Sponsor / Prospectus
2) who establishes the fund
3) The sponsor can be who
4) sponsor must register the fund with who before it can be sold
5) what is the SEC looking for a new fund and what needs to be included
5. 1) do clients get a prospectus
1) someone conceives an idea for an investment company objective that is needed by investors
1. 1) A fund targeted to investors who want absolute safety and income might have an objective of investing in U.S. Government and Agency securities.
2) “Sponsor” or underwriter
3) large investment firms,[Morgan Stanley] or a firm that specializes only in running funds [Dreyfus].
4) SEC
5) Prospectus,” which details the objective of the fund, the Board of Directors, the fees involved, the track record of the sponsor, open or closed-end
5. 1) yes
Packaged Products: Management Companies
GENERAL
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-Open-End Fund / Continuously Issued
1) if the fund is open or closed-end will be on what
2) continuously issued by the sponsor?
3) every purchaser must receive what
4) The Public Offering Price (POP) as stated in the prospectus is calculated how
- Closed-End Fund
5) capitalized like any regular corporate stock offering? 6) one-time issuance of stock
7) traded over the counter?
8) is prospectus required when initially sold
8. 1) how about when traded in secondary market?
1) perspective, given to SEC
2) yes
3) Prospectus
4) Net Asset Value (NAV) per share plus a Sales Charge (the equivalent of a spread)
5) yes
6) yes
7) no, listed and trade on an exchange
8) yes, no
8. 1) no
Packaged Products: Management Companies
GENERAL
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-Selling Group
1) Not required, but who can hire them
2) selling group does what
2.1) For this, the sponsor gives up what
- Investment Adviser / Management Fee
3) details on which “investment adviser” has been selected to manage the fund an be found where
4) they earn a management fee based on what
5) does the fee go up if the investment adviser is good [prestigious]
6) The adviser’s contract is initially set for how long [their term]
6. 1) after 2 years they can stay if what
1) underwriter
2) acts as an agent, selling the fund for the sponsor
2. 1) part of the sales charge as a selling concession
3) prospectus
4) AUM
5) yes
6) two years
6. 1) shareholder vote each year to keep them in
Packaged Products: Management Companies GENERAL --------------------------------------------------- -Custodian Bank 1) the custodian bank which has been selected to safeguard the assets can be found where 2) custodian bank usually acts as 3) they keep shareholder info such as 4) what do they get paid for their work
- Diversified Fund 75-5-10 Rule
5) funds are set up either diversified or not?
6) what is the 75-5-10 rule
1) prospectus
2) transfer agent for the fund, canceling old shares and issuing new shares,mailing reports, proxies etc.
4) custodial fee
5) yes
6-
-75% or more of its assets invested in securities;
- maximum of 5% of its assets invested in any one issuer; and
- the maximum holding of 10% of the voting securities in any one issuer.
Packaged Products: Management Companies
GENERAL
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-Types Of Diversification
1) A fund can be diversified among what
2) any diversification decision must be inline with what
1) different industries, or among companies in the same or similar industries (such as an energy fund investing in many different energy producers), or among different securities [bonds, cash, etcl]
2) fund’s investment objective
Packaged Products: Management Companies TYPES OF FUNDS --------------------------------------------------- -Growth Fund 1) Invests primarily in what
- Growth And Income Fund
2) This fund invests in - Income Fund
3) Invests in
4) Types Of Income Funds
1) securities of rapidly growing companies to achieve capital gains
2) “blue chip” equities that provide both dividend income and growth potential.
3)fixed income securities such as preferred stock and bonds
4
-U.S. Government Securities fund
-Municipal Bond fund
-Preferred Stock fund
-Corporate Bond fund
-Money Market Securities fund
Packaged Products: Management Companies
TYPES OF FUNDS
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-Balanced Fund
1) allocates assets among what
2) investor get income or capital gains potential
- Index Fund
3) this fund type matches its portfolio to what
4) why is the management fee lower for this - Special Situations Fund
5) Invests in
6) the benefit or upside
1) maintaining a “balance” of equities and fixed income securities
2) both
3) index, such as S&P 500
4) investment adviser is not researching and selecting the securities to be purchase
5) companies in bankruptcy or “takeover” candidates.
6) If the company emerges from bankruptcy or is taken over, there is large capital gains potential
Packaged Products: Management Companies TYPES OF FUNDS --------------------------------------------------- -Specialized Fund 1)invests in 2) example
1) a particular industry or geographic area 2)energy funds or gold funds are specialized by industry
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -Open-End Shares Continuously Issued / Redeemable 1) redeemable when 2) who do you redeem to 3) trade in the secondary market 4) negotiable, redeemable securities?
- Net Asset Value
5) when is NAV computed
6) how is it computed
7) NAV fluctuates based upon what 8)
1) anytime
2) sponsor of the fund
3) no
4) no
5) daily
6) all securities held by the fund are “marked to market”, total market value divided by the number of common shares outstanding
7) hanging value of the securities in the portfolio
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -No-Load 1) what is it meant by no-load 2)No-load funds are sold directly by
- Money Fund
3) most all are load or no load
4) net asset value is constant at what
5) viewed as temporary/ long term holding places for customer funds.
6) As the fund get earnings, what does earn do
1) no sales charge and customers can buy at net asset value
2) mutual fund sponsors who do not use selling groups or salesmen
3) no load
4) $1.00
5) short term
6) receives more shares worth $1.00 each
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-Maximum Sales Charge
1) Sales charge covers what
2) fee on top of the net asset value
3) Under FINRA rules, the maximum sales charge on mutual fund purchases is
4) because sales charged is based on public offering price, why is the % higher than 8 1/2 % of NAV
5) formula for sales Charge Percentage
5.1) solve= NAV $14.75, Ask $16.12
6) mutual fund marketplace is becoming more competitive which does what to sales charge
1) compensate a selling group or salesmen
2) yes
3) 8 ½% of the Public Offering Price
4) POP consists of both Net Asset Value and the appropriate sales charge
5) Ask-Bid / Ask
6) 16.12-14.75 /16.12= 8 1/2 6) going down
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -Forward Pricing 1) idea
- Sale proceeds
2) When a customer redeems, he must be paid within how many days
2. 1) industry practice usually results in a much shorter time frame
2. 2) this is a requirement of what
1) when you place an order [buy or sell] during market hours, you don’t know how many shares you’ll get/sell until after hours when NAV is computed.
2) 7 calendar days
2. 1) yes
2. 2) Investment Company Act of 1940,
Packaged Products: Management Companies BUYING AND SELLING FUND SHARES --------------------------------------------------- -Redemption Fee 1) can mutual funds charge this 2) is there a limit on how much
- In-Kind Redemption
3) what do fund managerd to meet the normal flow of redemption requests
3. 1) the problem if there is not enough cash in the account for redemptions
4) how does inkind redemption help with cash
4. 1) happen often?
1) yes
2) yes, all fees combined (Up-Front Sales Charge and Redemption Fee) cannot exceed 8 ½% of the POP under FINRA rules
3) keep a portion of the portfolio in cash
3. 1) rebalance to generate cash in a down market
4) manager can give the fund shareholder his or her pro-rata portion of the underlying portfolio positions, rather than cash
4. 1) no
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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-Contingent Deferred Sales Charge (CDSC)
1) idea
2) apply to purchase to?
3)redemption chare is imposed under what class of shares
- 8 1/2% Fee under FINRA
4) In order for a fund to charge the maximum 8 ½% sales charge they must offer what three things
1) impose a sales charge only if the customer redeems his shares before a stated time period has elapsed
2) no
3) class B
4)
- Breakpoints
- Letter of intent
- Rights of accumulation
Packaged Products: Management Companies
BUYING AND SELLING FUND SHARES
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–8 1/2% Fee under FINRA: Breakpoints
1)A breakpoint is a reduced what
2) who sets breakpoint schedules?
2.1) they base fee on what
3) how do you compute revised offering price based on breakpoints
3.1) solve: customer bought $15,000 of John Hancock Bond Fund [nav $14.75], he would pay 7 ¾% on the entire $15,000 purchase, instead of the normal 8 ½% sales charge.
4) can investment clubs use breakpoints
1) sales charge for a large dollar purchase
2) FINRA
2. 1) considers to be “fair and reasonable
3) NAV /100% - sales charge %
3. 1) 14.75/ 100%-7 3/4= 15.99 per share
4) no
