Unit 14 (5)

Question 1

Is a holding company included in the definition of investment company?

Answer 1

No

Question 2

How much of the board of an investment company must be disinterested parties?

Answer 2

At least 40 percent of the board of an investment company must be disinterested parties

Question 3

What is the max amount of interested parties on the board of an investment co?

Answer 3

No more than 60 percent of the board can be interested parties

Question 4

How much of the outstanding shares of another investment co can one investment co own?

Answer 4

No more than 3 percent

Question 5

4 things investment cos can’t do

Answer 5

1. Can’t purchase on margin
2. Can’t have a join account with someone else
3. Can’t sell short
4. Can’t own more than 3 percent of another investment co

Question 6

How can a strategy change be made by the board?

Answer 6

A majority vote of outstanding stock is required for the board to be authorized to change strategy of an investment co

Question 7

Can an investment co make a public offering?

Answer 7

Yes, it must have a net worth of 100k to do so

Question 8

Who is an affiliated person of an investment co?

Answer 8

Someone who owns 5 percent of the cos shares, or is a board member, principal, or employee

Question 9

How much does a control person own of an investment co?

Answer 9

More than 25 percent of the outstanding shares

Question 10

How soon must mutual funds redeem funds?

Answer 10

Within 7 days

Question 11

How often does a mutual fund file financial reports with the sec?

Answer 11

Annually. Shareholders are sent info semi annually

Question 12

When must mutual funds deliver a prospectus?

Answer 12

Before or during solicitation of a sale

Question 13

What price is an open ended offered at?

Answer 13

POP

POP = NAV + Sales load

Question 14

What type of securities can a closed end fund issue?

Answer 14

Common, preferred, and bonds

Question 15

What is another name for a closed end fund?

Answer 15

Public traded fund

Question 16

How is the price of a closed end fund determined?

Answer 16

By supply and demand. Closed end can trade at a price above or below nav.

Question 17

You can own fractional shares of an open ended fund

Answer 17

The sales load is taken out of your initial investment. That amount is then divided by the current market price to get your total shares which can be fractional

Question 18

How many investors can there be in a private fund under 3c1?

Answer 18

No more than 100 and under state law they all must be qualified clients

Question 19

How many investors can there be in a private fund under 3c7?

Answer 19

1,999 and investors must be qualified purchasers

Question 20

What is the max amount of investors in a hedge fund?

Answer 20

100

Question 21

What is tenure in terms of a mutual fund?

Answer 21

Tenure is the amount of time a manager has been managing the fund

Question 22

What sales load do class a shares have?

Answer 22

Front end sales load, but a low or no asset based sales charge

Question 23

What do you buy from a Unit Investment Trust?

Answer 23

Units, not shares like in a mutual fund

Question 24

Are REITS publicly traded?

Answer 24

Assume REITS are publicly traded unless stated otherwise

Question 25

What are the two main reasons for owning a mutual fund?

Answer 25

Diversification and professional management

Question 26

Is a hedge fund registered with the SEC?

Answer 26

Hedge funds are not registered with the SEC but their advisors are

Question 27

Who do hedge fund advisors register with?

Answer 27

The SEC

Question 28

If an investor has a short term horizon but wants to buy mutual fund shares, what do you do?

Answer 28

You explain that mutual funds are not meant to be traded short term. If he still insists you would sell him class C shares because they have the lowest front end sales load.

Question 29

What regulation are hedge funds and private equity funds exempt under?

Answer 29

SEC reg D

Question 30

Why do mutual funds offer different classes of shares?

Answer 30

To give their customers a choice on how they want to pay for the investment. Class a shares have a front end load while class b shares have a back end load. The operating and administrative expenses for class b shares are always higher, but management fees are generally the same. Class c shares have a level load.

Question 31

How often must investment companies send financial reports to shareholders?

Answer 31

Semi annually. First, think about what an investment company is, like a mutual fund. You know mutual funds must update customers semi annually

Question 32

A trade in the secondary market may be motivated by the desire for increased access to deals in the primary market

Answer 32

Secondary purchases can give an investor exposure to a general partner, which can create opportunities to gain access to future opportunities from that partner

Question 33

What is the most liquid? 1. Foreign stock funds 2. Common stock 3. Money market funds 4. Variable annuities

Answer 33

Money market funds because in almost all cases they come with check writing privileges

Question 34

What makes a money market fund more liquid than common stock?

Answer 34

Because money market funds come with check writing privileges

Question 35

If general interest rates increase, the interest income of a bond unit investment trust will?

Answer 35

Stay the same. Because the portfolio of a UIT is fixed, the income generated by that portfolio will not change. Remember a UIT does not have a portfolio manager

Question 36

Does a UIT have a portfolio manager?

Answer 36

No

Question 37

Do mutual fund shareholders have the ability to vote on the specific securities for the portfolio?

Answer 37

No. Choosing the specific securities is done by the investment advisor. Dont confuse this with voting for a change in the strategy of the fund

Question 38

Which of the following has the lowest asset based sales charge? 1. Class a 2. Class b 3. Class c 4. Class t

Answer 38

Class A. Class A has a front end load, but a low, or no asset based sales charge. Class B and C don’t have a front end load, but a higher asset based sales charge. Class T shares always have a 12b-1 charge.

Question 39

What type of charge do class T always have?

Answer 39

12b-1