Unit 8- Investment Companies Flashcards
What is the 75-5-10 requirement for a diversified management company?
- 75% of the funds assets must be invested in securities neither the fund nor its affiliates issued.
- The 75% must be invested in such a way that:
1) No more than 5% of the funds total assets are in the stock of a single company.
And
2) No more than 10% of the voting shares of another company are owned.
Which closed-end fund does not trade in the secondary market?
Interval Funds
Features of a business development company?
- 70% of assets in “eligible assets.”
- Provides managerial assistance.
Maximum sales charge for an open ended mutual fund?
8.5%
How far can you backdate a LOI?
90 days from the initial purchase.
Does share appreciation contribute to the fulfillment of a LOI?
No…just funds invested.
Annum allowed 12b-1 fee?
0.75%
Note: can add a 0.25% service fee on top of this. But this is technically not part of the trailer fee.
Minimum 12b-1 fee if a fund is calling itself “no-load”?
0.25%
Formula for a funds Net Investment Income?
NII = (interest + dividends) - operating costs
NOTE: sales expenses aren’t included in operating expenses.
How do funds qualify as a Regulated Investment Company and avoid triple taxation?
The fund must distribute 90% or more of its NII
Investment company BOD requirements?
No more than 60% of the BOD can be an interested party (40% or more must be outsiders) .
Prohibited activities for open ended investment companies?
- Buying securities on margin
- Selling short
- Having a joint account with someone else
- Aquire more than 3% of the outstanding voting shares of another investment company.
When is a majority vote of an open ended investment companies share holders required?
When doing the following:
- Change in classification (open to closed end, or diversified to non-diversified)
- Decision from registration statement/change in investment philosophy.
- Ceasing to be an investment company.
Bottom line: the company works for the shareholders, so any action that impacts them must be voted on.
Minimum size for an investment company to make a public offering?
$100,000 net worth
Requirements regarding the contract between the investment company and its investment advisors and underwriters?
- Contract must describe all compensation paid
- Must be approved by BOD, of majority shareholder vote
- Can be terminated at anytime without penalty, within 60 days of written notice.
- Contract renewal must include a majority vote of the BOD that is not an interested party (the 40%)
Investment company custodian requirement?
Investment companies must keep their assets at a custodian (bank, broker dealer, etc). Does not need to be FCID insured.
Investment company reporting requirements?
- Balance sheet and income statements are filed with the SEC annually.
- Financial reports sent to the shareholders semi-annually.
What are the anti-reciprocal rules when selling shares of an investment company?
- Can’t compensate a rep based on the amount of commission generated from the sale is a specific investment company.
- Member cannot encourage their reps to sell a shares from a specific investment company, based on commissions to be generated.
Requirements for Non-cash compensation?
- Can not be contingent on achieving a sales target.
- physical gifts can not exceed $100/yr
- Occasional meals or tickets may be given.
- Attendance of an event can be sponsored of the rep gets approval from employer, the venue is reasonable, and the expenses of any guest the rep brings are not covered. Travel expenses for the rep can be covered.
Note: these same principals apply with regard to a member firm and its sales staff.
What is the gift rule?
- No gift can be given in any form that exceeds $100, if it is tied to the business of the recipients employer.
- There is no limit to the gifts that can be given to employees, if it’s not tied to the business (example: wedding).
Note: this ruse is different than the non-cash compensation rules.
