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Investment Companies

Investment company act of 1940 Registered investment company must have a miniimum of $100,000 in capital and 100 shareholders before its securities can be offered and sold to the public. This $100,000 is called the CAPITALIZATION.
Non Managed Investment Company pools money from many investors for the purchase of different investments, and is not actively managed.
Managed Investment Company Actively managed by an investment advisor..
Who is not subject to Investment company act? Holding companies, investment clubs, broker dealers, banks, insurance companies pension plans.
Trust Indenture Outlines obligations of the Trustee
Termination of UIT Can be as long as 50 years or upon maturity of securities.
ETF's NON MANAGED COMPANY - Set up to track an idex or some other set of secufities based on a similar aspect of the securities.
2 Types of ETF's Open End UIT (SPDR) Open End investment company
ETF's follow: Global companies Specific Fields Indexes (DJIA, Nasdaq, S&P 500 or Spiders)
Where are ETF's Traded? In Exchanges only
When is a prospectus required on an ETF? Only in a primary purchase
ETF's must invest in a minimum of ____________ 50,000 shares
Who can an investor sell ETF to? Back to trust or to another investor
ETF's must invest in a minimum of ____________ 50,000 shares
SPDR ETF, Open end UIT based on the S&P 500. Traded on NYSE
True or false: ETF's can be sold short and purchased on margin TRUE
Creation Unit 50,000 share SDPR (just another name for it). Institutional investors purchase a whole creation unit, individuals buy round lots of 100.
When purchasing ETF's, the developer determines the amount of shares using one of two methods: 1. Weighting by price with differing amounts of shares, if it mimics and index 2. Weighting by capatilization with equal amounts of shares if using fundemental analysis.
True or False: An ETF holder can receive dividends? True, although they are usually negligable
SPDR ETF, Open end UIT based on the S&P 500. Traded on NYSE
Leveraged ETF ETF that uses investor
Creation Unit 50,000 share SDPR (just another name for it). Institutional investors purchase a whole creation unit, individuals buy round lots of 100.
True or False: An ETF holder can receive dividends? True, although they are usually negligable
Leveraged ETF ETF that uses investor money as well as borrowed funds. Normally 2:1 (Each dollar of invested capital is matched with 1 dollar of borrowed money) or 3:1
Leveraged ETF's are composed of a large amount of Short term securities and derivatives.
Leveraged ETF's have 3 types of fees 1. Management Fee 2. Interest Costs (on borrowed money) 3. Transaction Costs
Leveraged ETFS are recommended for Sophisticated investors who want short term investments, actively manage, and want to use leverage.
Inverse ETF's Designed to perform in an inverse manner relative to index fund.
Inverse ETF's are composed of short sales of index funds, equity swaps, and buying and selling of derivatives
Inverse ETF's are recommended for Sophisticated investors who want short term investments, actively manage, and want downside exposure or hedge positions.
True or false: Inverse ETF's are unmanaged funds false
Inverse ETF's must be bought when markets are _________ and sold when it is ________ rising; falling
ETN Unsecured debt securities that are designed to track the total return of an underlying index (minus the investor fee. Are a promise to pay a certain amount at a specific time. Maturity of 35-40 years
How are ETN's rated? ETN's are rated based on the rating of the issuer
True or False: ETN's pay dividends False: they are issued at a set price and the difference between the purchase price and the amount atht the investor is paid at maturity is what the investor will realize as a capital gain. Gain or loss is deferred until ETN is sold.
True or False: ETN can be sold prior to maturity on an exchange? True
ETN's track commodities, currencies, stocks with certain volitility, stocks w/ certain strategy.
If the stocks in the underlying index do not do well, the ETF will also do poorly
If the stocks in the underlying index do not do well, the ETN will Do well, if the ETN has a short position Do poorly if the ETN has a long position Receive no value if the broker goes bankrupt
ETF's are issued under the ____________ while ETN's are issued under the _____________. 1940 Investement Company Act; Securities Act of 1933
ETF's can be redeemed ___________. ETN's can be redeemed ___________. Daily; weekly
True or False: ETF's and ETN's are traded on the market on a weekly basis False
True or false: ETF's and ETN's can both be purchased on margin and sold short. True
Hedge Fund an investment pool that is privately organized, bot publiclly advertised, and managed by professional investment managers. Invested assets usually come from wealthy individuals and cahs=heavy institutional investors.
True or False: Hedge funds are subject to registration with the SEC under the Securities Act of 1933 False
True or False; Hedge Funds are subject to registration with the SEC under the Investment Company act of 1940 False
True or False: Hedge funds are unmanaged investment companies True
Hedge Fund Investor Requirements 1. Must be sophisticated 2. Earned income of $200,000 over the last 2 years and $200,000 in the coming year and/or 3. Has a $1,000,000 liquid net worth or; 4. Has a trust with $5 million
Hedge Fund Characteristics 1. Lack Transparency 2. Lack regulation 3. Large amounts of leveraging 4. Shares are purchased and redeemed at NAV.
Two types of Management Investment Companies Open Ended (Mutual Funds) Closed Ended (Publicly Traded Funds
Open Ended Management fee % of net assets
NAV Net Asset Value - value of the assets of the investment company, including both cash held and the securities in which the ocmpany has invested. NAV = Mutual Fund net asset value/# of shares outstanding.
Mutual fund prices quotes in the newspaper include the _______ and the ________ NAV; POP
POP = NAV + sales charge
A ________ must accompany every new issue of mutual funds. Prospetus
Advertising and printing costs used to make the prospectus of a mutual fund are paid by _________ The sales charge
12b-1 Charges expenses used to pay for advertising, marketing, and prospectus charges. (included if there is no sales charge) Also used to compensate broker/dealers for sales.
Advantages of Mutual Funds Diversification, liquidity, professional management services.
Forward Pricing purchaser does not know the exact amount per share of the mutal fund until after the order is placed to purchase the shares.
True or False: Mutual Funds are offered on exchanges False
True or False: Closed ended funds are offered on exchanges True
Closed ended funds are also known as ________ Publicly traded funds
Price of a closed ended fund is deteremined by ___________. Supply and demand
What is the primary difference between Open ended and close ended funds? Capitilization - open ended funds have fluctuating capitalization.
Class A Shares Front Load Shares - Investment = Price - Sales Charge
Class B Shares no front end charge, but incurs a charge if redeemed before surrender period
Class C Shares no-load shares. If fund has 12b-1 greater than .25% it cannot be considered no load
Class X,M,etc shares no load
Most that open-ended companies can borrow from a bank 1/3 of their NAV
Open ended companies can issue Common Stock only
Closed ended companies can issue common stock, preferred stock, and bonds
POP on front end sales charge NAV + Sales Charge
POP on no load fund POP = NAV
POP on deferred sales charge deducted from NAV when sold
Maximum sales charge on a mutual fund is... 8.5%
Maximum sales charge on mutual fund can only be charged if: -Quantity discounts are available for large purchases - No 12b-1 fees are charged
Sponsor Investment company itself. Puts the fund together, generates the beginning capital, and registers the fund with the SEC
The _________ of the fund acts as the distributer Underwriter
The __________ specifies how the broker/dealer is compensated selling agreement
True or False: You can purchase newly issued Managed companies on margin False
True or False: you can band together with other organizations to take advantage of a quantity discount False
True or False: As a family, you are allowed to band together and take advantage of a quantity discount. True
Sales Breakpoint the dollar amount at which a reduced sales charge is given to investors. Start at $10-15,000 and go up to $1 million
Breakpoint Sale takes place when a customer buys a large dollar amount that is near the sales breakpoint, but is not informed about it. This is illegal according to FINRA.
Rights of Accumulation cumulative quantity discounts that allow investors to take advantage of reduced sales charges based on their accumulated ownership in a mutual fund.
For the purpose of Rights of Accumulation, the total value of the shares currently owned may be based on: 1. the current value 2. the orginal purchase price 3. The higher of the two (most funds use this)
Letter of intent states that the ivnestor intends to take advantage of reduced sales charges by purchaseing enough of the mutual fund over a 12-month period to qualify for the discounted sales charge.
A letter of intent can be back dated up to ________ to include previous purchases when taking advantage of a reduced sales charge 90 days
Conversion privileges Investors can move their investments around within the same mutual fund with little or no charge. However, they will incur capital gains taxes if the funds are not in a retirement account.
Dollar Cost Averaging method of investing over a period of time. Thoery is that over time, the average cost per share of the mutual fund will be less than if the mutual fund investment was purchased at one time.
Redemption Price NAV - redemption fee
How long does a mutual fund company have to send the redemption price to the investor? 7 calendar days
True or False: Mutual funds are traded in the secondary market False
Short term gain/loss on a mutual fund Held less than 1 year. Taxed at investors tax bracket
Long term gain/loss on a mutual fund Held longer than 1 year. Tax maximum is 15%
Dividend distributions on mutual funds are taxed as ____________ portfolio income
Name the 4 Mutual Fund withdrawal plans Fixed Dollar plan, fixed time plan, fixed shares plan, fixed percentage plan.
The investment act of 1940 requires registration from what type of companies? UIT's, ETFS, and Management investment companies (open and closed ended)
With mananged investment companies, the investment objectives may be changed only by a majority vote of the shares or shareholders? Shares
Board of Directors Ratio No more than 60% of the board can be affiliated with the investment company. No less than 40% can be independent of the company.
An affiliated person is any... officer, director, employee, or owner of 5%.
Transfer agents basically manage the books for the mutual fund.
List the expenses of running an investment company Board of directors salaries, management fees, custodian fees, service fees, brokerage fees, audit and legal fees, Printing and distribution costs
Expense Ratio Annual Operating Expenses/Total NAV
A tombstone includes name of company, investment objectives, name of investment advisor, straightforward information
Generic advertising includes Can speak of the company as a whole, but not an actual fund.
FINRA requires that all advertising material regarding mutual funds be filed with them within _______ of use for their review. 10 days
Under the Investment Company act of 1940, mutual fund investment portfolios cannot include: REal Estate, Securities purchased on margin.
New prospectus is required to be issued for a Mutual Fund every ________ 16 months
How often must investment companies send customer statements? quarterly
All investment companies are regulated by ______ The IRS
IRS regulations give investment companies special tax treatment if they pass at least _________ of their net investment income to their shareholders 90%
Mutual Funds have two basic types of money distribution to shareholders: Capital Gains from the profits of buying/selling and Net investment income from interest and dividends.
Dividend and interest distributions are considered part of the shareholder's __________ income and is taxed at the ordinary income level portfolio
Current Yield Formula Annual Dividend/Current Offer Price
ex-dividend date the day on or after which the buyer of the mutual fund shares is not entitiled to receive the dividend.
Diversified Investment Company Invest at least 755 of its total assets in such a way that no more than 5% of total assets are invested in any one company at a given time, and cannot own more than 10% of the outstanding voting stock of any one company.
Specialized Investment Company must invest more than 25% of its assets in one specific type of issuer.
Sector funds are good for young people who can afford to lose money, want to get dividends
Aggressive growth funds are good for young people in their 20/30s looking toward their retirement
Conservative growth funds are good for Middle aged investors in their 40's and 50's saving for retirement with a concern for risk and principal
Corporate Bond Funds are good for people who want income and then safety of principal
Government Bond funds are good for people who want saftey of principal and income
Municipal Bond Funds are good for high tax brackets
Balanced Funds are good for people who are close to retirement or who have retired early and should be living for another 10-20 years
Venture Capital Funds are good for people who cannot always take advantage of new issues coming to market, but want to take part in those companies
Money Market funds are good for nobody, short term investment until other decisions are made. Usually invest for 6-8 months
SPDR is a part of Open Ended Unit investment trust
What is the difference between the offer price and the NAV? Sales charge
Created by: cstrom
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