Investment Companies
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| 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.
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| Non Managed Investment Company | pools money from many investors for the purchase of different investments, and is not actively managed.
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| Managed Investment Company | Actively managed by an investment advisor..
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| Who is not subject to Investment company act? | Holding companies, investment clubs, broker dealers, banks, insurance companies pension plans.
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| Trust Indenture | Outlines obligations of the Trustee
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| Termination of UIT | Can be as long as 50 years or upon maturity of securities.
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| 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.
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| 2 Types of ETF's | Open End UIT (SPDR) Open End investment company
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| ETF's follow: | Global companies Specific Fields Indexes (DJIA, Nasdaq, S&P 500 or Spiders)
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| Where are ETF's Traded? | In Exchanges only
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| When is a prospectus required on an ETF? | Only in a primary purchase
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| ETF's must invest in a minimum of ____________ | 50,000 shares
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| Who can an investor sell ETF to? | Back to trust or to another investor
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| ETF's must invest in a minimum of ____________ | 50,000 shares
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| SPDR | ETF, Open end UIT based on the S&P 500. Traded on NYSE
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| True or false: ETF's can be sold short and purchased on margin | TRUE
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| Creation Unit | 50,000 share SDPR (just another name for it). Institutional investors purchase a whole creation unit, individuals buy round lots of 100.
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| 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.
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| True or False: An ETF holder can receive dividends? | True, although they are usually negligable
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| SPDR | ETF, Open end UIT based on the S&P 500. Traded on NYSE
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| Leveraged ETF | ETF that uses investor
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| Creation Unit | 50,000 share SDPR (just another name for it). Institutional investors purchase a whole creation unit, individuals buy round lots of 100.
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| True or False: An ETF holder can receive dividends? | True, although they are usually negligable
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| 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
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| Leveraged ETF's are composed of a large amount of | Short term securities and derivatives.
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| Leveraged ETF's have 3 types of fees | 1. Management Fee 2. Interest Costs (on borrowed money) 3. Transaction Costs
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| Leveraged ETFS are recommended for | Sophisticated investors who want short term investments, actively manage, and want to use leverage.
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| Inverse ETF's | Designed to perform in an inverse manner relative to index fund.
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| Inverse ETF's are composed of | short sales of index funds, equity swaps, and buying and selling of derivatives
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| Inverse ETF's are recommended for | Sophisticated investors who want short term investments, actively manage, and want downside exposure or hedge positions.
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| True or false: Inverse ETF's are unmanaged funds | false
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| Inverse ETF's must be bought when markets are _________ and sold when it is ________ | rising; falling
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| 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
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| How are ETN's rated? | ETN's are rated based on the rating of the issuer
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| 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.
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| True or False: ETN can be sold prior to maturity on an exchange? | True
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| ETN's track | commodities, currencies, stocks with certain volitility, stocks w/ certain strategy.
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| If the stocks in the underlying index do not do well, the ETF will | also do poorly
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| 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
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| ETF's are issued under the ____________ while ETN's are issued under the _____________. | 1940 Investement Company Act; Securities Act of 1933
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| ETF's can be redeemed ___________. ETN's can be redeemed ___________. | Daily; weekly
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| True or False: ETF's and ETN's are traded on the market on a weekly basis | False
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| True or false: ETF's and ETN's can both be purchased on margin and sold short. | True
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| 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.
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| True or False: Hedge funds are subject to registration with the SEC under the Securities Act of 1933 | False
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| True or False; Hedge Funds are subject to registration with the SEC under the Investment Company act of 1940 | False
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| True or False: Hedge funds are unmanaged investment companies | True
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| 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
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| Hedge Fund Characteristics | 1. Lack Transparency 2. Lack regulation 3. Large amounts of leveraging 4. Shares are purchased and redeemed at NAV.
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| Two types of Management Investment Companies | Open Ended (Mutual Funds) Closed Ended (Publicly Traded Funds
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| Open Ended Management fee | % of net assets
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| 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.
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| Mutual fund prices quotes in the newspaper include the _______ and the ________ | NAV; POP
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| POP = | NAV + sales charge
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| A ________ must accompany every new issue of mutual funds. | Prospetus
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| Advertising and printing costs used to make the prospectus of a mutual fund are paid by _________ | The sales charge
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| 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.
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| Advantages of Mutual Funds | Diversification, liquidity, professional management services.
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| 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.
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| True or False: Mutual Funds are offered on exchanges | False
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| True or False: Closed ended funds are offered on exchanges | True
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| Closed ended funds are also known as ________ | Publicly traded funds
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| Price of a closed ended fund is deteremined by ___________. | Supply and demand
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| What is the primary difference between Open ended and close ended funds? | Capitilization - open ended funds have fluctuating capitalization.
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| Class A Shares | Front Load Shares - Investment = Price - Sales Charge
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| Class B Shares | no front end charge, but incurs a charge if redeemed before surrender period
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| Class C Shares | no-load shares. If fund has 12b-1 greater than .25% it cannot be considered no load
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| Class X,M,etc shares | no load
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| Most that open-ended companies can borrow from a bank | 1/3 of their NAV
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| Open ended companies can issue | Common Stock only
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| Closed ended companies can issue | common stock, preferred stock, and bonds
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| POP on front end sales charge | NAV + Sales Charge
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| POP on no load fund | POP = NAV
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| POP on deferred sales charge | deducted from NAV when sold
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| Maximum sales charge on a mutual fund is... | 8.5%
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| Maximum sales charge on mutual fund can only be charged if: | -Quantity discounts are available for large purchases - No 12b-1 fees are charged
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| Sponsor | Investment company itself. Puts the fund together, generates the beginning capital, and registers the fund with the SEC
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| The _________ of the fund acts as the distributer | Underwriter
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| The __________ specifies how the broker/dealer is compensated | selling agreement
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| True or False: You can purchase newly issued Managed companies on margin | False
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| True or False: you can band together with other organizations to take advantage of a quantity discount | False
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| True or False: As a family, you are allowed to band together and take advantage of a quantity discount. | True
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| 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
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| 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.
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| 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.
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| 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)
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| 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.
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| A letter of intent can be back dated up to ________ to include previous purchases when taking advantage of a reduced sales charge | 90 days
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| 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.
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| 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.
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| Redemption Price | NAV - redemption fee
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| How long does a mutual fund company have to send the redemption price to the investor? | 7 calendar days
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| True or False: Mutual funds are traded in the secondary market | False
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| Short term gain/loss on a mutual fund | Held less than 1 year. Taxed at investors tax bracket
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| Long term gain/loss on a mutual fund | Held longer than 1 year. Tax maximum is 15%
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| Dividend distributions on mutual funds are taxed as ____________ | portfolio income
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| Name the 4 Mutual Fund withdrawal plans | Fixed Dollar plan, fixed time plan, fixed shares plan, fixed percentage plan.
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| The investment act of 1940 requires registration from what type of companies? | UIT's, ETFS, and Management investment companies (open and closed ended)
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| With mananged investment companies, the investment objectives may be changed only by a majority vote of the shares or shareholders? | Shares
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| 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.
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| An affiliated person is any... | officer, director, employee, or owner of 5%.
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| Transfer agents | basically manage the books for the mutual fund.
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| 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
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| Expense Ratio | Annual Operating Expenses/Total NAV
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| A tombstone includes | name of company, investment objectives, name of investment advisor, straightforward information
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| Generic advertising includes | Can speak of the company as a whole, but not an actual fund.
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| FINRA requires that all advertising material regarding mutual funds be filed with them within _______ of use for their review. | 10 days
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| Under the Investment Company act of 1940, mutual fund investment portfolios cannot include: | REal Estate, Securities purchased on margin.
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| New prospectus is required to be issued for a Mutual Fund every ________ | 16 months
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| How often must investment companies send customer statements? | quarterly
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| All investment companies are regulated by ______ | The IRS
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| IRS regulations give investment companies special tax treatment if they pass at least _________ of their net investment income to their shareholders | 90%
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| 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.
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| Dividend and interest distributions are considered part of the shareholder's __________ income and is taxed at the ordinary income level | portfolio
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| Current Yield Formula | Annual Dividend/Current Offer Price
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| ex-dividend date | the day on or after which the buyer of the mutual fund shares is not entitiled to receive the dividend.
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| 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.
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| Specialized Investment Company | must invest more than 25% of its assets in one specific type of issuer.
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| Sector funds are good for | young people who can afford to lose money, want to get dividends
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| Aggressive growth funds are good for | young people in their 20/30s looking toward their retirement
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| 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
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| Corporate Bond Funds are good for | people who want income and then safety of principal
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| Government Bond funds are good for | people who want saftey of principal and income
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| Municipal Bond Funds are good for | high tax brackets
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| 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
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| 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
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| Money Market funds are good for | nobody, short term investment until other decisions are made. Usually invest for 6-8 months
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| SPDR is a part of | Open Ended Unit investment trust
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| What is the difference between the offer price and the NAV? | Sales charge
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