Series65 MOD 16 Investment Companies

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  1. Aside from registering with SEC, the Investment Company Act of 1940, requires a registered investment company to have (4):
    • $100,000 in capital [CAPITALIZATION]
    • 100 shareholders before its securities can be offered and sold to the public.
    • Annual Reports to SEC
    • Semi-Annual reports to Shareholders
  2. Investment Company Act of 1940 establishes 2 types of Managed Investment Companies:
    • Open-End Management Companies: Mutual Funds
    • Closed-End Management Companies
  3. Investment Company Act of 1940 establishes 3 Classifications of Investment Companies:
    • Face Amount Certificates
    • Unit Investment Trusts (UITs)
    • Management Companies
  4. Name the two major types of investment companies that are required to register with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940:
    • Non-managed
    • Managed
    • a major type of un-managed investment company that issues redeemable trust certificates that represent an undivided interest in a portfolio of securities.
    • Do Not offer Direct Reinvestment back into Original UIT
    • This fixed portfolio usually consists of municipal bonds or corporate bonds but can contain other investments, including stocks.
    • Finite Life
  6. Board of Directors are responsible for:
    • Sets Fund Objective
    • Oversight of Other Professionals
    • Protect Shareholder Interests
    • Does NOT Make Buy and Sell Decisions
  7. Transfer Agent are responsible for:
    • Handles all the "Paperwork"
    • Issues/Cancels Shares
    • Distributes Dividends/Capital Gains
    • Mails Statements/Semi-Annual Reports
  8. Investment Advisers of Management Companies are responsible for:
    • Investment Research & Trading
    • Limited by Investment Guidelines
    • Compensated on % of AUM
    • Subject to Terms of IA Contract
    •    -Initial Term is 2 Years
    •    -Renewed Annually
    • Approved by a Majority of Disinterested Directors
  9. The Role of the Underwriter is:
    • AKA Fund Distributor or Sponsor or Wholesaler
    • Intermediary Between Fund & B/Ds
    • Prepares Sales Literature/Sales Training
    • Earns a Portion of Sales Charge
    •    -Sales Charge vs. Dealer Reallowance
  10. The Custodian must:
    Safeguards Assets
  11. At Least 75% of the BOD must be:
    Uninterested Persons
  12. The two major types of management investment companies are:
    • Open-end management investment companies, more commonly called MUTUAL FUNDS
    • Closed-end management investment companies, also known as PUBLICLY TRADED FUNDS
  13. NAV is calculated daily for each Mutual fund upon the close of the:
    New York Stock Exchange
  14. The primary difference between open-end companies and closed-end companies is the:
    CAPITALIZATION of the company.
  15. The most that open-end companies may borrow from a bank is:
    1/3rd of their net asset value
  16. Closed-end companies can issue:
    common stock, preferred stock, and bonds.
  17. Formula
    Net Asset Value =
    (Market Value of Fund's Security - Mutual Funds Liabilities; sales charge) ÷ Outstanding Shares
  18. When Mutual funds are redeemed, they may have a Redemption Fee which is:
    only up to 1% of the Bid Price
  19. What is the major difference between an open-end and a closed-end company is:
    • How they raise money (Capitalization)
    • Open=   only common stock
    • Closed= common stock, preferred stock and bonds
  20. Formula
    How do you Calculate CAPITALIZATION?
    Capitalization = # of shares x value/share
  21. Class C mutual fund shares cannot be considered No-Load if:
    12b-1 shares are greater than .25%
  22. When is each Fund's NAV calculated?
    Daily upon the close of the NYSE
  23. What are 12b-1 charges?
    • 12b-1 charges are used to pay advertising, marketing and prospectus costs
    • Sometimes referred to as Asset-Based Sales Charge
    • 12b-1 charges are sometimes used to compensate Broker/Dealers for the sales of Mutual Funds
  24. Formula
    Expense Ratio:
    Expense Ratio = Total Operating Expenses / Average Assets
  25. Formula
    POP =
    • Public Offering Price = NAV ÷ [100%-SC%)
    • SC=sales charge
  26. Formula
    Calculate Yield of Mutual Funds
    Dividends ÷ Offering Price (asking)
  27. Formula
    Calculate Total Return of Mutual Funds
    Dividends + Capital Gains Distribution ÷ Offering Price (asking)
  28. Define ROA (Rights of Accumalation)
    • Sales Charge decrease on higher purchases
    • Loyalty Discount
    • Must be offered a minimum 10yrs
  29. Define LOI (Letter of Intent)
    • Acquiring breakpoints due to expected future investments
    • Good for 13 months
    • May be backdated 90 days
  30. Dividends and Capital is REINVESTED at:
    NAV, not POP
  31. Can C Shares convert:
    No; never
  32. No Loads May Charge a Maximum 12b-1 of:
  33. Define a BREAKPOINT SALE:
    • takes place when customers buy a large dollar amount that is just below the sales breakpoint and they are not informed of it.
    • Breakpoint sales are violations
  34. For a Diversified Investment Company, what is the 75 – 5 – 10 Rule?
    • 75% of Fund’s Portfolio Invested as Follows:
    • Max 5% of Portfolio Invested in Any 1 Company
    • Max 10% Ownership of Any Company’s Voting Shares
    • 25% of Portfolio – NO RESTRICTIONS
  35. Describe the Subchapter M (Conduit Theory)
    • Distribute a Minimum of 90% of NII (Net Investment Income)
    • Distributed portion of NII is NOT Taxable to Fund
    • Passthrough to Investor
  36. Regulated Investment Companies are Regulated per:
    Subchapter M for Tax Purposes
  37. Growth Funds investing is:
    • Concentrated in Common Stock
    • Concentrated in New / High-Growth Companies
    • Seeking Capital Appreciation
  38. Registered Investment Companies are Registered with:
  39. IRS regulation allows this type of investment company to receive special tax treatment if they pass through at least 90% of their net investment income to their shareholders
  40. Leveraged Mutual Funds fall into two categories:
    • A mutual fund which invests in companies that are leveraged in lower-quality debt
    • Investment companies whose charter permits them to borrow money for their investment activity
  41. Growth & Income Funds are:
    • To Generate Income
    • To Keep Pace with Inflation
  42. Special Situation Funds attempt to:
    • Profit by Investing in “Special Situations" such as:
    • Mergers & Acquisitions
    • Bankruptcies
    • Spin-offs
  43. REITs are ____ Investment Companies under the ICA of ’40
  44. Describe REITs:
    • At Least 75% of Assets Must be in Real Estate / Cash
    • At Least 75% of Income Derived from Real Estate
    • Must Distribute at Least 90% of Taxable Income

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Series65 MOD 16 Investment Companies
2015-01-09 20:10:02

Investment Companies
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