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25 Cards in this Set

  • Front
  • Back
types of investment companies
- Face amount certificate companies - issuer guarantees payment of a stated sum in the future - zero couplon bonds
- Unit investment trusts - company organized under trust indenture - no board of directors, advisers, or active managemnt or portfolios - shares not traded in secondary market, must be redeemed by the trust
- management investment companies - active management - open or closed end - diversified
How must management investment companies be diversified
- they must pass the 75-5-10 test
- at least 75% of assets invested in such a manner that no more than 5% invested in any one issuer and no more than 10% owned by the fund with outstanding securities of one issuer
open end vs. closed end
- open end - continuous primary offering - prospectus - issue common shares only - must redeem shares - no secondary trading - price by formula - 8.5% max SC
- closed end - shares fixed - no prospectus - issues common, preferred, and bonds - shares not redeemable - secondary market (exchange or OTC) - priced by supply and demand - commissions instead of SC
Investment company act of 1940
- classifies investment companies
- manage them to make sure they have a defined investment objective
SEC registration
- company must register with the SEC if it has 40% or moare of its assets invested in securities
- company may not issue securities to public unless it has 100k of net assets, 100 investors, and clearly defined investment objectives
changes that require majority vote
- in borrowing money
- in issuing other securities
- in purchasing real estate
- in making loans
- in changing subclassification
- in changing sales load policy
- in changing nature of business
- in changing investment policy
MF board of directors
- 40% must be non interest - not paid other than for job
- if conflict of interest (changing 12b-1 fees), more than 50% must be nonaffiliated
- the BOD: defines the type of fund to offer, defines the fund objective, approves and hires the transfer agent, custodian, and investment advisor
Investment adviror
- largest expense of the fund - % of assets under management
- manages portfolio to implement investment strategy, identify tax status, and manage day to day trading
custodian bank
- enables safekeeping of the fund
- paid a percent of Assets under Management
transfer agent
- issue, redeem, and cancel fund shares
- record keeper - names, dividents, address, customer complaints, and distributions are properly made
- sponsor - distributor
- Must be NASD member
- markets funds to BDs
- whenever there is an underwriter there is a sales charge
- statement of additional information
- contains funds consolidated financial statements - balance sheet, statement of operations, income statements, and portfolio list
types of funds
- stock - growth, income, growth and income, specialized (25% in one industry or area - sector funds - most risky)
- balanced funds - stocks and bonds
- bond funds
- option income funds - sell covered calls
- money market funds - high quality debt - stable value - 1 yr or less to maturity - no sales charge but there are management fees
open end pricing-
- required to forward price every business day - usually at 4:00 or as stipulated in prospectus
- NAV per share = (assets - liabilities) divided by # of shares
- NAV + sales charge = POP (ask)
- sales charge as a percentage of POP is sales charge $ amt divided by POP
- POP = NAV divided by (100% - %SC)
- available to spouses, parents of minor children, and corporations
- not available to investment clubs
Letter of Intent
if investing just below breakpoint but intend to deliver additional $ to reach breakpoint in next 13 months you will sign a letter of intent- may be backdated up to 90 days
- if intent not fulfilled, larger load applies
rights of accumulation
- another way to reach breakpoint
- lower sales change on $ that is pushed to breakpoint - but no time limit
conversion on a MF
- conversion b/w funds within the fund family
- no fees
- taxable event
if a fund charges 8 1/2 % is must offer
- breakpoints
- rights of accumulation
- reinvestments at NAV
Net investment income
- Diviends + interest - expenses = NII
- subchapter M (conduit theory) - if investment company is a regulated company (complies with subchapter M), taxation is eliminated at MF level if at least 90% of Net investment income is distributed - if less the company pays taxes on 100% of net investment income
expense ratio
- compares the management fees and operating expenses with the funds net assets
- an expense ratio of 1.72% means taht the fund charges $1.72 per year for every $100 invested
turnover ratio
- if a fund has a turnover rate of 100% if holds its securities for less than on year - gains are likely to be short term and subject to maximum tax rate
- if has a 25% it has an average holding period of 4 years and gains are likely taxed at the long term rate
classes of shares
- class A - front end load that can be reduced b y breakpoints
- back end load that declines over time - combined wiht 12b1 fees
- class c - 12b1 fees charged quarterly ( 12b1 fees must be approved annually)
dollar cost averaging
- fixed dollars invested regularly and consistantly over time
- Standard and poors depositary receipts
- index funds designed to track the performance of an unerlying investment portfolio