Series 7 Study Guide

Chapter 13 orderment friendship ( ) enthronization Companies A corporation or trust in which investors pool their origins and ar usually organised as corporations in the same manner as any early(a) business corporation. However, some have been established as trusts and as much(prenominal) are supervised by trustees kind of than dir ? Diversification Advantages of Investment ? paid Management lodge ? Liquidity The prefatorial legistration governing enthronement fraternity and difines and classifies enthronization companies into 3 basic types. ? Face Amount Certificate follow The Investment Company act as of ? social unit Investment Trust(UIT) 1940 ? Management Company The Act requires all enthronisation companies with 100 grade doholders or more to cross-file with the south. A public creviceing may non be make by a plebeian fund until it has a minimum asshole worth of $100,000. New shares are registered by the fund periodically, usually fictional char so lveer of Investment Companies Face Amount Certificate Issues debt certificates offering a determine rate of interest. Holders are entitled to redeem Company their certificates for a flash-frozen amount on a specified date.Investment companies with no management compensation and low gross revenue take downs that invest in a fixed Unit Investment portfolio of municipal or corporate bonds are categorized as UIT. The funds are push by dint ofd in book (UIT / ) entry form and registered form. established under an indenture or simil Manage a portfolio of securities in symmetry with specified enthronization objectives. Each day, usually at the end of handicraft on the NYSE, a management fellowship allow for determine the protect of its Management Company portfolio or the net asset value(NAV) per share. ? Closed-end ? Does not issue redeemable shares ? Open-end ?Issues redeemable shares Usually with child(p)izes through a 1-time public offering of shares and may issue commo m stock, Closed-end Investment preferred stock, or bonds. The bon ton does not continuously issue shares nor will it redeem its Company shares. The market impairment of closed-end funds will be base on the f excessively called mutual fund. They are continuously issuing new shares which they stand pay off to Open-end Investment Company redeem. All shares issued are common shares ONLY. Instead of 5% policy, gross revenue concords charge will be applied. Management( coronation advisory) gifts are normally the largest Chapter 13Types of reciprocal Funds Diversified Common Stock Funds Income Funds match Funds Bond Funds Money Market Funds Bonds and favored Stock Funds particularized Funds Operation of a coarse Fund Board of Directors Investment Companies Consists mostly of common stocks. The funds can have a variety of investment objectives. One top executive be conservative and invest primarily in blue-chip stocks. Another might be more aggressive and invest primarily in maturation stocks. Have as their investment objective high current income. contain some proportion of their assets in bonds and preferred stock as sound as in common stock.Invest their assets solely in bonds and have as their objective stability of income. Invest in short-term debt(money market) instruments. A exemplary money market fund invests in CP and CDs. They generally pays the interest to the investors monthly. Invest in senior securities, both bonds and preferred stock. Their objective is current income with base hit of principal. Invest a large proportion of their assets in a grouchy industry such as the chemical industry. Elected by the mutual fund shareholders and are responsible for developing and implementing investment policies. gibe to the Investment Company Act of 1940, at least 40% of the board of directors essential be unaffiliated with the mutual fund. Unless authorized by majority vote of its shares, an investment company may not ? Go from diversified to no n-diversified ? Change its investment objectives and concentration of investments ? Borrow money, underwrite securities issued by others, make loans, profane or sell real estate ? Change the nature of business so as to cease acting Must be sent to stockholders semiannually. uncouth funds sell ex-dividend whenever the fund or its principal underwriter(sponsor) determines.The ex-dividend date for a mutual fund is usually the same day as the go into date. Contracted by the fund to issue new shares and cancel save shares for the fund. Normally also in charge of the disbursement of dividend and capital succeed distributions and executeing other bookkeeping. Responsible for the safekeeping of the securities owned by a mutual fund. plebeian funds must have a interior(a) bank, trust company or other qualified institution act as its custodian. He holds the cash and securities of the fund but does not perform any mana The principal underwriter of the fund.He has an exclusive agreement with the fund which allows him to corrupt fund shares at the current NAV. The shares may then be re change to the public, through outside traders or the sponsors sales force, at the full Shareholder Rights financial Report Dividend of Mutual Fund Transfer Agent Custodian Sponsor(Distributor) Chapter 13 Section 12b-1(The Investment Company Act of 1940) Investment Companies Though a sponsor is used and bears the cost of sales of literature and other promotional items, under certain situation, selling expenses may be borne by the fund. Chapter 13 Dealers Investment CompaniesMust have a signed selling agreement with the sponsor. They are fobidden to purchase mutual fund shares for inventory. But they can do so only to fill customer orders or for their own investment. If a dealer who has purchased shares for investment decides Manages the funds portfolio. Re. management of a mutual fund, securities on margin, participate in a joint neb, or sell short securities may not be permitted in general. Investment advisory contracts must be authorize by a majority of the funds share Total disbursement / average out last-place Assets NAV + Sales Charge = NAV / (100% Sales Charge office) = $10. 0 / (100% 7%) = $10. 75 Total Net Asset / Number of Shares Outstanding Orders to buy and sell the fund are based on the next expense to be computed. Sales Charge / Public Offering Price = $1. 57 / $19. 60 = 8% Based on public offering price. According to the NASDs Conduct regularisations, the maximum allowable percentage is 8. 5%. In the sale, at that place is no sales charge though is redemption fee(i. e. 1%). To charge the maximum 8. 5% sales charge, the mutual fund must offer i To be sold to the public at the NAV, without any sales charge added. No-load fund may charge a liquidation fee when an investor sells the fund. sawhorse levels at which the sales charge is reduced. Amount Deposited Sales Charge parting Less than $10,000 8. 5% $10,000 $25,000 7. 5% $25,000 $50 ,000 6. 0% Enables an investor to qualify for the discount do available by breakpoints without initially depositing the entire amount required. LOIs are non binding on the investor and only available to single purchaser. The letter states the investors plan Those people who are eligible for sales breakpoints and LOI, which includes a joint account only between husband and wife.Partnership, investment clubs and joint accounts are NOT eligible for reduced sales charges or LOI. Investment Advisor Expense Ratio Buying Mutual Fund Shares Public Offering Price(Asked Price) Net Asset Value(NAV / per share) Buy and Sell the Fund Sales Charge Percentage No-load(N. L. ) Funds Breakpoints Letter of Intent(LOI) Single Purchaser Chapter 13 Voluntary Plans Dollar Cost Averaging (Constant Dollar Plan) Dollar Averaging Redeeming Mutual Fund Shares salvation Investment Companies Require an initial minimum investment.The investor will indicate an designing to invest a minimum amount at fixed i ntervals, such as montly or quarterly. Fixed dollar amount is invested periodically. Fixed share amount is invested periodically. Redemption fee is calculated based on NAV. Mutual funds are required under the Investment Company Act of 1940 to pay the proceeds of redemption within 7 calendar days. The SEC can order or allow, upon the request of a fund, that redemption be suspended fo ? Fixed-dollar Types of Withdrawal Plans ? Fixed-percentage ? Fixed-share tax of Mutual Fund Distributions moolah for Investment ?Investment income(dividends & interest on the securities) Companies ? capital letter gain Investors will experience a Form 1099 to trace distributions for income tax purpose. They may take to Form 1099 take distributions from mutual funds in the form of reinvested shares rather than in the form of cash. Investment Income Dividends & interest on the securities. Taxable to the investors as prevalent income. When an asset is sold for more than its cost, the result is a cap ital gain. ? Long-term gains ? Result from the sale of assets held for more than 1 year / taxed as capital gain Capital Gain ? Short-term gains ?Result from the sale of assets held for 1 year or less / taxed as ordinary income Capital gains are taxed at the individuals tax rate, up to a maximum of 20%. Holders of one fund in the group may have an modify or conversion privilege allowing them to Exchange Privilege convert to some other fund of the same manager at the NAV. Investment companies can stave off paying taxes on income since they are eligible for finical tax Taxation of Investment treatment under Subchapter M of the Internal Revenue Code. This special tax treatment is called Companies the conduit or pipeline treatment.Avoid triple taxation which would betide if the mutual fund paid taxes. The companies held in the funds portfolio pay corporate income taxes and the investor pays taxes on dividends genuine from the fund. Therefore, taxes payable on dividends and interes Conduit / Pipeline Chapter 13 Conduit / Pipeline Investment Companies Corporatoi n in Portfolio Mutual Fund Dividen Investors Regulated Investment Companies The investment companies that meet certain requirements under Subchapter M are considered to be regulate investment companies. Chapter 13 Reporting Requirements ccc% Asset CoverageInvestment Companies Annual report must be sent to the SEC and semiannual reports must be sent to the shareholders. Investment Company Rules and Regulations Management companies(open-end & closed-end) are subject to 300% asset coverage to control their leverage, therey reducing risk. NASD Rules on Investment Companies interchange Fund Shares NASD members may not purchase fund shares at a discount from an underwriter unless the underwriter is also an NASD member. This effectively restricts non-member underwriters from distributing their shares through NASD firms. NASD members must transmit payApplied to the practice of inducing an investor to purchase a mutual fund on the basis of an impending dividend. The investor was induced to buy the stock based on the impending dividend. However, had the investor waited until ex-dividend date, the price Occurs when a registered representative does not maintain a customer about the availability of a Breakpoint Sale sales breakpoint or a LOI. The Anti-Reciprocal Rule of the Prohibits member firms from selling open-end investment company(mutual fund) shares because NASD of commissions received or to be received from the investment company.An underwriter of investment company shares is prohibited from giving a member firm any Special Deals discount above the one specified in the selling agreement for the sale of the shares. If a RR retires, he or she may continue to receive commissions for sales of investment company Continuing Commissions periodic payment plans initiated preceding to the retirement if there was a bona fide contract with the persons firm to receive such commissions. Selling D ividends Chapter 13 Investment CompaniesInvestment Company Advertising and Sales literary works SEC Rule 134 Permits the publication of a simple ad describing the basic features of a new issue. Permits the use of ad that describes, in general terms, how investment companies work. The SEC Rule 135A communication must be limited to selective information re. investment companies in general, or to the nature of investment companies. Permits the publication of an investment company ad that satisfies the definition of a prospectus SEC Rule 482 under certain conditions. This ad may NOT contain an practical application ot invest in the investment company.SEC Rule 156 Sales Literature strong Estate Investment Trust(REIT) Tax Treatment Difference between grip & Capital Gain Warns that sales literature would be considered misleading if it 1)contained an fake statement of material fact, 2)omitted a material fact that was necessary to make a statement not misleading. Any sales literature r e. redeemable investment company securities must be filed with the SEC within 10 days of use. Similar to an investment company but is not considered to be a type of investment company.He manages a portfolio of real estate orientated investments to earn profits for investors. To qualify as a REIT, a company must be set up as a municipal corporation m REITs are the favorable tax treatment tending(p) under the REIT Act Amendment to the Internal Revenue Code of 1954. If 95% of the ordinary income generated from the portfolio is distributed to investors, REIT is taxed only once. Appreciation An increase in the market price of a security from the purchase price. Capital Gain Recognized when the security is sold and the appreciation is realized.