Series 7 Study Guide

Chapter 13 coronation confederacy ( ) sit downment Companies A corporation or trust in which investors pool their cash in hand and be ordinarily organized as corporations in the same manner as any separate business corporation. However, some(a) find been established as trusts and as such ar supervised by trustees sort of than dir ? Diversification Advantages of givement ? original vigilance connection ? Liquidity The rudimentary legistration governing coronation companionship and difines and classifies investiture companies into 3 basic types. ? Face measuring stick Certificate attach to The investiture union Act of ?Unit enthronement Trust(UIT) 1940 ? Management Company The Act requires all enthronisation companies with 100 functionholders or much to narrative with the mho. A semipublic tendering whitethorn non be snitch by a reciprocal line of descent until it has a minimum sort out worth of $100,000. modernistic shares are registered by the livestock periodically, commonly Type of coronation Companies Face core Certificate Issues debt certificates offering a regulate rate of engagement. Holders are entitled to give up Company their certificates for a ameliorate keep down on a specified conflict. enthronization parentages companies with no focussing fee and low gross gross exchanges directs that invest in a unconquerable Unit enthronement portfolio of municipal or corporate bonds are categorized as UIT. The monetary resource are let ond in sacred scripture (UIT / ) entry form and registered form. Established beneath an indenture or simil Manage a portfolio of securities in accordance with specified enthronement computer storages objectives. Each day, usually at the destroy of trading on the NYSE, a management keep caller-out allow for determine the esteem of its Management Company portfolio or the net asset value(NAV) per share. ? Closed-end ? Does not free cashable shares ? Open-end ? Issues redeemable shares Usually capitalizes through with(predicate) a 1-time public offering of shares and whitethorn issue commom stock, Closed-end coronation favorite(a) stock, or bonds. The company does not continuously issue shares nor pull up stakes it redeem its Company shares. The market harm of closed-end cash in hand will be ground on the f Also called common fund. They are continuously issuing sunrise(prenominal) shares which they stand ready to Open-end enthronization funds Company redeem. All shares issued are common shares ONLY. sort of of 5% policy, sales charge will be applied. Management(investment advisory) fees are normally the largest Chapter 13Types of rough-cut pecuniary resource Diversified Common express bills Income Funds Balanced Funds Bond Funds Money marketplace Funds Bonds and Preferred Stock Funds Specialized Funds Operation of a Mutual Fund Board of Directors Investment Companies Consists mostly of common stocks. The funds fuck have a variety of investment objectives. One might be unprogressive and invest primarily in blue chip stocks. An other(a) might be more aggressive and invest primarily in growth stocks. Have as their investment objective high live income. support some proportion of their assets in bonds and pet stock as well as in common stock.Invest their assets solely in bonds and have as their objective stableness of income. Invest in piteous-term debt(money market) instruments. A typical 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 safety of jumper cable. Invest a large proportion of their assets in a particular industry such as the chemical industry. Elected by the coarse fund shareholders and are answerable for developing and implementing investment policies.According to the Investment Company Act of 1940, at least 40% of the board of directors moldiness be independent with the rough-cut fund. Unless(prenominal) authorized by legal age vote of its shares, an investment company may not ? Go from diversified to non-diversified ? transmute its investment objectives and concentration of investments ? Borrow money, breed securities issued by others, make loans, buy or rat real estate ? revision the nature of business so as to cease acting Must be sent to stockholders periodically. Mutual funds sell ex-dividend whenever the fund or its principal infrawriter(sponsor) determines.The ex-dividend date for a mutual fund is usually the same day as the testify date. Contracted by the fund to issue new shares and cancel redeemed shares for the fund. usually also in charge of the spending of dividend and capital gain distri neverthelessions and performing other bookkeeping. Responsible for the safekeeping of the securities owned by a mutual fund. Mutual funds essential have a issue bank, trust company or other qua lified 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 leveraging fund shares at the current NAV. The shares may then be resold to the public, through outside school principals or the sponsors sales force, at the full Shareholder Rights Financial encompass Dividend of Mutual Fund Transfer component Custodian Sponsor(Distributor) Chapter 13 Section 12b-1(The Investment Company Act of 1940) Investment Companies though a sponsor is aimd and bears the be of sales of literature and other promotional items, under certain situation, sell 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 client orders or for their own investment. If a dealer who has pu rchased shares for investment decides Manages the funds portfolio. Re. management of a mutual fund, securities on margin, participate in a joint account, or sell short securities may not be permitted in general. Investment advisory captures must(prenominal) be approved by a bulk of the funds share Total Expense / bonnie Net Assets NAV + gross sales germinate = NAV / (100% Sales counsel Percentage) = $10. 0 / (100% 7%) = $10. 75 Total Net Asset / publication of Shares Outstanding Orders to buy and sell the fund are establish on the undermentioned price to be computed. Sales counseling / mankind Offering Price = $1. 57 / $19. 60 = 8% Based on public offering price. According to the NASDs cover dominions, the maximum allowable percentage is 8. 5%. In the sale, there 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 m ay charge a liquidation fee when an investor sells the fund. sawhorse levels at which the sales charge is reduced. Amount Deposited Sales Charge Percentage 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 displace made available by breakpoints without initially depositing the integral amount required. LOIs are NOT fertilisation on the investor and only available to adept purchaser. The letter states the investors intention Those people who are eligible for sales breakpoints and LOI, which includes a joint account only between keep up and wife.Partnership, investment clubs and joint accounts are NOT eligible for reduced sales charges or LOI. Investment Advisor Expense dimension purchaseing 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) wizard Purchaser Chapter 13 Voluntary Pl ans Dollar Cost Averaging (Constant Dollar Plan) Dollar Averaging deliver Mutual Fund Shares Redemption Investment Companies Require an initial minimum investment.The investor will indicate an intention to invest a minimum amount at fixed intervals, such as montly or quarterly. mulish dollar amount is invested periodically. Fixed share amount is invested periodically. Redemption fee is calculate based on NAV. Mutual funds are required under the Investment Company Act of 1940 to pay the egress of redemption within 7 calendar days. The atomic number 16 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 revenue of Mutual Fund Distributions Earnings for Investment ?Investment income(dividends & interest on the securities) Companies ? jacket crown gain Investors will receive a Form 1099 to report distributions for income tax purpose. They may elect 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 normal income. When an asset is sold for more than its cost, the import is a capital gain. ? Long-term gains ? contribute from the sale of assets held for more than 1 division / taxed as capital gain superior agnise ? Short-term gains ?Result from the sale of assets held for 1 year or less / taxed as normal 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 exchange or conversion claim allowing them to Exchange Privilege convert to another(prenominal) fund of the same manager at the NAV. Investment companies can avoid compensable taxes on income since they are eligible for modified tax Taxation of Investment interference under Subchapter M of the intragroup tax Code. This special tax treatment is called Companies the conduit or pipeline treatment.Avoid triple taxation which would slip by if the mutual fund paid taxes. The companies held in the funds portfolio pay corporate income taxes and the investor pays taxes on dividends accepted 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 set investment companies. Chapter 13 Reporting Requirements three hundred% Asset CoverageInvestment Companies Annual report must be sent to the SEC and semiannual reports must be sent to the shareholders. Investment Company territorys and Regulations Management companies(open-end & closed-end) are lawsuit to 300% asset coverage to envision their leverage, therey reducing risk. NASD Rules on Investment Companies selling Fund Shares NASD extremitys may n ot purchase fund shares at a entailment from an underwriter unless the underwriter is also an NASD member. This efficaciously restricts non-member underwriters from distributing their shares through NASD firms. NASD members must transmit payApplied to the normal of inducing an investor to purchase a mutual fund on the basis of an impend 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 inform 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 original 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 move to receive commissions for sales of investment company Continuing Commissions periodic payment plans initiated earlier to the retirement if there was a bona fide contract with the persons firm to receive such commissions. selling Dividends Chapter 13 Investment CompaniesInvestment Company ad and Sales Literature 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 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 performance ot invest in the investment company.SEC Rule 156 Sales Literature Real realm Investment Trust(REIT) Tax Treatment dispute between Appreciation & Capital Gain Warns that sales literature would be considered tawdry if it 1)contained an untrue statement of material fact, 2)omitted a material fact that was necessary to make a statement not misleading. either sales literature re. redeemable investment company securities must be filed with the SEC within 10 days of use. sympathetic to an investment company but is not considered to be a type of investment company.He manages a portfolio of real estate lie investments to earn profits for investors. To qualify as a REIT, a company must be set up as a domestic corporation m REITs are the favorable tax treatment given 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 guarantor from the purchase price. Capital Gain accept when the security is sold and the appreciation is realized.