Term
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Definition
| An issuer in the business of investing, reinvesting, owning, holding or trading in securities; are corporations or trusts in which investors are able to pool their funds for increased diversification and professional management. |
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Term
| Classifications of Investment Companies: |
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Definition
1. Management Companies
2. Unit Investment Trusts
3. Face-Amount Certificate Companies |
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Term
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Definition
| No single shareholder has any right or claim that exceeds the rights or claims of other shareholders. |
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Term
| Investment Company Act of 1940 |
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Definition
| Established guidelines for the operation of investment companies and divided them into their classifications. |
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Term
| Unit Investment Trust (UIT) |
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Definition
| Are established as a trust and operate as a holding company for the portfolio. There is no secondary trading and usually feature a fixed portfolio. |
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Definition
| A feature that is held for the life of the trust. |
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Term
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Definition
| Issue debt certificates that offer predetermined interest rates; can be purchased with either periodic installments or a lump-sum payment. They have a maturity of at least 24 months, but are rarely issued today due to changes in tax law. |
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Term
| Investment Adviser (Fund Manager) |
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Definition
| Employed to manage a diversified portfolio of securities in such a way as to achieve a specified investment objective. |
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Term
| Specific Investment Policy (Objective) |
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Definition
| Outlines the types of securities and the investment strategies which the fund employs in pursuing its stated objective. Any change in the investment objective requires shareholder approval. |
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Definition
| Behave like shares of common stock of any publicly traded company; maintain a calculated NAV per share. |
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Definition
| Have a continuous primary offering of unlimited number of shares, but there is no secondary market trading. Provided a continual offering and redemption of shares. |
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Definition
| To be this, the portfolio must be invested in a manner specified in the Investment Company Act of 1940 or the "75-5-10 Rule". |
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Term
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Definition
| A way of managing a portfolio that does not follow the "75-5-10 Rule", because management companies find to more expedient to pursue their stated goals. |
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Term
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Definition
| For a portion totaling at least 75% of the total assets, the portfolio must be structured so that no more than 5% of the total assets are invested in any one company. The investment company cannot own more than 10% of the voting stock of any target company. |
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Term
| Closed-End Management Companies |
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Definition
-Usually capitalize through a one-time public offering of a fixed number of shares.
-After the initial public offering, the shares trade in the secondary market.
-The share price in the secondary market is determined by investor demand.
-Trading in shares may take place on an exchange or in the OTC market.
-The closed-end company does not redeem shares held by investors. |
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Term
| Public Offering Price (POP) |
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Definition
| Is composed of the NAV per share plus any applicable sales charge. |
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Term
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Definition
| Contains key information about the fund, whereas a long-form version can be found online. |
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Term
| Statement of Additional Information |
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Definition
| Is given to an investor who would like additional disclosure and must be made available to all current and potential investors within 3 days of the request. |
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Term
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Definition
| Uses extensive research on a company's financial condition, company earnings reports, industry trends, and economic analysis to make everyday decisions about which securities in the funds' portfolio should be held or disposed of. |
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Term
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Definition
| Are funds that invest in common and/or preferred stock as opposed to debt securities. |
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Term
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Definition
| These funds have an objective of current income; will hold securities with a dividend yield potential (combinations of preferred/common stock with a history of high dividends). These have below average growth potential and are exposed to credit risk and interest rate risk. |
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Term
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Definition
| These funds typically include common stocks of blue-chip companies with solid earnings and may include younger companies with growth potential. Divided income is a lower priority; subject to market risk. |
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Term
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Definition
| These funds tend to hold well-established companies that pay some dividend, but still retain earnings for expansion. They are less volatile than pure growth funds, but under-perform growth funds during market advances; subject to market risks and possibly purchasing power risks. |
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Definition
| Are potentially volatile funds that have invested in companies of cutting-edge industries. The pay-off for the increased volatility is the potential for substantial gains; subject to market and timing risk. |
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Definition
| These funds primarily hold stocks that are deemed to be undervalued in price; tend to under-perform during a general market advance and outperform in a decline. |
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Definition
| These funds tend to hold no fixed-income securities, but contain a mix of growth and value stock. |
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Definition
| These funds provide a combination of fixed income instruments and equities; goal is to achieve growth in value and income, as well as preservation of capital. |
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Definition
| Securities with a constant yield (ex. debt securities and preferred stock). They provide a return of fixed periodic payments known in advance. The return on investment is usually lower than other securities; help reduce volatility. |
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Term
| Government Fixed Income Funds |
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Definition
| These funds typically hold treasury and government agency debt and offer safety and less volatility; offer low yields. |
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Term
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Definition
| These funds only hold municipal bonds and offer advantages for those in high tax brackets. May be exempt from state tax if the holder is a resident of the issuing state. |
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Term
| High-Yield Fixed Income Funds |
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Definition
| These funds hold corporate debt with low credit ratings (junk bonds); carry high default risk and are more volatile. Most suitable for aggressive long-term investors who are interested in yield and not safety; have above average share price fluctuation in return for the potentially higher yield. |
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Term
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Definition
| These funds invest in safe, liquid, short-term debt instruments; attempt to maintain a stable $1 per share value, but not guaranteed. |
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Term
| Specialized Funds (Sector/Industry Funds) |
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Definition
| These funds concentrate a major portion of their assets in a specific industry, market sector, or geographic region; have potential for substantial gains in advancing markets but are vulnerable to industry changes or economic trends. Not suitable for the an investor with a lower risk tolerance. |
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Definition
| A fund with this purchases securities of companies from a common geographic area. Carries more risk and is suitable for sophisticated investors. |
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Term
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Definition
| Is the investment style of assigning assets over the various asset classes, such as stocks, bonds and cash equivalents. |
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Definition
| A mutual fund that invests a concentration of its assets in overseas companies and markets. |
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Term
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Definition
| These mutual funds invest primarily in securities issued by agencies such as Ginnie mae, Freddie Mac, Fannie Mae, or possibly private corporations; provide monthly principal and interest. Carry higher degree of default risk than government bond funds, but also a higher yield. |
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Term
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Definition
| A type of mutual fund whose goal is to achieve the same return as a particular market index; invests in only the securities that are included in that index. Not managed so expenses are lower. |
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Definition
| A fund that invests in gold, silver, and platinum, and are usually chosen in the time of economic decline and as a hedge against inflation. |
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Term
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Definition
| A mutual fund that holds shares in several other funds in the pursuit of its stated objectives; gains exposure to several different investment objectives within one fund. Expense fees can be higher because it has a "double layer" of expenses. |
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Term
| Principal-Protected Funds |
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Definition
Are new types of mutual funds that guarantee, for a set period of time, that the capital invested by shareholders in the mutual fund will be kept safe; have a higher expense ratio. Characteristics:
1. Guarantee Principal
2. Lock-Up Periods
3. A mixture of bonds and stocks. |
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Term
| Functions of Board of Directors: |
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Definition
-Establish investment policy
-Select and oversee investment adviser, transfer agent, custodian
-Establish dividend and capital gains |
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Term
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Definition
-Voting rights/proxies
-Approving changes in investment objectives and polices
-Approving investment advisory agreements
-Approving changes in fees
-Electing directors
-Ratifying selection of independent auditors |
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Term
| Resposibilities of an Investment Adviser: |
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Definition
-Obtaining appropriate diversification
-Provide advice in conformity with federal securities regulations and tax laws
-Research and analyze financial and economic trends
-Conform to investment objectives and policy decisions |
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Term
| Functions of Transfer Agent: |
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Definition
-Issuance of physical shares or book entry.
-Cancellation of redeemed shares.
-Disbursement of dividend and capital gains distributions to shareholders. |
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Term
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Definition
| A fee paid to the investment adviser; usually the largest expense of operating a fund. |
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Term
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Definition
| Funds that sell direct to the investor at NAC; they do not outsource their sales effort so their sales related costs are charged against the fund as an expense. |
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Term
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Definition
| A distribution fee to cover expenses associated with the promotion and distribution of fund shares; covers such costs ad printing of the prospectuses and sales materials as well as certain sales commissions. It is an asset-based fee based on annual percentage of net assets and and charged quarterly. |
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Term
| Need to approve the 12b-1 fee: |
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Definition
-The majority of the fund's board of directors.
-The majority of the "non-interested" board members.
-The majority of the outstanding shares.
(Termination only requires the majority votes of the outstanding shares and the "non-interested" board members) |
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Term
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Definition
Express the expenses of a mutual fund.
Total expenses/average net assets |
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Term
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Definition
| Fund ->Underwriter Public -> Dealer |
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Term
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Definition
| This is the price that an investor would receive if the fund were to be sold. Investors purchase the mutual fund at the asked price (NAV + Sales charge). |
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Term
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Definition
| Expressed as a percentage of the public offering price; limit this charge to a maximum of 8.5%. |
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Term
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Definition
| The shareholder receives the price at the close of the next business day, if orders are received after the closing of the current day. |
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Term
| How to calculate Net Asset per Share: |
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Definition
| Total net assets/Total of outstanding shares = Net asset value per share |
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Term
| How to calculate Net Asset per Share: |
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Definition
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Term
| Contingent Deferred Sales Charges (CDSC) |
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Definition
| Funds with this are offered at the NAV, but there is a charge if the shares are redeemed within a certain period of time after their purchase; is based on the lower of the share's cost basis or current NAV at the time of redemption. |
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Term
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Definition
| Shares are purchased at the POP and have no deferred sales charge. |
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Term
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Definition
| Shares are purchased at NAV, but have potential back-end load (CDSC). The sales charge declines each year the investment is held, eventually reaching 0%. At that time, these shares convert to A shares. |
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Term
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Definition
| Shares are purchased at NAV, but have a back-end sales charge that runs for 1 year. Do not convert to class A. Have a lower short-term expense ratio than B shares, but can be more costly long-term. |
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Term
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Definition
| Dollar levels at which the sales charge is discounted or reduced; stated in the prospectus. |
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Term
| Conditions necessary for Break Points: |
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Definition
-Breakpoints uniformly apply to all recipients.
-Information concerning scheduled breakpoints is given to shareholders and prospective investors.
-The prospectus is revised if the breakpoint schedules change.
-The investment company advises existing shareholders of any break point schedule changes within 1 year. |
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Term
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Definition
| A violation; selling just shy of a breakpoint. Occurs when a rep divides a customer's purchases between several mutual fund families to increase the charges the rep is paid. |
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Term
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Definition
| Allows an investor to qualify for the sales discounts without initially the entire amount required. The letter states the investor's intent to invest the required amount over the next 13 months; can be backdated 90 days. |
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Term
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Definition
| Allow investors the right to receive cumulative quantity discounts when purchasing additional shares. Investors can combine assets from their accounts and those of immediate family members to qualify for the discounts; rights are made available for at least 10 years. |
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Term
Periodic Payment Plans
(Contractual Plans/Systematic Investment Plans) |
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Definition
| Allow investors to accumulate shares of a mutual fund indirectly by contributing a fixed amount of money on a regular basis; require monthly investments for 10 to 15 years. A plan trust invests the individual investor's payments minus fees in the mutual fund's shares. Maximum sales charge is 9% over the life of the plan. |
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Term
| Methods for redeeming funds: |
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Definition
1. Written Request
2. Telephonic
3. Check Writing
4. Through a Dealer |
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Term
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Definition
| Is usually required for wire transfers, redemptions to addresses different than the address of record on the account, or for dollar amounts above certain limits. |
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Term
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Definition
| Voluntary investment plan whereby the investor systematically invests a fixed dollar amount at regular intervals, usually monthly or quarterly. |
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Term
| Systematic Withdrawal Plans |
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Definition
| An option for systematic withdrawals. Payments can be received at specified intervals in either fixed or flexible amounts. |
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Term
| Types of Withdrawal Plan Payouts: |
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Definition
1. Fixed Dollar Periodic Payments
2. Fixed Percentage Periodic Payments
3. Fixed Shares Periodic Payments |
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Term
| Fixed Dollar Periodic Payments |
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Definition
| An investor requests that a specified dollar amount be received in each payment. |
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Term
| Fixed Percentage Periodic Payments |
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Definition
| An investor requests that a fixed percentage of shares be liquidated at fixed intervals. |
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Term
| Fixed Shares Periodic Payments |
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Definition
| An investor requests that a fixed number of shares be liquidated at specified intervals. |
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Term
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Definition
| A form of share ownership that does not require the owner to have a physical certificate. |
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Term
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Definition
| It documents to the IRS and to the investor all potentially taxable events such as dividends, realized short-term and long-term capitals gains and capital losses. |
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Term
| Fund Comparison based on: |
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Definition
1. Investment Objective
2. Investment Policies
3. Quality of Management
4. Risk Factors
5. Portfolio Turnover |
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Term
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Definition
| The frequency with which a fund buys and sells securities in its portfolio. |
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Term
| Statistical Analysis is based on: |
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Definition
1. Total return- for a given holding period, includes the efft of reinvested distributions and share price appreciation, net of sales charges and expenses for the period.
2. Expense Ratio- higher expenses reduce current yields and total returns. |
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Term
| Exchange Traded Funds (ETFs) |
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Definition
| Are investment companies whose objective is to achieve the same return as a particular market index, and who primarily invest in the securities of companies that are included in a selected market index; are issued in large blocks (Creation units). |
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Term
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Definition
| Limited Partnerships and not mutual funds; use aggressive strategies (options, short selling, buying on margin) to generate income and minimize losses in a down market; appropriate for experienced sophisticated, wealth investor. |
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