Series 65 Unit Three

An investor invests $25,000 into the KAPCO Balanced fund. It would be unlikely for this investor to be required to pay a CDSC when redeeming

Class A shares. Class B shares are known for their back-end load. Class C shares usually only have one for a year, but if the investor redeems within that period, there will be a CDSC. Class A shares do not carry a back-end load, except under conditions that are beyond the scope of this exam.

Asset-based sales charges will generally be lowest when holding

) Class A shares.

A letter of intent for a mutual fund purchase may be backdated to include previous investments in the same fund during the past

90 calendar days.

An investment adviser registered with the SEC could have all of the following as advisory clients except A) the ABC Unit Investment Trust. B) Mildred, an accredited investor. C) the XYZ Growth Fund. D) the DEF Life Insurance Company.

A0 the ABC UIT

A new customer has a $35,000 CD maturing in two weeks. With the objective of maximizing his income on capital invested, he wishes to invest the proceeds in a mutual fund. Which of the following types of funds should be recommended?

An income fund

Which of the following investment companies registered under the Investment Company Act of 1940 can include senior securities in its capital structure?

Closed-end management investment companies (preferred stock and bonds)

When comparing mutual funds and exchange-traded funds (ETFs), the disadvantages of investing in ETFs include which of the following?

Commissions when both purchasing and liquidating shares

All of the following are characteristics of exchange-traded funds except A) they usually trade at or near their net asset value. B) large investors known as authorized participants buy or sell shares on an in-kind basis. C) they are generally tax efficient. D) they may not be sold short.

D) they may not be sold short

The offering document for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund?

Hedge

Which of the following statements regarding hedge funds is correct?

Hedge funds are usually structured as a limited partnership.

Under the Investment Company Act of 1940, which of the following are considered management companies? I. Open-end companies II. Closed-end companies III. Unit investment trusts IV. Face-amount certificate companies

I and II

Which of the following are the most common characteristics of a REIT? I. It is traded on an exchange or over the counter. II. It is professionally managed. III. It passes through both gains and losses to investors. IV. It is a type of limited partnership.

I and II

Which of the following statements regarding a mutual fund that offers Class A, B, and C shares are true? I. Class A shares have a front-end sales charge and a low 12b-1 fee. II. Class B shares have a declining contingent-deferred sales charge and a high 12b-1 fee. III. Class C shares have a high 12b-1 fee and a level contingent-deferred sales charge. IV. Class B and C shares allow investors to put the shares back to the fund for their original purchase price for up to one year after purchase.

I, II, III

Which of the following activities would have an effect on the NAV of a mutual fund? I. The sale of securities from the portfolio II. Automatic reinvestment of dividends by the shareholders III. Market appreciation of portfolio securities IV. Market decline in the value of portfolio securities

III and IV

Which of the following would be least likely to be organized as a limited partnership?

Index ETF

Which of the following would be a common feature of mutual funds and hedge funds?

Investors have pooled their money together

Which of the following investments is the most liquid?

Money market funds

Which of the following investments is required by law to have at least 75% of its assets represented by real estate assets such as real property or loans secured by real property, cash, and U.S. government securities?

Real estate investment trust

An investor has been comparing several different mutual funds with the same objectives. When making the decision as to which fund to purchase, which of the following factors would be the most important?

The fund manager's tenure

Why do some mutual funds offer Class A and Class B share options?

To give investors the option of choosing how they wish to be charged for the purchase of their funds

"An investment company with a low expense ratio and a portfolio that doesn't change" is a description of

a UIT.

A pooled investment with a share price generally different from its net asset value (NAV) per share is most likely

a closed-end fund.

When reading a research report about an investment company, you read that, in addition to common stock, the company also has a preferred stock issue outstanding. From this, you could conclude that this is

a closed-end investment company.

A high-net-worth client expresses an interest in adding a hedge fund to her portfolio and asks for your advice. Among the points you could make is that

adding the hedge fund increases the portfolio's diversification.

When comparing exchange-traded funds (ETFs) to mutual funds, a feature available in ETFs that is not found in mutual funds is the ability to

be bought and sold at a profit the same day.

One of your clients just inherited some money and wishes to invest $250,000 into the GEMCO International Equity Fund. The client is attracted to the Class B shares because there is no up-front sales charge on them, while the Class A shares have a 3% front-end load. The appropriate response would be that

because of the higher 12b-1 charges levied against the Class B shares as well as the CDSC, Class A shares are recommended for a purchase of this size.

Jasper is considered an affiliated person of the Tahor Clean Energy Mutual Fund. Under the Investment Company Act of 1940, Jasper is prohibited from all of the following except

being elected to the fund's board of directors.

A sector fund is one where the assets are

concentrated in a particular industry or geographical area.

Under adverse market conditions, it is not unusual for mutual fund investors who had been investing on a regular basis to cease or reduce their level of financial commitment. This can have the effect of

net redemptions.

The tax consequence of transferring proceeds from one fund to another within the same family of funds is

on the date of the transaction, any gain or loss is recognized for tax purposes.

The Investment Company Act of 1940 states that

open-end companies may issue common stock only

By investing in a REIT, you are provided all of the following except

pass-through tax treatment of operating losses.

One way for an accredited investor with an aggressive stance to reduce the overall risk in his portfolio is by

purchasing a hedge fund.

In a mutual fund portfolio, you might find all of the following except

short stock.

The dollar amount of purchase at which sales charges are reduced in the purchase of open-end investment company shares is known as

the breakpoint.

A client wishing to invest $10,000 in a tax-exempt unit investment trust would be acquiring

units.

Which of the following statements regarding investment companies is not true?

A management investment company can offer investors two ways of participating in the fund under management: through the purchase of closed-end shares or, if the investor prefers, through open-end redeemable shares.

There are certain requirements for an investment to qualify as a REIT. Which of the following is not one of them?

At least 75% of the REIT's taxable income must be paid out as dividends to investors.

If a couple has a long-term growth objective and is willing to accept a reasonable amount of risk, which of the following mutual funds is most suitable for them?

Common stock fund

What can you tell about these investment companies from the information below? NAV Ask Company A 12.34 12.85 Company B 15.45 14.90

Company A can be either open-end or closed-end; Company B must be closed-end. All open-end investment companies sell at NAV plus a sales charge (if any). Therefore, the asking price can never be less than the NAV. Closed-end company asking prices are determined by supply and demand, so their prices are independent of the fund's NAV.

An open-end investment company is also referred to as

a mutual fund.

The term private fund would apply to all of the following except

a unit investment trust

Hedge funds are issued by

limited partnerships

All of the following characteristics are advantages of a REIT except

) tax deferral.

A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?

7 days

Many investors consider purchasing an equity exchange-traded fund (ETF) to increase portfolio diversification. All of the following are reasons for investors to purchase this investment except A) ETFs offer tax benefits similar to a limited partnership. B) they have lower taxable distributions than most mutual funds. C) they have lower annual expenses than those of mutual funds. D) shares may be purchased and sold throughout the day.

A

Which of the following statements regarding REITs are not true? I. Investors receive flow-through benefits of income as well as loss. II. Hybrid REITs own properties, as well as make loans on others. III. Equity REITs are prohibited from using leverage to acquire properties. IV. REITs are easily traded in the secondary market.

I and III

A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to

buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in one year and 0.75% 12b-1 fee.

One way in which the method of capitalization of closed-end companies differs from that of open-end companies is that the closed-end company can

issue more than one class of stock.

Although investing in managed investment companies can provide many benefits, investors should be aware that disadvantages could include all of the following except

limited liquidity.

When advising an investor on the purchase of mutual funds, the agent should instruct the client to compare open-end mutual funds with the same objective for all of the following except A) costs. B) liquidity. C) portfolio turnover. D) services offered.

liquidity

A hedge fund and a traditional mutual fund are similar in that

their portfolio managers are required to adhere to the fund's stated objective.

Compared to a publicly traded fund, a private equity fund is most likely to

disclose less information about its financial performance.

A mutual fund would have net redemptions when

the number of shares being liquidated by investors exceeds those being purchased.

An investor is studying the prospectus received from the Abundant Returns Asset Allocation Fund. In a section titled "Tenure," the discussion would be dealing with

the number of years the portfolio manager has been managing the fund.

Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of the majority vote of

the outstanding shares and a majority of that portion of the board of directors that is considered noninterested members.

All of the following are characteristics of exchange-traded funds except

they are redeemable securities.

All of the following are true of REITs except

they must take equity or debt positions, never both

Your married customers, ages 48 and 50, have a combined annual income of more than $200,000. They are concerned about the effects of rising inflation, and because they are heavily invested in bonds, they seek to invest a portion of their portfolio in a fund that will provide additional diversification. Which of the following mutual funds is the most suitable for these customers?

ATF Overseas Opportunities Fund

Which of the following statements regarding an investment company's board of directors is not true?

An investment company's board of directors manages the portfolio on behalf of the investor shareholders.

An investor receives a prospectus for a management investment company. In the section on purchasing shares, it states that investors purchase shares at the next calculated net asset value per share (NAV). Furthermore, when shares are redeemed, the investor receives the next calculated NAV after receipt of the redemption request. The prospectus details a number of expenses, including management and custodial fees. There is also a 0.15% 12b-a charge. More than likely, the investor is reading the prospectus of

a no-load fund.

A pooled investment fund buys all the shares of a publicly-traded company. The fund takes the company private, reorganizes the company, and replaces its management team. Three years later, the fund exits the investment through an initial public offering of the company's shares. This pooled investment fund is best described as

a private equity fund.

If an investment company invests in a fixed portfolio of municipal or corporate bonds, it is classified as

a unit investment trust.

Which of the following statements about closed-end investment companies are true? I. Investors in closed-end investment companies may trade only in full shares. II. Shares in closed-end investment companies may trade at more or less than the net asset value of the shares. III. A closed-end investment company offers a fixed number of shares and does not continually offer new shares in response to investor demand.

all

Which of the following statements about the redemption of mutual fund shares are true? I. A mutual fund may, but is not required to, redeem its shares if requested by a shareholder. II. A mutual fund will redeem fractional shares as well as full shares. III. Redemptions of mutual fund shares are handled under forward pricing.

all

One of your clients is interested in investing in a large-cap growth fund and has a list of several that she has been investigating. When helping her compare, each of the following factors would be relevant except

dates that dividends are paid.

Which of the following would be the most important reason for an investor interested in adding foreign stocks to his portfolio to do so by purchasing an international mutual fund?

) He would have the benefit of the portfolio managers picking the stocks instead of having to rely on his own efforts.

The Investment Company Act of 1940 requires certain types of investment companies to compute their net asset value on a regular basis. Excluded from this requirement are

face-amount certificate companies.

Examples of private funds include

hedge funds and private equity funds.

When discussing the differences between purchasing a mutual fund and a hedge fund, the investor should be aware that

hedge funds do not offer the transparency of mutual funds.

A customer is interested in an exchange-traded fund (ETF). With regard to the trading of ETFs, the customer should be aware of which of these? I. ETFs can be purchased throughout the trading day. II. ETFs use forward pricing, as all mutual funds do. III. Real-time quotes are available for ETFs. IV. The NAV calculated at the end of the day, plus a sales charge, will equal the trading price.

I and III

A customer with an aggressive growth investment objective and short-term (6-to-12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to

buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in one year and 0.75% 12b-1 fee.

As defined in the Investment Company Act of 1940, investment companies include

face-amount certificate companies, management companies, and unit investment trusts.

One reason that a private equity fund may operate under the Section 3(c)(7) exemption of the Investment Company Act of 1940 is that

it would be able to have more than 100 investors.

When shares of a closed-end investment company are purchased by an investor, the price paid is based upon

the current asking price.

Open- and closed-end investment companies have all of the following in common except

they trade their shares in the secondary market. (open end dont)