Unit 4

A letter of intent may be backdated to include a prior purchase up to

90 days

A mutual fund's public offering price is $10.50. An investor who wishes to invest $1,000.00 in the fund is able to purchase

95.238 shares.

ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore, which of the following statements is true? A) ACE paid taxes on 9% of its net investment income last year. B) ACE paid taxes on 91% of its net investment income last year. C) ACE paid taxes on 9% of its net investment income and capital gains last year. D) ACE paid no taxes last year because it qualified as a regulated investment company under IRC Subchapter M.

A) ACE paid taxes on 9% of its net investment income last year.

Regarding sales loads, management fees, and operating expenses for mutual funds, which of the following is true? A) All reduce investor returns because they reduce the amount of money available for the fund to invest. B) Only management fees and operating expenses reduce investor returns by reducing the amount of money available for the fund to invest. C) All increase investor returns because each is received by the fund increasing the amount they have to invest. D) Sales loads increase investor returns because they are received by the fund increasing the amount they have to invest.

A) All reduce investor returns because they reduce the amount of money available for the fund to invest.

Which of the following regarding open-end (mutual fund) and a closed-end management investment company is true? A) An open-end company may sell fractional shares, but a closed-end company may not. B) The price of open-end company shares is set by supply and demand, but not the price of closed-end shares. C) A closed-end company sets its own dividend ex-date, but an open-end company's ex-date is set by its self-regulatory organization (SRO). D) Only the closed-end company may issue additional shares without changing its charter.

A) An open-end company may sell fractional shares, but a closed-end company may not.

Which of the following issues only common stock? A) An open-end management investment company B) An equity unit investment trust C) A face-amount certificate company D) A closed-end management investment company

A) An open-end management investment company

All of these are part of the expense ratio of a mutual fund except A) CDSC. B) legal and accounting costs. C) management fees. D) a 12b-1 fee.

A) CDSC.

Which is the most common way investors pay a mutual fund's sales charge? A) Front-end load B) Level load C) Variable load D) Back-end load

A) Front-end load

Which of these would cause a change in the net asset value of a mutual fund share? A) The market value of the portfolio declines B) Securities in the portfolio are sold for a capital gain C) Many shares are redeemed D) The fund takes a new position

A) The market value of the portfolio declines

All of the following actions would cause the NAV per share of the mutual fund to increase except A) a large number of investors making deposits in the fund. B) the fund receives dividends. C) the liabilities of the fund decline. D) the fund receives interest.

A) a large number of investors making deposits in the fund.

Regarding open-end and closed-end investment companies, all of the following are true except A) both offer an unlimited number of shares in a continuous public offering. B) both may offer numerous investment objectives to select from. C) both may be either diversified or nondiversified portfolios. D) both may avoid taxation by distributing all of their net investment income to shareholders.

A) both offer an unlimited number of shares in a continuous public offering.

A mutual fund's public offering price is $15.23. An investor who wishes to invest $1,000 in the fund will purchase how many shares? A) 65 shares and receive $10.05 in change B) 65.66 shares C) Must purchase some multiple of 100 shares D) 66 shares and be billed for an additional $5.18

B) 65.66 shares

For which of the following investors would Class C shares be most suitable? A) A relatively inexperienced investor B) An investor who intends to redeem the shares within a short time C) An investor interested in high-risk, high-potential return speculation D) An investor who intends to leave the money in the fund for many years

B) An investor who intends to redeem the shares within a short time

Which of the following investment companies has an actively managed portfolio? A) Equity fixed unit investment trust (UIT) B) Closed-end company C) Face-amount certificate company D) Debt fixed unit investment trust (UIT)

B) Closed-end company

All of the following are identified as types of investment companies in the Investment Company Act of 1940 except A) mutual fund. B) municipal bond pool. C) unit investment trust. D) face-amount certificate company.

B) municipal bond pool.

Under the Investment Company Act of 1940 all of these are examples of management companies except A) A Windmill Income Fund, an exchange-listed:closed-end fund. B) A growth fund option for a VA. C) A Windmill Income UIT. D) An S&P 500 Index Trust ETF.

C) A Windmill Income UIT.

Which of the following would be unlawful regarding use of a mutual fund prospectus? A) Failing to highlight a small section the customer has specifically asked about B) Sending a prospectus to someone who has shown no interest in the fund C) Calling an investor's attention to a section that may be interesting D) Leaving a typographical error in the text unmarked

C) Calling an investor's attention to a section that may be interesting

Which of these would be unlawful regarding the use of a mutual fund prospectus? A) Sending a prospectus to someone who has shown no interest in the fund B) Leaving a typographical error in the text unmarked C) Calling an investor's attention to a section that may be interesting D) Failing to highlight a small section the customer has specifically asked about

C) Calling an investor's attention to a section that may be interesting

Which of the following investment companies do not redeem their shares? A) Unit investment trusts B) Face amount certificates C) Closed end funds D) Open end funds

C) Closed end funds

Which of the following investment companies terminates business on a predetermined date? A) Nonfixed unit investment trust (UIT) B) Hedge fund C) Fixed unit investment trust (UIT) D) Mutual fund

C) Fixed unit investment trust (UIT)

Under the Investment Company Act of 1940, which of the following is not considered an investment company? A) Separate account within a variable annuity B) Face-amount certificate company C) Hedge fund D) Unit investment trust

C) Hedge fund

Which of the following is true for mutual funds and those who invest in them? A) There are no disclosure requirements regarding information to investors for mutual funds. B) All securities purchases entail risk, which is the only disclosure that need be made for mutual funds. C) Investors must be provided with specific information when purchasing mutual funds. D) Mutual fund investors are required to attest that they have researched the securities in a portfolio before purchasing a fund's shares.

C) Investors must be provided with specific information when purchasing mutual funds.

Which of these would not affect the NAV per share of a mutual fund share? A) The fund pays its monthly operating expenses like utility bills B) The fund receives a dividend from one of the portfolio stocks C) Portfolio securities that had to be sold for a big capital loss D) The portfolio's market value undergoes a large increase

C) Portfolio securities that had to be sold for a big capital loss

Which of the following would you expect to have the lowest expense ratio? A) The QRS Stock Income Fund B) The MNO Small Cap Growth Fund C) The ABC Corporate Bond Fund D) The XYZ Aggressive Growth Fund

C) The ABC Corporate Bond Fund

All of the following actions would cause the NAV per share of a mutual fund to decrease except A) the fund distributes dividends. B) the fund distributes capital gains. C) a large number of shareholders make withdrawals from the fund. D) liabilities increase.

C) a large number of shareholders make withdrawals from the fund.

To obtain a Statement of Additional Information (SAI) regarding a particular mutual fund, an investor could do any of the following except A) call or write to the investment company that offers the fund. B) request one from a broker that sells the investment company shares. C) apply to the Financial Industry Regulatory Authority (FINRA). D) request a copy from the Securities and Exchange Commission (SEC).

C) apply to the Financial Industry Regulatory Authority (FINRA).

All of these are true regarding no-load shares except they A) are sold by the fund with no sales charges or fees of any kind. B) are redeemed with no charges or fees of any kind. C) have sales charges associated with sales and redemptions. D) offer more return-per-dollar invested versus load funds if investing results are the same.

C) have sales charges associated with sales and redemptions.

When a customer chooses to annuitize a variable annuity, all of these are factors the insurance company will use in calculating the initial payout amount except A) gender of the annuitant. B) age of the annuitant. C) historic inflation rate. D) balance of the separate account.

C) historic inflation rate.

The Investment Company Act of 1940 classified all the following as investment companies except A) unit investment trusts. B) face-amount certificates. C) private investment companies. D) management companies.

C) private investment companies.

Benefits of mutual funds include all of the following except A) mutual funds are professionally managed. B) mutual funds report distributions annually to investors. C) reinvested dividends are not taxed until withdrawal. D) mutual funds can provide broad diversification inside a single fund.

C) reinvested dividends are not taxed until withdrawal.

All of the following are true regarding breakpoints for mutual funds except A) the greater the investment, the lower the sales charge. B) breakpoints must be disclosed to potential investors. C) the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold. D) a breakpoint sale is considered to be a sale just below a breakpoint.

C) the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold.

One characteristic of an open-end investment company that distinguishes it from a closed-end one is that A) it may be either diversified or nondiversified. B) there are a wide variety of objectives available for investors to select from. C) there is a continuous public offering. D) it may avoid taxation by distributing all of its net investment income to shareholders.

C) there is a continuous public offering.

Which class of shares have a front end sales charge?

Class A shares

Which class of shares use a CDSC as the main sales charge?

Class B shares

Which class of shares have a 12b-1 fee as the primary sales charge?

Class C shares

Which of the following need not be included in the annual reports a mutual fund provides to its shareholders? A) Names and titles of those responsible for portfolio management B) A graph comparing fund performance to an appropriate index C) Factors and strategies that materially affected performance D) A list of the most poorly performing portfolio securities

D) A list of the most poorly performing portfolio securities

Which of these investment companies trade in the secondary market? A) Face amount certificates B) Unit investment trusts C) Open end funds D) Closed end funds

D) Closed end funds

Which of the following prospectus must be provided no later than confirmation of the sale? A) Rule 498 prospectus B) Statement of additional information C) Summary prospectus D) Statutory prospectus

D) Statutory prospectus

A diversified growth fund charging 0.4% of net assets per year as a 12b-1 fee may not make which of the following statements? A) The fund will pay its investment adviser a specified percentage of funds under management. B) The fund will have a calculated fully disclosed expense ratio. C) The fund will have a diversified portfolio with a stated investment objective. D) The fund is a no-load fund.

D) The fund is a no-load fund.

If an investor purchases a mutual fund based solely on seeing the summary prospectus, the investor must A) receive a refund, because shares may only be sold on the basis of the full prospectus. B) be given a full prospectus before the check is signed. C) receive a paper copy of the full prospectus no later than confirmation of sale. D) be able to access a full prospectus no later than confirmation of sale.

D) be able to access a full prospectus no later than confirmation of sale.

All of the following would be included in the expense ratio of a fund except A) salaries and administrative fees. B) portfolio management fee. C) 12b-1 fee. D) front-end or back-end load.

D) front-end or back-end load.

All of the following must be on the cover page or beginning of the summary prospectus of a mutual fund except A) the fund share class or classes ticker symbols. B) the share class or classes offered by the fund. C) the website where a full prospectus may be downloaded. D) the name of the investment advisor.

D) the name of the investment advisor.

Your client has $50,000 to invest. His objective is a lifetime monthly income that he can receive after he retires. Part of his customer profile stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is subject to market fluctuations, opting for principal protection instead. Based on the client's profile, which of the following would be the best recommendation?

Fixed annuity

An investor can take advantage of intraday price changes due to normal market forces when investing in which of these? I. Closed-end funds II. Exchange-traded funds III. Hedge funds IV. Open-end funds

I and II

Which of the following would be included in a mutual fund's list of expenses? I. Shareholder records and service II. Investment advisor's fee III. Broker-dealer sales charges IV. Underwriter's sales loads

I and II

Which of the following are included in the semiannual financial reports a mutual fund must provide to its shareholders? I. Balance sheet showing assets, liabilities, and net assets II. Separate listing of physical property held by the fund III. Income statement detailing profit and loss for the period IV. Personnel list detailing any changes in staff or position titles

I and III

A mutual fund has breakpoints at $25,000, $50,000, $100,000, and $250,000. Which of the following transactions might be considered a breakpoint sale? I. The client purchases $48,000 worth of shares II. The client redeems $24,000 worth of shares III. The client purchases $252,000 worth of shares IV. The client purchases $96,000 worth of shares

I and IV

Advantages to the investor offered by investment companies include I. ability to invest small amounts in many different securities. II. special securities prices available only to investment companies. III. elimination of market risk through pooling of investments. IV. increased purchasing power in the marketplace.

I and IV

Which of the following are the most likely to make monthly or quarterly payments for the life the investor? I. Fixed annuity II. Unit investment trust (UIT) III. Mutual fund IV. Variable annuity

I and IV

Which of the following would cause a mutual fund's net asset value (NAV) per share to fall? I. The fund purchases securities for the portfolio. II. The fund pays a dividend to shareholders. III. The market value of the portfolio declines. IV. A large number of shares are redeemed.

II and III

At a shareholders' meeting, a mutual fund investor might be called upon to vote on any of the following except I. changes in membership in the board of directors (BOD). II. whether to sell a certain company's stock out of the portfolio. III. approval of the investment adviser's contract. IV. changing to a new landscaper for the fund's headquarters.

II and IV

Under the IRC Subchapter M, if the WWF Fund only distributes 85% of its net investment income to its shareholders, then which of these is true? I. The fund must pay taxes on the undistributed 15% of net investment income. II. The fund must pay taxes on 100% of the net investment income. III. The shareholder pays no tax if the income is reinvested. IV. The shareholder must pay taxes if the income is received in cash or reinvested.

II and IV

Which of the following are true regarding mutual fund sales charges? I. They are used to defray fund expenses, such as operating costs and salaries. II. They are set by the fund's transfer agent. III. They are not an expense to the fund, but to the investor. IV. They are used to compensate the fund's underwriter and sales representatives.

III and IV

Which of the following would cause a change in the net asset value (NAV) of a mutual fund share? I. Many shares are redeemed. II. Securities in the portfolio are sold for a capital gain. III. The fund pays a small dividend. IV. The market value of the portfolio declines.

III and IV

Which of these would not be included in a mutual fund's list of expenses? I. Shareholder records and service II. Investment adviser's fee III. Broker-dealer sales charges IV. Underwriter's sales loads

III and IV

Which type of shares allow the investor to buy and sell the shares at NAV and have a 12b-1 fee of 0.25% or less?

No load

What does the mortality guarantee of a variable annuity insure?

That payments will continue for the life of the annuitant

Why is a fixed annuity not considered to be a security?

The fixed annuity buyer assumes no investment risk.

An investor has asked a mutual fund company for a copy of its Statement of Additional Information (SAI). How long does the fund have to comply with the request?

Three business days from the date of the request

Under which of the following conditions will an investor be able to purchase mutual fund shares and pay no sales charge?

Under the automatic reinvestment privilege

The violation of selling mutual fund shares just below the point where the customer would qualify for lower sales charges and not informing the customer that they may qualify for lower sales charges is called

a breakpoint sale

The violation of selling mutual fund shares just below the point where the customer would qualify for lower sales charges and not informing the customer that they may qualify for lower sales charges is

a breakpoint sale.

A company has just conducted a stock offering, by prospectus, through an investment banker. The proceeds of the offering are used to purchase a portfolio of securities. The stock, now in the hands of the public, is freely traded in the secondary market, and the portfolio is managed to generate maximum profit according to a specific investment objective. The company must be

a closed-end company.

An investor has entered into a contract to pay an investment company a specific sum of money in exchange for the company's agreement to pay the investor a specific (larger) sum of money on a specific date in the future. The investment company must be

a face-amount certificate company.

The Windmill Growth Fund has breakpoints at $10,000, $25,000, and $50,000. Your customer places an unsolicited purchase through you for $47,000. You place the trade as requested without question or comment. This action is

a rules violation.

If a fund sponsor allows an investor to move funds from one fund to another within its fund family, this is called

an exchange privilege

If the portfolio of a variable annuity separate account is directly and actively managed by the insurance company, the separate account must be registered as

an open-end management investment company.

Class B mutual fund shares are also called

back-end load shares

Class B mutual fund shares are also known as

back-end load shares

If a prospectus is being used to close a mutual fund sale, it must be given to the investor

before or during the sales presentation.

Class A mutual fund shares are also known as

front-end load shares.

A mutual fund's share class determines

how sales charges and related expenses are paid

Class C mutual fund shares are also known as

level-load shares

Short-term purchases and sales of a mutual fund to take advantage of price fluctuation is known as

market timing

Mutual funds that market directly to the public, using no underwriter and charging no sales charge, are called

no-load funds.

A mutual fund has been in existence for 15 years. The prospectus must disclose the fund's performance

over the last 1, 5, and 10 years.

A mutual fund has been in existence for 25 years. The prospectus must disclose the fund's performance

over the last 1, 5, and 10 years.

The investment return of a variable annuity comes from

the performance of the selected subaccounts within a separate account.

A variable annuity's investment return each month is based on

the performance of the separate account.

A breakpoint sale is

the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions to incur the higher sales charge.

What limit is placed on the number of outstanding shares a mutual fund may have in the hands of investors?

there is no limit.

An investor asks for a copy of mutual funds Statement of Additional Information (SAI). The request must be satisfied within

three business days, free of charge.

An investor has purchased Class A mutual fund shares. The net asset value (NAV) per share of the fund is the price the investor

will receive upon redemption of the shares.