Series 7 Unit 10
Q: A customer has been following several investment company quotes in the newspaper. She notices that the GEM Fund has an NAV of $12 and a POP of $12.50, and that the ABC Fund has an NAV of $11.50 and a POP of $10.98. The customer should conclude that: A) GEM may be an open- or closed-end fund and ABC is a closed-end fund. B) both are open-end funds. C) ABC and GEM are both unit investment trusts. D) ABC is an open-end fund and GEM is a closed-end fund.
A) GEM may be an open- or closed-end fund and ABC is a closed-end fund. The price for open-end funds is determined by adding the sales charge to the NAV. An open-end fund can never have a POP less than its NAV, therefore ABC cannot be an open-end fund.
Q: Your mutual fund has sent you a Form 1099, listing some long-term capital gains on which you must pay taxes. You are concerned that the 1099 is in error because you have owned your shares for only 4 months. Which of the following statements is TRUE? A) The 1099 is correct because in this case, the holding period to be considered is that of the investment company, not yours. B) The gain need not be reported since you have not redeemed your shares, and therefore have not realized any gain. C) The 1099 form is incorrect because you have held your shares for less than 1 year, which indicates a short-term gain. D) The gain need not be reported since you have instructed the company to reinvest your dividends and capital gains, thus deferring your tax liability.
A) The 1099 is correct because in this case, the holding period to be considered is that of the investment company, not yours. The investment company designated the gains as long term, because the company held the securities for more than a year before selling them. The HOLDING PERIOD on your shares is relevant only if YOU REDEEM your shares for a gain.
Q: A board of directors member for a mutual fund must serve a minimum term of: A) 6 months. B) 2 years. C) 1 year. D) 3 months.
C) 1 year.
Q: All of the following could be a redeemable security under the Investment Company Act of 1940 EXCEPT a(n): A) security issued by an open-end investment company. B) security sold on an exchange at the market price buyers and sellers have established. C) security that pays out each investor's proportionate share of the company's assets. D) investment company security sold as a continuous initial public offering.
C) security that pays out each investor's proportionate share of the company's assets. A redeemable security is purchased from and redeemed by the security's issuer. A security that can be traded on a secondary market is not redeemable. Open-end shares are redeemable securities, closed-end shares are not.
