SIE Unit 4
Under the Investment Company Act of 1940, which of the following is not considered an investment company?
B) Hedge fund Investment companies include face-amount certificates, unit investment trusts, and management companies (both open- and closed-end). The separate account within a VA is a type of open-end management company. Hedge funds are organized as private investment companies (often limited partnerships), which are excluded under the definition of investment company under the Investment Company Act of 1940.
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? The fund must pay taxes on the undistributed 15% of net investment income. The fund must pay taxes on 100% of the net investment income. The shareholder pays no tax if the income is reinvested. The shareholder must pay taxes if the income is received in cash or reinvested.
B) II and IV To avoid triple taxation according to the IRC Subchapter M, an investment company must distribute at least 90% of its net investment income. Since WWF Fund only distributed 85% of its net investment income, it must pay taxes on 100% of the net investment income. Shareholders always pay taxes on taxable income whether received in cash or reinvested.
Which of these would not be included in a mutual fund's list of expenses? Shareholder records and service Investment adviser's fee Broker-dealer sales charges Underwriter's sales loads
B) III and IV
An investor can take advantage of intraday price changes due to normal market forces when investing in: 1. closed-end funds 2. exchange-traded funds 3. hedge funds 4. open-end funds
Both 1 & 2 Both closed-end funds and ETFs trade in the marketplace based on supply and demand.
Which of the following issues only common stock?
C) An open-end management investment company
All of these are part of the expense ratio of a mutual fund except
CDSC. The Contingent Deferred Sales Charge (CDSC) is charged against the proceeds of a sale of the fund's shares, not against the fund's assets
Which of the following would be unlawful regarding use of a mutual fund prospectus?
Calling an investor's attention to a section that may be interesting
A letter of intent may be backdated to include a prior purchase up to
D) 90 days. LOIs may be backdated up to 90 days. The obligation under the LOI must be met within 13 months from the date of the letter.
Which of the following investment companies do not redeem their shares?
D) Closed end funds
An investor can take advantage of intraday price changes due to normal market forces when investing in which of these? Closed-end funds Exchange-traded funds Hedge funds Open-end funds
D) I and II Both closed-end funds and ETFs trade in the marketplace based upon supply and demand. Open-end funds use forward pricing and generally price only once per day (usually at the end of the trading day). Most hedge funds are organized as private investment partnerships and are considered illiquid. Some have minimum holding requirements known as lock-up provisions, and in that light, their interests do not reliably trade intraday. Information on ETFs can be found in Unit Five under Learning Objective 5.l.
What limit is placed on the number of outstanding shares a mutual fund may have in the hands of investors?
D) There is no limit. The reason a mutual fund is also called an open-end investment company is that it may sell an unlimited number of shares to the public.
Which of these would not affect the NAV per share of a mutual fund share?
Portfolio securities that had to be sold for a big capital loss Selling securities out of the portfolio, whether for a gain or a loss, simply replaces the securities with an equivalent amount of cash, leaving the NAV per share unchanged. The other choices involve changes in net assets with no accompanying change in the number of shares outstanding, which would change the NAV per share.
Why is a fixed annuity not considered to be a security?
The fixed annuity buyer assumes no investment risk.
What is not a Management Company?
Unit Investment Trusts (UITs)
All of the following actions would cause the NAV per share of the mutual fund to increase except
a large number of investors making deposits in the fund. When investors deposit money into the fund they buy more shares, so the assets and number of shares increase proportionately and the NAV per share is unchanged. In a similar way, when shareholders redeem shares the assets in the fund go down but the number of shares also decrease proportionally, so the NAV per share is unchanged. In the other responses the assets increase with no proportional increase in the number of shares, so NAV would increase.
Who cannot take advantage of breakpoints
an investment club (an individual, trust, and corporation can) (additionally a trust and corporation are counted as individuals)
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 prospectus of a mutual fund must show the fund's performance over the last 10 years or the life of the fund, whichever is shorter. The data must be shown as the last year's performance, the performance over the last five years, and the performance over the last 10 years. With this fund, the 15-, 20-, and 25-year performances need not be shown.
The Investment Company Act of 1940 classified all the following as investment companies except
private investment companies. The three classifications established under the Investment Company Act of 1940 are face-amount certificates, unit investment trusts, and management companies (open and closed-end funds). Private investment companies do not come under the Act of 1940.
