SIE Unit 4

An investor is purchasing $48,000 of the windmill alternative energy fund. The fund has a breakpoint at $50,000. The least appropriate action would be to A.place the order B. explain breakpoints C. explain letters of intent D. discuss combination priviledge

A, all the other options introduce breakpoint to the customer. Not disclosing the breakpoint would make this a breakpoint sale

Which of the following is not true of no-load shares A. they have fees associated with sales and redemptions B. they are redeemed with no charges or fees of any kind C. they are sold by the fund with no sales charges or fees of any kind D. they offer more return per dollar invested versus load funds if investing results are the same

A, no-load shares have expenses that are not considered sales charges, Some broker dealers may charge fees for transactions, but these fees are not from the fund

All of the following investors can take advantage of breakpoints except A. an individual B. an investment club C. a trust D. a corporation

B, breakpoint advantages are available only to individuals. An investment club is not considered an individual, but trusts and corporations are

IN order to clear up confusing language and highlight a funds features, a registered representative may A. highlight the financial results in the statutory prospectus B. highlight the breakpoint chart in the summary prospectus C. not change a prospectus in any way D. provide a magazine article that explains the fund prior to taking an order to purchase

C, no fooling with the prospectus, no fooling!

Class A shares are best for investors with A. larger investment amounts and short time frames B. smaller investment amounts and long time frames C. larger investment amounts and long time frames D. smaller investment amounts and short time frames

C, the one-time cost and lower expense ratios make A shares better for investors with larger investments (to get breakpoints) and long time frames ( to spread the impact of the front-end cost over many years)

Under the investment company act of 1940 all of the following are examples of management companies except A. S&P 500 index trust ETF B. growth fund option for a VA C. Windmill income UIT D. Windmill income fund, an exchange-listed closed-end fund

C, unit investment trusts are investment companies, but not management companies, under the act. Closed-end funds, ETFs, and separate accounts are all types of management companies

A mutual funds public price is $10.50. An investor who wishes to invest $1,000 in the fund will purchase how many shares? A. 95 shares with $2.50 left B. 96 and owe $8 C. partial shares are not allowed D. 95.238

D, mutual funds may be purchased in even dollar amounts, and partial shares may be issued

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

D, the key difference between open-end investment companies and closed-ends is the fact that new shares are continuosly being offered for open-end companies. In the case of the closed-end, once the IPO is over, the only way to acquire shares is in the secondary market. Both types of funds may operate as regulated investment companies and avoid taxation, both may choose to be diversified or not, and both offer a wide variety of investment objectives

Which of the following would not be included in a mutual funds list of expenses? I. shareholder records and service II. investment adviser's fee III. Broker-dealer sales charges IV. underwriters sales loads

III and IV, costs to maintain shareholder records, costs to provide services to shareholders, and the investment adviser's fees are all expenses to the fund. The costs paid in the form of sales charges (loads) to an underwriter or BDs selling mutual funds to the public may never be treated as an expense to the fund. They are expenses to the investor

Before an order to purchase a mutual funds can be taken, an investor must be provided with I. a full prospectus II. a statement of additional info III. a rule 482 prospectus IV. a summary prospectus

III and IV, either a full or a summary prospectus is required to solicit and accept a mutual fund order. You may deliver both, but that is not the requirement

An investor can take advantage of ontraday price changes due to normal market forces when investing in I. closed-end funds II. exchange-traded funds III. hedge funds IV. open-end funds A. I and II B.I and IV C. II and III D. III and IV

A I and II, both closed-end funds and ETFs trade in the marketplace based on supply and demand. Open-end funds use forward pricing and generally price only once per day. Most hedge funds are organized as private investment partnerships and are considered iliquid. Some had minimum holding requirements known as lockup provisions, and in that light, their interests do not reliably trade intraday

Which of the following would cause a change in the net asset value of a mutual fund share? A. the market value of the portfolio declines B. many shares are redeemed C. securities in the portfolio are sold for a capital gain D. the fund takes a new position

A, a decline in the market value of the portfolio would reduce the assets of the fund without changing the number of outstanding shares. Sales and redemption's of shares change the net assets but also change the number of shares outstanding to the same degree, leaving the NAV per share unchanged. Buying or selling securities for a capital gain simply replaces securities in the portfolio with an equivalent amount of cash, leaving the NAV unchanged

The investment return of a variable annuity comes from A. the performance of the selected subaccounts withing the separate account B. the assumed rate stated in the policy documents C. computing the excess of the premiums received over the mortality experience D. the insurance company's general account

A, a key feature of the variable annuity is that most of the premium is invested in the insurance company's separate account rather than the general account. Within the separate count, there are a number of subaccounts that may be selected, depending on the investors objectives. It is the performance of these subaccounts that provides the annuity's investment return

Class B mutual fund shares are also called A. deferred-load shares B. back-end load shares C. CDSC shares D. reverse load shares

B, Class b mutual fund shares are bought with no sales charge at the time of purchase. The sales charge is paid instead at the time of redemption; or at the back end. Hence they are known as back-end load shares. For this type of share, the sales charge percentage is reduced each year of ownership, typically becoming zero after five years. At this time, they convert to class A shares

The decision to annuitize a variable or fixed annuity may be reversed within how many days of election A. 30 days B. 7 days C. 0 days D. 90 days

C 0 days, annuitization is a one-time irrevocable action

In order to qualify as a conduit a mutual fund must pay out a minimum of A. 90% of gross investment income B. 90% of net expenses C. 90% of net investment income D. 95% of net investment income

C, an investment company must distribute a minimum of 90% of net investmen income in order to qualify for the tax break given to conduits

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

D, insurance companies do not consider inflation when making this calculation. The components are GAAPI: gender, age, account balance, payout option, and interest rate (AIR)

Which of the following statements regarding a letter of intent and breakpoints are true? I. the letter of intent can be backdated a maximum of 30 days II. the letter of intent is valid for 13 months III. the investor is legally bound to meet the terms of the agreement IV. the fund holds the additional shares in escrow

II and IV, the letter of intent may be backdated 90 days. The investor is not required by law to satisfy the letter of intent, although in the case of default, he will pay a higher sales charge