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153 Cards in this Set

  • Front
  • Back
Which of the following statements about funds is (are) correct?

A reduced sales charge is available to investors signing a Letter of Intent to purchase a certain amount of shares during a 10-month period.
The maximum sales charge is 7%.
Under rights of accumulation, the sales charge on new purchases is reduced when the total worth of already held shares exceeds the sales charge breakpoint within a specific period.
No load funds may charge a liquidation fee.
[A] II
[B] III
[C] III and IV
[D] I, II, and IV
C
When market prices are rising, which of the following funds would be expected to show the least amount of appreciation?

[A] Diversified Common Stock Fund
[B] Specialized Fund
[C] Balanced Fund
[D] Blue Chip Fund
C

Because a balanced fund includes investment in Common Stock, Preferred Stock and Bonds, it would show the least amount of appreciation.
All of the following mutual fund terms have the same meaning except:

[A] net asset value
[B] redemption price
[C] public offering price
[D] Bid
C

a, b, and d are interchangeable terms; "c' is not.
NAV = Bid = Redemption Price
NAV + SL% = Offer Price or Ask
Which of the following best describes a mutual fund that invests in stocks and bonds issued only by foreign companies and does not include the U.S.?

[A] Global Fund
[B] G-8 Fund
[C] International Fund
[D] Any open-end fund
C
All of the following statements would be true with regard to Hedge Funds EXCEPT:
[A] They take long and short positions use derivatives and are unregulated.
[B] All sophisticated investors are allowed to invest in Hedge Funds.
[C] They generally offer investors the ability to sell monthly, quarterly, or annually.
[D] They are not registered under the Investment Company Act of 1940.
B
Open-end investment companies are regulated by all of the following EXCEPT:

[A] The Securities Act of 1933.
[B] The Investment Company Act of 1940.
[C] The Trust Indenture Act of 1939.
[D] Securities laws in the state in which the fund is sold.
C
The Athens Fund has a net asset value of $8.40 and an offering price of $9.00. The FINRA Conduct Rules permit which of the following trades?

[A] A FINRA member sells 500 shares at $9.00 to one of the firm's customers.
[B] A FINRA member sells 500 shares at $8.40 to another FINRA member firm through a non-FINRA member firm.
[C] A FINRA member sells 500 shares at $4.75 to a non-FINRA firm.
[D] None of the above.
A
An investor owning mutual fund shares would (for tax purposes) report all of the following except:

[A] appreciation in the value of the shares owned
[B] receipt of dividends
[C] receipt of capital gains distributions
[D] the conversion of shares of one fund for another under the same management
A

Appreciation in value is not reported for tax purposes, only realized profits and losses or income received is reported.
When the prospectus of a mutual fund requires investments in a diversified portfolio of bonds, preferred stocks, and common stocks, it would be a/an:

[A] income fund
[B] balanced fund
[C] growth fund
[D] specialized fund
B
Mutual fund minimum purchase requirements must be disclosed in:

[A] the prospectus
[B] a letter of intent
[C] the annual report
[D] the official statement
A
The yield of a money market fund is most affected by:

[A] Fees associated with auditing
[B] Fees associated with the custodian
[C] Fees associated with management
[D] Registration fees and taxes
C
Which of the following is true of the custodian?

[A] It performs management, supervisory, or investment functions.
[B] It takes part in the sale or distribution of fund shares.
[C] It may perform any essential clerical type service for the fund and the shareholders.
[D] It affords investors protection against a possible decline in the value of fund shares.
C
The characteristic that BEST describes a sector fund is:

[A] It concentrates its investments in a single industry.
[B] It rotates its investments from one industrial sector to another.
[C] It specializes in "special situation" stock.
[D] It contains stocks of companies in a single country only.
A
Of the investment vehicles listed below, which represents an investment that trades like a stock but has a portfolio that mirrors an index?

[A] CMO's
[B] REIT's
[C] ETF's
[D] FOMC's
C
A constant dollar investment plan requires that:

[A] A fixed amount in dollars be invested at regular intervals.
[B] A fixed percentage of a portfolio's assets be kept in equities regardless of stock prices.
[C] A fixed amount of dollars of a portfolio's assets be kept in equities regardless of stock prices.
[D] A fixed number of shares be invested at regular intervals.
A
With the facts listed below, choose the open-end funds:

Fund A has an ask price of $10.00 and the NAV per share is $9.50.
Fund B has an ask price of $8.50 and the NAV per share is $7.75.
Fund C has an ask price of $7.00 and the NAV per share is $7.50.
Fund D has an ask price of $9.00 and the NAV per share is $9.25.
[A] I and II
[B] I and III
[C] II and IV
[D] III and IV
A
One of your clients purchased 500 shares of ABC Fund, an equity mutual fund, several months ago, and now wants to purchase another 500 shares of the same fund. Which two of the following should be explained to the client?

They should consider a Closed-end funds for diversification.
They should sign a Letter of Intent, which would allow them to combine both purchases so that the new purchase may qualify for a reduced sales load.
That the fund also offers Rights of Accumulation and that if the investor continues to invest in the same fund, they will continue to qualify for more discounts on new purchases in the future.
That the portfolio of securities is fixed therefore the investor's return will also be fixed.
[A] I and II
[B] II and III
[C] II and IV
[D] I and III
B
The bid and ask on mutual fund shares which charge a sales load represents which two of the following:

The net asset value is the bid.
The net asset value less a redemption fee is the bid.
The ask is the net asset value plus the maximum sales load.
The ask is the net asset value plus the average sales load.
[A] I and III
[B] I and IV
[C] II and III
[D] II and IV
A
All of the following could be applied to fixed UITs EXCEPT:
[A] The term "diversified"
[B] The fact that they are registered
[C] The fact that they are managed
[D] The fact that they are regulated
C
A mutual fund investor is seeking aggressive growth. Which of the following funds would be most appropriate for the customer to invest in?

[A] Balanced Fund.
[B] Hedge Fund.
[C] Money Market Fund.
[D] Sector Fund.
D
Which of the following types of investments should be used as a long-term investment and not for short-term trading purposes?

[A] equity options
[B] mutual funds
[C] treasury bills
[D] certificates of deposit
B
A mutual fund prospectus would contain all of the following except:

[A] statement of additional information
[B] fund management
[C] current net asset value
[D] investment objectives
C
Athens Fund has an ask price of $19.25, while the ask price of the Troy Fund is $18.50. The net asset value per share of the Athens Fund is $20.25, while the Troy Fund has a net asset value per share of $17.02. Which of the following is probably true?

[A] Both funds are closed-end.
[B] Both funds are open-end.
[C] Athens is a closed-end fund, while Troy is an open-end fund.
[D] Troy is a closed-end fund, while Athens is an open-end fund.
C
How is a hedge fund similar to an investment company?
[A] They have the same regulations.
[B] They are redeemable and are priced at the end of every business day.
[C] They have a managed portfolio of investments.
[D] They can be sold to the general public
C
Which of the following investment companies typically will not charge a management fee?

[A] An open-end investment company.
[B] A closed-end investment company.
[C] A unit investment trust.
[D] A growth fund.
C
Concerning public communications about investment companies all of the following statements are true EXCEPT:

[A] Performance comparisons are prohibited.
[B] Performance comparisons should cover the same period of time.
[C] Performance comparisons should be for similar investment objectives.
[D] The purpose of a performance comparison should be stated when comparing an investment company and a market index.
A
Mr. Dratley wants to invest $75,000 in four different growth funds. Each of these funds has its portfolio managed by a different investment management firm. Which is most important for him to thoroughly understand?

[A] Automatic reinvestment plans available from these funds
[B] Conversion privilege
[C] Sales charge breakpoints
[D] Withdrawal programs offered
C
The following net asset values of closed-end bond fund shares were reported by the individual companies as of Friday, June 14, 20XX. The table shows the closing listed market price or a dealer-to-dealer ask price of each fund's shares, with the percentage of difference.

NAV Stock Price % Difference
European Limited Bond Fund $19.18 $19.73 +2.1
Pioneer Fund $18.12 $17.78 - .8
An investor paid approximately how much if he purchased 100 Pioneer Fund on June 14.

[A] $17.78
[B] $17.78 + commission
[C] $18.13 + a sales load
[D] $18.12 + a markup of .8%
B
When could one expect changes in the net asset value of a mutual fund?
[A] When there are changes in the value of securities within the fund's portfolio
[B] When customers redeem fund shares
[C] When customers exchange fund shares for another fund's shares within the same family
[D] When shares of the fund are split
A
A Hedge Fund investment would be best suited for which of the following types of investors?
Senior Investors
Accredited Investors
Aggresive Investors
Qualified Investors
[A] I & II
[B] II & III
[C] III & IV
[D] II & IV
D
When comparing a Mutual Fund to an Exchange Traded Fund which of the following is true?

[A] Both are subject to market risk
[B] Both are traded during the trading day
[C] Both can be bought on Margin
[D] Both have actively traded portfolios
A

Both Mutual Funds and Exchange Traded Funds are subject to Market Risk but Mutual Funds are not traded during the trading day, they are only priced at the end of the trading day. ETF's can be bought on Margin but Mutual Funds cannot be bought on Margin. Since the portfolio of ETF's mirrors a specific index, they do not have actively traded portfolios.
One of your customers calls and is seeking a fund that has a high level of capital appreciation. Of the following, which BEST fits this customer's objectives?

[A] The best choice would be a fund made up of municipal bonds.
[B] The best choice would be a fund made up of a balance of equity and fixed income securities.
[C] The best choice would be a fund made up of small cap stocks.
[D] The best choice would be a fund balanced between growth and income investments.
C
An RR, when making a recommendation for the purchase of investment company shares, could state or imply which of the following?

Capital gains distribution should be treated as part of the income yield of the investment.
The purchase of shares of two or more funds under the same management may entitle the investor to a reduced sales charge.
Purchasing fund shares in advance of a dividend distribution would be advantageous since the investor would immediately realize an investment return.
Upon redemption, the investor would not immediately know the total dollar value of the redemption.
[A] I and II only
[B] II and III only
[C] II and IV only
[D] I, II, III, and IV
C
All of the following would be considered acceptable if received by a registered representative except

[A] Travel expenses to a sales seminar put on by a fund underwriter
[B] Reminder advertising values at less than $100 per person given to all the registered representatives of a member firm by a fund underwriter
[C] All expense paid ten day vacation to the top sellers of investment company shares paid for by the investment company.
[D] Dinner for a registered representative for the rep and a fund’s underwriter paid for by the fund’s underwriter.
C
Sales charge breakpoints for investments in a variable annuity are based on:

[A] the total amount invested in a variable annuity
[B] the trades which occur in a variable annuity's portfolio
[C] the total number of investors in a variable annuity
[D] the performance of the variable annuities portfolio
A
Instead of using the services of their broker/dealer, a client purchased shares of a mutual fund directly from a wholesaler. Based on this information, which of the following is not correct:

[A] The sales charge will be lower than if purchased through a broker/dealer
[B] Shares purchased directly from the wholesaler are priced according to the formula described in the prospectus
[C] This practice is acceptable under the Investment Company Act of 1940
[D] The wholesaler must be registered with the NASD
A
A mutual fund with a portfolio primarily consisting of emerging new companies in different industries, would be classified as a:

[A] Income fund
[B] Sector fund
[C] Technology fund
[D] Growth fund
D
Which of the following mutual funds would generally be considered the MOST liquid?

[A] Aggressive Growth Fund
[B] Money Market Fund
[C] Balanced Fund
[D] Bond Fund
B

Money market funds allow investors to make deposits and withdrawals at any time without penalty and would therefore be the most liquid of the funds listed.
In the securities industry, what is meant by the term "Net Change"?

[A] It is the after tax return received by an investor.
[B] It is the difference between the current bid and ask price.
[C] It is the difference between the closing price on the reported trading date and the previous day's closing price.
[D] It is a fund's net assets (total assets minus total liabilities).
C
Which of the following investments would provide an investor with the most liquidity?

[A] money market funds
[B] limited partnership participation
[C] certificate of deposit
[D] long-term convertible corporate bond
A
The following net asset values of closed-end bond fund shares were reported by the individual companies as of Friday, June 14, 20XX. The table shows the closing listed market price or a dealer-to-dealer ask price of each fund's shares, with the percentage of difference.

NAV Stock Price % Difference
European Limited Bond Fund $19.18 $19.73 +2.1
Pioneer Fund $18.12 $17.78 - .8
At the close of business on June 14, 20XX, European Fund is selling at

[A] the current net asset value
[B] a price 2.1% higher than the close on the previous day
[C] a premium
[D] a discount
B
An investor, Mrs. Smith, is seeking a mutual fund offering a high yield. Which of the following is the best choice for Mrs. Smith?

[A] Aggressive Growth Fund
[B] Hedge Fund
[C] Income Fund
[D] Emerging Growth Fund
C
A customer interested in income and capital gains would most likely choose which of the following investments?

[A] stripped treasuries
[B] growth stocks
[C] zero coupon corporate bonds
[D] mutual funds
D
On the ex-dividend date for a mutual fund, the net asset value per share is:

[A] increased
[B] decreased
[C] not affected
[D] not affected since adjustments are made on the record date
B
Which of the following types of mutual funds would ordinarily be considered the LEAST volatile?

[A] Specialized Fund
[B] Growth Fund
[C] Income Fund
[D] Balanced Fund
D
One of your customers has a sizeable amount of holdings in a particular mutual fund. The customer is looking over a statement and calls into the office to discuss the fact that there has been a decrease in the fund's NAV (net asset value) on a per share basis. Which of the following would cause this type of decrease?

[A] This type of decrease would be caused by others who own fund shares and their choice to redeem those shares back to the fund.
[B] This type of decrease would be caused by a cash dividend payment made to those holding mutual fund shares.
[C] This type of decrease would be caused by others buying fund shares and new shares being issued.
[D] This type of decrease would be caused by the mutual fund selling securities held by the fund's portfolio, whether the securities appreciated or depreciated in value.
B

When a mutual fund pays a cash dividend, the funds for the dividend are taken out of the portfolio and therefore cause a decrease in the net asset value of the fund on an overall and per share basis. The act of selling securities from the mutual fund's portfolio, whether they increased or decreased in value, does not change the fund's NAV. The increase or decrease in value of those securities would, however, have an effect on NAV
Mutual fund capital gains distributions come from which of the following?

realized long-term gains on the portfolio
realized short-term gains on the portfolio
dividends earned on the portfolio
interest earned on the portfolio
[A] I only
[B] I and II only
[C] III and IV only
[D] II, III and IV only
A
Mutual fund distributions of investment income or dividends come from which of the following?

realized long-term gains on the portfolio
realized short-term gains on the portfolio
dividends earned on the portfolio
interest earned on the portfolio
[A] III only
[B] I and II only
[C] III and IV only
[D] II, III and IV only
D
Who regulates Investment Companies?

What must they be registered under?
SEC regulates investment companies

must be registered under the Investment Company Act 1940
Which of the following are true of investment companies:

I] they are non-managed accounts
II] they offer investors liquidity and diversification
III] they include brokerage companies and insurance companies
IV] they are designed for both long term and short term investment and trading
II. is correct

Investment companies offer investors:
Liquidity
Diversification
Professional Management

They are for LONG-term investment NOT for short-term trading

They do NOT include insurance companies, brokerage companies, or banks
Investment companies can be classified as one of 3 types. What are they?
Face Amount Certificates Companies
Unit Investment Trusts - UITs
Management Companies
What type of investment company issues debt certificates at a discount that purchasers a stated face value amount at maturity?
Face Amount Certificates Companies
What do Unit Investment Trusts contain in their portfolio?

How do they work in terms of supervision and management?
UITs - FIXED portfolio of diverse municipal or corporate BONDS

Supervised but NOT managed
it has a trust indenture and a board of trustees

charges little or no management fee and a low percentage sales charge
If an investor has an UITs and wants to sell or redeem their shares what can they do?

What of investors receive for their investment?

What happens when all the bonds have matured in an UITs?
They can only sell them back to the company they have the UIT with. they are NOT publicly traded

investors receive interest payments because they are bonds

when the bonds mature the trust is terminated
What type of investment company makes up the biggest sector of investment companies?
management companies
Open-end, Closed-end, diversified, and non-diversified are all what?
Investment Management companies
What type of Investment management company's assets are not regulated?

What type of investment management company does have assets regulated and how much of the company's assets are regulated?
Non-diversified assets are NOT regulated

Diversified - 75% assets regulated
-not more than 5% in one corporation & does not own more than 10% of the outstanding voting stock of any one company (most funds are diversified)
A diversified company is known as "75-5-10".
what does this mean?
75% assets regulated

not more than 5% in one corporation

does not own more than 10% of the outstanding voting stock of any one company

(most funds are diversified)
What type of Investment Management company issues and redeems shares every business day?
Open-end investment management companies
What is another name for an Open End investment company?
Mutual Funds
What type of investment management company only issues redeemable shares? What does that mean?

What type of investment management company only issues non-redeemable shares?
Open-End aka Mutual Funds = Redeemable ONLY
They are redeemable to the investment company only. they do NOT trade in secondary market

Closed End = does NOT issued redeemable shares. After IPO shares trade on an exchange or OTC
What type of investment management company trades shares in the secondary market?
Closed-End
Which of the following can an Open-End (mutual fund) issue? Closed-End?

I] common shares
II] preferred shares
III] corporate bonds
Open-End = COMMON SHARES that can vote

Close-End = common shares, preferred shares, and bonds
What is the NAV tell you?
What is the formula?
NAV is the closing market value of all the securities in the funds portfolio plus any interest or dividend income received on the securities in the portfolio

NAV = [(closing market value + other assets & cash) - liabilities] divided by total # of outstanding shares
For an Open-End investment company what is the bid?

What is the ask?
the bid is the NAV aka redemption value (all interchangeable)

Ask = NAV + Max sales load
(offering price. calculated daily at the close of NYSE)
When does the NAV value change?

How would you describe an increase in the NAV?
NAV changes when the securities in the portfolio change

An increase in the NAV would be described as an appreciation (this goes for any type of security)
If a mutual fund did not charge a sales load what would this be called?

what does this mean the bid and the ask would be?
no-load fund

bid and ask would be the same
In an open-End investment shares are issued and redeemed daily and ALL shares issued are "new" shares there for what Act are they regulated by?
'33 Act Prospectus Delivery Regulations
What happens in an open-end investment company when shares are redeemed? What is Net redemptions?
when shares are redeemed they are retired

Net redemptions are when more investors have redeemed shares (sold) then those who have purchase new shares
What is the Maximum sales load for open-end investment management companies for FINRA and the Investment Company Act of 1940?
FINRA = 8 1/2%

Investment Company Act 1940 = 9%
If the NAV of a fund is greater than the ask what type of fun must it be?
closed end fund

because open end fund is at least the NAV but usually the NAV + sales load
What is the maximum sales load on a closed-end investment management company?
there is no sales load

commissions are charged since they trade like a stock
What is the difference in capitalization between open-end investment companies and closed-end investment companies?
open-end = capitalization is constantly changing because shares are issued and redeemed daily

closed-end = capitalization is fixed because a fixed # of shares or issued
What are both closed-end and open-end companies subject to?
market risk
A closed-end price quote last column says "% difference".

What does this represent?
this % represents the how much higher or lower the closing price of today was compared to the previous days closing price
Out of all the different types of open & closed end investment company funds which one is the most riskiest and why?
specialized/special situation/sector fund - invests primarily in stock of companies in one industry or one specific geographic area
Why is a balance fund more conservative then a diversified common stock fund?
Balance fund = diversified list of bonds, PS, & CS

diversified common stock fund = common stock in many different companies in different industries
What type of investment company fund would be setup as the objective to maximize current income and how would it do this?
Income fund = objective to max current income with securities that have high yields
What type of investment company fund would receive the least amount of capital appreciation?

what type of fund would objective is to max capital appreciation?
balanced fund = least amt of capital appreciation because its conservative

growth fund = objective is capital appreciation which means lower yields
What type of investment company fund would only invest in blue chip stocks?

What are blue chip stocks?
blue chip fund

blue chip stocks = are known to be reputable companies with average dividend payout 50% during good and bad market

ex: coca-cola
a fund that investment primarily in stocks of companies in the gold industry would be classified as what type?

What is the average about dividend payout ratio?
Gold fund or sector/specialized/special situation fund

little or no dividend
What is the difference between International Funds and Global Funds? What do they have in common?
Both = invests in stocks and bonds issued by foreign companies

International/overseas Funds = invests in stocks and bonds issued by foreign companies and government

Global Funds = invests in stock and bonds issued by US and foreign companies
What is another name for International Fund?
Overseas fund
What type of fund would generally produce higher income in US dollars when foreign interest rates are high and the US dollar is weak?
International/overseas BOND fund
What type of fund mirrors a particular index and does not have active portfolio managers?
Index fund

**has less expense ratios
What is a bond fund consist of and which way does it move in accordance to interest rate movements?
bond funds consist of one type of bonds. muni, govt, or corporate

they are sensitive to interest rate movements and move in the opposite direction

**think see-saw
what is a fund family?
mutual fund that offers many of these different types of funds to investors by the same company
What type of funds invest in securities with short term maturities of 12 months or less?
money market funds
What is the most liquid type of mutual fund and why?
money market funds

-liquidity: investor can make deposits and withdrawals at anytime without penalty

-Safety: since securities are short term
How often do money market funds credit dividends to customer accounts and how often do they pay dividends? How often do Preferred stock get paid dividends?
Dividends are credited to their account on a DAILY basis

Paid out MONTHLY

Preferred stock dividends are paid quarterly
What are some set backs of Money market funds?
they have large management and advisory fees - impact yield

not covered by SIPC
If an investor receives dividends from a money market fund and decides to reinvestment that how are they taxed?
they are still fully taxable at federal state and local level taxes
What type of securities do money market funds invest in?

- Treasury Bonds
-Treasury Bills
-CD's
-Commercial Paper
-Bankers Acceptances
-Eurodollars
-Index options
- Common stock
Treasury Bills
CDs
Banker Acceptances
Eurodollars
Commercial Paper

--all maturities of 12 months or less
What is the maximum amount of sales load on a money market fund?

What is the minimum withdrawal set to?

Money market fund shares are priced at?
none. there is no sales load

$500 min withdrawal at a time

$1.00 per share
What type of investment company is a hedge fund considered?
none. they are not an investment company.
they are a limited partnership
How liquid are hedge funds?
How often can you sell or redeem your hedge fund shares?
hedge funds are not as liquid as other securities
they can be sold or redeemed: monthly, quarterly, or annually
What type of fund has both long and short term maturities, derivative securities, and leverage securities?
Hedge funds
What type of investor must you be to be able to invest in a hedge fund?
ACCREDITED - net worth 1 million + and income of 200,000 + per year for last 2 yrs with income exceeding $200,000 in current year
QUALIFIED - net worth 1.5 million + and $750,000 in assets invested under the specific investment manager
SEMI-AFFLUENT - do not meet requirement of accredited or qualified but do meet min investment req. may have deposit $25 thousand and can only invest in hedge funds that are funds of funds or open-end funds
What is the primary difference between an Index fund and an Exchange traded fund?
ETFs have share that trade like common stock shares

Index funds dont
ETFs:

Can they be purchased on margin?
Do they have options available?
What is the max sales load?
What is settlement?
Do investors receive dividends?
ETFs:

can be purchased on margin and sold short

Options are available on most ETFs

No sales load. trades like a stock = commissions

settlement is reg way T+3

dividend payments are possible but not normal
What type of ETF is less affected by overall changes in the market and offers less diversification than broad-based ETFs?
Industry Sector ETF
Standard and Poors depository reciepts, DIAMONDS,
QQQ, HOLDERS are all what?
Examples of ETFs

SPDR = Standard and Poors Depository Reciept: represents the S&P Composite Index

DIAMONDS = Dows Jones Industrial Average

QQQ = NASDAQ 100 Index

HOLDERS = Holding Company Depository Reciepts - represents 16 trusts related to the largest european companies common stocks traded on the NYSE Amex and NASDAQ
What are the 2 types of non-traditional ETFs?
Leveraged ETFs - borrow capital; use derivatives such as futures and options

Inverse ETFs - aka short ETFs deliver the opposite of the performance of the index or benchmark and are used for hedging purposes
What guideline has FINRA set regarding the sale of non-traditional ETFs?
only good for short-term trading (daily) because they are reset or rebalanced daily

not suited for retail investors who plan to hold them for longer than a day
What are debt instruments issued by banks?

What does the bank promise to pay?
exchange traded notes

the principal amount less investor fees at final maturity
What do ETN allow individual investors to benefit from?
they allow individual investors to participate and access markets and sectors that were previously unavailable or unsuitable by being linked to a pacific index or strategy
What type of security is an ETN considered?

Can they be traded?

are they callable?

can they be sold short?

Name 2 of the 4 basic sectors which ETNs are issued on?
unsecured debt security

**not principal protected

they can trade like a stock
can be callable
can be sold short

Commodities, Currencies, Emerging markets, Strategy/index
How are ETN usually taxed?
investors can claim them as long-term capital gains or losses rate which are usually lower than tax bracket

15%
Out of ETNs and ETFs, which of the following apply to them:

Tacking errors? Market risk? Counterparty risk?
ETN = market & counterpart risk

ETF = market risk & tracking errors
When converting/switching/exchanging mutual fund shares how does the IRS classify this and why?
IRS classifies it as a purchase and a sales there for it could result in a tax gain or loss
If an RR advises a client reallocate their fund investments what is the most effective cost move for a client?
to stay within the same fund family by doing a switch/exchange/or a conversion at NAV because there would be no sales load only a nominal charge
What are classes of shares?

name them and describe.
this is how an investor wants to pay for their sales charges and annual expenses

class A - max sales load upfront; FINRA 8 1/2%; lower annual expenses than B

class B - declining sales load; back end; decreases the longer you hold the fun; higher annual expenses than A

class C - no sales load; highest annual expenses
What is the funds standard deviation?
numerical measure of the return on a mutual fund has varied from its historical average
What document must disclose minimum purchase amounts and quantity discounts for mutual funds?
prospectus
what is the most reliable source of information for mutual funds including the performance statistics?
prospectus
if management wanted to change the investment objectives of a mutual fund who has to approve it?
they have to receive majority percentage of outstanding voting securities to authorize change
how is the degree of success of a mutual fund measured?
by meeting its stated objectives
What is a statistical measure of a funds movement that can be explained by the movement of its benchmark index?
R-squared
what are 12b-1 fees?
Annual fees charged by the fund against the fund assets to cover sales and marketing expenses
What is the benefit of dollar cost averaging aka constant dollar plan?
this is where an investor puts a fixed amount of money into the mutual fund.

by doing this the investor will always have accumulated shares at a lower overall price
Do mutual funds provide account statements, dividend reinvestment plans, and withdrawal plans?
yes to all
When capital gains distributions are paid out what happens to the NAV in the fund? Dividends?
the NAV is reduced

dividends reduce the NAV on the ex-date
How often are capital gains distributions made to investors?
100% paid to investor at least once a year

**taxable whether taken as cash or reinvested in additional shares
Mutual fund shares capital gains distributions and investment income are treated as what when it comes to taxes?

What form do investment companies provide investor with for annual tax reporting purposes?
Capital gains distributions: Always treated as long-term gains no matter how long the investor has actually had the fund

Investment income: dividends, interest, short-term gains are taxed as ordinary income whether they are reinvested or not

1099 form
What makes a fund qualify to be a regulated investment company and what does this mean for taxes for investment companies?
if a fund pays out at least 90% of the net investment income they are exempt from paying tax on the dividends distributed but are taxed on dividends not distributed

**conduit or pipeline theory
What will reinvestment of dividends due to the investors cost basis for tax purposes?
increase the cost basis
Who sets the ex-date on a mutual fund?
the fund sets the ex-date
What does the expense ration of a fund measure?
What is the formula?
Which is higher an UIT expense ratio or a mutual fund?
operating efficiency or operating cost

operating expenses divided by avg net assets

mutual funds are higher than UITs (no management fee)

usually less than 1%; sales load not included in ratio
What is a letter of Intent - LOI?
(time periods. violation. eligibility.)
LOI - a means in which an investor can receive a reduced sales charge

has to reach breakpoint in 13 MONTH PERIOD

can be backdated 90 DAYS

Investors MUST be advised by broker or they are in violation of FINRA rules

Customers who have a lump sum purchase or sign a Letter of Intent: Individual, Married Couple as joint tenants, Corporation, Pension Fund
What is it called when an investor receives a reduced sales charge based on quantity of investment?
breakpoint
What is a breakpoint sales?
when an investor is NOT properly told about how to achieve the breakpoint discount and are PROHIBITED
If the investors signs a LOI - letter of intent and does not meet the breakpoint amount what happens?
it would liquidate the shares in the escrow account to cover the remaining sales charge due
What is Rights of Accumulation (ROA)?

Can families combine their accounts to receive breakpoint discount levels?
ROA = permits reduced sales charge if purchase of new shares plus the total value of already held shares exceeds the sales charge breakpoint

Yes, family accounts can be combined including UGMAs
What are the three types of withdrawal plans mutual funds offer?

What MUST an investor be told when using a withdrawal plan?
Fixed percentage plan
Fixed Number of shares plan
Fixed Dollar plan

MUST be told that the plan may deplete the investors principal
According to FINRA rules what does continuing commissions allow an RR to do?
It allows an RR to receive commissions if there is a bona fide contract in place with employer prior to retirement ONLY on funds
Does FINRA allow firms to charge a commission for redeeming fund shares?
yes
According to FINRA rules for the sale of mutual funds, what type of payments have to be disclosed in the prospectus and what type don't?
CASH payments MUST be disclosed in prospectus and may ONLY be paid by the member firm to the RR which included:

-discounts, fees, concessions
-service fees, commissions, overrides, sales load
-loans
-employee benefits

NON-CASH payments do NOT have to in prospectus as long as they are NOT associated with SALES TARGET

-gifts up to $100 per person per year
-merchandises and prizes
-travel expenses & lodging for educational meetings (not include guests)
- Occasional Meals
According to FINRA rules, can a member be compensated with securities?

When is compensation on Total Sales of investment company shares no allowed?
No cannot be compensated with securities

can not be compensated based on total sales of investment company shares if it favors or disfavors sales of shares of any particular investment company
How long must mutual fund shares be paid off before they can be used as collateral for other purchases on margin?
30 days
When can a FINRA member underwriter sell shares at a discount to other firms and when can they not?
FINRA member firms can only sell shares at a discount or with concessions if they are also a member and a Written Sales Agreement must be in effect at the time of sale.

they cannot sell to non-member firms or public customers at a discount or with concessions. Only at the Public Offering Price
Persons who either write research reports or manage portfolios for a fee are generally registered as what?
investment advisor
According to The Securities Act of 1933 what 4 things must be disclosed in the prospectus of a mutual fun?
min purchase req
quantity discount amts
fund mgmt fees
fund financial statement
In order for an investment company to be registered with the SEC under the 1940 Act what is the requirement for minimum net worth, board of directors, and financial statements to filed with SEC?
Min net worth $100,000

BOD = 40% nonaffiliated

financial statements sent annually for the min but usually requested quarterly
When purchasing fund shares a customer must pay how days after purchase? When redeeming shares a customer must get paid how many days after redemption?
purchase = 3 BUSINESS DAYS

redeem = 7 CALENDAR DAYS
How often must an investment company send financial information to shareholders under the 1940 Act?

Under the Investment company Act of 1940 does it relegate variable annuities?
semi-annually

Yes
Who buys shares from the fund at NAV and sells them to the public with a sales charge or sells them to retail dealers with a discount from the public offering price?

what do they receive for selling the fund shares? where is it contained?
underwriter/distributor/sponsor

receives underwriting concession (fee) contained in the sales load
Who manages the funds port olio of securities and is paid a fee based on a sliding scale computed on the average daily NAV and the fee is deducted from the gross income of the fund?
investment manager
Who has the main job of clerical services?
custodian
What does the transfer agent do?
issues fund shares, redeems fund shares, disburses dividends and capital gains distributions
If we add the NAV and the Sales Load what would we get?

What is the sales load?
What is the NAV?
the offering price is the ASK

sales load is a percentage of the offering price
NAV is the BID
What is the formula to find the offering price?

What is the formula to find the sales load percentage?
NAV / (100% - SL%) = OP

(OP-NAV) / OP = SL%
If a customer redeems shares within 7 business days after purchase date what happens?
all fees, commissions must be refunded
If a customer redeems 1000 shares of a find when the offering price is $20 per share with a sales charge of 6% and a redemption fee of 1/2 of 1% what would the investor receive $$$ upon redemption?
OP X SC = SL $20 X .06 = $1.20 Sales Load
OP - SL = NAV/BID $20 - $1.20 = $18.80 NAV/BID
Shares X NAV = Gross redemption
1000 X $18.80 = $18,800
Gross Redemp X Redemp % fee = Redemp $$ fee
$18,800 x .005 (1/2 x .01) = $94 redemp fee
Gross redemp - redemp fee = net redemp $$ paid to investor
$18,800 - $94 = $18,706 paid to investor