8: INVESTMENT COMPANIES (269) Flashcards
T/F: The practice of selling dividends is prohibited
True
Does a closed end fund redeem shares?
No
T/F: Class B shares can offer breakpoints under certian circumstances
False
Class B shares never offer breakpoints, even if you invest a lot of $
[Class B shares] T/F: The longer the fund is held, the smaller the sales charge will be.
True
T/F: Breakpoints favor those with more money to invest
True
T/F: Generally, the contingent deferred sales charge will be reduced or each year the investor holds the security
True
Can deferred compensation plans be discriminatory?
Yes
Deferred compensation plans are not qualified plans and may be discriminatory.
Do breakpoints apply to Class B & Class C shares?
No
Breakpoints apply to Class A shares only
T/F: Class B shares convert to A-shares if held for several years
True
T/F: there is no tax free accumulation to the investor when a fund is taxed using the conduit theory of taxation
True
[Class B shares] T/F: The longer you hold the shares the lower your deferred sales charge
True
T/F: Mutual funds can call themselves “no load” as long as any 12b-1 fees don’t exceed .75%
False
Mutual fund can call themselves no-load as long as they do not have a 12b-1 charge that exceeds .25%.
Which has a lower yearly expense ratio: Class A shares or Class B shares
Class A shares
T/F: An unrealized gain in a mutual fund portfolio is realized by shareholders only when they redeem their shares
True
What is the term for fees an investor pays when he SELLS his mutual fund shares?
Back end loads
If interest rates increase, will the interest income of an open end bond fund increase/decrease?
Increase
What kind of fees do Class A shares charge?
A comission called a “front end load”
T/F: Mutual fund can call themselves no-load as long as they do not have a 12b-1 charge that exceeds .25%.
True
[Class C shares] T/F: A back-end load is charged if funds are withdrawn within the first year
True
T/F: Class C shares charge an annual fee for distrubution and marketing costs
True
T/F: ERISA was established to protect the retirement funds of employees working in the private sector only
True
T/F: Class C shares charge front-end fees
False, there are no front end fees with Class C shares
A level load is aka as a ____ fee
12b-1 fee
Are private sector plans covered by ERISA guidelines
Yes
Is the employer allowed to tax tax deductions for contributions made to an employee’s SEP IRA
Yes
Do Class A shares offer breakpoint discounts?
Yes
Do Clas C shares offer any opportunities for discounts?
No
T/F: under the pipeline theory of taxation, income from a fund is only taxed twice
True
Once at corporate level & once at individual level
Which has more complicated rules for employers to follow: ERISA or SEP IRA
ERISA is more complicated
That’s why ppl use SEP IRA
Do Class B shares charge high exit fees?
Yes
Do Class A shares offer right of accumulation?
Yes
T/F: under the pipeline theory of taxation, the income is taxed once at the corporate level and once at the fund level.
False
Income is taxed twice but it’s at the corporate and individual level. (Not the fund level)
Does ERISA apply to employees of public sector entities (likes city & state governments)
No
ERISA was established to protect the retirement funds of employees working in the private sector only
T/F: Level load shares, or Class C shares, come with annual charges, set at a fixed percentage.
True
Which class of shares is best for investors who will redeem the shares soon?
Class C shares
What is beneficial about Class B shares converting to Class A after the specific holding period?
The fact that Class A shares have a lower yearly expense ratio
Mutual funds sell at NAV plus ____
Mutual funds sell at NAV plus sales charge.
Can a closed end fund trade at a premium/discount compared to it’s NAV?
Yes
The NAV of the fund is calculated regularly. However, the price that it trades for on the exchange is determined entirely by supply and demand
Do qualififed retirement plans have to segregate funds from corporate or union assets
Yes
T/F: Class B shares charge Back-End loads
True
T/F: Class B shares convert to Class A after a certian period of time
True
Are Back-End Loads paid when buying/selling mutual fund shares?
Selling
A contingent deffered sales charge (CDSC) is also known as what?
A “back-end load” or “sales charge”
T/F: Closed-end investment companies are allowed to issue debt securities
True
How long does a letter of intent last for?
13 months
Is a manager needed for a unit investment trust?
No
The securities in the portfolio are not traded, so no manager is needed.
Can an open-end investment company issue debt securities?
No, it can purchase debt securities for it’s portfolio but it can’t issue them
Two other names for a closed-end fund
“closed-end investment” and “closed-end mutual fund.”
T/F: Class C shares have a small exit fee which is usually waved after one year
True
The largest type of closed-end fund, evaluated by assets under management, is _______
a municipal bond fund
What does SEP IRA stand for
Simplified employee pension IRA
Are 401(K) plans covered by ERISA guidelines
Yes
T/F: A unit investment trust is supervised, not managed
True,
The securities in the portfolio are not traded, so no manager is needed
T/F: Class C shares are level load funds
True
Are profit sharing plans covered by ERISA guidlines
Yes
Why is Rights of Accumulation helpful when saving for retirement?
Because working-age adults are often able to invest more each year
Can employers contribute to employees SEP IRA
Yes
T/F: If an investor holds class B shares until the end of the holding period, he can avoid paying the CDSC
True
Is the sales charge included in the public offering price (POP)
Yes
T/F: Under the conduit, or pipeline theory of taxation, a fund is liable for taxes only on the income retained if it distributes at least 90% of its net investment income
True
Rights of Accumulation
Allows you to revieve a discount on the front-end load if you reach the first breakpoint with your second installment
Example: Suppose that the first breakpoint is $25,000, but your initial investment was $10,000. If you invest another $15,000 to reach the breakpoint on the second installment, you will receive a discounted front-load fee
Do class C shares offer any opporunities for conversions?
No
Does the conditional deferred sales charge apply to Class B & Class C shares?
Yes
Does the price of a closed end fund fluctuate throuhgout the trading day?
Yes
12b-1 fees
Marketing and distribution fees included in the fund’s expense ratio
What does ERISA protect?
The retirement funds of employees working in the private sector
Are closed-end investment companies allowed to issue preferred stock?
Yes
Do Class B shares charge a front end fee?
No
Are class A shares a good choice for wealthy investors?
Yes
Due to the fact that they reduce upfront fees for larger investments
Does the portfolio of a UIT change after it’s established?
No
Are front and back end loads part of the expense ratio?
No
Are public sector plans covered by ERISA guidlines
No
T/F: the payment structure for level load funds continutes for as long as the investor owns shares in the fund
True
T/F: Class C shares a not very popular with retail investors
False, Class C sares ARE popular with retail investor
T/F: Under the pipeline (or conduit) theory of taxation, an investor’s income accumulates tax free.
False
Under the conduit theory of taxation, the income is taxes twice (once at corp level & once a individual level) but not at the fund level
The contingent deferred sales charge (CDSC) is aka as _____
“Back-end load” or “sales charge”
[Class A shares] Can investors who provide a letter of intent to invest above a breakpoint recieve a discount?
Yes
T/F: Most business development companies (BDCs) are classified as a closed end investment-company.
True
If am employer is matching conributions in an ERISA-qualified retirement plan, what does the vesting schedule tell you?
When the employer contribtions (the money they matched) become the employees
What is a drawback about Class B shares for wealthy investors?
There are no breakpoints
Can a closed end fund trade at a premium/discount compared to it’s NAV?
Yes
The NAV of the fund is calculated regularly. However, the price that it trades for on the exchange is determined entirely by supply and demand
T/F: Class A shares require low initial investments
False,
Class A shares require a HIGH initial investement
Do shares of a closed-end investment company trade in the secondary market?
Yes
Do Class C shares tend to have high/low expense ratios
High expense ratios
Under MSRB rules what is the max dollar amount of business related gratuities and gifts an RR can give to one person in a year?
$100
T/F: Most business development companies (BDCs) are classified as an open-end investment company
False
T/F: Closed-end funds do not trade actively in the secondary market
False
Closed-end funds do trade actively in the secondary market
ERISA sets minimum standards for these 4 things regarding qualified retirement plans
- Participation
- Vesting
- Benefit accrual
- Funding of the plans
What is the term for what it costs an investment company to operate the fund
Yearly expense ratio
Are Class A shares good for investors with short time horizons?
No
T/F: Standard IRAs usually have higher annual contribution limits than SEP IRAs
False
SEP IRAs usually have the higher limit
Which shares charge the highest expense ratio?
Class B shares (at least until converted into class A)
T/F:
A unit investment trust buys securities and holds them until redemption or until a specified future date.
True
Best Class of shares for investors with little cash and long time horizons
Class B shares
Are most business development companies classified as open end or closed end investment companies?
Closed end
Most business development companies are closed end
