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Series 7 > 8: INVESTMENT COMPANIES (269) > Flashcards

8: INVESTMENT COMPANIES (269) Flashcards

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Series 7 Top-off Exam flashcards
1
Q

T/F: The practice of selling dividends is prohibited

A

True

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2
Q

Does a closed end fund redeem shares?

A

No

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3
Q

T/F: Class B shares can offer breakpoints under certian circumstances

A

False

Class B shares never offer breakpoints, even if you invest a lot of $

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4
Q

[Class B shares] T/F: The longer the fund is held, the smaller the sales charge will be.

A

True

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5
Q

T/F: Breakpoints favor those with more money to invest

A

True

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6
Q

T/F: Generally, the contingent deferred sales charge will be reduced or each year the investor holds the security

A

True

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7
Q

Can deferred compensation plans be discriminatory?

A

Yes

Deferred compensation plans are not qualified plans and may be discriminatory.

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8
Q

Do breakpoints apply to Class B & Class C shares?

A

No

Breakpoints apply to Class A shares only

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9
Q

T/F: Class B shares convert to A-shares if held for several years

A

True

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10
Q

T/F: there is no tax free accumulation to the investor when a fund is taxed using the conduit theory of taxation

A

True

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11
Q

[Class B shares] T/F: The longer you hold the shares the lower your deferred sales charge

A

True

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12
Q

T/F: Mutual funds can call themselves “no load” as long as any 12b-1 fees don’t exceed .75%

A

False

Mutual fund can call themselves no-load as long as they do not have a 12b-1 charge that exceeds .25%.

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13
Q

Which has a lower yearly expense ratio: Class A shares or Class B shares

A

Class A shares

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14
Q

T/F: An unrealized gain in a mutual fund portfolio is realized by shareholders only when they redeem their shares

A

True

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15
Q

What is the term for fees an investor pays when he SELLS his mutual fund shares?

A

Back end loads

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16
Q

If interest rates increase, will the interest income of an open end bond fund increase/decrease?

A

Increase

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17
Q

What kind of fees do Class A shares charge?

A

A comission called a “front end load”

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18
Q

T/F: Mutual fund can call themselves no-load as long as they do not have a 12b-1 charge that exceeds .25%.

A

True

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19
Q

[Class C shares] T/F: A back-end load is charged if funds are withdrawn within the first year

A

True

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20
Q

T/F: Class C shares charge an annual fee for distrubution and marketing costs

A

True

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21
Q

T/F: ERISA was established to protect the retirement funds of employees working in the private sector only

A

True

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22
Q

T/F: Class C shares charge front-end fees

A

False, there are no front end fees with Class C shares

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23
Q

A level load is aka as a ____ fee

A

12b-1 fee

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24
Q

Are private sector plans covered by ERISA guidelines

A

Yes

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25
Q

Is the employer allowed to tax tax deductions for contributions made to an employee’s SEP IRA

A

Yes

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26
Q

Do Class A shares offer breakpoint discounts?

A

Yes

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27
Q

Do Clas C shares offer any opportunities for discounts?

A

No

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28
Q

T/F: under the pipeline theory of taxation, income from a fund is only taxed twice

A

True

Once at corporate level & once at individual level

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29
Q

Which has more complicated rules for employers to follow: ERISA or SEP IRA

A

ERISA is more complicated

That’s why ppl use SEP IRA

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30
Q

Do Class B shares charge high exit fees?

A

Yes

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31
Q

Do Class A shares offer right of accumulation?

A

Yes

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32
Q

T/F: under the pipeline theory of taxation, the income is taxed once at the corporate level and once at the fund level.

A

False

Income is taxed twice but it’s at the corporate and individual level. (Not the fund level)

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33
Q

Does ERISA apply to employees of public sector entities (likes city & state governments)

A

No

ERISA was established to protect the retirement funds of employees working in the private sector only

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34
Q

T/F: Level load shares, or Class C shares, come with annual charges, set at a fixed percentage.

A

True

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35
Q

Which class of shares is best for investors who will redeem the shares soon?

A

Class C shares

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36
Q

What is beneficial about Class B shares converting to Class A after the specific holding period?

A

The fact that Class A shares have a lower yearly expense ratio

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37
Q

Mutual funds sell at NAV plus ____

A

Mutual funds sell at NAV plus sales charge.

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38
Q

Can a closed end fund trade at a premium/discount compared to it’s NAV?

A

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

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39
Q

Do qualififed retirement plans have to segregate funds from corporate or union assets

A

Yes

40
Q

T/F: Class B shares charge Back-End loads

A

True

41
Q

T/F: Class B shares convert to Class A after a certian period of time

A

True

42
Q

Are Back-End Loads paid when buying/selling mutual fund shares?

A

Selling

43
Q

A contingent deffered sales charge (CDSC) is also known as what?

A

A “back-end load” or “sales charge”

44
Q

T/F: Closed-end investment companies are allowed to issue debt securities

A

True

45
Q

How long does a letter of intent last for?

A

13 months

46
Q

Is a manager needed for a unit investment trust?

A

No

The securities in the portfolio are not traded, so no manager is needed.

47
Q

Can an open-end investment company issue debt securities?

A

No, it can purchase debt securities for it’s portfolio but it can’t issue them

48
Q

Two other names for a closed-end fund

A

“closed-end investment” and “closed-end mutual fund.”

49
Q

T/F: Class C shares have a small exit fee which is usually waved after one year

A

True

50
Q

The largest type of closed-end fund, evaluated by assets under management, is _______

A

a municipal bond fund

51
Q

What does SEP IRA stand for

A

Simplified employee pension IRA

52
Q

Are 401(K) plans covered by ERISA guidelines

A

Yes

53
Q

T/F: A unit investment trust is supervised, not managed

A

True,

The securities in the portfolio are not traded, so no manager is needed

54
Q

T/F: Class C shares are level load funds

A

True

55
Q

Are profit sharing plans covered by ERISA guidlines

A

Yes

56
Q

Why is Rights of Accumulation helpful when saving for retirement?

A

Because working-age adults are often able to invest more each year

57
Q

Can employers contribute to employees SEP IRA

A

Yes

58
Q

T/F: If an investor holds class B shares until the end of the holding period, he can avoid paying the CDSC

A

True

59
Q

Is the sales charge included in the public offering price (POP)

A

Yes

60
Q

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

A

True

61
Q

Rights of Accumulation

A

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

62
Q

Do class C shares offer any opporunities for conversions?

A

No

63
Q

Does the conditional deferred sales charge apply to Class B & Class C shares?

A

Yes

64
Q

Does the price of a closed end fund fluctuate throuhgout the trading day?

A

Yes

65
Q

12b-1 fees

A

Marketing and distribution fees included in the fund’s expense ratio

66
Q

What does ERISA protect?

A

The retirement funds of employees working in the private sector

67
Q

Are closed-end investment companies allowed to issue preferred stock?

A

Yes

68
Q

Do Class B shares charge a front end fee?

A

No

69
Q

Are class A shares a good choice for wealthy investors?

A

Yes

Due to the fact that they reduce upfront fees for larger investments

70
Q

Does the portfolio of a UIT change after it’s established?

A

No

71
Q

Are front and back end loads part of the expense ratio?

A

No

72
Q

Are public sector plans covered by ERISA guidlines

A

No

73
Q

T/F: the payment structure for level load funds continutes for as long as the investor owns shares in the fund

A

True

74
Q

T/F: Class C shares a not very popular with retail investors

A

False, Class C sares ARE popular with retail investor

75
Q

T/F: Under the pipeline (or conduit) theory of taxation, an investor’s income accumulates tax free.

A

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

76
Q

The contingent deferred sales charge (CDSC) is aka as _____

A

“Back-end load” or “sales charge”

77
Q

[Class A shares] Can investors who provide a letter of intent to invest above a breakpoint recieve a discount?

A

Yes

78
Q

T/F: Most business development companies (BDCs) are classified as a closed end investment-company.

A

True

79
Q

If am employer is matching conributions in an ERISA-qualified retirement plan, what does the vesting schedule tell you?

A

When the employer contribtions (the money they matched) become the employees

80
Q

What is a drawback about Class B shares for wealthy investors?

A

There are no breakpoints

81
Q

Can a closed end fund trade at a premium/discount compared to it’s NAV?

A

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

82
Q

T/F: Class A shares require low initial investments

A

False,

Class A shares require a HIGH initial investement

83
Q

Do shares of a closed-end investment company trade in the secondary market?

A

Yes

84
Q

Do Class C shares tend to have high/low expense ratios

A

High expense ratios

85
Q

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?

A

$100

86
Q

T/F: Most business development companies (BDCs) are classified as an open-end investment company

A

False

87
Q

T/F: Closed-end funds do not trade actively in the secondary market

A

False

Closed-end funds do trade actively in the secondary market

88
Q

ERISA sets minimum standards for these 4 things regarding qualified retirement plans

A
  1. Participation
  2. Vesting
  3. Benefit accrual
  4. Funding of the plans
89
Q

What is the term for what it costs an investment company to operate the fund

A

Yearly expense ratio

90
Q

Are Class A shares good for investors with short time horizons?

A

No

91
Q

T/F: Standard IRAs usually have higher annual contribution limits than SEP IRAs

A

False

SEP IRAs usually have the higher limit

92
Q

Which shares charge the highest expense ratio?

A 
Class B shares 
(at least until converted into class A)
93
Q

T/F:

A unit investment trust buys securities and holds them until redemption or until a specified future date.

A

True

94
Q

Best Class of shares for investors with little cash and long time horizons

A

Class B shares

95
Q

Are most business development companies classified as open end or closed end investment companies?

A

Closed end

Most business development companies are closed end

Series 7 (64 decks)

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