Chapter 2 test questions Flashcards
When determining break points mutual funds in all the following may be aggregated except?
Joint account with business partner
Clients IRA
Client spouses IRA
UTMA account for the clients minor, dependent child
any account owned directly bu client, including retirement accounts or indirectly thru spouse or a dependent.
However a business partner or any other non-spouse partner would not be included
Sales Charges are applicable to all the following except: Open-ended funds Closed end funds Variable annuities unit trusts
Sales charges are only applicable to redeemable securities such as mutual funds, unit trusts, variable annuities. Closed End funds trade on an exchange and have mark-ups or commissions.
To qualify as a REIT, certain IRS requirements must be met. Which is not a requirement:
-Flow thru losses to shareholders
- Invest at least 75% of its total assets in real estate
assets
- Derive at least 75% of its income from rents from real property or interest on mortgage financing real property
- Pay 90% of its taxable income in the form of a shareholder dividend.
A- DPP are flow thru vehicles and reits are not.
Rule 22d-1 of the ICA of 1940 stipulates that certain persons who are eligible to purchase shares of an open-end fund at prices below the POP are:
-Officers of the funds Investment Advisor
-Full time employees of the funds custodian bank
- Full time employees of the funds sponsor
Non member broker dealers
This rule permits sales to directors, officers or partners of the IC, its IA or Principle underwriter or to the bonafide full time employee of sales representatives.
Not included wud be employees of other entities servicing fund and non member bd’s must always be charged POP.
B
An order to redeem mutual fund shares is filled at :
- The proir days closing NAV
- NAV computed at the time the order is received
- next computed NAV
- Next computed POP
Mutual funds are bot and sold on a forward pricing basis. Orders to buy are filled at the next computed NAV per share ( with a sales charge added to arrive at POP) and orders to redeem are filled at the next computed nav per share
Next computed NAV
Under FINRA Rule 2330, a potential Red Flag would be
- A RR selling deferred variable annuities to client under 40
- Client beginning annuity payments 24 months after initial purchase of a deferred variable annuity
- 75 yr old client taking a partial withdrawal from a deferred variable annuity
- a client exchanging one deferred variable annuity for another 24 months after initial purchase.
D. suitability rules. The rule mandates examining any exchange of a deferred variable annuity within 36 months of initial purchase.
Both Open and closed end funds may
- borrow from bank
- issue preferred stock
- issue debt securities
- make a continuous offering of common stock
A-Mutual funds are only permitted to issue voting common stock. Close end funds can issue voting, senior securities such as bonds and and preferred stock.
- Mutual Fund make a continuous offering of stock.
- Publicly traded funds make 1 time issuance
- Both can borrow from banks
A member may purchase variable contracts from an insurance company underwriter if:
1- There is a written sales agreement in place
2-the insurance company is a member
3-the member agrees to forfeit all concessions if the contract is redeemed within 7 business days of acceptance
1,2 and 3-For a member to sell Variable Contracts, must be a written agreement between member and insurance company underwriter.
- Subs of the insurance company doing the underwriting must be a member
- Written agreement also must call for forfeiture of any concessions earned if the contract is redeemed with in 7 business days
A diversified investment company must invest at least ____ of its assets in such a way that no more than____ of its assets are in any one company, and each investment represents no more than _____ of the target company’s voting shares.
75% 5% 10%
diversified investment company must invest 75% in a way that no more than 5% of its assets in any one company and no single investment represents more than 10% of another company’s voting security.
All of the following terms apply to a municipal investment trusts except: Regulated Managed Redeemable Registered
Managed
U.I.T- have a fixed portfolio that are not traded. As bonds mature proceeds distributed pro-rata. There is no investment adviser. UIT is regulated if it distributes a minimum of 90% of its net income to unit holders.
Under finra rules, payment made to purchase variable contracts must be forwarded to the insurance company underwriter:
Promptly
Which activities would require a member firm to register as an investment adviser.
A- the firm provides advice to clients on the purchase and sale of securities.
B- The firm publishes research report
C-Firm distributed a list of recommended stocks to clients
D- none of these
D- A BD us generally exempt from having to register as an investment adviser because giving investment advise is part of what a BD does. This exemption only applies if the firm does not charge separately for giving advise.
To register with the SEC on form N-1A, an investment company must have capital of at least: A 25k B 100k C 250k D 500k
B-100k
A management company is not permitted to issues securities to the public unless it has capital of at least 100k
FINRA rule 2330 dealing with members responsibilities regarding variable annuities applies under which:
1-purchase of a deferred variable annuity
2-purchase of an immediate variable annuity
3- initial sub account allocations
4-sub account reallocations
1 and 3- Rule applies to purchases and exchanges of deferred annuities ( NOT IMMEDIATE) variable annuities and recommended initial sub account allocations.
Does not apply tom reallocations or to funds paid after the initial purchase or exchange of a deferred variable annuity.
Rule 35d-1 ( the name Rule) would NOT apply to which of the following mutual funds: A-GHI Global Equity Fund B- The DEF Municipal Bond Fund C- The ABC Income Fund D- The XYZ small cap fund
C 35d- does not apply to the term INCOME or GROwTH and INCOME. Does not apply to a objective or strategy rather than a type of investment.
TAX FREE BOND suggests a type of an investment.
