Investment Company and Insurance Based Products

Question 1

Considerations for investment companies

Answer 1

raise capital by selling shares so is reg’d by same as securities like Sec Act but also Investment company act

Question 2

What are the three main types of investment companies

Answer 2

Face Amount Certs
Unit investment trusts
managed investment comps

Question 3

Characteristics of a UIT?

Answer 3

No BOD just trustees
not managed
doesnt trade secondarily

Question 4

Characteristics of closed end invs comps

Answer 4

IPO for a specified amount
secondary trading
might sell at a discount/premium
issues com/pref sto and debt

Question 5

Whats another name for closed end invs comps

Answer 5

publicly traded funds

Question 6

What are the types of managed investment comps

Answer 6

closed/open ended

Question 7

Characteristics of open ended invs comps

Answer 7

continous primary offerings
no secondary trading bec redeemed by the fund
com sto only
fractional shares
Priced and usu reinvested at NAV at end of day
reinvestments/divi’s taxed

Question 8

If a mutual fund has sales charges then how are the shares classfied

Answer 8

Class A
B and C

Question 9

What are class A shares for mutual funds

Answer 9

pay sales charge at purchase as % of total investment

Question 10

What are Class B shares of a mutual fund

Answer 10

pay sales charages on the back end, usu declining % over the years to zero

Question 11

Consideration for Class B shares of mutual funds

Answer 11

even though sales charages go to zero over time other fees may be high

Question 12

What are Class C mutual fund shares

Answer 12

usu 1 year 1%CDSC, .75% 12b-1 fee, and a .25% shareholder fee

Question 13

considerations for class C/level load shares

Answer 13

at least a year but less than 4 years bec expensive

Question 14

Whats a breakpoint

Answer 14

sales charge levels based on the amount initially invested

Question 15

Whats a requirement of advisers for breakpoints

Answer 15

need to mention if close to the next breakpoint

Question 16

What can you use to get a better breakpoint without the necessary funds

Answer 16

letter of intent

Question 17

Rules for a LOI

Answer 17

additional funds needed within 13mos
the 13mo can be back dated 90 days
if funds not received, option to send check or sell the shares in escrow to pay for the sales charge

Question 18

What are rights of accumulation

Answer 18

allows prior investments to help total higher amounts to get better breakpoints

Question 19

example of rights of accumulation

Answer 19

if 30K starting has 5%load then you add another 10K and the fees at 40K are 4%, the additional 10k will have a 4% load

Question 20

Whats the combination privilege

Answer 20

allows combining the money in different mutual funds within the same sponsor fam to reach breakpoints

Question 21

Whats exchange privilege

Answer 21

can switch to another fund in the family without sales charges

Question 22

calculation for NAV

Answer 22

(Assets - liabilities)/outstanding shares

Question 23

What is a mutual funds expense ratio

Answer 23

compares the management , operting fees, and 12b-1 fees to the funds average net assets

Question 24

Whats inc;ldued in the operating costs of an expense ratio

Answer 24

BOD
admin

Question 25

Whats not included in an expense ratio

Answer 25

loads

Question 26

Whats included in the POP of front loaded shares

Answer 26

NAV+ sales charges

Question 27

difference of distribution btween stocks and mutual funds

Answer 27

ex divi happens one day after record date so DRPE
settles T1

Question 28

Do mutual funds need prospectuses

Answer 28

yes

Question 29

What might be given inst of a flul pros & what rules for it

Answer 29

summary pros
-Name
- class of sto
- ticker sym
- legend with disclosure that its a sum and where to find the full

Question 30

What can invs of a mut fund or closed end fund ask for and receive within 3 days

Answer 30

statement of additional info

Question 31

Can prospectuses be marked on highlighted etc

Answer 31

never

Question 32

what is a omitting pros and whats allowed with it

Answer 32

advertisement
raising awareness

Question 33

How can a fund avoid taxes on teh fun dlevel

Answer 33

Subchapter M qualification

Question 34

Whats a rule for subchapter M

Answer 34

90% of net investment income distributed or taxes on 100%

Question 35

Whats an annuity

Answer 35

savings account within an insurance company that’s designed for retirement income

Question 36

What is the cirtieria insurance comps use to determine the income of an annuity

Answer 36

SAAPI
sex
age
amount
payout type
assumed interest rate

Question 37

Criteria for recommending a variable annuity

Answer 37

Should be able to purchase with cash not selling other things
no big future costs like home pruchase, college tuition
not putting it into a tax favored account
okay with risk
other retirement savings vehicles have been used

Question 38

Qual vs nonqual annuities

Answer 38

nonqual are commercial contracts
qual are held in retirement acc like 401k

Question 39

For the exam, annuities are considered what unless specified

Answer 39

nonqual

Question 40

When are annuities taxed

Answer 40

withrawl

Question 41

Whats the rules of withdrawl for variable annuities

Answer 41

the withdrawl is split into return of prin and gains
if lump sum taken, its considered all gains
before 59.5 yr taxable portion has a 10% penalty

Question 42

You can transfer bwteen annuities tax free but what might still need to be paid

Answer 42

surrender fees