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Questions and Answers
A letter of intent may be backdated to include a prior purchase up to how many days?
A letter of intent may be backdated to include a prior purchase up to how many days?
Under the IRC Subchapter M, if the WWF Fund only distributes 85% of its net investment income to its shareholders, which of the following statements is true?
Under the IRC Subchapter M, if the WWF Fund only distributes 85% of its net investment income to its shareholders, which of the following statements is true?
A mutual fund's public offering price is $10.50. An investor who wishes to invest $1,000.00 in the fund is able to purchase how many shares?
A mutual fund's public offering price is $10.50. An investor who wishes to invest $1,000.00 in the fund is able to purchase how many shares?
One characteristic of an open-end investment company that distinguishes it from a closed-end one is that
One characteristic of an open-end investment company that distinguishes it from a closed-end one is that
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Which of these would not affect the NAV per share of a mutual fund share?
Which of these would not affect the NAV per share of a mutual fund share?
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All of these are true regarding no-load shares except they
All of these are true regarding no-load shares except they
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The investment return of a variable annuity comes from
The investment return of a variable annuity comes from
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An investor asks for a copy of mutual fund's Statement of Additional Information (SAI). The request must be satisfied within?
An investor asks for a copy of mutual fund's Statement of Additional Information (SAI). The request must be satisfied within?
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All of the following would be included in the expense ratio of a fund except?
All of the following would be included in the expense ratio of a fund except?
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Which of the following are the most likely to make monthly or quarterly payments for the life of the investor?
Which of the following are the most likely to make monthly or quarterly payments for the life of the investor?
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Under which of the following conditions will an investor be able to purchase mutual fund shares and pay no sales charge?
Under which of the following conditions will an investor be able to purchase mutual fund shares and pay no sales charge?
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Which of the following investment companies terminates business on a predetermined date?
Which of the following investment companies terminates business on a predetermined date?
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A variable annuity's investment return each month is based on?
A variable annuity's investment return each month is based on?
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Which of the following are true regarding mutual fund sales charges?
Which of the following are true regarding mutual fund sales charges?
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What does the mortality guarantee of a variable annuity insure?
What does the mortality guarantee of a variable annuity insure?
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Advantages to the investor offered by investment companies include?
Advantages to the investor offered by investment companies include?
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A mutual fund's share class determines?
A mutual fund's share class determines?
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Which of the following prospectus must be provided no later than confirmation of the sale?
Which of the following prospectus must be provided no later than confirmation of the sale?
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Which of the following need not be included in the annual reports a mutual fund provides to its shareholders?
Which of the following need not be included in the annual reports a mutual fund provides to its shareholders?
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Which of the following would cause a change in the net asset value (NAV) of a mutual fund share?
Which of the following would cause a change in the net asset value (NAV) of a mutual fund share?
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Which of the following are associated with manipulative, deceptive, or fraudulent devices?
Which of the following are associated with manipulative, deceptive, or fraudulent devices?
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Which class of shares have a front-end sales charge?
Which class of shares have a front-end sales charge?
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Which of the following would be unlawful regarding use of a mutual fund prospectus?
Which of the following would be unlawful regarding use of a mutual fund prospectus?
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Which of the following would cause a mutual fund's net asset value (NAV) per share to fall?
Which of the following would cause a mutual fund's net asset value (NAV) per share to fall?
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Which class of shares have a 12b-1 fee as the primary sales charge?
Which class of shares have a 12b-1 fee as the primary sales charge?
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Which of the following are true regarding mutual fund sales charges?
Which of the following are true regarding mutual fund sales charges?
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Under the Investment Company Act of 1940, all of these are examples of management companies except?
Under the Investment Company Act of 1940, all of these are examples of management companies except?
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Under the Investment Company Act of 1940, which of the following is not considered an investment company?
Under the Investment Company Act of 1940, which of the following is not considered an investment company?
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If a fund sponsor allows an investor to move funds from one fund to another within its fund family, this is called?
If a fund sponsor allows an investor to move funds from one fund to another within its fund family, this is called?
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All of these are part of the expense ratio of a mutual fund except?
All of these are part of the expense ratio of a mutual fund except?
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When a customer chooses to annuitize a variable annuity, all of these are factors the insurance company will use in calculating the initial payout amount except?
When a customer chooses to annuitize a variable annuity, all of these are factors the insurance company will use in calculating the initial payout amount except?
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A mutual fund has been in existence for 15 years. The prospectus must disclose the fund's performance?
A mutual fund has been in existence for 15 years. The prospectus must disclose the fund's performance?
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Which of these would not be included in a mutual fund's list of expenses?
Which of these would not be included in a mutual fund's list of expenses?
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The Windmill Growth Fund has breakpoints at $10,000, $25,000, and $50,000. Your customer places an unsolicited purchase through you for $47,000. You place the trade as requested without question or comment. This action is?
The Windmill Growth Fund has breakpoints at $10,000, $25,000, and $50,000. Your customer places an unsolicited purchase through you for $47,000. You place the trade as requested without question or comment. This action is?
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ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore, which of the following statements is true?
ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore, which of the following statements is true?
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An investor can take advantage of intraday price changes due to normal market forces when investing in which of these?
An investor can take advantage of intraday price changes due to normal market forces when investing in which of these?
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Study Notes
Mutual Funds and Annuities
- Requests for a mutual fund's Statement of Additional Information (SAI) must be fulfilled within three business days at no charge.
- The expense ratio of a mutual fund does not include front-end or back-end loads, focusing instead on ongoing operational expenses.
- Fixed and variable annuities provide a guaranteed payment stream for the investor's lifetime, distinguishing them from mutual funds and Unit Investment Trusts (UITs) which do not guarantee payments.
Sales Charges in Mutual Funds
- Mutual fund investors can purchase shares without sales charges through automatic reinvestment of dividends and capital gains distributions.
- Sales charges are not a standard business expense for funds; they are borne by investors and serve to compensate underwriters and sales representatives.
- Class A shares incur a front-end sales charge, Class B shares have back-end loads, and Class C shares include ongoing 12b-1 fees.
Mandatory Disclosures
- Mutual funds must provide performance data for the last year, five years, and ten years, irrespective of the fund's total existence.
- A statutory prospectus is required to be delivered at or before the confirmation of a sale, while the Statement of Additional Information can be provided upon request.
Impact of Transactions on NAV
- A mutual fund's net asset value (NAV) can decline due to dividend payouts and depreciation in portfolio market value, without affecting the number of shares outstanding.
- Selling securities for capital gains or large number of redemptions does not directly impact NAV as these actions either substitute cash for equivalent security value or proportionately change shares.
Investment Company Regulations
- Under the Investment Company Act of 1940, only unit investment trusts (UITs) that do not manage securities are excluded from being classified as management companies.
- Hedge funds are not classified as investment companies due to their private partnership structure, whereas mutual funds and ETFs fit the criteria.
Miscellaneous Factors
- A letter of intent for a mutual fund can be backdated up to 90 days, obligating the investor to meet the total investment requirement within 13 months.
- Fund sponsors may allow investors to transfer funds within the same fund family under an exchange privilege.
- Investors must pay taxes on capital gains received, irrespective of whether they choose to receive income in cash or reinvest it.
General Characteristics of Investment Companies
- Open-end investment companies maintain continuous public offerings and issue shares based on investor demand, unlike closed-end companies that have a fixed number of shares available.
- Investment companies allow small investors to diversify their portfolios, leverage professional management, and gain access to institutional pricing.### Investment Companies
- Open-end investment companies continuously offer new shares, allowing investors to buy directly from the fund.
- In closed-end investment companies, acquiring shares is only possible on the secondary market after the initial public offering (IPO).
- Both types can qualify as regulated investment companies, avoiding taxation and may choose varying levels of diversification and investment objectives.
Net Asset Value (NAV) of Mutual Funds
- Selling portfolio securities impacts the composition of the portfolio without changing the NAV per share, as it simply converts assets into cash.
- Increases in market value of the portfolio and received dividends both enhance net assets, potentially increasing NAV per share.
- Monthly operating expenses reduce net assets, which directly affects the NAV per share.
No-Load Shares
- No-load shares provide higher returns per dollar invested compared to load funds, given equivalent investment performance.
- These shares do not incur sales charges; however, broker-dealers may charge transaction fees separate from fund expenses.
- Redemption of no-load shares typically involves no associated fees or charges.
Variable Annuities
- The investment return of a variable annuity relies on the performance of selected subaccounts within a separate account.
- Most premium contributions are invested in the separate account, which distinguishes variable annuities from fixed investment options offered by insurance companies.
- An investor can choose from multiple subaccounts, aligning investments with individual goals for potential returns.
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Description
Test your understanding of SIE Unit 4 with these flashcards. This quiz covers important topics such as mutual funds and investor rights. Enhance your knowledge and prepare effectively for the SIE exam.
