2 Product Information: Investment Company Securities and Variable Contracts Flashcards Preview

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Flashcards in 2 Product Information: Investment Company Securities and Variable Contracts Deck (24)
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1

Determine whether each statement describes an open-end or a closed-end company.
Trades in the secondary market

closed-end.

2

Determine whether each statement describes an open-end or a closed-end company.
Investors may purchase fractional shares

open-end

3

Determine whether each statement describes an open-end or a closed-end company.
May issue common stock, preferred stock, and bonds

closed-end.

4

Determine whether each statement describes an open-end or a closed-end company.
Are sold with prospectus during IPO only

closed-end.

5

Determine whether each statement describes an open-end or a closed-end company.
Issues a fixed number of shares

closed-end.

6

Determine whether each statement describes an open-end or a closed-end company.
Ex-date is set by the board of directors

open-end

7

Determine whether each statement describes an open-end or a closed-end company.
Do not trade in the secondary market; shares are redeemable

open-end

8

Determine whether each statement describes an open-end or a closed-end company
Price is set by supply and demand

closed-end.

9

Determine whether each statement describes an open-end or a closed-end company
Usually called mutual funds

open-end

10

Determine whether each statement describes an open-end or a closed-end company
Selling price usually includes a sales charge

open-end

11

Which of the following are covered under the Investment Company Act of 1940?
I. All broker/dealers
II. Municipal bond brokers
III. Open-end management companies
IV. Closed-end management companies
A. I and II
B. I and III
C. II and IV
D. III and IV

D. III and IV
Unit investment trusts, face-amount, and management companies are all mentioned
in the Act. Open-end and closed-end management companies are subclassifications of management investment companies.

12

Which of the following investment companies has no provision for redemption of outstanding shares?
A. Open-end company
B. Closed-end company
C. Unit investment trust
D. Mutual fund

B. Closed-end company
The closed-end company does not redeem the shares it issues. The closed-end company has a fixed capitalization and, as with other corporations, outstanding shares trade on the open market.

13

Which of the following statements regarding the investment practices of diversi- fied management companies are TRUE?
I. They may own no more than 5% of the voting stock of a single company.
II. No more than 5% of their assets are invested in any one company.
III. They may own no more than 10% of the voting stock of any one company.
IV. If they own more than 25% of a target company, they do not vote the stock.
A. I and II
B. I and III
C. II and III
D. III and IV

C. II and III
A diversified investment company must have at least 75% of its assets invested in cash and securities; have no more than 5% of its total assets invested in one company; and may own no more than 10% of the voting stock of any one company.

14

According to the Investment Company Act of 1940, an investment company with a fixed portfolio, redeemable shares, and no management fee is
A. a face-amount certificate company
B. a management company
C. a unit investment trust
D. a closed-end investment company

C. a unit investment trust
Unlike unit investment trusts (which issue redeemable securities), face-amount certificate companies issue installment certificates with guaranteed principal and interest. A unit investment trust has a diversified portfolio that, once established, does not change. Therefore, it is not called a management company. A closed- end investment company is a type of management company.

15

Which of the following statements are TRUE regarding open-end, but not closed- end, investment companies?
I. They may make continuous offerings of shares provided the original registra- tion statement and prospectus are periodically updated.
II. They may be listed on registered national exchanges.
III. They do not redeem their shares.
IV. They may issue only common stock.
A. I and II
B. I and IV
C. II and III
D. III and IV

B. I and IV
Open-end (but not closed-end) investment companies may make continuous offerings of shares, redeem their shares, and issue only common stock.

16

Hedge funds and mutual funds are similar in that
A. both are required to register with the SEC
B. neither may take short positions for profit in a bearish market
C. both offer professional investment management
D. neither is available to ordinary investors

C. both offer professional investment management
Mutual funds and hedge funds both offer professional investment management to the investor. Unlike hedge funds, mutual funds may not take up short positions to make profit in a bearish market, because the risk is inappropriately high. Unlike mutual funds, hedge funds are not currently required to register with the SEC and are available to accredited investors only.

17

True or False?
Mutual funds are generally prohibited from using covered options strategies.

False
Mutual funds may use covered option strategies but typically not naked or uncovered options.

18

True or False?
A majority vote of the outstanding shareholders is required to change the investment objectives of a mutual fund.

False
A change in the investment objectives of the fund requires a majority vote of the outstanding shares, not shareholders.

19

True or False?
Mutual fund shares may be purchased on margin but may not be used as collateral in margin accounts.

False
Mutual funds may be used as collateral in margin accounts but may not be purchased on margin.

20

True or False?
Open-end companies must have at least $100,000 of net assets before they may operate as an investment company.

True
Open-end companies must have at least $100,000 of assets before they may operate as an investment company.

21

True or False?
Mutual funds are required to file registration statements with the SEC before shares are sold to the public.

True
Mutual funds are required to file registration statements with the SEC before shares are sold to the public.

22

True or False?
Mutual funds make continuous secondary offerings of securities.

False
Mutual funds make continuous primary or new offerings of securities and must be sold by prospectus.

23

True or False?
Open-end investment companies must maintain a 3:1 debt-to-asset ratio.

False
The debt-to-asset ratio of a mutual fund may not exceed 1:3, or 33%.

24

True or False?
Closed-end companies are generally considered mutual funds.

False
Open-end companies are called mutual funds.