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  1. All of the following are compensated from the expenses of a mutual fund EXCEPT:

    A) transfer agent.B) custodian.C) investment adviser.D) sponsor.
    B) custodian
  2. The XYZ mutual fund company is introducing a new fund with an investment objective of appreciation in share price by means of capital gains. The portfolio will consist of a mix of both value stocks and growth stocks. This is most likely a:
    A) balanced fund.B) blend/core fund.C) utility income fund.D) preferred equity income fund
    C) utility income fund
  3. Which of the following activities by a mutual fund require approval by a majority vote of outstanding shares?

    I.A change in sales load policy
    II. Purchase of real estate.
    III.A change in the debt-to-equity ratio of a balanced fund
    IV. Liquidating a position in the portfolio
    A) I and II
  4. Assuming that expense ratios for the funds listed are identical, rank the funds below in order, from lowest to potentially highest yield.

    I Municipal bond fund
    II Government bond fund
    III Investment-grade corporate bond fund
    IVSpeculative income fund
    A) I, II, III, and IV
  5. An investment in an International Fund is primarily subject to which risk that would NOT impact a domestic fund?

    A) Purchasing power.B) Currency.C) Market.D) Interest rate.
    B) Currency
  6. Which of the following statements concerning hedge funds are TRUE?

    I Purchasers of hedge funds are required to be accredited investors
    II Short sales by the fund are not allowed
    IIIOrdinary investors may invest in hedge funds indirectly through funds of hedge funds
    IVHedge funds invest actively only when securities prices are moving up
    C) I and III
  7. Which of the following types of annuity contracts could your customer NOT purchase?

    A) Single payment deferred annuity.B) Periodic payment immediate life annuity.C) Periodic payment deferred annuity.D) Single payment immediate life annuity.
    B) Periodic payment immediate life annuity
  8. SEC regulations for securities issued by investment companies prohibit which of the following?

    I Closed-end funds from issuing preferred stock
    II Open-end funds from issuing preferred stock.
    IIIClosed-end funds from issuing bonds.
    IVOpen-end funds from issuing bonds
    B) I and IV
  9. A customer purchasing an annuity should be aware that all of the following will affect the value of his account during the accumulation stage EXCEPT:

    A) the number of accumulation units in his account.B) the performance of his separate account.C) the assumed interest rate.D) the value of each accumulation unit.
    C) the assumed interest rate
  10. A type of life insurance where the death benefit varies based upon the investments selected by the policyowner is known as:

    A) variable life.B) installment life.C) exchange life.D) equity life.
    A) variable life
  11. If an investor has requested a withdrawal plan from his mutual fund and currently receives $600 per month, this is an example of what type of plan?

    A) Fixed-share periodic withdrawal.B) Fixed-percentage withdrawal.C) Fixed-dollar periodic withdrawal.D) Contractual.
    C) Fixed-dollar periodic withdrawal
  12. If the value of securities held in a fund's portfolio increases, and the amount of liabilities stays the same, the fund's net assets:

    A) increase.B) decrease.C) stay the same.D) are more liquid.
    A) increase.
  13. If your customer wants a source of retirement income that is both stable and will offer some protection against purchasing-power risk in times of inflation, you should recommend a:

    A) variable annuity.B) portfolio of common stocks and municipal bonds.C) fixed annuity.D) combination annuity.
    D) combination annuity
  14. A 12b-1 plan must be approved by a majority of the outstanding shares, a majority of the board of directors, and a majority of the:

    A) investment advisory board.B) noninterested members of the board of directors.C) interested members of the board of directors.D) outstanding shareholders.
    B) noninterested members of the board of directors
  15. Which of the following are characteristics of exchange-traded funds (ETFs)?

    I They are redeemable securities.
    II They are priced by supply and demandIII
    III They are designed to track an index.
    IVThey try to diversify within a particular industry
    B) II and III
  16. The Bellner Fund has 60% of its assets invested in bonds rated BB or higher and 40% invested in the common stock of blue-chip companies. Last year, the mix was 65% bonds and 35% stock, but the investment adviser felt that market conditions warranted a change for this year. The Bellner fund is a(n):

    A) combination fund.B) special situation fund.C) asset allocation fund.D) balanced fund.
    D) balanced fund.
  17. Which of the following funds might have income as their primary investment objective?

    I The Ace Capital Appreciation Fund
    II The Bellner Preferred Equity Fund
    III The LMN Long-Term Corporate Bond Fund
    IV The Whitfield-Taylor S&P 500 Index Fund.
    C) II and III
  18. A fund's objectives are to maintain a stable net asset value and to provide current income. The fund invests in high-quality short-term obligations, including U.S. Treasury bills, commercial paper, certificates of deposit, and bankers' acceptances. Check-writing privileges are available. This describes which of the following mutual funds?

    A) LMN Tax-Free Municipal Bond Fund.B) ABC Balanced Fund.C) LMN Cash Reserves Money Market Fund.D) XYZ Government Income Fund.
    C) LMN Cash Reserves Money Market Fund
  19. The maximum fee that can be charged under a 12b-1 plan is:

    A) 9% over the life of the plan.B) an amount equal to the shares' net asset value.C) the difference between the shares' POP and NAV.D) 0.75% of average net assets.
    D) 0.75% of average net assets.
  20. Upon annuitization of variable annuities, holders receive the largest monthly payments under which of the following payout options?

    A) Joint and last survivor annuity.B) Life with period certain.C) Cashing in the annuity.D) Straight life.
    D) Straight life.
  21. Mutual funds must do all of the following EXCEPT:

    A) maintain fully diversified portfolios.B) redeem their shares on request.C) issue shares with voting privileges.D) publish their management fees.
    A) maintain fully diversified portfolios
  22. The Presto Capital Appreciation Fund annual report indicates that the NAV of the fund has increased from $15.65 to $17.03, and its asking price as of the date of the report has actually declined. Presto must be a(n):

    A) closed-end fund.B) open-end fund.C) balanced fund.D) dual purpose fund.
    A) closed-end fund
  23. If the owner of a variable annuity dies during the accumulation period, any death benefit will:

    A) be paid to a designated beneficiary.B) be returned to the separate account.C) be paid to the issuing company to complete the plan.D) be paid to the IRS.
    A) be paid to a designated beneficiary.
  24. Which of the following describe premiums for a scheduled-payment variable life policy?

    I Fixed as to the premium amount.
    II Variable as to the premium amount, depending on the cash value in the account
    III Fixed as to time of payment
    IVVariable as to time of payment
    A) I and III
  25. The cost of which of the following may not be deducted as an expense from an open-end investment company's investment income?

    A) Advertising.B) Advisory fees.C) Custodial charges.D) Accounting.
    A) Advertising
  26. If ABC Fund pays regular dividends, offers a high degree of safety of principal, and appeals especially to investors seeking tax advantages, ABC is a(n):

    A) money market fund.B) aggressive growth fund.C) corporate bond fund.D) municipal bond fund.
    D) municipal bond fund
  27. Which of the following statements regarding an open-end investment company is TRUE?

    I The price of new shares is determined by supply and demand
    II It must redeem shares in any quantity within seven days of request
    III Redeemed shares are sold in the secondary market, but only between member firms.
    IVIt provides for ownership of an undivided interest in the entire portfolio
    B) II and IV.
  28. During a particular valuation period of the accumulation phase of an annuity, if the separate account has a positive investment performance rate, the value of the accumulation unit will:

    A) exceed the value of the annuity units.B) go up.C) be unaffected.D) go down.
    B) go up.
  29. If an investor is in a low tax bracket and wishes to invest a moderate sum to gain some protection from inflation, which of the following would you recommend?

    A) Municipal unit investment trust.B) Growth mutual fund.C) Money market mutual fund.D) GNMA fund.
    C) Money market mutual fund
  30. In a variable life insurance policy

    I a minimum cash value is guaranteed
    II a minimum death benefit is guaranteed
    III all sales charges must be addressed in the prospectus
    IVthe money must only be invested in investment grade debt securities
    C) II and III.
  31. One characteristic of a closed-end fund that differs from an open-end fund is that with closed-end funds their equity capitalization:

    A) generally remains constant.B) is directly related to the value of the securities in the portfolio.C) decreases as shareholders redeem shares.D) increases as purchasers buy shares.
    A) generally remains constant
  32. If a registered representative uses a prospectus as a sales aid, what must accompany the prospectus in the presentation?

    A) All advertising describing the investment.B) Company's balance sheet.C) All sales literature describing the investment.D) No other information is required unless requested.
    D) No other information is required unless requested
  33. When a mutual fund does not assess a distribution charge, it is called a:

    A) 12b-1 fund.B) No-load fund.C) Back-end load fund.D) Level-load fund
    B) No-load fund
  34. All of the following statements are true of both a growth stock and a growth stock mutual fund EXCEPT:

    A) the value of a share is a market price, determined by supply and demand.B) a share is an equity security.C) dividends are probably not high.D) a share might grow or diminish in value, depending on the business success of the issuer.
    A) the value of a share is a market price, determined by supply and demand
  35. The prospectus for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund?
    A) Small-cap growth.B) Hedge.C) Specialized.D) Balanced.
    B) Hedge.
  36. A fixed-premium variable life insurance contract offers a:

    I guaranteed maximum death benefit.
    II guaranteed minimum death benefit.
    III guaranteed cash value
    IVcash value that fluctuates according to the contract's performance
    A) II and IV
  37. Your customer has been considering several investment company quotes and he notices that the Jeffers Fund has an NAV of $11.50 and an ask price of $10.98. On the basis of this information:

    A) Jeffers is an open-end investment company.B) Jeffers is a unit investment trust.C) Jeffers is closed end.D) Jeffers can be either open or closed end.
    C) Jeffers is closed end
  38. An open-end investment company may do all of the following EXCEPT:
    A) lend money.B) issue senior securities.C) borrow money.D) purchase call option contracts.
    B) issue senior securities.
  39. Which of the following may be done only with the approval of the shareholders of an investment company?

    I A change from diversified to nondiversified status
    II The purchase of particular bonds on the open market
    III Personnel changes in the transfer agent's organization
    IVA change in the fund's objectives
    D) I and IV
  40. Which of the following regarding both index mutual funds and ETFs is TRUE?

    A) Both are redeemable at NAV.B) Both can be sold long or sold short, allowing for profit regardless of market direction.C) Both are designed to track a particular index.D) Both are bought and sold throughout the trading day, allowing for intraday trading.
    C) Both are designed to track a particular index.
  41. An investor wishes to start a dollar cost averaging program by investing $100 per month. Which of the following would be the least appropriate investment vehicles for this plan?

    I Closed-end investment company
    II Exchange-traded fund
    III Open-end investment company
    IVVariable annuity
    B) I and II
  42. Which of the following occurrences will change the net asset value per share of a mutual fund?

    I Net appreciation of the assets held in the portfolio of the fund
    II A net growth in sales of the fund's shares by all distributors resulting in a greater number of shares outstanding.
    III Net depreciation of assets held in the portfolio of the fund.
    IVA net redemption by shareholders resulting in fewer shares outstanding.
    A) I and III
  43. Under the Investment Company Act of 1940, which of the following are considered management companies?

    I Open-end companies.
    II Closed-end companies
    III Unit investment trusts
    IVFace-amount certificate companies
    A) I and II.
  44. GEM Metals Fund, a diversified open-end investment company, invested 5% of its total assets in ABC Minerals and Mining, Inc. The market soared, and because of ABC's phenomenal appreciation, ABC securities now make up 8% of GEM Fund's total assets. In this case, which of the following statements is TRUE?

    A) GEM Fund must sell out its holdings in ABC completely.B) GEM Fund does not have to sell ABC shares but may not buy more ABC shares and still advertise itself as a diversified company.C) GEM Fund must sell enough ABC securities to reduce its holdings in ABC to 5% of its total assets.D) GEM fund is no longer a diversified investment company.
    B) GEM Fund does not have to sell ABC shares but may not buy more ABC shares and still advertise itself as a diversified company.
  45. Asset-based distribution fees, also known as 12(b)-1 fees:

    I are based on the fund's annual average daily net assets
    II are based on the fund's annual sales of shares.
    III must be reviewed at least quarterly by the fund's board of directors.
    IVmust be reviewed at least annually by the fund's board of directors
    A) I and III.
  46. Your client is interested in a variable annuity that offers to add a small percentage of each of his premium payments to the account. You explain that, in return for this enhancement, the annuity has a longer surrender period than the insurance company's standard variable annuity products, meaning that surrender charges are applicable for a longer period of time. What type of annuity is this?

    A) No-surrender annuity.B) Indexed annuity.C) Bonus annuity.D) Guaranteed annuity.
    C) Bonus annuity.
  47. All of the following statements regarding mutual fund withdrawal plans are true EXCEPT:

    A) monthly payments are not guaranteed for life.B) while in effect, such plans allow for small monthly purchases of additional shares.C) they allow for reduced depletion of principal through periodic payments.D) payments may be made to a beneficiary.
    B) while in effect, such plans allow for small monthly purchases of additional shares.
  48. Mutual fund performance statistics for funds that are seven years old must show results for each of the following periods EXCEPT:

    A) six months.B) five years.C) one year.D) seven years.
    A) six months
  49. The maximum sales charge over the life of a contractual plan using mutual funds for its underlying investment is:

    A) 8.5%.B) no maximum sales charge; rule only states it must be reasonable.C) no more than 20%.D) 9%.
    D) 9%.
  50. Who assumes the investment risk in a variable annuity contract?
    A) The investment risk is shared between the insurance company and the annuitant.B) There is no risk in a variable annuity.C) The annuitant.D) The insurance company.
    C) The annuitant.
  51. In a variable annuity, the risk of a fluctuating market is borne by:

    A) the annuitant.B) the insurance company.C) FINRA.D) the management company.
    A) the annuitant.
  52. A joint life with last survivor annuity:

    I covers more than one person
    II continues payments as long as one annuitant is alive.
    III continues payments as long as all annuitants are alive.
    IVguarantees payments for a certain period of time
    D) I and II.
  53. Your customer is interested in a fund that follows a buy-and-hold style of investing. He also insists on the lowest fees and expenses possible. Which of these funds might you recommend?

    A) Asset allocation.B) Aggressive growth.C) Index.D) Option income.
    C) Index.
  54. Which of the following mutual funds would be suitable for an investor who requires tax-exempt dividends?

    A) Mid-cap bond fund.B) Small-cap bond fund.C) Municipal bond fund.D) U.S. Government bond fund.
    C) Municipal bond fund.
  55. Provided that it has shareholder approval, an open-end investment company may:

    A) make margin purchases.B) engage in short sales of securities.C) issue senior securities.D) underwrite the securities of another issuer.
    D) underwrite the securities of another issuer.
  56. The role of the transfer agent for a mutual fund would include performing which of the following services?

    A) Custody of securities and other assets in the fund's portfolio.B) Distribution of dividends and capital gains.C) Distribution of shares of the fund.D) Portfolio management.
    B) Distribution of dividends and capital gains.
  57. What are the three classifications used to identify investment companies?

    A) Face-amount certificate companies, management companies, and closed-end companies.B) Face-amount certificate companies, management companies, and open-end companies.C) Unit investment trusts, closed-end companies, and open-end companies.D) Face-amount certificate companies, unit investment trusts, and management companies.
    D) Face-amount certificate companies, unit investment trusts, and management companies.
  58. Under the Investment Company Act of 1940, which of the following statements regarding the investment objective of a mutual fund are TRUE?

    I Only the board of directors needs to approve changes in the investment objective
    II The majority of outstanding shares must vote to approve changes in the investment objective.
    III The SEC must approve all changes in the investment objective.
    IVhe investment adviser does not set, but tries to meet, the investment objective.
    C) II and IV
  59. An investment company share purchased at its net asset value that can be redeemed later at the then-current net asset value, with a 12b-1 fee no greater than .25%, is a share issued by
    A) a closed-end investment company.B) a no-load, open-end investment company.C) a front-end load company.D) any type of open-end investment company.
    B) a no-load, open-end investment company
  60. Separate accounts are similar to mutual funds in that both:

    I may have diversified portfolios of common stock
    II offer tax deferral on realized growth
    III give investors voting rights
    IVrequire scheduled payments
    D) I and III.
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