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Question 1 of 10
1. Question
What is an overly conservative strategy?
Correct
An overly conservative strategy is one in which the fund purchases too much protection from downside risk at the expense of significantly reduced earnings in all types of market cycles. An overly aggressive strategy risk management strategy would be one in which the fund either does not protect against downside risk to the same extent as its peers or one in which unnecessary additional risks are taken through exposure to the derivatives and options.
Incorrect
An overly conservative strategy is one in which the fund purchases too much protection from downside risk at the expense of significantly reduced earnings in all types of market cycles. An overly aggressive strategy risk management strategy would be one in which the fund either does not protect against downside risk to the same extent as its peers or one in which unnecessary additional risks are taken through exposure to the derivatives and options.
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Question 2 of 10
2. Question
Reporting mutual fund gains and losses to the Internal Revenue Service is the responsibility of whom?
Correct
It is the responsibility of the shareholder, not the fund company or issuing company of a security, to report mutual fund gains and losses to the Internal Revenue Service. A broker, through which the individual investor purchased the fund, will typically provide a Form 1099-DIV, which will report all ordinary, qualified, and tax-exempt dividends received, capital gains distributions, investment expenses, and federal and state income tax withheld.
Incorrect
It is the responsibility of the shareholder, not the fund company or issuing company of a security, to report mutual fund gains and losses to the Internal Revenue Service. A broker, through which the individual investor purchased the fund, will typically provide a Form 1099-DIV, which will report all ordinary, qualified, and tax-exempt dividends received, capital gains distributions, investment expenses, and federal and state income tax withheld.
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Question 3 of 10
3. Question
What would happen if an investor does not pay taxes on the gain within and distributions from the mutual fund?
Correct
A broker, through which the individual investor purchased the fund, will typically provide a Form 1099-DIV, which will report all ordinary, qualified, and tax-exempt dividends received, capital gains distributions, investment expenses, and federal and state income tax withheld. If an investor fails to file this tax return and does not pay taxes on the gain within and distributions from the mutual fund, the Internal Revenue Service may impose a number of sanctions on that investor, including charging you penalties and interest from the date on which the tax would have been due. Investors who mistakenly forget to include this income may have the opportunity to file an amended tax return if the error is discovered prior to it being discovered by the IRS.
Incorrect
A broker, through which the individual investor purchased the fund, will typically provide a Form 1099-DIV, which will report all ordinary, qualified, and tax-exempt dividends received, capital gains distributions, investment expenses, and federal and state income tax withheld. If an investor fails to file this tax return and does not pay taxes on the gain within and distributions from the mutual fund, the Internal Revenue Service may impose a number of sanctions on that investor, including charging you penalties and interest from the date on which the tax would have been due. Investors who mistakenly forget to include this income may have the opportunity to file an amended tax return if the error is discovered prior to it being discovered by the IRS.
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Question 4 of 10
4. Question
How are the net capital gains of a mutual fund calculated?
Correct
The net capital gains (or losses) of a mutual fund are calculated as the income realized from the sale of a fund’s underlying investments, plus income from dividends, plus interest income and less the fund’s operating expenses.
Incorrect
The net capital gains (or losses) of a mutual fund are calculated as the income realized from the sale of a fund’s underlying investments, plus income from dividends, plus interest income and less the fund’s operating expenses.
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Question 5 of 10
5. Question
Which of the following statements is true regarding realized capital gains?
Correct
Realized net capital gains occur from the actual sale of investments and dividend and interest income received, whereas unrealized capital gains occur from the capital appreciation of underlying securities held by the fund. Unrealized gains and losses do not factor into the calculation of net capital gains and losses that impact the taxability of distributions to investors. Instead, the unrealized gains and losses impact the growth of the net asset value of the mutual fund.
Incorrect
Realized net capital gains occur from the actual sale of investments and dividend and interest income received, whereas unrealized capital gains occur from the capital appreciation of underlying securities held by the fund. Unrealized gains and losses do not factor into the calculation of net capital gains and losses that impact the taxability of distributions to investors. Instead, the unrealized gains and losses impact the growth of the net asset value of the mutual fund.
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Question 6 of 10
6. Question
Which of the following is NOT one of the benefits offered by fund companies to investors?
Correct
Additionally, the fund company may offer benefits for the investor, including reduced or waived sales or transactions fees, as compared to paying new front-end loads with a new purchase. This mechanism was designed to incent and for the investor to keep his money with the same fund company even when changing his investment objectives.
Incorrect
Additionally, the fund company may offer benefits for the investor, including reduced or waived sales or transactions fees, as compared to paying new front-end loads with a new purchase. This mechanism was designed to incent and for the investor to keep his money with the same fund company even when changing his investment objectives.
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Question 7 of 10
7. Question
Which of the following statements is true regarding the General Rule of calculating the taxability of variable annuity payments?
Correct
There are two methods under which the taxability of variable annuity payments can be calculated: the Simplified Method and the General Rule. The Simplified Method allows an investor to calculate the tax-free recovery of cost in each payment as the total cost divided by the number of anticipated payments. Thus, the Simplified Method provides for a constant dollar amount of cost recovery in each payment, until such cost has been fully recovered. The General Rule, on the other hand, calculates the tax-free cost recovery as the total cost divided by the expected total return, which is defined to be the total expected payments provided by the contract.
Incorrect
There are two methods under which the taxability of variable annuity payments can be calculated: the Simplified Method and the General Rule. The Simplified Method allows an investor to calculate the tax-free recovery of cost in each payment as the total cost divided by the number of anticipated payments. Thus, the Simplified Method provides for a constant dollar amount of cost recovery in each payment, until such cost has been fully recovered. The General Rule, on the other hand, calculates the tax-free cost recovery as the total cost divided by the expected total return, which is defined to be the total expected payments provided by the contract.
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Question 8 of 10
8. Question
What happens when a variable annuity contract is surrendered?
Correct
When a variable annuity contract is surrendered, the amount received is taxable to the extent that it exceeds the tax basis. Additionally, a surrender or withdrawal of policy values prior to age 59½ may trigger an additional excise tax for early withdrawal of the funds.
Incorrect
When a variable annuity contract is surrendered, the amount received is taxable to the extent that it exceeds the tax basis. Additionally, a surrender or withdrawal of policy values prior to age 59½ may trigger an additional excise tax for early withdrawal of the funds.
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Question 9 of 10
9. Question
What is the most distinguishing characteristic of unit investment trusts?
Correct
A unit investment trust (UIT) is one of three types of investment companies, in addition to closed-end funds and open-end funds, or mutual funds. Units are issued at the inception of the UIT and are capitalized with the proceeds from that initial issuance. Perhaps the most distinguishing characteristic of unit investment trusts is the extremely low turnover in the investment portfolio. Contrary to mutual funds and closed-end funds, the initial securities purchased in the UIT are typically held through the maturity of the UIT.
Incorrect
A unit investment trust (UIT) is one of three types of investment companies, in addition to closed-end funds and open-end funds, or mutual funds. Units are issued at the inception of the UIT and are capitalized with the proceeds from that initial issuance. Perhaps the most distinguishing characteristic of unit investment trusts is the extremely low turnover in the investment portfolio. Contrary to mutual funds and closed-end funds, the initial securities purchased in the UIT are typically held through the maturity of the UIT.
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Question 10 of 10
10. Question
Which of the following statements is true regarding a unit investment trust?
Correct
A unit investment trust (UIT) is one of three types of investment companies, in addition to closed-end funds and open-end funds, or mutual funds. Units are issued at the inception of the UIT and are capitalized with the proceeds from that initial issuance. Perhaps the most distinguishing characteristic of unit investment trusts is the extremely low turnover in the investment portfolio. Contrary to mutual funds and closed-end funds, the initial securities purchased in the UIT are typically held through the maturity of the UIT. Consequently, a UIT does not have an investment adviser or board of directors like mutual funds. Additionally, UITs will establish a termination date at their inception, and at that point the UIT will cease to exist and all units will be redeemed.
Incorrect
A unit investment trust (UIT) is one of three types of investment companies, in addition to closed-end funds and open-end funds, or mutual funds. Units are issued at the inception of the UIT and are capitalized with the proceeds from that initial issuance. Perhaps the most distinguishing characteristic of unit investment trusts is the extremely low turnover in the investment portfolio. Contrary to mutual funds and closed-end funds, the initial securities purchased in the UIT are typically held through the maturity of the UIT. Consequently, a UIT does not have an investment adviser or board of directors like mutual funds. Additionally, UITs will establish a termination date at their inception, and at that point the UIT will cease to exist and all units will be redeemed.