UNIT 02.01 004 Flashcards
A mutual fund must send a check for redeemed shares within how many days after receiving a written request for their redemption?
A) 5 days
B) 7 days
C) 3 days
D) 10 days
7 days
The 7-day redemption rule is required by the Investment Company Act of 1940.
Which of the following securities may a Series 6 registered representative (RR) sell?
A) Closed-end funds in the primary market
B) REITs
C) Hedge funds
D) ETFs
Closed-end funds in the primary market
Series 6 RRs have a limited registration and are limited to selling investment company securities with a prospectus (only in the primary market).
Which of the following would affect the net asset value per share of a mutual fund?
A) The portfolio changes in value
B) New fund shares are purchased
C) The fund purchases stock
D) Shareholders redeem their shares
The portfolio changes in value
Net asset value (NAV) per share equals net assets divided by number of shares outstanding. A dividend, if paid, would be subtracted from the value of each share, and a change in market value would directly affect NAV. Purchases or redemptions of shares affect net assets and number of shares to the same degree and thus would have no net effect on NAV.
A prospectus must accompany or precede which of the following?
A) A mutual fund sales presentation held in person at the representative’s office
B) A general informational brochure explaining the basic features of mutual fund ownership
C) A mutual fund seminar invitation mailed to the home of a prospective customer
D) A television advertisement explaining the benefits of investing in mutual funds to accumulate retirement savings
A mutual fund sales presentation held in person at the representative’s office
Any offer or advertisement of mutual fund shares must be preceded or accompanied by a prospectus. However, generic advertisements, such as those permitted under Rule 482, or purely informational material are exempted from this requirement. A prospectus must be given to all seminar attendees when they arrive, not when the invitations are mailed. The face-to-face meeting between the representative and the prospect is considered an offer and must be accompanied by a prospectus.
The NAV of a mutual fund Class A share
must be calculated at least twice per business day.
can never be higher than the POP.
can never be equal to the POP.
can never be so much lower than the POP that the difference exceeds 8.5% of the POP.
can never be higher than the POP.
can never be so much lower than the POP that the difference exceeds 8.5% of the POP.
The NAV of a mutual fund need be calculated only once per business day. For a Class A share, the investor pays NAV plus a front-end sales charge that may not exceed 8.5% of the POP. Thus, the offering-price range of a Class A mutual fund share is NAV at the lowest (some funds’ highest breakpoint eliminates the front-end load entirely) and NAV + 8.5% of the POP at the highest.
Your customer wishes to increase and diversify his equity holdings as simply as possible. He is not risk averse, and he would like to gain some returns from growth, but he does not want to engage in a large number of transactions. You might suggest that he
A) invest in a balanced fund.
B) invest in a judicious selection of stock mutual funds, both growth funds and income funds.
C) invest in a blend/core fund.
D) sign a contract with an investment adviser to help him select and acquire a diversified stock portfolio.
invest in a blend/core fund.
The blend/core fund would allow the investor to diversify his equity holdings and, in exchange for the usual risks of equity securities, make some possible gains from growth while investing in a single mutual fund.
An investor willing to invest in a professionally managed diversified portfolio of foreign and domestic growth companies would invest in
A) the ABC Tax-Free Income Fund.
B) the ABC Global Equity Fund.
C) the ABC Corporate High-Yield Bond Fund.
D) the ABC Foreign Stock Fund.
the ABC Global Equity Fund.
This investor seeks a professionally managed portfolio of foreign and domestic growth companies. The portfolio of a global equity fund would include stock of companies in both foreign countries and in the United States. The foreign stock fund doesn’t invest in domestic companies.
When must a mutual fund investor receive a statement of additional information (SAI)?
A) With the semiannual financial report
B) Quarterly
C) Upon request
D) With the audited annual report
Upon request
The statement of additional information (SAI) must be available to all investors upon request; there is no required distribution. The cover page of a prospectus states that an investor is entitled to such additional information.
An investor has $250,000 to invest in mutual funds. Which of the following would be appropriate statements to make to him?
Buying a no-load fund will ensure better performance in the long run.
If you purchase Class B shares, you will have no load now, but you will probably incur higher operating costs.
A purchase of Class A shares from one fund family in this quantity will probably lead to a reduction in sales charge.
The initial investment should be spread over several fund families to ensure proper diversification.
If you purchase Class B shares, you will have no load now, but you will probably incur higher operating costs.
A purchase of Class A shares from one fund family in this quantity will probably lead to a reduction in sales charge.
The absence of a sales load does not ensure better performance. It is correct that Class B shares are sold without a front-end load, but they usually have a higher expense ratio. Class A shares in a quantity of $250,000 would almost certainly qualify for a substantial reduction in sales charge. Investing in several fund families would reduce the likelihood of breakpoints and yield no advantage because funds are typically already diversified.
The investment policy of a mutual fund can be changed by a majority vote of
A) the board of directors.
B) the number of shareholders.
C) the outstanding shares.
D) the fund’s managers.
the outstanding shares.
Any changes in a mutual fund’s investment policies or objectives must be made by a majority vote of the fund’s outstanding shares, not by a majority vote of shareholders.
An investor redeems 200 shares of ABC Fund, which has no redemption fee. If the quote is NAV $12.05, POP $13.01 asked, what amount will the investor receive?
A) $1,098.00
B) $2,275.50
C) $2,410.00
D) $2,602.00
$2,410.00
If a mutual fund has no redemption fee, the investor will receive the bid price per share (net asset value) multiplied by the number of shares being redeemed. In this case, the investor would receive $2,410 ($12.05 × 200 shares).
All of the following are advantages of investing in mutual fund shares except
A) dividend distributions may be reinvested at the NAV.
B) shareholders may exchange their holdings in one fund for another in the same family without tax implications.
C) shareholders may switch between funds within the same family with no sales charge.
D) shareholders own an undivided interest in the entire mutual fund portfolio.
shareholders may exchange their holdings in one fund for another in the same family without tax implications.
Although the exchange privilege is available at NAV (no sales charge), it is a taxable event.
For a registered investment company to terminate its 12b-1 plan, it must obtain the approval by majority vote of which of the following?
The outstanding voting shares of the company
The board of directors of the fund
The noninterested members of the board of directors
The fund’s investment advisory board
The outstanding voting shares of the company
The noninterested members of the board of directors
For a registered investment company to terminate a 12b-1 charge, the termination must be approved by a majority of the outstanding shares or a majority of the noninterested members of the board of directors. Approval by the full board of directors is not required.
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 a unit investment trust.
B) Jeffers is closed-end.
C) Jeffers is an open-end investment company.
D) Jeffers can be either open- or closed-end.
Jeffers is closed-end.
Closed-end investment company shares are sold on a supply-and-demand basis. Therefore, the Jeffers Fund can only be a closed-end investment company; only a closed-end company can have an asking price below the NAV.
Which of the following are characteristics of exchange-traded funds (ETFs)?
They are redeemable securities.
They are priced by supply and demand.
They are designed to track an index.
They try to diversify within a particular industry.
They are priced by supply and demand.
They are designed to track an index.
ETFs trade on an exchange and, like all securities traded there, are priced based on supply and demand. Virtually all ETFs track a specified index.
