Series 7: Unit 8

A ________ fee is used to cover the costs of marketing and distributing the fund to investors. Max is ________.

12b-1 fee. 0.75%

Letters of intent are good for a maximum of _______ months and may be backdated _____ days.

13;90

NAV = $20 and POP = $21. What is the sales charge percentage? Assume a NAV of $20 and a sales charge of 5%. What is the POP?

4.8% $21.05

FINRA prohibits its members who underwrite fund shares from assessing sales charges in excess of __________ of the POP on the purchase of mutual funds.

8.5%

To avoid taxation under Subchapter M, a fund must distribute at least __________ of its NII to shareholders. The fund then pays taxes only on the undistributed amount.

90%

Daniella Martinez has a number of investment company products within her retirement portfolio. One of these investments trades on an exchange and may trade at a premium or discount to its NAV. These features are most likely found in what type of investment? A. Closed-end investment company B. Unit investment trust (UIT) C. Open-end investment company D. Face-amount certificate (FAC) company

A

An investor is always purchasing newly issued shares of common stock when investing in A. a closed-end investment company. B. an open-end investment company (mutual fund). C. a unit investment trust (UIT). D. a holding company.

B

Barbara wishes to invest in the KAPCO Growth Fund, an open-end investment company. She expects to hold the shares for at least 10 years. If she purchases KAPCO's Class A shares, each of these would be a way for her to receive a reduction on the sales charge except A. a single investment that reaches a breakpoint. B. joining together with her sister to make a purchase at a breakpoint level. C. signing a letter of intent (LOI). D. benefiting from the right of accumulation.

B

Class _________ shares impose a back-end charge for early redemptions as well as an asset-based 12b1 fee. They impose a CDSC that normally decline over time and are eventually eliminated. Once eliminate, almost all convert to Class A shares. Recommended for smaller purchases for the long-term.

B

The concept of a mutual fund distributing its net investment income (NII) through to shareholders without first paying a tax is known as A. the pass-through theory. B. the conduit theory. C. tax-free passage. D. flow-through theory.

B

When discussing investment companies, the term sales load most commonly refers to A. the fund's sales charge, expressed as a percentage of the NAV. B. the fund's sales charge, expressed as a percentage of the public offering price (POP). C. the commission earned by the broker-dealer making the sale. D. the 12b-1 fee

B

An investor has arranged to receive $600 per month from a mutual fund withdrawal plan. This is an example of what type of plan? A. Contractual B. Fixed-share periodic withdrawal C. Fixed-dollar periodic withdrawal D. Fixed-percentage withdrawal

C

An investor looking for an open-end investment company with an objective of providing current income to its shareholders would most likely choose A. a common stock fund. B. a growth fund. C. an income fund. D. a venture capital fund.

C

An investor who initially makes a small investment in a mutual fund may have the advantage of a lower sales charge on investments made over a 13-month period through A. a breakpoint letter. B. a Class A letter. C. a letter of intent (LOI). D. a sponsor's letter

C

An open-end investment company's net assets are $1 billion. It has elected to be treated as a diversified investment company. The company would be in noncompliance with the rules if it A. invested $50 million into ABC stock. B. invested $300 million into ABC stock. C. invested $350 million into ABC stock. D. purchased 100% of the voting shares of ABC stock.

C

Class _________ shares have a level load one-year CDSC of 1%, a 0.75% 12b1 fee, and a 0.25% shareholder service fee. Appropriate for short time horizons.

C

Which of the following is not touted as an advantage to purchasing ETFs instead of index mutual funds? A. Intraday trading B. Typically lower expense ratios C. Performance is generally better than the underlying index D. Can be purchased on margin

C

____________ shares are front-end loads charged. The difference between the POP and the NAV.

Class A

Louis owns an investment that is an unmanaged portfolio in which the money manager initially selects the securities to be included in the portfolio and then holds those securities until they mature or the investment portfolio terminates. This statement best describes which type of investment? A. Closed-end investment company B. Face-amount certificate (FAC) company C. Open-end investment company D. Unit investment trust (UIT)

D

Some mutual fund families offer a conversion privilege that permits A. liquidation of shareholdings with an option to buy the shares back at the current net asset value (NAV) per share. B. the owner of the shares to convert her bonds or preferred stock in the fund to common stock of the fund at a pre-designated ratio. C. conversion of shares to cash at the option of the shareholder. D. conversion from the shares of one fund to the shares of another fund in the same family at the current NAV per share.

D

Which of the following would not be considered an investment company under the Investment Company Act of 1940? A. Face-amount certificate (FAC) company B. Unit investment trust (UIT) C. Management company D. Holding company

D

T/F Sales charge is considered an expense when calculating a fund's expense ratio.

F

T/F Advertising and sales expenses are included in a fund's operating expenses when calculating NII.

F; are not

T/F UITs are actively managed.

F; are not

T/F Investment companies include holding companies.

F; does not

T/F Conversions with a family of funds is not a taxable event.

F; it is a taxable event.

T/F A no-load fund can charge sales fees.

F; may not

T/F Closed-ended companies cannot issue bonds and preferred stock.

F; they can

3 Types of Investment Companies:

FACs Management Investment Companies UITs

NAV/(100% - sales charge %) =

POP

T/F A no-load fund can charge redemption fees.

T

T/F An ETF is either registered as a UIT or open-end management company.

T

T/F Breakpoint sales are prohibited.

T

T/F Breakpoint schedules must be disclosed in a funds prospectus.

T

T/F Class A Shares should be recommended for long-term investing.

T

T/F Closed-end funds trade in the secondary market.

T

T/F In order for a fund to market itself to the public as a no-load fund, the fund may not charge more than 0.25% of average net assets for 12b-1 fees.

T

T/F Mutual funds can only issue common stock.

T

T/F Rights of accumulation allow the investor to use prior share appreciation and reinvestment to qualify for breakpoints and do not impose time limits.

T

T/F You can purchase fractional shares of a mutual fund.

T

Qualified dividends are taxed at ____________ rates, non-qualified dividends are taxed at ___________ rates.

capital gains; ordinary

NII =

dividends + interest - expenses of fund

__________________________ is where a person invests identical amounts at regular intervals.

dollar cost averaging

Who is eligible for breakpoints? (x3)

married couples parents and minors corporations

A mutual fund is considered an _________________ investment company.

open-ended

POP - NAV = _____________________ _____________________________/POP = sales charge %.

sales charge dollar amount sales charge dollar amount