Unit 14 - Types and Characteristics of Pooled Investments

If an investor is looking for an open-end investment company with an objective of providing current income to its shareholders, she would most likely choose A) an income fund B) a growth fund C) a hedge fund D) a venture capital fund

A) an income fund

Which of the following is not included in the calculation of a mutual fund's NAV per share? A) Accrued management fees B) Accrued custodian bank fees C) Accrued sales charges D) Closing values of portfolio assets

C) Accrued sales charges

A manager of a venture capital fund would be most interested in investing in A) a company listed on a major stock exchange. B) a company interested in going private. C) a well-established company going through management changes. D) a young, promising company.

D) a young, promising company.

If a client prefers mutual fund investments in companies that primarily generate capital appreciation to companies that pay a steady dividend, what type of mutual fund and associated investment objective would you recommend? A) A growth fund B) An index fund C) An income fund D) A growth and income fund

A) A growth fund

Why are "country" funds organized as closed-end funds? A) Because it is often difficult to liquidate the foreign securities to get their value into the U.S. B) Because redemption at net asset value within 7 days is assured C) So that additional capital may easily be raised D) Because the United Nations Investment Act of 1952 requires that they all be closed-end

A) Because it is often difficult to liquidate the foreign securities to get their value into the U.S.

Which of the following securities trade on regulated stock exchanges with their prices being determined by supply and demand? I. Closed-end investment companies II. Exchange-traded funds III. Face amount certificate companies IV. Mutual funds A) I and II B) III and IV C) II and III D) I and III

A) I and II

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. IV. The investment adviser does not set, but tries to meet, the investment objective. A) II and IV B) III and IV C) I and III D) I and II

A) II and IV

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 IV. A change in the fund's objectives A) II and IV B) I and IV C) II and III D) I and III

B) I and IV

Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of A) the majority vote of the noninterested directors B) the majority vote of the outstanding shares and a majority of that portion of the board of directors that is considered noninterested members C) the majority vote of the outstanding shares D) the majority vote of the board of directors

B) the majority vote of the outstanding shares and a majority of that portion of the board of directors that is considered noninterested members

One of your clients is interested in investing in a large-cap growth fund and has a list of several that she has been investigating. When helping her compare, each of the following factors would be relevant EXCEPT A) expense ratio B) tenure of the fund manager C) dates that dividends are paid D) past performance compared to S&P 500

C) dates that dividends are paid Tenure of the fund manager, expense ratio, and performance relative to a benchmark are all relevant factors to use when comparing mutual funds. However, the date that dividends are paid is not a significant factor.

Investment companies must send financial reports to shareholders A) annually B) monthly C) semiannually D) quarterly

C) semiannually

A client investing $50,000 into the KAPCO Growth Fund would most likely be eligible for a breakpoint if purchasing A) the closed-end shares B) the Class B shares C) the Class A shares D) the Class C shares

C) the Class A shares

A customer is interested in an exchange-traded fund (ETF). With regard to the trading of ETFs, the customer should be aware that I. ETFs can be purchased throughout the trading day II. ETFs use forward pricing, as all mutual funds do III. real-time quotes are available for ETFs IV. the NAV calculated at the end of the day, plus a sales charge, will equal the trading price A) II and III B) II and IV C) I and IV D) I and III

D) I and III

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? I. The letter can cover a period totaling 16 months. II. The letter may be backdated 90 days. III. Some shares purchased are held in escrow until the letter is completed. IV. During the period covered by the letter, the customer may not redeem his shares. A) I and IV B) III and IV C) I and II D) II and III

D) II and III

When an agent is discussing possible discounts related to the purchase of mutual funds shares, she would be referring to A) 12b-1 fees B) the CDSC C) reinvesting distributions D) breakpoints

D) breakpoints

The Investment Company Act of 1940 states that: A) it is unnecessary for the prospectus to disclose the management fee B) no more than 50% of the board of directors of an investment company may be officers or employees of the company or investment advisers to the company C) an investment company must have $5 million capital before its securities can be offered to the public D) open-end companies may issue common stock only

D) open-end companies may issue common stock only

Which of the following types of investments would have the lowest liquidity risk? A) Real estate B) Gold C) Money market funds D) Preferred stock

C) Money market funds

Under the Investment Company Act of 1940, which of the following statements about advisory contracts between an investment company and an outside adviser is TRUE? A) The contract may be in writing, or it may be oral if there are at least 2 witnesses to the agreement. B) The initial contract is effective once approved by the board of directors. C) The contract may not be unilaterally assigned to another adviser. D) The contract must be established for a 1-year period and renewed annually thereafter.

C) The contract may not be unilaterally assigned to another adviser.

A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption? A) 7 B) 3 C) 10 D) 5

A) 7 The 7-day redemption rule is required by the Investment Company Act of 1940.

Under the Investment Company Act of 1940, which of the following statements is TRUE about an investment company that wishes to contract with an outside investment adviser to manage its portfolio? A) The initial contract must be approved by either the board of directors or a majority vote of the outstanding shares. B) The contract must provide for a minimum notice of at least 2 weeks if the contract is to be terminated. C) The contract between the investment company and the investment adviser must be in writing. D) The investment adviser must be under common control with the investment company.

C) The contract between the investment company and the investment adviser must be in writing.