SIE Ch. 4

The price an investor pays for a mutual fund is based upon the: A Public offering price plus sales charge B NAV plus the sales charge C NAV only D NAV minus the sales charge

B NAV plus the sales charge

The custodian and transfer agent of a mutual fund are compensated: A By assessing the shareholders B By an annual salary C From the sales charges of the fund D From the assets of the fund

D From the assets of the fund Operating expenses are charged against the fund's assets. Underwriting expenses are paid from the sales charge. Compensation is variable according to the fund's assets rather than any fixed salary. Shareholders cannot be assessed.

Open-end management company shares increase in value as a result of an increase in: A Cost of living B Trading volume of securities C Number of shares D Market value of portfolio securities

D Market value of portfolio securities

A shareholder owning 525 shares of the ABC mutual fund may NOT do which of the following? A Rely on the mutual fund to provide year-end tax information B Redeem any portion of the shares C Pledge the entire value as collateral for a loan D Redeem the shares at the previous day's price

D Redeem the shares at the previous day's price Shares are always purchased/redeemed at the next calculated NAV. Mutual fund shares that have been owned fully paid for at least 30 days may be pledged as collateral. Investors may redeem any amount of their shares at any time. The fund provides each investor a 1099 at year end reporting tax information.

What is the name of the document that contains more detailed information on fund holdings, transactions, and fees and is furnished by the fund upon request? A Accountant's report B Legal opinion C Custodian holding report D Statement of additional information

D Statement of additional information

A mutual fund's principal underwriter is known by all of the following terms, EXCEPT: A Distributor B Sponsor C Wholesaler D Trustee

D Trustee

Unit Investment Trust (UIT)

is established or organized under a trust indenture. The trust is operated by a Board of Trustees who establishes its investment objective and supervises the operations. -Typically invest in a fixed portfolio of securities -Units are referred to as shares of beneficial interest -Are redeemable with the issuer -Have a predetermined end date -Are not actively managed

The Quantum Growth Fund charges a standard load of 6.5%. For purchases in excess of $25,000, the fund charges a reduced sales charge of 5.5%. How many shares could an investor purchase if he deposits $35,000 when the fund's NAV is at $22? A 1503.436 shares B 1507.970 shares C 1497.503 shares D 1493.811 shares

A 1503.436 shares The investor's purchase of $35,000 exceeds the breakpoint established at $25,000. The reduced sales charge applies to the entire deposit, not just the amount over the breakpoint. Here is the calculation: Step 1 - Determine the adjusted POP. This is calculated as NAV/(100% - Sales Charge) = $22/(100% - 5.5%) = $22/.945 (94.5%) = $23.28. Step 2 - Divide the investment amount by the POP. This gives the number of shares received: $35,000/$23.28 = 1503.436 shares.

A charge deducted from proceeds when an investor redeems shares is which of the following? A A deferred charge B A front-end load C An asset-based charge D A 12b-1 charge

A A deferred charge

All of the following are included in a mutual fund's expense ratio, EXCEPT: A Sales charges B Record keeping charges C 12b-1 fees D The management fee

A Sales charges A fund's expense ratio is used to inform investors of the costs incurred from the day-to-day operations of the fund. A sales charge is a commission charged to purchase the fund and is not part of day-to-day operations.

How often must a mutual fund issue updated financial statements to shareholders? A Semi-annually B Monthly C Quarterly D Annually

A Semi-annually

All of the following statements about Class 'B' shares are correct, EXCEPT: A Class B shares have a lower 12b-1 fee than Class A shares B The Contingent Deferred Sales Charges declines over time C There is no front-end load so the total amount of the investor's purchase is invested D Class B shares have a back-end sales load

A Class B shares have a lower 12b-1 fee than Class A shares Class B shares have higher 12b-1 fees than A shares. All the other answers are correct.

Under the Investment Company Act of 1940, investors are permitted to combine purchases of mutual fund shares in order to qualify for the reduced sales charge if the securities are purchased: A For a single fiduciary account, such as a qualified employee profit sharing plan B By the duly designated agent of a group of individuals joined together for this purpose C By individuals who have formed an investment club D For a father and his 26 year old daughter

A For a single fiduciary account, such as a qualified employee profit sharing plan The customer may NOT be an investment club. The investor has to be a single individual or a fiduciary, legal entity such as a corporation, a married couple in a joint account, or a parent and minor child.

ABC Fund investors normally incur a 6% load. However, investors purchasing more than $100,000 of the fund qualify for a reduced sales charge of 4%. If John invests $30,000 today and signs a letter of intent for an additional $80,000, which of the following events will occur? A He will be charged 4% on all purchases, but will lose his escrowed shares if the breakpoint is not reached within 13 months B He will be charged 6% on all purchases, but will be rebated the 1% differential when the breakpoint has been reached C He will be charged 6% on all purchases, but will be given additional shares when the breakpoint has been reached D He will be charged 4% on all purchases, but will be sent a bill for the sales charge differential if the breakpoint has not been reached within 13 months

A He will be charged 4% on all purchases, but will lose his escrowed shares if the breakpoint is not reached within 13 months

Investment companies with no management fee and relatively low sales charges, and that invest in a fixed portfolio of securities, are classified as: A Unit investment trusts B Face amount certificate companies C Open-end management companies D Closed-end management companies

A Unit investment trusts The UIT has no investment adviser so there are no management fees and relatively low sales charges. Management companies have an investment adviser that receives a management fee. Face amount certificate companies are no longer issued.

Who of the following is NOT entitled to breakpoints on mutual fund shares? A A pension plan trust B A mother and her 40-year-old daughter C A husband and wife purchasing for their joint account and for each separate account of their three minor children D A husband and wife purchasing for their joint account

B A mother and her 40-year-old daughter

A broker-dealer would like to charge FINRA's maximum sales charge of 8 1/2% on its fund offerings. In order to charge this amount, shareholders buying these funds must be offered all of the following features, EXCEPT: A Reinvestment of dividends at NAV B Exchange privileges at NAV C Rights of accumulation D Breakpoints

B Exchange privileges at NAV Mutual funds wishing to charge the maximum 8 1/2% load are not required to offer intrafamily switches at NAV, although most fund families do offer exchanges at NAV. All of the other choices must be offered.

The custodian holds assets of a mutual fund: A To guarantee principal B For safekeeping C As protection against a loss in market value D As collateral for loans to customers

B For safekeeping

What are features of mutual funds? I Redeemable shares II Fluctuating price per share III May borrow up to 50% of the value of their assets IV May issue debt

B I and II The mutual fund issues redeemable shares, which fluctuate in value based on the net value of the assets underlying the shares. Mutual funds may borrow up to 33% of the value of their assets, and they may not issue debt.

What is the term that refers to affiliated persons, members of their immediate families, and any broker-dealer? A Principal B Interested person C Dealer D Broker

B Interested person

Which of the following are used to compensate the investment adviser of a mutual fund? A 12b-1 fees B Management fees C Custodial fees D Sales charges

B Management fees The investment adviser of a mutual fund is compensated from the management fee. The management fee is typically the largest piece of the expense ratio, and is usually based on a percentage of assets under management.

Which of the following statements best describes the same investment company that offers various mutual funds with different investment objectives? A Investment advisor B Family of funds C Annuity D A broker-dealer

B Family of funds

A contingent deferred sales charge (CDSC) is defined as a: A Front-end load that decreases based on the dollar amount invested B Constant redemption fee on shares of a fund C Back-end load that decreases with each year of ownership of a fund's shares D Fee charged to all shareholders of a fund to cover marketing and advertising expenses

C Back-end load that decreases with each year of ownership of a fund's shares A contingent deferred sales charge is a back-end load designed to reward shareholders for staying in a fund for a long period. It accomplishes this by charging a high fee if an investor leaves the fund in the first year of ownership, which then decreases, usually by one percent per year, until the point when there is no charge to get out of the fund.

How often are the value of separate account assets in a variable life policy computed? A Annually B Monthly C Daily D Weekly

C Daily

Nancy has $4,000 to invest into the ABC Family of Funds. Based on the amount of her investment, she will pay a front-end sales charge of 5%. If she reaches an investment level of $10,000, her sales charge will be reduced to 4%. Which of the following is FALSE regarding this situation? A Nancy pays a reduced sales charge at $10,000 because of the breakpoints offered by the fund B If Nancy signs a letter of intent for $10,000 and she invests the additional money within 13 months, she will pay 4% on the entire investment C Nancy will be eligible for the sales charge reduction at $10,000 only if she signs a letter of intent D Nancy can take advantage of rights of accumulation without signing any special document

C Nancy will be eligible for the sales charge reduction at $10,000 only if she signs a letter of intent The reduced sales charge offered by the ABC Funds is due to the breakpoints described in the fund prospectus. If Nancy invests $4,000 now and another $6,000 later for a total of $10,000, she will pay a reduced sales charge on the second purchase without needing to sign anything (rights of accumulation). However, if she wants to pay 4% on the entire investment, then she needs to sign a letter of intent (LOI) for $10,000 and invest the other $6,000 within a 13-month period. Letters of intent are nonbinding on the investor and can be backdated 90 days.

The ABC Fund family charges an 8.5% load on their funds. The fund family must offer which of the following benefits: A Breakpoints on CDSCs B Exchanges C Rights of accumulation D Letters of intent

C Rights of accumulation This fund family charges the maximum sales charge allowed by FINRA. Therefore, they must offer breakpoints and rights of accumulation on existing funds. A contingent deferred sales charge declines a set amount each year but that decline is not considered to be a breakpoint. An LOI (letter of intent) as well as exchanges are not required by FINRA, but most funds offer the features in order to remain competitive.

What defines an investment company? A The SEC B FINRA C The Investment Company Act of 1940 D The Investment Advisor Act of 1940

C The Investment Company Act of 1940

All of the following are advantages of mutual funds,EXCEPT: A Professional managers have greater resources and experience in making investment decisions than the average investor B Shares can be used as collateral for loans C The investor has precise control over the timing and choice of securities D The fund maintains detailed records of a large portfolio for the investor

C The investor has precise control over the timing and choice of securities The investor in a mutual fund gives up some control in return for all the other advantages.

Why would an investor invest in mutual funds rather than common stocks? A To increase the return B To control a capital gain situation C To diversify his investments D To decrease expenses

C To diversify his investments A mutual fund, which normally requires a small initial purchase, is an excellent way for a small investor to diversify his portfolio.

Which of the following Investment Company products is continuously offered in the primary market? A A closed-end management company B A unit investment trust company C A face amount certificate company D An open-end management company

D An open-end management company

What is included in the duties of a transfer agent? A Assist in sales promotion of the fund B Help supervise the investments made for the portfolio C Safeguard the assets of the mutual fund D Cancel shares submitted for redemption

D Cancel shares submitted for redemption

Which of the following statements describe the typical portfolio of a UIT? I Fixed pool of securities II Fluctuating pool of securities III Actively managed IV Not managed

D I and IV

Harry has invested $33,000 in the ABC Fund. The fund carries a front end load of 5% under its rights of accumulation plan, and offers a reduced load of 4% for all purchases made once the customer hits the $50,000 threshold. Two years later, Harry's original investment has grown to $54,000 and he is considering making an additional $5,000 purchase. What sales load will be assessed on this new transaction? A 4%, since under rights of accumulation, account appreciation normally is used when determining a customer's position on a breakpoint table B 5% since account appreciation does not help a customer to reach the next breakpoint under rights of accumulation C 5% since account appreciation does not help a customer to reach the next breakpoint under rights of accumulation unless the rise in value occurred within 13 months of the original purchase date D 4%, but only if the customer has signed a letter of intent

A 4%, since under rights of accumulation, account appreciation normally is used when determining a customer's position on a breakpoint table

What is included in the duties of a transfer agent? A Cancel shares submitted for redemption B Assist in sales promotion of the fund C Safeguard the assets of the mutual fund D Help supervise the investments made for the portfolio

A Cancel shares submitted for redemption The transfer agent is responsible for shareholder service, including destruction of shares redeemed by shareholders, mailing statements and proxies, and updating customer account information.

Mutual fund managers are: A Compensated based on a percentage of assets under management B Compensated based on a percentage of profits earned C Permitted to earn a maximum of 8 1/2% per year D Paid a percentage of the sales charge

A Compensated based on a percentage of assets under management Mutual fund managers are compensated based on a percentage of assets under management (the management or investment advisory fee). Mutual fund managers are not permitted to earn a percentage of the "winnings". Mutual fund managers do not earn any part of the sales charge. Under FINRA Rules, 8 1/2% is the maximum sales charge that may be levied on a single mutual fund purchase.

The conversion of shares in one fund to shares in another fund, within the same family of funds, at the net asset value of the shares, is called: A Exchange B Right of transfer C Leverage D Stock right

A Exchange The exchange (also called the conversion privilege) is the ability to move from one fund to another without having to pay new sales charges as long as the funds are within the same fund family.

Which of the following funds are definitely not mutual funds? I NAV of $18.50 and POP of $19.00 II NAV of $50.95 and POP of $50.05 III NAV of $13.45 and POP of $13.45 IV NAV of $25.00 and POP of $29.50 A II and IV B I and III C II and III D I and IV

A II and IV A mutual fund can have a maximum sales charge of 8.5%. Therefore, a mutual fund's public offering price could either be the same as the NAV or higher than the NAV, but not to exceed 8.5% in sales charge. If the offering price is lower than the NAV it cannot be a mutual fund, and is most likely a closed-end fund. IV: the offering price is outside of FINRA regulations regarding the sales charge for a mutual fund ($29.50 - $25/29.50 = 15.25%). Therefore, it cannot be a mutual fund.

Which of the following is NOT a characteristic of a closed-end management company? A It engages in forward pricing B It may invest in common stock, preferred stock, and bonds C Its shares trade in the secondary market D It may issue common stock, preferred stock, and bonds

A It engages in forward pricing An open-end management company (mutual fund) engages in forward pricing. Closed-end fund shares trade in the secondary market like stocks and are subject to intraday pricing driven by market demand. Unlike mutual funds, which only issue common stock, closed-end management companies may also issue preferred stock and bonds. Both open-end and closed-end management companies may invest in any security that meets the objective of the fund; common stock, preferred stock, bonds, money market instruments, and cash.

Which of the following statements best describes the amount of money an investor receives when liquidating shares of an open-end fund? A Net asset value multiplied by the number of shares, minus any redemption fee B Bid price multiplied by the number of shares, plus a sales charge C Next available price minus any commissions, multiplied by the number of shares D Offering price plus any redemption fees, multiplied by the number of shares

A Net asset value multiplied by the number of shares, minus any redemption fee

All of the following are activities of the custodian bank for a fund, EXCEPT: A Recommending selling the worthless securities B Safekeeping of securities C Collecting dividends from issuers D Receiving funds raised through securities sales

A Recommending selling the worthless securities The custodian bank is responsible for the safekeeping of a fund's cash and securities. It will also collect dividends from issuers of the securities that the fund holds. The custodian bank does not take part in any trading activity.

Which of the following approves the renewal of 12b-1 fees for a mutual fund? A The board of directors B The principal underwriter C The transfer agent D The custodian bank

A The board of directors 12b-1 distribution plans allow mutual fund companies to deduct money for promotional expenses from the fund's portfolio. The plan must be in writing and specify the acceptable uses of the fee. The adoption of the plan must initially be approved by a majority of the fund's shareholders' shares and the board of directors. A majority of the disinterested board members must also approve. The plan must be renewed annually by a majority of the board members and disinterested board members. Shareholders do not vote on the plan's renewal.

Which type of company does not reinvest portfolio earnings for its shareholders, but instead distributes the proceeds of any securities that are liquidated or mature? A Unit investment trust B Face amount certificate company C Closed-end management company D Open-end management company

A Unit investment trust A UIT is not actively managed and all liquidations at maturity are paid out. Due to the fixed nature of a UIT's portfolio, the UIT must send any earnings earned in the portfolio to investors, since the earnings in a UIT cannot be reinvested. Face amount certificates are no longer issued. With management companies, the investor may reinvest distributions.

open-end fund

AKA mutual fund Open-end funds continuously offer new shares to investors in the primary market, giving the fund the ability to raise an unlimited amount of money. Although a mutual fund can invest in any security that meets the objective for the fund, the fund only offers common shares (common stock) of the fund to investors as proof of ownership. Mutual fund investors have the same right as common stockholders to transfer ownership of their shares. Each new share is created and issued upon purchase by an investor. New shares are purchased at the Public Offering Price (POP). Purchases are made in full or fractional shares.

Larry has invested $23,000 into the ABC Fund and signed a letter of intent to purchase a total of $50,000 in order to qualify for a reduced sales charge. Over the next few months, after Larry makes additional investments of $4,000 and $5,000, his account has grown to $34,000. How much in additional funds must Larry contribute to complete his letter of intent? A $7,000 B $18,000 C $16,000 D $27,000

B $18,000 Account appreciation will not help a customer to complete his obligation under a letter of intent. Appreciation is, however, counted when determining a customer's position on a breakpoint table under rights of accumulation.

An investment adviser associated with a mutual fund can do which of the following: I Supervise an investment portfolio II Research and analyze financial statements of issuing companies III Enter into a one-year contract with the shareholders of the mutual fund IV Make investment decisions that do not conform to Federal tax laws A III and IV only B I, II, and III only C I and II only D II, III, and IV only

B I, II, and III only Investment advisers, the professional managers of the fund, are selected by the board of directors, must be registered with the SEC, and are responsible for supervising the investment portfolio (I), and researching and analyzing financial statements of issuing companies and economic trends (II). The investment decisions made must conform to Federal securities and tax law (the opposite of IV) and to the investment objectives and policies of the Board. Investment advisers must have a written contract originally approved by the majority of shareholders. If the agreement goes beyond 2 years, it must be re-approved at least annually by either the board of directors or by a majority vote of the shareholders. (III)

A no-load fund is permitted to charge investors which of the following? I An up-front sales charge II A management fee III A 12b-1 fee IV A CDSC A II, III, and IV B II and III C I D III

B II and III Many funds do not levy sales charges, either front-end or back-end (i.e., contingent deferred sales charge or CDSC). Therefore, the NAV and POP are the same. These are known as no-load funds. No-loads still charge their customers management, administrative, and, in some cases, 12b-1 fees (up to a maximum of .25% per year).

Which of the following regarding letters of intent (LOIs) is correct? A LOIs are only binding on institutional investors B LOIs are not binding on clients C LOIs are binding on all clients D LOIs are only binding on accredited investors

B LOIs are not binding on clients A letter of intent (LOI) may be signed by a customer who does not currently have the necessary funds to qualify for a breakpoint. The customer has 13 months to deposit the additional funds but will be given the reduced sales charge on the initial purchase. However, some of the shares purchased will be held in escrow until the terms of the letter are fulfilled. If the additional funds are not deposited, the shares in escrow will be forfeited, effectively imposing a higher sales charge on the initial purchase. The LOI is therefore not "binding;" the investor simply loses his benefit.

Mandy has already invested in the XYZ Growth Fund and would now like to invest $25,000 in the XYZ Energy Fund and $50,000 in the XYZ Large-Cap Fund. Which of the following would be true regarding rights of accumulation? A Rights of accumulation will only include investments of mutual funds offered by other fund families B Mandy's RR would have the responsibility to uncover if she has other investments within the same fund family C To benefit from rights of accumulation, the responsibility is solely on Mandy to inform her RR that she has other funds within the same fund family D Rights of accumulation applies to closed-end funds and not mutual funds

B Mandy's RR would have the responsibility to uncover if she has other investments within the same fund family

The ABC Income Fund currently shows the NAV and POP at $18. This fund is most likely a: A Closed-end fund B No load fund C Aggressive growth fund D Sinking fund

B No load fund When a fund's NAV and POP are the same, it is normally a no load fund. A closed-end fund would be offered at POP only at its IPO. After that it is traded in the 2ndry market at Bid/ Ask prices.

Which of the following describes a breakpoint in a mutual fund? A The account level at which a systematic withdrawal plan will cease operating B The level of purchases at which a reduction in sales charge occurs C The maximum amount an investor can invest in the fund D The maximum number of investors a fund can have

B The level of purchases at which a reduction in sales charge occurs A breakpoint is a level of purchases at which a reduction in sales charges occurs. For example, the sales charge might be 8.5% for purchases up to $10,000, and 7% for purchases over $10,000.

Which of the following is not required to appear in a mutual fund prospectus? A Breakpoints for reductions in front-end sales loads B The maximum amount a broker-dealer may charge to redeem shares C Maximum sales load on reinvested dividends D Annual 12b-1 fees as a % of average net assets

B The maximum amount a broker-dealer may charge to redeem shares If a broker-dealer charges a fee to act as an agent in redeeming shares, that fact must be stated in the prospectus. However, the amount of the fee is determined by the broker-dealer (not the fund) and therefore is not disclosed. The other choices are all mutual fund policies which must be included in the prospectus.

An investor calls stating she was overcharged for the mutual fund shares she purchased. She invested $4,000 in a fund with a 5% sales charge. The NAV for the shares purchased was $85.50 per share. The customer believes that she should have paid $89.78 per share, but sees that she was charged $90 a share. What is the correct explanation for why she was charged $90 per share? A FINRA requires funds to round up charges to the nearest dollar amount for investor record keeping convenience B The sales charge is a percentage of the POP of a fund, not the NAV C The 5% markup is a guideline, not a rule, according to FINRA D The client is correct that she was overcharged

B The sales charge is a percentage of the POP of a fund, not the NAV A sales charge is expressed in terms of how much of a percentage is taken by the fund from the public offering price. The fund has a 5% sales charge. Its net asset value is $85.50. The formula for calculating the POP is NAV/(100% - Sales Charge). The NAV of $85.50 is divided by (100% - 5%) or 95%. $85.50/.95 (95%) = $90.

An investment company with no management fee and a low expense ratio that invests in a fixed portfolio is knows as a(n): A Open-end management company B Unit investment trust C Face amount certificate company D Closed-end management company

B Unit investment trust

Which of the following statements best describes the amount of money an investor receives when liquidating shares of an open-end fund? A Bid price multiplied by the number of shares, plus a sales charge B Next available price minus any commissions, multiplied by the number of shares C Net asset value multiplied by the number of shares, minus any redemption fee D Offering price plus any redemption fees, multiplied by the number of shares

C Net asset value multiplied by the number of shares, minus any redemption fee

Which of the following statements about Rights of Accumulation is false? A Rights of accumulation allow shareholders to combine existing account balances with new purchases to qualify for breakpoints B Funds that charge the maximum sales charge must offer rights of accumulation C Rights of accumulation expire one year from the initial purchase date of a mutual fund D An investor who owns multiple accounts within the same fund family may combine them for the purpose of reaching a breakpoint

C Rights of accumulation expire one year from the initial purchase date of a mutual fund

The price of a closed-end fund is determined by: A POP minus sales charge B NAV C Supply and demand D NAV plus sales load

C Supply and demand After its IPO, closed-end fund shares trade in the secondary market where prices are determined by supply and demand. Open-end funds are purchased at the POP, which is the NAV plus sales load or charge.

An RR has spent most of the day discussing a large potential mutual fund purchase with an elderly couple in their early 80s looking to invest $200,000 received from the sale of their home. The RR advised the couple to spread their investment out among six different fund families to obtain maximum diversification. What potential violation of FINRA's conduct rules may have occurred? A The RR has violated the know your customer rule B The RR has sold the couple an unsuitable investment. Mutual funds are not an appropriate investment for elderly investors. C The RR may have committed a breakpoint violation D The RR has committed a freeriding and withholding violation

C The RR may have committed a breakpoint violation

A management company's ask price increased 42 cents, but its NAV per share only increased 12 cents. This indicates: A The fund's NAV increased since more investors bought shares in the management company B The company is open-end C The increase in the public's demand for the shares is greater than the fund's increase in NAV per share D Fewer people were interested in buying shares of the fund

C The increase in the public's demand for the shares is greater than the fund's increase in NAV per share The market price of closed-end shares is determined by supply and demand for the shares. If the ask price increased 42 cents, but the NAV per share only increased 12 cents, then the company is closed-end. This means more investors wanted to buy, so the price increased in the market, but the NAV per share only climbed 12 cents based on the fund's net asset value. A change in the NAV per share of an open-end company will change the asked price proportionately. More investors purchasing shares of a fund will not affect the NAV. NAV is based purely on the value of the underlying portfolio.

An investor purchased 100 units of the Connecticut Long Term Municipal Securities Trust. Which one of the following statements concerning his investment in the UIT is accurate? A The shares must be liquidated in the open market and offer reinvestment provisions back into the trust B The shares must be liquidated in the open market and do not offer reinvestment provisions back into the trust C The shares are redeemable but do not offer reinvestment provisions back into the trust D The shares are redeemable and offer reinvestment provisions back into the trust

C The shares are redeemable but do not offer reinvestment provisions back into the trust UIT holdings, sometimes referred to as shares of beneficial interest, can be liquidated via redemption to the issuer. UITs do not contain reinvestment provisions that allow the owner to purchase additional units. For those looking to reinvest, many trusts will allow investors to purchase shares in a mutual fund sponsored by the same distributor that contains similar holdings.

Larry has invested $23,000 into the ABC Fund and signed a letter of intent to purchase a total of $50,000 in order to qualify for a reduced sales charge. Over the next few months, after Larry makes additional investments of $4,000 and $5,000, his account has grown to $34,000. How much in additional funds must Larry contribute to complete his letter of intent? A $7,000 B $27,000 C $16,000 D $18,000

D $18,000 Account appreciation will not help a customer to complete his obligation under a letter of intent. Appreciation is, however, counted when determining a customer's position on a breakpoint table under rights of accumulation.

A mutual fund charges a 6% load for investments up to $100,000. For investors purchasing $100,000 or more of the fund, a reduced sales charge of 4% applies. A client who invests $20,000 today and signs a letter of intent for an additional $80,000 will be charged: A 4% on all purchases, but will be sent a breakpoint adjustment bill for the sales charge differential if the breakpoint has not been reached within 13 months B 6% on all purchases, but will be rebated the 2% differential when the breakpoint has been reached C 6% on all purchases, but will be given additional shares when the breakpoint has been reached D 4% on all purchases, but will lose some shares if the breakpoint is not reached within 13 months

D 4% on all purchases, but will lose some shares if the breakpoint is not reached within 13 months

Ted has invested a total of $39,000 in the ABC Fund over the past 11 years. The fund has a standard sales charge of 5% and offers a breakpoint of 4% on investments above $50,000. Ted's account has a current market value of $52,000. If he were to invest an additional $1,000 in his account, what sales charge would be levied on the new purchase? A 5%, since he has not yet invested the required $50,000 minimum B Although the account appreciation typically entitles him to a 4% load, the 13-month maximum window has expired, so he must be charged the standard 5% C 0%, since under SEC regulations, all Class A mutual fund shares automatically convert to no-load status after 10 years D Due to the account's appreciation, Ted would typically be charged 4%

D Due to the account's appreciation, Ted would typically be charged 4% Appreciation is often considered when calculating a sales charge under rights of accumulation (ROA). In this case, even though Ted has only invested $39,000, he may be entitled to the reduced sales charge since his account is currently worth in excess of $50,000.

Mr. Jackson invests $8,000 in one of the funds offered by the XYZ family of funds, and signs a letter of intent for $10,000 to receive a lower sales charge. Which of the following can he do to complete the letter of intent? A Liquidate $2,000 of shares and then 90 days later re-invest them in the same fund B Pay the fund $2,000 within a set time, but not take any shares C Invest $2,000 in a fund of the ABC family of funds the next month D Purchase $2,000 worth of XYZ family shares six months later

D Purchase $2,000 worth of XYZ family shares six months later A letter of intent is good for 13 months, but can be backdated 90 days. During this time, either the actual amount shown on the letter of intent must be invested or the customer must pay the higher sales charge; otherwise the escrowed shares will be liquidated. When the customer invests more money, he receives more shares. The investor must make actual contributions and not liquidate shares.

An investor is interested in the XYZ Mutual Fund. XYZ has a sales charge of 8.5% that reduces to 7.5% on purchases of $15,000 and to 6% on purchases of $25,000. The investor signs a letter of intent for $25,000 and makes an initial payment of $5,000. During the term of the LOI, the investor invests an additional $15,000 and at the termination date, the value of the account is $25,500. The underwriter: A Releases the shares held in escrow since the requirements of the LOI have been satisfied B Sends the client a check for the $500 excess above the LOI amount C Requests an additional $500 since the requirements of the LOI have not been satisfied D Requests an additional $300 since the requirements of the LOI have not been satisfied

D Requests an additional $300 since the requirements of the LOI have not been satisfied 7.5% - 6% = 1.5% $20,000 invested x 1.5% = $300 additional sales load due. If the investor chooses not to remit $300, the underwriter will use the investor's escrowed shares to satisfy the additional sales charge. If the customer DOES remit $300, the escrowed shares will be released into his account.

Mitch has $12,000 to invest and is deciding between purchasing the Class A shares or the Class B shares of the Forest High Yield Fund. Which of the following is NOT true in this situation? A Class A shares typically charge a front-end load B Class B shares typically charge a back-end load C The determining factor for this decision should be the investment time horizon D The two share types are unlikely to have the same portfolio holdings

D The two share types are unlikely to have the same portfolio holdings Class A shares are typically shares that charge a front-end load to new investors. While the portfolios of each class of shares contain the same holdings, their NAVs may differ slightly due to the timing and amount of the different sales charges deducted. When deciding between A shares and B shares, the determining factor should be the time horizon of the investment. A shares are usually the better choice for long-term investments due to the lower annual expenses. If the time horizon is closer to 7 to 10 years, then B shares are likely to be more suitable due to the absence of a front-end load and a minimal, to no, back-end fee if the shares are actually held that long.

Shares of Beneficial Interest (SBIs)

The trust's portfolio is divided into redeemable securities called Shares of Beneficial Interest (SBIs). The SBIs are sold to investors in fixed dollar increments (typically $1,000 per unit). Each SBI represents the investor's ownership in the UIT portfolio. In some cases, the investor may receive periodic income payments or distributions from the trust.

investment company

being in the business of holding and managing a portfolio of securities for its investors, or one that has 40% of its total assets held in investment securities. In addition, the company must have at least $100,000 in net assets, a minimum of 100 shareholders, and a clearly defined investment objective under which it will operate. Any investment company with 100 shareholders or more must be registered with the SEC.