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What investment company, structured as a closed-end management company under the Investment Company Act of 1940, must have at least 70% of its assets invested in eligible securities?
Business development companies
Breakpoints apply to
Class A shares only
no front-end load when purchasing
Class B shares
the following trade actively in the secondary market
Closed-end funds Real estate investment trusts (REITs).
The price of which of the following securities is determined based on supply and demand
Closed-end management investment companies
As a registered representative, you recommend the purchase of the ABC Fund family corporate bond mutual fund to a customer whose objective is current income. The customer agrees to the purchase and you enter the order. What type of securities has the investor purchased
Common stock
An investment company that holds meet the definition of a diversified investment company under the Investment Company Act of 1940
Eighty percent of its assets in securities of 50 health care companies Four percent of its assets invested in the stock of a major publicly held corporation Eight percent of a given corporation's voting stock in its portfolio
If general interest rates increase, the interest income of an open-end bond fund will do
Increase
One of your clients was at a recent social gathering and heard a friend talking about a recent investment in an interval fund. How would you describe this investment
It is a closed-end investment company where, at certain specified intervals, investors are able to sell their shares back to the company at net asset value.
the following statements regarding a unit investment trust is true
It is considered an investment company. It invests according to stated objectives. It charges no management fee.
A mutual fund's unrealized loss last month results in which of the following
Lower net asset value (NAV) per share Reduction in the proceeds payable to shareholders who liquidate their shares
In terms of the number of issues traded, the largest secondary market for securities is the over-the-counter market (OTC). Which of the following securities cannot be traded OTC?
Mutual funds
The buying and redeeming of open-end shares and UIT units is based on
NAV.
Given the NAV and asking price per share, which of the following could be open-end investment companies
Nav: $19.00Ask: $20
SEC regulations for securities issued by investment companies prohibit
Open-end funds from issuing preferred stock Open-end funds from issuing bonds
forward pricing
Purchase or redemption of mutual fund shares occurs at the first net asset value calculated after the fund receives the order
the following terms does apply to municipal unit investment trusts (UITs)
Registered Regulated Redeemable
Unrealized gain in a mutual fund portfolio does
Represents the undistributed income and the growth in market value of securities held in the portfolio Is realized by shareholders only when they redeem their shares
An investor purchases $1,000 of the XYZ Growth Fund on a Tuesday. The order is time-stamped at 2:45 pm ET. When will the investor's price per share be determined?
That day based on the market close
Five years ago, the ABCD mutual fund bought 200,000 shares of Comet Industries at an average price of $42.25. After a series of accounting scandals, the shares are now trading at $6. If the fund decides to sell its shares, what will be the impact of the sale of Comet shares on the net asset value (NAV) of the ABCD fund?
The NAV will not change
The Investment Company Act of 1940 has two types of management investment companies—the closed-end and the open-end. Which of the following is a significant difference between the two
The closed-end company generally has a one-time offer of shares, while the open-end company's offer of shares is continuous.
In which of the following markets would an investor expect to find closed-end investment company shares traded
The over-the-counter market The exchanges
When an agent explains mutual funds to a prospective investor,
The redemption value of mutual fund shares fluctuates according to the fund's portfolio value.
the following statements regarding fixed municipal unit trusts are true
The trust is not managed. The portfolio cannot be traded.
Unit investment trusts differ from mutual funds in which two of the following ways
UITs have an expiration date; mutual funds do not. The portfolio of a UIT is fixed while that of a mutual fund changes as the managers look for investment opportunities.
the following investment company portfolios is supervised rather than managed
Unit investment trust
If a registered representative is seeking to sell shares of an investment company to a client, which of the following statements would be accurate and permissible regarding her recommendation?
When the client redeems his shares, he will not immediately know their dollar value. If the client purchases the shares of two or more funds in the same family of funds, he may be entitled to a reduced sales charge.
An investment company registered under the Investment Company Act of 1940, whose specific purpose is to aid in the promotion and development of small businesses, is
a business development company.
An investor studying the annual report of a registered investment company reads that the net asset value per share has increased from $16.10 to $17.45. He notes that the market price has declined over the period. The investment company must be
a closed-end company.
A closed-end company may be called
a closed-end fund, but not a mutual fund.
An investor purchases investment company shares paying an ask price that is a 5% premium to the company's net asset value (NAV). Two years later, the investor liquidates the position at a bid price that is 10% below the NAV. This investment was in
a closed-end investment company
In general, investors pay a commission rather than a sales charge when purchasing shares of
a closed-end investment company
Most business development companies (BDCs) are classified as
a closed-end investment company.
An investor reading the annual report of an investment company notices that among the company's expenses was the payment of interest on outstanding bonds. The company also paid dividends on preferred stock. This investment company is
a closed-end management investment company.
An unrealized loss is the same as
a decrease in NAV
A unit investment trust is
a fixed portfolio of debt or equity securities that sells redeemable units, not shares, to investors.
When a unit investment trust is formed, there is
a pre-determined expiration date.
The public offering price for
a quoted mutual fund includes the maximum sales charge the fund distributor can assess
An unmanaged portfolio is a characteristic of
a unit investment trust.
If an investment company invests in a fixed portfolio of municipal or corporate bonds, it is classified as
a unit investment trust.
Sales charges could be paid on
all types of open-end funds
An appreciation in value of fund assets, without a corresponding increase in liabilities, leads to
an increase in the fund's net asset value (total assets minus liabilities equals net assets).
An investment company registered under the Investment Company Act of 1940 that allows shareholders to sell their shares back to the company at the net asset value per share only at certain specified times is
an interval fund.
An investment company registered with the SEC under the Investment Company Act of 1940 that allows investors to sell their shares back to the company at net asset value on a quarterly basis is
an interval fund.
A mutual fund is
an open-end management company that raises capital solely through the issuance of a single class of common stock.
Mutual funds can be registered
as diversified or nondiversified.
A stock mutual fund wishes to advertise itself as diversified. To be able to do so, the fund must invest its total assets, such that
at least 75% of its assets meet stated diversification requirements.
A unit investment trust (UIT) has no
board of directors. rather, it has a board of trustees.
Municipal UITs
buy bonds and hold them until redemption or call. The bonds are not actively traded, so the portfolio is not managed, but rather, overseen by a trustee.
A unit investment trust
buys securities and holds them until redemption or until a specified future date
All of the following must register as an investment company under the Investment Company Act of 1940
certificates issued by a face amount certificate company. an initial public offering for shares of a closed-end management company. a new stock fund created by GHI Mutual Fund Distributors.
All of the following must be sold with a prospectus
closed-end funds in the primary market. open-end funds in the primary market. an IPO of common stock.
A business development company (BDC) is a
closed-end investment company regulated under the Investment Company Act of 1940
Open-end investment companies may only issue shares of
common stock
An open-end investment company may do all of the following
continuously offer shares. borrow money. redeem shares.
Dividends paid and received by the fund
directly affect NAV.
An investor's portfolio contains a number of different securities. Included are equity and debt positions in several business development companies (BDCs). It would be correct to state that
distributions from the equity BDC positions are treated as dividends while those from the debt positions are interest.
When a mutual fund registers with the SEC under the Investment Company Act of 1940, it has the option to elect to be
diversified or nondiversified.
A closed-end management company
does a one-time IPO of common stock, after which its shares trade in the secondary market just like any corporate stock
Closed-end investment company shares can be purchased and sold
in the secondary market.
If the value of securities held in a fund's portfolio increases, and the amount of liabilities stays the same, the fund's net assets
increase.
FINRA considers breakpoint sales to be a violation. This is when a registered representative fails to
inform investors that they may obtain a sales charge reduction with a small additional investment or the signing of a letter of intent. This is not following high standards of conduct and can lead to disciplinary action.
Under FINRA policies, a breakpoint sale is the sale of
investment company shares in a dollar amount just below the point at which the sales charge is reduced.
Holding companies are not included in the definition of
investment company under federal law
Probably the most significant difference between a business development company (BDC) and any other investment company registered under the Investment Company Act of 1940 is that a BDC
makes available significant managerial assistance to the investments in their portfolio.
Changes in the portfolio value affect NAV because the securities are
marked to market daily
Dividends paid and received by the fund directly affect NAV. Changes in the portfolio value affect NAV because the securities are
marked to market daily
The Profligate Perpetual Growth Fund's prospectus states that the fund meets the Investment Company Act of 1940's qualifications of a diversified management company. If the fund has net assets of $1 billion,
no more than $300 million can be invested in the voting shares of any single issuer.
A primary characteristic of the UIT is that,, it has
no portfolio managers. That is why it is never referred to as a management company.
When discussing unit investment trusts with a prospect, it would be correct to state that these are
nonmanaged investment companies.
Diversified management companies must follow the 75-5-10 rule. That means,
of 75% of the fund's net assets, no more than 5% of the fund's total assets can be in the voting shares of a single issuer. There are no restrictions on the other 25%; it can be invested as desired
The capitalization structure of an open-end investment company can include
one issue of common stock.
The term mutual fund will always mean an
open-end investment company
Closed-end company shares are like
ordinary stock. Once issued, they trade on exchanges or in the over-the-counter market.
A face amount certificate
sells interests in a pool of bonds that all mature on the same date.
A registered representative's compensation consists of trailer commissions. The most likely reason for this is
some of the representative's customers own mutual funds with 12b-1 charges.
A UIT must follow a
stated investment objective (as must any investment company) and does not charge a management fee because it is not a managed portfolio.
While share redemption will reduce total NAV, the number of shares outstanding decreases in proportion, so the NAV per share
stays the same
It is the closed-end investment company whose price is based on
supply and demand in the marketplace.
management companies (open-end or closed-end), unit investment trusts (UITs), and face amount certificate companies (FACs) all register under
the Investment Company Act of 1940 as investment companies.
Orders to redeem shares are executed at the next computed price. This is an example of
the forward pricing rule.
Net asset value (NAV) per share for a mutual fund can be expected to decrease if
the fund has made dividend distributions to shareholders.
All of the following events will affect the net asset value (NAV) per share of a mutual fund
the fund receives cash dividends on the securities in its portfolio. changes in the market value of the fund's portfolio of securities. the fund pays dividends to its shareholders. Dividends paid and received by the fund directly affect NAV.
Mutual funds use forward pricing when investors buy or sell. That means
the investor will buy or sell at the price based on the next computed net asset value (NAV). The NAV must be calculated at least once each business day at market close (4:00 pm ET). This order was entered before the close. Therefore, the next time the price is calculated is that day's market close.
The public offering price for a mutual fund, as quoted in the financial press, reflects
the maximum sales charge the fund distributor collects.
A purchase or redemption order for investment company shares must be executed at a price based on
the net asset value next computed after the fund receives the order.
If a customer submits a redemption order to her broker-dealer after the close of the New York Stock Exchange, she will receive a price based on the net asset value computed
the next time the fund computes it.
Mutual fund redemption values fluctuate according to
the value of the securities in the portfolio
Closed-end investment company shares may be
traded in the secondary markets, including the exchanges and OTC markets. Traded by institutional investors
One of your clients purchased shares of the Ajax Mutual Fund several months ago. At that time, the net asset value (NAV) of the fund was $17.20. Today, the NAV is $17.56, and your client wants to know what accounts for the difference. You should advise her that the difference likely represents
unrealized appreciation.
One way in which open-end investment companies differ from closed-end investment companies is that open-end companies
use forward pricing to determine their redemption value.
Open-end investment companies
(mutual funds and ETFs) can only issue one class of stock (common).
According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation's voting securities?
100%
Securities transactions take place in the primary and secondary markets. Which of the following investment companies can trade in both
A closed-end fund
Which of the following is not a characteristic of closed-end funds
A closed-end fund stands ready to redeem shares from investors.
In an effort to raise additional capital, which type of registered investment company may issue debt securities
A closed-end investment company
the following investment companies is limited to offering investors a single class of common stock representing ownership in the company
A mutual fund
the following would not be a suitable recommendation to an investor with a liquidity constraint
An interval fund
A registered representative (RR) has just explained to a customer that to purchase a particular security, the customer would pay the asking price plus a commission, not a sales charge. Which of the following is the RR speaking of?
Any closed-end fund
The Investment Company Act of 1940 requires that a minimum of 75% of the assets of the diversified company meet stated requirements. Those requirements include the following:
At least 75% of the fund's total assets must be invested in cash and securities that are not issued by the fund or any of its affiliates. Within that 75%, no more than 5% of the fund's total assets can be in a single stock. Within that 75%, no holding can represent more than 10% of the voting control of a single company. Please note that there are no restrictions on the nondiversified 25%. It can all be in a single stock. That means 30% of the fund's total assets can be in one company. Likewise, that 25% can be used to purchase a controlling interest in companies.
