7 Questions
- Under the Investment Company Act of 1940, all of the following are examples of management companies except
A. the S&P 500 Index fund
B. the growth fund option for a VA
C. the Windmill Income UIT
D. the Windmill Income Fund, an exchange-listed closed-end fund
the Windmill Income UIT
- One characteristic of an open-end investment company that distinguishes it from a closed-end one is that
A. it may avoid taxation by distributing all of its net investment income to shareholders
B. it may be either diversified or nondiversified
C. there are a wide variety of objectives available for investors to select from
D. there is a continuous public offering
there is a continuous public offering
- Class A shares are best for investors with
A. larger investment amounts and short time frames
B. smaller investment amounts and long time frames
C. larger investment amounts and long time frames
D.
smaller investment amounts and short time frames
larger investment amounts and long time frames
- Which of the following would cause a change in the net asset value of a mutual fund share?
A. The market value of the portfolio declines.
B. Many shares are redeemed
C. Securities in the portfolio are sold for a capital gain.
D. The fund takes a new position.
The market value of the portfolio declines.
- Which of the following would not be included in a mutual fund's list of expenses?
I. Shareholder records and service
Il. Investment adviser's fee
Ill. Broker-dealer sales charges
IV. Underwriter's sales loads
A. I and Il
B. I and III
C. Il and IV
D. Ill and IV
Ill and IV
- An investor is purchasing $48,000 of the Windmill Alternative Energy Fund. The fund has a breakpoint at $50,000. The least appropriate action would be to
A. place the order
B. explain breakpoints
C. explain letters of intent
D. discuss combination privilege
place the order
- In order to qualify as a conduit, a mutual fund must pay out a minimum of
A. 90% of gross investment income
B. 90% of net expenses
C. 90% of net investment income
D. 95% of net investment income
90% of net investment income
Study Notes
Investment Companies
- Management companies include S&P 500 Index fund, growth fund option for a VA, but exclude exchange-listed closed-end funds like Windmill Income Fund.
Characteristics of Open-End Investment Companies
- Open-end investment companies may avoid taxation by distributing all of its net investment income to shareholders.
- They can be either diversified or non-diversified, with a wide variety of objectives available for investors.
Types of Shares
- Class A shares are suitable for investors with larger investment amounts and long time frames.
Mutual Fund Share Value
- A decline in the market value of the portfolio would cause a change in the net asset value of a mutual fund share.
- Redeeming many shares or selling securities in the portfolio for a capital gain would also affect the net asset value.
Mutual Fund Expenses
- Expenses that would be included in a mutual fund's list of expenses are shareholder records and service, investment adviser's fee.
- Broker-dealer sales charges and underwriter's sales loads would not be included.
Breakpoints in Mutual Funds
- When purchasing mutual fund shares, breakpoints, like the $50,000 breakpoint in the Windmill Alternative Energy Fund, should be explained to investors.
- Investors should be made aware of the benefits of investing at a breakpoint.
Qualifying as a Conduit
- A mutual fund must pay out at least 90% of its net investment income to qualify as a conduit.
Test your knowledge of management companies under the Investment Company Act of 1940 by identifying examples in a multiple-choice format. Choose the correct option from the given examples.
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