Questions and Answers
What is a breakpoint sale?
What must an investor do if they purchase a mutual fund based solely on seeing the summary prospectus?
Be able to access a full prospectus no later than confirmation of sale.
A diversified growth fund charging 0.4% of net assets per year as a 12b-1 fee may not make which statement?
Which of the following is not classified as an investment company under the Investment Company Act of 1940?
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Which class of shares uses a CDSC as the main sales charge?
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Which of the following would cause a change in the net asset value (NAV) of a mutual fund share?
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What is the maximum sales charge for Class A shares?
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Which statement about bond mutual funds is false?
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How often must mutual fund shares be priced?
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Which action would not increase the NAV per share of a mutual fund?
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Which is not an example of a management company under the Investment Company Act of 1940?
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What must a mutual fund's prospectus disclose if it has been in existence for 15 years?
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Which of these would not be included in a mutual fund's list of expenses?
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Which is not part of the expense ratio of a mutual fund?
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What is it called when a fund sponsor allows an investor to move funds between its funds?
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Under the Investment Company Act of 1940, which is not considered an investment company?
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Which of these actions would be unlawful regarding the use of a mutual fund prospectus?
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An investor can take advantage of intraday price changes when investing in which?
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From where does the investment return of a variable annuity come?
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A letter of intent may be backdated to include a prior purchase up to how many days?
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Class B mutual fund shares are also called?
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Study Notes
Mutual Funds Overview
- A breakpoint sale refers to selling investment company shares just below the threshold for reduced sales charges, incurring the higher charge.
- Investors must have access to the full prospectus by the time of sale if they only see the summary prospectus.
Regulatory Framework
- The Investment Company Act of 1940 does not classify private investment companies as investment companies.
- Unit investment trusts are not considered management companies under the Investment Company Act.
Fee Structures and Charges
- A diversified growth fund with a 0.4% 12b-1 fee cannot claim it is a no-load fund.
- Class A shares cannot have sales charges exceeding 8.5% of the total investment.
- Class B shares typically utilize contingent deferred sales charges (CDSC).
Performance and Valuation
- NAV of mutual fund shares is affected by portfolio securities sold for capital gains and decline in market value.
- Mutual fund shares must be priced at least once per business day.
- When many investors deposit funds, the NAV per share remains unchanged despite increased assets.
Disclosure Requirements
- Mutual funds must disclose performance over the last 1, 5, and 10 years if they have existed for 15 years.
Expense Analysis
- Certain costs, such as broker-dealer sales charges and underwriter's sales loads, are not included in a mutual fund's expense list.
- The CDSC is not part of the fund's expense ratio since it is applied against the sale proceeds.
Rights and Privileges
- An exchange privilege allows investors to transfer funds between different funds within the same fund family.
Legal Considerations
- Sending a prospectus to uninterested parties or altering the document is unlawful.
- Highlighting or directing attention to a specific part of a prospectus is prohibited.
Investment Vehicles
- Investors can benefit from intraday price movements with closed-end and exchange-traded funds, unlike open-end funds.
- Variable annuity returns depend on the performance of selected subaccounts within a separate account.
Purchase Agreements
- A letter of intent for mutual fund purchases can be backdated to include prior purchases up to 90 days.
- Class B shares are known as back-end load shares due to their fee structure.
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Description
Test your knowledge of important investment terms with this quiz. One of the key definitions you will explore is the concept of a breakpoint sale. See how well you understand these financial terms and their implications in trading.