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[Investment Companies Module, Section 5.2]

30. (C) The net asset value as computed at the end of the business day. All investment companies must compute the NAV daily (some do it twice), so they usually do it at the end of the day. Since it is no-load, no sales charge or commission is added, and since it is a fund, or open-end investment company, there are no supply and demand restrictions on the price. Remember, a no-load fund has to be offered by an open-end investment company because such companies are the only ones that deal in loads (or lack thereof). Closed-end investment companies have commissions. [Investment Companies Module, Section 3.3]

31. (C) A letter of intent. This is a pledge to purchase a specified amount of a mutual fund within a period of time. A promissory note is a financing instrument used to raise money for companies. An investment letter deals with a private placement of stock, and a stock power is a signature on a separate piece of paper to allow the sale and transfer of sold shares of stock. [Investment Companies Module, Section 5.7]

32. (C) The investment adviser is responsible for all purchases and sales of securities held in the fund’s portfolio and receives a management fee based upon the total assets of the fund. The management company does buy all the securities and receives a fee (a percentage of the net asset value). They do not get a sales charge for managing the fund’s portfolio, only a fee. The bank is the transfer agent for the fund. The underwriter gets a sales charge (sometimes called an underwriter’s fee), not a management fee. [Investment Companies Module, Sections 7.2–7.5]

33. (C) The next computed bid price on the day the shares are sold. Any redeeming or purchasing of shares is done at “the next computed price of the day.” It is not based on the previous day’s closing bid price, nor is the redeeming of shares ever done on the ask, or offering, price. [Investment Companies Module, Section 6.0] 34. (D) Purchases at “sales charge breakpoints.” Discounts to clients or other members of the public can only be given when sales breakpoints are reached. This is not due to the automatic reinvestment privilege, which is available in most funds; nor to the availability of withdrawal plans, which all funds have; nor because of exchange privileges. [Investment Companies Module, Section 5.4]

35. (D) $15.60. Again, we use the formula ASK = NAV + SALES CHARGE. It is best to set the formula up as follows:

POP = NAV + SALES CHARGE $ = $14.35 +

100% = 92% + 8%

Since the sales charge is 8% of the ask price, the NAV must be 92% of the ask price, and $14.35 divided by 92% equals $15.598, or $15.60, as the offering, or ask, price. [Investment Companies Module, Section 5.2] 36. (A) Open-end investment companies. (Know this!) Front-end loads are contractual investment companies that are open-end; no-load funds are mutual funds with no sales charge; and a closed-end fund is an investment company that trades on exchanges. [Investment Companies Module, Section 3.1]

37. (B) The shares are sold at the current market price. Shares of closed-end investment companies are sold to investors at the offering price (or market ask price). They are bought from an investor at the bid price, by a market maker or an exchange specialist. Customers always buy (pay) at the ask price and receive the bid price from a market maker when selling, which will usually be different from the net asset value. Closed-end companies issue stocks only one time, after which they are sold in the open market; they do not continually offer new shares as open-end companies do. For this reason, the number of outstanding shares is constant. [Investment Companies Module, Section 3.4 & 3.5]

38. (C) Its shares are sold in the open market at their current offering price. Open-end companies can only offer one type of stock — common; they continually offer new shares; and they redeem their own shares. A closed-end company does none of these three things. [Investment Companies Module, Sections 3.4, 3.5 & 4.2] 39. (D) They can automatically be reinvested in additional shares if the fundholder chooses to do so.

by open-end companies. You can’t combine dividends and capital gains to determine yield. Only insurance companies can defer taxes with variables. Dividends are always taxed as ordinary income. [Investment Companies Module, Sections 5.1 & 9.1]

40. (B) 3.9% (3.85% rounded off). Here again is a yield question, and yield is what you currently get for what you currently pay. In this case, you get $0.75 and you pay $19.45. Remember, do not use the capital gains in any way. In this problem we divide .75 by 19.45 to obtain a current yield of 3.85%, rounded to 3.9%. [Investment Companies Module, Section 9.1]

41. (A) Closed-end investment company. A closed-end company is the only type of investment company among the choices available in which commissions are paid for buying and selling shares. Open-end

investment companies have a sales charge built into the price, and no-load companies have neither commissions nor sales charges. [Investment Companies Module, Section 3.5]

42. (C) $21.50 plus a commission. This is a secondary market transaction, so there is no sales charge. The commission is always added to the ask price on a purchase, and subtracted from the sale price on a sale. In this case, we are dealing with a purchase; thus, $21.50 plus a commission. [Investment Companies Module, Section 3.5]

43. (C) In a particular industry or geographical area. Specialized funds have more than 25% invested in one area. Diversified funds deal in many industries. All funds trade stock in the OTC market. Special situations have nothing to do with specialized funds. [Investment Companies Module, Section 10.3]

44. (A) 6.6%. We are looking for the sales charge percent, which is a percentage of the offering price. The ask (or offering) price is $14.40 and the sales charge is $0.95 ($14.40 - $13.45), and when .95 is divided by 14.40 we find the sales charge is 6.6%. [Investment Companies Module, Section 5.2]

45. (B) $23.83. Normally a person purchasing this fund pays the 8% sales charge, but in this instance the investor has decided to make a quantity purchase, so is entitled to the lowered sales charge rate. Since the quantity rate is given as 6%, we then find the offering price the same way as with any other value of sales charge. We set it up as follows:

POP = NAV + SALES CHARGE

$ ____ = 22.40 + ____

100% = 94% + 6%

Divide the 22.40 by 94% to find the offering price of $23.83. [Investment Companies Module, Section 5.2]

46. (B) 3,715 shares. This is a quantity purchase, so the public offering price is not used. Instead, a new offering price, based on the amount of the purchase must be used. In this case, the $50,000 qualifies for a 6% sales charge. You can find the new offer price using the following formula and dividing that offer into $50,000.

POP = NAV + SALES CHARGE

(DOLLARS) $ = $12.65 +

(PERCENT) 100% = 94% + 6%

We can determine that the ask price will be 13.457, or 13.46. We then divide the $50,000 by 13.46 and get about 3,715 shares. An easier way, however, is that since the sales charge is part of the offer, just take out the sales charge of 6%, or $3,000, leaving $47,000. Then divide $47,000 by the NAV of 12.65 to get about 3,715 shares. [Investment Companies Module, Section 5.2]

47. (B) Unit investment trusts. Unit investment trusts mainly invest in bonds, and can be remembered by the last word of their name  trust. All corporate bonds sell under a trust indenture. Open-end and closed-end investment companies have high management fees. Face-amount certificates are certificates that are backed by real estate. [Investment Companies Module, Section 2.3]

to hold some shares in escrow in the event the additional payment is not made, and an additional sales charge will be required. [Investment Companies Module, Section 5.7]

49. (C) A broker who gives advice to some of his clients and charges a fee. Any person who charges a fee has to be registered under the Investment Advisers Act of 1940, as well as with each state in which he gives advice and charges a fee. [Investment Companies Module, Section 7.2]

50. (C) II and III. The capital gains distribution is a long-term gain and the sale for a capital gain is a short- term gain. All distributions by the mutual fund company to investors represent long-term gains, yet if an investor holds a mutual fund investment for one year or less, the gains are deemed short-term gains for income tax purposes. [Investment Companies Module, Section 9.0]

51. (B) The point below which an investor makes a purchase and the broker does not inform the investor of the possible sales breakpoint. This is a breakpoint sale: Remember, Breakpoint Sale = BS = failure to inform. [Investment Companies Module, Section 5.5]

52. (A) Net operating expenses Net asset value

This is the formula. Since the question asked for the expense ratio, you would look for an answer with “expenses” in it. [Investment Companies Module, Section 7.4]

53. (C) They are paid a percentage of the net assets they manage. The managers of a mutual fund are paid based only on what they manage. [Investment Companies Module, Section 7.2]

54. (A) I and IV only. Advertising and sales charges. 12b-1 fees are sales charges that carry on throughout the time the person has an account. These are usually levied by no-load funds, and are used for advertising. Some can be used for sales charges, but most goes to advertising prospectuses for new purchasers. [Investment Companies Module, Sections 3.2 & 7.7]

55. (B) To a broker to fill a customer’s order or to a broker/dealer for the firm’s own account. No sale at less than the offering price can be given unless a sales agreement is in force and the sale is to a broker/dealer to fill a customer’s order or for their own account. [Investment Companies Module, Sections 5.1 & 7.5]

56. (C) Seven calendar days. The fund has one week from the day it receives the letter to mail the check. [Investment Companies Module, Section 6.0]

57. (B) The fund can borrow up to 33% of the fund’s assets. At no time can the fund borrow more than this. Borrowing usually occurs around tax time and during the summer months. [Investment Companies Module, Sections 4.1 & 4.3]

58. (B) The net asset value must be three times the bank borrowing. At no time can the fund borrow more than this. Borrowing usually occurs around tax time and during the summer months. [Investment Companies Module, Sections 4.1 & 4.3]

59. (D) 60%. 60% of the board of directors of an open-end investment company can be made up of people directly associated with the fund itself. The fund must have at least 40% of its directors from outside the fund. [Investment Companies Module, Section 7.1]

60. (B) I, II, III, V, and VI only. Minimum capitalization is $100,000, and margin purchases are not allowed. 40% of the board of directors must be from outside, and the vote is by the shares, not the shareholders. Always know that a prospectus must be given for new shares, open-end or closed-end. The secondary market does not need the prospectus. [Investment Companies Module, Section 1.0,

3.2 & 7.1]

61. (C) The net asset value plus a sales charge. To buy shares of a mutual fund, an investor must pay a price equivalent to the net asset value (NAV) plus the appropriate sales charge as determined in the prospectus. Depending on the size of Mr. Lockhart’s investment, it may also be appropriate to mention that this sales charge can vary based on the amount invested. [Investment Companies Module, Section 5.2]

62. (C) Quarterly. All mutual funds are obligated to send shareholders statements on their accounts at least quarterly. If there is any activity in the account, then a statement must be sent to the individual shareholder monthly. [Investment Companies Module, Section 8.2]

63. (A) Correct answer (false statement): Registered representatives are not required to inform customers about breakpoints, provided a prospectus disclosing these is given to the client. Registered representatives are required to inform customers of breakpoints even if a prospectus disclosing these is provided to the client. Spouses investing together can qualify for breakpoints. Partnerships and investment clubs are not allowed to qualify for breakpoints. [Investment Companies Module, Section 5.5]

64. (D) The net asset value plus a sales charge, if any. To buy shares of a mutual fund, an investor must pay a price equivalent to the net asset value (NAV) plus the appropriate sales charge as determined in the prospectus. If this JNK Emerging Markets Income Fund is a loaded fund, and depending on the size of Mrs. Blaylock’s investment, it may also be appropriate to mention that the sales charge can vary based on the amount invested. [Investment Companies Module, Section 5.2]