Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Mutual Funds & Investment Companies 2 — Questions and Answers
Question 1: Which of the following is NOT a characteristic of a closed-end investment company?
- Shares trade on a secondary market
- The company issues a fixed number of shares
- Investors redeem shares directly with the fund at NAV (Correct answer)
- Shares may trade at a premium or discount to NAV
Correct answer: Investors redeem shares directly with the fund at NAV
Closed-end funds do not redeem shares directly; investors must sell their shares on a stock exchange.
Question 2: A letter of intent (LOI) in mutual fund investing allows a customer to:
- Lock in the current NAV for future purchases over 13 months
- Receive a breakpoint discount based on a commitment to invest a specified amount over 13 months (Correct answer)
- Avoid paying any sales charge for 13 months
- Transfer assets between fund families without tax consequences
Correct answer: Receive a breakpoint discount based on a commitment to invest a specified amount over 13 months
An LOI allows investors to qualify for reduced sales charges by committing to reach a breakpoint within a 13-month period.
Question 3: Which fund share class typically has no front-end load but charges a contingent deferred sales charge (CDSC) if redeemed early?
- Class A shares
- Class B shares (Correct answer)
- Class C shares
- Institutional shares
Correct answer: Class B shares
Class B shares have no upfront load but impose a CDSC that declines over time and eventually disappears.
Question 4: Rights of accumulation in mutual funds allow investors to:
- Automatically reinvest dividends without a sales charge
- Combine the current purchase value with existing fund holdings to qualify for a breakpoint (Correct answer)
- Purchase shares at yesterday's NAV rather than today's
- Defer capital gains taxes on fund distributions
Correct answer: Combine the current purchase value with existing fund holdings to qualify for a breakpoint
Rights of accumulation let investors use the total value of their existing fund holdings plus the new purchase to qualify for breakpoint discounts.
Question 5: A mutual fund that invests primarily in long-term U.S. Treasury securities and high-grade corporate bonds would be classified as a:
- Money market fund
- Balanced fund
- Bond fund (Correct answer)
- Sector fund
Correct answer: Bond fund
A fund focusing on long-term Treasury and high-grade corporate bonds is a bond (fixed income) fund.
Question 6: Under the Investment Company Act of 1940, a fund must have a minimum of how many shareholders to register as an investment company?
- 25
- 50
- 100 (Correct answer)
- 500
Correct answer: 100
The Investment Company Act requires a minimum of 100 shareholders (record holders) for a company to register as an investment company.
Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Mutual Funds & Investment Companies 2
Which of the following is NOT a characteristic of a closed-end investment company?