QUESTION: 145

The AGRO Mutual Fund invests in aggressive growth stocks of midcap corporations. The fund is running an advertisement on the radio that informs the listeners that AGRO earned a 22% return last year while the S&P 500 Index returned only 10%. The ad also contains information regarding how an interested investor can contain a fund prospectus.
Has AGRO violated any securities laws with this advertisement?

No. This would be considered a generic advertisement and not an offer to sell.
No. In addition to providing the listeners with its own return last year, AGRO appropriately provided the listeners with a benchmark return; thus there has been no violation of any laws.
Yes. Although AGRO provided the return on the S&P 500 as well as its own return, the S&P 500 Index is comprised of average risk stocks and is not an appropriate benchmark for AGRO to use.
Yes. AGRO is required to provide information on the specific investments it made to earn that 22% return, given that the return is unusually high.

Answer(s): C

Explanation:

Yes. When AGRO runs an advertisement that informs the listeners that it earned a 22% return last year while the S&P 500 Index returned only 10%, it has violated securities laws because although the fund provided the return on the S&P 500 as well as its own return, it failed to mention that the S&P 500 Index is comprised of large company stocks of average risk, which is not an appropriate benchmark for AGRO to use. The appropriate index is one comprised of similar stocks, such as the Russell Mid-Cap Growth Index. Furthermore, any advertisement referencing past returns must contain a statement that past performance is not indicative of future performance.

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QUESTION: 146

Ms. Newbie, a registered representative employed by Savvy Investments, has received a letter of complaint from a client that Ms. Newbie believes is unfair and illegitimate. More specifically, she believes that the complaint misstates the facts. Under these circumstances, Ms. Newbie:

can toss the complaint in the trash.
must respond to the complaint in writing.
must provide a copy of the complaint to Savvy Investments, who can decide whether or not to ignore the letter after hearing Ms. Newbie's side of the story.
must provide a copy of the complaint to Savvy Investments, who is required to respond to the complaint in writing and to keep a record of it.

Answer(s): D

Explanation:

If Ms. Newbie receives a letter of complaint from a client, she must provide a copy of the complaint to Savvy, who is required to respond to the complaint in writing and to keep a record of it. It doesn't matter whether or not the complaint is deemed to be unfair and illegitimate by Ms. Newbie and/or her employer, Savvy.

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QUESTION: 147

Which of the following statements about hedge funds is true?

They are fairly low risk since the portfolio managers use investment strategies designed to "hedge their bets."
They are not regulated by the Investment Company Act of 1940.
They are considered to be very liquid investments.
They have low management fees, like index funds.

Answer(s): B

Explanation:

The true statement about hedge funds is that they are not regulated by the Investment Company Act of 1940. They are very risky, are illiquid-investors may only make contributions and withdrawals at specified times-and they have extremely high management fees.

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QUESTION: 148

Which of the following are included in the expense ratio of a fund?

I). 12b-1 fees
II). brokerage costs incurred by the fund when it buys and sells securities
III). redemption fees
IV). management fees

I and IV only
I, II, and IV only
I, III, and IV only
I, II, III, and IV

Answer(s): A

Explanation:

Of the selections, only 12b-1 fees and management fees are included in the expense ratio of the fund. Brokerage costs that the fund incurs when it buys and sells securities are not included (which is why a fund's turnover ratio is important to consider.) Redemption fees are paid by the shareholder to the fund, so it would not be included in a fund's expense ratio since it is not an expense of the fund.

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Free Series 6 Exam Braindumps (page: 37)

QUESTION: 145

Explanation:

QUESTION: 146

Explanation:

QUESTION: 147

Explanation:

QUESTION: 148

Explanation: