Study guide
Begins Function 3, the largest function on the exam. This chapter and Chapter 6 together make up roughly 25 of 50 scored questions, focusing on fund structure, POP calculations, share classes, and breakpoints.
Mutual Fund Structure and Pricing
Open-end fund under the Investment Company Act of 1940; NAV computed at least daily; forward pricing (Rule 22c-1); 75-5-10 diversification test.
Public Offering Price and Sales Charge Calculations
POP = NAV / (1 - sales charge%); max sales charge 8.5% of POP if breakpoints/ROA/reinvestment offered.
Share Classes: A, B, and C Shares
Class A front-end load with breakpoints; Class B CDSC, no breakpoints, converts to A; Class C level-load, most expensive long-term.
Breakpoints, Letters of Intent, and Rights of Accumulation
LOI: 13 months forward, 90 days backdatable, nonbinding on investor. ROA: breakpoint pricing based on current value of existing holdings.
12b-1 Fees and the No-Load Fund Standard
12b-1 capped at 0.75% + 0.25% service fee; no-load requires total asset-based charges ≤0.25% and no front/back load.
Key terms
- Net asset value (NAV)
- — Assets minus liabilities divided by shares outstanding.
- Public offering price (POP)
- — NAV / (1 - sales charge%).
- Forward pricing (Rule 22c-1)
- — Orders execute at the next calculated NAV.
- Breakpoint
- — Purchase level where the front-end charge declines.
- Letter of intent (LOI)
- — 13-month nonbinding commitment, backdatable 90 days.
- Rights of accumulation (ROA)
- — Breakpoint pricing based on current value of existing holdings.
- Contingent deferred sales charge (CDSC)
- — Declining back-end charge typical of Class B shares.
- 12b-1 fee
- — Asset-based fee capped at 0.75% + 0.25% service fee.
- 75-5-10 test
- — Diversification test for 75% of assets.
- No-load fund
- — No front/back load, total asset-based charges ≤0.25%.
Exam tips
- POP = NAV / (1 - sales charge decimal); adding the percentage to NAV is the classic trap.
- LOI: 13 months forward, 90 days back; ROA uses current value of holdings.
- Large purchases into Class B/C when Class A breakpoints apply is a red flag.
- No-load requires both no transaction charge AND ≤0.25% ongoing asset-based charges.
- Max sales charge is 8.5%, only with breakpoints/ROA/reinvestment offered.
- Reinvested dividends/gains never count toward an LOI.