1.

Identify who has the ultimate responsibility for calculation of a fund's Net Asset Value
Per Share (NAVPS).

a)
Custodian.
The correct answer is:b)
Fund manager.
c)
Registrar.
d)
Distributor.
FEEDBACK : Other responsibilities of a fund manager, which it can attend to itself or
outsource, include calculation of the fund’s net asset value, preparation of the fund’s
simplified prospectus, annual information form and other required reports, income tax
reporting, shareholder or unitholder record-keeping and reporting, and providing
instructions to the custodian for the release of the fund’s cash or securities to settle the
fund’s purchases and sales of securities.

2. A mutual fund corporation has income of $150,000 before fees and expenses, and
$110,000 after fees and expenses. Calculate the amount that the corporation should
declare as dividends to mimic the flow through status that a mutual fund trust would
enjoy in this situation.

a)
$40,000
b)
$75,000
c)
$150,000
The correct answer is:d)
$110,000
FEEDBACK : Mutual funds may also be set up as federal or provincial corporations.
Provided they meet certain conditions set out in the Income Tax Act, mutual fund
corporations are eligible for a special tax treatment if the corporation’s holdings consist
mainly of a diversified portfolio of securities. The income that the mutual fund
corporation earns must be derived primarily from interest and dividends received from
these securities and any capital gains realized from the sale of these securities. Investors
in mutual fund corporations receive shares in the fund instead of the units that are
received by investors in mutual fund trusts. Mutual funds corporations lack the flow
through status of mutual fund trusts. However, mutual fund corporations can achieve a
similar result by declaring dividends during the course of the year that are equivalent to
the corporation’s net income after fees and expenses. These dividends are then taxed in
the hands of the fund’s shareholders.
3. A mutual fund wishes to change the fundamental investment objectives of the fund.
Identify the action the trustee must take before proceeding.

a)
Written notice to MFDA.
The correct answer is:b)
Convene meeting of unit holders for approval.
c)
Published announcement of change in financial press.
d)
Written notice to unit holders.
FEEDBACK : NI 81-102 generally requires the trustee or manager of a mutual fund trust
(or an incorporated mutual fund) to convene a meeting of unitholders to consider and
approve certain specific matters. These matters include a change in the fund’s
fundamental investment objectives, a change in the mutual fund manager, a proposed
new fee or expense or a proposed increase in a fee or expense to be charged to the fund or
unitholders or a decrease in the frequency of calculating net asset value.

4. An investor with a small portfolio wishes to own a wide range of securities but is
concerned about the costs of acquiring and trading her holdings. Identify the mutual fund
feature that a salesperson could discuss with the client as an advantage.

a)
Liquidity.
The correct answer is:b)
Diversification.
c)
Low-cost professional management.
d)
Variety of purchase and redemption plans.
FEEDBACK : Diversification. A typical large fund might have a portfolio consisting of
60 to 100 or more different securities in 15 to 20 industries. For the individual investor,
acquiring such a portfolio of stocks is likely not feasible. Because individual accounts are
pooled, sponsors of managed products enjoy economies of scale that can be shared with
mutual fund share or unit holders. As well as having access to a wider range of securities,
managed funds can trade more economically than the individual investor. Thus, fund
ownership provides a low-cost way for small investors to acquire a diversified portfolio.

5. Choose the entity that is responsible for the day-to-day supervision of a mutual fund
corporation's investment portfolio.

a)
Portfolio manager.
b)
Board of Directors.
c)
Custodian.
The correct answer is:d)
Fund Manager.
FEEDBACK : The fund manager provides day-to-day supervision of the fund’s
investment portfolio. While a fund manager may provide portfolio management to a fund
it manages, most often it hires a company that specializes in providing such services,
often an affiliated company.

6. Jessica is an employee of ABC Credit Union and is licensed to sell mutual funds.
Identify the organization on whose behalf Jessica is acting when she sells XYZ mutual
funds, managed by DEF Fund Managers, with GHI Trust as custodian.

a)
ABC Credit Union.
b)
DEF Fund Managers.
The correct answer is:c)
XYZ Mutual Funds.
d)
GHI Trust.
FEEDBACK : When selling or providing advice or information about mutual funds,
these employees are acting solely on behalf of the affiliated mutual fund dealer.

7. Which of the following National Instruments (NI) sets out the requirements applicable
to both the form and content of mutual fund prospectuses?

a)
NI 33-102.
b)
NI 81-102.
c)
NI 81-105.
The correct answer is:d)
NI 81-101.
FEEDBACK : National Instrument 81-101 sets out the requirements applicable to both
the form and the content of a mutual fund simplified prospectus.

8. Raj is concerned that in the event of his death his security holdings may be adversely
affected by market conditions until probate is completed. Recommend a feature of mutual
funds that a salesperson could present to Raj as a solution.
The correct answer is:a)
Continuity of Professional management of fund holdings during probate.
b)
Liquidity.
c)
Eligibility for loan collateral.
d)
Transferability of funds.
FEEDBACK :
Shares or units in a mutual fund continue to be professionally managed during the
probate period until estate assets are distributed. In contrast, other types of securities may
not be readily traded during the probate period even though market conditions may be
changing drastically.

The term ‘estate’ refers to all the assets owned by an individual at the time of death.
Estate planning refers to planning for the administration and disposing of property of
one’s estate upon death.

Probate is the process of validating an individual’s will prior to distribution of estate

assets.

9. Mark, a mutual funds salesperson, discusses his client's legal issues with a lawyer
while at a fundraising event. Mark wants to ensure that he knows the implications of his
client's legal situation. Identify the code of ethics principle that Mark should consider in
this scenario.

a)
Conducting business in a professional manner.
b)
Conducting business with trustworthiness and integrity.
c)
Using proper care and exercising professional judgment.
The correct answer is:d)
Maintaining client confidentiality.
FEEDBACK :
The code distills industry rules and regulations into five primary values:

Mutual fund representatives must use proper care and exercise professional judgment.
Mutual fund representatives should conduct themselves with trustworthiness and
integrity, and act in an honest and fair manner in all dealings with the public, clients,
employers and employees.
Mutual fund representatives should conduct, and should encourage others to conduct,
business in a professional manner that will reflect positively on the individual registrant,
the firm and the profession, and should strive to maintain and improve their professional
knowledge and that of others in the profession.
Mutual fund representatives must act in accordance with the securities act of the province
or provinces in which registration is held, and must observe the requirements of all Self-
Regulatory Organizations (SROs) of which the firm is a member.
Mutual fund representatives must hold client information in the strictest confidence.

10. Identify how an open-end trust may avoid taxation on dividend income.

a)
Dividend tax credit.
b)
Declaration that dividends are equal to net income.
c)
Registering tax-shelter status.
The correct answer is:d)
Pass dividends to unit holders.
FEEDBACK : The most common structure for mutual funds in Canada is the open-end
trust. The trust structure allows a fund itself to avoid taxation. Any interest, dividends and
capital gains income, net of the fund’s fees, expenses and capital losses, if passed to its
unitholders each calendar year, will allow the trust to avoid being taxed on its income. As
a matter of course all mutual fund trusts take advantage of this ability to avoid income
taxes. Any income that has flowed through to the unitholder is taxed in the hands of the
unitholder. The rate of income tax depends on the type of income that the fund generated
(i.e. interest, dividends, capital gains) and the type of account (e.g., RRSP) the client
holds the mutual fund in.

11. A client's redemption order is received in good form mid-day on Tuesday. The
NAVPU determined by the closing of business on Monday is $10.82; on Tuesday,
$10.75; Wednesday $10.35; and Thursday $10.15. Determine the NAVPU the client's
redemption order would receive.

The correct answer is:a)

$10.75
b)
$10.15
c)
$10.35
d)
$10.82
FEEDBACK : Always included is the holder’s right to redeem the units at a price that is
the same as, or very close to, the fund’s net asset value per unit (NAVPU) next
determined after the fund receives a redemption request in proper form.
12. The manager of XYZ Mutual fund wants to conduct inter-fund trading. Identify who
the manager must seek approval from prior to the trade.

a)
MFDA.
The correct answer is:b)
Independent Review Committee (IRC).
c)
Trustee.
d)
Custodian.
FEEDBACK : Each mutual fund is required under National Instrument 81-107 to have an
independent review committee (or IRC) which is required to either approve or consider
conflicts of interest that are identified by the manager of the fund. With regard to certain
matters, such as inter-fund trading or the purchase of securities underwritten by an
affiliate of the manager, the independent review committee’s approval must be obtained
prior such activities taking place.

13. An investor purchases a mutual fund by making regular automatic purchases of the
fund. Identify the investment method the investor is using.

a)
Automatic Reinvestment Plan (ARP).
b)
Purchase Commitment Arrangement (PCA).
The correct answer is:c)
Pre-authorized Contribution Plan (PAC).
d)
Average Purchase Plan (APP).
FEEDBACK : There are many purchase plans, ranging from one-time, lump-sum
purchases to regular purchases in small amounts under periodic accumulation plans
(called pre-authorized contribution plans or PACs).

14. Identify the organization responsible for maintaining records of the owners of mutual
fund units and shares.

a)
Trustee.
b)
Dealer.
c)
Fund Manager.
The correct answer is:d)
Registrar.
FEEDBACK : Sometimes the custodian also serves as the fund’s registrar and transfer
agent, maintaining records of who owns the fund’s units/shares.

15. Which of the following items does not appear in a mutual fund prospectus?

a)
Statutory rights.
b)
Risk factors of the security.
c)
Fees and expenses.
The correct answer is:d)
A guarantee of the quality of the security.
FEEDBACK : While there are a number of required items, a prospectus never includes a
guarantee of the quality of the securities issued.

16. Which of the following National Instruments (NI) address requirements and
guidelines for the advertising of mutual funds?

a)
NI 81-101.
The correct answer is:b)
NI 81-102.
c)
NI 33-102.
d)
NI 81.105.
FEEDBACK : National Instrument 81-102 and companion policies address the
requirements and guidelines for the distribution and advertising of mutual funds.

17. Scott's client has asked for a recommendation for an investment strategy. The client
regularly receives small amounts of dividends from her mutual fund that she does not
need as current income. Recommend a strategy that Scott's client could use.

a)
Pre-authorized contribution plan.
b)
Inter-fund transfer.
The correct answer is:c)
Reinvestment of dividends into new shares.
d)
Switch to a mutual fund corporation.
FEEDBACK : Mutual funds consist of not only an underlying portfolio of securities, but
also a package of customer services. Most mutual funds offer the opportunity to
compound an investment through the reinvestment of dividends.

18. An investor can cancel a mutual fund purchase within which of the following
periods?

a)
Within three business after receiving the purchase confirmation.
The correct answer is:b)
Within 48 hours after receiving the fund facts document.
c)
Within five business days following the purchase.
d)
Within one week of receiving the fund facts document.
FEEDBACK : Investors have certain "statutory rights" of withdrawal and rescission.
Securities legislation in some provinces gives investors the right to withdraw from an
agreement to buy mutual funds within two business days of receiving the fund facts
document.

19. Marybeth asks her sales representative for information about the directors of her
mutual fund investment. Identify the document that the sales representative could provide
to meet her needs.

The correct answer is:a)

Annual Information Form.
b)
Fund Facts.
c)
Simplified Prospectus.
d)
Audited Financial Statements.
FEEDBACK :
Delivery of the annual information form (AIF) is available to investors on request. Much
of the disclosure required in the AIF is similar to that provided in the simplified
prospectus. The AIF contains, in addition to the above, information concerning:

Significant holdings in other issuers

The tax status of the issuer
Directors, officers and trustees of the fund and their indebtedness and remuneration
Associated persons, the principal holders of securities, the interest of management and
others in material transactions
The particulars of any material contracts entered into by the issuer
20. Select the entity that is ultimately responsible for the activities of a mutual fund trust.

a)
Board of Directors.
b)
Fund Managers.
c)
Unit Holders.
The correct answer is:d)
Trustee.
FEEDBACK : The board of directors of a mutual fund corporation, and the trustee(s) of a
mutual fund trust, have the ultimate responsibility for the fund’s activities,

21. Kian redeems his mutual fund shares on Monday. Calculate the day by which he must
receive his payment. Assume all days are business days.

The correct answer is:a)

Thursday.
b)
Tuesday.
c)
Wednesday.
d)
Friday.
FEEDBACK : Mutual fund shareholders have a continuing right to redeem shares for
cash at net asset value. National Instrument 81-102 requires that payments be made
within three business days in keeping with the securities industry settlement
requirements.

22. Identify the organization responsible for regulating mutual funds in Canada.

a)
MFDA.
b)
Federal Government.
The correct answer is:c)
Provincial securities commission.
d)
IIROC.
FEEDBACK : The Mutual Fund Dealers Association (MFDA) is the mutual fund
industry’s SRO for the distribution side of the mutual fund industry. It does not regulate
the funds themselves. That responsibility remains with the provincial securities
commissions, but the MFDA does regulate how the funds are sold.
23. Identify the document in which the principal investment objectives and policies of a
mutual fund trust are set out.

a)
Prospectus.
b)
Annual Information Fund.
The correct answer is:c)
Declaration of trust.
d)
Statement of Investment Policy.
FEEDBACK :
The declaration of trust, trust deed (or similar document) establishing the mutual fund
trust sets out:

the fund’s principal investment objectives

its investment policy
any restrictions on the fund’s investments
who the fund’s trustee, manager and custodian will be (or simply names the trustee and
gives the trustee the power to appoint a manager and a custodian)
how many classes or series of units the fund will or may have. Different classes and
series having different characteristics are established to make them more attractive to
different types of purchasers (i.e., general public, pension funds, institutional investors)

24. Identify the entity that receives all fund's money obtained from investors buying
units/shares.

a)
Registrar.
The correct answer is:b)
Custodian.
c)
Dealer.
d)
Fund manager.
FEEDBACK : The Custodian. When a mutual fund is established, a separate
organization, most often a trust company, is appointed as the fund’s custodian. The
custodian receives and holds the fund’s money obtained from all sources—investors
buying the fund’s units or shares, income earned by the fund’s investment portfolio,
proceeds from the sale of the fund’s investments, holds all the fund’s assets and
distributes the fund’s money to pay the fund’s expenses, including management fees,
purchases of securities for the fund’s investment portfolio, payments for redeemed units
and shares and distributions or dividends to unitholders or shareholders respectively.
25. Identify the electronic source that may be used to access mutual fund reports.

a)
TSX.
b)
MFDA.
The correct answer is:c)
SEDAR.
d)
IIROC.
FEEDBACK : Sponsors of mutual funds file a variety of reports annually to meet their
regulatory disclosure requirements. These reports include the annual information form
(AIF), audited annual and interim financial statements and an annual report, among
others. The reports must be provided to unitholders or any person on request. They are
easily retrieved through SEDAR (the System for Electronic Document Analysis and
Retrieval) at www.sedar.com. Increasingly, these reports contain useful educational
features such as manager commentaries.

26. Identify who is responsible for the taxes on dividend income distributed to mutual
fund unit holders from a mutual fund trust.

The correct answer is:a)

Unit holders.
b)
Mutual fund.
c)
Fund manager.
d)
Trustee.
FEEDBACK : The most common structure for mutual funds in Canada is the open-end
trust. The trust structure allows a fund itself to avoid taxation. Any interest, dividends and
capital gains income, net of the fund’s fees, expenses and capital losses, if passed to its
unitholders each calendar year, will allow the trust to avoid being taxed on its income. As
a matter of course all mutual fund trusts take advantage of this ability to avoid income
taxes. Any income that has flowed through to the unitholder is taxed in the hands of the
unitholder.

27. Identify the day by which the Fund Facts document must be delivered to the
purchaser of a mutual fund.

The correct answer is:a)

2nd business day after trade day.
 b)
Trade day.
c)
15th day of the month of the trade.
d)
Last day of the quarter in which the trade is made.
FEEDBACK : The mailing or delivery of the simplified prospectus must be made to the
purchaser not later than midnight on the second business day after the purchase.