Test Your Mutual Fund IQ

How much do you know about mutual funds?

To find out, take this quick quiz, which will test your knowledge of definitions, regulations, facts, and figures.

The questions and answers were prepared with the help of Helene L. Young, vice president of marketing or Marketing One Inc., Portland, Ore., and Patrick S. Antrim, of counsel in the Washington, D.C., office of Pillsbury, Madison & Sutro.

1. How do you define a mutual fund? 2. What is a money market fund? 3. What four federal statutes regulate mutual funds? 4. Can a bank be an investment adviser to a mutual fund? 5. What is the difference between load and no-load? 6. What is a regulated investment company? 7. What's the difference between a closed-end and open-end fund? 8. Can a bank act as a custodial agent for a fund? 9. How much money is invested in mutual funds? 10. How much money is invested in proprietary bank mutual funds?


1. A mutual fund is a pool of money from a number of shareholders that is invested in a variety of securities, or money market instruments. 2. A money market fund is a mutual fund that invests in short-term debt instruments, such as U.S. Treasury bills and notes, corporate notes, bankers acceptances, and commercial paper (short-term IOUs of large U.S. corporations). The average weighted maturity of investments is no longer than 90 days. 3. The four major federal statutes that regulate mutual funds are:

* Securities Act of 1933.

* Securities Exchange Act of 1934.

* Investment Advisors Act of 1940.

* Investment Company Act of 1940.

These laws regulate every aspect of mutual fund operations and require that fund distributors share asset size, performance, and much other financial data with the Securities and Exchange Commission, state regulators, and fund shareholders.

4. Yes, under certain conditions, a bank may play the role of investment adviser, the person or organization that decides which investments to make for a mutual fund.

The conditions for bank involvement as an investment adviser are set out in the Investment Company Act of 1940, as well as in regulations of the federal bank agencies.

5. A load fund is one that charges customers a fee for purchasing shares. A no-load fund has no up-front fee but usually charges a redemption fee when the customer redeems shares.

6. Under Internal Revenue Service regulations, only a regulated investment company is eligible to pass on dividends, capital gains, and interest to shareholders, who then must pay the taxes on these gains. Regulated investment companies thus avoid paying taxes on the gains themselves.

7. An open-end fund, the more typical of the two, can sell as many shares as investors want to buy. Closed-end funds have a limited number of shares and trade on an exchange or over the counter. Banks can offer either type.

8. Yes. A commercial bank or trust company can be a mutual fund custodian. The custodian holds all securities and other assets owned by a mutual fund. The custodian also often acts as the transfer agent, preparing and maintaining records on the accounts of its shareholders, making payments to shareholders, and collecting investments from shareholders.

9. In 1990, the mutual fund industry's assets exceeded $1 trillion for the first time. 10. $113.2 billion.


Give yourself one point for each correct answer. If you have:

0 - 3 points: You probably haven't yet figured out that now is the time to jump on the mutual fund bandwagon. Perhaps you should spend some time learning more about mutual funds and the benefits they bring to your customers and your bank.

4 - 7 points: You have good basic knowledge of mutual funds, but you may not be knowledgeable of current regulations regarding what banks are and are not allowed to do. Before engaging in any mutual fund activity, be sure to seek bank counsel.

8 - 10 points: Congratulations! You have solid knowledge of mutual funds. Now, it's time to fine-tune your marketing techniques and build your mutual fund portfolio.

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