False Statements about Investment Companies

B

Closed end funds sell for whatever people will pay for them. CE funds typically sell at premiums or discounts from their NAV.

Let's go through each statement one by one and determine which one is false:

A. The 12b-1 plan allows funds to deduct up to 1.25% of average assets per year to cover marketing expenses. This statement is true. The 12b-1 plan is a provision under the U.S. Investment Company Act of 1940 that allows mutual funds to charge shareholders for distribution and marketing expenses. Funds can deduct up to 1.25% of their average net assets annually to cover these expenses. This fee is called the 12b-1 fee.

B. Closed-end investment companies trade at the net asset value of the shares. This statement is false. Closed-end investment companies, unlike open-end mutual funds, do not typically trade at the net asset value (NAV) of the shares. The shares of closed-end funds trade on stock exchanges, and their prices are determined by supply and demand factors in the market. As a result, the market price of closed-end fund shares can trade at a premium or a discount to the underlying NAV.

C. The fund's net asset value is the prevailing market value of all the fund's assets divided by the number of fund shares outstanding. This statement is true. Net asset value (NAV) is a key concept in investment companies. It represents the per-share value of the fund's assets. The NAV is calculated by dividing the market value of the fund's assets by the number of shares outstanding. It provides investors with a measure of the fund's underlying value per share.

D. The typical management fees charged to compensate the Management Company for the expense of running the fund are between ¼ and 1% of the fund's net asset value. This statement is generally true. Management fees are charged by investment companies to cover the costs of managing and administering the fund. The typical management fees charged by the management company are generally between ¼ and 1% of the fund's net asset value (NAV). However, it's worth noting that the specific fee structure can vary among funds and may be subject to regulatory limitations or investor agreements.

Based on the analysis above, the false statement is B. Closed-end investment companies do not trade at the net asset value of the shares.