How long is the investment adviser’s contract initially set at?
2 years
What is the 75-5-10 rule for diversified funds?
75% or more of assets in securities
5% maximum of its assets invested in any one issuer
10% maximum holding of voting securities in one issuer
Growth fund
invests primarily in equities of rapidly growing companies
Growth and income
invests in “blue chip” equities that provide dividends and growth potential
Income fund
invests in fixed income securities such as preferred stock and bonds
5 types of income funds
US Government Securities Municipal Bonds Preferred Stock Corporate Bonds Money Market Securities
Balanced fund
balances between equities and fixed income securities
Index fund
matches portfolio composition to a recognized index; management fees are lower
Specialized fund (sector fund)
invests in a particular industry or geographic area
Special situation fund
invests in companies in bankruptcy or takeover candidates
How is Net Asset Value calculated?
Total market value of underlying securities divided by number of common shares outstanding
What does it mean if a fund is no-load?
Sold directly by sponsor, so there is no sales charge
What is a money fund?
All shares prices locked at $1. As NAV increases, additional shares given out
What does FINRA impose as the maximum sales charge for a open-ended fun?
8.5% of Public Offering Price
How do you compute a sales charge?
Ask Price - Bid Price(NAV) / Ask Price
If an open-ended fund share is redeemed, when must payment occur?
within 7 calendar days
What is the limit to the Redemption fee a fund can charge?
Redemption fee + sales charge must not exceed 8.5% of POP
Breakpoints
Reduced sales charge for large dollar purchase
3 Breakpoint levels
0-$10k = 8.5%
$10k-$25k = 7.75%
$25k & over = 6.5%
Offering price formula with breakpoints
NAV/
100%-Sales Charge %
Letter of Intent
Allows a customer to indicate they will purchase a large amount of a fund over a period of time and they then get the breakpoint price
Can a letter of intent allow for backdating of past purchases?
Yes, up to 90 days
How long does a letter of intent last?
13 months
Can the breakpoint be met by asset appreciation?
yes
What are rights of accumulation?
Allow a customer to include current value of owned shares of a mutual fund when determining breakpoint pricing
What are 2 situations when a customer would not be charged a sales charge?
Reinvestment of profit into fund and moving to another fund in the same “fund family”
What are Rule 12b-1 fees?
Fees charged to mutual fund shares for purposes of promoting fund
What is the maximum sales charge for a Rule 12b-1 fund?
7.25% if no account maintenance fee; 6.25% if there is an account maintenance fee
Maximum of 12b-1 fee
.75%
Class A Shares
High sales charge; very low 12b-1 charge; good for long-term investment
Class B Shares
Contingent deferred sales charge, higher 12b-1 fee; good for intermediate term investors
Class C Shares
No sales charge, high 12b-1 fee; only suitable for short term investment
How does ETF pricing differ from mutual fund pricing?
Adjusted constantly, no sales charge
how to calculate a fund’s expense ratio?
Total Expenses/Total Net Assets
How much income must a fund distribute to avoid taxation on that income?
97% of net investment income
98% of capital gains
Formula for current yield before ex-date
Annual income/offering price
Current yield after ex-date
Annual income/
offing price + prior year distributions
Front-end load fund vs no-load fund
Front-end load funds have a sales charge
Are ETFs open-end or close-end?
Open-end, but trade on exchanges
Which is more tax-efficient: ETFs or Mutual funds
ETFs because they do not pay out capital gains on a yearly basis
how often must mutual funds send our financial statements to shareholders?
2x per year
