Investment Cos

Question 1

POP

Answer 1

Public Offering Price. Rules prohibit charging in excess of 8.5% of POP (or NAV??) NAV + Sales Charge = POP

Question 2

Front end load

Answer 2

Class A shares. Total investment - sales charge goes to portfolio

Question 3

Deferred Sales Charge (Back-end load)

Answer 3

Class B shares. Assessed at time investor redeems.

Question 4

12b-1 Fee

Answer 4

Class C. Annual fee levied against fund’s assets

Question 5

Redemption Fee

Answer 5

Does not go to underwriter or dealer. Remains behind in the fund benefitting other owners.

Question 6

No load funds

Answer 6

NAV = POP. No front end or deferred sales charges and no 12b-1 exceeding .25% per year. May have redemption feee.

Question 7

Sales Charge % Calc

Answer 7

(POP - NAV) / POP expressed as % of price you PAY

Question 8

Mutual Fund Expense Ratio

Answer 8

Shows the actual amount a fund takes out of its assets each year to cover its expenses. Does not include sales charges but does include all other fees. Management fee is the largest expense.

Question 9

Calculating POP

Answer 9

NAV / (100% - Sales Charge %)

Question 10

Letter of Intent (LOI)

Answer 10

Allows investors to qualify for breakpoint without initially depositing entire amount required. 13 month time period, may be back dated 90 days which means if you backdate you have TEN months left (not 13). Non-binding on customer; portion of shares held in escrow in case of non-performance.

Question 11

Regulated Investment Co Qualification

Answer 11

Fund must distribute at least 90% of net investment income to investors.
Net Inv Inc = dividends + interest - expenses

If fund qualifies fund is only taxed on undistributed portion. Fund can also distribute realized cap gains but its not part of calc.

Question 12

Form 1099-DIV

Answer 12

Income and gains are taxable to investors and reported on this form. Taxed in year distributed whether received or reinvested. Both able to be reinvested at NAV without sales charges.

Question 13

Mutual Fund Investor Cost Basis

Answer 13

Basis = Initial Investment + Dividends

Proceeds (aka cap gains) - Basis = Taxable Amount

Question 14

Face Amount Certificate Company

Answer 14

Issues debt certificates, promises face value at maturity or surrender value if presented prior to maturity. Like zero coupon bond.

Question 15

Unit Investment Trust Co

Answer 15

Supervised but NOT MANAGED (no mgmt fee). Portfolio generally remains fixed for life of trust.

Question 16

ETN

Answer 16

Trade daily on exchanges, have low fees and provide access to challenging areas of the market. But are strucutred products that are issued as unsecured debt. NOt principal protected; return is linked to performance of a stock,index, currency or commodity. Since no annual distributions, investor tax liability is deferred to sale, redemption or maturity.

Question 17

Closed end vs. open end (mutual fund)

Answer 17

Closed end can trade at discount/premium to NAV. Sold at NAV + sales charge. So you can see which is closed if shares sell above 8.5% sales charge or at discount to NAV.

Question 18

REIT

Answer 18

NOT an investment co. No tax on income if 90% is distributed. Subject to reg reqs of Act of 1933. Dividends NOT eligible for 20% tax treatment and don’t qualify for corp div exclusion rule. Attractive to investors seeking current income.