Mutual Fund Investment Objectives, Valuation, Sales Charge

Question 1

No-Load Mutual Fund Shares

Answer 1

Do not charge a selling charge so can sell to customers at NAV. Net Asset Value.

Question 2

Distribution of Mutual Fund Shares

Answer 2

See Screenshot 2 on Desktop

Question 3

Equity Funds

Answer 3

An equity fund is the only investment that will meet a growth objective. Equity funds invest in common stock and seek to outpace the economic growth. These funds do not produce dividends.

Question 4

Equity Income Fund

Answer 4

Buys common and preferred stock with a long history of paying out dividends. (Blue Chip, Utilities, Preferred stock etc.)

Question 5

Sector Funds

Answer 5

Mutual funds that concentrate more than 25% of their assets in one business area or region. Traditionally offers a higher risk/reward. Gold funds, tech funds are examples.

Question 6

Index Funds

Answer 6

Designed to mirror the performance of a large market index such as the S&P 500 or the Dow Jones Industrial Average. Passively managed and therefore has a low management fee.

Question 7

Growth and Income Fund

Answer 7

A combination fund that attempts to invest in common stock for growth and common and preferred stock for dividend payments.

Question 8

Balanced Fund

Answer 8

Invests in both stocks and bonds at a predetermined ratio.

Question 9

Asset Allocation Funds

Answer 9

invest in stocks, bonds, and money market instruments, according to the expected performance for each market.

Question 10

Valuing Mutual Fund Shares

Answer 10

Mutual funds must calculate their value at least once a day. Most do this at the NYSE close. Assets-Liabilities = Net Asset Value.

Question 11

NAV per Share

Answer 11

Net Asset Value per share = Total NAV/total No. of Shares

Question 12

How will NAV change if: Value of securities in the portfolio increase.

Answer 12

NAV will increase

Question 13

How will NAV change if: Portfolio receives investment income such as interest payments from bonds?

Answer 13

NAV will increase

Question 14

How will NAV change if: the value of the securities in the portfolio decrease

Answer 14

NAV will decrease

Question 15

How will NAV change if: the fund distributes dividends or capital gains

Answer 15

NAV will decrease

Question 16

How do the following effect the NAV: investor purchases and redemptions, Portfolio purchases, sales of securities, sales charges?

Answer 16

No effect on the NAV.

Question 17

Front-End Load

Answer 17

a sales charge that the investor pays when they purchase shares. AKA “A” Shares

Question 18

Back-End Load

Answer 18

also known as a contingent differed sales charge. Investor pays sales charge at time of redemption of fund shares. AKA “B” shares.

Question 19

Level-Load Funds

Answer 19

Funds that charge a level load based on NAV. “C” shares.

Question 20

“D” Shares

Answer 20

Funds that charge an asset-based fee and back-end load.

Question 21

12B-1 Fees

Answer 21

A quarterly asset based charge that must be approved by BOD, the majority of noninterested Board members, and majority of outstanding shares. To discontinue only majority of noninterested Board members and majority of outstanding shares is needed. This fee covers printing of prospectuses and certain sales commissions to agents.

Question 22

Limits of 12B-1 Fees

Answer 22

No-load funds can only charge a 12B-1 fee equal to .25% of asset value. Other funds may charge .75%. All 12B-1 are reviewed quarterly.