| Question | Answer |
| Front-end load | sales charge levied on purchases of shares in some mutual funds; usual 5%; expressed as a percentage of the offering price, not NAV; A-shares |
| management fees | Hold almost all its assets as investments in stocks, bonds, and other securities; Use no more than 5% of its assets when acquiring a particular security
Pass through all realized investment income to fund shareholders |
| Creation of MFs | Most mutual funds are created by investment advisory firms (say Fidelity Investments) or brokerage firms with investment advisory operations (say Merrill Lynch) |
| back-end loads | charges levied on redemptions
called CDSC; B-shares |
| Defined contribution plans | almost same as 401k plans; you decide where the funds go |
| Closed-end Funds | the number of shares is fixed and never changes; have to buy them from another investor & have to sell them to another investor |
| NAV and Open-end funds | Shares in an open-end fund = NAV |
| offering price | price paid in excess of the NAV when you purchase shares in a load fund |
| Qualification as a regulated investment company | 1. Hold almost all its assets as investments in stocks, bonds, and other securities
2. Use no more than 5% of its assets when acquiring a particular security
3. Pass through all realized investment income to fund shareholders |
| load | difference between the offering price and the NAV; shares in no-load funds are sold at NAV |
| low-load funds | funds with front-end loads 2-3% |
| Trading costs | Not reported directly; Funds must report "turnover," which is related to the amount of trading; The higher the turnover, the more trading has occurred in the fund; The more trading, the higher the trading costs |
| CDSC; Contigent deferred sales charges | also called back-end load, sales charge levied when investors redeem shares |
| Mutual Funds | pooling fund of a large group of investors--is a form of financial intermediary |
| Disadvantages of MFs | 1. risk 2. costs 3. taxes |
| "breaking the buck" | NAV for a MMMF < $1 |
| long-term funds | invest in long-term securities; stock funds, bond funds, balances funds |
| Advantages of MFs | 1. diversification 2. professional management 3. minimum initial investment |
| money market deposit accounts MMDAs | like MMMFs but MMDA account is a bank deposit and offers FDIC |
| NAV and Closed-end funds | Share prices may or may not be = to NAV because shares are bought and sold in the stock markets |
| Open-end Funds | can sell new shares to anyone that wants to buy, and redeem from anyone wanting to sell |
| fund operating expenses | management and 12b-1 fees, legal, accounting, reporting costs, director fees |
| short-term funds | money market mutual funds |
| "pure" no-load funds | MFs with no front-end or back-end loads and no or min 12b-1 |
| MF required documents | must produce a prspectus to any investor wishing to purchase shares and an annual report to their shareholders |
| Net Asset Value | (total value of assets - liabilities)/number of outstanding shares; NAV of a MF will change every day bc the value of the assets held by the fund fluctuates |
| no-load funds | funds that have no charges |
| Investment company | a business that specializes in pooling funds from individual investors and investing them; all MFs are investment co.s but not all investment co.s are MFs |
| turnover | measures how much trading a fund does; the lesser of total purchases or sales during a year / ave daily assets |
| shareholder transaction expenses | loads and deferred sales charges |
| load funds | funds that charge loads |
| money market mutual funds MMMFs | mutual funds specializing in money market instruments; $1 NAV to make them resemble bank accounts; depending on type of securities MMMFs can be taxable or tax-exempt |
| 12b-1 fees | allows funds to spend up to 1% of fund assets annually to cover distribution and marketing costs; |
| Taxation of Investment Companies | investments are treated as "regulated investment companies" for tax purposes; doesn't pay tax on its investment income, fund shareholders pay taxes |
| level loads | investors pay an added fee, usually 1%, every year they're in the fund |
| MF expenses and fees | 1. sales charges (or loads) 2. 12b-1 fees 3. management fees 4. trading costs |
| "no-so-pure" funds | may have no loads but still charge hefty 12b-1 fees |
