Series 65

• "A" shares
  • These have "front-end" loads and are sold at the public offering price (POP),which consists of the net asset value (NAV) of the fund plus the sales charge.
    
    
  • This charge is calculated by subtracting the NAV from the POP, and then dividing that number by the POP.
    
    
  • As an example, if the fund has an NAV of $20 per share and a POP of $21.50 a share, the sales charge is $1.50 divided by $21.50, which equals a 6.9% sales charge.
    
    
  • Breakpoints are discounts available to those who invest large amounts within a single mutual fund family. They apply to "A" shares only.
    
    
    • Typically, the amount of the discount increases as the amount invested increases.
      
      
    • The large amount does not have to be invested all at one time; an investor can take advantage of breakpoint discounts by signing a letter of intent stating that the investor will reach the breakpoint level within 13 months of the initial investment.
      
      
    • Another option is the right of accumulation (ROA), which allows the investor to use amounts invested in the past to calculate the breakpoint discount.
      
      
• "B" shares
  • Are referred to as "back-end" load funds
  • In essence, the investor purchases the funds at NAV, but the financial adviser is paid a commission as if the investor paid a front-end load.
  • If the investor sells the fund within a set number of years (typically five to eight years), then a sales charge is applied.
  • This is known as a contingent-deferred sales charge.
    
    
• "C" shares
  • Known as "level-load" funds, for which investors pay an annual asset-based fee
  • There is usually a 1% or 2% back-end load if the investor withdraws money from the fund during the first year.
  • After the first year, no additional sales charges apply.

• 12b-1 fees
  • The annual fee for marketing fund shares, which is permitted by the SEC but must be approved and adopted by the shareholders
  • While this amount was traditionally quite small (typically about 0.25% in "A" shares and no-load funds), mutual fund families use a larger fee (typically about 1% of the NAV) when offering "B" and "C" shares.
  • So while advisers may tout such shares as being similar to no-load funds, in fact, there is a higher cost to own the funds each year.
    
    
• Management Expense Ratio (MER)
  • The cost of managing the mutual fund
  • Independent of the sales charge on the fund (if any), the expense ratio includes all costs to operate the fund, including:
    • investment advisery fees
    • rent and utilities
    • salaries
    • shareholder services

1. In order for a mutual fund to utilize a 12b-1 fee, the plan must be approved by the:
   1. SEC
   2. FINRA
   3. Mutual fund family
   4. Shareholders of the fund

The correct answer is "d". The shareholders must agree to adopt the 12b-1 fee. These fees are permitted by the SEC, but not approved by them.