Fund Industry 3

• 1. Register offering with SEC
• 2. Provide buyers with prospectus
• 3. Report to investors periodically (annual report)

Mandated disclosure of material information through a prospectus

• 1. Annual & Quarterly reporting requirements
• 2. Created the SEC

• 1. Protection against lawsuits
• 2. Buyer must prove material misstatement & demonstrate they relied on that misinformation and that directly led to a financial loss

Intra-year amendments to the prospectus (in addition to more comprehensive annual review)

• 1. Content is mandated by the SEC (including order)
• 2. Must be in 'plain English'
• 3. Must include return for last 1,5 & 10 years

Must have 80% or more holdings in tax-exempt securities / 80% of income must be exempt from taxes.

Should have avg weighted maturity of less than 3 years

Requirement: At least 25% of assets in equities & at least 25% of assets in bonds

Buying/selling securities within the fund

• 1. Some trades involve transaction costs (fund expense)
• 2. Selling could create capital gains (tax burden to investor)

Maintain $1 value of its share while providing income

Current Income

Current income exempt from federal income taxes

LT Capital appreciation + Income

Long term capital appreciation

Measure of variability of returns (US Treasury has narrow range while biotech stock has wide range of potential returns)

• 1. After sales loads only
• 2. After sales loads & taxes on distributions
• 3. After sales loads, taxes on distributions & taxes on sale of fund shares

Includes all elements of return (income + price appreciation)

Interest | Dividend Income - Annual Operating Expenses + Realized Gains or Losses (securities that have been sold) + Unrealized gains or losses (securities still held in portfolio :: reflected in NAV)

Interest / Dividend Income & Realized Capital gains must be distributed to shareholders annually.

Distributors must file all advertising material with FINRA. FINRA reviews to ensure materials are fair/balanced.

• 1. Board of Directors
• 2. Porfolio Managers
• 3. Contracts with service providers
• 4. History (name changes, etc.)

• 1. Income Statement = Statement of Operations
• 2. Balance Sheet = Statement of Assets & Liabilities
• 3. Cash Flow = Statement of Changes in Net Assets