InsFin Bond MKT Sectors

INSTITUTO TECNOLGICO AUTNOMO DE MXICO
SUMMER PROGRAM
BOND MARKETS
Course: INTERNATIONAL FINANCE
Academic Quarter: June 2017 July 2017

Instructor: Ing. Gerardo Johannes Weihmann Illades
BOND MARKETTS
The word BOND means: Contract, Agreement, or Guarantee

An investor who purchases a BOND is lending money to the issuer; the
BOND represents the issuers contractual promise to pay interest and repay
principal according to specified terms
BONDS were natural outgrowth of the Loans that early bankers provided to
finance wars starting in the Middle Ages. As governments financial appetites
grew, bankers found it increasingly difficult to come up with as much money as
their clients wanted to borrow. BONDS offered a way for governments to
borrow from many individuals rather than a handful of bankers, and they made
it easier for lenders to reduce their risks by selling the BONDS to others if they
thought the borrower might not repay
The earliest known BOND was issued by the Bank of Venice in 1157, to fund
the war with Constantinople
Today, BONDS are the most widely used of all financial instruments
SECTORS OF THE BOND MARKET
NATIONAL BOND MARKET

DOMESTIC
FOREIGN: Yankee; Samurai; Bulldog; Rembrand;
Matador
INTERNATIONAL BOND MARKET
( EUROBOND MKT. or OFF-SHORE BOND MKT.)
NOTE: A common alternative classification considers the INTERNATIONAL Bond

Market comprised by the FOREIGN Bond Market and the EUROBOND Market; thus,
the NATIONAL Bond Market would be synonymous to the DOMESTIC Bond Market
SECTORS OF THE U.S. BOND MARKET :
Bills
Fixed - Principal
Notes
Marketable
Bonds
Inflation Indexed ( TIPS )
TREASURY
Savings Bonds
Non-Marketable
State and Local Govt. Series ( SLGS )
Federally Related Institutions

AGENCY Government Sponsored Enterprises
( Smallest )
Tax-Backed
BONDS MUNICIPAL Revenue
Hybrid (Combination of both)
Utilities
Corporate Bonds Transportation
Industrials
CORPORATE Banks and Finance Companies
Medium Term Notes ( MTN )
Commercial Paper Directly Placed

Dealer - Placed
Residential
MORTGAGE (Standard Mortgage Loans: First-Lien) Commercial
ASSET-BACKED SECURITIES
MATURITY SECTORS
SHORT Term Up to FIVE years
INTERMEDIATE Term Greater than FIVE years up to TWELVE years
LONG Term Greater than TWELVE years
MATURITY SPREAD: The spread between any two maturity sectors of the market
TERM STRUCTURE OF INTEREST RATES: Relationship between the yields on otherwise
comparable securities with different maturities
REGULATION OF FIXED-INCOME MARKETS
Fixed-Income markets are largely Self-Regulated

There are three major institutions that oversee the Regulation of Fixed-Income
securities markets, who closely follow this market, but allow it to function on its own.
The US Treasury
The Federal Reserve
The Securities and Exchange Commission (SEC)
The regulatory tool used to improve market transparency is improved access to
information
Large position reporting and audit trails help prevent manipulations and squeezes
in Government Markets; however, unlike the Equity Markets where positions
exceeding 5% of a class of equity securites must be disclosed, in Debt Markets there are
no such large positions reporting requirements
TREASURY SECURITIES
The most active (largest volume) and liquid securities market in the
world
Issued by the U.S. Department of the Treasury, which is the largest
single issuer of debt in the world
Backed by the full faith and credit of the U.S. Government: NO credit
risk
Benchmark interest rates throughout U.S. Economy and International
Capital Markets
Maturities:
Bills: 3 months; 6 months; 1 year
Notes: 2 years; 5 years; 10 years
Bonds: 30 years
Available in book-entry form at the Federal Reserve Bank
TYPES OF TREASURY SECURITIES
The Department of the Treasury is the largest single issuer of debt in the world
MARKETABLE Treasury Securities

FIXED PRINCIPAL
Treasury Bills
Treasury Notes
Treasury Bonds
INFLATION INDEXED: Treasury Inflation Protection Securities ( TIPS )
NON-MARKETABLE Treasury Securities
Note: The Treasury does not issue zero-coupon bonds

While a few issues of the outstanding Treasury Bonds are callable, the Treasury has not
issued new callable Treasury securities since 1984
Treasury Inflation Protection Securities
( TIPS )
First issues:
January 1997 10-year Treasury Note
July 1997 5-year Treasury Note
1998 30-year Treasury Bond
Similar securities already existed in the United Kingdom and Israel

The initial TIPS auction was a huge success, and subsequent issues of similar securities
showed a clear desire for owning protection against inflation
Part of the adjustment for inflation comes in the coupon rate (real rate) and part in the
adjustment of the principal (inflation-adjusted principal)
Because of the possibility of disinflation, the inflation-adjusted principal at maturity may
turn out to be less than the initial par value; thus, TIPS are redeemed at the greater of the
inflation-adjusted principal and the initial par value
An inflation-adjusted principal must be calculated for a settlement date, defined in terms
of an index ratio, which is the ratio of the reference CPI for the settlement date to the
reference CPI for the issue date. The reference CPI is non-seasonally adjusted and
calculated with a three-month lag. The US Department of the Treasury publishes a daily
index ratio for an issue
( TIPS )
The bonds also carried a Put Option, allowing them to be redeemed for the par
value at maturity, should there be a period of extenden deflation. As this was very
unlikely, the Put Option carried almost no value
The coupons pay a constant rate over the life of the Note. However, in Dollar
terms, the coupon size might vary as the principal changes over time. Payments are
semi-annual, and the principal is first incremented by inflation, and then the real
rate of interest is applied
The adjustment for inflation is taxable, thus decreasing the attractiveness of
TIPS as investments of tax-paying entities
( TIPS )
ECONOMIC BENEFITS:
A multitude of econmomic benefits for both the Federal Government as well as for Trading
Firms and Individual Investors, can be found in issuing TIPS
Federal Government:
Issuing Inflation-Linked bonds allows the Government to curtail some of the cost of the
loans by not paying any premium to insure investors against inflation risk. In traditional
bond issues, the Government is forced to include an inflation premium to investors so they
can likely receive a real return of their investment even if there is no inflation shock to the
economy. With TIPS, this premium is not required, as investors are already guaranteed
protection against inflation
Individual Investors, Firms and the General Economy:

TIPS become another security to use in creating a portfolio. They are a good investment for
retirement plans. As the augmented principal is classified as a taxable gain, by holding these
securities in a tax-deffered account, investors reasonably close to retirement can prepare for
retirement by locking in a real return, and thereby avoiding paying taxes over the life of the
bond as well
( TIPS )
ECONOMIC BENEFITS: (Cont.....)
As some businesses, including mortgage issuers, real estate businesses, and utilities,
could also benefit from selling inflation-linked securities, several additional issues
of a similar nature to TIPS occurred within weeks of the first Treasury issue
(January 1997).
For Example:
The Federal Home Loan Bank System issued a $200 million offering of five-year
inflation-indexed notes, yielding 3.15pp above the CPI
The Tennessee Valley Authority offered $300 million of a 10-year inflation
indexed security
Salomon Brothers issued $450 million of 3.65% CPI-linked bonds
CORPORATE BONDS
Corporate Bonds are means by which private firms borrow money directly from the
public
Corporate Bonds are similar in structure to Treasury issues, as they typically pay
semi-annual coupons over their lives and return the face value to the bondholder at
maturity
They differ most importantly from Treasury Bonds in the degree of risk, and default
risk becomes a real consideration
Although some bonds trade on a formal exchange operated by the New York Stock
Exchange, most bonds are traded over the counter in a network of bond dealers linked
by a computer quotation system. In practice, the bond market can be quite thin in
that there are few investors interested in trading a particular issue at any particular
time
Bonds issued today in the U.S.A. are registered, as the issuing firm keeps records of
the owner of the bond and can mail interest checks to the owner; registration is also
helpful to enforce tax collection. BEARER Bonds, although now very rare in the
U.S.A., are traded without any record of ownership; thus, the inverstors physical
possession of the bond certificate is the only evidence of ownership
CORPORATE BONDS
Some common types of non-plain vanilla Corporate Bonds, are:
( a ) CALLABLE Bonds
( b ) CONVERTIBLE Bonds
( c ) PUTTABLE Bonds
( d ) FLOATING-RATE Bonds
CORPORATE BONDS
( a ) CALLABLE ( Redeemable ) Bonds:

Callable or Redeemable Bonds can be paid off by the issuer prior to the maturity
date. When an issuer calls its bonds, it pays investors the Call Price (usually the Face
Value of the bonds) together with Accrued Interest to date
An issuer may choose to redeem a callable bond when current interest rates drop
below the interest rate on the bond, issuing another bond with a lower interest rate;
thus, Callable Bonds often have a higher annual return to compensate for this risk
versus Plain Vanilla Bonds
Although the Treasury no longer issues callable bonds, some Corporate Bonds are
issued with a call provision allowing the issuer to repurchase the bond at a specified call
price before the maturity date
If the issuer calls-in the bond when market rates decrease, he will issue a new bond at
a lower coupon rate; this is known as REFUNDING
Callable Bonds typically come with a period of call protection, an initial time during
which the bonds are not callable; such bonds are referred to as DEFERRED
CALLABLE Bonds
To compensate investors for this risk, Callable Bonds are issued with higher coupons
and promised yields to maturity than Non-Callable Bonds
CORPORATE BONDS
There are three primary types of Call Features:
Optional Redemption:
Allows the issuer, at its option, to redeem the bonds. Many Municipal
Bonds have optional call features that issuers may exercise after certain
period of years, often ten years
Sinking Fund Redemption:
Requires the issuer to reagularly set aside money for the redemption of
the bonds before maturity
Extraordinary Redemption:
Allows the issuer to call its bonds before maturity if certain specified
events occur, such as the project for which the bond was issued to finance
has been damaged or destroyed
NOTE: The investor should be cautious in buying a Callable Bond at a Premium (above the Face Value),
especially if the Callable Date is in the near future; if the bond is called, the investor may not get back
what he paid, as he will receive the Call Price, which is often the Face Value
CORPORATE BONDS
( b ) CONVERTIBLE Bonds:
Convertible Bonds give the bondholders an option to exchange each bond for a
specified number of shares of common stock of the firm
Convertible bondholders benefit from price appreciation of the companys
stock
To compensate the issuer for this risk, Convertible Bonds are issued with lower
coupons and stated or promised yields to maturity than Noncallable Bonds.
However, the actual return on the convertible bond may exceed the stated yield to
maturity if the option to convert becomes profitable
The Conversion Ratio is the number of shares for which each bond may be
exchanged
The Market Conversion Value is the current value of the shares for which the
bonds may be exchanged
The Conversion Premium is the excess of the bond value over its conversion
value.
Example: If a bond is currently selling for $950 and the stock price is $20 and the
conversion ratio 40, then the Conversion Premium is $150
CORPORATE BONDS
( c ) PUTABLE Bonds:
While a Callable Bond gives the issuer the option to extend or retire
the bond at the call date, the EXTENDABLE or PUT BOND gives this
option to the bondholder
If the coupon rate exceeds current market yields, the bondholder will
choose to extend the bonds life; but if the bonds coupon rate is too low,
it will be optimal not to extend and the bondholder will exercise the put
option and reclaim the principal, which can be invested at current
higher yields
CORPORATE BONDS
( d ) FLOATING-RATE Bonds:
Also known as FLOATERS

Floating-rate Bonds make interest payments that are tied to some
measure of current market rates; this arrangement means that the bond
always pays approximately current market rates
The major risk involved in FLOATERS has to do with changes in the
firms financial strength, as the yield-spread is fixed over the life of the
security, which may be many years. If the financial health of the firm
deteriorates, then investors will demand a greater yield premium than is
offered by the security; in this case, the price of the bond will fall
Thus, although the coupon rate on FLOATERS adjusts to changes in the
general level of market interest rates, it does not adjust to changes in the
financial condition of the firm
MEDIUM-TERM NOTES
( MTN )
Although considered a Corporate Debt Instrument, they are also issued by Foreign
Corporations, Federal Agencies, Supranational Institutions and Sovereign Countries
Offered continuously to investors by an agent of the issuer
Registered with the SEC under Rule 415 (Shelf Registration Rule), thus gives a
Corporation the maximum flexibility for issuing securities on a continuous basis
Traditionally, debt issues with a maturity greater than 1 year but less than 15 years, to
fill the funding gap between Commercial Paper and Long-Term Bonds (First issued in
1972: General Motors Acceptance Corporation to fund automobile loans with maturities
of five years and less )
Borrowers have the flexibility in designing MTNs to satisfy their own needs: Asset-
Backed MTNs; Fixed-Rate or Floating-Rate Debt; Coupon Payments denominated in US
Dollars or in a Foreign Currency; etc.
Investors can now select from several maturity ranges: 9 months to 1 year; more than
1 year to 18 months; more than 18 months to 2 years; ......... and annually thereafter up to
30 years and longer ( July 1993: Walt Disney Corporation issued a 100-year maturity off
its MTN Shelf Registration )
MEDIUM-TERM NOTES
( MTN )
PRIMARY MARKET:
A corporation that wants an MTN Program will file a Shelf Registration with the SEC
for the offering of securities
Although the SEC registration for MTN offerings is between $100 and $1 billion,
after the total is sold, the issuer can file another Shelf Registration
The Registration will include a list of the investment banking firms, usually two to
four, that the corporation has arranged to act as agents to distribute the MTNs
The issuer then posts rates over a range of maturities ( Offering Rate Schedule );
usually, an issuer will post rates as a spread over a Treasury Security of comparable
maturity. Example: In the two-to-three year maturity range, the offering rate could be
35 basis points over the two-year Treasury. Rates will not be posted for maturity ranges
that the issuer does not desire to sell
Agents then make the Offering Rate Schedule avilable to their investor base
An investor who is interested in the offering will contact the agent and, in turn, the
agent will contact the issuer to confirm the terms of the transaction
MEDIUM-TERM NOTES
( MTN )
PRIMARY MARKET ( Cont. ):
Because the maturity range in the offering rate schedule does not specify a precise
maturity date, the investor can choose the final maturity subject to approval by the
issuer
The minimum size that an investor can purchase of an MTN offering typically
ranges from $1 MM to $25 MM
The offering schedule can be changed at any time by the issuer, either:
( i ) in response to changing market conditions, or

( ii ) because the issuer has raised the desired amount of funds at a given
maturity; in this case, the issuer can either not post a rate for that maturity
range or lower the rate
MTNs versus Corporate Bonds
When the treasurer of a corporation is contemplating an offering of either an

MTN or Corporate Bonds, there are two factors that affect the decision:
( 1 ) All-in-cost:
Cost of the funds after consideration of registration and distribution costs
( 2 ) Flexibility:
Flexibility afforded to the issuer in structuring the offering
The tremendous growth in the MTN market is evidence of the relative advantage
of MTNs with respect to cost and flexibility
MTNs versus Corporate Bonds
PRIMARY MARKET:
Medium Term Notes (MTNs) differ from Corporate Bonds in the manner in
which they are distributed to investors when initially sold:
Corporate Bonds are sold in large, discrete offerings

MTNs are sold in relatively small amounts on a continuous or an
intermittent basis
Corporate Bonds, with exception of some investment-grade issues,

are typically underwritten by investment bankers rather than sold on a
best-efforts basis
MTNs have traditionally been distributed on a best-efforts basis by
either an investment-banking firm or other broker/dealers acting as
agents
STRUCTURED MTNs
The typical MTN was a fixed-rate debenture that was Non-Callable
Today, it is common for issuers of MTNs to couple their offerings with transactions in the
Derivative Markets (options, futures / forwards, swaps, as well as caps and floors )
MTNs created when the issuer simultaneously transacts in the Derivative Markets are called
STRUCTURED NOTES
The most common derivative instrument used in creating Structured Notes is a Swap
The development of the MTN market has been fostered by Commercial Banks involved in the
Swap Market
By using the Derivatives Markets in combination with an offering, borrowers are able to
create investment vehicles that are more customized for institutional investors to satisfy their
investment objectives, even though they might be forbidden from using Swaps for hedging
Structured MTNs allow institutional investors who are forced to invest in investment-grade
debt issues only, the opportunity to participate in other asset classes to make a market play.
Example: an investor who buys an MTN whose coupon rate is tied to the performance of the
S&P 500, is participating in the equity market without owning common stock; if the coupon
rate is tied to a foreign stock index, the investor is participating in the equity market of a foreign
country without owning foreign common stock
In exchange for creating a Structured Note product, borrowers can reduce their funding costs
STRUCTURED MTNs
HOW DO BORROWERS OR THEIR AGENTS FIND INVESTORS?
INQUIRY:
In a typical offering of a Corporate Bond, the sales force of the underwriting firm
will solicit interest in the offering from its customer base
REVERSE INQUIRY:
In the structured note market, because of the small size of an offering and the
flexibility to customize the offering in the swap market, investors can approach
an issuer through its agent about designing a security for their specific needs.
Transactions that originate from Reverse Inquiries account for a significant share
of MTN transactions
INVESTMENT COMPANY
An Investment Company is a :
Corporation
Business Trust
Partnership, or
Limited Liability Company
that is primarily engaged in the business of investing in securities

INVESTMENT COMPANY
Invests the money it receives from investors on a collective basis,

and each investor shares in the profits and losses in proportion to
the investors interest in the investment company
The performance of the Investment Company will be based on,

but will not be identical to, the perfomance of the securities and
other assets that the Investment Company owns
INVESTMENT COMPANY
Basic Types Legal Name Redeemable

()
MUTUAL Open-End Yes

FUNDS Companies
CLOSED-END Closed-End No
FUNDS Companies
UITs Unit Investment Yes
Trusts
( ) Redeemable: When investors want to sell their shares, they sell them back to the
Mutual Fund or the Unit Investment Trust, or to a broker acting for the Fund or Trust, at
their approximate Net Asset Value ( NAV )
If the stocks of the Investment Company are NOT Redeemable ( Closed-End Company),
the investor generally sells his shares to other investors on the Secondary Market, at a price
determined by the market
MUTUAL FUNDS
( OPEN-END COMPANIES )
When it comes to investing in Mutal Funds, investors have literally thousands of choices
Investors purchase Mutual Fund shares from the Fund itself (or through a broker for the
Fund), but are not able to purchase the shares from other investors on a Secondary Market
(such as the NYSE or NASDAQ Stock Market)
The price investors pay for Mutual Fund shares is the Funds per share Net Asset Value
(NAV) plus any shareholder fees that the fund imposes at purchase (such as Sales Loads)
Mutual Fund shares are redeemable; i.e., when the investor sells Fund shares, it sells
them back to the Fund or a broker acting for the Fund, at their approximate NAV minus
any fees the Fund imposes at that time (such as Deferred Sales Loads or Redemption Fees).
The Funds NAV goes up or down daily as its hodings change in value. The financial pages
of major newspapers sometimes print the NAVs for various Mutual Funds
Mutual Funds generally sell their shares on a continuous basis, to accomodate new
investors, although some funds will stop selling when, for example, they become too large.
When you buy shares, you pay the current NAV per share plus any fee the Mutual Fund
assesses
You can purchase shares in some Mutual Funds by contracting the Fund directly; other
Mutual Fund shares are sold mainly through brokers, banks, financial planners, or
insurance agents, and they must send you the payment within seven days
MUTUAL FUNDS
( Cont....)
Mutual Funds are subject to SEC Registration and Regulation, as well as to numerous
other requirements
Mutual Funds are not guaranteed or insured by the FDIC or any other government
agency, even if the investor buys the Mutual Fund through a bank and the Fund carries
the bank`s name
The investment portfolios of Mutual Funds typically are managed by separate entities
known as Investment Advisers that are registered with the SEC.
MUTUAL FUNDS
FEES and EXPENSES:

Some Funds impose Shareholder Fees directly on investors whenever they buy
or sell shares.
In addition, every Fund has regular, recurring, Fund-wide Operating Expenses;
Funds typically pay their Operating Expenses out of Fund assets, which means
that investors indirectly pay these costs
SEC rules require Funds to disclose both Shareholder Fees and Operating
Expenses in a Fee Table near the front of a Funds Prospectus
A Fund may offer different Classes of shares in the same portfolio, with each
Class having different Fees and Expenses
NOTE : Before an individual is allowed to purchase a new public security, he must be given a PROSPECTUS,
which is a document that duplicates, in large measure, the information contained in the SEC Registration
Documents; only some technical details are omitted from the Prospectus.
The investor has the right to vote on changes that a Fund proposes in its underlying financial policies,
including the amount of money it can leverage (borrow) to make additional investments. Investors vote in the
same way Corporate Shareholders do, either in Person at the Annual Meeting, by Proxy, or Online. Thus, they
vote on major issues, not on day-to-day matters, as for Example: The Fee Structure
MUTUAL FUNDS
( 1 ) SHAREHOLDER FEES
( a ) Sales Charge ( Load ) on Purchases: Also known as FRONT-END LOAD,
this fee typically goes to the brokers that sell the Funds shares. The Sales Load
comes off the top; thus, it is deducted from the initial amount prior to its
investment in the Fund. According to NASD rules, a Front-End Load cannot be
higher than 8.5% of the investment
( b ) Purchase Fee:. Unlike a Front-End Sales Load, a Purchase Fee is paid to the
Fund (not to a Broker) and is typically imposed to defray some of the Fund costs
associated with the purchase
( c ) Deferred Sales Charge ( Load ): Also known as BACK-END LOAD, this fee
typically goes to the brokers that sell the Funds shares. The most common type of
Back-End Sales Load is the CONTINGENT DEFERRED SALES LOAD (known as
CDSC or CDSL). The amount of this type of Load will depend on how long the
investor holds his shares and typically decreases to zero if the investor holds them
long enough
( d ) Redemption Fee: Unlike a CDSL, the Redemption Fee is paid to the Fund
(not to a Broker) and is typically used to defray Fund costs asssociated with a
shareholders redemption
MUTUAL FUNDS
( 1 ) SHAREHOLDER FEES ( Cont... )
( e ) Exchange Fee: A Fee that some Funds impose on shareholders if they

exchange (transfer) to another Fund within the same Fund Group or Family of
Funds
( f ) Account Fee: A Fee that some Funds separately impose on investors in
connection with the maintenance of their accounts. For Example: Some Funds
impose an Account Maintenance Fee on accounts whose value is less than certain
Dollar amount
MUTUAL FUNDS
Some Mutual Funds that charge FRONT-END SALES LOADS will charge
lower Sales Loads for larger investments; the investment levels required to
obtain a reduced Sales Load are commonly referred to as BREAKPOINTS
The SEC does not require a Fund to offer Breakpoints in the Funds Sales
Load; but if Breakpoints exist, the Fund must disclose them
In addition, a NASD Member Brokerage Firm should not sell shares of a
Fund in an amount that is just below the Funds SALES LOAD Breakpoint
simply to earn a higher Commission
Each Fund Company establishes its own formula for how to calculate
whether an investor is entitled to receive a Breakpoint
MUTUAL FUNDS
Some Funds base eligibility for a Breakpoint Discount upon all of the
investments within a Household; other Funds look only at the total amount each
Individual has invested
Some investor may be entitled to aggregate investments made in all of his
accounts or, in some cases, all of his households accounts, to calculate any
eligibility for a Breakpoint. For Example: These might include Brokerage
Accounts that the Individual or the Household have at different Firms, College
Savings Accounts (529 Plans), and Retirement Accounts; in some instances, it
might be possible to aggregate purchases in different Funds within a Fund Family,
as well as different CLASSES of Shares that might have been purchased
An Investor might be entitled to combine previous Fund purchase amounts to
obtain a Breakpoint Discount upon a purchse made today; or the investor might
be able to obtain a Breakpint Discount for an investment today if he agrees to
make additional purchases in the future; in this latter case, he needs to sign a
Letter of Intent to make additional purchases in the future; if this is not later
honored, the firm may retroactively collect a higher Fee
MUTUAL FUNDS
( 2 ) ANNUAL OPERATING EXPENSES
( a ) Management Fees: Fees paid out of Funds assets to the Funds Investment
Adviser for Investment Portfolio Management, any other Management Fees
payable to the Funds Investment Adviser or its Affiliates, and Administrative Fees
payable to the Investment Adviser that are not included in the Other Expenses
category (discussed below)
( b ) Distribution and / or Service Fees [ 12b-1 Fees ]: Paid by the Fund out of
Fund assets to cover the costs of marketing and selling Fund shares and sometimes
to cover the costs of providing shareholder services. They include Fees to
compensate Brokers and others who sell Fund shares to pay for advertising, the
printing and mailing of Prospectuses to new investors, and the printing and mailing
of sales literature. Shareholder Service Fees are Fees paid to persons to respond
to investor inquiries and provide investors with information about their investments
( c ) Other Expenses: Expenses not included under Management Fees or
Distribution and/or Service [ 12b-1 ] Fees. For Example: Any Shareholder
Service Expenses that are not already included in the 12b-1 Fees, Custodial
Expenses, Legal and Accounting Expenses, Transfer Agent Expenses, and Other
Administrative Expenses
MUTUAL FUNDS
( 2 ) ANNUAL OPERATING EXPENSES ( Cont... )
Total Annual Fund Operating Expenses ( Expense Ratio )
The line of the FEE TABLE that represents the TOTAL of ALL of a
Funds Annual Operating Expenses, expressed as a percentage of the Funds
Average Net Assets.
Looking at the EXPENSE RATIO can help make comparisons among

Funds
MUTUAL FUNDS
NO-LOAD FUNDS:
Some Funds call themselves NO-LOAD Funds; this means that the
Fund does not charge any type of SALES LOAD
But not every type of SHAREHOLDER FEE is a SALES LOAD; a NO-

LOAD Fund may charge Fees such as PURCHASE Fees, REDEMPTION
Fees, EXCHANGE Fees, and ACCOUNT Fees
NO-LOAD Funds will also have OPERATING FEES

MUTUAL FUNDS
INCOME TO THE INVESTOR:
The investor earns money from his investment in three ways

( 1 ) DIVIDEND PAYMENTS:
A Fund may earn income in the form of dividends and interest on the securities in its
portfolio. The Fund then pays its shareholders all of the income minus disclosed expenses
it has earned in the form of dividends
( 2 ) CAPITAL GAINS DISTRIBUTIONS:
The price of the securities a Fund owns may increase. When the Fund sells a security that
has apreciated in price, at the end of the year, most Funds distribute these capital gains less
any capital losses, to investors
( 3 ) INCREASED NAV:
If the market value of a Funds portfolio increases after deduction of expenses and
liabilities, then the value (NAV) of the Fund and its shares increases
With respect to DIVIDEND PAYMENTS and CAPITAL GAINS DISTRIBUTIONS, Funds
usually will give the investor a choice, as the Fund ( i ) can send the investor a check or other
form of payment, or ( ii ) the investor can have his dividends or distributions reinvested in the
Fund to buy more shares, often without paying an additional sales load
MUTUAL FUNDS
MULTI-CLASS FUNDS:
Many Mutual Funds offer investors different types of shares, known as Classes. Each Class
will invest in the same Pool (or Investment Portfolio) of securities and will have the same
investment objectives and policies, but will have different shareholder services and/or
distibution arrangementes with different fees and expenses and therefore different performance
results
Example: A Multi-Class Fund with three classes of shares that are sold to the general public
Class A, Class B, and Class C and a class that is sold only to institutional investors Class I:
Class A shares might have a Front-End Sales Load (a type of fee that investors pay
when they purchase fund shares). They also tend to have a lower 12b-1 Fee and lower
annual expenses than other Mutual Fund share Classes. Some Mutual Funds reduce
the Front-End Load as the size of the investment increases (Breakpoints)
Class B shares might not have any Front-End Sales Load, but might have a Contingent
Deferred Sales Load (CDSL: a type of fee that investores pay only when they redeem
fund shares, and that typically decreases to zero if the investors hold their shares long
enough), and a 12b-1 Fee (an annual fee paid by the fund for distribution and/or
shareholder services). Class B shares also might convert automatically to a class of
shares with a lower 12-b Fee if held by investors long enough
MUTUAL FUNDS
MULTI-CLASS FUNDS: ( Cont..... )
Class C shares might have a 12b-1 Fee and a CDSL or Front-End or Back-End
Sales Load, and the Class would generally not convert to another Class. Although
Loads tend to be lower than for Classes A and B, these Class C shares tend to have
higher annual expenses
Class I would be sold only to institutional investors and might have different fees
and expenses
If a Mutual Fund offers Multiple Classes, it may describe them all in a single
Prospectus, or it may describe each of them in separately Prospectuses
MUTUAL FUNDS
FAMILY OF FUNDS:
A FAMILY OF FUNDS is a group of Mutual Funds that share

administrative and distribution systems. Each Fund in a Family may have
different investment objectives and follow different strategies
Some Funds offer exchange privileges within a Familiy of Funds, allowing
shareholders to transfer their holdings from one Fund to another as their
investment goals or tolerance for risk change
While some Funds impose fees for exchanges, most Funds typically do not
Exchanges have tax consequences for any capital gain/loss on the sales of
the old shares, even if the Fund does not charge for the transfer
MUTUAL FUNDS
ADVANTAGES of Mutual Funds:
Professional Management: Professional money managers research, select,

and monitor the performance of the securities the Fund purchases
Diversification: Some investors find it easier to achieve diversification
through ownership of Mutual Funds rather than through ownership of
individual stocks or bonds
Affordability: Some Mutual Funds accomodate investors who dont have
a lot of money to invest by setting relatively low cash amounts for initial
purchases, subsequent monthly purchases, or both
Liquidity: Mutual Fund investors can readily redeem at any time, their
shares at the current NAV plus any fees and charges assessed on
redemption
MUTUAL FUNDS
DISADVANTAGES of Mutual Funds:
Costs Despite Negative Returns: Investors must pay sales charges, annual
fees, and other expenses, regardless of how the Fund performs, and might
even have to pay taxes on any capital gains distribution
Lack of Control: Investors typically cannot ascertain the exact make-up of a
Funds portfolio at any given point in time, nor can they directly influence
which securities the Fund manager buys and sells or the timing of those sales
Price Uncertainty: With an individual stock the investor can obtain real-time
(or close to real-time) pricing information with relative ease, thus monitor
price changes minute by minute or even second by second. With a Mutual
Fund the price at which the investor purchases or redeems shares will
typically depend on the Funds NAV, which the Fund might not calculate until
mfany hours after the investor has placed his order. In general, Mutual Funds
must calculate their NAV at least once every business day, typically after the
major U.S. Exchanges close
BASIC BUSINESS STRUCTURE OF A MUTUAL FUND
SHAREHOLDERS
BOARD OF DIRECTORS
(F)
(A) (B) (D)
(C) (E) INDEPENDENT
INVESTMENT PRINCIPAL TRANSFER
ADMINISTRATOR CUSTODIAN PUBLIC
ADVISER UNDERWRITER AGENT
ACCOUNTANT
( A ) Manages the Funds Portfolio according to the Objectives and Policies described in the Prospectus
( B ) Sells Fund Shares, either directly to the public or through other firms ( e.g., broker-dealers )
( C ) Oversees the performance of other Companies that provide services to the Fund, and ensures that the
Funds operations comply with Federal Requirements
( D ) Executes Shareholder transactions, maintains records of account activities, and sends account
statements and other documents to shareholders
( E ) Holds the Funds Assets, maintaining them separately to protect shareholder interests
( F ) Certifies the Funds Financial Statements
MUTUAL FUNDS
HEDGE FUNDS and FUNDS OF HEDGE FUNDS
HEDGE FUNDS are not Mutual Funds, and are not subject to the numerous
regulations that apply to the latter for the protection or investors. These
exemptions include regulations requiring certain degree of liquidity;
regulations requiring that Mutual Fund shares be redeemable at any time;
regulations protecting against conflicts of interest; regulations to assure
fairness in the pricing of Fund shares; disclosure regulations; regulations
limiting the use of leverage; and more...
Nevertheless, although historically most HEDGE FUNDS have not been
required to register with the SEC, and therefore have not been subject to
regular SEC oversight, in December 2004, the SEC started to require certain
Hedge Fund Managers to register with the SEC
Most HEDGE FUNDS also have voluntarily restricted investment to wealthy
investors through high investment minimums ( E.g.: USD$ 1 MM )
MUTUAL FUNDS
HEDGE FUNDS and FUNDS OF HEDGE FUNDS ( Cont.....)
FUNDS OF HEDGE FUNDS, a relatively new type of investment product, are also not
Mutual Funds. These are Investment Companies that invest in Hedge Funds, and some,
but not all, register with the SEC and file semi-annual or quarterly reports. They often
have lower minimum investment thresholds than traditional, unregistered Hedge Funds,
so they can have a larger number of investors. Unlike Open-End Funds, FUNDS OF
HEDGE FUNDS offer very limited rights of redemption; and unlike ETFs, their shares
are not typically listed on an Exchange, but they must provide investors with a
Prospectus
Many registered Funds of Hedge Funds have much lower investment mimimums
(Example: $25,000 ) than Individual Hedge Funds
HEDGE FUNDS and FUNDS OF HEDGE FUNDS may invest in highly illliquid
securities that may be difficult to value. Moreover, many of these Individual and Funds
of Hedge Funds give themselves significant discretion in valuing securities, so it is
important for the investor to understand a Funds valuation process and know the extent
to which a Funds securities are valued by independent sources
MUTUAL FUNDS
DEGREE OF PROTECTION:
HEDGE FUND investors do not receive all of the Federal and State Law Protections that
commonly apply to most Registered investments. For Example: The investor will not get the
same level of disclosures from a Hedge Fund that he will get from Registered investments
Without the disclosures that the Securities Laws require for most Registered investments, it
can be quite difficult to verify representations that an investor may receive from a Hedge Fund
Also, while the SEC may conduct examinations of any Hedge Fund Manager that is
registered as an Investment Adviser, the SEC and other Securities Regulators generally have
limited ability to check routinely on Hedge Fund activities
The SEC can take action against a Hedge Fund that defrauds investors. The most common
cases involve:
(i) Hedge Fund Advisers who misrepresented their experience and the Funds track record;
( ii ) Ponzi Schemes, where early investors were paid off to make the scheme look legitimate ( ) ;
( iii ) The Hedge Funds sent phony accouunt statements to investors to camouflage the fact that their
money had been stolen
DEGREE OF PROTECTION:
( ) NOTE:
Ponzi Scheme:
One of the most well-known financial scoundrels of the 1920s was implemented by CHARLES
PONZI, after whom the Ponzi Scheme is named.
A Ponzi Scheme is a business set-up in which interest or dividend payments exceed cash flows and
are made out of capital
Ponzi was a 42-year-old former vegetable dealer, forger and smuggler, who launched his
something-fornothing get-rich-quick scheme in Boston, in September 1919
Offering no collateral, he promised to pay $15 for every $10 left with him for 90 days, by telling
lenders that his Old Colony Foreign Exchange Company would use the funds to buy and sell
International Postal Union reply coupons, profiting from differences in currency rates.
The scheme took-off, mostly among Italian immigrants, and by June 1920 he was receiving more
than $1MM a week. Thus, he became a celebrity in the Italian community
Ponzi eventually ran out of money in August 1920 and the Old Colony Foreign Exchange
Company had to close its doors. A final reckoning showed that Ponzi had taken $15MM over 18
months from arround 50,000 people and owed $5MM. Ponzi went to jail and was later deported
back to Italy
Of course, all Ponzi Schemes come to grief sooner or later
Although Ponzi lent his name to this scheme, it was not the first or last time that dividends or
interest were paid out of capital; in fact, it was a recurring phenomenon of financial scandals before
him and after him
MUTUAL FUNDS
FEES:
HEDGE FUNDS typically charge an Asset Management Fee of 1% to 2% of Assets,

plus a Performance Fee of 20% of a Hedge Funds Profits
A Performance Fee could motivate a Hedge Fund manager to take greater risks in the
hope of generating a larger return
FUNDS OF HEDGE FUNDS typically charge a Fee for Managing the Assets, and
some may also include a Performance Fee based on Profits. These Fees are charged in
addition to any Fees paid to the Underlying HEDGE FUNDS
Thus, an investment in a HEDGE FUND through a FUND OF HEDGE FUNDS
incurs in two layers of Fees:
( i ) the Fees of the FUND OF HEDGE FUNDS, and
( ii ) the Fees charged by the underlying HEDGE FUND
MUTUAL FUNDS
PERIODIC PAYMENT PLANS
A PERIODIC PAYMENT PLAN is the Legal Name for an investment that might also
be referenced to as a CONTRACTUAL PLAN or SYSTEMATIC INVESTMENT PLAN
Periodic Payment Plans allow investors to accumulate shares of a MUTUAL FUND
indirectly by contributing a fixed, often small amount of money on a regular basis; many
of these plans are sold to U.S. military personnel. Periodic Paymnent Plans do not provide
any special benefits to military , nor are military personnel required to participate in these
plans
A Plan typically requires monthly investments over a period of 10, 15, or 25 years.
Most Periodic Payment Plans allow an investor to start a Plan for a modest sum of
money, such as $50 per month
An investor in a Periodic Payment Plan does not directly own shares of a Mutual Fund;
instead, he owns an interest, after deducting applicable fees, in shares of a Mutual Fund.
The investor has a beneficial interest in those shares
It can be more expensive to invest in a Periodic Payment Plan than directly in a Mutual
Fund, especially if the investor does not participate in the Plan for the entire length of time
specified in the contract
MUTUAL FUNDS
PERIODIC PAYMENT PLANS ( Cont..... )
Periodic Payment Plans are subject to a Special Sales Charge, called CREATION AND
SALES CHARGE (FRONT-END LOAD). The Plans Sponsor generally receives the Sales
Charge as Compensation for Creating the Plan and for Selling Expenses and Commissions.
By Law, this Sales Charge may equal up to 50% of any of the Plans first twelve monthly
payments, and most plans impose the Maximum Sales Charge. After the first twelve
monthly payments, some Plans impose a reduced Sales Charge, but many Plans do not
impose any Sales Charge on the remaining payments. But if the investor increases the
monthly payment by changing the Plans FACE AMOUNT, or Total Value of scheduled
payments, he will likely pay a greater amount in Total Sales Charges; this is because a Plan
will typically adjust the Sales Charges to reflect the higher monthly payment. Regardless of
the Sales Charges payed, the investor will most likely have to pay continuing Annual Fees
The investor in a Peridic Payment Plan will also pay Service Fees to the Plans Custodian,
whose primary responsibility is safekeeping Plan Assets and Maintaining Plan Records.
Under some Plans, investors are also required to pay monthly CUSTODIAN FEES, for the
processing of each plan payment. Other Fees charged by Plan Custodians may include:
Annual Account Fees, Completed Plan Fees, Termination Fees, Inactive Account Fees, and
similar Charges
MUTUAL FUNDS
In addition to the Sales Charge and any Service Fees, an investor in a Periodic
Payment Plan will indirectly pay the Operating Expenses of the Mutual Fund shares
held by the Plan Trust, which may include Management Fees, 12b-1 Fees ( Covering
Distribution Expenses and sometimes Shareholder Service Expenses ), and other
Expenses
Thus, unless the investor is able to make a large investment or otherwise take
advantage of discounts for larger sized investments, these Periodic Payment Plans
cost more than investing directly in a Mutual Fund
MUTUAL FUNDS
A mayor portion or even the entire amount of Sales Charges are paid by the investor
durring the first 12 months. Thus, if the investor misses making periodic payments or
terminates the Periodic Payment Plan prematurely, he will have payed a higher
percentage of his total investment in Sales Charges than if he had completed every
payment for the entire term of the Plan
If the investor stops making payments for an extended period of time, the Sponsor or
Custodian may terminate the investors Plan. The Sponsor or Custodian typically has
the right to teminate the Plan if the investor fails to make payments for a period of 6 or
12 months; the investor may also incur an INACTIVE ACCOUNT FEE
A Periodic Payment Plan usually invests in a Mutual Fund whose portfolio consists
primarily of Common Stock; thus, such investments can experience wide price swings.
If the investor needs to terminate his Plan when the value of the Plans shares is low, he
can loose money
Some FUNDS offer the investor the eligibility for a FULL REFUND, if the latter
terminates his investment in the Mutual Fund prematurely
MUTUAL FUNDS
There are other investment options that offer features similar to those provided by
Periodic Payment Plans
Some Examples of Purchasing shares of Mutual Funds directly:

( i ) through AUTOMATIC INVESTMENT PLANS, or
( ii ) with NO or LOW Minimum Investment Requirements, or
( iii ) through the Investors EMPLOYERS RETIREMENT PLAN, if available
MUTUAL FUNDS

The main difference between PERIODIC INVESTMENT PLANS and AUTOMATIC
INVESTMENT PLANS is COST
Most investors making regular investments in Mutual Funds do not participate in Periodic
Payment Plans; instead, they buy shares of Mutual Funds directly from the Funds through
services known as AUTOMATIC INVESTMENT PROGRAMS, ASSET BUILDERS, or
ACCOUNT BUILDERS
Theses services allow investors to purchase shares on a regular basis, including, for
example, by electronically transferring money from a designated bank account or paycheck
Most Mutual Funds do not charge a Fee for setting up or terminating these Automated
Transfer Services
Investors participating in these Automated Transfer Serices may be able to void or reduce
Minimum Investment Requirements
Like Periodic Payment Plans, Automatic Investment Programs and similar services allow
investors to take advantage of an Investment Strategy known as DOLLAR-COST
AVERAGING:
By making regular investments with the same amount of money each time,
investors buy more of an investment when its price is low and less of the
investment when its price is high
CLOSED-END FUND
( CLOSED-END COMPANY )
Closed-End Companies, unlike Mutual Funds, generally do not continuously offer their
shares for sale; rather, they sell a fixed number of shares at one time, in an Initial Public
Offering (IPO), that later trades on a Secondary Market
Closed-End Fund shares are listed on a Stock Exchange or are traded in the Over-the-
Counter arket
The price of Closed-End Fund shares that trade on a Secondary Market is determined by the
market and may be greater (at premium) or less (at discount) than the shares Net Asset Value
(NAV)
Closed-End Fund shares generally are not redeemable. Although these Funds are not
required to buy shares back from investors uppon request, some Closed-End Funds, commonly
referred to as Interval Funds, offer to repurchase their shares at specified intervals
The Investment Portfolios are generally managed by separate entities (Investment
Advisers) registered with the SEC
Closed-End Funds are permitted to invest in a greater amount of illiquid securities than
Mutual Funds. Thus, funds that seek to invest in markets where the securities tend to be more
illiquid are typically organized as Closed-End Funds
NOTE: An illiquid security generally is considered to be one that cannot be sold within seven
days at the approximate price used by the Fund in determining NAV (Value of one share in a Fund)
UNIT INVESTMENT TRUST ( UIT )
A UIT typically issues Redeemable Securities or UNITS, like a Mutual Fund; thus, the UIT
will buy back an investors units at the investors request, at their approximate NAV
Some Exchange-Traded Funds (ETFs) are structured as UITs
Unit Investment Trusts typically will make a one-time public offering of only a specific,
fixed number of Redeemable Securities or units (like Closed-End Funds), which will terminate
and dissolve on a date specified at the creation of the UIT (although some may terminate more
than 50 years after they are created). For Example: in the case of a UIT investing in bonds, the
termination date may be determined by the maturity date of the bond investments. When a
UIT terminates, any remaining investment portfolio securites are sold and the proceeds are paid
to the investors
Many UIT Sponsors, however, will maintain a Secondary Market to allow owners of UIT
units to sell them back to the sponsors and allow other investors to buy UIT units from the
Sponsors
A UIT does not actively trade its investment portfolio; that is, a UIT buys a relatively fixed
portfolio of securities (For Example: five, ten, or twenty specific stocks or bonds), and holds
them with little or no change for the life of the UIT. Because the investment portfolio generally
is fixed, investors know more or less what they are investing in for the duration of their
investment. Investors will find the portfolio securities held by the UIT listed in its Prospectus
A UIT does not have a Board of Directors, Corporate Officers, or an Investment Adviser to
render advice during the life of the Trust
INVESTMENT COMPANY
Most common variations within each of the three types of Investment Companies:
( a ) Stock Funds
( b ) Bond Funds
( c ) Money Market Funds
( d ) Index Funds
( e ) Interval Funds
( f ) Exchange-Traded Funds ( ETFs)
Each of these may have a different: investment objective; investment strategy;

investment portfolio; risks; volatility; fees and expenses
INVESTMENT COMPANY
( a ) Stock Funds:
Also known as Equity Funds
Equity Funds invest primarily in stocks. For example, stocks can be:
(i) Blue Chip that usually pay regular dividends (INCOME FUNDS)
(ii) Stocks that pay no dividends but offer high growth potential (GROWTH FUNDS)
(iii) Stocks of companies in a particular industry segment, such as technology or
coNsumer products (SECTOR FUNDS); or
(iv) Stocks of companies contained in a particular market index (INDEX FUND ) ()
Some Equity Funds attempt to minimize these risks by diversifying their investments
among different companies, industries, and markets
Although a Stock Funds value can rise and fall quickly and dramatically over the short-
term, historically stocks have performed better over the long-term than other types of
investments, including Corporate Bonds, Government Bonds, and Treasury Securities
Overall Market Risk poses the greatest potential danger for investors in Stock Funds, as
stock prices can fluctuate for a broad range of reasons
() There are also Index Funds that invest in Bond Indices

INVESTMENT COMPANY
( b ) Bond Funds:
Also known as Fixed-Income Funds or simply Income Funds
Fixed-Income Funds invest primarily in bonds and other types of debt
securities For example, Income Funds can invest in a particular type of
bond or debt security, such as: government bonds, municipal bonds,
corporate bonds, convertible bonds, zero-coupon bonds, asset-backed
securities, mortgage-backed securities, or they can invest in a mixture of
types
Bond Funds generally have higher risks than Money Market Funds,
largely because they typically pursue strategies aimed at producing higher
yields, as SECs rules do not restrict Bond Funds to high quality or short-
term investments
Some of the risks associated with Bond Funds include: CREDIT risk;
INTEREST RATE risk, and PREPAYMENT risk
A Bond Fund Prospectus should disclose all risks involved
INVESTMENT COMPANY
( c ) Money Market Funds:

Money Market Funds have low risks compared to most other Funds, as they
typically invest in high-quality, short-term, highly liquid securities, such as
Government Securities (Federal, State and Local), Certificates of Deposits
(CDs), Commercial Paper; thus, investor losses have been rare, although
possible (NAV < $1.00 )
Because of the low risks involved, historically the returns for MMFs have
been lower than for the other types of Funds
These Funds attempt to keep their Net Asset Value (NAV) at a constant $1.00
and only the dividend goes up and down
Pay dividends that generally reflect short-term interest rates
Unlike a Money Market Deposit Account at a bank, Money Market Funds are
not Federally Insured
INVESTMENT COMPANY
( d ) Index Funds:
A type of Mutual Fund or Unit Investment Trust (UIT) whose investment objective
typically is to achieve the same return as a particular market index ( S&P 500 Composite
Stock Price Index; the Russell 2000 Index, or the Wilshire 5000 Total Market Index )
An Index Fund will attempt to achieve its investment objective primarily by investing in
the securities ( stocks or bonds ) of companies that are included in a selected index. Some
Index Funds may also use derivatives to help achieve their investment objective
Some Index Funds invest in all of the companies included in an index; other Index
Funds invest in a representative sample of the companies included in an index
The management of Index Funds is more passive than the management of Non-Index
Funds, because the fund manager only needs to track a relatively fixed index of securities.
This usually translates into: ( i ) less trading of the funds portfolio; ( ii ) more favorable
income tax consequences (lower realized capital gains), and ( iii ) lower fees and expenses
than more actively managed funds
Another type of Investment Company that attempts to track the performance of a
market index is an Exchange-Traded Fund (ETF)
INVESTMENT COMPANY
( e ) Interval Funds:
An Interval Fund periodically offers to repurchase its shares from shareholders;

that is, the Fund periodically offers to buy back a stated portion of its shares from
shareholders. Shareholders are not required to accept these offers and sell their
shares back to the Fund
Legally, Interval Funds are classified as, but they are very different from,
traditional Closed-End Funds, in that:
( a ) their shares typically do not trade on the Secondary Market; instead, their
shares are subject to periodic repurchase offers by the Fund at a price based on Net
Asset Value
( b ) they are permitted to continuously offer their shares at a price based on the
Funds Net Asset Value
The periodic repurchases are generally every three, six or twelve months, as
disclosed in the Funds Prospectus and Annual Report
The price that shareholders will receive on a repurchase will be based on the per
share NAV determined as of a specified and disclosed date. This date will occur
sometime after the close of business on the date that shareholders must submit their
acceptances of the repurchase offer, but not more than 14 days after the acceptance
date
INVESTMENT COMPANY
( f ) Exchange-Traded Funds ( ETFs):

The investment objective of an ETF to achieve the same return as a particular market
index
An ETF is similar to an Index Fund in that it will primarily invest in the securities of
companies that are included (all or a representative sample) in a selected market index.
For example, an ETF known as SPIDERS or SPDRs invests in all of the stocks contained
in the S&P 500 Composite Stock Price Index
Although ETFs are legally classified as Open-End Companies (Mutual Funds) or Unit
Investment Trusts (UITs), because of the limited redeemability of ETF shares; they are
not considered to be and are not permitted to call themselves Mutual Funds
ETFs differ from traditional Open-End Companies and UITs in the following:
( a ) ETFs do not sell individual shares directly to investors and only issue their shares
in large blocks (for example, in blocks of 50,000 shares), known as Creation Units
( b ) Investors generally do not purchase Creation Units with cash; instead, they buy
Creation Units with a basket of securities that generally mirrors the ETFs portfolio.
Those who purchase Creation Units are frequently institutions
( c ) After purchasing a Creation Unit, an investor often splits it up and sells the
individual shares on a Secondary Market. This permits other investors to purchase
individual shares, instead of Creation Units
INVESTMENT COMPANY
Exchange-Traded Funds ( ETFs): ( Cont..... )
( d ) Investors who want to sell their ETF shares, have two options:
(1) Sell the individual shares to other investors on the Secondary Market, or
(2) Sell the Creation Units back to the ETF
ETFs generally redeem Creation Units by giving investors the securities that compromise
the portfolio instead of cash
An ETF, like any other type of Investment Company, will have a Prospectus; some ETFs
also deliver a Prospectus to Secondary Market purchasers. ETFs that do not deliver a
Prospectus are required to give investors a document known as a Product Description, which
summarizes key information and explains how to obtain a Prospectus
Open-End ETFs (but not UITs) must provide shareholders with annual and semi-annual
reports
Information about different types of ETFs can be obtained on the AMEX or the NASDAQ
An ETF will have annual operating expenses and may also impose certain shareholders
fees that are disclosed in the Prospectus
INVESTMENT COMPANY
Some types of Companies that might initially appear to be Investment

Companies may actually be not such a Company.
Examples:
Private Investment Funds with no more than 100 investors

Private Investment Funds whose investors all have a substantial amount
of other investment assets, even though they issue securities and are
primarily engaged in the business of investing in securities
PRIVATE COMPANIES
A Company GOES PRIVATE when it reduces the number of its shareholders to
fewer than 300 and is no longer required to file reports with the Securities and
Exchange Comission (SEC)
A number of transactions can result in a company Going Private, including:
( i ) Another Company or Individual makes a Tender Offer to buy all or most of the
Companys publicly held shares
( ii ) The Company merges with or sells the Companys Assets to another Company; or
( iii ) The Company can declare a Reverse Stock Split that not only reduces the number of
shares, but also reduces the number of shareholders. In this type of Reverse Stock Split, the
Company typically gives shareholders a single new share in exchange for a Block - 10, 100,
or even 1,000 shares of the old shares. If a shareholder does not have a sufficient number
of old shares to exchange for new shares, the company will usually pay the shareholder cash
based on the current market price of the Companys stock
PRIVATE COMPANIES
While SEC rules do not prevent Companies from Going Private, they do require
Companies to provide information to shareholders about the transaction that caused
the company to Go Private
The Going Private transaction can be initiated by an Affiliate (i.e., an Insider) of the
Company, and can also result in a Companys Publicly Held securities no longer being
traded on a National Securites Exchange (e.g., NYSE or AMEX) or an Inter-Dealer
Quotations System (e.g., NASDAQ)
Dissenter Rights: Protect shareholders by providing them

( i ) the opportunity to sell their shares on the terms offered
( ii ) to challenge the transaction in court, or
( iii ) to hold on to the shares
Once the transaction is concluded, remaining shareholders may find it very difficult
to sell their retained shares because of a limited trading market
HOLDING OF SECURITIES
Holding alternatives for Individual Investors:
1. PHYSICAL CERTIFICATE
2. STREET NAME REGISTRATION
3. DIRECT REGISTRATION
1. The security is registered in your name on the issuers books, and you receive an actual,
hard copy stock or bond certificate representing your ownership of the security
2. The security is registered in the name of your brokerage firm on the issuers books. You do
not receive a certificate (as you will not be listed directly on the issuers books); instead,
your brokerage firm holds the security for you in book-entry form (the broker keeps a
record in its books that you are the beneficial owner of that particular security).
3. The security is registered in your name on the issuers books, and either the Company or
its Transfer Agent holds the security for you in book-entry form. The Direct Registration
System (DRS) allows investors to electronically transfer securities held this way, back and
forth between the issuer and the investors broker-dealer. While you will not receive a
certificate, you will receive a statement of ownership and periodic account statements
Depending on the type of security and where you purchase it, you may or may not have all three
choices about how your securities are held. For example, not all companies offer Direct
Registration, and some no longer issue Physical Certificates
Many brokerage firms will automatically put your securities into Street Name unless you give them
specific instructions to the contrary
1. PHYSICAL CERTIFICATE:
ADVANTAGES:
The Company knows how to reach you and will send all Company reports and other
information to you directly
You may find it easier to pledge your securities as collateral for a loan if you hold the
certificates yourself in physical certificate form
DISADVANTAGES:
When yo want to sell your stock, you will have to send the certificate to your Broker or
the Companys Transfer Agent to execute the sale; this may make it harder to sell the
stock quickly
It can be difficult to prove that you once owned a cerificate that was lost, stolen, or
destroyed
If you ask for a replacement certificate, you may be charged a fee for the replacement
If you change address, you will have to contact the company so that you do not miss
any important mailings
ADVANTAGES:
Because your securities are already with your broker, you can place Limit Orders
that direct your broker to sell a security at a specific price
Your brokerage firm is responsible for safeguarding your securities certificates so
you dont have to worry about your certificates being lost or stolen
Your brokerage firm may keep you informed of important developments, such as
Tender Offers or when bonds are Called
Easier to set up a Margin Account
DISADVANTAGES:
You may experience a slight delay in receiving your dividend and interest payments
from your brokerage firm. For Example: some firms only pass along these payments
to investors on a weekly, biweekly, or monthly basis
Since your name is not on the books of the Company, the Company will not mail
important corporate communications directly to you (nevertheless, your broker will
send you issuer mailings such as annual reports, proxies, and other communications)
ADVANTAGES:
Since you are registered on the books of the Company as a shareholder, regardless of
whether you bought your securities through your broker or directly from the Company or
its Transfer Agent through a Direct Investment Plan, you will receive annual and other
reports, dividends, proxies, and other communications directly from the company
If you want to sell your securities through your broker, you can instruct him to
electronically move your securities via DRS from the books of the company and then to sell
your securities. Your broker should be able to do this quickly without the need for you
filling out complicated and time-consuming forms
You do not have to worry about safekeeping or losing certificates, or having them stolen
DISADVANTAGES:
If you buy or sell registered securities through a Companys Direct Investment Plan, you
usually will not be able to buy or sell at a specific market price or at a specific time.
Instead, the Company will purchase or sell shares for the Plan at established times for
example, on a daily, weekly, or monthly basis and at an average market price
SELLING OF SECURITIES
1. PHYSICAL CERTIFICATE
1. Deliver the Certificate to your brokerdealer with your instructions to

sell; or
2. Deliver the Certificate to the issuer with your instructions:
( a ) to change the registration to DRS and move the position to your
brokerdealer to sell if your security is eligible for Direct
Registration, or
( b ) for the issuer to sell , if the issuer has a program in place to
accomodate sale requests
1. Instruct your broker dealer to sell your security; or

2. Request a Physical Certificate and deliver it to another broker
dealer to sell; or
3. Instruct your broker dealer or the issuer to electronically move
your security to the issuer for the issuer to sell (many issuers
have programs in place to accommodate sale requests), or to
electronically move to another broker dealer to sell
1. Instruct the issuer to sell your security (many issuers have

programs in place to accommodate sale requests); or
2. Instruct your broker dealer to sell; or
3. Request a Physical Certificate and deliver it to your broker dealer
to sell
Selling a Security through:
* The ISSUER:
The issuer will sell your security under the terms and conditions in place for that
issue. For Example: Some sell orders will be executed on the day the issuer receives
them, and some orders are aggregated for frequent, but not daily, execution
Proceeds from the sale will be mailed to you three business days after the date of
sale
* The BROKER-DEALER:
Your instructions will be acted on immediately and in accordance with the
guidelines it provides to you
Proceeds from the sale will be made available to you or credited to your account
three business days after the date of sale
Only a broker-dealer can execute a LIMIT, MARKET, or STOP Order. Thus, you can
place any of these types of orders only if you use a broker-dealer to execute a transaction
for securities held in Direct Registration, Street Name, or Certificate form
There are no fees charged by an issuer for Direct Registration; broker-dealers can
charge fees
If a Physical Certificate is lost, stolen, or destroyed, you should immediately contact the
transfer agent or broker-dealer and request that a Stop Transfer be placed, so that they
report these missing certificates to the SEC
Nearly all broker-dealers are members of the Securities Investor Protection Corporation
(SIPC):
Max. Protection
Securities US$ 500,000
Cash US$ 100,000
Many broker-dealers also carry insurance in excess of SIPCs coverage

MARKET; LIMIT, and STOP Orders
MARKET ORDER:
The investor tells his Broker to buy or sell a stock at the Current Price.
The price payed/received is usually the same as, or close to the quote when the order is
placed, depending on how quickly it is handled and how actively traded the stock is
LIMIT ORDER:
The Limit Order instructs the Broker to buy or sell only when the stock is at the Price
desired, or better (higher if a sell order; lower if a buy order)
STOP ORDER:
The Broker buys or sells at market price once the stock hits a specified target price (STOP
Price)
Stop Orders are usually placed to limit losses or protect profits.
Their downside is that they may be executed at a price higher or lower than the STOP
Price, since the stock trades at the current market price after it hits the STOP Price
NOTE: When the investor gives a STOP Order or a LIMIT Order, the Broker will ask if the investor
wants a GOOD TIL CANCELED ( GTC ) or a DAY ORDER:
( 1 ) A GTC stands until it is either filled; the investor cancels it, or the firms time limit expires
( 2 ) A DAY Order is cancelled automatically if it isn not filled by the end of the trading day
RELATIONSHIP BETWEEN BOND PRICE AND TIME IF
INTEREST RATES ARE UNCHANGED
If the required yield does NOT change between the time the bond is purchased and the maturity date
BOND
PRICE
PREMIUM
* For a Bond selling at par value:

PAR
The coupon rate is equal to the required yield
The price of the bond will remain constant as DISCOUNT
the bond moves closer to the maturity date
0 TIME TO MATURITY M
* For a bond NOT selling at par value
The price will NOT remain constant if the bond is selling at a Premium or at a Discount:
The discount bond increases in price as it approaches maturity

The premium bond decreases in price as it approaches maturity
PRICING OF FLOATING-RATE AND INVERSE-FLOATING-RATE
SECURITIES
( A ) PRICE OF A FLOATER:
The coupon rate of a floating-rate security (FLOATER) is equal to a
reference rate plus some spread or margin
The Price of a FLOATER depends on two factors

1. The SPREAD above the reference rate, and
2. Any RESTRICTIONS that may be imposed on the RESETTING of the coupon rate
Some FLOATERS may have a maximum coupon rate (CAP) and or a minimum
coupon rate (FLOOR)
The Price of a FLOATER will trade close to its par value, as long as:
1. The SPREAD above the reference rate that the market requires is unchanged, and
2. Neither the Cap nor the Floor is reached
Note: In between coupon reset dates, the FLOATER can trade above or below par value
SECURITIES
( A ) PRICE OF A FLOATER (Cont....):
( 1 ) SPREAD:
If the market requires a larger Spread, the price of a Floater will trade below par
(DISCOUNT)
If the market requires a smaller Spread, the price of a Floater will trade above par
(PREMIUM)
( 2 ) RESTRICTIONS:
If the coupon rate is restricted from changing to the reference rate plus the spread
because o the CAP, the price of a floater will trade below par (DISCOUNT)
If the coupon rate is restricted from changing to the reference rate plus the spread
because of the FLOOR, the price of a floater will trade above par (PREMIUM)
SECURITIES
( B ) PRICE OF AN INVERSE-FLOATER:
In general, an INVERSE-FLOATER is created from a FIXED-RATE security

(COLLATERAL)
From the COLLATERAL, two bonds are created:
1.FLOATER, and
2.INVERSE-FLOATER
COLLATERAL
( Fixed-Rate Bond )
FLOATER INVERSE FLOATER

( Floating-Rate Bond ) ( Inverse Floating-Rate Bond )
NOTE: INVERSE-FLOATERS can also be created using INTEREST-RATE SWAPS without the need to create a FLOATER
PRICING OF FLOATING-RATE AND INVERSE-
FLOATING-RATE SECURITIES
( B ) PRICE OF AN INVERSE-FLOATER (Cont....):
The two Bonds (Floater and Inverse-Floater) are created, such that:
1. The total coupon interest paid to the two bonds in each period is less than or equal
to the Collaterals coupon interest in each period, and
2. The total par value of the two bonds is less than or equal to the Collaterals par
value
THE FLOATER AND INVERSE-FLOATER ARE STRUCTURED SO THAT THE CASH

FLOW FROM THE COLLATERAL WILL BE SUFFICIENT TO SATISFY THE
OBLIGATION OF THE TWO BONDS
PRICING OF FLOATING-RATE AND INVERSE-FLOATING-
RATE SECURITIES
( B ) PRICE OF AN INVERSE-FLOATER (Cont...):
Example:
10-year bond
7.5% semiannual-pay coupon
$100 million of the bond is used as collateral to create a FLOATER with a par
value of $50 million and an INVERSE-FLOATER with a par value of $50
million.
Coupon rate reset every six months based on the formula:
Floater: reference rate + 1%
Inverse-floater: 14% - reference rate
RATE SECURITIES
Example (Solution):
( 1 ) The total par value of the Floater and Inverse-Floater equals the par value of the Collateral ( First
Condition satisfied )
( 2 ) The weighted-average of the coupon rate of the combination is:
0.5 ( reference rate + 1% ) + 0.5 ( 14% - reference rate ) = 7.5%
Thus, regardless of the level of the reference rate, the combined coupon rate for the two bonds is equal to the
coupon rate of the collateral ( Second Condition satisfied )
BUT there is one PROBLEM with the coupon formulas:

If: Reference rate exceeds 14% Then: Coupon rate for the Inverse-Floater will be NEGATIVE
Thus, a FLOOR is placed on the coupon rate for the Inverse-Floater. Typically, the FLOOR is set at ZERO
BUT because of the FLOOR on the Inverse Floater, the coupon on the Floater must also be restricted so that
the coupon interest paid to the two bonds does not exceed the collaterals coupon interest (7.5%)
Thus, a CAP is placed on the coupon rate for the Floater. Consequently, the CAP would be set at 15%.
Therefore, if the reference rate is above 14%, the FLOOR ( 0% ) and the CAP (15% ) become binding
conditions
PRICING OF FLOATING-RATE AND INVERSE-
FLOATING-RATE SECURITIES
Thus, the price of an Inverse Floater is found by determining the price of

the Collateral and the price of the Floater:
PRICE OF INVERSE = PRICE OF COLLATERAL - PRICE OF FLOATER
The factors that affect the price of an Inverse Floater are affected by the
reference rate only to the extent that it affects the restrictions on the coupon
rate of the Floater
Some investors mistakenly believe that because the coupon rate increases,
the price of an Inverse Floater should increase if the reference rate decreases
The key in pricing Inverse Floaters is how changes in interest rates affect
the price of the Collateral.
The reference rate is important only to the extent that it restricts the coupon rate of the Floater
RATE SECURITIES
Investors in Inverse-Floaters suffer doubly when interest rates RISE:
1. The Present Value of each Dollar of cash flow from the Bond falls as the
discount rate rises
2. The level (amount) of these cash flows (Coupon payments) falls as well
Of course, investors in Inverse-Floaters benefit doubly when interest rates FALL
Because of this DUAL IMPACT on value, Inverse-Floaters perform especially poorly (vs.
other securities) when interest rates RISE.
Conversely, Inverse-Floaters perform especially well (vs. other securities) when interest
rates FALL
RATE SECURITIES
While firms do not commonly issue Inverse-Floaters, they may be crated synthetically
by allocating the cash flows from a Fixed-Rate Security (Collateral) into two DERIVATIVE
Securities (Floater and Inverse-Floater), as seen previously
The Inverse Floater is an example of an Interest Rate Derivative Product created by
Financial Engineering, in which the cash flows from the Original Bond (COLLATERAL)
are unbundled and reallocated to the FLOATER and INVERSE FLOATER
This carving or unbundling of the Original Security (Collateral) into a Floating-Rate
Bond and an Inverse Floater, is generally executed by an Investment Banking Firm who
purchases the Original Fixed-Rate Bond issue (Collateral)
Because of the impact of interest rates on its Coupon Rate, the Inverse-Floater will have
a very large EFFECTIVE DURATION; in fact, much longer than the MATURITY of the
Bond. This property can be useful to investors who wish to IMMUNIZE (Hedge) very long
Duration Liabilities; it is also useful to investors who wish to SPECULATE on decreases in
interest rates.
Thus, the dramatic sensitivity of their prices of some Interest Rate Derivatives, such as
Inverse-Floaters, can be a potent risk management as well as risk-increasing tool
REASONS FOR THE CHANGE IN PRICE OF A BOND
The price of a Bond will change for one or more of the following three reasons:
1. A change in the required yield owing to a change in the credit quality of

the issuer
2. A change in the required yield owing to a change in the yield on
comparable bonds (i.e., a change in the yield required by the market)
3. A change in the price of the bond sellling at a premium or a discount
without any change in the required yield, because the bond is moving
toward maturity
Predicting a change in an issues credit quality before that change is

recognized by the market is one of the challenges of investment management
COMPLICATIONS FOR PRICING BONDS
The time to the next coupon payment is smaller than the time between coupon payments:
When an investor purchases a bond between coupon payments, the investor must
compensate the seller for the coupon interest earned from the time of the last coupon
payment to the settlement date of the bond (Accrued Interest)
All cash flows are known with certainty:

Only for non-callable bonds (and bonds with NO option-like features), assuming that
the issuer does NOTdefault, the cash flows are known; however, for most bonds, the
cash flows are NOT known with certainty
The appropriate required yield cannot be determined with certainty:

All required yields are benchmarked off yields offered by Treasury securities; the
traditional analytical framework is one of decomposing the requred yield for a bond
into its component parts
Not all cash flows are discounted using the same interest rate:
Since a bond can be viewed as a package of zero-coupon bonds, in which case a unique
discount rate should be used to determine the present value of each cash flow instead of
a single rate
DIRTY VS. CLEAN PRICE OF A BOND
The computation of Accrued Interest depends on the type of bond:

1. For Treasury Coupon securities: Accrued Interest is based on the actual
number of days the bond is held by the seller
2. For Corporate and Municipal securities: Accrued Interest is based on a
360-day year, with each month having 30 days
CLEAN PRICE:
The agreed-upon price between buyer and Price without ACCRUED interest
seller
DIRTY PRICE:
The amount that the buyer pays the seller
of the bond Price with ACCRUED interest
Also known as FULL PRICE or
INVOICE PRICE
OTHER RELATED ISSUES
FRONT OFFICE; BACK OFFICE; MID OFFICE
Three Criteria are used to classify Activities as either FRONT Office or BACK Office:
Degree to which an activity:

( 1 ) involves interaction with others outside the firm, especially clients
( 2 ) is revenue-generating or funded by money generated by other activities,
and
( 3 ) is non-routine and non- clerical
Yes FRONT Office
No BACK Office
( Cont..... )
FRONT OFFICE Activities include: Origination of new business; selling;

trading; analysis; client account handling; product development; public
relations and central management
BACK OFFICE Activities include: Processing of transactions; compiling and

supplying of data to the Front Office, including internal audit; cheque and
security transactions processing; call centres; claims processing and payment;
clearing-house operations; basic facilities and internal management support
( Cont..... )
The MID OFFICE:

A recent phenomenon, developed ion response to the increasing complexity
and risks of the business
MID OFFICE Activities include: Information Technology (IT)

management and development; risk management; regulatorry
compliance; human resources; legal and tax; accounting and reporting
These are non-routine functions, but they are not revenue-generating and
their focus is mostly internal rather than external
Nonetheless, they are so important to the revenue-producing side of the
business, that they usually accompany the Front-Office
( Cont..... )
TRENDS IN LOCATION
Traditionally, BACK Offices were located within or near the FRONT Office
Later, technological progress in computing and telecommunications allowed
greater physical separation of FRONT and BACK Offices, and some fims moved
their BACK Offices to locations with lower operating costs
The divorce from support operations allowed the location of revenue-
generating FRONT Offices to be less constrained by cost considerations and more
driven by strategic factors, such as proximity to markets, clients and specialist
services
More recently, other considerations have begun to push FRONT and BACK
Offices closer together again. A series of financial scandals involving lax controls
over dealing rooms or transactions processing, heightened management concern
about financial controls; another factor has been the increasing importance of
Information Technology ( IT ) for both FRONT Office and BACK Office
operations, generating internal economies of scale in its provision
REFERENCES
BOND MARKETS, ANALYSIS AND STRATEGIES

Fabozzi, Frank J.
Sixth Edition
Pearson / Prentice Hall 2007
INVESTMENTS
Bodie, Zvi; Kane, Alex; Marcus, Alan J.
Seventh Edition
McGraw-Hill / Irwin 2008
FINANCIAL INSTITUTIONS MANAGEMENT

Saunders, Anthony; Cornett, Marcia M.
Fifth Edition
McGraw-Hill / Irwin 2006
CAPITAL MARKETS, INSTITUTIONS AND INSTRUMENTS

Fabozzi, Frank J.; Modigliani, Franco
Third Edition
Prentice Hall 2003
REFERENCES (Cont....)
U.S. SECURITIES AND EXCHANGE COMMISSION

(Various Documents)
WALL STREET: THE MARKETS, MECHANISMS AND PLAYERS

Roberts, Richard
The Economist / Profile Books, Ltd. 2002
GUIDE TO F INANCIAL MARKETS

Levinson, Marc
Third Edition
Bloomberg Press 2003
THE WALL STREET JOURNAL GUIDE TO UNDERSTANDING MONEY

AND INVESTING
Morris, Kenneth M.; Morris, Virginia B.
Third Edition
Lightbulb Press 2004
REFERENCES ( Cont.... )
FINANCIAL MARKETS, INSTRUMENTS AND INSTITUTIONS

Santomero, Anthony; Babbel, David
Second Edition
McGraw Hill / Irwin 2007
MODERN PORTFOLIO THEORY & INVESTMENT ANALYSIS

Elton, Edwin J.; Gruber, Martin J.; Brown, Stephen J.,
and Goetzman, William N.
Seventh Edition 2007
TREASURY INFLATION-PROTECTION SECURITIES ( TIPS )

Teaching Note No. 5-298-117
Harvard Business School 1998
INVESTMENT COMPANY INSTITUTE

( Various Documents )

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INSTITUTO TECNOLGICO AUTNOMO DE MXICO

Course: INTERNATIONAL FINANCE

Academic Quarter: June 2017 July 2017

The word BOND means: Contract, Agreement, or Guarantee

NATIONAL BOND MARKET

NOTE: A common alternative classification considers the INTERNATIONAL Bond

Federally Related Institutions

Commercial Paper Directly Placed

SHORT Term Up to FIVE years

INTERMEDIATE Term Greater than FIVE years up to TWELVE years

LONG Term Greater than TWELVE years

Fixed-Income markets are largely Self-Regulated

MARKETABLE Treasury Securities

NON-MARKETABLE Treasury Securities

Note: The Treasury does not issue zero-coupon bonds

Similar securities already existed in the United Kingdom and Israel

Individual Investors, Firms and the General Economy:

ECONOMIC BENEFITS: (Cont.....)

Some common types of non-plain vanilla Corporate Bonds, are:

( a ) CALLABLE ( Redeemable ) Bonds:

Also known as FLOATERS

( i ) in response to changing market conditions, or

When the treasurer of a corporation is contemplating an offering of either an

Corporate Bonds are sold in large, discrete offerings

Corporate Bonds, with exception of some investment-grade issues,

HOW DO BORROWERS OR THEIR AGENTS FIND INVESTORS?

that is primarily engaged in the business of investing in securities

Invests the money it receives from investors on a collective basis,

The performance of the Investment Company will be based on,

Basic Types Legal Name Redeemable

MUTUAL Open-End Yes

FEES and EXPENSES:

( 1 ) SHAREHOLDER FEES ( Cont... )

( e ) Exchange Fee: A Fee that some Funds impose on shareholders if they

( 1 ) SHAREHOLDER FEES ( Cont... )

Total Annual Fund Operating Expenses ( Expense Ratio )

Looking at the EXPENSE RATIO can help make comparisons among

But not every type of SHAREHOLDER FEE is a SALES LOAD; a NO-

NO-LOAD Funds will also have OPERATING FEES

The investor earns money from his investment in three ways

MULTI-CLASS FUNDS: ( Cont..... )

A FAMILY OF FUNDS is a group of Mutual Funds that share

ADVANTAGES of Mutual Funds:

Professional Management: Professional money managers research, select,

HEDGE FUNDS and FUNDS OF HEDGE FUNDS ( Cont.....)

HEDGE FUNDS typically charge an Asset Management Fee of 1% to 2% of Assets,

PERIODIC PAYMENT PLANS ( Cont..... )

PERIODIC PAYMENT PLANS ( Cont..... )

PERIODIC PAYMENT PLANS ( Cont..... )

PERIODIC PAYMENT PLANS ( Cont..... )

Some Examples of Purchasing shares of Mutual Funds directly:

PERIODIC PAYMENT PLANS ( Cont..... )

Each of these may have a different: investment objective; investment strategy;

() There are also Index Funds that invest in Bond Indices

( c ) Money Market Funds:

An Interval Fund periodically offers to repurchase its shares from shareholders;

( f ) Exchange-Traded Funds ( ETFs):

Exchange-Traded Funds ( ETFs): ( Cont..... )

Some types of Companies that might initially appear to be Investment

Private Investment Funds with no more than 100 investors

A number of transactions can result in a company Going Private, including:

Dissenter Rights: Protect shareholders by providing them

2. STREET NAME REGISTRATION