Mutual Funds Internal use for N.CA office training

10/4/2015 Internal Discussion Only History and Current Scale First U.S. Mutual funds First U.S. Mutual funds 1924 Philadelphia Funds 1924 Philadelphia Funds By April 30, 2006, there are Mutual funds in US market, $7,465,306 MM in asset. By April 30, 2006, there are Mutual funds in US market, $7,465,306 MM in asset.

10/4/2015 Internal Discussion Only Types of Mutual Funds Equity (stock) funds Equity (stock) funds Investment style: growth, blend, value Investment style: growth, blend, value Market type: large cap, mid cap, small cap Market type: large cap, mid cap, small cap Bond funds Bond funds Corporate/Municipal/US government bond funds Corporate/Municipal/US government bond funds Municipal debt are federal tax free Municipal debt are federal tax free Emergency fund alternative Emergency fund alternative Money market funds Money market funds low risk low return, equivalent to bank savings/CD low risk low return, equivalent to bank savings/CD

10/4/2015 Internal Discussion Only Equity Matrix Large Cap.: Largest 5% of the top 5,000 U.S Stocks Large Cap.: Largest 5% of the top 5,000 U.S Stocks Medium Cap.: Next Largest 15% of the top 5,000 U.S. stocks Medium Cap.: Next Largest 15% of the top 5,000 U.S. stocks Small Cap: Smallest 80% of the top 5,000 U.S. stocks Small Cap: Smallest 80% of the top 5,000 U.S. stocks

10/4/2015 Internal Discussion Only Types of Mutual Funds Sector funds: Sector funds: invest in a particular industry, such as health care, electronics or utilities, more risky invest in a particular industry, such as health care, electronics or utilities, more risky Index funds: Index funds: achieve the same return as a particular market index achieve the same return as a particular market index S&P 500 Composite Stock Price Index, S&P 400 Midcap Total Return, Russell 2000 Index S&P 500 Composite Stock Price Index, S&P 400 Midcap Total Return, Russell 2000 Index Exchange traded funds (ETF): Exchange traded funds (ETF): baskets of securities traded on an exchange throughout the day. baskets of securities traded on an exchange throughout the day. The dividends and capital gains can ’ t be reinvested and must be distributed – more tax! The dividends and capital gains can ’ t be reinvested and must be distributed – more tax! Lower annual expenses, short term trading, volatile, much more risky! Lower annual expenses, short term trading, volatile, much more risky!

10/4/2015 Internal Discussion Only Making Money from MF Distribution from dividends on stocks and interest on bonds and money market. Distribution from dividends on stocks and interest on bonds and money market. Distribution from realized capital gain Distribution from realized capital gain Sell the funds increased in unit price Sell the funds increased in unit price

10/4/2015 Internal Discussion Only Tax on Your Profit You have to pay TAX every year whether you sell it or not, even when you are losing money! You have to pay TAX every year whether you sell it or not, even when you are losing money! Long term capital gain (if the fund owns the security over 12 months at the time of sale): Long term capital gain (if the fund owns the security over 12 months at the time of sale): Federal 15% Before 2010, 20% normally Federal 15% Before 2010, 20% normally Dividends & Short term capital gain Dividends & Short term capital gain Ordinary (marginal) income tax rate (e.g. 25%) Ordinary (marginal) income tax rate (e.g. 25%) Don ’ t forget state tax! Don ’ t forget state tax! CA: up to 9.3% (if AGI > $41K) CA: up to 9.3% (if AGI > $41K)

10/4/2015 Internal Discussion Only Charges Front-end load (purchase fee) Front-end load (purchase fee) Charged on purchase Charged on purchase Back-end load (redemption fee) Back-end load (redemption fee) Charged when sell/redeem the fund Charged when sell/redeem the fund No/Level load (expense ratio) No/Level load (expense ratio) Charged annually Charged annually Other fees: marketing fee (12b-1 Fees), exchange fee, etc. Other fees: marketing fee (12b-1 Fees), exchange fee, etc. FV=PV(1-L)(1+i) n FV=PV (1+i) n (1-L) FV=PV (1+i-L) n

10/4/2015 Internal Discussion Only Share Classes A shares: A shares: Front-end load (aka sales charge, up to 8.5%): the difference between NAV and POP Front-end load (aka sales charge, up to 8.5%): the difference between NAV and POP Breakpoints: the sales charge can be reduced by investing more, e.g. 10K, 25K, etc. Breakpoints: the sales charge can be reduced by investing more, e.g. 10K, 25K, etc. LOI/SOI: 13 months, reduced for total investment LOI/SOI: 13 months, reduced for total investment ROA: family aggregate accounts over several years, reduced for last purchase only ROA: family aggregate accounts over several years, reduced for last purchase only Lower annual expenses: suitable for long term (>=10 years) investors Lower annual expenses: suitable for long term (>=10 years) investors Sales charge totally waived for RR Sales charge totally waived for RR

10/4/2015 Internal Discussion Only Share Classes B shares: B shares: Back-end load charged if redeemed within first 6 to 8 years, eliminated afterwards Back-end load charged if redeemed within first 6 to 8 years, eliminated afterwards The longer you hold, the less the charge The longer you hold, the less the charge Convert to A shares automatically in about 8 years Convert to A shares automatically in about 8 years C shares: C shares: No front or back-end load sales charges (CDSC may be charged if redeemed within 1 year) No front or back-end load sales charges (CDSC may be charged if redeemed within 1 year) Higher annual expenses (will never convert to A shares) Higher annual expenses (will never convert to A shares) Suitable for short term (< 5 years) investors/traders Suitable for short term (< 5 years) investors/traders

10/4/2015 Internal Discussion Only The Growth Fund of America®

10/4/2015 Internal Discussion Only Terms in Mutual Funds R-squared R-squared Measure of a fund ’ s diversification by computing its correlation (0-100%) to its benchmark index (100%) Measure of a fund ’ s diversification by computing its correlation (0-100%) to its benchmark index (100%) Beta Beta Measure of a fund's sensitivity to market movements Measure of a fund's sensitivity to market movements fund with a 1.10 beta is 10% more volatile than its benchmark index, whose beta is considered 1.0 fund with a 1.10 beta is 10% more volatile than its benchmark index, whose beta is considered 1.0 Alpha Alpha difference between a fund's actual returns and its expected performance (The higher the better) difference between a fund's actual returns and its expected performance (The higher the better)

10/4/2015 Internal Discussion Only Example

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10/4/2015 Internal Discussion Only Feature Mutual Fund Product American Funds American Funds $250 minimum to set up a regular or IRA account $250 minimum to set up a regular or IRA account Consistent double digit return Consistent double digit return Lower expenses with long history (since 1931) Lower expenses with long history (since 1931) Transamerica IDEX Funds Transamerica IDEX Funds The same great fund family used by WRL subaccounts The same great fund family used by WRL subaccounts Provides Morningstar Asset Allocation Provides Morningstar Asset Allocation Fidelity: advisor account Fidelity: advisor account

10/4/2015 Internal Discussion Only Asset Allocation Funds of funds: Funds of funds: Reduces volatility Reduces volatility Increases likelihood of achieving long-term goals Increases likelihood of achieving long-term goals Enhances potential for long-term gain Enhances potential for long-term gain WRL/IDEX asset allocation WRL/IDEX asset allocation Managed by MorningStar Managed by MorningStar Great returns, easy to manage for investors Great returns, easy to manage for investors

10/4/2015 Internal Discussion Only Risk is measured by standard deviation. Return is measured by arithmetic mean. Risk and return are based on annual data over the period Portfolios presented are based on Modern Portfolio Theory. Efficient Frontier – Stocks and Bonds: Risk versus Return 9% 10% 11% 12% 13% 14% 11%12%13%14%15%16%17% 100% Bonds 25% 75% - Minimum Risk Portfolio 50% 60% 40% 80% 20% Maximum Risk Portfolio - 100% Stocks Risk Return This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. 3/1/2002. © 2002 Ibbotson Associates, Inc.

10/4/2015 Internal Discussion Only Thanks for your attention! Any more questions?