Reference no: EM132929818

Question - Al Harris was particularly glad to have an opportunity to visit with Mildred Frazier. Al had been selling mutual funds for the last five years, and he believed he was about to make his best sale of the year.

Mildred, age 70, had inherited $500,000 on the death of her husband four months ago. Her husband had been a successful businessman and had managed their financial affairs up to the time 41 his death. Although their home mortgage had been paid, Mildred had $500,000 in CDs, money market funds, and widely diversified stocks and bonds to manage. Her first inclination had been to turn over the assets to the trust department of the largest bank in town and let it manage the funds for a 11/2 percent fee.

When she mentioned-this plan to Al at a church gathering, he responded that bank trust departments were so conservative in their management policies that she probably woL-j not get a return high enough to keep up with inflation.

He suggested she put her $500,000 in the New Era Science and Technology fund.re emphasized that the fund had enjoyed an increase in net asset value of 20 percent per year over the past five years for a total compounded gain of 148.8 percent. He suggested. $500,000 investment could easily be worth $1,244,000 five years from now as the same pattern was likely to persist.

When Mildred asked if there were any expenses involved in buying the fund, Al said there was a courtesy commission of 7 1/4 percent at the time of purchase. Also, there was a back-end fee of 5 percent if she decided to sell the fund. He stressed that the 71/4 percent commission was insignificant when one considered the enormous return potential. Furthermore, he said, the 5 percent back-end sales commission would be reduced by 1 percent each year and would be eliminated after five years.

Mildred was excited about the information Al had given her and promised to consider it very carefully.

Comment on the practices used by Al Harris.