3.5 Letters of Intent

This topic provides information on letters of intent.

An investor may promise to invest a certain volume of capital in the funds of the AMC within a certain period. Sometimes, the AMC offers the investor a reduced commission or charge for such investment. Such indemnification from the investor is known as a Letter of Intent (LOI).

Any investor that chooses to invest using a Letter of Intent is known as an LOI investor in the system.

Example

An investor, Mrs. Frances Smith, promises to bring in investment worth 500000 USD to the Terry Wynan Growth Fund floated by your AMC, within the space of 3 months dating from 5th May 2003. She indemnifies this through a Letter of Intent. On 5th May 2003, she makes her first investment of 100000 USD.

This means that by the 4th of August, 2003, Mrs. Smith promises to invest the remaining indemnified amount (i.e., 500000 USD – 100000 USD = 400000 USD) in the said fund. She could do so in one transaction worth 400000 USD, or a series of transactions cumulatively worth 400000 USD.

Let us suppose the following charge option for the Terry Wynan Growth Fund, as defined by your AMC for normal investment:

Table 3-6 Example

Slab	From Amount	To Amount	Charge percentage per transaction
1	0	100000	5
2	100000	200000	4
3	200000	300000	3
4	300000	400000	2
5	400000	500000	1

Let us suppose that Mrs. Smith fulfills her Letter of Intent investment in the pattern specified below after 5th May 2003.

Table 3-7 Example

Transaction Reference Number	Transaction Date	Transaction Amount
LOIREF1	05-05-2003	100000
LOIREF2	20-05-2003	100000
LOIREF3	05-06-2003	100000
LOIREF4	20-06-2003	100000
LOIREF5	05-07-2003	100000

For the transaction LOIREF1, the charge percentage actually applied would be as follows:

Slab for LOIREF1, as a normal transaction: Slab 1

Charge Percentage for normal investment transaction, as per charge setup: 5%

LOI Amount: 500000 USD

Slab for LOI Amount: Slab 5.

Charge Percentage actually applied for LOIREF1: 1% of transaction amount = 1% of 100000 USD.

Similarly, the applicable charge percentages for each of the LOI fulfillment transactions are derived, and they are displayed below:

Table 3-8 Example on LOI Fulfillment Transactions Are Derived

Transaction Reference Number	Transaction Date	Transaction Amount	Charge actually applied
LOIREF1	05-05-2003	100000	1%
LOIREF2	20-05-2003	100000	1%
LOIREF3	05-06-2003	100000	1%
LOIREF4	20-06-2003	100000	1%
LOIREF5	05-07-2003	100000	1%

Each investment made by Mrs. Smith after 5th May 2003 into the fund, will reduce the Letter of Intent amount remaining to be fulfilled. The amount remaining to be fulfilled is known as the Used Up amount.

With the last investment on 5th July 2003, the Letter of Intent amount is fulfilled, or is said to be Used Up.

An investor that has opted to invest through a Letter of Intent can reduce the used up Letter of Intent amount within the defined period, by any of the following transactions:

• IPO or subscription transactions
• Standing instructions that result in subscription, switch or redemption transactions.
• Switch transactions
• Redemption transactions
• Transactions resulting from reinvestment of income.

This topic contains the following sub-topics:

• Non-fulfilling of Letter of Intent
  This topic provides information on non-fulfilling of letter of intent.
• Prior Warning Report
  This topic provides information on prior warning report.
• Post-Adjustment Report
  This topic provides information on post-adjustment report.