SIE Key Concepts Ch. 4

Investment Company Securities

POP calculation

NAV/ (100% - Sales Charge %).

Mutual Fund Suitability

investor’s investment objectives are the primary consideration, fees are secondary, and the size of the fund is the least important

Breakpoint Sale

violation where a registered rep suggests that an investor purchases a mutual fund just below the point at which they would receive a discounted sales charge

Money Market Fund

least exposed to currency risk as investments are held in US dollars, but subject to inflationary risk

Average cost basis

method used to determine the cost of shares redeemed from a mutual fund or sold from another investment, total cost of all share purchased/total number of shares owned

Mutual fund cash dividends

taxable for investors regardless of whether they are taken in cash or reinvested back into the fund

Mutual Fund Board of Directors independence requirement

At least 40% of a mutual fund’s board of directors must be independent, meaning they do not have significant business relationships with the fund

Impact of Dividends on NAV

The NAV of a mutual fund share will decrease by the amount of the dividend on the ex-date. This is because the fund is paying out cash so the fund’s assets will fall

12b-1 fees

cover distribution (marketing) fees and shareholder service expenses

mutual fund sponsor

in charge of fund sales (aka underwriter)

mutual fund custodian

safekeeps

mutual fund transfer agent

handles customer redemptions

UIT broker dealer

sells units in UITs

UIT sponsor

creates the trust, picks the securities including stocks and bonds

closed fund expense ratio

management and admin fees included in prospectus

interval financial statements of investment companies are sent to shareholders

semiannually

rights of accumulation

offers investors an additional opportunity to receive a reduced sales charge based on the amount of money invested in a single mutual fund

prohibited activities for mutual funds

sell short, buy on margin, participate in joint investment/trading accounts

mutual fund maximum sales charge w/3 features

8.5%

3 features that allow for maximum sales charge

breakpoints, rights of accumulation, automatic reinvestment of dividends at NAV

mutual fund maximum sales charge w/o 3 features

6.5%

mutual fund LOI validity dates

backdated < 90 days, valid for 13 mos.

breakpoint application

single fund family and spouses and children

closed end fund permitted activities (vs. mutual funds)

issue senior securities, buy on margin