investment company outline

rights of accumulation

• quantity discounts that build up as investor owns more shares in mutual fund
• discounts increase with accumulated ownership increases

share value based on

• a)current value: NAV or max market price
• b)original purchase price
• c) most often used: current value or original purchase price-which is higher?

letter of intent

• form letter
• issued by mutual fund
• signed by investor
• investor plans on getting lower sales charges by buying set required amount of shares over 13mo
• binding on mutual fund
• not binding on investor
• can backdate 90 days so include previous purchases-take advantage of reduced sales charge

mutual fund conversion, mutual fund exchange

• customers can transfer $ from income-oriented fund to growth fund
• exchanges can be done at NAV
• advantage: keep customers's $ at same mutual fund company
• disadvantage: investor may pay tax consequence on capital gains/capital losses

dollar cost averaging

• invest over time
• investors buy shares every month
• by buying new shares every month-can get some shares cheaper
• average cost per share buying over times decreases vs. buying at one time

Which of the following is true of dollar cost averaging?

• the average cost is always lower than the market price average
• average cost per share<average dollare paid per share
• to investor's benefit

A letter of intent can be backdated up to how long:

• three months/90 days
• good for 13 mo
• can backdate up to three months

Redemption price

• if investors want to get rid of mutual fund shares they redeem them
• firm gives customer net asset value-redemption cost in 7 days
• no secondary market for mutual funds
• investors buy mutual fund shares from company and sell back to company

redemption fee

• redeem at NAV-redemption fee

tax on redemptions/distributions

• <1 year, short term gain/loss
• >1year, long term gain at 0%,15% or 20% by customer's tax bracket
• holding period, begins day customer buys securities, ends day customer sells/redeems securities 

distributions

• ordinary dividends, interest, short-term capital gain distributions-portfolio income, taxed at customer's tax bracket
• long term capital gain distributions-taxed at 0%,15%,20%