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Series 6 Unit 2

investment company corporation or trust that pools investors' money and then invests that money in securities on their behalf. a money manager should be able to outperform the average investor in the market. raise capital by selling shares to the public
Face- Amount Certificate Companies a contract between an investor and an issuer in which the issuer guarantees payment of a stated sum to the investor at some set date in the future. classified as investment company, pay a fixed rate of return, dont trade in 2nd market
unit investment trusts (UITs) investment company organized under a trust indenture. do NOT have B.O.D's, dont employ investment advisers, and dont actively manage their own portfolios. create portfolios to meet companies objectives. all proceeds must be distributed at liquidation
fixed UIT typically purchases a portfolio of bonds and terminates when the bonds in the portfolio mature.
a nonfixed UIT purchased shares of an underlying mutual fund. must maintain 2nd market in the units to guarantee liquidity
management investment companies actively manage a securities portfolio to achieve a stated investment objective.
closed-end investment company (publicly traded funds) initial offering of shares is limited. raises capital for its portfolio by conducting a common stock offering, much like any other publicly traded company that raises capital to invest in its business. also issue bonds and preferred stock
open-end investment company (mutual funds) do not specify the exact number of shares it intends to issue but registers an open offering with the SEC. the fund itself redeems those shares at the current NAV, which reduces the total value of the fund by the value of the shares redeemed (redeemable)
diversified investment company must meet requirements of 75-5-10 test. at least 75% of the funds total assets must be invested in securities issued by other companies. no more than 5% of the funds total assets are invested by one issuer, and cant own more than 10% of the outstanding
nondiversified company does not meet 75-5-10 test. investing in one industry or geographical area like health care, technology. known as specialized funds.
hedge funds equity security like a mutual fund. hedge funds do not currently have to register with SEC and requires buyers to be accredited investors. free to adopt riskier investment policies. indirectly available to ordinary investors through funds of hedge funds
Exchange- Traded Funds (EFT's) invest in a specific group of stocks in deliberate mimicry of a particular index. EFT trades like a stock on the floor of an exchange and is similar to a closed-end investment company. can be purchased on margin and sold short.
REITS pools capital in a manner similar to an investment comapany and shareholders recieve dividends from investment income. to avoid being taxed as a corporation, must distribute 90% of income to shareholders
investment company act of 1940 classifies investment companies into three broad types, face amount, unit investment trusts, and management investment companies
must register with SEC company in the business of investing in, reinvesting in, owning, holding, or trading securities or 40% or more of the company's assets are invested in securities
must identify when filing for registration with SEC and public offerings type of management company it intends to be, plans the company has to raise money,companys intention, plans for investing in realestate, conditions policies may change, full name and address of affliates, description of business experience of each officer
investment company prospectus mutual funds always sold with prospectus, new securities as well. closed-end funds must be sold with prospectus in IPO only. financial information in prospectus in use for more than 9 mo may be no more than 16 mo old.
purchasing mutual funds on margin. SEC rules prohibit the purchase of mutual fund shares on margin. margin is the use of money borrowed from a bank through a brokerage firm to purchase securities.
open-ended company requirements issue no more than one class of security, maintain a minimum asset-to-debt ratio of 300%. they may borrow from banks provided asset to debt ratio is not less than 3:1
part one of registration statement prospectus that must be furnished to every person to whom the company offers the securities. information used to aid investors in making sound investment decision.
part two of registration statement document containing information that need not be furnished to every purchaser but must be made available for public inspection. also called statement of additional information.
prohibited mutual fund activities purchasing securities on margin, selling securities short, participating in joint investment or trading accounts, acting as a distributor of its own securities, selling uncovered options.
shareholder right to vote the majority of share voted for or against a proposition that counts, not the majority of people voting. one shareholder holding 51% of all shares outstanding can determine votes outcome.
board of directors serves the interests of the investors. officers and directors deal with policy and administrative matters. shareholders of an investment company may elect them to make decisions and oversee operations. at least 40% must be independent or noninterested
investment advisor portfolio manager to invest the cash and securities in the fund's portfolio, implement investment strategy, and manage the portfolios day to day trading. they earn a management fee paid from funds income.
custodian generally a commercial bank, is the safekeeper of the assets of the fund, maintains asset records, periodically audits the funds assets to assure that they are accounted for, paid a fee from the income of the fund.
transfer agent issuing, redeeming and cancelling fund shares; handling name changes; maintaining customer records; sending customer confirmations and distributions; recording outstanding shares; paid a fee from the income of fund
underwriter appointed by BOD and receives a fee for selling and marketing the fund shares to the public. open end sells shares at current NAV. they are prohibited from maintaining an inventory of open end company shares. compensated by sales charge
prospectus must be distributed to an investor before or during any solicitation. contains information on the funds objective, investment policies, sales charges, and management expenses, and services offered. disclosed 1, 5, and 10 year performance histories
statement of additional information mutual fund and closes end funds are required to have one available to investors upon request without charge. includes balance sheet, statement of operations, income statement, portfolio list at the time SAI was compiled
financial reports one must be an audited annual report. others indlude balance sheet, valuation of all securities in company's portfolio, income statement, statement of all compensation to be paid to BOD, statement of total amount of securities purchased during the period
Net Asset Value (NAV) a mutual funds share value, calculated once a day, based on the closing markets price for each security in the portfolio. computed by subtracting liabilities from portfolio assets and dividing by shares outstanding
mutual fund characteristics - advisor managages portfolio - funds provide diversification investing in diff comanies - have minimum investment and can add more for small amounts -allow investments at reduced sales charges with breakpoints for larger deposits -investor can vote
mutual fund characteristics -funds offer automatic reinvestment of cap gains - tax liabilities are simplified -fund offers withdrawl plans -funds have reinstatement provisions - sold in whole or fractions -investor can liquidate portion of holdings
Public offering Price (POP) purchase price of fund shares. usually bought at NAV with additional sales charge at beginning (front load), at end (back load), quarterly (level or 12b-1) or not charged (no load)
NAV increases market value of securities increases, fund recieves dividends, fund receives interest, liabilities decline.
NAV decreases market value of securities declines, fund distributes dividends, fund distributes capital gains, liabilities increase
NAV does not change manager buys or sells securities, fund issues shares, fund redeems shares.
sales charges FINRA will not let members have these in exess of 8.5% of the POP. members selling mutual fun contractual plans may not have one in excess of 9% of POP over life of plan.
12-1 B fees they are fees dedcuted quarterly as a flat dollar amount as a % of funds total NAV. they may not exceed .75% of a funds yearly assets, and must reflect anticipated level of distributions services. must be re-approved annually by BOD
growth fund a diversified common stock fund that has captial appreciation as main goal. invests in companies that reinvest most of their earnings for expansion, resarch, or development. aggressive funds are called performance funds
income funds mutual fund that seeks to provied stable current income by investing in securities that pay interest and dividends
growth and income funds a mutual fund whose aim is to provide for a degree of both income and long term growth. invest with companies who have high growth potential and pay high dividends
specialized (sector) funds mutual fund whose objective is to capitalize on the return potential provided by investing in a particular industry. they have 25% of their assets invested in their specialties. (gold, technology, utilities)
special situation funds buy securitites of companies that my benefit form a change within companies or in the economy. takeover candidates and turnaround situations are common investments
blend/core funds stock funds with portfolio composed of a number of different classes of stock. it allows investors to diversify their equity holdings and maximize their growth returns while owning just a single stock fund.
index funds invest in securities to mirror a market index. it generally has lower management costs than other types of funds.
foreign stock funds invest mostly in securities of companies that have their principal business outside of the US. long term capital appreciation is the primary objective, but some do seek income
international funds invest only in the securities of foreign companies
worldwide funds invest in the securities of both US and foreign countries.
principal protected funds offer guarantee of principal on a set future date that provides for high returns through investment in higher risk. limited in that are closed to new contributions, intrim gains gained on principal are not protected, and high operating expense ratios
balanced funds invest in stocks for appreciation and bonds for income. might contain 60% stocks and 40% bonds.
asset allocation funds split investments between stocks for growth, bonds for income, and money market instrumnents or cash for stability.
corporate bond funds seek high current income. have increases credit risk, but provide higher yield to investors than govt and municipal bonds.
tax free bonds invest in municipal bonds or notes that produce income from federal income tax
US govt and agency security funds purchase securities issued by the US treasury of an agency of the US govt. seek current income and maximum safety as main goal.
fund of funds type of mutual fund that invests solely in other mutual funds, they can be pure growth, pure income, or both.
funds of hedge funds allow ordinary investors to invest in hedge funds. they diversify among several hedge funds and give indirect access to hedge fund investments. have must lower initial investment requirements, and expenses and risks tens to be higher than other funds.
money market funds open-end funds that serve as temporary holding tanks for investors who are most concerned with liquidity and safety. investors do not pay sales charge when purchased. many offer check writing privileges
beta means of measuring the volatility of a security or portfolio in comparison with market. Beta > 1 means securities are more volatile. Beta < 1 means securities are less volatile than market.
quantitative risk management baes on general market conditions, interest rates, and price trends in the general economy to guide portfolio purchases and sales. or could be based on assessments of stocks performance. risk cannot be eliminated only managed.
defensive strategies have safety as main priority. often invest in blue chip stocks with moderate or low volatility.
aggressive strategies want to maximize investment returns by taking higher risks. selects highly volatile stocks, buys on margin, and uses put and call strategies
balanced strategies combo of aggressive and defensive. have a portfolio with many different securities.
growth portfolio focus on stocks of companies whose earnings are growing faster than most other stocks and are expected to continue to do so.
value portfolio concentrate on undervalued or out of favor securities whose price is low relative to the company's earnings or book value and whose earnings prospects are believed to be unattractive by investors and securities analysts.
mutual fund performance each fund must disclose the average annual total returns for 1, 5, and 10 year periods. must reflect full sales loads with no discounts.
mutual fund taxation investors pay taxes on any dividends or capital gains the fund distrubutes
portfolio turnover 100% means the fund replaces its portfolio annually and it holds its securities on average for less than one year. a turnover rate of 25% has an average holding period of 4 years.
voluntary accumulation plan allows a customer to deposit regular periodic investments on a voluntary basis. it is designed to help the customer form regular investment habits while still offering some flexibility
dollar cost averaging a person invests identical amounts at regular intervals. this form allows the individual to purchase more shares when prices are low and fewer shares when prices are high.
contractual plans salesperson supplies investor with two prospectus':L the one for the contractual company itself, and one for the mutual fund that the company would purchase. the investor would pay periodic payments and the company agreed to purchae shares on payment
fixed dollar withdrawal plan periodic withdrawl of a fixed dollar amount. the fund liquidates enough shares each period to send that sum. the money can be more or less than the account earnings during the period
fixed percentage withdrawal plan either a fixed number of shares or a fixed percentage of the account is liquidated each period
fixed time plan customers liquidate their holdings over a fixed period of time.
withdrawal plan disclosures rep must never promise an investor a guaranteed rate of return, must stress the possibility to exhaust the account earlier than expected, and never use charts or tables unless the SEC specifically clears their use.
combination annuity investor contributes to both the general and separate accounts. this provides for guaranteed payments as well as inflation protection.
Assumed Interest Rate (AIR) conservative projection of the performance of the separate account over the estimated life of the contract. only applies if the investor annuitizes. if separate account is better than AIR, next months payment increases and vise versa.
unit refund option if the annuitant chooses this, a minimum number of payments are made upon retirement. if value remains in the account after the dealth of the annuitant, it is payable in a lump sum to the annuitant beneficiary.
what annuity option typically pays the largest monthly income? life only
what annuity option typically pays the lowest monthly income? joint life with last survivor
whole life scheduled premium, fixed death benefit, premiums to general account, guaranteed cash value
variable life scheduled premium, minimum guaranteed plus variable death benefit, premiums to general and separate account, no guaranteed cash value
universal variable life flexible premium, variable death benefit, premiums into separate account, no guaranteed cash value.
deductions from the premium the more that these occur, the less money available for the investment base in the separate account. they come from administrative fees(one time), sales loads(average 9%; sales charge 50% front load or ave 9% in 20 yrs), and state premium taxes.
deductions from the separate account normally reduce the investment return payable to the policy owner. charges include mortality risk fee(covers risk of living longer than expected), expense risk fee(cost of issue is more than expected), investment management fee.
calculations with variable life death benefits calculated annually, cash value calculated monthly, unit values calculated daily.
policy loans -75% of CV must be available after 3 yrs -insurer is not required to loan 100% of CV -if loan exceeds policy CV, payment must be made within 31 days -if insured dies with loan outstanding, DB pays for it -oustanding loans on surrender taken from CV
contract exchange policy owner has right to exchange variable life for whole life policy. it is allowed without evidence of insurability. the contract exchange provision must be avaiable for 2 years, and no medical underwriting is required
sales charges on variable life may not exceed 9% of the payments to be made over the life of the contract. The contracts life is a maximum of 20 years.
refund provisions there must be a free look period of 45 days from execution of policy or 10 days from time the owner receives the policy. if the policy is terminated within 2 years, the CV plus sales charge of 30% in yr 1, yr 2 is 10%, and yr 3 is only sales charge
variable life voting rights they get one vote for every $100 of cash value.
variable life, life settlements the transactions are subject to federal securities laws and all applicable FINRA rules. your firm must receive bids from multiple sources in the secondary market
Created by: Jseveska
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