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SIE > Chapter 5 Other Pooled investments > Flashcards

Chapter 5 Other Pooled investments Flashcards

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SIE Exam flashcards
1
Q

What is a Municipal Funds Security?

A

Funds or trust offered by states or local governments.
- Regulated under MSRB
- Ex: 529 Plans, ABLE programs, local government investment pools

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2
Q

What is a Program Disclosure Document?

A

Used with the sale of municipal securities

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3
Q

What are section 529 Plans?

A

State sponsored qualified tuition programs
- Money put in= gifts
- No income limits
- 16,000 Per year
- Lump sum to 5 years or $80,000

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4
Q

What is gift tax?

A

If you contribute more than what is allowed you will be taxed on the difference.

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5
Q

What is 529 Prepaid Tuition Plan?

A

Lock in todays price for the future
- Offered by state and give better returns than bank.
- ONLY receives AVG of in-state public colleges

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6
Q

What is 529 Savings Plan?

A

Invests any amount into mutual fund.
-Additional in-state plan advantages
-Free from federal taxation
- Can be transferred to another relative

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7
Q

What is direct Sold?

A

Purchases the plan directly through their states 529 plans website
- NO loads & annual fees

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8
Q

What are advisor sold plans?

A

Offered through brokers deals in state
- Third party charges

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9
Q

What is a qualified expense?

A

Costs associated with attending accredited colleges and universities
- Non qualified expenses are subject to ordinary income taxes + 10% penalty

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10
Q

What is the (529 A)ABLE PROGRAM?

A

Achieve Better Life Experience
- For people with living disabilities
- Hold up to $100,000
- Qualified withdrawals are federally tax free
- Can seek out of state options

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11
Q

What are local government Investment Pools (LGIP)?

A

Investment pools established by state and local governments that allow investments in public funds.
- Regulated by MSRB
-Safety of principal and daily liquidity
- Not for general public

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12
Q

What are Exchange-Traded Funds? (ETF)

A

Exchange listed product investing in a portfolio f securities. Shares sold to the underwriter (Authorized participant) who offer shares for purchase in the secondary market.
- Registered as UIT or Open investment companies
- Trade on Exchanges
- Passively managed

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13
Q

What is Shorting Stock?

A

Borrowing stock from the broker dealer, selling it to an investor at the current market value, and purchasing the stock later to return to the lender.
- Believes price of stock will drop

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14
Q

What are Leveraged ETFs?

A

Attempts to deliver returns that are multiples of the market they are tracking.
- Suitable for long term investments

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15
Q

What are Inverse Leveraged ETFs?

A

Attempts to produce returns that are opposite of the index they are tracking by using shorting techniques
- Suitable for short term investments

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16
Q

What are Exchange Traded Notes?

A

Unsecured debt obligation of a financial institution issuing the security.
- Backed by the issuer
- Subject to default
- Set maturity date
- Gains = Capital gains

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17
Q

What are Hedge Funds?

A

Security, structured as a limited partnership and mainly available to accredited investors
- Aggressive yields
- Subject to anti fraud provisions
- Info offered through private offering memorandum
- Maximum number of investors is 99, with a 3 investors being non-accredited
- Liquidated on specific dates
- First 6 months lock up provision
- Unregistered & Unregulated

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18
Q

Accredited Investor

A

Wealthy individuals with $5 million
- Institutions more than $25 million

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19
Q

Whats a Blank check Hedge Fund?

A

Looks for investments without an investment objective.

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20
Q

What’s a blind pool Hedge Fund?

A

Has a stated objective but does not specify the investment.

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21
Q

What’s Funds of Hedge?

A
  • For smaller investors
  • Registered with the Investment Company Act of 1940
  • Min $25,000 investment
  • 2 fees for Hedge and Investment Manager
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22
Q

What’s Funds of Hedge?

A
  • For smaller investors
  • Registered with the Investment Company Act of 1940
  • Min $25,000 investment
  • 2 fees for Hedge and Investment Manager
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23
Q

What is a Real Estate Investment Trust?

A

is a trust that invests in property, mortgages, and shares of other REITs
- Sells shares of benefical interest and is managed by the Board of Trustees

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24
Q

How do you Qualify for REIT tax benefit?

A

75% assets invested in real Estate.
75% of gross income from real estate activities
90% of net income is “Pass Through”

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25
Q

What are Mortgage REITs?

A

Invest in mortgages and construction loans
- Use great deal of borrowed capital

26
Q

What is Equity REITs?

A

Owns specific pieces of real estate such as apartments, shopping malls, and office buildings and are not leveraged

27
Q

What are Hybrid REITs?

A

Use strategies of both mortgage and equity REITs

28
Q

Publicly Traded REITS

A

Trade on a stock exchange
-Safer than non-traded

29
Q

Non-traded REITS

A

Unlisted and do not trade on an exchange.
- High Fees + High investment amount

30
Q

Private REITS

A

Not registered with the SEC
- Private placements are offered to qualified purchasers or accredited investors
- Exempt from sending out prospectus

31
Q

Whats a Direct Participation Program?

A
  • Where gains and losses are passed on directly to the partners based on their percentages of ownership.
  • Provides pass through income
    -Illiquid
32
Q

What is Real Estate Limited Partnerships (RELPs)?

A

Oil and gas limited partnerships. (Operation cost is deductible)
Returns are uncorrelated with the market

33
Q

What are the 4 types of oil & gas programs?

A
  • Exploratory
  • Developmental
  • Income
  • Combination
34
Q

What is tenants in common?

A

create an unequal interest in the account based on
a specific allocation, or percentage, of ownership

35
Q

What is Variable Life Insurance?

A

Permanent life insurance policy, that offer more competitive returns to potentially keep pace or hedge against inflation
- Guaranteed minimum death benefit
- Balance goes into a separate account for investments
- Investor bears investment risk

36
Q

What is Variable Universal Life Insurance?

A

Combines investments from separate account in a variable life policy
- Premiums deposited into separate account with not guarantees of growth

37
Q

What are Variable Annuity Contracts?

A

A contract where contract owner makes payments that are invested in a tax deferred account
- Future Stream of income
- Can cash out in a lump sum or make periodic payments

38
Q

What is the accumulation period?

A

Pay in phase of the annuity
-starts from the first payment made

39
Q

What is an immediate annuity?

A

Makes income after first deposit
- Can only be funded by single premium (Payment) immediate annuities

40
Q

What is a deferred annuity?

A

Will make future payments

41
Q

What are variable annuity Contracts?

A

Aggressive investment choice and allocates premium into a variety of investments in separate account
- Sold through prospectus
- To hedge against inflation
- Has market risk
- Regulated by the SEC

42
Q

What are Accumulation Units?

A

Are an accounting method used to measure the contracts owners interest in the separate account

43
Q

What are annuity Units?

A

They are converted accumulation units when ownership of assets will change.

44
Q

What is Variable Payout?

A

Number of annuity units to be paid each cycle
Based on:
- Principal Balance of Contract
- Annuitant’s Age
- Payout Option Selected
- Assumed Interest Rate

45
Q

What is Assumed Interest Rate? (AIR)

A

Is a percentage used in determining the amount of the initial payment

46
Q

What is a Variable Annuity Contract Life Cycle?

A

Premiums are invested
Choose sub accounts to invest in
Grow tax deferred
Traded in for lifetime income stream

47
Q

What is Mortality Guarantee?

A

Annuitant will out life their life expectancy

48
Q

What is the mortality Expense Charge?

A

assesses a charge against the contract value
- Compensates the insurance company for the life expectancy risks

49
Q

What is expense Guarantee?

A

Compensates the insurance company for future operating expense risks

50
Q

What is Death Benefits?

A

Proceeds go to beneficiary

51
Q

What kind of sales charge does variable annuities have?

A

Contingent Deferred sales charge
- Declines everytime the investor withdraws money

52
Q

What are the charges and fees with variable annuity contracts?

A
  • Investment Management Fees
  • Mortality and Expense Risk
  • Premium Taxes
  • Administrative Expenses
  • Charges for Special Features
53
Q

What is the Prospectus Requirements for Variable Annuity Contracts?

A

Customer must receive a copy prior to or at the time of sale
- All fees and risks

54
Q

What are the voting rights for Annuity Contracts?

A

Has the right to vote on matters affecting the separate account
1 Vote = Every $100

55
Q

Hedge funds are

A

Not registered with the SEC and not regulated under the Investment Company Act of 1940

56
Q

What would be payable to a beneficiary in the event an annuitant dies during the accumulation period?

A

The greater of the annuity balance or the amount paid into the plan

57
Q

The insurance company will charge for the insurance to cover annuity payout options that can provide guaranteed income for life.

A

Mortality Expense Charge

58
Q

Annuitization of a variable annuity occurs when an investor

A

Begins receiving an income stream, usually as a lifetime benefit

59
Q

If a general partner of a direct participation program demands additional funds from the limited partners and the limited partners do not pay what happens?

A

Their ownership in the program can be reduced

60
Q

Which of the following securities would typically trade on either NASDAQ or a traditional stock exchange?
A) Unit Investment Trusts
B) Variable Annuities
C) Open end Funds
D) ETFs and ETNs

A

D) ETFs and ETNs

SIE (12 decks)

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