Chapter 5 Other Pooled investments Flashcards
What is a Municipal Funds Security?
Funds or trust offered by states or local governments.
- Regulated under MSRB
- Ex: 529 Plans, ABLE programs, local government investment pools
What is a Program Disclosure Document?
Used with the sale of municipal securities
What are section 529 Plans?
State sponsored qualified tuition programs
- Money put in= gifts
- No income limits
- 16,000 Per year
- Lump sum to 5 years or $80,000
What is gift tax?
If you contribute more than what is allowed you will be taxed on the difference.
What is 529 Prepaid Tuition Plan?
Lock in todays price for the future
- Offered by state and give better returns than bank.
- ONLY receives AVG of in-state public colleges
What is 529 Savings Plan?
Invests any amount into mutual fund.
-Additional in-state plan advantages
-Free from federal taxation
- Can be transferred to another relative
What is direct Sold?
Purchases the plan directly through their states 529 plans website
- NO loads & annual fees
What are advisor sold plans?
Offered through brokers deals in state
- Third party charges
What is a qualified expense?
Costs associated with attending accredited colleges and universities
- Non qualified expenses are subject to ordinary income taxes + 10% penalty
What is the (529 A)ABLE PROGRAM?
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
What are local government Investment Pools (LGIP)?
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
What are Exchange-Traded Funds? (ETF)
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
What is Shorting Stock?
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
What are Leveraged ETFs?
Attempts to deliver returns that are multiples of the market they are tracking.
- Suitable for long term investments
What are Inverse Leveraged ETFs?
Attempts to produce returns that are opposite of the index they are tracking by using shorting techniques
- Suitable for short term investments
What are Exchange Traded Notes?
Unsecured debt obligation of a financial institution issuing the security.
- Backed by the issuer
- Subject to default
- Set maturity date
- Gains = Capital gains
What are Hedge Funds?
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
Accredited Investor
Wealthy individuals with $5 million
- Institutions more than $25 million
Whats a Blank check Hedge Fund?
Looks for investments without an investment objective.
What’s a blind pool Hedge Fund?
Has a stated objective but does not specify the investment.
What’s Funds of Hedge?
- For smaller investors
- Registered with the Investment Company Act of 1940
- Min $25,000 investment
- 2 fees for Hedge and Investment Manager
What’s Funds of Hedge?
- For smaller investors
- Registered with the Investment Company Act of 1940
- Min $25,000 investment
- 2 fees for Hedge and Investment Manager
What is a Real Estate Investment Trust?
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
How do you Qualify for REIT tax benefit?
75% assets invested in real Estate.
75% of gross income from real estate activities
90% of net income is “Pass Through”
What are Mortgage REITs?
Invest in mortgages and construction loans
- Use great deal of borrowed capital
What is Equity REITs?
Owns specific pieces of real estate such as apartments, shopping malls, and office buildings and are not leveraged
What are Hybrid REITs?
Use strategies of both mortgage and equity REITs
Publicly Traded REITS
Trade on a stock exchange
-Safer than non-traded
Non-traded REITS
Unlisted and do not trade on an exchange.
- High Fees + High investment amount
Private REITS
Not registered with the SEC
- Private placements are offered to qualified purchasers or accredited investors
- Exempt from sending out prospectus
Whats a Direct Participation Program?
- Where gains and losses are passed on directly to the partners based on their percentages of ownership.
- Provides pass through income
-Illiquid
What is Real Estate Limited Partnerships (RELPs)?
Oil and gas limited partnerships. (Operation cost is deductible)
Returns are uncorrelated with the market
What are the 4 types of oil & gas programs?
- Exploratory
- Developmental
- Income
- Combination
What is tenants in common?
create an unequal interest in the account based on
a specific allocation, or percentage, of ownership
What is Variable Life Insurance?
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
What is Variable Universal Life Insurance?
Combines investments from separate account in a variable life policy
- Premiums deposited into separate account with not guarantees of growth
What are Variable Annuity Contracts?
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
What is the accumulation period?
Pay in phase of the annuity
-starts from the first payment made
What is an immediate annuity?
Makes income after first deposit
- Can only be funded by single premium (Payment) immediate annuities
What is a deferred annuity?
Will make future payments
What are variable annuity Contracts?
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
What are Accumulation Units?
Are an accounting method used to measure the contracts owners interest in the separate account
What are annuity Units?
They are converted accumulation units when ownership of assets will change.
What is Variable Payout?
Number of annuity units to be paid each cycle
Based on:
- Principal Balance of Contract
- Annuitant’s Age
- Payout Option Selected
- Assumed Interest Rate
What is Assumed Interest Rate? (AIR)
Is a percentage used in determining the amount of the initial payment
What is a Variable Annuity Contract Life Cycle?
Premiums are invested
Choose sub accounts to invest in
Grow tax deferred
Traded in for lifetime income stream
What is Mortality Guarantee?
Annuitant will out life their life expectancy
What is the mortality Expense Charge?
assesses a charge against the contract value
- Compensates the insurance company for the life expectancy risks
What is expense Guarantee?
Compensates the insurance company for future operating expense risks
What is Death Benefits?
Proceeds go to beneficiary
What kind of sales charge does variable annuities have?
Contingent Deferred sales charge
- Declines everytime the investor withdraws money
What are the charges and fees with variable annuity contracts?
- Investment Management Fees
- Mortality and Expense Risk
- Premium Taxes
- Administrative Expenses
- Charges for Special Features
What is the Prospectus Requirements for Variable Annuity Contracts?
Customer must receive a copy prior to or at the time of sale
- All fees and risks
What are the voting rights for Annuity Contracts?
Has the right to vote on matters affecting the separate account
1 Vote = Every $100
Hedge funds are
Not registered with the SEC and not regulated under the Investment Company Act of 1940
What would be payable to a beneficiary in the event an annuitant dies during the accumulation period?
The greater of the annuity balance or the amount paid into the plan
The insurance company will charge for the insurance to cover annuity payout options that can provide guaranteed income for life.
Mortality Expense Charge
Annuitization of a variable annuity occurs when an investor
Begins receiving an income stream, usually as a lifetime benefit
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?
Their ownership in the program can be reduced
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
D) ETFs and ETNs
