Investment Companies/Retirement Plans

Question 1

What does an investment company do for an individual?

Answer 1

Collects funds and purchases securities that are consistent with the company’s objective. It offers:

• Diversification
• Profession selection of investments
• Ongoing management

Question 2

What are the 3 types of Investment companies? (Sec act of 1940)

Answer 2

1. Face amount certificate company
2. Management Company
3. Unit Investment Trust (UIT)

Question 3

What is a face certificate company?

Answer 3

Total payments made are less than face value at maturity (obsolete).

Question 4

What is a management company?

Answer 4

Investment co. organized as a corporation, issuing shares of stock. There are 2 types - Open end and closed end management companies

Question 5

What is in an Open-end management company?

Answer 5

Mutual funds and ETFs. Redeemable

Question 6

What is in a closed-end management company?

Answer 6

Fund has a ONE TIME issuance of stock. They are publicly traded securities that trade like regular stocks. Can be traded but NOT REDEEMABLE

Question 7

What is in a Unit investment trust?

Answer 7

It is organized under a trust indenture (rather than a corporation) and can only issue “shares of beneficial interest”. There are 2 types: Fixed and Participating UIT

Question 8

What is a fixed UIT?

Answer 8

Trust selects a fixed portfolio of securities, and once selected, is NOT changed (no buying or selling, no ongoing management). Trust then sells units. When the bonds mature, trust self-liquidates

Question 9

What is a participating UIT? (variable annuity)

Answer 9

The trust invests in shares of MUTUAL FUND shares. Purchasers indirectly buy mutual funds. These are used when a customer buys a variable annuity contract

Question 10

What is a variable annuity?

Answer 10

This is used as a retirement vehicle. At retirement, investor can cash out, taking a lump sum, periodic payments, or forming an annuity