Kaplan Section 2 Flashcards
Balanced Fund
Balanced Funds Invest in both equities and debt issues but not necessarily in equal amounts. The percentage between the 2 can be adjusted by the investment adviser periodically but it is specific.
This type of fund attempts to combine the objectives of growth and current yield by diversifying it’s portfolio among companies showing long term growth potential and companies currently paying high dividends.
Good place to begin investing for high total return and low volatility
Suitable for MODERATE investors
Specialized Fund
A specialized fund invests at least 25% of it’s assets in one particular industry or region. Generally it’s main objective is capital or price appreciation.
Also called a Sector fund.
What does the public offering price for a mutual fund as quoted in the financial press reflect?
The Maximum Sales Charge collected by the fund distributor
The public offering price for a quoted mutual fund includes the maximum sales charge that the fund distributor may charge
Growth and Income Fund
This type of fund would be more conservative than a growth fund.
It’s portfolio would consist of growth stocks as well as some value stocks.
They invest in:
Common Stocks
Preferred Stocks
Convertible Securities and High yielding bonds
Suitable for MODERATE investors
Index Annuities
Are NOT classified as securities.
Index Annuities have a guaranteed minimum return and a longer surrender period than Variable annuities.
Money Market Funds
Include debt instruments that mature in 1 year or less. Money Market funds include the following:
- Commercial Paper
- T-Bills(treasury Bills)
- Bankers Acceptance
- Negotiable, unsecured bank certificate of deposits(jumbo CD’s)
T-bonds if maturing in less than a year
Money Market Mutual fund shares are ALWAYS purchased at NAV
Variable Annuities Guarantee:
Payments for life (mortality expense) and that expenses will not increase above a specified level
Under No circumstances can an investment company lend money to one of it’s officers
Under NO CIRCUMSTANCES can an investment company lend money to one of it’s officers
Growth Fund
Might be diversified with investments in common stock showing the potential for growth.
Objective may be long-term capital appreciation where firmly established growth companies make up the portfolio, or aggressive growth with the portfolio invested in new companies.
Growth funds have low yields, since they distribute little in the way of dividends.
Growth funds invest chiefly in common stock which historically provides greater protection from inflation than debt securities.
Look to get high Price-to-Earnings Ratio stocks
Suitable for AGGRESSIVE investors due to the high risk
Variable Life Insurance
Variable Life insurance contracts Have fixed, scheduled premiums(payments)
By surrendering the policy the insurance company is required to pay out the cash value(you cash it out)
Death benefits are adjusted ANNUALLY
Holders of variable life insurance receive one vote for each $100 of cash value t
Mutual Fund Required disclosures when starting a withdrawal plan
Required disclosures from a registered rep include:
- Only using charts or tables the SEC Specifically clears
- NEVER promising a guaranteed minimum rate of return.
- Stressing to the investor that it is possible to exhaust the account EARLIER than expected
Face Amount Certificate Company(FACC)
The 1 out of 3 investment companies pretty much no longer existing….the other are mutual fund(management company) and UIT(unit investment trusts)
FACC is where investors either deposit a lump sum or make periodic payments and will receive a guaranteed fixed amount at a stated time in the future(face amount)
Variable Annuity Investor Rights Include:
Owners of Variable Annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser.
Unit holders of a variable annuity vote on the basis of the # of units they own
(Withdrawals from a non-qualified variable annuity are made on a LIFO basis so the taxable earnings are considered taken out before principal)
Public Offering Price is equal to NAV divided by NAV minus the sales charge
Public Offering Price is equal to NAV divided by NAV minus the sales charge.
Example: NAV $19 with 5% sales charge
$19 divided by (100%-5% or .95) equals 20
12b-1 fees
12b-1 fees are not options on closed end management companies and limits are set by FINRA(not sec)
12b-1 fees may be used to:
- Cover the costs associated with soliciting new investments into the fund
- Includes costs associated with Advertising, sales literature and the mailing of prospectuses to new investors.
(does not cover portfolio management fees)
Hedge Funds
Hedge Funds are not required to register with the SEC.
(so they’re not covered under invest act of 1940)
Hedge funds are only available to accredited investors
Civil Penalties under “The Insider Trading and Securities Fraud Enforcement Act of 1988” can be:
Civil Penalties under The Insider Trading and Securities Fraud Enforcement Act of 1988 can be the greater of 1 million dollars or 300% of the profits made or losses avoided
Reassigned Beneficiary under the 529 plan
There are very very restrictions on the first beneficiary of a 529 plan, but if the beneficiary has to be reassigned it must be to a close relative.
Coverdell ESA(educational savings account)
There is a maximum contribution amount and it’s on a per child basis
Funds are distributed free of federal tax if used for educational expenses and they don’t exceed the expense limit for a single year. (varies per state etc).If the annual amount exceeds the limit a portion will be considered(taxed as) income and a 10% penalty tax may apply.
Funds must be used by age 30 or they are distributed and taxed as income with the exception of special needs children that are not subject to any age restriction.
Rollovers can be made to another Coverdell ESA of the same beneficiary or to the Coverdell ESA of another family member. Rollovers must be made within 60 days and are limited to one per 12 month period
529 College Savings Plan
Contributions are made with after tax dollars and any earnings grow tax free
No Income Limitations. Contributions limits vary from state to state
Most states have a maximum contribution of more than 300k
The max that one person may contribute to a 529 plan for someone is 5 times the current year’s gift tax exclusion
You can open a 529 account for pretty much anyone but to re assign a beneficiary it must be to a close relative to avoid any fees or taxes.
Funds used for non qualified educational expenses are subject to ordinary income tax and subject to a 10% IRS penalty
