Packaged Securities Flashcards
Packaged securities is the collective term for _________. (Three things.)
- Investment companies
- Variable annuities
- REIT’s
A REIT must have ___% of assets invested in _______. (5 things.)
Greater than or equal to 75%
- Real estate.
- Cash
- Gov’t. bonds
- Other REIT’s
- Mortgatges
A REIT must pay out _____% of its annual taxable income as dividends, exclusive of _____.
Greater than or equal to 90%
Capital gains
A REIT must have at least ____ shareholders with a concentration of _____% outstanding shares with 5 or fewer share holders.
100
Less than or equal to 50%
For a REIT, at least _____% of its gross income must be derived from ________. (3 things.)
75%
- Rent
- Gains from sales
- Mortgage interest
Programs that allow the investor to participate directly in the flow through of tax advantages.
Direct Participation Programs
Where are mutual fund shares purchased and redeemed?
Directly from the fund.
Mutual funds sell on a continuous or fixed basis?
Continuous.
What do mutual funds invest in?
Fixed income, Equity, Real Estate, and Cash
Closed -end companies sell on a continuous or fixed basis?
Fixed.
Do Exchange Traded Funds operate on an active or passive management strategy?
Passive
What differentiates ETF’s from closed-end funds?
ETF’s track various indices; and may be purchased on margin and sold short.
Investment company that offers a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable “units” to investors for a specific period of time.
Unit Investment Trust
What are Unit Investment Trust designed to provide?
Capital appreciation and/or dividend income.
Privately organized investment vehicles (often designed as limited partnerships) that manage publicly and privately held securities or derivatives.
Hedge Funds.
This type of hedge fund management style takes positions in securities based upon a belief in the direction of their price.
Market Directional.
This type of hedge fund management style utilizes strategies that attempt to be on the right side of trades involving securities of companies in events such as mergers, acquisitions, and bankruptcy.
Corporate Restructuring
Name three types of corporate restructuring hedge fund strategies.
Distressed securities
Merger arbitration
Event driven funds
Funds that purchase severely undervalued securities hoping that a reorganization will benefit their value.
Distressed securities
When two companies combine and the shares of the acquired company experience an increase in value, with the expectation that the acquired company will achieve better results.
Merger arbitration
This takes advantage of many situations involving corporate restructuring including spin-offs, with a view of selecting the security expected to benefit from the restructuring.
Event driven funds
The movement of the price of a futures contract towards the spot price of the underlying cash commodity as the delivery date approaches.
Convergence
Convergence trading includes: (4 things.)
- Fixed income arbitrage
- Convertible bond arbitrage
- Statistical arbitrage
- Relative Value Arbitrage
This hedge fund strategy looks to take advantage of earning alpha or beta from whatever opportunity presents itself.
Opportunistic
Alpha
Excess return over market yield.
This hedge fund strategy invests in equities, fixed income, and currencies across the globe looking to benefit from favorable conditions in the different markets.
Global Macro
This contains several hedge funds with varying strategies. It uses tactical asset allocation among the funds to select the ones whose strategies are apt to outperform and exit those expected to deliver a mediocre performance.
Fund of funds.
This refers to securities that are not publicly traded.
Private equity.
When public companies buy all their own stock to become private.
Leveraged buy out
Term that means to fund start-ups.
Venture capital.
A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. This type of financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full.
Mezzanine financing.
A structured product that offers returns from a basket of equities an have a fixed term of 5-7 years, after which they return principal and gains.
Principle Protected Securities (PPS)
These are designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security, such as a conventional investment-grade bond, and replacing the usual payment features (e.g. periodic coupons and final principal) with non-traditional payoffs derived not from the issuer’s own cash flow, but from the performance of one or more underlying assets.
Structured products
A corporation or trust engaged in the business of investing the pooled capital of investors in financial securities. This is most often done either through a closed-end fund or an open-end fund (also referred to as a mutual fund).
Investment Companies
What are the three types of investment companies?
- Closed end funds
- Open end funds (mutual funds)
- Unit Investment trusts (UIT’s)
These funds offer a fixed number of shares in their IPO, and thereafter are traded on the NASDAQ.
Closed end funds
Funds that seek to invest in markets where the securities tend to be more illiquid are usually ________.
Closed end funds
A company that pools money from many investors to buy stocks, bonds, money market instruments, etc.
Mutual funds.
How is the price paid for mutual fund shares set?
NAV
NAV
Net Asset Value
Hybrid of open and closed end funds. They typically issue redeemable securities in a one time public offering of a fixed number of shares.
Unit Investment Trusts (UIT’s)
This is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, these trade like a common stock on a stock exchange, and experience price changes throughout the day as they are bought and sold.
Exchange Traded Funds (ETF’s)
This must comply with far more oversight than any other form of security.
Investment company distributions.
T/F
Firms can buy shares of mutual funds on their own account in the expectation that the price will rise.
False.
T/F
Funds set share price, and reps cannot take smaller commission or discount a selling price to take shares away from a competitor.
True
Which of the following does not have to be SEC registered?
Closed end; Open end, UIT, hedge fund
Hedge fund
Which of the following are not redeemable?
Closed end; Open end, UIT, hedge fund
Closed end
Which of the following will be exchange traded?
Closed end; Open end, UIT, hedge fund
Closed end and UIT
Which of the following’s price is set by the NAV?
Closed end; Open end, UIT, hedge fund
Open end and Hedge
NAVPS
Net Asset Value Per Share
NAVPS calculation
(Market Value of all Assets-Liabilities)/Shares Issued
This is the share’s bid price.
Net Asset Value Per Share
T/F
NAVPS is the same as the offering price.
False
Sales charge is a % of the _______ price.
Offering
This is done when investors want to invest an additional set $ amount into their fund every month.
Dollar Cost Averaging
T/F
Mutual funds allow for fractional share ownership for the dollar cost averaging investor.
True.
T/F
Sale or redemption of a mutual fund will not be taxed, regardless of gain or loss.
False.
When a client redeems shares by selling them back to the fund, they will do so at ______ price.
NAVPS.
Mutual funds will have a sales charge of ____% for the underwriter and ____% for the selling group member.
1%; 7%
What is it called when mutual funds eliminate the underwriter.
No load funds.
For load mutual funds, the dollar amount for the purchase of the fund’s shares that qualifies the investor for a reduced sales charge (load). The purchase may either be made in a lump sum or by staggering payments within a prescribed period of time. The latter form of investment purchase in a fund must be documented by a letter of intent.
Breakpoint
Allows a shareholder to receive reduced sales charges when the amount of mutual funds purchased, plus the amount already held, equals this kind of breakpoint. In addition, there is no time limit on how long the mutual fund needs to be held to qualify for a this.
Rights of Accumulation (ROA)
A fund that invests exclusively in muni’s and passes the federal income tax exemption on to its shareholders.
Municipal Bond Funds
Very secure fund that invests in short term instruments such as T-Bills and ban issues CD’s. Usually low yielding, but this is good when interest rates are rising.
Money Market Funds
Funds that invest in fixed income securities including preferred stock.
Bond Funds
This is essentially a full investment portfolio within a mutual fund.
Balanced Fund.
What do mutual fund distributions consist of?
Ordinary dividends and capital gains.
Unless specified differently in the prospectus, mutual funds will _______ dividends.
Distribute.
Short term capital gains distributed from one mutual fund can/cannot offset capital losses from another fund.
Cannot.
In addition to distributing dividends and capital gains, a fund may make a payment to investors that is greater than earnings and profits. This is not taxable.
Return of investment.
Even though variable annuities usually invest in mutual funds, they differ in three ways:
- Pay out periodically for the rest of the clients life.
- They have a death benefit that will go to the beneficiary.
- VA’s are tax deferred.
Beneficiary for a death benefit will receive:
All the money in the account or some guaranteed minimum. (Whichever is more.)
Name the two phases of a variable annuity.
Accumulation and Pay-out
For VA’s, a surrender charge will usually apply if money is withdrawn within _____ of purchase.
6-8 years
1035 Exchange
Exchanging an existing VA for a new one will not incur sales charges.
Equal to a percentage of the accounts value to compensate insurance company for risks assumed under the contract.
Mortality and Expense Risk Charge
Insurer may deduct charges annually to cover record keeping and other expenses.
Administrative Fees
Investor indirectly pays fees and expenses imposed by the mutual fund that are underlying investment options for the VA.
Underlying Fund Expenses.
Mortality and Expense Risk Charge is usually ______%.
1.25
Administrative fees are usually a flat fee of $___ or ___%.
$25-30 or .15%.
