Unit 4 - Packaging Investments Flashcards
These are portfolios that are made up of other investments, primarily stocks and bonds.
Packaged investments
This is a corporation or trust that pools investors’ money and then invests that money in securities on their behalf.
Investment company
Investment companies invest the money based on ___ and ____.
Growth and income
How do investment companies raise capital?
Selling shares to the public.
Investment companies must abide by the same registration and prospectus requirements imposed by the ___ ___ of ___.
Securities Act of 1933.
Investment companies are regulated by the ____ ___ ___ of ___/
Investment Company Act of 1940.
This classifies investment companies into three broad types.
Investment Company Act of 1940.
What are the three types under the Investment Company Act of 1940?
- Face-amount Certificate (FAC)
- Unit investment trusts (UIT)
- Management investment companies.
Subaccounts within variable annuities are defined as
UITs or open-end management investment companies
This is a contract between an investor and an issuer in which the issuer guarantees payment of a stated sum to the investor at some set date in the future.
Face-amount certificate (FAC)
Under FAC, the investor agrees to pay issuer a set amount of money, either as a ___ ___ or in ___ ___.
Lump sum or in periodic installments
If the investor pays for the certificate in a lump sum under FAC, the investment is known as
Fully paid FAC
This is an investment company organized under a trust indenture. They do not have BOD but instead, trustees.
UITs
These create portfolios of debt or equity securities designed to meet the company’s objectives. They sell redeemable interests. May be fixed or non fixed.
UITs
What does a debt fixed UIT purchase?
A portfolio of bonds and terminates when the bonds in the portfolio mature.
What does an equity UIT purchase?
A portfolio of stocks and terminates at a predetermined date.
Since fixed UIT portfolios are ____, there is no need for active management and little or no portfolio turnover.
Static
____ do not generally assess management fees.
UITs
____ and ____ are not managed.
FACs and UITs
____and ____ do not trade in the secondary market.
FACs and UITs
What is the main difference between close end and open end?
Close end limits its offering of shares while open end offers new shares to the public.
This type of company will raise capital for its portfolio by conducting a common stock offering.
Closed end
What is an IPO?
Selling shares to the public in an initial public offering
In closed end companies, within the ____ _____, the company registers a ___ number of shares with the SEC and offers them to the public with a prospectus for a ____ time through underwriters.
- Initial offering
- Fixed
- Limited
Once all shares have been sold in a close end company, the fund is ____ to new investors.
Closed
Why do funds usually elect to have a closed end company?
Limited amount of securities available
Closed end funds can issue ___ ___ , ___ ____ and ___ ____.
Common stock, preferred stock and debt securities.
Closed end companies are also called
Publicly traded funds
True of False: Closed end companies can buy or sell in the secondary market.
True
____ and ___ determine bid prices and ask prices for closed end companies.
Supply and demand
Closed end fund shares may trade ___ or ____ the shares NAV.
Above or below
What is a funds NAV?
Assets minus its libabilities
What is the NAV per share?
Funds NAV divided by the number of outstanding shares
This type of company only issues one class of security, which is common stock.
Open end companies
Open end companies do not specify the ___ ____ of shares it intends to issue but registers an ____ ____ with the SEC.
- Exact number
2. Open offering
Open end can raise an ____ amount of investment capital by continuously issuing new shares.
Unlimited
When investors want to sell their holdings in a mutual fund, the fund itself ____ those shares at the funds current ____.
- Redeems
2. NAV
Mutual funds shares do not trade in the ____ ____.
Secondary market
Mutual funds ____ shrinks when investors redeem shares but so does the number of ____ ____,
- Capital
2. Outstanding shares
True or False: With a mutual funds, the value of each share will fall as a result of redemption,
False. The value of each share will NOT fall as a result of redemption.
When a client acquires mutual fund shares, she pays the current ___ ___ ___.
Public offering price (POP)
When are mutual funds priced?
At the end of each business day
With mutual funds, sellers receive the next calculated ____ and buyers pay the next calculated ____.
- NAV
2. POP
For mutual funds, when do transitions requests need to be entered by?
4:00pm
Any requests to buy or sell mutual funds that are entered after 4:00pm will receive the ____ ____ ___’s NAV or POP.
Next business day’s
Even though mutual funds only issue common stock, the funds themselves can purchase ___, ____ and ____.
Common stock, preferred stock and bonds
Describe the characteristics below for an Open End fund:
- Capitalization
- Issues
- Shares
- Offerings and trading
- Pricing
- Shareholder rights
- Ex-date
- Capitalization: Unlimited, continuous offering of shares
- Issues: Common stock only
- Shares: Full or fractional
- Offerings and trading: Sold and redeemed by fund only, must redeem shares
- Pricing: NAV + sales charge
- Shareholder rights: Dividends, voting
- Ex-Date: Set by BOD
Describe the characteristics below for a Closed End fund:
- Capitalization
- Issues
- Shares
- Offerings and trading
- Pricing
- Shareholder rights
- Ex-date
- Capitalization: Fixed, single offering of shares
- Issues: Common and preferred stock
- Shares: Full only
- Offerings and trading: Initial primary offering, secondary market, does not redeem shares
- CMV + commission
- Dividends, voting, preemptive
- Set by the exchange or FINRA
This is an insurance contract designed to provide retirement income.
Annuity
The term ___ refers to a stream of payments guaranteed for some period of time.
Annuity
How long does a stream of payment occur from an annuity?
Either the life of the annuitant, until the annuitant reaches a certain age or for a specific number of years.
Stream of payments are ____.
Guaranteed
Because an annuity can provide an income for the rest of someone’s life, the contract has a ____ ____.
Mortality guarantee
What is someone’s greatest fear when retiring?
Outliving his income
This provides an opportunity to keep pace with inflation
Variable annuity
Who assumes the investment risk rather than the insurance company for a variable annuity?
The investor
When an investor assumes the investment risk, the annuity is considered a _____.
Security
Variable annuity provide a ___ benefit.
Death
Beneficiaries under variable annuities will receive the ____ of the ____ amount or the ____ ____ if the owner dies during the accumulation period.
- Greater of the
- Contribution amount
- Current value
For variable annuities, premiums are invested in
Separate accounts
____ in separate accounts are not guaranteed and a loss of capital is possible.
Returns
If the investment manager of an insurance company is responsible for selecting the securities to be held in a separate account, the separate account is ____ ____ and must be registered under the ___ ___ ___ of ____.
- Directly managed
2. Investment Company Act of 1940.