Investment Companies and Packaged Products Flashcards

A variable annuity differs from a fixed annuity in that:

Answer: Variable annuity returns depend on the performance of underlying investment subaccounts

Variable annuity payouts fluctuate based on the performance of selected subaccounts, while fixed annuities pay a guaranteed amount.

What is a unit investment trust (UIT)?

Answer: An investment company with a fixed, unmanaged portfolio that terminates on a set date

A UIT holds a fixed portfolio of securities and has a set termination date, unlike mutual funds that are actively managed.

Which of the following is a characteristic of a Real Estate Investment Trust (REIT)?

Answer: REITs must distribute at least 90% of taxable income to shareholders

To qualify as a REIT, the trust must distribute at least 90% of its taxable income to shareholders each year.

Breakpoints in mutual fund investing refer to:

Answer: Investment thresholds that qualify investors for reduced sales loads on Class A shares

Breakpoints are investment levels at which Class A mutual fund sales loads are reduced as a reward for larger investments.

What distinguishes a hedge fund from a registered mutual fund?

Answer: Hedge funds are not registered with the SEC and are limited to accredited investors

Hedge funds operate as private funds exempt from SEC registration and restrict participation to accredited investors.

A letter of intent (LOI) in mutual fund investing allows a shareholder to:

Answer: Qualify for a breakpoint discount over a 13-month investment period

An LOI allows investors to commit to reaching a breakpoint investment level over 13 months to receive the reduced sales load upfront.