Investment Company
A corporation or trust that pools investors' money and then invests that money on their behalf
Investment Company Act of 1940
This act regulates investment companies and how they may sell securities
Face-Amount Certificate
(FAC) This is a contract between an investor and an issuer in which the issuer guarantees payment of a stated face-amount to the investor at some date (can be fully-paid if done so with a lump sum)
Unit Investment Trust
(UIT) This is an investment company organized under a trust indenture that does not have a board of directors, investment advisers, or portfolio managers, and does not trade in the second market
Redeemable Interests
(AKA Units, Shares of Beneficial Interest) This is a share of the underlying portion of an investment portfolio sold by UIT's
Fixed UIT
This term refers to a UIT that has a set end date, either the maturity on a debt UIT or end date on an equity UIT
Nonfixed UIT
This term refers to a UIT that does not have a specific end date and purchases shares of an underlying mutual fund
Management Investment Company
This type of investment company actively manages its portfolios
Closed-end Investment Company
This type of investment company issues an authorized amount of stock and accepts no new investors once that stock is sold (AKA Publicly Traded Funds)
Net Asset Value
(NAV) This is the bid price for shares in a closed-end investment company
Public Offering Price
(POP) This is the ask price for shares in a closed-end investment company
Open-end Investment Company
(AKA Mutual Fund) This type of investment company only issues common stock to investors that represents equity in the managed portfolio (only trade in the primary market)
Redeemable Securities
This term refers to the shares in an open-end investment company
Diversified Investment Company
This type of investment company passes the 75-5-10 test and is considered to have greater risk management
75-5-10 Test
This test, developed by the Investment Company Act of 1940, signifies that:
-75% of the portfolio's funds are stock from other companies
-no more than 5% of the 75% is invested in one company
-no mutual fund owns 10% of that company's stock
Nondiversified Investment Company
This is an investment company that does not pass the 75-5-10 test
Sector Fund
(AKA Specialized Fund) This type of fund has at least 25% of it invested in one industry or geographic location, they may be diversified or nondiversified
Hedge Fund
This type of investment company is not actually an investment company because it is not registered with the SEC. As a result, they are far more risky, require high minimum investments and are not very liquidable
Fund of Hedge Funds
This type of fund allows typical investors (as opposed to companies) to invest in hedge funds by being a fund composed of hedge funds
Exchange-Traded Fund
(ETF) This type of fund is meant to mimic an an index, like the S&P 500. There is no active trading so overhead fees are low, but there is commission on each transaction
Leveraged ETF
This type of ETF intends to earn a multiple of the index
Inverse ETF
This type of ETF intends to earn the opposite of the index (intended to allow investors to still gain during down-ward markets)
Leveraged Inverse ETF
This type of ETF intends to earn the opposite of the index, times some multiple
Real Estate Investment Trust
(REIT) This is a company that manages a portfolio of mortgages (mortgage REIT) or real estate (equity REIT) or both (hybrid REIT) to earn shareholders a profit
Direct Participation Program
(DPP) This type of company intends to raise capital to invest in oil, equipment, etc. and pass back all of the capital gains or losses to the investors, and they are not traded on the secondary market
Registration Requirements
A company must register with the SEC if:
-the company invest, reinvests, owns, holds, or trades securities
-40% of the company's assets are invested in non-government securities
They also must have:
-a clear investment plan
-100,000$ in assets
Margin
This term refers to borrowing money from a bank to purchase securities, this is not allowed in mutual funds
Asset-to-Debt Ratio
3:1 or 300%, this means that no more than 1/3 of an investment's company's capital may be debt
Board of Directors
This group handles the administrative side of an investment company, at least 40% must be noninterested persons (may not own more than 5% of the company)
Investment Adviser
This individual is approved by the BOD and majority of stocks vote to advise and manage the company's funds
Custodian
This term refers to a bank or broker-dealer that holds an investment company's securities for safe keeping, they maintain asset records and audits
Transfer Agent
This term refers to the person or organization that handles customer service for an investment company and sends customer confirmations, may be the same bank as the custodian
Underwriter
(AKA Sponsor or Distributor) This term refers to the organization that markets investment company shares to the public and only receives compensation during the initial transaction, they may not hold an inventory of shares
Statement of Additional Information
(SAI) This document is available in addition to the prospectus but is not necessary to make an informed decision
Forward Pricing
This term refers to when mutual funds are priced at the next day's NAV when someone opts to order shares
Sales Charge
This the compensation paid to the underwriter for marketing the mutual fund and will not be invested
Front-loaded
Mutual funds are ____________ when the sales charge is at the initial investment, as opposed to back-loaded, when the sale charge is at the payout
Class A Shares
These shares are front-loaded shares in a mutual fund
Class B Shares
These shares are back-loaded shares in a mutual fund
Contingent Deferred Sales Charge
(CDSC) This refers to a sales charge that is delayed to a certain point
Class C Shares
These are level-load shares in a mutual fund, because of the continued fees, they become expensive after 4-5 years
12b-1 Fees
(AKA Asset-based Distribution Fees) These fees are charged and reviewed quarterly. They can be up to .75% and are used for the marketing and sales of the mutual fund. To implement them, there must be a vote among the outstanding shareholders, the BOD, and
Equity Fund
This is a mutual fund that is invested in equity shares (they historically exceed inflation in ten-year windows)
Growth Fund
This type of fund is focused on capital gains over income, so they invest aggressively in stock that is expected to rise in value and is usually small-cap
Blue-chip
This term is used for funds that, while are growth-focused, they invest more conservatively in large-cap or mid-cap businesses (moderate risk)
Performance Fund
This term is used for particularly aggressive growth funds that take a lot of risks hoping for higher capital gains (high risk)
Value Fund
This type of fund is value oriented and invests in undervalued stock, they distribute higher dividends (moderate risk)
Income Fund
(AKA Equity Income Fund) This type of fund is focused on current income and invests in stocks that traditionally pay steady dividends (low to moderate risk)
Option Income Fund
This income fund focused on investing in securities that can include call options and make income by selling the call options
Growth and Income Fund
(AKA Combination Fund) This type of fund is interested in both income and growth and invests in a wide array of businesses (moderate risk)
Special Situation Fund
This type of fund invests in stocks in companies that are believed to have a large change (merger, acquisition, etc.) to profit off of this (high risk)
Blend/Core Fund
This type of fund invests in a variety of different stocks, both value and growth based with moderate risk
Index Fund
This type of fund invests in securities to mirror a market index, it has lower management fees
Foreign Stock Fund
(AKA International Fund) This type of fund invests in the stocks or companies outside of the United States, these fund have higher risk due to political and currency risk
Global Fund
(Worldwide Fund) This fund invests in the stock of companies both inside and outside of the United States
Principal Protected Fund
This type of fund guarantees the investor a return of principal (adjusted for dividends) on a set future date, or maturity date, while investing at a higher risk
Balanced Fund
(AKA Hybrid Fund) This fund invests in both stocks (for appreciation) and bonds (for income)
Asset Allocation Fund
This type of fund invests in both stocks and bonds, as well as cash, the amount of each category may change based off of market conditions
Target Fund
This is a type of asset allocation fund that is targeted towards a certain year, so people who might retire at a certain year would be interested
Bond Fund
This type of fund invests in bonds and focuses on income
Corporate Bond Fund
This bond fund invests in corporate bonds and has higher risk due to that
Municipal Bond Fund
This bond fund invests in government bonds and is federal tax exempt and more conservative
US Government Fund
This bond fund invests in government bonds or government agency bonds
Agency Security Fund
This bond fund is higher risk than US Government Fund and invests in government agencies
Fund of Funds
This is a type of mutual fund that invests solely in other mutual funds and reflects those other fund's values (growth vs income)
Money Market Fund
This fund invests in money market tools and is focused on liquidity and holding cash
Beta
This coefficient is used to compare a fund's volatility in response to market conditions. 1.0 means it is proportionate to the market, >1.0 means it is more volatile, <1.0 means it is less volatile
Defensive Strategy
This strategy is when investors want to invest in industries that perform well during economic contraction
Aggressive Strategy
This strategy is when investors are willing to accept high risk for high returns
Balanced Strategy
This strategy is when investors focus on a defensive and aggressive strategy to have a mixed portfolio
Voluntary Accumulation Plan
This plan allows the investor to invest in a mutual fund voluntarily at periodic times (meeting the minimum investment requirements) and there is no consequence for not investing, the plan just cancels and returns
Dollar Cost Averaging
This plan allows the investor to purchase a dollar amount of shares for a mutual fund at different intervals. Depending on the market conditions, they same dollar amount can buy more or less shares
Contractual Plan
This plan is no longer offered but there are still many outstanding, in which the investor pays a contract company that then invests in the mutual fund, the sales charge could be up to 9% of the projected growth
Withdrawal Plan
If a mutual fund investor meets a minimum investment, then they may qualify for this plan which manages how the cash will be liquidated
Fixed-Dollar Plan
This withdrawal plan sends periodic checks with a constant, fixed dollar amount, how long the checks will last depends on the performance of the fund
Fixed-Percentage Plan
(AKA Fixed-Share Plan) This withdrawal plan withdraws a certain amount of shares, or percentage of the account each month, with a variable dollar amount and variable end date
Fixed-time Plan
This withdrawal plan will send a check each month for a known time period, the amount of each check depends on the fund performance
Variable Annuity
(VA) This is a form of annuity that invests the premium into a separate subaccount that acts like a mutual fund but is not
Combination Annuity
This form of an annuity invests part of the premium into a variable account and part into an index annuity to reduce risk
Bonus Annuity
This annuity is offered with other financial packages and the investment company may invest 3-5% of what they receive from the investor, however there is often higher cost involved
Assumed Interest Rate
(AIR) This is a conservative estimate of what the separate account in a variable annuity will earn over the life of the annuity, used to determine the payment amounts during the annuitization phase
Variable Life Insurance
(VL) This is whole life insurance where the part of the premium that is contributed to cash value is contributed into a separate variable account
Universal Variable Life Insurance
(UVL) This is universal life insurance that has a variable cash value separate account
PASS
This acronym represents the gross premium reductions
P
remium
A
dministrative fees
S
ales load
S
tate premium taxes