Other Pooled Investments

Question 1

ETFs

Answer 1

Exchange-traded funds- basket of securities
Exchange listed product investing in portfolio of stocks that tracks a particular index.
-passively managed
- lower expenses
-providing diversification

Question 2

ETN- exchange traded notes

Answer 2

Unsecured debt obligation. 
ETNs return is linked to the performance of index with promise to match.
No liquidity risk
Tax efficient
Credit risk

Question 3

Hedge funds

Answer 3

High risk investments
Not offered to general public
Max 99 investors, max 35 accredited investors.
Can be liquidated on specific dates
2% annual fee plus 20% on gains
Higher fees and greater risks

Question 4

Funds of hedge funds

Answer 4

Small investors registered under 1940.
Min $25k.
Very aggressive investments 
Illiquid
Unregistered
2 sets of fees: hedge fund managers and investment manager

Question 5

Real estate investment trust (reits)

Answer 5

Closed-end investment company
Must have 75% assets invested
75% gross income
90% of ordinary income must be passed through
Mortgage reits
Equity reits - office buildings, shopping malls
Purchased for dividend payouts
Distributions from reits are taxed as ordinary income

Question 6

Immediate annuity

Answer 6

Generates income immediately after the first deposit .
Income must begin within 1 year of issue date and no accumulation period.
Funded with a single premium (one payment)

Question 7

Deferred annuity

Answer 7

Begin to make payments starting at a specified time longer than 1 year from issue date

Purchased with single premiums or periodic premiums.

Question 8

Inflation risk

Answer 8

Also called purchasing power risk

Question 9

Direct participation programs

Answer 9

Pooled investments in real estate limited partnerships or oil and gas partnerships.

Property can be depreciated

Mortgage interest is tax deductible

Drilling is fully deductible giving tax incentives for oil and gas discovery

Unlisted and very illiquid

Income is often referred to as pass-through tax status. Passive income

Offer limited and general partnership agreements