CFS Module I: Investment Companies
Chapter 12: REITs
1. REITs is an investment in real estate or mortgage on real estate.
2. One attraction of a R is that its profits are distributed to investors without being
reduces by any corporate
3. income tax.
4. R’s mangers and board of trusty should be unaffiliated.
5. REITs Act in 1938 and 1940. First was Equity trust.
6. IRS requirement is that a R be organize as a corporation, business trust or association
to be treated as corporation for tax purpose.
7. !/3 of R managed by the employees and others by external management or advisor
(banks, insurance).Includes: consultation, recommendation to buy, sell evaluate the
investment opportunity.
8. R issue many types of securities such as CS, PS, convertible securities and
collateralized mortgage obligation.
9. R can not deal or speculate in property for quick profit.
10. Purchase lease back: purchase and lease it back to previous owner.-land purchase
lease back as non depreciable asset.
11. R tax provision do not compel distribution of capital gain realized on the sale of
property.. If it retain the CG then pay tax on it.
12. Most common types of loan made by R include the participating mortgage, junior
mortgage, construction and development loan an d investment in mortgage pool.
13. Convertible mortgage is a type of participating mortgage that give option to R to
convert to equity interest.
14. R pay no federal tax on distributed income or gain, provided they fully comply with
Sections 860 and 856 if IR code. R pays corporate tax only on undistributed taxable
income.
15. Security Laws: see pp 12.14-15.
16. R pay large dividend and are considered a form of MF.
17. R are most marketable real estate investment o can buy.
18. Equity R invest at least 75% of their assets in the real estate or other equity interest.
Mortgage R invest 75% of asset on mortgage secured by real estate. Hybrid R
combine the two.
19. Traditionally R were created to operated indefinitely length of time.
20. Some R has definite length of time 10-20 years.-self liquidation or finite life R.
21. Equity R give investors the biggest bang for their money, best appreciate potential,
high dividend with only moderate risk.
22. Equity R own a portfolio of income producing properties. It avoid heavy debt
CFS Module I: Investment Companies
Chapter 13: Unit trusts
1. A UT portfolio is not managed. The UT sponsor, a brokerage or other
securities firm, buys the bonds and a bank olds in trust.. The sponsor then
sells nits or shares in the portfolio usually for $100 or $1000 per nits.
Once the securities are purchased, the portfolio is fixed. If a bond trust
yields 9%, that is what investors will get throughout the life of the
portfolio, unlike a bond mutual fund where the yield will change as the
manger buys and sell bonds.
2. UT can pay income monthly, unlike individual bonds which pay interest
twice a year.
3. TU mangers see bonds before individual investors.
4. Odd lot is less than 20 bonds.
5. Interest rate risk is same as bond. Investment within the trust can go sour
but sponsors can not add securities to a portfolio..
6. UT are not managed so save investors the annual fee but UT have up
front sales load or cost 3-5% on invested capital.
7. Investors sell units back to sponsors or trustee..
8. The sponsor maintain the market for UT and cannot sell securities from
unit fund portfolio to raise cash.
9. Most sponsors maintain an active secondary market to avoid the
liquidation.
10.There are insured or uninsured municipal bond units. Insurance
guarantees the timely payment of interest and principal but not protect
investors market fluctuation-interest rate risk.
11.Pro an cons: PP 13-5.
No question in exam out of Chapter 14.
Practice Study Guide
Arrowhead Financial Group
Module I-Investment Companies
1.
2.
3.
4.
5.
6.
What is Investment Company and what is not.
How REIT is treated for the tax purpose.
What is WEBS and Countrywide index.
What types of risks involved in investing in mutual funds.
What is the name of tax statement sent by the mutual funds companies.
How you find the largest holding of mutual funds (which statement to
read).
7. Which section of prospectus cites the objective of the fund.
8. What is balanced fund. What is another name for it.
9. Are mutual funds require to disclose all of their expenses? Which one is
not required.
10.What are the back-end sales charges and on what class of shares.
11.What types of shares always have 12b-1.
12.Which Mutual funds has a high degree of default risk.
13.What is the name of the index that replicate S&P 500?
14.What are ICA of 1940 provisions and purpose of it as well as other
legislative acts.
15.If I want to select fund that generate tax free income, what should I do.
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