Orion Series 65 Unit 3

Class C Fund Share

no sales charge to purchase, generally a 1% CDSC for oneyear, with a continuous 12b-1 charge.

Letter of Intent (LOI)

A person who plans to invest more money with the same mutual fund company may decrease overall sales charges by Signing:

Exchange Traded Fund (ETF)

a fund that generally invests in the stocks or other securities contained in a specific stock or securities index

General Obligation Bonds

a municipal bond that is backed by the issuer's full faith and credit or full taxing authority

Revenue Bonds

a municipal bond whose interest and principal payments are backed by the revenues generated from the project being built by the proceeds of the bonds. Toll roads for example, are usually built with revenue bonds backed by the tolls collected.

Convertable Bonds

bonds that can be exchanged for share of stock in the company, this is at the option of the investor

high-yield bonds

bonds with low credit quality that offer a high yield to maturity, also called junk bonds

Bullish investor

buy calls seeking profit if the price of the underlying stock rises.

Bearish investor

buy puts seeking profit if the price of the underlying stock declines.

Call buyer

buys the right to buy a specific stock

put buyer

buys the right to sell a specific stock

Equipment Trust Certificates (ETCs)

Corporations, particularly railroads and airline companies, finance the acquisition of their rolling stock, locomotives, or airplanes

Expense risk fee

Covers the risk that the costs of administering and issuing the policy may be greater than assumed.

Government Bond Pricing

-bonds that are quoted as a percentage of par -each point is $10, and each 0.1 represents 1/32 ($0.3125)

Immediate Annuities

- Can only be funded using the Single Premium payment method - First income payment is made one month from the date of annuity purchase - Typically designed to provide income immediately upon retirement In exchange for a lump sum premium the company pays them a monthly income for the rest of their life.

Common Stock

-Ownership and control of these securities belongs to common stockholders through voting rights, and residual claim to income -no obligation to provide return -lowest claim to assets in bankruptcy of any security holder -higher risk, higher return -taxable as dividend in most classes

Preferred Stock

-Ownership and control of these securities have limited rights, but may include a participation feature -return obligated to be provided before the common stockholder -bondholders and creditors must be satisfied first before this type in the event of bankruptcy -moderate risk, moderate return -taxable as dividend in most cases

Advantages to investing in Variable Annuities

-Tax-deferred Growth -Guaranteed Death benefit -Lifetime income -No tax penalty for transfers

Corporate and Municipal Bond Pricing

-bonds that are quoted as a percentage of par -each bond point represents $10, and the fractions are in eighths: each 1/8 = $1.25

Bonds

-limited rights under default in interest payments as far as ownership in this security -contractual obligation to provide return -in the event of bankruptcy, this type has the highest claim -low risk, moderate return taxable as ordinary income in most cases

Jumbo CD

A CD for a large amount of money usually $100,000 or more, Sold at par, No Discount, also known as Negotiable CD's

convertible security.

A bond, preferred stock, or debenture exchangeable at the option of the holder (for common stock of the issuing corporation) is a:

investment company

A corporation or a trust through which investors may acquire an interest in large, diversified portfolios of securities by pooling their funds with other investors' funds.

$2.25 per bushel

A farmer entered into a forward contract to sell his produce at $2.25 per bushel. At the expiration date of the contract, the price was $2.00 per bushel. The farmer would receive

discounted cash flow

A method of valuing an investment, particularly debt securities, by calculating what future cash returns will be worth at the time they are received, based on estimates of future inflation and interest rates is known as:

money market fund.

A review of the prospectus of an open-end investment company reveals that its portfolio consists entirely of CDs, Treasury bills, and repurchase agreements. This is probably a(n):

no less frequently than once per day.

According to the Investment Company Act of 1940, an open-end investment company must compute its NAV:

face-amount certificate (FAC)

Acontract between an investor and an issuer in which the issuer guarantees payment of a stated (or fixed) sum to the investor at some set date in the future.

Exchange Privilege

Allow an investor to convert an investment in one fund for an equal investment in another fund in the same family at net asset value without incurring an additional sales charge.

Universal Life Insurance

Allows for changes to benefits and Premium payments , the death protection resembles one-year renewable term insurance and the cash value grows according to current interest rates.

an open-end fund

An investor interested in obtaining the benefit of professional portfolio management has been tracking a particular investment company for the past several months. In so doing, it becomes obvious that the market price of the shares moves in direct relation to the computed NAV. This investor must be following:

Default and Interest Rate risk

An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA rated corporate bonds scheduled to mature in 20 years. Among the risks that this investor will be assuming are:

portfolio insurance

An investor who owns a stock can protect against a decline in market value by buying a put. Doing so allows the investor to sell the stock by exercising the put if the stock price declines before expiration, or selling the put at a profit, which will offset the decline in the stock price.

Mutual Fund

An open-end investment company is also referred to as a(n):

Premium

An options cost, ususally quoted in dollars per share.

Debenture

An unsecured bond is also known as a(n):

$9,000 is taxable; $6,000 is nontaxable.

Bob, age 60, has invested $17,000 in his nonqualified variable annuity over the years. The total value has reached $26,000. He wishes to withdraw $15,000 to send his son to college. What is his tax consequence on the withdrawal?

Mortgage Bond

Borrow money backed by real estate and physical assets of the corporation.

Net Redemptions

Can sometimes happen, particularly during declining markets, that there is an excess of shareholder redemptions over new share purchases.

Variable Life Insurance

Cash value in the policy fluctuates with the performance of the separate account and is not guaranteed. Policies provide policy owners with a minimum guaranteed death benefit. The benefit may increase above this minimum amount depending on investment results but may never fall below.

back-end load

Charged at the time an investor redeems mutual fund shares.

Publicly traded funds

Closed-end investment companies

Stock Funds

Common stocks normally provide the growth component of any mutual fund that has growth as a primary objective.

Real Estate Investment Trust (REIT)

Company that manages a portfolio of real estate investments to earn profits for shareholders.

Freddie Mac Participation Certificate (PC)

Comprise qualifying FHLMC, conventional, residential mortgages on single-family homes.

Corporate Bonds

Corporate debt securities, like any other loan, may be either secured or unsecured.

mutual fund

Does not specify the exact number of shares it intends to issue. It registers an open offering with the SEC. Only issues Common Stock.

European Exercise

Exercised on the last trading day before the expiration date.

Corporate Bonds - Secured Debt Securities

Debt securities are backed by various kinds of assets of the issuing corporation,

Corporate Bonds - Unsecured Debt Securities

Debt securities backed only by the reputation, credit record, and financial stability of the corporation.

Treasury Securities

Debt securities issued by the US treasury; absent a credit risk

cash flow analysis

Default risk (other than GNMAs), as do other debt securities, the specific risk due to the possible (some would say, likely) prepayments, complicates the computation.

-Earnings are taxed as ordinary income -Fees are higher than Mutual funds -Withdrawals before a certain age incur a penalty

Disadvantages to investing in Variable Annuities

Last-In, First-Out (LIFO)

Earnings are presumed by the IRS to be the last monies to hit the account.

US Government Securities Funds

Funds purchase securities issued by the U.S. Treasury or an agency of the U.S. government, such as Ginnie Mae. Investors in these funds seek current income and maximum safety.

Government National Mortgage Association (Ginnie Mae)

Government-owned corporation, they represent an interest in pools of FHA-insured mortgages or VA or Farmers Home Administration- guaranteed mortgages.

Guaranteed Bonds

Guaranteed as to payment of interest, or both principal and interest, by a corporate entity other than the issuer.

Custodian Bank

Holds a mutual funds assets to ensure safekeeping

$300

If a call option with an exercise price of $50 is purchased for $300, the maximum amount the investor can lose is

Operating Expense guarantee

If for any reason the costs of operation increase, the company sets a ceiling for expenses charged to the separate account. If the actual costs are greater, the company pays the difference.

inflation rate.

In the secondary market, Treasury bond prices are most influenced by the:

Services Offered

Include retirement accounts, investment plans, check- writing privileges, phone transfers, conversion privileges, combination investment plans, withdrawal plans, and others.

Bond Funds

Income as their primary investment objective.

whole life insurance

Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be.

Term Life Insurance

Insurance that provides financial protection from losses resulting from a death during a specified period

Foreign bond funds

Invest in foreign sovereign and/or corporate debt issues. Although they carry the same general risks as investing directly into foreign debt, these tend to be reduced because of the professional management and diversification offered by fund investing.

Tax-free bond fund

Invest in municipal bonds or notes that produce income exempt from federal income tax. Any capital gains distributions from the fund are taxable just as with any other fund.

Index Funds

Invest in securities to mirror a market index, such as the S&P 500.

Balanced Funds

Invest in stocks for appreciation and bonds for income, and different types of securities are purchased according to a formula.

Growth Funds

Invest in stocks of rapidly growing corporations.

12b-1 asset-based fees

Investment Company Act of 1940 provision that allows a mutual fund to collect a fee for the promotion or sale of or another activity connected with the distribution of its shares. This fee will not exceed .75%.

market capitalization.

Investment company portfolio managers are apt to classify common stocks into groups. One measurement is the product of multiplying the market price per share times the number of shares outstanding. The result is known as:

specialized sector funds

Many funds specialize in particular economic sectors or industries. Others specialize in geographic areas such as the BRIC countries or the Pacific Rim. The funds have 25-100% of their assets invested in their specialties and are more likely than other funds to stick to a relatively fixed allocation.

Federal Agency Securities

Issued by U.S. government agencies that have been authorized by Congress to issue debt securities to help meet their financial needs.

callable bonds

Issuer could take advantage of the lower cost of borrowing by issuing new bonds at the lower rate prevailing in the market and using those proceeds to call in the old bonds with their higher coupons.

Option Buyers

Long the positions

Professional Investment Adviser

Manages the portfolio for investors.

Combination funds

Might attempt to combine the objectives of growth and current income by diversifying its portfolio among companies showing long-term growth potential and companies paying high dividends.

Short-term Debt

Money market instruments are:

Yield Computations

Multiplying the nominal yield (interest stated on the face of the bond) by the face amount of the bond

Tax Equivalent Yield

Municipal Rate / (100% - Tax Bracket)

Taxation

Mutual fund investors pay taxes on income and capital gains distributed by the fund. Typically 15%

Diversification

Mutual funds provide this by investing in many different companies

Public Offering Price (POP)

NAV per share plus any applicable sales charges.

Tennessee Valley Authority (TVA)

Nation's largest public power provider and a corporation of the U.S. government. Bonds are not backed by the U.S. government. Instead, they're backed by the revenues generated by the agencies' projects.

Money Market Funds

No-load, open-end investment companies (mutual funds) that serve as temporary holding accounts for investors' money.

London Interbank Offered Rate (LIBOR)

On behalf of the Intercontinental Exchange—ICE, lenders are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen, and Swiss francs.

Hedge

Protect

Investment Company Act of 1940

Provides for Securities and Exchange Commission (SEC) regulation of investment companies and their activities.

front-end load

Reflected in a fund's public offering price. The charges are added to the NAV at the time an investor buys shares.

Costs

Sales loads, management fees, and operating expenses reduce an investor's returns because they diminish the amount of money invested in a fund.

Collateral Trust Bonds

Securities a corporation owns into a trust to serve as collateral for the lenders.

Option Sellers

Short the positions

Money Market

Short-term instruments, those that mature in one year or less, are traded.

Asset Allocation Funds

Split investments between stocks for growth, bonds for income, and money market instruments or cash for stability.

Income Funds

Stresses current income over growth.

bid price

Supply and demand determine the the price at which an investor can sell

offers a payment that may vary in amount and attempts to offer protection to the annuitant from inflation.

The difference between a fixed annuity and a variable annuity is that the variable annuity:

The price of the bonds would decrease.

What would likely happen to the market value of existing bonds during an inflationary period coupled with rising interest rates?

the potential for a higher cash value and death benefit.

The main benefit that variable life insurance has over whole life insurance is:

accumulation stage

The period during which contributions are made to an annuity account.

Yield to Call

The rate of return the bond provides from the purchase date to the call date and price.

current yield

The return will always be the annual interest in dollars divided by the current market price

Breakpoints

The schedule of discounts a mutual fund offers

Bond (Indenture)

The terms of the loan are expressed in this document

Negotiable CDs

These CDs are unsecured time deposits (no asset of the bank is pledged as collateral), and the money is being loaned to the bank for a specified period of time. CDs must have a face value of $100,000 or more, with $1 million and more being most common.

mortgage-backed securities

These are basically debt obligations backed by a pool of mortgages and usually have a pass-through feature.

Collateralized Mortgage Obligations (CMOs)

These are bonds that are collateralized by mortgages or by mortgage-backed securities.

Foreign Bonds

Type of bond with the following advantages: -potential higher returns -diversification -hedging against a drop in value of the US dollar Risks would include those found with all debt securities plus: -currency risk -potentially higher risk of default -generally less liquidity -generally higher trading costs

US government securities

U.S. Treasury bills, notes, and bonds used to finance budget deficits; the components of the public debt.

US Treasury Bonds

U.S. Treasury bonds are direct debt obligations of the U.S. Treasury with the following characteristics. ■ They pay semiannual interest as a percentage of the stated par value. ■ They have long-term maturities, generally 10-30 years. ■ Older 30-year bonds are usually callable at par beginning 25 years after issue. However, the last callable 30-year bond was issued in November 1984. ■ They mature at par value.

US Treasury Notes

U.S. Treasury notes are direct debt obligations of the U.S. Treasury with the following characteristics. ■ They pay semiannual interest as a percentage of the stated par value. ■ They have intermediate maturities (2, 3, 5, 7, and 10 years). ■ They mature at par value.

Eurodollars

U.S. dollars deposited in banks outside the United States

Federal National Mortgage Association (Fannie Mae)

Was a government-owned corporation that was converted into a privately owned. Purchases and sells real estate mortgages—primarily those insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).

Prices increase.

What happens to outstanding fixed-income securities when interest rates decline?

redeemable securities

When an investor sells shares, the company redeems them at their NAV.

American depository receipts and Corporate bonds

Which of the following are NOT considered money market instruments?

A mutual fund will redeem fractional shares as well as full shares, and redemptions of mutual fund shares are handled under forward pricing.

Which of the following statements about the redemption of mutual fund shares are TRUE?

Assumed Interest Rate (AIR)

a basis for determining distributions from a variable annuity. The rate, usually estimated conservatively, provides an earnings target for the separate account.

suitability

a requirement to determine if an insurance product is appropriate for a customer

Management Investment Companies

actively manages a securities portfolio to achieve a stated investment objective

American Exercise

any day up to the day before expiration

Combination Annuity

attempts to provide a monthly payout that consists of guaranteed fixed amounts as well as a payout that might keep pace with inflation.

Bearish Position

believe the price of a security will go down.

bullish position

believe the price of a security will go up

Mortality risk fee

covers the risk that the insured may live for a period shorter than assumed.

Class B Fund Share

declines over time so investors pay the charge at redemption.

Forward

developed as a means for commodity users and producers to arrange for the exchange of the commodity at a time agreeable to both.

US Treasury Bills

direct short-term debt obligations of the U.S. government.

Investing in mutual funds

ensures diversification and, therefore, lowers risk.

Futures

exchange-traded obligations. The buyer or seller is contingently responsible for the full value of the contract.

annuity

generally a contract between an individual and a life insurance company, usually purchased for retirement income.

Call

gives its holder the right to buy a stock for a specific price within a specified time frame.

Put

gives its holder the right to sell a stock for a specific price within a specified time frame.

Treasury Inflation-Protected Securities (TIPS)

helps protect investors against purchasing power risk.

Foreign Stock Funds

invest mostly in securities of companies that have their principal business activities outside the US

Class A Fund Share

investors pay the charge at the time of purchase.

Annuity unit

is a measure of value used only during an annuitized contract's payout period.

Scheduled Premium

life insurance with established, scheduled premium payments, e.g., whole life, variable life. As opposed to universal insurance with a flexible premium

Variable Annuity

money is put into separate accounts and the growth will fluctuate. The payouts also fluctuate

Annuitant

pays the premium in one lump sum or in periodic payments. At a future date, can either elect to surrender the policy and receive a lump sum payout or begin receiving regular income distributions that will continue for life.

Indexed Annuities

popular among investors seeking market participation but with a guarantee against loss.

ask price

price at which an investor can buy

Deferred Annuities

purchased with a single lump-sum investment, with payout of benefits when the annuitant elects to receive them

Nonfixed UIT

purchases shares of an underlying mutual fund

Derivative Securities

securities whose value is derived from the value of other assets

Money Market Instruments

short-term debt securities issued by governments, financial institutions, and corporations (CD's/Commercial Paper)

put seller

takes on the obligation to buy the stock.

Call seller

takes on the obligation to sell the stock.

coupon rate

the interest paid on a bond, expressed as a percentage of the bond's par value

demand deposit

the money in checking accounts

Fixed Annuity

type of annuity that guarantees a Fixed rate of return

Fixed UIT

typically purchases a portfolio of bonds and terminates when the bonds in the portfolio mature

Forward Pricing

whenever an order, whether to purchase or redeem shares, is received, the price is based upon the next computed NAV per share.

zero coupon treasury bond

■ They are always issued at a discount. ■ There is no reinvestment risk because there are no interest payments to worry aboutreinvesting. ■ They are more volatile than other bonds of similar quality.

Brady Bonds

■ Those countries who participated were able to reduce both their overall debt level as well as the debt servicing cost ■ For the bank's portfolio, their sovereign risk was diversified ■ The Plan encouraged emerging markets countries to undertake economic reforms ■ With the added safety and promise of economic reforms, emerging markets countries would now have a broader access to the financial markets.

Unit Investment Trust (UIT)

■ do not have boards of directors; ■ do not employ an investment adviser; and ■ do not actively manage their own portfolios (trade securities).

SAS

■ sales load; ■ administrative fee; and ■ state premium taxes.