Compare Pooled Investments - Series 65

1. Which pooled product is priced once per day after market close at NAV?

   Mutual fund (open-end fund). Open-end mutual funds calculate NAV at the close of each trading day, enabling purchases and redemptions at that price to reflect the current value of underlying assets.

2. Which option best matches: fixed portfolio, no reinvestment via active trading, terminates on a stated date?

   UIT. UITs hold a static basket of securities without active adjustments, designed to mature on a specific date when assets are liquidated and proceeds distributed.

3. Identify the pooled product that typically has a set termination date.

   UIT. UITs are designed with a predetermined lifespan, dissolving upon maturity to distribute proceeds, which aligns with their fixed portfolio strategy.

4. Which pooled product typically has limited liquidity with lockups and redemption gates?

   Private fund. Private funds impose restrictions like lock-up periods and gates to manage capital outflows, aligning with their long-term or illiquid investment strategies.

5. What is a private fund for Series 65 purposes (typical structure and investor base)?

   Pooled vehicle (often LP/LLC) offered privately to eligible investors. Private funds are exempt from registration under the Investment Company Act and sold via private placements to sophisticated investors meeting accreditation standards.

6. What is the primary source of ongoing compensation embedded in many mutual funds and some share classes?

   $12b$-$1$ fee. The $12b-1$ fee is an annual charge deducted from mutual fund assets to cover distribution and marketing expenses, providing ongoing revenue to the fund's distributor.

7. Which pooled product is most associated with a fixed portfolio and an initial sales charge at purchase?

   UIT. UITs feature an unchanging portfolio selected at inception and charge an initial sales fee to cover setup costs, with no ongoing management fees due to passivity.

8. Identify the pooled product that often includes a creation and redemption process in large blocks.

   ETF (creation units via authorized participants). ETFs utilize creation and redemption of large share blocks by authorized participants to maintain market prices close to NAV through arbitrage opportunities.

9. Which pooled product commonly trades at a premium or discount to its NAV intraday?

   ETF. ETFs trade at market-determined prices during the day, which can deviate from NAV due to supply and demand dynamics until arbitrage aligns them.

10. Which pooled product trades intraday and can be bought on margin or sold short?

    ETF. ETFs list on exchanges, allowing intraday trading with features like margin buying and short selling similar to stocks, enhancing investor flexibility.

11. Identify the pooled product that often includes a sales charge at purchase called a front-end load.

    Mutual fund (load shares, typically Class A). Front-end loads in Class A mutual fund shares compensate sales professionals upfront, reducing the invested amount but often qualifying for breakpoints on larger purchases.

12. Which pooled product often distributes capital gains to shareholders due to portfolio turnover and redemptions?

    Mutual fund. Mutual funds must distribute realized capital gains annually, often triggered by selling securities to meet redemptions or rebalance, resulting in taxable events for investors.

13. What is a REIT and what type of underlying assets does it primarily hold?

    Entity holding real estate or mortgages; distributes income to owners. REITs are companies that own or finance income-producing real estate, required to distribute at least 90% of taxable income as dividends to qualify for pass-through tax treatment.

14. What is an ETF in terms of structure and how investors transact in it?

    Pooled fund trading intraday on an exchange at market price. ETFs are investment funds that trade on stock exchanges like individual securities, providing liquidity throughout the trading day at prevailing market prices rather than end-of-day NAV.

15. What is the key difference between NAV and market price for an ETF investor?

    ETF trades at market price; it may differ from NAV intraday. ETF market prices are determined by supply and demand on exchanges, potentially diverging from intraday NAV until corrected by arbitrage mechanisms.

16. Which pooled product is most likely to use performance fees and the $2$ and $20$ style fee model?

    Private fund (hedge fund/private equity). Hedge funds and private equity often charge a base management fee plus performance incentive, typically 2% of assets and 20% of profits, to align manager and investor interests.

17. Which pooled product is generally considered more tax-efficient due to in-kind redemptions?

    ETF. In-kind redemptions in ETFs minimize capital gains realizations by exchanging securities instead of cash, deferring tax events for shareholders.

18. Which pooled product is most directly exposed to real estate cash flows such as rents or mortgage interest?

    REIT. REITs generate income from property rentals or mortgage payments, providing investors with diversified exposure to real estate returns without direct ownership.

19. Which option best matches: open-end, redeemable at NAV, may have multiple share classes with loads?

    Mutual fund. Open-end mutual funds issue unlimited shares redeemable daily at NAV, with various classes offering different fee structures to suit investor preferences.

20. Which pooled product typically offers systematic reinvestment and fractional shares directly with the sponsor?

    Mutual fund. Mutual funds facilitate automatic dividend reinvestment and allow ownership of partial shares, promoting long-term investment through compounding directly managed by the fund sponsor.

21. Which option best matches: exchange-traded, intraday liquidity, usually passive index exposure?

    ETF. ETFs combine fund diversification with stock-like trading features, often tracking indices passively to offer low-cost, liquid access to market segments.

22. What is a UIT and what is its key portfolio management characteristic?

    Fixed portfolio trust; generally no active management. Unit Investment Trusts maintain a static portfolio of securities without ongoing management, relying on the initial selection to generate returns until termination.

23. Which pooled product commonly has bid-ask spreads as an explicit trading cost to investors?

    ETF. ETFs incur bid-ask spreads as the difference between buying and selling prices on the exchange, representing a direct transaction cost influenced by market liquidity.

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