Chapter 5: Packaged Products & Alternatives
This chapter is part of Function 3 (73% of the exam) and covers pooled investment products, variable contracts, real estate investment trusts, direct participation programs, hedge funds, and asset-backed securities.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 17 | Investment Companies and ETFs | Open-end vs. closed-end funds, ETFs, NAV calculation, share classes, 12b-1 fees, breakpoints |
| 18 | Variable Annuities and Life Insurance | Accumulation vs. annuity phase, separate account, death benefits, surrender charges, 1035 exchanges |
| 19 | REITs and DPPs | Equity vs. mortgage REITs, limited partnerships, tax benefits, suitability, DPP structures |
| 20 | Hedge Funds and Asset-Backed Securities | Accredited investor requirements, fund of funds, MBS, CMOs, CDOs, tranches |
Why This Chapter Matters
Packaged products are a significant part of the securities business and the Series 7 exam. Understanding how mutual funds are priced, how variable annuities work, and the characteristics of alternative investments like REITs, DPPs, and hedge funds is essential for making suitable recommendations.
Exam Strategy
Focus on:
- Mutual fund pricing: NAV calculation, POP, sales charges, breakpoints, rights of accumulation
- Share classes: A, B, and C shares and their fee structures
- Variable annuities: Separate account mechanics, tax-deferred growth, 10% early withdrawal penalty
- DPP tax treatment: Passive income/loss rules, at-risk rules, recapture