Series 6 Flashcards
Terms
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- What is accumulated during the accumulation phase of a variable annunity?
- accumulation units
- Not a security
-
-retirement funds
-commodities or futures contracts
-precious metals
-primary residence
-currency
-collectibles - De minimus exception
-
-Federal registration (SEC) 15 people
-State registration - 5 people - Killer Words
-
-Must -- only true in legal situations
-Always
-Never
-Only - Debentures
-
Corporate debt
Secured by full faith and credit of company - Under the Investment Company Act of 1940, investment policies of an investment company may only be changed by a majority vote of the
- Outstanding shareholders
- A magazine article that is reprinted in sales literature for a mutual fund
-
-Must not be misleading
-Must include or follow a prospectus
-Is covered by the Sales Literature Rules of the NASD - Must be accompanied by a prospectus
- A personal presentation
- Power of Attorney
-
Third party authorization
-full -- trade and withdraw
- limited -- trade only - FALSE Statement
-
Every transaction requires written authorization
(once a discretionary acct. is set up, written authorization is no longer needed) - An application for a mutual fund is found in the
- Prospectus
- A prospectus is filed with
-
SEC
(Securities and Exchange Commission) - Sales literature is filed with
-
NASD
(National Association of Securities Dealers) - Holding hot issues and selling them to the public is called
-
free riding and with holding
Strictly prohibited - Can someone buy more stocks if his account is frozen?
- Yes -- Payment must be made entirely of cash
- Can someone trade based on inside information?
- Yes -- as soon as it becomes public
- Portion of a variable annunity payment that covers payments to beneficaries if teh annuitant dies during the accumulation phase is called
- Death Benefit Charge
- For tax purposes, a non-tax qualified annuity is different from a mutual fund in that:
-
-At settlement, payments are subject to special annuity taxation rules
- Contract holder does not pay tax during the accumulation period
-All withdrawls are taxed as ordinary income - In the accumulation phase, the value of the contract is determined by
- Multiplying the value of the accumulation unity by the total number of accumulation units
- 457 Plans
-
-Municipal employees (any government worker except federal)
-Non Qualified (after tax)
-Max 100% of income up to $14,000 ($15,000 in 2006) - Roth 401(k)
-
-After tax
-No income requirement
-Must withdraw by age 70 1/2
-Employer can match in a regular 401(k) - Roll-over IRA
-
Rolled from a corporate plan into an IRA within 60 days of distribution
(no $ limits on a rollover) -
Annunity Payout with--
Hightest month payout
Lowest monthly payout -
Highest payout: Life annuity
Lowest: Joint and Survivor -
Death Benefits in Annuityes
(during the accumulation phase only) - Beneficiary receives the HIGHER of account value or amount invested
- SEP Max Contribution
- MAX contribution - $42,000/yr
-
Eligiblity for Keogh
(HR-10) -
- full time (1000 hrs/yr)
- 1 yr service
- 21 years of age
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MAX contribution = $42,000/yr - Cost basis is also called
-
Exclusion amount
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Qualified plans: EA = 0
Non-qualified plans: EA = contributions - How is an investment advisor compensated by the fund?
- Percentage of assets (NAV)
- When asked for the "closed-end" company
- they're looking for NAV higher than ask. (cannot be a mutual fund)
- Smaller spread between bid and ask means
- more active stock
- Taxation of UGMA (Uniform Gift to Minors Act)
-
- Under 14 yrs of age: taxed at parents rate
- 14 yrs or older: taxed at child's rate - Contractual plans are structured as a
-
Unit Investment Trust
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Needs 2 prospectuses
-one for the plan
-one for the fund - MAX gift for the year
-
- $11,000/yr/person
$55,000 in one year (no more for 5 years
- $22,000/yr/couple
$110,000 in one year (no more for next 5 yrs)
Can NOT average over 10 yrs - only 5 yrs - Exchange Traded Funds
-
-Closed end fund
-Designed to track an index (such as S&P 500, Dow Jones, etc) - Fund of Hedge Funds
-
-Must register with SEC
-NOT redeemable (unless fund wishes to redeem)
-Higher expenses than regular funds - Hedge funds
-
-No SEC registration
-Offered to accredity investors
-High risk - Accredited Investor
-
-Insiders
-Institutional investors
-Individual investors if:
Has $1 million net worth
Has $200,000 income ($300,000 couple) - Fund Beta
-
Measures how a fund's price fluctuations with time mimic that of the market as a whole.
Beta <1 ---Less volatile
Beta >1 ---More volatile - Specialized (Sector) Fund
-
Invests at least 25% in a particular industry or geographic location
AGGRESSIVE FUND -
Dividends are paid:
----------------------
Capital Gains are paid: -
Dividends are paid quarterly or monthly
-------------------------
Caplital gains are always paid annually - Taxation of Mutual fund distributions
-
- All capital gains and dividends reinvested for the year paid
-All capital gains and dividends reinvest at NAV (no sales charge) - Investment clubs are not allowed to get
-
Breakpoints
(only husband, wife and dependent children) - Effects of dividend and offering price changes
-
Dividend increase = positive
Offering price increase = negative - True yield on bonds
-
Current yield and yield to maturity usually move in the same direction
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Nominal yield does NOT move
NoMinal - No Move - Debt NOT backed up by full faith and credit
-
Equipment Trust Certificate
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Backed by full faith and credit:
- debentures
- general obligation bond - Things to consider in determining suitablity
-
-age
-income
-liquidity
-risk tolerance
-time left to invest
-net worth
-experience
-taxes - Difference between an underwriter and a selling group
- financial commitment
- Underwriter that acts as a principal
- firm commitment
- An underwriter that acts as an agent
- Best effort
- Unlisted stock NOT trading on NASDAQ use
- pink sheets
- Bond portfolio has the most potential fo appreciate when
- general interest rates are declining
- Bond portfolios have the most potential to depreciate when
-
General interest rates are rising
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Bonds with long maturities fluctuate more - How to minimize losses in bonds?
-
By holding bonds to maturity
BUT
risk loss of purchasing power due to inflation - Can you put T-notes and T-bonds into a money market fund?
-
Yes-
If they have less than ONE year to mature - Municipal bonds are suitable to an investor who
-
is in a high tax bracket
They are tax shelters.
Not suitable for low tax bracket individuals - Safety Level of Investments
-
From safest to riskiest
- Government issued securities
- Municipal Bonds
-Corporate Bonds
- Preferred Stock
- Common Stock - Distribution of assets in case of liquidation:
-
- Taxes
- Debt (other than bonds)
Start here if no bankruptcy is mentioned ---
-Bonds
-Debentures
-Preferred stock
-Common stock (least senior or most junior) - Pre-emptive right
- Right ot maintain a proportionate share when new shares are issued
- Capitalization riskiest for company
- Bonds because they must be repaid
- Municipal securities exemptions:
-
CAN NEVER be revoked
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The exemption of a TRANSACTION (such as a sale made to a bank) CAN be. - Required to register as a broker/dealer if:
- HAS a place of business in the state and only effects transactions with financial institutions
- Required for an agent
-
-a surety bond (if has custody)
-Passing an exam - Another name for the state's securities laws
- BLUE Sky Laws
-
Civil Liabilities:
A person defrauded is entitled to: -
- consideration ($)
-plus interest
- plus reasonable attorney fees
-minus ince upon tender of security - An agent can share an account with a customer if:
-
gains and losses are in proportion to teh agent's contribution
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Advisors cannot share accounts with customers - Hypothecation
- Pledging clients' securities againt a loan
- NOT fraud
-
- omitting non-material information
- intentionally NOT guananteeing profits - Needed for commercial paper to be exempt
-
- mature in 9 months or less
-denominations of at least $50,000
- Highly rated
(need NOT be issued by a listed company) - Municipal and non-profit securities are EXEMPT
-
Everywhere except the state where they are issued
____________________
UITs are ALWAYS exempt
UIT = Unit Investment Trust - Suspension of applicants
-
Convicted within the past 10 years of any misdemeanor involving a security
OR
and FELONY
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CANNOT deny license due to
-lack of experience only
-public interest only - If an agent becomes financially unsound, the administrator can
-
-revoke the agent's license
-disallow the renewal of license