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All four FINRA functions: seeking business for the broker-dealer; opening and evaluating customer accounts; providing information, recommendations and records; and processing and confirming transactions.

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Mix the modes: flip to learn, type to test recall, match for speed, and quiz to check yourself. Start early, review daily, and spend the most time on the function that is 50% of the exam (recommendations & information).

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NAV (Net Asset Value)

is the amount the investor receives upon redemption.

general securities principals

may review and or approve communications for all securities except options

limited securities principal

review/approve communications for investment company products

institutional communication

written communication that is distributed or made available ONLY to institutional investors -if forwarded to non institutional investors, treat as retail -each member must establish written procedures that are appropriate to its business, size, structure and customers--> reviewed by principal -must include provision for education and training if principal doesnt review before communication first goes out -surveillance must be done by Principal though **municipality is a institution

any written communication that is distributed to or made available to to >25 retail investors within 30 day calendar period -ex: ad or sales literature --requires principal approval, unless 1) another member has filed with FINRA's advertising dept, with confirmation and 2) if nothing materially has changed from the confirmation letter 3) if communication is not important (doesnt make financial or investment recommendations or promote product or services) 4) good cause -must be kept on file for 3 years

is a written or electronic communication that is distributed or made available to

participation in a seminar, webinar, forum, chat room, radio, TV interview -dont need principal approval, just surveillance -but need training and education on firm procedures -scripts, slides, handout dont need permission from principal -if person recommends security in public appearance, they must have a reasonable basis for the recommendation.

Independently Prepared Reprint (reprinting an article bc of mistake or something)--POV: firm using article from publisher

consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publisher and was not materially altered by the member. -member may alter the contents of an IPR only to make it consistent with applicable regulatory standards or to correct factual errors -doesnt have to file with FINRA -must be approved by principal, like retail communication -"independent" if publisher isn't an affiliate of firm, or underwriter or issuer of security mentioned in the reprint

a document prepared by an analyst or strategist who is a part of the investment research team in a stock brokerage or investment bank -need to make sure analysts are not fraudulent and are objective, so FINRA makes firms: 1) explain rating systems (buy/sell/hold), give % of B,S,H 2) document percent of clients in each category-BSH 3) analyst comp may not be tied to the firm's IB revenues 4) disclose if analyst or fam member has financial interest or if employer owns >1% of equity 5)if IB has received fees from the covering company within last 12 month, and disclose if IB expects to get fees 3 months after report publication 6) investment advisor or BD may not present to a client research report prepared bu other firms w/o disclosing that adviser or BD did not prepare them.

-if analyst worked on IPO, that firm cant make research report -IPO QP: 10 days -Secondary offering: 3 days

Not considered a research report:

-discussion of broad based indices -commentaries on econ, political, or market conditions -technical analyses concerning supply for a sector, index, or industry based on trading vol and price -summaries of multiple companies financial data, including listings of current ratings -notices of ratings or price target changes

electronic communications with the public

-considered retail communication -reviewed and approved by principal -websites and electronic bulletin boards apply.

communication: firms need to

have established procedures to maintain and supervise communication on blogs, email, IM's, text, social media etc.

Generic Advertising SEC Rule 135A

Promotes securities as an investment medium but does not refer to any SPECIFIC security. -Must contain name and address of the sponsor of the advertisement but NEVER include the name of any specific security. *****Can only be placed by a firm that offers that type of security or service described (ex: company x that only invests in stocks are allowed to have a GEN-AD on stocks) -advertisement so needs principal approval "YEAH STOCKS ARE GOOD!"

required approvals of public communication

-instit inv, no -retail, yes for preapproval -correspondence, yes -pre or post review -public appearance-no -IPR- yes -research reportsbased on how they are defined (amount of people its going to) -website, yes -electronic bulletin boards, yes but not each post -emails/instant messagingdepends on who and how many people -generic advertisingyes

during first yr after registered w/ finra, firm needs to file all retail communication at least 10 days before use -after 1st yr, they can file 10 days after -also, any published or unpublished rankings or comparisons published has to be filed to FINRA 10 days after (ex: morningstar stuff will have to be filed with finra)

product-specified advertisements and disclosures

-all communication must be faithful and not misleading; exemptions 1) statement that is misleading in one context but appropriate in another

any entity that provides general information about investment companies to the public, but is independent from them

use of investment company rankings in retail communication

member cant use investment company rankings in any retail communication, unless: 1) rankings created and published by Ranking Entities 2)rankings created by an investment company or affiliate but based on standard performance measurements.

required disclosures of investment company rankings

must disclose -name of category (ex: growth) -name of ranking entity -criteria on which the ranking is bases (ex: total returns etc) -the fact that past performance is not guarantee of future results -ranking on total returns must be accompanies by rankings based on TR for 1 yr, 5 yr and 10 yr.

Bond Mutual Fund Volatility Ratings

description issued by an independent 3rd party relating sensitivity of the NAV of portfolio of an open-end mgmt investment company that invests in debt securities, and based on objective factors (ex: credit quality etc)

disclosures of bond mutual fund volatility rating

-name of company that issued rating -date of current rating -link to criteria or methodology -statement saying "there is no standard method to determine the rating" -a description of the types of risk the rating measures (ex: short term volatility) -statement that firm rating can change in future

At least 80% of assets invested there if named that. ex: XYZ bond fund must have 80% of assets invested in bond fund

everything has to be outlines very specifically lol -performance can change -all fees

-is prospectus given to investor is misleading, the investor can sue 1) signers of registration doc 2)directors or partners of issuers, or close to being directors 3)accountants, appraisers etc that contributed to registration document 4) underwriters

variable contracts: product communication

-has to state that product has variable life or a variable annuity

variable contracts: liquidity

-variable life insurance/annuities may have tax penalties for early withdrawal -must not market as short term investments then, thus not liquid

variable contracts: guarantees

-insurance products contain a number of guarantees -but still not sure if you get them (can they pay their claims?", so can market that you'll get them -guarantee cant apply to investment return or principal value -best rating firm for insurance product: A.M Best

fund performance predating inclusion in a variable product (fund performance before its goes in variable product)- fund within variable product

-performance that predates a fund's inclusion may be used only if no significant changes occured to the fund at the time or after it became a part of the variable product

single premium life insurance

is a type of insurance in which a lump sum of money is paid into the policy in return for a benefit that is guaranteed until you die. -aka a modified endowment contract

rules for hypothetical illustrations of rates of returns in variable life insurance

1) cant project or predict investment results 2) use combo of assumed investment returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate 3) reflect maximum mortality and expense charges for each assumed rate

-cant be compared with other investment products, except for term insurance product to highlight that variable life has tax-deferred growth

single premium variable life communication

may only emphasize investment features of this product if an adequate explanation of the life insurance features is also provides

securities act of 1933

-require issuers of new securities (going to have an IPO) to file registration with SEC -issuer must give investors prospectus so investors given accurate info -full and fair disclosure

subject to the requirements of securities act of 1933, as opposed to exempt (dont need to register)

dont need to register issues:

-us govt -municipalities -nonprofit religious, educational and charitable organizations -banks and savings and loans -commercial paper-maturity

State laws that regulate the offering and sale of securities for the protection of the public. -can blue sky and issue 1 of 3 ways: 1) qualificationfiles w/state, independent of federal registration 2)coordinationregisters with state and SEC 3) notice filingsecurities on major exchanges like NASDAQ don have to register w/ state, but a filing of notice is required

IB examines use of proceeds, performs financial analysis, determines stability, determines whether risk is reasonable

directs entire underwriting process by signing underwriting agreement -all underwriters must be finra member firms

a group of underwriters who jointly underwrite and distribute a security issuance -they all take financial commitmentthey have to buy securities that arent sold -spreads risk

negotiated underwriting

usually bw corporations and IB, terms of issuing are negotiated

competitive bid underwriting

usually for underwriting municipal securities (bonds) -gov't will invite IBs to bid on the bonds--> winner goes to the IB that bids the lowest net interest cost to the issuer (issuer/gov't wants to pay lowest interest)

act as agents to sell with no commitment to buy unsold securities -determined by managing underwriter

underwriter(s) committed to buying securities from the issuer and resell to public. -purchased and resold -principal capacity, NOT AGENT CAPACITY

underwriter purchases unsubscribed shares from shareholders that dont exercise their preemptive rights -(preemptive right-offers select shareholders of a corporation the right to buy a proportional interest in any future issue of the company's common stock)

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Series 6 Flashcards

NAV (Net Asset Value): is the amount the investor receives upon redemption.
general securities principals: may review and or approve communications for all securities except options
limited securities principal: review/approve communications for investment company products
institutional communication: written communication that is distributed or made available ONLY to institutional investors -if forwarded to non institutional investors, treat as retail -each member must establish written procedures that are appropriate to its business, size, structure and customers--> reviewed by principal -must include provision for education and training if principal doesnt review before communication first goes out -surveillance must be done by Principal though **municipality is a institution
retail communication: any written communication that is distributed to or made available to to >25 retail investors within 30 day calendar period -ex: ad or sales literature --requires principal approval, unless 1) another member has filed with FINRA's advertising dept, with confirmation and 2) if nothing materially has changed from the confirmation letter 3) if communication is not important (doesnt make financial or investment recommendations or promote product or services) 4) good cause -must be kept on file for 3 years
Correspondence: is a written or electronic communication that is distributed or made available to
public appearance: participation in a seminar, webinar, forum, chat room, radio, TV interview -dont need principal approval, just surveillance -but need training and education on firm procedures -scripts, slides, handout dont need permission from principal -if person recommends security in public appearance, they must have a reasonable basis for the recommendation.
Independently Prepared Reprint (reprinting an article bc of mistake or something)--POV: firm using article from publisher: consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publisher and was not materially altered by the member. -member may alter the contents of an IPR only to make it consistent with applicable regulatory standards or to correct factual errors -doesnt have to file with FINRA -must be approved by principal, like retail communication -"independent" if publisher isn't an affiliate of firm, or underwriter or issuer of security mentioned in the reprint
research report: a document prepared by an analyst or strategist who is a part of the investment research team in a stock brokerage or investment bank -need to make sure analysts are not fraudulent and are objective, so FINRA makes firms: 1) explain rating systems (buy/sell/hold), give % of B,S,H 2) document percent of clients in each category-BSH 3) analyst comp may not be tied to the firm's IB revenues 4) disclose if analyst or fam member has financial interest or if employer owns >1% of equity 5)if IB has received fees from the covering company within last 12 month, and disclose if IB expects to get fees 3 months after report publication 6) investment advisor or BD may not present to a client research report prepared bu other firms w/o disclosing that adviser or BD did not prepare them.
quiet period: -if analyst worked on IPO, that firm cant make research report -IPO QP: 10 days -Secondary offering: 3 days
Not considered a research report:: -discussion of broad based indices -commentaries on econ, political, or market conditions -technical analyses concerning supply for a sector, index, or industry based on trading vol and price -summaries of multiple companies financial data, including listings of current ratings -notices of ratings or price target changes
electronic communications with the public: -considered retail communication -reviewed and approved by principal -websites and electronic bulletin boards apply.
communication: firms need to: have established procedures to maintain and supervise communication on blogs, email, IM's, text, social media etc.
Generic Advertising SEC Rule 135A: Promotes securities as an investment medium but does not refer to any SPECIFIC security. -Must contain name and address of the sponsor of the advertisement but NEVER include the name of any specific security. *****Can only be placed by a firm that offers that type of security or service described (ex: company x that only invests in stocks are allowed to have a GEN-AD on stocks) -advertisement so needs principal approval "YEAH STOCKS ARE GOOD!"
required approvals of public communication: -instit inv, no -retail, yes for preapproval -correspondence, yes -pre or post review -public appearance-no -IPR- yes -research reportsbased on how they are defined (amount of people its going to) -website, yes -electronic bulletin boards, yes but not each post -emails/instant messagingdepends on who and how many people -generic advertisingyes
Filing Requirements: during first yr after registered w/ finra, firm needs to file all retail communication at least 10 days before use -after 1st yr, they can file 10 days after -also, any published or unpublished rankings or comparisons published has to be filed to FINRA 10 days after (ex: morningstar stuff will have to be filed with finra)
product-specified advertisements and disclosures: -all communication must be faithful and not misleading; exemptions 1) statement that is misleading in one context but appropriate in another
Ranking entity: any entity that provides general information about investment companies to the public, but is independent from them
use of investment company rankings in retail communication: member cant use investment company rankings in any retail communication, unless: 1) rankings created and published by Ranking Entities 2)rankings created by an investment company or affiliate but based on standard performance measurements.
required disclosures of investment company rankings: must disclose -name of category (ex: growth) -name of ranking entity -criteria on which the ranking is bases (ex: total returns etc) -the fact that past performance is not guarantee of future results -ranking on total returns must be accompanies by rankings based on TR for 1 yr, 5 yr and 10 yr.
Bond Mutual Fund Volatility Ratings: description issued by an independent 3rd party relating sensitivity of the NAV of portfolio of an open-end mgmt investment company that invests in debt securities, and based on objective factors (ex: credit quality etc)
disclosures of bond mutual fund volatility rating: -name of company that issued rating -date of current rating -link to criteria or methodology -statement saying "there is no standard method to determine the rating" -a description of the types of risk the rating measures (ex: short term volatility) -statement that firm rating can change in future
Name Rule: At least 80% of assets invested there if named that. ex: XYZ bond fund must have 80% of assets invested in bond fund
misleading: everything has to be outlines very specifically lol -performance can change -all fees
civil liability: -is prospectus given to investor is misleading, the investor can sue 1) signers of registration doc 2)directors or partners of issuers, or close to being directors 3)accountants, appraisers etc that contributed to registration document 4) underwriters
variable contracts: product communication: -has to state that product has variable life or a variable annuity
variable contracts: liquidity: -variable life insurance/annuities may have tax penalties for early withdrawal -must not market as short term investments then, thus not liquid
variable contracts: guarantees: -insurance products contain a number of guarantees -but still not sure if you get them (can they pay their claims?", so can market that you'll get them -guarantee cant apply to investment return or principal value -best rating firm for insurance product: A.M Best
fund performance predating inclusion in a variable product (fund performance before its goes in variable product)- fund within variable product: -performance that predates a fund's inclusion may be used only if no significant changes occured to the fund at the time or after it became a part of the variable product
single premium life insurance: is a type of insurance in which a lump sum of money is paid into the policy in return for a benefit that is guaranteed until you die. -aka a modified endowment contract
rules for hypothetical illustrations of rates of returns in variable life insurance: 1) cant project or predict investment results 2) use combo of assumed investment returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate 3) reflect maximum mortality and expense charges for each assumed rate
variable life: -cant be compared with other investment products, except for term insurance product to highlight that variable life has tax-deferred growth
single premium variable life communication: may only emphasize investment features of this product if an adequate explanation of the life insurance features is also provides
secondary market: trades among investors
securities act of 1933: -require issuers of new securities (going to have an IPO) to file registration with SEC -issuer must give investors prospectus so investors given accurate info -full and fair disclosure
nonexempt issues: subject to the requirements of securities act of 1933, as opposed to exempt (dont need to register)
dont need to register issues:: -us govt -municipalities -nonprofit religious, educational and charitable organizations -banks and savings and loans -commercial paper-maturity
blue sky laws: State laws that regulate the offering and sale of securities for the protection of the public. -can blue sky and issue 1 of 3 ways: 1) qualificationfiles w/state, independent of federal registration 2)coordinationregisters with state and SEC 3) notice filingsecurities on major exchanges like NASDAQ don have to register w/ state, but a filing of notice is required
due diligence: IB examines use of proceeds, performs financial analysis, determines stability, determines whether risk is reasonable
underwriting manager: directs entire underwriting process by signing underwriting agreement -all underwriters must be finra member firms
syndicate: a group of underwriters who jointly underwrite and distribute a security issuance -they all take financial commitmentthey have to buy securities that arent sold -spreads risk
negotiated underwriting: usually bw corporations and IB, terms of issuing are negotiated
competitive bid underwriting: usually for underwriting municipal securities (bonds) -gov't will invite IBs to bid on the bonds--> winner goes to the IB that bids the lowest net interest cost to the issuer (issuer/gov't wants to pay lowest interest)
selling group: act as agents to sell with no commitment to buy unsold securities -determined by managing underwriter
firm commitment: underwriter(s) committed to buying securities from the issuer and resell to public. -purchased and resold -principal capacity, NOT AGENT CAPACITY
Standby Underwriting: underwriter purchases unsubscribed shares from shareholders that dont exercise their preemptive rights -(preemptive right-offers select shareholders of a corporation the right to buy a proportional interest in any future issue of the company's common stock)
Best Efforts Underwriting: -underwriter acts as agent with no financial risk -agent capacity, NO T PRINCIPAL CAPACITY
best efforts: all or none (AON): -agreement that underwriters sells all of the shares or cancels the underwriting and issues NONE -funds collected from investors thus far must remain in escrow, pending whether the deal stays or not
best efforts: mini-max: -setting a floor (minimum) and ceiling (maximum) of the amount that needs to be/can be raised. -funds collected from investors thus far must remain in escrow, pending whether the deal stays or not
cooling-off period: when SEC reviews the security's registration statement from issuer -no sales allowed -can distribute red herring for IOI's -can advertise
effective date: allows sales and firm must have a final prospectus
final prospectus: sales are allowed -cannot mark/highlight it at all!
Red Herring (Preliminary Prospectus): -used to gauge investor reactions and IOI -prospectus is not effective -cannot mark/highlight it at all!
tombstone advertisement: -required BEFORE or AFTER effective date of sale -has name of issuer, type of security, underwriter, PRICE, effective date of sale -typically published after allowed to sell
determinants of stock price for IPO: -number of IOI's -market conditions -price syndicate members willing to accept -p/e ratios of comps -dividend history and financial health -debt ratio
stabilize price: if demand>supply, price may fall -thus, underwriter can stabilize price by bidding for shares at or below the offering price (cant bid higher than offering price)-makes sense -if interest does not inc, underwriter abandons offering price and pulls bid to let stock be at natural level -permission to stabilize in the prospectus
pegging/fixing: -bidding at a price ABOVE the public offering price (POP)
3 underwriting fees: managers fee (managing underwriters), underwriting fee (for taking financial risk), and selling concessions (for selling)
underwriting spread (gross spread): Price underwriters charge to investors (POP) MINUS Price paid to issuer (underwriting proceeds)
spread allocation: syndicate manager fee (10-20%) underwriting syndicate fee (20-30) selling concession (50-60)
spread amount factors: -type of commitment (firm commitment=higher spread) -security's marketability (junk bonds =higher spread) -issuers business (volatile business= higher spread) -offering size-in a large offering, underwriter can spread costs over a large number of shares, thus per share cost may be lower.
SEC disclaimer: -SEC doesnt approve/disapprove OR state accuracy -must be on front of every prospectus
summary prospectus (SEC rule 498): SEC disclaimer -SEC doesnt approve/disapprove OR state accuracy -must be on front of every prospectus summary prospectus (SEC rule 498) -mutual funds can send summary prospectus to investors, which has application to buy shares
Statement of Additional Information (SAI): for mutual funds...investors can reach out to them to get more info on funds policies and history -not needed to make informed investment decisions but could be useful
Trust Indenture Act of 1939: applies to CORPORATE BONDS (not government) with following characteristics: -issue size of >50M within 12 months -maturity of 9 months or more -bond offered interstate -protect bondholders and requires issuer to appoint trustee to ensure covenants are met for benefit of bondholder
trust indenture: a series of promises between the issuer and the trustee for the benefit of the bondholders
municipal securities: exempt from registration under securities act of 1933
official statement: -full and fair disclosure document for municipal securities -aka the "prospectus" for municipal securities -just like prospectus, there can be a preliminary official statement
exempt transactions (w/o SEC registration): regulation a+- small and medium offerings: tier 1- securities up to 20M within 12 months will allowed to be exempt (no more than 6M can be sold on behalf of existing selling shareholders) tier 2- securities up to 50M in a 12 month period will allowed to be exempt (no more than 15M can be sold on behalf of existing selling shareholders) ---> tier 2 only allows qualified investors to invest: 1) be an accredited investor 2) limit investment of greater b/w 10% of net worth or 10% of NI/share
offering circular: the "prospectus" of small and medium offering (regulation a+)
exempt transactions (w/o SEC registration): REGULATION D: dont need to register private placements if placed with/investors are: 1) accredited investors 2) maximum of 35 non accredited investors **suitability must be measured for her to purchase as well. -if the offering is advertised, all purchasers must be accredited
accredited investors: 1) has net worth of 1M, not including net equity of house 2)has had annual income of 200k in each of 2 most recent years (300k jointly with spouse) 3) officers and directors of the issuer 4) a professional, sophisticated or institutional investor
private placement advertising: -can advertise private placement if ALL those solicited (advertised to) are accredited investors
private placement stock synonyms: -restricted (must be held for 6 month period) -unregistered (no registration statement on file with SEC) -letter stock (investor agreed to terms by signing investment letter) -legend stock
exempt transactions (w/o SEC registration): Rule 147 Intrastate Offerings: -offerings that take place in entirely one state are exempt from registration when: (only need one of these) >the issuer has its principal office and receives at least 80% of its income in the state >at least 80% of the issuer's assets are located within the state >at least 80% of the offering proceeds are used within the state >majority of employees are based within the state >all purchasers are residents of the state (cant resell to other state resident for at least 6 months) **only need one of these to be exempt
Rule 144: regulates the sale of CONTROL AND RESTRICTED SECURITIES -only applies to secondary offerings, not initial offering -
Control securities: those owned by directors, officers, or persons who own or control more than 10% of the issuer's voting stock -144 applies if employee and spouse COLLECTIVELY own more than 10% -no holding restrictionsdont have to wait 6 months -has volume limits
Restricted Securities: acquired through some means other than a REGISTERED public offering...AKA RESTRICTED=UNREGISTERED -must be held for 6 months
volume limitation: the GREATER OF 1) 1% of total shares outstanding OR 2) the weekly average of the prior 4 weeks' trading volume
restricted securities by nonaffiliated (non insider): -6 month holding period -no volume limits after
restricted securities by affiliate (insider): -6 month holding period -volume limits after
rule 144A: allows restricted securities to be sold to qualified institutional buyers (QIB) without holding period requirementsallowed to sell right away
QIB (Qualified Institutional Buyer): has 100m in assets
FINRA Rule 5130: protect the integrity of IPO process only (not debt offering or seasonal offerings) - IB's CANNOT SELL TO RESTRICTED PERSONS
Restricted Persons (FINRA Rule 5130)- can't buy IPO stocks: 1) the IB itself 2) employees of IB 3) finders and fiduciariesaccountants and lawyers of IB 4) portfolio managerscan do spinning (see below) 5) insiders (own >10% of bank) 6 immediate family members of above (parents, in laws, spouse, siblings, children) not aunt/uncle/grandma/cousin unless they live in same house ***Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does NOT exceed 10%
spinning: investment bank offering under-priced shares of a company's initial public offerings to the senior executives of a third party company in exchange for future business with the investment bank
rule 144: FORM 144: not be filed if 5,000 or fewer shares are sold and the dollar amount is $50,000 or less.
Investment Company Offerings: An investment company is a corporation or trust that pools investors' money and then invests that money in securities on their behalf.
Investment Company Purpose: Like a corporate issuers, investment companies raise capital by selling shares to the public. They are regulated by the Investment Company Act of 1940.
Types of Investment Companies: - Face-amount certificate companies (FACs), - Unit investment trusts (UITs) - Management investment companies.
Face-Amount Certificate Companies (FACs): FAC is a contract between an investor and an issuer in which the issuer guarantees payment of a stated (face amount) sum to the investor at some se future. If the investor pays for the certificate in a lump sum the investment is Known as a fully-paid face-amount certificate.
Face-Amount Certificate Companies (classified): - as investment companies - pay a fixed rate of return; and - do not trade in the secondary market but are redeemed by the issuer.
Unit Investment Trust (UITs): A unit investment trust (UIT) is an investment company organized under a trust indenture. Unit investment trusts do not: - have boards of directors (they have trustees); - employ investment advisers; or - actively manager their own portfolios (trade securities)
A UIT: in very similar to a mutual fund-up to a point. Both fixed UITs and mutual funds are compromised of a pool of securities in which investors own a proportionate share.
UITs: - UITs are investment companies as defined under the investment Company Act of 1940 - UIT shares (units) are not traded in the secondary market; they must be redeemed by the trust - UITs are not actively managed; there is no board of directors or investment adviser
Management Investment Companies: Is the most familiar type of investment company, which actively manages a securities portfolio to achieve a stated investment objective. A management investment company is either closed-en or open-end.
Closed-end or open-end companies: both companies sell shares to the public in an initial public offering; the primary difference between them is that a closed-end company's initial offering of shares is limited (it closes after its authorized number of shares number have been sold) and open-end company is perpetually offering new shares to the public (it is continually open to new investors).
Where do shares of closed-end companies trade?: In the secondary market
What types of securities may closed-end companies issue?: Commons Stock, preferred stock, and bonds
Can fractional shares be purchased?: Only full shares can be purchased
When must a prospectus be used?: Only in IPO (no prospectus is given when the shares are purchased in a secondary market transaction)
Who sets the ex-date?: FINRA
Trades in the secondary market: closed-end
Investors may purchase fractional shares: open-end
May issue common stock, preferred stock, and bonds: closed-end
Are sold with prospectus during IPO only: closed-end
issues a fixed number of shares: closed-end
Ex-date is set by the board of directors: open-end
Do not trade in the secondary market; share are redeemable: open-end
Price is set by supply and demand: closed-end
Usually called mutual funds: open-end
Selling price usually includes a sales charge: open-end
Diversified: Diversification provides risk management that makes mutual funds popular with many investors. However, not all investors companies feature diversified portfolios.
Diversified Investment Company: is one that meets the requirements of the 75-5-10 - at least 75% of the fund's total assets must be invested in securities issued by companies other than investment company itself or its affiliated. - The 75% must be invested in such a way that; 1 - no more than 5% of the fund's total assets are invested in the securities of any one issuer; and 2 - the fund may not own more than 10% of the outstanding voting securities of any one issuer
Nondiversified: nondiversified investment company does not meet the 75-5-10 test.
Diversified and nondiversified: both companies can be open-end and closed-end
Hedge Funds: These funds are a type of equity security with similarities to a mutual fund. The difference is that the Hedge fund does not current have to register with the SEC.
Exchange-Trade Funds (ETFs): This type of fund, also an equity security, investments in a specific group of stocks in deliberate mimicry of a particular index, such as he S&P 500.
Real Estate Investment Trust (REITs): A real estate investment trust (REIT - rest) is a company that manages a portfolio of real estate investments to earn profit for shareholders. REITs are normally public traded and serve as a source of long-term financing for real estate projects
REITs normally: - own commercial property (equity REITs); - own mortgages on commercial property (mortgage REITs) - do both (hybrid REITs)
Four important points to remember about REITs: - An owner of REITs holds an undivided interest in a pool of real estate investments - REITs trade on the exchanges and over the counter - REITs are not investment companies (open or closed-end) - REITs offer dividends and gains to investors but do not pass through losses like limited partnerships and, therefore, are not considered to be direct participation programs (DPPs)
Which of the following are covered under the Investment Company Act of 1940?: Open-end and closed-end companies
Which of the following investment companies has no provision for redemption or outstanding shares?: Closed-end companies
Which of the following statements regarding the investment practices of diversified management companies are TRUE?: - No more than 5% of their assets are invested in any one company - They may own no more than 10% of the voting stock of any one company
According to the Investment Company Act of 1940, an investment company with fixed portfolio, redeemable shares, and no management fee is: a unit investment trust
Which of the following statements are TRUE regarding open-end, but not closed-end, investment companies?: - They make continuous offerings of shares provided the original registration statement and prospectus are periodically updated - They may issue only common stock
Hedge funds and mutual funds are similar in that: both offer professional investment management
Investment Company Registration: A company must register with the SEC as an investment company if: - the company is in the business of investing, reinvesting in, owning, holding, or trading securities; or - 40% or more of the company's assets are invested in securities (government securities and securities of majority-owned subsidiaries are not used in calculating the 40% requirement)
Investment Companies cannot sell securities to the public if?: needs to be registered with SEC - net assets of at least $100,000; and - a clearly defined investment objective
SEC registration and public offering requirements;: - the type of management investment company it intends to be (open or closed-end); - plans the company has to raise money by borrowing - the company's intention, if any, to concentrate its investments in a single industry; - plans for investing in real estate or commodities - conditions under which investments policies may be changed by a vote of the shares; - the full name and address of each affiliated person; - a description of the business experience of each officer and director during the preceding five years; and - provide semiannual reports to shareholders, one of which must be audited.
Three important points regarding investment company prospectus;: - Mutual funds must always be sold with a prospectus because they are continuous primary offerings. New securities must always be sold with a prospectus. - Closed-end funds must be sold with a prospectus in their IPO only. When they are trading in the secondary market, closed-end funds need not be sold with a prospectus. - Financial information in a prospectus may be no more than 16 months old. The Securities Act of 1933 requires that information disclosed to an investor is reasonably current.
Open-end Companies: The Investment Act of 1940 requires open-end companies to; - issue no more than one class of security, and - maintain a minimum asset-to-debt ratio of 300%
asset-to-debt ration: 3:1 or 300%
debt-to-asset ratio: 1:3 or 33 1/3%
Restrictions on operations (investment practices): The SEC prohibits a mutual fund from engaging in the following activities unless the fund meets stringent disclosure and financial requirements; - Purchasing securities on margin - Selling securities short - Selling uncovered call options - Participating in joint investment or trading accounts
Which mutual fund trading activities may be prohibited by the SEC?: margin account trading, short selling, joint account trading, and naked (uncovered) options trading strategies.
Short Selling: is a securities industry practice that involves selling shares that are not owned. Investors borrowed shares from the broker/dealer by putting up collateral in a margin account.
Shareholder Right to Vote: The changes that require a majority vote of the shares outstanding include: - issuing or underwriting other securities - purchasing or underwriting real estate - making loans - changing sub classification (from open-end to closed-end or from diversified to non-diversified) - changing sales load policy (from a non-load to a load fund) - changing the nature of the business (ceasing business as an investment company) - changing investment policy (from income to growth or from bonds to small capitalization stocks) - changes in fees or auditors.
Difference between shares voting to shareholders voting: A majority of the outstanding shares is required to approve such actions as sales load or investment company objectives changes, not a majority vote of shareholders.
Mutual funds are generally prohibited from using covered options strategies;: False (Mutual funds may use covered option strategies but typically not naked or uncovered options).
A majority vote of the outstanding shareholders is required to change the investment objectives of a mutual fund;: False (A change in the investment objectives of the fund required a majority vote of the outstanding shares, not shareholders).
Mutual fund shares may be purchased on margin but may not be used as collateral in margin accounts;: False (Mutual funds may be used as collateral in margin accounts but may not be purchased on margin).
Open-end companies must have at least $100k of net assets before they may operate as an investment company;: True
Mutual funds are required to file registration statements with the SEC before shares are sold to the public;: True
Mutual funds make continuous secondary offerings of securities;: False (Mutual funds make continuous primary or new offerings of securities and must be sold by prospectus).
Open-end investment companies must maintain a 3:1 debt-to-asset ratio;: False (The debt-to-asset ratio of a mutual fund may not exceed 1:3, or 33%).
Closed-end companies are generally considered mutual funds;: False (Open-end companies are called mutual funds).
Management of investment companies;: Up to five parties work together to help an investment company operate; - A board of director - An investment adviser - A custodian - A transfer agent - depending on how the company is organized An underwriter
Prospectus (Statutory): This is the full and fair disclosure document that provides a prospective investor with the material information needed to make a fully informed investment decision.
Summary Prospectus: is a standardized summary of key information in the fund's statutory (full) prospectus.
The custodian of a mutual fund usually: The main function of a custodian, usually a commercial bank, are to hold the fund's cash and assets for safekeeping and to perform related clerical duties.
Investment company financial statements are sent to shareholders: Investment company financial statements must be sent to shareholders at least semiannually.
The role of a mutual fund's underwriting is to: The underwriting markets the funds
To change the name of a recently married shareholder on her registered shares of the fund, the shareholder should contact: The transfer agent (also known as the customer service or shareholder service agent).
Typically, the largest single expense of a mutual fund is: The management fee
Mutual fund shareholders own a divided interest in the fund's portfolio: False (Mutual fund shareholders own an undivided interest in the fund's portfolio).
A mutual fund shareholder's account value fluctuates proportionately with the mutual fund's portfolio value: True
The mutual fund's investment adviser is offered a 2-year initial contract that is subject to annual approval: True
The transfer agent holds the mutual fund's assets for safekeeping: False (The custodian holds the fund's assets for safekeeping).
Mutual funds issue only one class of common stock: True
The reinstatement provision allows reinvestment of withdrawn funds within 60 days at no load: The reinstatement provision allows for reinvestment of funds withdrawn within 30 days at no load
To open an account, most funds require a minimum investment: True
Mutual fund shareholders are allowed to vote on the frequency of divined distributions: False (Like common shareholders, mutual fund shareholders do no vote on matters involving dividends).
Price of Mutual Fund Shares: Total Assets - Liabilities = Net Assets of the fund Net Assets / Shares Outstanding = Net Asset Value
Under which of the following circumstances dos NAV per share decrease?: - Portfolio securities decrease in value - Dividends are distributed from the portfolio to shareholders
12b-1: - 12b-1 fees are charged and reviewed quarterly - To implement 12b-1 fees approval requires three votes; a majority of the outstanding shares, the full board, and the non interested members, of the board. - Renewal (done annually) requires two votes: a majority of the total board and a majority of the non interested members of the board. - Termination requires two votes: a majority of the outstanding shares and the non interested members of the board. - Charges covered by 12b-1 feed include advertising, sales literature, and prospectuses delivered to potential customers, not fund management expenses. - In order for a fund to market itself to the public as a no load fund, the fund may not charge more than .25% of average net assets for 12b-1 fees. - The maximum allowable 12b-1 charge under FINRA rules is .75% -FINRA does permit an additional .25% charge for shareholders services, but that is treated separate from the 12b-1 charge.
Computing the Sales Charge Percentage: POP - NAV = sales charge dollar amount Sales charge dollar amount / POP = sales charge percentage or NAV / 100% - sales charge percentage = POP
NAV and POP closed-end: - NAV can equal POP - NAV may be greater than POP - NAV may be less than POP (if the spread btw NAV and POP is greater than 8.5%, it must be closed-end
NAV and POP open-end: - NAV can equal POP - NAV can never be greater than POP - NAV may be less than POP (The spread btw NAV and POP must be 8.5% or less).
12b-1 fees are levied quarterly and renewed annually: True
An open-end fund's NAV may not be less than its POP: False
A back-end load is often called CDSC: True
12b-1 fees may not exceed .25% of average net assets: False
Closed-end funds generally have higher yields than open-end funds: False
Preservation of capital; safety: Government securities or Ginnie Maes
Growth: Commons Stock or common stock mutual funds
Balanced or moderate growth: Blue-chip (large-cap) stocks
Aggressive growth / speculation: Technology stocks or sectors funds
Income: Bonds - but not zero-coupons
Tax-free income: Municipal bonds or municipal bond funds
High-yield income: Corporate bonds or corporate bond funds
Equity income: Preferred stock and utility stocks
Liquidity: Money market funds (DPPs, CDs, real estate, annuities not considered liquid)
Keep pace with inflation: Stock portfolio
Secondary Investment Objectives: - Investors who are interested in aggressive growth should consider technology stock funds or stock funds investing in new companies with new ideas. Aggressive funds or small-cap funds are usually most suitable for younger investors who have higher risk tolerance. - Investors seeking growth but are more conservative should con sider balanced growth funds, which are likely to be large-cap funds. These are not as speculative as smaller cap and aggressive funds. - Investors who are interested in income but want safety of principal should invest in a government bond fund. - Investors seeking the highest possible income with little concern for risk should invest in a corporate bond fund. - High tax bracket investors seeking income should invest in a municipal bond fund. - Investors seeking safety of principal with high liquidity should consider a money market fund. - Investors who wish to invest in a portfolio that mirrors the performance of the stock market should consider an index fund.
Desires capital growth with minimal risk: Blue-chip stock fund
Wishes to maximize capital gains quickly with high risk tolerance: Aggressive growth fund
Wishes to diversify securities and is conservative: Balance fund
Wishes to invest in medical technology and is not risk averse: Specialized fund
Capital gains/income/lower risk: Balance fund
Capital gains/low risk: Conservative growth fund
liquidity/low risk: Small-cap fund
Capital gains/higher risk: Money market fund
Asset allocation: Capital gains/income/lower risk
Possibly enhanced growth/high risk: Fund of hedge funds
Growth low risk: Large-cap fund
Income/low risk: Government bond funds
Purchase variety of assets to achieve capital gains, income, diversification: Asset allocation fund
Mimic stock market indexes to achieve performance comparable to the market overall: Index fund
Safety of principal with yields slightly higher than government bond fund: Ginnie Mae fund
Seek investment in undervalued companies: Special situation fund
Invests in other mutual funds: Fund of funds
Often purchased to diversify a portfolio: Foreign stock fund
May invest in growth stocks and value stocks: Blend/core fund
Comparing mutual funds: When comparing mutual funds, investors should review information regarding; - performance - costs - taxation - portfolio turnover - services offered
The formula to calculate a mutual fund's expenses ratio is: fund expenses / average net assets = expense ratio
Maximum sales charge that may be withdrawn in any one year for a front-end load plan: 50
Maximum average sales charge that may be withdrawn over any four year period with a spread-load plan: 16
Maximum sales charge that may be withdrawn in any one year for spread-load plan: 20
Maximum sales charge percentage over the life of any contractual plan: 9
Under which of the following circumstances will dollar cost averaging result in an average cost per share that is lower than the average price per share?: - The price of the stock fluctuates over a period of time. - A fixed dollar amount is invested regularly.
The following statements regarding dollar cost averaging are true: - dollar cost averaging results in a lower average cost per share. - more shares are purchased when prices are lower. - in sales literature, dollar cost averaging cannot be referred to as averaging the dollar.
Which of the following is a risk of a withdrawal plan?: The investor may outlive his income.
An investor has requested a withdrawal plan from his mutual fund and currently receives $600 per month. This is an example of what type of plan?: Fixed-dollar periodic withdrawal
CV: Convertible bond or convertible preferred
NAV plus sales charge: POP
Net sales / shares outstanding: NAV
Candia security: CN
Which of the following represent the rights of an investor who has purchased a variable annuity?: - Right to vote on proposed changes in investment policy. - Right to vote for the investment adviser.
Which of the following are TRUE for both variable annuities and mutual funds?: - They contain managed portfolios. - They are regulated by the Investment Company Act of 1940.
Which of the following most significantly affects the value of annuity units in a variable annuity?: Fluctuations in the securities held in the separate account.
Variable annuity salespeople must register with all of the following;: - SEC - FINRA - state insurance department
A variable annuity contract guarantees: - a fixed mortality expense - a fixed administrative expense
Separate accounts are similar to mutual funds in that both: - may have diversified portfolios of common stock - give investor voting rights
A customer invest in a variable annuity. At age 65, she chooses to annuitize. Under these circumstances, which of the following statements are TRUE?: - She may choose to receive monthly payments for the rest of her life. - The number and value of the accumulation units is used to calculate the total number of annuity units.
An investor is in the annuity period of a variable annuity purchased 15 years ago. During the present month, the annuitant receives a check for an amount that is less than the previous month's payment. The payment is smaller because the account's performance was;: less than the assumed interest rate
An insurance company offering a variable annuity makes payments to annuitants on the 15th of each month. The contact has an AIR of 3%. In July of this year the contract earned 4%. In August, the account earned 6%. If the contact earns 3% in September, the payments to annuitants in October will be;: the same as the payment in September
Which of the following annuity options pays the largest monthly income?: Life only
Rank of annuity options from smallest to largest monthly income;: - Unit refund - Joint and last survivor - Life with 10 year period certain - Life only
Delays distributions until the owner elects to receive them: Deferred annuity
Determines an annuitant's interest in the insurer's separate account during accumulation stage of an annuity: Accumulation unit
Performance of a separate account determines value: Monthly payment
Annuity payments continues as long as one of the annuitants is alive: Joint with las survivor annuity
Contract starts to pay the annuitant immediately following its purchase: Immediate annuity
Forms the basis for projected annuity payments but is not guaranteed: Assumed interest rate
Holds funds paid by variable annuity contract holder: Separate account
if the annuitant dies before a specified time expires, payments go to the annuitant's named beneficiary: Life income with period certain
Sales charge percent of premium kept if cancellation is in the second year: 10
Minimum percent of cash value that must be available for a policy loan after 3 years: 75
Number of months contracts exchange provision must be in place: 24
Maximum sales charge allowed over life of variable life contract: 9
Features a stated premium: Whole life, Variable
Always has some guaranteed death benefit: Whole life, Variable
Features a guaranteed cash value: Whole life
Cash value not guaranteed: Variable, Universal variable
Policy loans available: Whole life, Variable, Universal Variable
Which of the following is a management company?: - A mutual fund - An open-end company - A closed-end company
Who sets a mutual fund's ex-dividended date?: The fund's board of directors
Which of the following annuities includes augmentation of premium payments by the insurance company?: Bonus equity
The Board of Directors of an open-end investment company may vote to determine a change in all of the following;: - sponsoring underwriting - custodian
According to the Investment Company Act of 1940, which of the following are required to start an open-end investment company?: - At least $100k of net assets - A clearly stated investment objective
Which of the following would cause an increase in NAV?: - Investment income is received by the fund - The securities in the portfolio appreciate
mutual fund has $3 million in assets. What is the maximum amount of debt that can be carried?: $1 million (The Investment Act 1940 mandates that a mutual company must have $3 of assets for each $1 it borrows).
Assuming that expense ratios for the funds listed are identical, rank the funds below in order, from lowest to highest expected income yield.: 1 - Growth stock fund 2 - Municipal bond fund 3 - Government bond fund 4 - Corporate bond fund
How do closed-end investment companies differ from open-end investment companies?: - Closed-end companies shares are sold with prospectus only in IPOs; open-end shares solicitations must always be accompanied by a prospectus. - Closed-end companies issue a fixed number of shares; there is no limit on the number of shares by an open-end company.
Mutual fund redemption fees are;: levied when the shares are sold back to the fund
A unit investment trust can best be described as: - a non managed investment company - a company that issues redeemable securities
A client investment in the XYZ Bond mutual fund 5 years ago. The client took dividend distributions in cash and reinvested capital gains distributions into more shares. Interest rates have declined over the past 5 years. Which of the following statements is TRUE?: The NAV per share of the XYZ Bond mutual fund increase
Which of the following us an advantage to a customer who invests in a contractual plan?: The customer may invest very small amounts
The total return of a mutual plan fund is equal to: the return attained by reinvestment of all dividend and capital gains distributions
All of the following charges are included in the computation of a mutual fund's expenses ratio: - the fee paid to board members - the investment adviser fee - the transfer agent fee
Your customer feels she is overburdened with taxes and would like relief. You discuss the MNO Municipal Bond Fund with her and advise her of the tax treatment of the distributions. Which of the following statements would be the correct advice?: Dividends are federally tax exempt and capital gains are subject to taxation
ABC is a diversified, open-end investment company with assets of $20 million, of which $5 million is invested in era estate that it wishes to retain. The rest is invested in securities. ABC wishes to invest in Kramer Manufactures, Inc., a company whose outstanding stock is valued at $4 million. If ABC wishes to retain its diversified status, what is the most it may invest in Kramer Manufactures, Inc.?: $400k
Which of the following statements about mutual fund is TRUE?: - Mutual funds are also referred to as open-end investment companies - When investors sell mutual fund shares, the shares redeemed at their net asset value - Mutual funds may continually issue new shares
Which of the following statements regarding dollar costa averaging is TRUE?: When the market fluctuates, it will result in a lower average cost per share
Your customer invests $200 monthly in a mutual fund. His daughter plans to enter college soon, and he would like to send her $100 monthly. Which of the following actions should you recommend him?: Invest $100 monthly into the mutual fund and send his daughter $100 monthly
A annuitant received payments until his death from non qualified variable annuity. At his death, his wife received a lump sum payment from the annuity. This example illustrates which type of annuity?: Unit refund
A customer ha a variable life policy and has made 2 annual premium payments. From the 1st year's premium, $600 was deducted in sales charges. From the 2nd year's premium, $400 was deducted. If the customer terminates the policy after 2 years, which of the following statements are TRUE?: The customer receives the policy cash value only
A customer is considering the purchase of either a variable annuity or variable life insurance. In discussing the merits of the respective contracts, a registered representative may state that all of the following characteristics are common to both contracts;: all gains are tax referred - the AIR is a factor determining certain values - contract owners have the right to vote
Which of the following types of annuity contracts would your customer be able NOT be able to purchased?: Variable annuities
Which of the following products need not register with the SEC?: Whole Life Insurance
A 60-year-old male customer is interested in investing in a variable annuity. Which of the following would you consider to be the least important in the investment decision?: The customer sex
The AIR for your customer's variable annuity contract is 5%. In February, the separate account earned 7%. In March, the separate account earns 5%. The April annuity payment will be?: equal to the March payment
A registered representative presenting a variable life insurance policy proposal to a prospect must disclose which of the following about the insured's rights of exchange of the VLI policy?: Federal law requires the insurance company to allow the insured to exchange the VLI policy for a traditional whole life policy issued by the same company for 2 years with no additional evidence of insurability
Guaranteed cash value is a standard feature found in which of the policies listed below?: Whole life
Which of the following is typically the largest single expense of a mutual fund?: Investment adviser's fee
What is include in the cost basis of a mutual fund client: Original Investment + Reinvested dividends and capital gains
What is a common time frame for calculating the cash surrender value on a variable life insurance policy: Many companies calculate the cash surrender value monthly
Define Current Assets: Assets that may be converted into cash in a short time (less than a year)
If the Green Fund has a NAV of $12.70 and a sales charge of 5.5%, what is the POP?: The formula is NAV/ (100% - Sales Charge%). $12.70/ 94.5%= 13.44
What is another name for non-diversifiable risk: Systematic Risk
A fund can be purchased below its NAV. what type of fund is it: The fund must be a closed end fund that is trading at a discount
May clients invest in an out-of-state 529 plan: Yes. Clients may choose to invest either in state or out of state
What is the risk that changes in the tax could impact securities prices: Legislative risk
What are the requirements for being considered a regulated investment company: The fund must be a domestic company that distributes at least 90% of its net income
With what should a client be concerned if an RR recommends changing fund families: The specific motivation. For example, the RR may be involved in churning
The _______ fee is assessed against the funds assets to pay for marketing and distribution costs: 12b-1 fee
What is a partial account transfer: A situation in which a specifically identified asset is transferred to another BD
The __________ the duration, the greater the bonds volatility sensitivity: longer/greater
What ETF closely tracks the price performance of the S&P 500: SPDRs
To What risks would be treasury bond funds be subject: Interest rate, purchasing power, and market risk
True or False: Performance must be negative for a variable annuitys payment to fall: False. Performance below the AIR will cause the payment to fall, even if the investment result was positive
True or False: When interest rates go up, bond prices go up, and when interest rates go down, bond prices go down: False, there is an inverse relationship between interest rates and prices
If a client eliminates unsystematic or diversifiable risk in his portfolio, he is willing to accept______ risk: Market Risk
What is a common time frame for calculating the cash value on a variable life insurance policy: Many companies calculate the cash value daily
True or False: If a mutual fund investor chooses to reinvest dividends, taxes ill be deferred: False
What is the appropriate investment for a doctor who is undecided about his long term asset allocation: A tax free money market fund
What system is used for issuance of treasury securities: An auction
Beta measures an investments ______ risk and alpha measures an investments _______ risk: Systematic, non-systematic
What is the maturity range of a t-note: 2 to 10 years
May close-end funds issue more than one type of security: Yes closed-end funds may issue common stock, preferred stock, or bonds
How is basis determined for the recipient of gifted securities: Basis ill be the donors cost or market value whichever is lower
May an RR create her own breakpoint schedule: No RRs must follow the schedule found in the funds prospectus
Are variable life policies subject to IRS early withdrawal penalties: No but variable annuities would be subject to the penalty
List some expense items for which soft dollars may not be used: Accounting, travel, entertainment, legal, marketing, rent, or telephone line expenses
What is a suitable investment in a college fund for a 17-year old: High grade bond funds, since the individual has a short time horizon
true or False: Zero coupon bonds would a suitable recommendation for college funding: True, especially since clients may want to avoid stock market risk
If non-transferable assets are being sold at the time of surrender, who discloses any surrender charges to the client: The carrying (former) BD
How may a mutual fund be capitalized: Mutual (open-end) funds may only issue common stock to raise capital
Issuers of bonds may be referred to as ______: debtors
For what type of investor is a micro-cap mutual funds most suitable: Speculative investors, since the portfolio consists of stocks of very small companies that are typically quite volatile
The following would be a quote for what security? Bid 4.26 Asked 4.22: T-bill
How may close end fund be capitalized: close-end funds may issue bonds, common stock, or preferred stock to raise capital
True or False: ETFS are marginable and may be sold short: True
Where is the best place to find information regarding share classes: The comparison table found in the funds prospectus
True or False: A value investor buys stocks With high P/E ratios: False. Value Investors buy stocks with lo P/E ratios, lo price-to-book ratios, and high dividend yields
What is the formula for determining the number of shares able to be purchased when reaching a breakpoint: Dollars invested newly calculated offering price (based on the reduced sales charge)
If performance in a given period is below the AIR, the next payment will _______: decrease
Does a funds yield include capital gains: no, Capital gains are part of a funds total return
What is the dollar limit that may be contributed annually to a non-qualified annuity: There is no contribution limit
An annuity that offers a partial guaranteed payment and a partial variable payment is known as a _____ contract: split
What does it mean to say an issuer is heavily leveraged: The issuer has more debt than outstanding equity
The formula for taxable equivalent yield is: ________/ (_______-_________): Tax-Free yield/ (100%-Tax bracket %)
Does the US government guarantee US government bond funds: No the government only guarantees the underlying bonds
A funds management fee is typically calculated based on a percentage of ______: AUM
What is a suitable investment in a college fund for a 3-yr old: Growth funds, since the child has a long term horizon
May a person contribute to her own 529 plan: Yes
What are 2 synonymous terms for a bonds interest rate: Coupon rate and nominal yield
In a non-qualified annuity, how is the payout taxed: Only the earnings portion is subject to tax as ordinary income
High-yield bonds have a greater degree of _________ risk: Default
If a member firm places a hold on the disbursement of client funds or securities, when must it provide notification: within 2 business days
Mutual fund investors have an ______ interest in the securities in the portfolio: Undivided
Which share class typically has the lowest expense ratio: Class A
What condition must exist for a municipal bonds interest to be exempt at the state and local level: Investors must buy the bond from the state in which they reside
May annuities be purchased inside of IRAs: Yes, but this practice is typically not recommended by FINRA
What is the net yield for and investor in the 28% tax bracket who owns an 8.5% corporate bond: The formula is: Taxable yield x (100% -Tax Bracket %). 8.5 x 72%= 6.12%
Mack, in the 35% tax bracket, is earning 5.4% on a tax-free municipal bond. What is his taxable equivalent yield?: The formula is: tax free yield/ (100% - Tax Bracket %). 5.4% 65%= 8.3%
Is a letter of intent binding on the investor?: No. However, the letter is binding on the investment company.
Each payment from GNMA will represent both ____________ and ____________.: Principal, Interest
In a non-qualified annuity, how is a single distribution taxed: Earnings First (LIFO)
If performance in a given period is greater than the AIR, the next payment will ___________.: Decrease
The maximum maturity of commercial paper is ____ days: 270
For a mutual fund to issue shares publicly, what is the minimum net worth requirement: $100,000
List some examples of non-systematic risk: Business, regulatory, legislative, political, liquidity, opportunity, and reinvestment risk are non-systematic risks
The principal value of TIPS may be adjusted based on changes to the _______: CPI
What is a suitable asset mix for a 65 year old retiree: 85% fixed income and 15% equity
A sale for a loss would trigger the wash sale rule if the same security is repurchased within _______: 30 days of the sale
What is a fund's net investment income?: Dividends + interest - expenses
What is the tax implication of the death benefit of a variable annuity: Any amount above the contracts basis is taxable to the beneficiary
What is the formula for determining the average cost per share: Total dollars invested/ total shares purchased
For what type of investor is a small-cap mutual fund most suitable: Aggressive investors, since the portfolio consists of small companies that are often volatile
Prior to selling a variable annuity, hat legal document must a firm obtain: A signed selling agreement from the contracts underwriter
What does yield-to-maturity (YTM) take into account that current yield does not: Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money
True or False: Regulated investment companies (under subchapter M) may relieve their burden of paying tax on income: True. Regulated investment companies will only be taxed on the income retained
What is not included in a mutual funds expense ratio: The sales charge, since only fees are included
When discussing a bond, the YTM may also be referred to as _____: basis
True or False: Interest paid on GNMA, FNMA, ETC, bonds are fully taxable to investors: True. the interest is taxed at the federal, state, and local level
How is interest on municipal bonds treated for tax purposes: Federally tax-exempt, but may be subject to state and local tax
What action would be taken by a mutual fund manager who is bearish on the market: raise cash levels in the fund
A bond funds NAV has risen from $7.87 to $8.88. What has probably happened to interest rates: Rates have probably fallen
A measurement of frequency of trading in a mutual fund is called _________: Portfolio turnover
At annuitization (payout), what will determine the annuitants payment: A fixed number of annuity units with a fluctuating value per unit
What is the tax implication of a policy loan on a life insurance policy: The loan is not taxed, but interest is charged on the outstanding balance
What annuity does not protect an investor against inflation?: Fixed (guaranteed) contracts are not a good hedge against inflation
As a client ages, what happens to her premium payments in a variable life policy: Payments in a variable life policy remain fixed (level)
If a client wants to transfer an account containing a non-transferable asset, hat is the carrying firms obligation: Notify the client and give her the option to maintain the asset in an account or dispose of the asset
What happens to the CDSC holding period when a client switches to a new fund family: The clock is reset to day one whenever the client switches to a new fund family
What does the following quote indicate about the fund? Nav: $9.20 POP: $9.20: Its a no-load fund
Name 2 issues on which common stockholders may vote: Board of directors elections and stock splits
What is the risk of taking a loan against a variable life policy: If the market declines, the cash value may be sufficient to pay the premium
What is the dollar price of a T-bond with a bid of 98-24 and a par value of $100: 98 and 24/32. Convert fraction into a decimal 24/32= .75. Now multiply $100 by 98.75%= 98.75$
Municipal bond interest is exempt from _______ tax: Federal
May an RR summarize a prospectus: No. any prospectus summary must be produced by the funds sponsor
What amount of an investment company's Board of Directors must be independent/unaffiliated?: a majority
Describe the tax treatment of contributions made to a 529 Plan.: They are after-tax contributions that may possibly grow tax free
What price is paid for closed-end management company shares?: Market price plus a commission
Is a mutual fund switch a taxable event: Yes
Into what does a growth fund invest?: common stock
Are variable life policies subject to IRS early withdrawal penalties?: No, but variable annuities would be subject to the penalties
What is included in the cost basis of a mutual fund client: Original investment + reinvested dividends and capital gains
True or False: Rights of accumulation benefits may be combined with LOI benefits: False
What should a BD do if it believes that a clients account has been financially exploited: Place a hold on withdrawals. An important note is that it cannot halt securities transactions
How are income distributions from a stock mutual fund typically taxed: At a maximum of 20%, since qualifying dividends receive preferential treatment
When must the SAI be distributed to clients: Upon request
How are income distributions from a bond mutual fund taxed: At ordinary income rates
True or False: T-bills are quoted on a dollar basis: False. T-bills are quoted on a discount yield basis
Define Capital Risk: The risk that an investor may lose a part or her entire investment
Is switching between annuity sub-accounts taxable?: No
List some of the investors eligible for sales charge reduction in a mutual fund: An individual and the members of her immediate family, trustees, and pensions
Ann invests $15,000 in a non-qualified annuity. At age 64, she withdraws all $22,000. What's Ann's basis; what's taxed?: Her basis is $15,000 since the annuity is funded after tax and the $7,000 of earnings would be taxed as ordinary income
How often must a client receive reports from her mutual fund: semi-annually
The Transfer Initiation Form (TIF) is used by _____: ACATS
True or False: A client who believes rates will fall will buy a long-term bond: True. Falling rates help bond prices, and long-term bonds will rise the most
What is the current yield on a 4% coupon bond selling at 50: $40/$500= 8%
In total, how many days does the wash sale rule actually encompass: 61 days (30 days before the sale, 30 days after the sale, as well as the sale)
What is the formula for computing a mutual funds NAV: net assets/ total shares outstanding
Given a yield change, ____________ bonds move more in price.: long-term
What are the 3 sections that represent a company's total asset: Current assets, fixed assets and intangibles
Will liquidating a funds position at a loss affect a funds NAV: No. the position has already been marked to market
What happens to the CDSC holding period when a client switches within a fund family: The prior period counts, provided the new B share investment is in the same family
True or False: A bottom up approach to investing uses the economy as a main factor in determining which stocks to buy: False. Bottom up investing uses company specific items (earnings, dividend payments) to pick stocks
Sales charge is always expressed as a percentage of the ________.: POP
Give some examples of non-transferable assets: Carrying firm proprietary assets, LP interests in retail account, products of third party not connected to receiving BD
What is a good way to obtain broad market exposure at low cost: Buy an index fund
What fee does a variable annuity company charge to cover its cost of operations: An administrative fee
Who must approve a change to mutual funds objective: The majority of voting shares
What does ownership of a GNMA pass-through certificate represent?: An undivided interest in a pool of residential mortgages
Investment companies must send financial statements to customers every ____ months: 6
When securities are gifted, the recipient's holding period will be _______________________.: the same as the donors
May an RR recommend day trading of no-load mutual fund shares: No. mutual fund shares may not be recommended as short-term trading vehicles
What modification is made to the straight-life payout option to guarantee payments for a minimum number of years: Straight-Life with period certain
What is a suitable investment for a conservative client seeking monthly income: A GNMA fund, since income is typically paid monthly
An account transfer request can be protested if:: There is no record of the account, the transfer instructions are incomplete or there is an invalid signature
If a non-transferable asset is sold, the carrying BD has _____ business days to pay the client: 5
Are open-end investment companies considered managed or unmanaged?: Open-end funds (mutual funds) are managed by an investment adviser
What security helps to finance foreign trade: a BA
According to the wash sale rule, what securities are considered substantially the same?: Same stock, rights, warrants, a bond or preferred stock convertible into the stock, or the purchase of a call option
A carrying firm must validate or protest an account transfer within ___ business days of receipt of the transfer request: 1
What payout option requires the insurance company to provide payments for as long as one of two people remain alive?: Joint and Last Survivor
How is interest on corporate bonds treated for tax purposes: Fully Taxable (taxed at federal, state, and local)
Jim owns a 5% bond maturing on 61/2022. What would Jim receive at maturity if the bond pays interest semi-annually: $1,025, which represents the $1,000 principal value plus the final coup[on payment $25
What type of bond typically offers lower yield: municipal bonds, since return is tax-free
What types of stocks are held in a global fund?: Stocks of both US and foreign issuers
The _______ is synonymous with the bid for a mutual fund: NAV
Who records the names of mutual fund shareholders: The funds transfer agent
If a client's goal is preservation of principal, what fund would be most appropriate?: Money-market fund
For what type of investor is a large-cap mutual fund most suitable: Conservative equity investors, since the portfolio consists of stocks of large, established companies
Since T-STRIPS are sold at a discount and mature at par, what must be done to their basis each year?: The discount must accreted each year
Define capital surplus (or paid-in capital): The amount over par value by investors for a corporations stock
What ill not affect the rate of return on a variable annuity during the accumulation period: The beneficiary designation
Is the death benefit of an annuity included in the estate of a deceased client?: Yes, additionally, any amount over the cost basis may be taxable to the beneficiary
Does a UIT have a board of directors: No. These entities are supervised by a board of trustees
What does the wash sale rule require an investor do with disallowed losses: Losses must be added to the basis of the newly purchased security to establish a new basis
May a money market fund charge a 12b-1 fee: yes, up to .25% (25 basis points)
What is the effect of an outstanding loan at death of insured: The death benefit ill be reduced by the loan amount
How often are assets valued in a variable contract: Similar to mutual funds, assets are typically valued based on daily NAV
A stock with a positive Alpha is generally considered a ____ opportunity by an analyst: Buying
what is the purpose of 529 ABLE plans: They are savings plans to assist individuals with disabilities to supplement social security benefits
With what should a client be concerned if an RR recommends a Class B share switch between fund families: The holding period will be reset to zero in the new fund family and/or a CDSC may apply on the redemption
What price is paid for mutual fund shares?: The Public Offering Price (POP). POP = NAV + Sales Charge (if applicable).
What is the maximum permissible 12b-1 fee: .75% (75 basis points). However, for a no-load funds, the maximum 12b-1 fee is capped at .25%
Why is an index fund considered tax-efficient: Due to the low portfolio turnover that creates fewer taxable events
What terms are synonymous with a mutual funds NAV: Bid Price or redemption Price
What would cause a bond funds assets to fall: Either redemptions causing the loss of funds or an increase in rates causing a decrease to the portfolios value
What would cause a bond funds assets to rise: Either new purchases bringing in funds or a decrease in rates causing an increase to the portfolios value
What typically happens to interest rates during an inflationary period: Rates typically rise as investors need greater returns compensate for rising prices
Which is more expensive to on, a variable annuity or mutual fund: A Variable annuity, since it typically has greater expenses due to the death benefit and mortality expenses
Is the management fee based on gains and losses: No. The fee is based on assets under management
What is SBI: Shares of beneficial interest (this represents a clients UIT holdings)
May a loss be experienced by a client ho invests in a US government bond fund: Yes, due to interest rate risk
True or False: The market price of closed-end shares could be higher, lower, or equal to the NAV: True. Shares can trade at a premium or discount to NAV based on supply and demand forces
What is the typical voting criteria for mutual fund: One vote allowed per one share owned
What funds are similar to an index fund, but trade in the secondary market like stock?: ETF
Which interest rates are generally more volatile: Short-term rates
How are voting issues determined, by shares or shareholders: Voting issues are determined based on a majority of shares
If a member firm places a hold on the disbursement of clients funds or securities, when must it provide notification: within 2 business days
A mutual fund family is also referred to as a mutual fund ______: Complex
What share class is typically appropriate for an investor with uncertain time horizon: Class C
true or False: Class B shares are eligible for breakpoints: False. Only class A shares are eligible for breakpoints
What is a mutual fund profile: This is a short form document containing the highlights found in the prospectus
Once validated an account transfer must be completed within ____ business days: 3
Name some of the different types of money-market instruments.: T-bills, BAs, Commercial Paper, Negotiable CDs
The formula for net (after-tax) yield is : ________ x (______-_____): Taxable Yield x (100% - Tax Bracket %)
What is the formula for calculating current yield: Annual Interest $\div$ Current Market Price
A client selling shares would like to determine the specific shares being sold, he should use ________________________.: Specific Identification
what is the common time frame for calculating the death benefit on a variable life insurance policy: Annually
True or False: To lower sales charges, investors add mutual fund purchases in all accounts using rights of accumulation: True. However, the purchases must all be from the same fund family
What are T-STRIPS?: Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons
What must be included in a mutual fund confirmation: Potential redemption fees or CDSCs that may apply
For what three reasons may a carrying firm reject an account transfer request: An unrecognized residual credit asset, a missing/improper authorization, or the client chooses to take possession
Grandparents contributing to a grandchild's 529 Plan may give how much money and still avoid gift tax consequences?: Front-Loading 5 years of contributions is allowed; therefore, each could contribute $75,000 for a total of $150,000
When does a mutual fund begin to trade ex-dividend: on the funds record date
In a Non-Qualified Annuity, how is the payout taxed?: Only the earnings portion is taxed
For purposes of ACATS, hat is a non-transferable asset: A proprietary product of a delivering organization or an asset that is the product of third party
Will redemptions affect a funds NAV: No. assets and number of shares are decreased proportionally
True or False: Performance must be negative for a variable annuity's payment to fall: False. performance below the AIR will cause the payment to fall, even if the investment result was positive
How may a closed-end fund be capitalized: Close-end funds may issue bonds, common stock, or preferred stock to raise capital
True or False: Medallion signature guarantee are used when a customers signature is obtained on a stock power: True. When customers sign stock power or transfer initiation forms, the firm guarantees the signature with a stamp
Define Free-riding: buying shares without a cash deposit, then selling the shares before the payment date
For Treasury Securities, when does a cash settlement transaction actually settle: On the same day that the trade occurred
True or False: If an RR executes a trade in error, the trade goes into the RRs error account: False. Firms, not RRs, maintain error accounts
What information is found on a confirmation and not an order ticket: Firm capacity, accrued interest, commission, and CUSIP number
What is form U6 used for: used to report disciplinary actions against associated persons and BDs
True or False: an order ticket will indicate if an order was discretionary, solicited, or unsolicited: True
What is the significance of a narrow spread in a stock quote: A narrow spread is often indicative of active trading
Hearing Panel findings may be appealed to the ___________________________,then the _____, and then ________________.: National Adjudicatory Council (NAC), then the SEC, then the federal court
Under Reg T, does the payment date requirement apply to cash or margin accounts: Payment is required within 4 business days for both (100% in a cash account, but 50% in a margin account
Which market is considered negotiated: The OTC market
True or False: Mutual Fund Share Purchases and redemptions settle in 2 business days: False. Unlike stocks and bonds, mutual funds dont have a fixed settlement date. Most funds settle on the same day
What types of industry issues are handled under the code of procedure: rule violation
For what reasons would a firm use its error account: If the firm or one of its RRs executed a trade involving the wrong security/quantity or on the wrong side of the market
What steps are taken if a customer dies: Mark the account "deceased," cancel open orders, and await instructions.
What happens to a clients brokerage account if she is continually late in paying: The account may be frozen for 90 days
Customers are given ____ business days after settlement date to pay for their portion of the trade.: 2
What is the maximum fine under the code of procedure: Fines may be unlimited; there is no maximum
True or False: Customers must pay for their trades on or before the settlement date: False. According to Reg. T, customers must pay within 2 business days of settlement
When do municipal bond trades settle?: Two business days after the trade date (T+2)
What is a TOD account: An account in one person's name that allows a beneficiary to gain control upon the account holder's death.
In a cash account, the payment date for all securities purchases is _____ business days after the ________ date: 2, settlement
What is the filing process when a person changes employment from one B/D to another B/D: The former employing BD files form U5 to indicate termination and the new BD files Form U4 to initiate employment
To what is a firm entitled when acting in the capacity of a principal or dealer: Markup when selling to a customer and markdown when buying from a customer
Shares were mistakenly bought in a clients account. Who is authorized to place the shares in the firms error account: The firms principal
For ho long is an employee questionnaire Form U4 and fingerprint cards retained: For 3 years after the representatives leaves the firm
What is the statute of limitations for arbitration: 6 years
When are clients required to pay for their treasury or municipal bond purchases: On the settlement date of the trade. For treasuries, this is T+1, but for municipals its T+2
What is CRD: The Central Registration Depository (CRD). CRD is FINRA's database for member registrations.
True or False: The capacity in which a firm acts appears on both the confirmation and the order ticket: False. Firm Capacity is disclosed on the confirmation, not the order ticket
What actions may the hearing panel take regarding rule violations: Censure, fine, suspension, request to requalify, or expulsion of the respondent

To find us again, just search “Career Employer Series 6”

By Career EmployerUpdated Jun 6, 2026

500+ free Series 6 flashcards — 4 ways to study

Series 6 Flashcard of the DayNew daily

The classic card. Do you know this one?

Click Study Flashcards above to open the flashcard hub — over 500 Series 6 cards you can flip, match, type, or quiz yourself on. Every card is drawn from the four FINRA job functions, so you study exactly what the exam tests.^[2] Pair them with our free practice exam and study guide.

Series 6 Flashcard Study Modes

Most flashcard sites give you one thing: a card to flip. Ours has four modes so you can both learn the material and prove you actually know it — the difference between recognizing an answer and recalling it under pressure.^[3]

Flip (Study) — the classic card. Flip term ↔ definition, shuffle the deck, and mark each card “Got it” or “Still learning” to track what’s sticking.
Match (Game) — a timed game: pair each term to its definition as fast as you can. Beat your best time. Great for cementing vocabulary.
Type (Recall) — read the definition and type the term. Typing forces true active recall instead of passive recognition.
Quiz (Test) — multiple-choice questions generated from the cards, so you can self-test exactly like exam day.

Free Series 6 flashcards from Career Employer — active recall for the FINRA Investment Company and Variable Contracts exam

Why Flashcards Work for the Series 6

Flashcards aren’t busywork — they’re built on active recall: the act of pulling an answer out of memory strengthens it far more than re-reading notes. Pair that with spacing — short sessions across several days rather than one cram — and you retain more in less time.^[3] Used alongside our practice exams and study guide, flashcards turn review time into measurable progress.^[3]

Series 6 Flashcards by Topic

The cards are organized by the four FINRA functions. Weight your study toward the heaviest one — recommendations & information is half the exam:^[2]

Series 6 flashcards by FINRA function
FINRA function	Flashcards	% of exam
Seeks business for the broker-dealer	86	24%
Opens & evaluates customer accounts	190	16%
Provides information, recommendations & records	202	50%
Processes & confirms transactions	30	10%

How to Get the Most Out of These Flashcards

Start early, review daily. Begin flashcards as you cover each topic, not the week before — a few minutes a day beats one marathon session.^[3]
Use Type and Quiz, not just Flip. Recognizing the right answer is easy; recalling and choosing it is the real test. Typing and quizzing expose the gaps.
Drill your weakest function. Pick a single domain deck and grind it until the Match time drops and the Quiz score climbs.
Mirror the exam weighting. Spend the most time on “recommendations & information” — it’s 50% of the test.
Then prove it. When the cards feel easy, confirm with a full practice exam — aim for 80%+ before exam day.

Series 6 Flashcards FAQ

500+ free Series 6 flashcards, organized across the four FINRA job functions tested on the exam. They're free to use with no account required.

References

1.FINRA. “Series 6 – Investment Company and Variable Contracts Products Representative Exam.” FINRA.org. ↑
2.FINRA. “Series 6 Content Outline (PDF).” FINRA.org. ↑
3.Institute of Education Sciences (U.S. Dept. of Education). “Organizing Instruction and Study to Improve Student Learning (Practice Guide).” What Works Clearinghouse, IES. ↑
4.FINRA. “Qualification Exams Overview.” FINRA.org. ↑

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