Your FREE Series 6 Flashcards 2026 – 500+ Cards

may review and or approve communications for all securities except options

review/approve communications for investment company products

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 a Principal though. A municipality is an 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.

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

-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

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

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

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!"

-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)

-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

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.

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.

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)

-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

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

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

-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

-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

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

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

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

trades among investors

-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)

-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

usually bw corporations and IB, terms of issuing are negotiated

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)

-underwriter acts as agent with no financial risk -agent capacity, NO T PRINCIPAL CAPACITY

-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

-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

when SEC reviews the security's registration statement from issuer -no sales allowed -can distribute red herring for IOI's -can advertise

allows sales and firm must have a final prospectus

sales are allowed -cannot mark/highlight it at all!

-used to gauge investor reactions and IOI -prospectus is not effective -cannot mark/highlight it at all!

-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

-number of IOI's -market conditions -price syndicate members willing to accept -p/e ratios of comps -dividend history and financial health -debt ratio

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

-bidding at a price ABOVE the public offering price (POP)

managers fee (managing underwriters), underwriting fee (for taking financial risk), and selling concessions (for selling)

Price underwriters charge to investors (POP) MINUS Price paid to issuer (underwriting proceeds)

syndicate manager fee (10-20%) underwriting syndicate fee (20-30) selling concession (50-60)

-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 doesnt approve/disapprove OR state accuracy -must be on front of every prospectus

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

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

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

a series of promises between the issuer and the trustee for the benefit of the bondholders

exempt from registration under securities act of 1933

-full and fair disclosure document for municipal securities -aka the "prospectus" for municipal securities -just like prospectus, there can be a preliminary official statement

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

the "prospectus" of small and medium offering (regulation a+)

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 them to purchase as well). -if the offering is advertised, all purchasers must be accredited

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

-can advertise private placement if ALL those solicited (advertised to) are accredited investors

-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

-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 (can't resell to an out-of-state resident for at least 6 months). Only one of these is needed to be exempt.

regulates the sale of CONTROL AND RESTRICTED SECURITIES -only applies to secondary offerings, not initial offering -

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

acquired through some means other than a REGISTERED public offering...AKA RESTRICTED=UNREGISTERED -must be held for 6 months

the GREATER OF 1) 1% of total shares outstanding OR 2) the weekly average of the prior 4 weeks' trading volume

-6 month holding period -no volume limits after

-6 month holding period -volume limits after

allows restricted securities to be sold to qualified institutional buyers (QIB) without holding period requirementsallowed to sell right away

has 100m in assets

protect the integrity of IPO process only (not debt offering or seasonal offerings) - IB's CANNOT SELL TO RESTRICTED PERSONS

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 the 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%

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

not be filed if 5,000 or fewer shares are sold and the dollar amount is $50,000 or less.

is the amount the investor receives upon redemption.

An investment company is a corporation or trust that pools investors' money and then invests that money in securities on their behalf.

Like a corporate issuers, investment companies raise capital by selling shares to the public. They are regulated by the Investment Company Act of 1940.

- Face-amount certificate companies (FACs), - Unit investment trusts (UITs) - Management investment companies.

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.

- as investment companies - pay a fixed rate of return; and - do not trade in the secondary market but are redeemed by the issuer.

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)

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 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

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.

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).

In the secondary market

Commons Stock, preferred stock, and bonds

Only full shares can be purchased

Only in IPO (no prospectus is given when the shares are purchased in a secondary market transaction)

FINRA

closed-end

open-end

closed-end

closed-end

closed-end

open-end

open-end

closed-end

open-end

open-end

Diversification provides risk management that makes mutual funds popular with many investors. However, not all investors companies feature diversified portfolios.

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 investment company does not meet the 75-5-10 test.

both companies can be open-end and closed-end

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.

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.

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

- own commercial property (equity REITs); - own mortgages on commercial property (mortgage REITs) - do both (hybrid 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)

Open-end and closed-end companies

Closed-end companies

- 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

a unit investment trust

- They make continuous offerings of shares provided the original registration statement and prospectus are periodically updated - They may issue only common stock

both offer professional investment management

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)

needs to be registered with SEC - net assets of at least $100,000; and - a clearly defined investment objective

- 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.

- 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.

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%

3:1 or 300%

1:3 or 33 1/3%

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

margin account trading, short selling, joint account trading, and naked (uncovered) options trading strategies.

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.

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.

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.

False (Mutual funds may use covered option strategies but typically not naked or uncovered options).

False (A change in the investment objectives of the fund required a majority vote of the outstanding shares, not shareholders).

False (Mutual funds may be used as collateral in margin accounts but may not be purchased on margin).

True

True

False (Mutual funds make continuous primary or new offerings of securities and must be sold by prospectus).

False (The debt-to-asset ratio of a mutual fund may not exceed 1:3, or 33%).

False (Open-end companies are called mutual funds).

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

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.

is a standardized summary of key information in the fund's statutory (full) prospectus.

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 must be sent to shareholders at least semiannually.

The underwriting markets the funds

The transfer agent (also known as the customer service or shareholder service agent).

The management fee

False (Mutual fund shareholders own an undivided interest in the fund's portfolio).

True

True

False (The custodian holds the fund's assets for safekeeping).

True

The reinstatement provision allows for reinvestment of funds withdrawn within 30 days at no load

True

False (Like common shareholders, mutual fund shareholders do no vote on matters involving dividends).

Total Assets - Liabilities = Net Assets of the fund Net Assets / Shares Outstanding = Net Asset Value

- Portfolio securities decrease in value - Dividends are distributed from the portfolio to shareholders

- 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.

POP - NAV = sales charge dollar amount Sales charge dollar amount / POP = sales charge percentage or NAV / 100% - sales charge percentage = POP

- 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 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).

True

False

True

False

False

Government securities or Ginnie Maes

Commons Stock or common stock mutual funds

Blue-chip (large-cap) stocks

Technology stocks or sectors funds

Bonds - but not zero-coupons

Municipal bonds or municipal bond funds

Corporate bonds or corporate bond funds

Preferred stock and utility stocks

Money market funds (DPPs, CDs, real estate, annuities not considered liquid)

Stock portfolio

- 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.

Blue-chip stock fund

Aggressive growth fund

Balance fund

Specialized fund

Balance fund

Conservative growth fund

Small-cap fund

Money market fund

Capital gains/income/lower risk

Fund of hedge funds

Large-cap fund

Government bond funds

Asset allocation fund

Index fund

Ginnie Mae fund

Special situation fund

Fund of funds

Foreign stock fund

Blend/core fund

When comparing mutual funds, investors should review information regarding; - performance - costs - taxation - portfolio turnover - services offered

fund expenses / average net assets = expense ratio

50

16

20

9

- The price of the stock fluctuates over a period of time. - A fixed dollar amount is invested regularly.

- 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.

The investor may outlive his income.

Fixed-dollar periodic withdrawal

Convertible bond or convertible preferred

POP

NAV

CN

- Right to vote on proposed changes in investment policy. - Right to vote for the investment adviser.

- They contain managed portfolios. - They are regulated by the Investment Company Act of 1940.

Fluctuations in the securities held in the separate account.

- SEC - FINRA - state insurance department

- a fixed mortality expense - a fixed administrative expense

- may have diversified portfolios of common stock - give investor voting rights

- 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.

less than the assumed interest rate

the same as the payment in September

Life only

- Unit refund - Joint and last survivor - Life with 10 year period certain - Life only

Deferred annuity

Accumulation unit

Monthly payment

Joint with las survivor annuity

Immediate annuity

Assumed interest rate

Separate account

Life income with period certain

10

75

24

9

Whole life, Variable

Whole life, Variable

Whole life

Variable, Universal variable

Whole life, Variable, Universal Variable

- A mutual fund - An open-end company - A closed-end company

The fund's board of directors

Bonus equity

- sponsoring underwriting - custodian

- At least $100k of net assets - A clearly stated investment objective

- Investment income is received by the fund - The securities in the portfolio appreciate

$1 million (The Investment Act 1940 mandates that a mutual company must have $3 of assets for each $1 it borrows).

1 - Growth stock fund 2 - Municipal bond fund 3 - Government bond fund 4 - Corporate bond fund

- 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.

levied when the shares are sold back to the fund

- a non managed investment company - a company that issues redeemable securities

The NAV per share of the XYZ Bond mutual fund increase

The customer may invest very small amounts

the return attained by reinvestment of all dividend and capital gains distributions

- the fee paid to board members - the investment adviser fee - the transfer agent fee

Dividends are federally tax exempt and capital gains are subject to taxation

$400k

- 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

When the market fluctuates, it will result in a lower average cost per share

Invest $100 monthly into the mutual fund and send his daughter $100 monthly

Unit refund

The customer receives the policy cash value only

all gains are tax referred - the AIR is a factor determining certain values - contract owners have the right to vote

Variable annuities

Whole Life Insurance

The customer sex

equal to the March payment

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

Whole life

Investment adviser's fee

Original Investment + Reinvested dividends and capital gains

Many companies calculate the cash surrender value monthly

Assets that may be converted into cash in a short time (less than a year)

The formula is NAV/ (100% - Sales Charge%). $12.70/ 94.5%= 13.44

Systematic Risk

The fund must be a closed end fund that is trading at a discount

Yes. Clients may choose to invest either in state or out of state

Legislative risk

The fund must be a domestic company that distributes at least 90% of its net income

The specific motivation. For example, the RR may be involved in churning

12b-1 fee

A situation in which a specifically identified asset is transferred to another BD

longer/greater

SPDRs

Interest rate, purchasing power, and market risk

False. Performance below the AIR will cause the payment to fall, even if the investment result was positive

False, there is an inverse relationship between interest rates and prices

Market Risk

Many companies calculate the cash value daily

False

A tax free money market fund

An auction

Systematic, non-systematic

2 to 10 years

Yes closed-end funds may issue common stock, preferred stock, or bonds

Basis ill be the donors cost or market value whichever is lower

No RRs must follow the schedule found in the funds prospectus

No but variable annuities would be subject to the penalty

Accounting, travel, entertainment, legal, marketing, rent, or telephone line expenses

High grade bond funds, since the individual has a short time horizon

True, especially since clients may want to avoid stock market risk

The carrying (former) BD

Mutual (open-end) funds may only issue common stock to raise capital

debtors

Speculative investors, since the portfolio consists of stocks of very small companies that are typically quite volatile

T-bill

close-end funds may issue bonds, common stock, or preferred stock to raise capital

True

The comparison table found in the funds prospectus

False. Value Investors buy stocks with lo P/E ratios, lo price-to-book ratios, and high dividend yields

Dollars invested newly calculated offering price (based on the reduced sales charge)

decrease

no, Capital gains are part of a funds total return

There is no contribution limit

split

The issuer has more debt than outstanding equity

Tax-Free yield/ (100%-Tax bracket %)

No the government only guarantees the underlying bonds

AUM

Growth funds, since the child has a long term horizon

Yes

Coupon rate and nominal yield

Only the earnings portion is subject to tax as ordinary income

Default

within 2 business days

Undivided

Class A

Investors must buy the bond from the state in which they reside

Yes, but this practice is typically not recommended by FINRA

The formula is: Taxable yield x (100% -Tax Bracket %). 8.5 x 72%= 6.12%

The formula is: tax free yield/ (100% - Tax Bracket %). 5.4% 65%= 8.3%

No. However, the letter is binding on the investment company.

Principal, Interest

Earnings First (LIFO)

Decrease

270

$100,000

Business, regulatory, legislative, political, liquidity, opportunity, and reinvestment risk are non-systematic risks

CPI

85% fixed income and 15% equity

30 days of the sale

Dividends + interest - expenses

Any amount above the contracts basis is taxable to the beneficiary

Total dollars invested/ total shares purchased

Aggressive investors, since the portfolio consists of small companies that are often volatile

A signed selling agreement from the contracts underwriter

Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money

True. Regulated investment companies will only be taxed on the income retained

The sales charge, since only fees are included

basis

True. the interest is taxed at the federal, state, and local level

Federally tax-exempt, but may be subject to state and local tax

raise cash levels in the fund

Rates have probably fallen

Portfolio turnover

A fixed number of annuity units with a fluctuating value per unit

The loan is not taxed, but interest is charged on the outstanding balance

Fixed (guaranteed) contracts are not a good hedge against inflation

Payments in a variable life policy remain fixed (level)

Notify the client and give her the option to maintain the asset in an account or dispose of the asset

The clock is reset to day one whenever the client switches to a new fund family

Its a no-load fund

Board of directors elections and stock splits

If the market declines, the cash value may be sufficient to pay the premium

98 and 24/32. Convert fraction into a decimal 24/32= .75. Now multiply $100 by 98.75%= 98.75$

Federal

No. any prospectus summary must be produced by the funds sponsor

a majority

They are after-tax contributions that may possibly grow tax free

Market price plus a commission

Yes

common stock

No, but variable annuities would be subject to the penalties

Original investment + reinvested dividends and capital gains

False

Place a hold on withdrawals. An important note is that it cannot halt securities transactions

At a maximum of 20%, since qualifying dividends receive preferential treatment

Upon request

At ordinary income rates

False. T-bills are quoted on a discount yield basis

The risk that an investor may lose a part or her entire investment

No

An individual and the members of her immediate family, trustees, and pensions

Her basis is $15,000 since the annuity is funded after tax and the $7,000 of earnings would be taxed as ordinary income

semi-annually

ACATS

True. Falling rates help bond prices, and long-term bonds will rise the most

$40/$500= 8%

61 days (30 days before the sale, 30 days after the sale, as well as the sale)

net assets/ total shares outstanding

long-term

Current assets, fixed assets and intangibles

No. the position has already been marked to market

The prior period counts, provided the new B share investment is in the same family

False. Bottom up investing uses company specific items (earnings, dividend payments) to pick stocks

POP

Carrying firm proprietary assets, LP interests in retail account, products of third party not connected to receiving BD

Buy an index fund

An administrative fee

The majority of voting shares

An undivided interest in a pool of residential mortgages

6

the same as the donors

No. mutual fund shares may not be recommended as short-term trading vehicles

Straight-Life with period certain

A GNMA fund, since income is typically paid monthly

There is no record of the account, the transfer instructions are incomplete or there is an invalid signature

5

Open-end funds (mutual funds) are managed by an investment adviser

a BA

Same stock, rights, warrants, a bond or preferred stock convertible into the stock, or the purchase of a call option

1

Joint and Last Survivor

Fully Taxable (taxed at federal, state, and local)

$1,025, which represents the $1,000 principal value plus the final coup[on payment $25

municipal bonds, since return is tax-free

Stocks of both US and foreign issuers

NAV

The funds transfer agent

Money-market fund

Conservative equity investors, since the portfolio consists of stocks of large, established companies

The discount must accreted each year

The amount over par value by investors for a corporations stock

The beneficiary designation

Yes, additionally, any amount over the cost basis may be taxable to the beneficiary

No. These entities are supervised by a board of trustees

Losses must be added to the basis of the newly purchased security to establish a new basis

yes, up to .25% (25 basis points)

The death benefit ill be reduced by the loan amount

Similar to mutual funds, assets are typically valued based on daily NAV

Buying

They are savings plans to assist individuals with disabilities to supplement social security benefits

The holding period will be reset to zero in the new fund family and/or a CDSC may apply on the redemption

The Public Offering Price (POP). POP = NAV + Sales Charge (if applicable).

.75% (75 basis points). However, for a no-load funds, the maximum 12b-1 fee is capped at .25%

Due to the low portfolio turnover that creates fewer taxable events

Bid Price or redemption Price

Either redemptions causing the loss of funds or an increase in rates causing a decrease to the portfolios value

Either new purchases bringing in funds or a decrease in rates causing an increase to the portfolios value

Rates typically rise as investors need greater returns compensate for rising prices

A Variable annuity, since it typically has greater expenses due to the death benefit and mortality expenses

No. The fee is based on assets under management

Shares of beneficial interest (this represents a clients UIT holdings)

Yes, due to interest rate risk

True. Shares can trade at a premium or discount to NAV based on supply and demand forces

One vote allowed per one share owned

ETF

Short-term rates

Voting issues are determined based on a majority of shares

within 2 business days

Complex

Class C

False. Only class A shares are eligible for breakpoints

This is a short form document containing the highlights found in the prospectus

3

T-bills, BAs, Commercial Paper, Negotiable CDs

Taxable Yield x (100% - Tax Bracket %)

Annual Interest $\div$ Current Market Price

Specific Identification

Annually

True. However, the purchases must all be from the same fund family

Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons

Potential redemption fees or CDSCs that may apply

An unrecognized residual credit asset, a missing/improper authorization, or the client chooses to take possession

Front-Loading 5 years of contributions is allowed; therefore, each could contribute $75,000 for a total of $150,000

on the funds record date

Only the earnings portion is taxed

A proprietary product of a delivering organization or an asset that is the product of third party

No. assets and number of shares are decreased proportionally

False. performance below the AIR will cause the payment to fall, even if the investment result was positive

Close-end funds may issue bonds, common stock, or preferred stock to raise capital

True. When customers sign stock power or transfer initiation forms, the firm guarantees the signature with a stamp

buying shares without a cash deposit, then selling the shares before the payment date

On the same day that the trade occurred

False. Firms, not RRs, maintain error accounts

Firm capacity, accrued interest, commission, and CUSIP number

used to report disciplinary actions against associated persons and BDs

True

A narrow spread is often indicative of active trading

National Adjudicatory Council (NAC), then the SEC, then the federal court

Payment is required within 4 business days for both (100% in a cash account, but 50% in a margin account

The OTC market

False. Unlike stocks and bonds, mutual funds dont have a fixed settlement date. Most funds settle on the same day

rule violation

If the firm or one of its RRs executed a trade involving the wrong security/quantity or on the wrong side of the market

Mark the account "deceased," cancel open orders, and await instructions.

The account may be frozen for 90 days

2

Fines may be unlimited; there is no maximum

False. According to Reg. T, customers must pay within 2 business days of settlement

Two business days after the trade date (T+2)

An account in one person's name that allows a beneficiary to gain control upon the account holder's death.

2, settlement

The former employing BD files form U5 to indicate termination and the new BD files Form U4 to initiate employment

Markup when selling to a customer and markdown when buying from a customer

The firms principal

For 3 years after the representatives leaves the firm

6 years

On the settlement date of the trade. For treasuries, this is T+1, but for municipals its T+2

The Central Registration Depository (CRD). CRD is FINRA's database for member registrations.

False. Firm Capacity is disclosed on the confirmation, not the order ticket

Censure, fine, suspension, request to requalify, or expulsion of the respondent