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73 Cards in this Set

  • Front
  • Back
What is accumulated during the accumulation phase of a variable annunity?
accumulation units
Not a security
-retirement funds
-commodities or futures contracts
-precious metals
-primary residence
De minimus exception
-Federal registration (SEC) 15 people

-State registration - 5 people
Killer Words
-Must -- only true in legal situations
Corporate debt

Secured by full faith and credit of company
Under the Investment Company Act of 1940, investment policies of an investment company may only be changed by a majority vote of the
Outstanding shareholders
A magazine article that is reprinted in sales literature for a mutual fund
-Must not be misleading
-Must include or follow a prospectus
-Is covered by the Sales Literature Rules of the NASD
Must be accompanied by a prospectus
A personal presentation
Power of Attorney
Third party authorization

-full -- trade and withdraw

- limited -- trade only
FALSE Statement
Every transaction requires written authorization

(once a discretionary acct. is set up, written authorization is no longer needed)
An application for a mutual fund is found in the
An offer to buy a security through a tombstone ad is considered

(No recommendation has been made)
A prospectus is filed with
(Securities and Exchange Commission)
Sales literature is filed with

(National Association of Securities Dealers)
FALSE statement
NO facts have been left out

(True- important information filed is included)
Holding hot issues and selling them to the public is called
free riding and with holding

Strictly prohibited
Can someone buy more stocks if his account is frozen?
Yes -- Payment must be made entirely of cash
Can someone trade based on inside information?
Yes -- as soon as it becomes public
Portion of a variable annunity payment that covers payments to beneficaries if teh annuitant dies during the accumulation phase is called
Death Benefit Charge
For tax purposes, a non-tax qualified annuity is different from a mutual fund in that:
-At settlement, payments are subject to special annuity taxation rules

- Contract holder does not pay tax during the accumulation period

-All withdrawls are taxed as ordinary income
In the accumulation phase, the value of the contract is determined by
Multiplying the value of the accumulation unity by the total number of accumulation units
457 Plans
-Municipal employees (any government worker except federal)

-Non Qualified (after tax)

-Max 100% of income up to $14,000 ($15,000 in 2006)
Roth 401(k)
-After tax

-No income requirement

-Must withdraw by age 70 1/2

-Employer can match in a regular 401(k)
Roll-over IRA
Rolled from a corporate plan into an IRA within 60 days of distribution

(no $ limits on a rollover)
Annunity Payout with--

Hightest month payout

Lowest monthly payout
Highest payout: Life annuity

Lowest: Joint and Survivor
Death Benefits in Annuityes

(during the accumulation phase only)
Beneficiary receives the HIGHER of account value or amount invested
SEP Max Contribution
MAX contribution - $42,000/yr
Eligiblity for Keogh
- full time (1000 hrs/yr)

- 1 yr service

- 21 years of age


MAX contribution = $42,000/yr
Cost basis is also called
Exclusion amount


Qualified plans: EA = 0
Non-qualified plans: EA = contributions
How is an investment advisor compensated by the fund?
Percentage of assets (NAV)
When asked for the "closed-end" company
they're looking for NAV higher than ask. (cannot be a mutual fund)
Smaller spread between bid and ask means
more active stock
Taxation of UGMA (Uniform Gift to Minors Act)
- Under 14 yrs of age: taxed at parents rate

- 14 yrs or older: taxed at child's rate
Contractual plans are structured as a
Unit Investment Trust

Needs 2 prospectuses
-one for the plan
-one for the fund
MAX gift for the year
- $11,000/yr/person
$55,000 in one year (no more for 5 years

- $22,000/yr/couple
$110,000 in one year (no more for next 5 yrs)

Can NOT average over 10 yrs - only 5 yrs
Exchange Traded Funds
-Closed end fund

-Designed to track an index (such as S&P 500, Dow Jones, etc)
Fund of Hedge Funds
-Must register with SEC

-NOT redeemable (unless fund wishes to redeem)

-Higher expenses than regular funds
Hedge funds
-No SEC registration

-Offered to accredity investors

-High risk
Accredited Investor

-Institutional investors

-Individual investors if:

Has $1 million net worth
Has $200,000 income ($300,000 couple)
Fund Beta
Measures how a fund's price fluctuations with time mimic that of the market as a whole.

Beta <1 ---Less volatile

Beta >1 ---More volatile
Specialized (Sector) Fund
Invests at least 25% in a particular industry or geographic location

Dividends are paid:


Capital Gains are paid:
Dividends are paid quarterly or monthly

Caplital gains are always paid annually
Taxation of Mutual fund distributions
- All capital gains and dividends reinvested for the year paid

-All capital gains and dividends reinvest at NAV (no sales charge)
Investment clubs are not allowed to get
(only husband, wife and dependent children)
Effects of dividend and offering price changes
Dividend increase = positive

Offering price increase = negative
True yield on bonds
Current yield and yield to maturity usually move in the same direction

Nominal yield does NOT move
NoMinal - No Move
Debt NOT backed up by full faith and credit
Equipment Trust Certificate

Backed by full faith and credit:
- debentures
- general obligation bond
Things to consider in determining suitablity



-risk tolerance

-time left to invest

-net worth


Difference between an underwriter and a selling group
financial commitment
Underwriter that acts as a principal
firm commitment
An underwriter that acts as an agent
Best effort
Unlisted stock NOT trading on NASDAQ use
pink sheets
Bond portfolio has the most potential fo appreciate when
general interest rates are declining
Bond portfolios have the most potential to depreciate when
General interest rates are rising
Bonds with long maturities fluctuate more
How to minimize losses in bonds?
By holding bonds to maturity


risk loss of purchasing power due to inflation
Can you put T-notes and T-bonds into a money market fund?

If they have less than ONE year to mature
Municipal bonds are suitable to an investor who
is in a high tax bracket

They are tax shelters.

Not suitable for low tax bracket individuals
Safety Level of Investments
From safest to riskiest

- Government issued securities

- Municipal Bonds

-Corporate Bonds

- Preferred Stock

- Common Stock
Distribution of assets in case of liquidation:
- Taxes
- Debt (other than bonds)

Start here if no bankruptcy is mentioned ---

-Preferred stock
-Common stock (least senior or most junior)
Pre-emptive right
Right ot maintain a proportionate share when new shares are issued
Capitalization riskiest for company
Bonds because they must be repaid
Municipal securities exemptions:
CAN NEVER be revoked

The exemption of a TRANSACTION (such as a sale made to a bank) CAN be.
Required to register as a broker/dealer if:
HAS a place of business in the state and only effects transactions with financial institutions
Required for an agent
-a surety bond (if has custody)

-Passing an exam
Another name for the state's securities laws
BLUE Sky Laws
Civil Liabilities:

A person defrauded is entitled to:
- consideration ($)

-plus interest

- plus reasonable attorney fees

-minus ince upon tender of security
An agent can share an account with a customer if:
gains and losses are in proportion to teh agent's contribution


Advisors cannot share accounts with customers
Pledging clients' securities againt a loan
NOT fraud
- omitting non-material information

- intentionally NOT guananteeing profits
Needed for commercial paper to be exempt
- mature in 9 months or less

-denominations of at least $50,000

- Highly rated

(need NOT be issued by a listed company)
Municipal and non-profit securities are EXEMPT
Everywhere except the state where they are issued


UITs are ALWAYS exempt

UIT = Unit Investment Trust
Suspension of applicants
Convicted within the past 10 years of any misdemeanor involving a security



CANNOT deny license due to

-lack of experience only

-public interest only
If an agent becomes financially unsound, the administrator can
-revoke the agent's license

-disallow the renewal of license