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