Series 6 Section 2

Front 1

The Securities Act of 1933

Back 1

The Act was passed to ensure that all new securities offered to the public have been described in adequate detail in the registration statement and prospectus.

Front 2

Definition of Issuer

Back 2

Any person who issues or proposes to issue a security. An issuer may include a corporation, fed govt, state or local govt, or a church/ charitable organization.

Front 3

Definition of Underwriter

Back 3

a person who offers or sells securities for an issuer. Typically assists the issuer with the registration of a new security.

Front 4

Penalties under the 1933 act

Back 4

5 years in prison, $10,000 fine or both.

Front 5

Securities Exchange Act of 1934

Back 5

Governs the rules of securities that trade on the secondary market.

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Definition of a broker

Back 6

Any person who transacts securities sales for investors

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Definition of a dealer

Back 7

buys and sells securities for his own account.

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Definition of a security

Back 8

any interest that involves an investment of money in a common enterprise with profits to come solely from the efforts of others

Front 9

Howie Case

Back 9

Gave the definition of an investment contract.

Front 10

Securities Exchange Commission

Back 10

Resulted from the 1934 act. Responsible for enforcing securities laws.

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Rule 17f-2

Back 11

All involved in selling securities to be fingerprinted to help protect the public

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Investment Advisors Act of 1940

Back 12

Enacted to protect the public by requiring those who provide investment advice for $$ to register as advisors with the SEC.

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Investment Advisor

Back 13

An individual or entity who for compensation, engages in the business of advising others directly or through publications.

Front 14

Persons associated with IA must register IF

Back 14

making recommendations, managing client accounts/portfolios, soliciting or offering advisory services, supervising employees who perform any of the above.

Front 15

IA 1092 Requirements and Exemptions

Back 15

If you give any type of advice on a regular basis, you must be registered.

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Investment Company Act of 1940

Back 16

Requires the registration and regulation of investment companies. It was created to help reduce abuses in selling investment company securities.

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Definition of an investment company

Back 17

Primarily in the business of investing, reinvesting, or trading in securities. Issues installment type face amount certificates. Investing, reinvesting, owning, holding, and trading securities and holds more than 40% of their total value of assets in IS.

Front 18

Face Amount Certificate Company

Back 18

Issues installment type face amount certificates

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Unit Investment Trust

Back 19

There is no board of directors. Issue redeemable securities that do not entitle the holder to voting rights. UITS are essentially mutual fund companies.

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Management companies

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Any other company who fit the definition of an IC but not a FACC or UIT. They can be open, closed or diversified.

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Open End management companies

Back 21

Distribute and redeem the securities that they issue. Mostly mutual find companies which sell at the NAV per share.

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Closed end management companies

Back 22

issue a fixed number of shares in a actively managed portfolio of securities. They are traded in the market like common stock.

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Diversified companies

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hold a portfolio of money market, government, and corporate securities with a value greater than 75% of their total assets with no more than 5% of their total investment in any security from one issuer.

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Non diversified companies

Back 24

any management company that is not diversified.

Front 25

Insider Trading and Securities fraud enforcement act of 1988

Back 25

Prohibits insider trading and specifies penalties for these activities.

Front 26

Civil Penalties

Back 26

Liability for violating this Act is capped at the greater of $1 million or 300% of profits made or losses avoided.

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IRS definition of a Regulated Investment Company

Back 27

Under the subchapter M, they are RIC. They do not pay taxes on investment income, dividends, and capital gains. The are considered a conduit/pass through to the MF investors.

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Required Distribution

Back 28

90% or more of net investment income must be distributed to the shareholders. Also 90% of the income must be from income from dividends, interest, and capital gains. FInally 50% must be invested in diversified securities.

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Capital Gains distribution

Back 29

Made once a year of 98% of capital gain net income. Failure to do so results in a 4% excise tax on the undistributed income.

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Shareholder's responsibility to report dividend and capital gains

Back 30

Must report to IRS using the 1099 form that is received.

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Long term capital gains are taxed at

Back 31

15%

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Short term capital gains are taxed at

Back 32

the percentage of the investors marginal tax bracket.

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Holding period

Back 33

The day after the security is purchased ( NOT the settlement date). The holding period ends the day of the sale.

Front 34

Exchanges

Back 34

Done within the same mutual fund family. This is considered a sale to the IRS therefore capital gains must be calculated and paid.

Front 35

Wash Sales

Back 35

Selling a low security to claim the loss and then buying it back within 30 days.

Front 36

Variable Annuity Accumulation Period

Back 36

Earnings grow on a tax deferred basis.

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Variable Annuity Annuitization Period

Back 37

Taxed as ordinary income.

Front 38

Taxation of annuity Withdrawals

Back 38

Taxed on a last in first out basis. The earnings are taxed first as ordinary income and then any amount in excess of earnings is taken from the principal amount and is non taxable.

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Taxation of annuity payments

Back 39

Each payment is one part principal(nontaxable) and one part interest(taxable).

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Death benefits of a variable life

Back 40

The cash value is included in the owners gross estate and is not taxed as ordinary income.

Front 41

1035 exchanges.

Back 41

You can exchange a current VA to a new VA without paying any tax on the income and investment gains in the current VA.

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Traditional IRA (Eligibility, Contribution, Distribution)

Back 42

Cannot be covered by an employer sponsored plan. Must meet modified AGI below a certain salary. Can contribute up to $7000 per year. Contributions are tax deductible. Must begin taking distributions by April 1 in the year you turn 70.5 to avoid tax penalty.

Front 43

Rollover IRA (Eligibility, Contribution, Distribution)

Back 43

Main difference is that the contributions are not tax deductible. You can contribute up to $7000. You can withdraw funds TAX FREE after 5 years. A person with an AGI of up to 114K or less can contribute to a Roth. Limit for married couples is $166K. Everyone is eligible for a Roth regardless of having one with an employer.

Front 44

IRA/Roth IRA Rollovers & Transfers

Back 44

You can transfer from like IRA A to like IRA B without any tax consequences. You can withdraw from the IRA and deposit it into another IRA or qualified plan within 60 days. Rollovers are limited to once per year while transfers are unlimited.

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Catch up contributions

Back 45

When you are 50+ you can contribute an extra $1000 per year for both IRA types.

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Penalties associated with IRA's

Back 46

Withdrawing money before 59.5, 10% penalty. Contributing too much, 6% penalty.

Front 47

Keogh Plan

Back 47

For self employed individuals. If the business is not profitable, no contribution is allowed. You can have a Keogh if you have another employee sponsored plan, however, only money from self employment activities can be contributed. Eligibility includes 1000+ hours of compensation, 21+ years, max contribution is 25% of self employment earned income.

Front 48

Simplified Employee Pension (SEP)

Back 48

Simpler alternative to profit sharing plans. Employee must be 21+, and have worked for the employer during 3 of the last 5 years. An employer can contribute up to 25% of the employees salary or $44K, which ever is less to the individual's SEP

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SIMPLE

Back 49

For small employers with less than 100 employees who have no other retirement plans available. The contributions can be made to an IRA or 401K upto $10K per year via salary deferral. The employer can match up to 3% or non elective contribution of at least 2%.

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401K

Back 50

Qualified employer sponsored plan. Defined contribution plan. Allows the employee to make before tax contributions from his paycheck into the plan. In your own contributions, you are fully vested. The employer has the option to establish a vesting schedule.

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403B

Back 51

Similar to a 401K, except it is limited to employees of certain nonprofit organizations with tax exempt status.

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Defined contribution vs defined benefit

Back 52

DC- employee bears all investment risk. Benefits depend on how much the employee contributed and the performance of the investments. DB- employer bears investment risk. If assumptions fall short, the employer is responsible for the difference.

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529 College savings plan

Back 53

Tax free earnings and gains if the $$ is used for qualified education expenses. If the child decides not to pursue education, it can be changed to another child. Anything used for other purposes are taxed as ordinary income and a 10% penalty.

Front 54

Coverdell savings plan

Back 54

COntribute a maximum of $2000 per year. The AGI phase out is $95k -$110K for single parents and $190K to $220K for married parents. Contributions are not tax deductible. The money grows tax deferred and is tax free if used for qualified education expenses. Money must be used by 30th BDay or it must be distributed, subject to ordinary income tax, and a 10% penalty.