Series 7 Notes

Front 1

Credit spread investors want the spread to narrow.

Back 1

MSRB establishes rules but has no enforcement powers.

Front 2

Total takedown = additional takedown + concession

Back 2

General obligation bond is backed by full faith and credit of municipality.

Front 3

All cash + dividends are responsibility of short seller

Back 3

Stock must be purchased before ex-div date to be eligible for dividend

Front 4

Items such as tolls, lease rental payments are used to back revenue bonds

Back 4

STRIPS= zero coupon treasury bond

Front 5

Notice of sale is published by Issuer. Contains all info about bidding process.

Back 5

Sales charge of a mutual fund is always expressed as a % of offering price. SC = (Bid-Offer)/Offer

Front 6

T+3 for a muni bond transaction means bonds will settle regular way in 3 business days from trade date

Back 6

Corporations have tax advantage for dividends rec'd from preferred and common stock of other corps.

Front 7

Restricted persons not allowed to purchase shares of equity IPO under FINRA's New Issue rule. Restricted persons include immediate family members, portfolio managers.

Back 7

Income bonds require payments only if corporation has enough earnings. In all other instances of debt obligations, corps MUST pay interest regardless.

Front 8

Underwriter's counsel = attorney who represents interests of underwriters.

Back 8

U.S. govt. bonds are quoted in 32nds. Ex. 95.28 = 95 23/32 = 95.875

Front 9

Anyone who receives compensation for working is eligible to establish IRA.

Back 9

Max that individual can contribute to an IRA annually is lesser of $5000 or 100% of annual compensation.

Front 10

Margin accounts + short selling now allowed for IRA accounts

Back 10

Contributions and investment gains in IRA accumulate tax-deffered. Only taxed once when withdrawn owner is 59.5 years old. Otherwise 10% penalty for withdrawals.

Front 11

Remember contributions to IRA are only taxed once- either when withdrawn or when first contributed

Back 11

529 plan: for education expenses; contributions made with after tax dollars; earnings are tax-deferred.

Front 12

Difference between Coverdell and 529 plans: 529 only used for higher education, Coverdell used for both higher and elemetary school education. Income limits apply to Coverdell, not 529.

Back 12

Qualified retirement plans (received favorable tax treatment) must meet ERISA standards

Front 13

Qualified retirement plan can be either Defined Contribution (employer makes specific annual contribution to plan) or Defined Benefit (employee gets paid specific amount each year after retirement) or

Back 13

Profit-sharing plans include #1 401(k) , #2Employee Stock Option plan (invested in company's stock), #3Keogh Plan (Self employed people; contribution must be max of $49,000 or 20% income), 403(b) plan (certain non-profit org's); 457 plan(government employees).

Front 14

Qualified plans: Earnings grow tax-deferred. Contributions tax-deductable. Needs IRS approval. Organized as a trust. May not discriminate. No cost basis. Withdrawals taxed as ordinary income.

Back 14

Non-qualified plans: Earnings grow tax-deferred. Contributions are not tax-deferred. No IRS approval. Typically informal agreement. May discriminate. Individual contribution establish cost basis. Withdrawals in excess of any cost basis are taxable.

Front 15

3 types of Investment companies:
#1 Face-amount certificate companies
#2 Unit Investment Trust
#3 Management company (either open-end mgmt companies aka. mutual fund or closed-end mgmt companies

Back 15

Open end funds are sold at POP (POP = NAV + SC). They do not trade in secondary market. Continual issuance of shares.
Closed end sold at supply/demand price; trade in secondary market; issue fixed number of shares.

Front 16

Diversified management company: 1) at least 75% of assets invested. 2) No more than 5% of invested assets invested in one company. 3) Mgmt co. cannot own more than 10% of a company's voting stock.

Back 16

Advantages of investment companies: 1) Diversification. 2) Professional mgmt. 3) Liquid. 4) Easy investing approach.

Front 17

Mutual fund has: Investment advisor, Custodian, Transfer Agent, Underwriter.

Back 17

Fund shares: Sponsor is the underwriter. Sponsor sells shares to Dealer.

Front 18

NAV per share = Total net assets/Number of shares outstanding

Back 18

Offering price = NAV/Compliment of SC%

Front 19

2 sources of gains in mutual funds: capital gains and dividends. Qualified divs are taxed 15% Non-qualified divs are taxed as ordinary income. Cap gains are taxed based on whether long term or short term.

Back 19

2 types of REITs: Equity (portfolio of RE) and Mortgage (borrows money and lends at high rate to building developers).

Front 20

Progressive (increases on income) vs Regressive (flat) taxes

Back 20

Most income = ordinary income

Front 21

Dividends held more than 60 days from ex-div date = 15% tax

Back 21

Three types of income- Earned, passive, and deferred.
Three types of investment income: interest, dividend, capital gains.

Front 22

3 levels of tax- federal, state, local. Muni bonds subject to state tax (sometimes). Govt. bonds subject to federal. Corporate bonds subject to both state and fed tax.

Back 22

Investor's profit in securities sale = cost basis - proceeds from sale.

Front 23

Investors have ability to designate which position is sold to maximize tax benefit (otherwise FIFO method is used by default).

Back 23

When convertible bond converts to stock, cost basis = original value of bond.

Front 24

Gain from secondary market sale of bond = ordinary income (federal tax).
Gain from original issue discount = interest income (exempt from fed tax).

Back 24

If bond is sold prior to maturity, only taxed @ level in excess of "prorated" level.

Cap gains on a premium bond (bond bought at a premium) depends on how many years it has been held by owner before being sold.