Term
| FACTORS TO CONSIDER WHEN RECOMMENDING AN INVESTMENT |
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Definition
1. Income
2. Age
3. Risk tolerance
4. Time
5. Taxation of the investment
6. Market conditions
7. Client's experience in the market
8. Experience of the fund managers
(NEVER consider the agent's commissions) |
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Term
| FACTORS AFFECTING ANNUITY PAYOUTS |
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Definition
1. Payout option
2. Account value
3. Age of annuitant
4. Gender (males paid more)
5. Health (healthier paid less)
The COST of annuity is the amount invested and is NOT important |
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Term
| ELIGIBILITY FOR KEOGH (HR-10) |
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Definition
1. Full-time (1,000 hours/yr)
2. 1 year of service
3. 21 years of age
--------------------------------------
NOTE:
1. Keogh is for self-employed
2. Funded by the employer
3. Employer can NOT discriminate if employee meets eligibility requirements
(MAX contribution: $42,000/year) |
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Term
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Definition
1. Investing the same amount every month regardless of the share price
2. Investor makes money if:
a. The price per share is higher than the cost per share
NOTE: DCA
a. Has nothing to do with selling shares
b. Does NOT guarantee a profit |
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Term
| DIVERSIFIED INVESTMENT COMPANIES |
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Definition
1. At least 75% of total assets in cash & securities
2. No restriction of the other 25%
3. Up to 5% in one company
---------------------------------------
NOTE: The 5% is part of 75%, therefore, max in one company is 30%
Does NOT lose classification if one of the holding exceeds 5% due to market conditions. If this happens, NO need to sell |
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Term
| DISTRIBUTION OF ASSETS IN CASE IF LIQUIDATION |
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Definition
1. Taxes (IRS)
2. Debt (such as banks)
3. Bonds
4. Debentures
5. Preferred stocks
6. Common stocks (least senior or most junior)
(If NO liquidation is mentioned, start at bonds NOT IRS) |
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Term
|
Definition
1. Customer gives the agent trading authority
2. Authority must be in writing from customer & B-D
3. Spouse has no authority to trade (unless power of attorney was established)
4. 2 types of power of attorney:
a. LIMITED: Trade only
b. FULL: Trade & withdraw |
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Term
| DEFLATIONARY & INFLATIONARY PERIODS |
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Definition
1. During deflationary periods:
a. Higher taxes
b. Lower government spending
2. During inflationary periods;
a. Lower taxes
b. Higher government spending
EASY WAY TO REMEMBER: You're on the DL when you GO SPEND money. (Deflationary Lower GOvernment Spending)--Then higher taxes; reverse for inflationary |
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Term
| THE DEATH BENEFIT OF A VARIABLE LIFE POLICY |
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Definition
1. May be more than the minimum guarantee if investment returns are greater than AIR
2. May be reduced by any loan outstanding or overdue premium
3. Must be calculated at least annually
NOTE: Death benefits may never be less than minimum guarantee |
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Term
|
Definition
1. Responsible for the safekeeping of the securities
2. Distributes dividends and capital gains
3. Issues and redeems shares
4. Acts as the funds transfer agent
5. Must be commercial bank |
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Term
| CURRENCY TRANSACTION REPORTS (CTRs) |
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Definition
A CTR is required for all transactions of:
1. CASH of $10,000 or more
2. Wire transactions: $3,000 or more
STRUCTURING:
1. A series of transactions totaling $10,000 in a short period of time to avoid a CTR
2. CTR should be filed if a person seems to be structuring |
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Term
COVERDELL EDUCATION SAVINGS ACCOUNTS (ESA)
---------------------------------------
529 PLANS (QUALIFIED STATE TUITION PLANS) |
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Definition
ESA:
1. $2,000 per child per year until age 18
2. Must begin withdrawing by age 30
3. Has income restrictions
4. May be rolled to child of the same family
529:
1. Excluded from owner's estate
2. No income restrictions
3. Never need to withdraw
4. If money is not used for education, it reverts back to the donor |
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Term
| IN CONTRACTUAL PLANS, CUSTODIAN MUST NOTIFY INVESTOR IF PAYMENTS ARE MISSING IN |
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Definition
Any THREE of the first 15 payments
-OR-
Any ONE of the 16th, 17th, or 18th payment |
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Term
|
Definition
1. Can vote (NO one else can)
2. Get paid dividends after everyone else
3. Have MORE risk than bondholders and preferred stockholders
4. Have the most POTENTIAL for appreciation |
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Term
| CODE OF ARBITRATION PROCEDURE |
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Definition
| NASD's formal method of handling securities related disputes |
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Term
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Definition
| NASD's formal method of handling trade practice complaints |
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Term
| CLASSES OF MUTUAL FUND SHARES |
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Definition
1. A-SHARES: Upfront sales charges (designed for LONG term investing)
2. B-SHARES: NO upfront sales charges - contingent deferred sales charges (designed for SHORT term investing) |
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Term
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Definition
Generating commissions with NO regard to the customer's interest.
EXAMPLES:
1. Excessive trading in a discretionary account
2. Encouraging customer to take dividends and gains in cash and send the same amount about by check (NOTE: NO sales charge by automatic reinvesting. Clients reinvest at NAV)
3. Switching customer funds without justification |
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Term
|
Definition
1. Increases when:
a. Assets appreciate
b. Income is received
2. Decreases when:
a. Assets depreciate
b. Income is distributed to shareholders
NOTE: Redemptions and purchases do NOT affect NAV |
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Term
| THE CASH VALUE OF A WHOLE LIFE POLICY IS A DIRECT RESULT OF |
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Definition
| The leveling of premiums or the decreasing protection element |
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Term
| CALLABLE BONDS AND CALLABLE PREFERRED STOCKS CAN BE CALLED |
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Definition
1. Anytime
2. At the discretion of the issuer
NOTE: Any security other than COMMON can be called |
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Term
| CALCULATIONS OF CASH VALUE AND DEATH BENEFIT IN CASH VALUE POLICIES |
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Definition
1. CASH VALUE: Calculated monthly
2. DEATH BENEFIT: Calculated annually |
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Term
|
Definition
1. Broker: Buys & sells for others
2. Dealer: Buys & sells for himself
ASSOCIATE these words:
a. BROKER with AGENT
b. DEALER with PRINCIPAL |
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Term
| BROAD DIVERSIFICATION REDUCES AN INDIVIDUAL'S INVESTMENT RISK BECAUSE |
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Definition
1. Winners can be used to offset losers
2. Usually not all stocks decline in a bear market
3. Most portfolios contain securities of various quality ratings
TEST ALERT: Diversification does NOT guarantee results |
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Term
| BREAKPOINTS vs. BREAKPOINT SALES |
|
Definition
1. Breakpoints: A dollar amount above which sales charges are reduced
2. Breakpoint sales: Sale with an amount just below a breakpoint (prohibited)
NOTE: Who can receive breakpoints
1. Individuals
2. Husband, wife & dependents can combine
(NOT groups such as investment clubs) |
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Term
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Definition
1. Bonds are debt
a. Pay interest percentage of par
b. Redeemed for par at maturity
2. Stocks are ownership (equity)
a. Can NOT get sued
b. Board declares dividend
c. Common stock shareholder vote
(Preferred stock shareholder DON'T vote) |
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Term
| BONDS HAVE THE MOST POTENTIAL TO |
|
Definition
1. Appreciate
a. Interest rates are DECLINING
b. Bonds have LONG maturities
2. Depreciate
a. Interest rates are RISING
b. Bonds have LONG maturities
NOTE: Bonds with long maturities fluctuate more |
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Term
|
Definition
1. 6 s 2010 @ 110:
a. 6% annual interest
b. Pays semi-annually (3% every 6 months)
c. Matures in 2010
d. Price = $1,100 (premium)
2. 4 q 2008 @ 98
a. 4% annual interest
b. Pays quarterly (1% every 3 months)
c. Price = $980 (discount)
d. Matures in 2008 |
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Term
|
Definition
1. Bid price (AKA Net Asset Value--NAV): Price at which investor BUYS
2. Ask price (AKA Public Offering Price--POP): Price at which investor SELLS or REDEEMS
---------------------------------------
POP = NAV + SC (SC = SALES CHARGE) |
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Term
| ASSUMED INTEREST RATE (AIR) |
|
Definition
1. AIR is used to calculate the 1st monthly payment only (has nothing to do with accumulation units)
2. Assume the AIR = 6% in March---Return on separate account = 5% in April
a. Accumulation units: Goes up (Separate account was positive)
b. Annuity units: Goes down (Separate account did less than AIR) |
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Term
|
Definition
1. Accumulation (pay-in) phase:
a. Annuitant has TOTAL control
b. Can redeem money
c. Has death benefit
2. Annuity (pay-out) phase:
a. Annuitant has NO control
b. Can NOT redeem (payout is set)
c. NO death benefit |
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Term
|
Definition
1. Life annuity: Annuitant receives a payment each month until death (HIGHEST INCOME)
2. Period certain: Annuitant receives a payment for a guaranteed number of years (or beneficiary if he dies sooner)
3. Life with Period certain: Receives payment for life (or beneficiary for the period if he dies before the guaranteed period ends)
4. Joint & Survivor: When 1ST dies, payments continue until 2nd die (LOWEST INCOME) |
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Term
| AMERICAN DEPOSITORY RECEIPT (ADR) |
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Definition
1. Trading FOREIGN securities in the US
2. Has ALL the RIGHTS of the FOREIGN securities (including voting)
3. The right to receive dividends (paid in U.S. dollars)
4. The value of rights or warramts is paid in U.S. dollars |
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Term
| AGENTS CAN SHARE AN ACCOUNT WITH A CUSTOMER IF |
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Definition
1. A joint account was established
2. Customer & B-D agree in writing prior to opening account
3. Gains and losses are in PROPORTION to agent's contribution
TEST ALERT: Advisers can NEVER share |
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Term
| AFFILIATED & INTERESTED PERSONS |
|
Definition
1. Affiliated persons:
a. 5% shareholders
b. Officers/Key Employees
2. Interested persons:
a. All Affiliated persons plus immediate family
b. Individuals with professional relationships (Lawyers, accountants, etc)
3. At least 40% of board must be non-interested (No more than 60% can be interested)
(If Fund charges 12b-1 fee, non-interested minimum = 51% -- Simple majority) |
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Term
| ADVANTAGES OF INVESTING IN MUTUAL FUNDS |
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Definition
1. Diversification
2. Can invest small amounts
3. Professional management
4. CAN dollar cost average
5. Simplified tax keeping
6. High priced stocks can be purchased by the fund
7. Automatic reinvesting of dividends and gains |
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Term
| ADVANTAGE OF BEING A MEMBER OF THE NASD |
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Definition
1. ADVANTAGE: Can buy shares at a DISCOUNT
NOTE: Non-member (can NEVER get a discount)
TEST ALERT: Member found guilty under summary complaint procedure is NOT disqualified from membership. He will be fined. |
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Term
|
Definition
1. Insiders
2. Institutional investors
3. Individual investors if:
a. Has $1 million net worth
b. Has $200,000 income ($300,000 couple) |
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Term
| WHY WOULD A COMPANY WANT TO TRADE ON EXCHANGE OR NASDAQ vs. MAIN REASON A COMPANY IS NOT TRADING ON EXCHANGE OR NASDAQ |
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Definition
1. Companies trade on exchange or NASDAQ for: EXPOSURE
2. Reason they're NOT on exchange or NASDAQ: Did NOT Meet Requirements
(NOT because they can't afford it) |
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Term
| WHEN THE DOLLAR IS DEVALUED |
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Definition
1. U.S. products become more competitive (Exports)
2. Foreign products less competitive (Imports)
EASY WAY TO REMEMBER: People want to come to the U.S. (Imports). "U"(US) is next to "V" (deValued). Devalued means down in value, imports become less competitive
(Opposite when value of dollar increases) |
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Term
| WHEN FUNDS CAN CHARGE MAXIMUM SALES CHARGE |
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Definition
1. MAX SC of 8.5% can be charged if fund offers:
a. Breakpoints
b. Right of accumulation
c. Letter of intent
d. Reinvesting at NAV |
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Term
| WHEN AN INVESTOR SWITCHES FROM ONE FUND TO ANOTHER, HOW IS HE TAXED? |
|
Definition
1. Any gain or loss is recognized when the exchange occurs.
a. Switching funds basically means that one fund was sold and another was bought
b. Switching funds in the same family does NOT generate a sales charge |
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Term
| WHEN A FIRM THAT HOLDS STOCK RATHER THAN SELLING THE STOCK |
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Definition
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Term
| WHAT YOU CAN SELL WITH A SERIES 6 LICENSE |
|
Definition
1. Mutual funds
2. Variable contracts (VA, V. life)
3. Stocks & closed-end as IPO's ONLY (Not secondary)
TEST ALERT:
a. If you passed your test, you can sell NOTHING. You're not licensed yet
b. Stocks of the exchange are secondary |
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Term
|
Definition
1. Buying or selling a stock within 30 days before or after a trade of the same (or similar) stock to claim a loss
2. # of days to avoid wash sales = 61 |
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Term
|
Definition
1. Statutory Voting: One vote per share
2. Cumulative Voting: # of votes equal # of shares times the # of candidates
EXAMPLE: Investor has 200 shares & there are 4 candidates running for a position
a. Under Statutory Voting: 200 votes
b. Under Cumulative Voting: 200 x 4 = 800 votes |
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Term
| VESTING vs. ELIGIBILITY REQUIREMENTS |
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Definition
1. Vesting: Amount of time an employee must work at a company in order to get the company match
2. Eligibility requirements: Requirements needed to be able to join a company sponsored plan |
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Term
|
Definition
1. Minimizes inflation risks
2. Funds deposited in separate account & primariy equities
3. Annuitant assumes investment risk
4. All sales charges included in NAV
5. MAX sales charge
a. 8.5% - 1st 12 years
b. 9% if purchased as contractual plan with 50% front end load 1st year |
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Term
|
Definition
1. NASD name can be used basically ANYWHERE as long as:
a. There is NO implication of NASD approval
b. Name of B-D is smaller than name of NASD
TEST ALERT: Choices with the word ONLY in these questions are WRONG |
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Term
| USA PATRIOT ACT OF 2001 vs. GRAMM-LEACH-BAILY AND PRIVACY ACT (GLBA) |
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Definition
1. USA Patriot Act of 2001:
a. Requires appointment of anti-money compliance officer
b. Require closer scrutiny of foreign transactions
2. GLBA
a. Protects PRIVACY of customers
b. Require full disclosures to customers |
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Term
| UNSECURED DEBT vs. FUNDED DEBT |
|
Definition
1. Unsecured Debt: Backed by Full Faith & Credit of the issuer
a. Debenture: Corporate Debt
b. General Obligation (GO): Municipal debt (May be paid from any source of income)
2. Funded Debt:
a. Long term debt (Minimum 5 years) |
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Term
| UNIT INVESTMENT TRUSTS (UIT's) |
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Definition
1. Organized under a trust indenture
2. Not incorporated--NO board of directors (Have board of trustees)
3. Represent an undivided interest in units of specified securities
4. Redeemable |
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Term
| UNIFORM GIFT TO MINORS ACT (UGMA) |
|
Definition
1. Only one minor & one custodian per account
2. Account in minor's name: securities in custodian's name
3. Custodian can be compensated only if he is not the donor (he is the custodian only)
4. Gifts are irrevocable
5. Original custodian must be a competent adult
6. Under 14 years of age: taxed at parent's rate
7. Over 14 years of age: taxed at minor's rate
8. May NOT be held in street name |
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Term
| UNDER THE SECURITIES ACT OF 1933, THE SEC: |
|
Definition
Attempts to make certain that all pertinent information is disclosed.
REMEMBER: SEC & NASD approve, verify, and endorse NOTHING |
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Term
| UNDER INFLATIONARY CONDITIONS |
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Definition
1. Interest rates generally rise
2. Prices generally rise
3. The purchasing power of the dollar decreases |
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Term
| TYPES OF UNDERWRITERS vs. PRINCIPAL |
|
Definition
1. Best-efforts: No obligation to buy unsold securities (act as an agent)
2. Firm Commitment: Buys entire issue and proceeds to sell it (acts as principal)
3. All-or-none underwriter: Must sell entire issue or unsold issues become null and void
4. Standby underwriter: Used in rights offerings
(UNDERWRITER HAS BIGGER COMMITMENT THAN SELLING GROUP)
5. Principal: An issuer that sells its own securities |
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Term
| TYPES OF SECURITIES THAT MAY BE FOUND IN A MUTUAL FUND'S PORTFOLIO |
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Definition
1. Common stock
2. Certificates of Deposit
3. Municipal revenue bonds
4. Treasury bills
5. Preferred stocks
Basically, ANYTHING can be
TEST ALERT: Money market funds can ONLY have short term debt |
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Term
|
Definition
1. Interest rate risk: The risk of debt securities declining when interest rates increase
2. Liquidity risk: The risk of not being able to sell when needed
3. Market risk: The risk that the market can go down
4. Financial risk: The risk dependent upon the issuer's capability of staying profitable |
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|
Term
|
Definition
1. Specialized (Sector) Fund
a. 25% in on industry / geographic location
b. Aggressive Fund
2. Income Fund
a. Contains bonds and preferred stocks
3. Growth Fund
a. Seeks appreciation (income is secondary)
4. Balanced Fund
a. Balance between income & growth |
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Term
|
Definition
1. Authorized: Authorized by the company to be sold
2. Issued: Sold to the public
3. Un-issued: Not sold to the public
4. Treasury: Bought back or reacquired by the company
5. Outstanding: Shares in the hands of the public |
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Term
| A TYPE OF INSURANCE POLICY THAT HAS FLEXIBLE PREMIUM |
|
Definition
1. Universal Life Policy
This is basically an ART (annual renewable term)
NOTE: Premiums in WL & VL are fixed |
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Term
| TREASURIES (T-BILLS, T-NOTES, T-BONDS) |
|
Definition
1. T-Bills: BULK of the money-markets
a. Always mature in 1, 3, or 6 months
b. Sold at a discount
c. Do NOT carry a specific interest rate
2. T-Notes: Mature between 1 to 10 years
3. T-Bonds: Mature in 10 years or more
BE CAREFUL: T-Notes & T-Bonds can be put into a money market fund during their last year of maturity |
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|
Term
|
Definition
1. Text in the ad is limited to BASIC information such as:
a. Type & nature of the security
b. Amount of the security
c. Name of underwriters
d. Where a prospectus is available
2. Any request from a client is unsolicited
3. SOLICITED: Agent made the recommendation
4. UNSOLICITED: NO recommendation was made |
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Term
| TELEPHONE CUSTOMER PROTECTION ACT ("DO NOT CALL" LIST) |
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Definition
1. Can NOT call before 8 a.m. or after 9 p.m. at the called party local time
2. CAN call EXISTING clients on the "DO NOT CALL" list |
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|
Term
|
Definition
Interest is tax-exempt from FEDERAL tax
TEST ALERT:
1. Exemption from STATE tax if investor lives in the state the bond was issued
2. Capital gains (come from selling the bonds) ARE taxed at federal & state level |
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Term
| TAXED AS ORDINARY INCOME vs. SHORT/LONG PERIODS |
|
Definition
1. Mutual fund dividend (stock dividend plus bond interest)
2. Interest from bonds
3. Retirement plans distributions
4. Short term capital gains
---------------------------------------
a. SHORT TERM: Held one year or less
b. LONG TERM: Held a day more than a year |
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Term
| TAXABLE & NON-TAXABLE EVENTS |
|
Definition
1. Taxable:
a. Liquidation of shares of a mutual fund
b. Withdrawal from a tax sheltered annuity
c. Withdrawal from an IRA
d. Gains & dividends paid from a mutual fund (both reinvested or taken in cash)
2. NOT taxable:
a. Annuity transfer
b. Gains & dividends reinvested in retirement account prior to withdrawals |
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|
Term
|
Definition
1. Compares the after tax return of a taxable bond to the tax-exempt earning of municipal bond
2. Most suitable to people in High Tax bracket
EXAM ALERT: Many questions on the exam refer to older people (in the 60's). They are usually on fixed income. Municipal bonds are NOT suitable for them. |
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Term
| SUMMARY COMPLAINT PROCEDURE |
|
Definition
1. MAX penalty: $25,000 fine and censure
2. Waive full hearing |
|
|
Term
|
Definition
1. Young person investing for the future: Growth portfolio (100% or mostly stocks of small aggressive companies)
2. Person in the 40's: Growth portfolio (mostly stocks of established companies)
3. Person in the 50's investing for retirement: Balanced portfolio (stocks of established companies and bonds--about 50/50)
4. Person in the 60's: 100% income securities |
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|
Term
|
Definition
1. Fixed number of shares
2. Price: supply & demand
3. NON-redeemable
4. CAN issue senior securities
5. Prospectus only as IPO
6. After IPO, sold as secondary
7. Can NOT be a PARTIAL shares
8. Can be sold at discount (MF can NOT)
---------------------------------------
EXCHANGE TRADED FUNDS: Closed-end used to track an index |
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|
Term
|
Definition
1. Come from corporate earnings
2. Considered income
3. Must be declared by board of directors (common & preferred) |
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|
Term
| STANDARD UNIT FOR TRADING vs. NYSE SUPER DOT (DIRECT ORDER TURNAROUND) |
|
Definition
1. Standard unit for trading: 100 shares (Round lot)
2. NYSE DOT System is used for orders up to: 99,999 shares |
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Term
| STAGES OF MONEY LAUNDERING |
|
Definition
1. Placement: Funds are placed somewhere (hardest stage to accomplish)
2. Layering: Money is placed from one place to another (makes money hardest to detect)
3. Integration: Combine dirty money with clean money |
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|
Term
|
Definition
Inducing mutual fund sales just before the ex-dividend date. Prohibited because:
a. Dividend is included in the NAV
b. There is an immediate tax consequence |
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|
Term
| SPREAD-LOAD CONTRACTUAL PLANS |
|
Definition
1. SC = Sales Charge
a. MAX SC 1st 4 years: 16%
b. MAX SC on ANY one payment: 20%
c. MAX SC over LIFE of plan: 9%
d. Rights of FULL refund: within 45 days of mailing of plan details
e. NO partial refund (Only front-end)
2. ALL contractual plans are structured as UIT |
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|
Term
| IF SOMEONE HAS A COMPANY SPONSORED PLAN, SUCH AS KEOGH OR 401(K), CAN ALSO HAVE: |
|
Definition
An IRA:
a. Can have more than one IRA
b. Can NOT add up to more than the maximum allowed
NOTE: Can NOT have 2 company sponsored plans (such as 401(k) and Keogh) |
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|
Term
|
Definition
1. Used for disputes below $25,000
2. Decision is final & binding
3. Used for disputes between customers and members
INDUSTRY ARBITRATION: Amoung member only
(MEDIATION: Decision is NOT final & binding) |
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|
Term
|
Definition
BOTH ARE NON-NEGOTIABLE
1. SERIES EE:
a. Earn interest
b. Sold at Discount
2. SERIES HH:
a. Pay interest
b. Sold at par
3. How to remember:
a. EE - E (D is close to E)
b. If EE is sold at discount, then HH must be at par. Par = Pay |
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|
Term
| SECURITIES TRADED EXCLUSIVELY ON THE OTC (OVER-THE-COUNTER) |
|
Definition
1. Government bonds
2. Municipal bonds
3. Mutual funds
4. New issues (primary distribution)
5. Variable annuities
---------------------------------------
SECONDARY distributions can be traded on the OTC or exchange |
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|
Term
| SECURITIES INVESTOR PROTECTION CORP (SIPC) |
|
Definition
1. Purpose: Broker-Dealer bankruptcy protection
2. Customer claims: $500,000 for cash & securities, of which no more than $100,000 may be cash
3. NOT COVERED: Commodities & Money Market Account |
|
|
Term
|
Definition
1. Governs the rules of FULL & FAIR disclosure of NEWLY issued securities
2. Violations: $10,000 and/or prison |
|
|
Term
|
Definition
1. Mortgage Bond:
a. Secured by real estate
b. Safe
c. Most common type of secured bond
2. Collateral Trust:
a. Secured by securities or other companies owned by the issuer
3. Equipment Trust:
a. Issued by railroads, airlines, etc
b. Also known as: Rolling Stock |
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|
Term
| SALES LITERATURE AND ADVERTISEMENTS MUST BE KEPT ON FILE FOR |
|
Definition
3 Years
TEST ALERT: Must be EASILY ACCESSIBLE for 2 years |
|
|
Term
|
Definition
1. Sales literature is used to sell an investment:
a. MUST include a SPECIFIC investment
b. Newspaper reprints about a SPECIFIC fund
c. Limited, direct communication
2. NOT sales literature:
a. Prospectus
b. IRA brochures
c. General investing brochures
d. One-on-one presentations |
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|
Term
| SAFETY LEVELS OF INVESTMENT (SAFEST TO RISKIEST) |
|
Definition
1. Government issued securities
2. Mortgage backed bonds
3. Corporate bonds
4. Preferred stocks
5. Common stocks (get paid last)
---------------------------------------
Securities of established firms are safer than those of new firms |
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|
Term
| REGULATION "T" vs. REGULATION "U" |
|
Definition
1. Regulation T:
a. Governs lending of money from a B-D to a cusTomer
b. Must pay within 5 business days or B-D must liquidate securities
2. Regulation U:
a. Regulates lending from banks to B-D |
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|
Term
| REGARDING THE DIFFERENCE BETWEEN THE BID AND ASKED PRICE OF STOCKS |
|
Definition
| More active stocks have: Narrower spread |
|
|
Term
| RED HERRING PROSPECTUS (PRELIMINARY PROSPECTUS) |
|
Definition
1. Used between the 20-day waiting (20 cooling-off) period between the FILING of the registration statement and the EFFECTIVE date
2. The 20-day period allow SEC to study the prospectus (SEC does NOT verify accuracy of the information) |
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Term
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Definition
1. Pre-tax $ (deductible)
2. Cost basis = 0 (zero)
3. Total account is taxed upon withdrawal
4. Taxed as ordinary income |
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Term
| QUALIFIED (TAX DEDUCTIBLE) COMPANY SPONSORED PLANS |
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Definition
1. Keogh plan (HR-10): Self-employed
2. Simplified employee pension (SEP): 25 employees or less
3. SIMPLE: 100 employees or less
4. 403(b): Tax sheltered (Tax deferred) annuity. Public schools & non-profits
NOTE: 457--NON-qualified (Municipal employees)
MUST be eligible to participate in all plans |
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Term
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Definition
1. Shows objectives, breakpoints, & charges (NOT specific portfolio changes)
2. Given to clients during or PRIOR to a sale
3. Financial hi-lights (PAST performance)
a. Shown for 1, 5, 10 years
b. Updated every 16 months
4. Shows expenses at 1, 3, 5, 10 years - Assuming $1,000 investment & 5% return
5. Must disclose objective may NOT be met
6. SEC does NOT verify or approve info |
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Term
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Definition
1. Paid a dividend BEFORE common stockholders
2. Dividend is percentage of par or fixed $
OPTIONAL FEATURES OF PREFERRED STOCKS:
a. Cumulative: dividends accrue for skipped years
b. Convertible: Into common stock (price depends on price of common stock)
c. Callable: may be retired (called) by the corporation (this could also be a RISK)
d. Participating: Eligible for common stock dividend (Up to 100%) |
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Term
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Definition
Right for COMMON STOCK holders to maintain proportionate share when new shares are issued.
EXAMPLE: If a person owns 2% of a company stock & the company issues 600 new shares, he has the right to buy 12 shares before the public (2% of 600) |
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Term
| POLICIES OF AN INVESTMENT COMPANY MAY ONLY BE CHANGED BY A MAJORITY VOTE OF THE |
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Definition
Shareholders
---------------------------------------
A majority vote is first needed by the board of directors. If that happens, shareholders then vote. |
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Term
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Definition
1. Dollar value to a security by the issuer
2. It is only relevant to stocks at initial public offering (IPO)
3. Bond par is usually $1,000 (the amount returned to investor when bond matures)
4. OTHER WORDS USED: Face, principal, stated value
5. Securities bought BELOW par: Discount
6. Securities bought ABOVE par: Premium |
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Term
| ORGANIZATION THAT REGULATES THE SETTING OF EX-DIVIDEND DATES |
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Definition
NASD
---------------------------------------
REMEMBER:
a. Stock ex-dividend date: 2 business days prior to the record date
b. Mutual ex-dividend date: Set by Underwriter |
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Term
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Definition
1. Call option: Right to buy (Attractive to Bulls -- Expect up market). Marketable Benefit from market movement
2. Put option: Right to sell (Attractive to Bears -- Expect down market). Marketable Benefits from lack of movement
3. Warrants (Sweeteners):
a. Long term Privilege to buy shares above market (Minimum 5 years)
b. Marketable (can be sold) |
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Term
| NOT A SECURITY (EVERYTHING NOT ON THIS LIST IS A SECURITY) |
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Definition
1. Retirement plans (401(k), IRA)
2. Fixed annuities
3. Commodity or future contracts
4. Precious metals
5. Primary residence (condo or house)
6. Currency or cash equivalent
7. Collectibles (ART, STAMPS) |
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Term
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Definition
1. After-tax $ (NOT deductible)
2. Cost basis = Amount of contribution
3. Growth on is taxed upon withdrawal
4. Taxed as Last-In, First-Out (LIFO)
5. Any taxed -- Ordinary income |
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Term
| NOMINAL YIELD vs. CURRENT YIELD |
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Definition
1. Nominal yield: NY
a. Is printed on the bonds
b. NEVER changes
c. Also known as coupon rate
2. Current yield: CY = NY/Bond Price
a. "True Rate"
b. Bonds bought above par (Premium)CY c. Bonds bought below par (Discount)CY>NY |
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Term
| NASD HAS THE POWER TO DO THE FOLLOWING AGAINST INDIVIDUALS WHO VIOLATE NASD RULES |
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Definition
1. Fine up to unlimited amounts
2. Suspend membership or registration
3. Expel from membership or registration
4. Bar a member from associating with other members
TEST ALERT:
a. SEC & NASD do not arrest or sentence people to jail
b. Everyone must have opportunity for a hearing |
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Term
| MUTUAL FUNDS (OPEN-END INVESTMENT COMPANY) |
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Definition
1. Unlimited number of shares
2. Price: NAV in prospectus
3. Redeemable
4. Can NOT issue senior securities
5. ALWAYS need prospectus
6. Always NEWLY issued
7. Can be in PARTIAL or FRACTIONAL shares
8. MAX sales charge: 8.5%
9. Never sold at DISCOUNT (closed-end CAN)
10. Investor has NO control of portfolio |
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Term
| MUTUAL FUND SHAREHOLDERS ARE TAXED ON |
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Definition
1. Dividend distribution
2. Capital gains distribution
3. Interest distribution
ALL cases, taxed if reinvested or taken in cash.
NOT Taxed:
a. Reinvested dividend & gains in RETIREMENT plans
b. Unrealized gains & losses
SIMPLE!! Cash in hand is taxed |
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Term
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Definition
1. Maximum 8.5%
2. Pays for:
a. Broker-dealer (B-D)
b. Agent
c. Underwriter
d. Advertising & sales literature
3. Also known as:
a. Load
b. Spread
c. Difference |
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Term
|
Definition
Fund name followed by:
a. r = fund has redemption fee (back-end load)
b. p = fund has 12b-1 fee
c. t = fund hs redemption fee & 12b-1 |
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Term
| MUTUAL FUND CAN BORROW UP TO WHAT AMOUNT OF THE NET ASSETS? |
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Definition
50%
EXAMPLE: Net assets = $5 million
Can borrow: $2.5 million
NOTE: The formula is more complicated, but 50% is the final result. KEEP IT SIMPLE |
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Term
| MONEY ROLLED OVER INTO A ROTH IRA |
|
Definition
Treated as taxable income at the time of the rollover
NOTE: Rollovers are NOT subject to excess tax. That is, contributing more than the maximum amount permitted |
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Term
|
Definition
1. High quality debt
2. Highly Liquid
3. Low risk
4. Mature in one year or less
TYPES OF MONEY MARKET INSTRUMENTS:
a. Commercial Paper: Used for payroll & inventory (matures in 9 months--270 days)
b. Bankers Acceptance: Import/Export
c. Repurchase Agreements (Repos): Borrow money by selling securities & repurchasing them |
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Term
| MAXIMUM LOSSES THAT CAN BE DEDUCTED IN ONE YEAR |
|
Definition
1. $3,000
2. Carry over any excess (Example: $30,000 loss can be claimed for 10 years)
TEST ALERT:
a. If question asks the maximum gains you can CLAIM, the answer is NO LIMIT
b. All gains must be claimed |
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Term
|
Definition
1. MAX contributions without paying gift taxes:
a. $11,000/year per person -- $55,000 in one year (good for 5 years)
b. $22,000/year per couple -- $110,000 in one year (good for 5 years)
(CANNOT average over 10 years)
2. MAX gifts from member to member:
a. $100 per year
b. CAN give occasional dinner, sport game
c. CAN NEVER give season tickets |
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Term
|
Definition
1. EXCHANGE: Auction (LISTED securities)
2. OVER-THE-COUNTER (OTC): Negotiated (UNLISTED securities)
3. NASDAQ INTERMARKET: LISTED securities on the OTC
4. FOURTH MARKET: Both listed & Unlisted
5. NASDAQ: Automated Quotation network (Unlisted securities)
Unlisted NOT on NASDAQ used pink sheets |
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Term
| MANAGEMENT FEES PAID BY AN INVESTMENT COMPANY ARE PART OF |
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Definition
| The OPERATING EXPENSE of the fund |
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Term
|
Definition
1. Based on funds total assets (NAV)
2. Maximum: 8.5%; Must be reasonable
3. Pays for:
a. agent
b. Advertising & sales literature
c. Fund investment adviser (portfolio manager)
4. 12b-1 fees are:
a. Reviewed at least quarterly
b. Approved annually |
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Term
|
Definition
1. Level I: Subject Quote
2. Levels II & III: Firm Quotes
---------------------------------------
Can be determined from NASDAQ newspaper quotes: The last transaction |
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Term
|
Definition
1. Used if someone doesn't have enough to go over a breakpoint but will soon
2. Valid for 13 MONTHS in order to receive a reduced sales charge
3. Can be backdated 90 DAYS
4. Part of the money is kept in ESCROW until LOI is complete
5. Escrow changes like rest of account |
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Term
|
Definition
1. TENANTS IN COMMON (TIC): When one of the owners dies, his beneficiary receives his portion -- Suitable for business relationships
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (JTWRS): When one of the owners dies, the joint owner gets his portion -- Suitable for husband and wife |
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Term
| INVESTOR REFUSES TO SS#, MUTUAL FUND |
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Definition
1. Withholds 20% of all taxable distributions
2. Sends a copy of form 1099 to the IRS
KEEP IN MIND: Not supplying information can cause a company to suspect fraud |
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Term
| INVESTOR PURCHASED MUTUAL FUND SHARES ON TUESDAY OF A REGULAR BUSINESS WEEK, PAYMENT MUST BE MADE BY |
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Definition
Friday of the same week
---------------------------------------
REMEMBER:
a. Regular way settlement is 3 business days after the transaction
b. This applies to mutual funds as well as other securities |
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Term
|
Definition
1. Face-amount certificate companies
2. Unit investment trusts
3. Management companies
a. Open-end (Mutual fund) -- Diversified or Non-Diversified
b. Closed-end (Stocks) -- Diversified or Non-Diversified |
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Term
|
Definition
1. Adviser for:
a. INDIVIDUALS: Advises people--paid a FLAT fee (Excluded: Lawyers, Accountants, Teacher, Engineers (LATE) & Banks)
b. INVESTMENT COMPANIES: Manages portfolio--paid a percentage of NAV (12b-1 fee) AKA: Fund or portfolio manager |
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Term
| INFO REQUIRED FOR A NEW ACCOUNT |
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Definition
1. SS# or tax ID number
2. Name
3. Address
4. If person is employed by a member-firm
IF CUSTOMER IS EMPLOYED BY A MEMBER-FIRM:
a. His employer must be notified prior to opening the account
b. His employer must receive, upon request, duplicate statements |
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Term
| INDIVIDUAL RETIREMENT ACCOUNTS (IRAs) |
|
Definition
1. Can't withdraw before 59 1/2 without penalty
2. Designed for working people & spouses
3. MAX: $4,000/person per year
4. $1,000 catch-up if over 50 years old
TRADITIONAL IRA: Deductible -- Must withdraw by 70 1/2 (or 50% penalty)
ROTH IRA: Non-deductible -- Not taxed if held for 5 years. Never need to withdraw
ROLLOVER IRA: Rolled from a corporate plan within 60 days of the distribution |
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Term
| IMPORTANT FACTORS TO CONSIDER REGARDING CONTRACTUAL PLAN SALES CHARGES |
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Definition
1. Sales charge provisions during the early years of the plan
2. Total sales charge during the plan
3. Effects of liquidating the plan in the early years |
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Term
|
Definition
1. RECORD DATE (RD): determines who is eligible to receive dividend
a. Mutual funds are sold with the dividend up to and including record date
2. EX-DIVIDEND DATE (EX-DATE): date on which a STOCK is sold WITHOUT the right to receive dividend (2 days prior to RD)
a. Mutual Fund ex-date set by underwriter
3. DECLARATION DATE: The date on which the board authorizes a dividend |
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Term
| HOW TO MINIMIZE LOSSES IN BONDS |
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Definition
By holding bonds to maturity
(But you risk purchasing power due to inflation) |
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Term
|
Definition
1. Traded at a premium on the first day
2. A member may NEVER EVER buy a hot issue or sell a hot issue to:
a. Another member
b. Immediate family (including in-laws)
c. Affiliated or interested persons
1. Not selling hot issues to the public is called free-riding & withholding (Strictly prohibited)
2. CAN sell to immediate family if they have history of buying the same stock |
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Term
| HEDGE FUNDS & FUND OF HEDGE FUNDS |
|
Definition
1. Hedge Fund (High Risk):
a. NO SEC registration
b. Offered to accredited investors
c. High risk
d. Take short term positions
2. Fund of Hedge Funds:
a. Must register with SEC
b. NOT redeemable (unless funds wishes to)
TEST ALERT: Regular funds MUST register w/ SEC |
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Term
| IF GROWTH STOCK FUND EXPECTS STOCK PRICES TO DECLINE, FUND MANAGERS WOULD PROBABLY |
|
Definition
Move funds into:
a. Money market instruments or
b. Cash |
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Term
|
Definition
Compares the fund to the market:
a. Beta < 1 (Less volatile)
b. Beta > 1 (More volatile)
c. Aggressive funds have: High Beta
d. Conservative funds have: Low Beta
NOTE: Money market has LOWEST beta
(Works best for diversified funds) |
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Term
|
Definition
1. A CASH account in which a customer fails to pay within 5 business days (under Reg. T)
2. Payment is required before any purchases for 90 days, 90-day ruling
3. Someone CAN buy if account is frozen--payment must be made in CASH |
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Term
| FRONT-END LOAD CONTRACTUAL PLANS |
|
Definition
SC = Sales Charge
1. MAX SC 1st year: 50%
2. Partial refund within 18 months: NAV plus all SC less 15% of SC
3. MAX SC over LIFE of plan: 9%
4. Rights of FULL refund: within 45 days of mailing of plan details
ALL contractual plans are structured as UIT |
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Term
|
Definition
1. Used to value mutual fund shares
2. Occurs at close of the NYSE (4pm ET)
3. Used fo ALL vehicles that use mutual funds
4. Orders placed on Tuesday AFTER 4 p.m. are valued on Wednesday at 4 p.m.
5. Orders placed on Tuesday BEFORE 4 p.m. are valued on Tuesday at 4 p.m.
(NON-Business days skipped: NYSE closed) |
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Term
| 403(b) ORGANIZATIONS vs. 501(c)(3) ORGANIZATIONS |
|
Definition
1. 403(b) organizations:
a. Public schools
b. Public library
2. 501(c)(3) organizations:
a. Non-profit
b. Tax-exempt hospital
c. Churches
REMEMBER: Plan utilized is 403(b) for both |
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Term
|
Definition
1. Guaranteed rate of return (ROR)
2. Has a general account
3. Payout based on mortality tables
4. Risks purchasing power due to inflation
5. Annuitant has no control over what's invested in the general account
6. Company assumes the risk
---------------------------------------
a. Healthier people get paid less
b. Men get paid more than women |
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Term
| THE FEDERAL RESERVE BOARD (FRB) CONTROLS |
|
Definition
1. The money supply
2. The banking industry
3. The use of credit in the U.S.
4. The use of credit in the securities industry |
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Term
| FEDERAL OPEN MARKET COMMITTEE (FOMC) ADJUSTS THE CREDIT MARKETS OR MONEY SUPPLY ON A DAILY BASIS BY |
|
Definition
| Buying and selling Government securities in the open market |
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