4/10/2023 Flashcards
Which Act Does Rule 144 fall under
The Securities Act of 1933
Restricted Stock
Follows Rule 144
Deals with Stock acquired Through Private Placement
Cant Be Re-Sold for 6 months
One sold it becomes apart of the public float
If Affiliated with the Issuer You have Restrictions on how much you can sell at 1 time
Rule 144
Rules for Restricted Stock
Deals with Stock acquired Through Private Placement
Cant Be Re-Sold for 6 months
One sold it becomes apart of the public float
If Affiliated with the Issuer You have Restrictions on how much you can sell at 1 time
Form 144
Must be filed with SEC when the Investor owning Restricted Stock Or Controlled Stock wants to sell it
Rules for Broker-Dealers and Rule 144
They cant Buy or Solicit Restricted Stock
BUT can call back
Investors who expressed Interest in the past 10 days
other BD’s who expressed interest in the past 60 days
Rule 144a
Execption to the 6 month waitting preiod if you sell the restricted Stock to a QIB
(Qualified Institutional Buyer)
QIB
(Qualified Institutional Buyer)
Person/Entity who
has at least $100 million in Assets
OR
BD who
has at least $10 million in Assets
Rule 144a says:
Restricted Stock can be sold to them without waiting the 6 months period
Private Placements
Also called Limited Offering Exemption
The Sale of a Newly issued Security to an Accredited Investor
Doesn’t require SEC Registration
Advisors cannot get commissions on these sales
After buying the investor is Subject to
Rule 144
the Stock is Now Restricted Stock
Cannot be resold for 6 months
Accredited Investor
Individual who makes $200k/yr
or
Couple who makes $300k/yr
OR
has $1million in Net Worth other than their Home
Then
They file as accredited Investor with SEC
Can then Buy Private Placements
Limited Offering Exemption
Another word for
Private Placements
Control Person
Different From Affiliate
(all controlled persons are affiliates, but not all affiliates are controlled persons)
Control - Director, Officer, or 10% ownership of company
(if the question asks under the:
-Investment Advisers Act of 1940
or
-Investment Company Act of 1940
its changed to 25%)
(Affiliated - Director, Officer, employee, or 5% ownership of company)
Hedge Fund
ALMOST ALWAYS ORGANIZED AS A LIMITED PARTNERSHIP
Usually:
-aggressively managed fund
- high management fee’s
-uses options futures and leveraging (borrowing)
-less liquid than a mutual fund
Forwards
Contract between producer and buyer of commodities (wheat, grain, etc) to buy the commodities at a specified Price and day
Helps Producers hedge against price changes in their commodities during production
Illiquid
No Secondary Market (Can be bought or sold but not traded)
IS A DERIVATIVE
unregulated
Futures
Just like Forwards (there is a contract and an actual exchange of the commodity at expiration)
Investors Essentially betting on the price of Commodities in the future
Liquid
Has a Secondary Market (The contract can easily be traded)
Is a Derivative (Very Similar to an Option)
Is Regulated
Viaticals and Life Settlements
People with Life Insurance Policy can sell the Death Benefit for more than Cash Value and Less than Death Benefit
Viatical - Have to Be Terminally/Chronically Ill
Life Settlement - Don’t have to Be Terminally/Chronically Ill
The contract is considered a Security
Purchaser agrees to pay any additional Premiums on the contract required
On the Sale of Viaticals / Life Settlements what on the policy changes
Grantor (Owner)
Beneficiary
Insured does NOT Change
AIR
Assumed Interest Rate
USED FOR VARIABLE ANNUITIES
The Minimum Interest rate needed to ensure Annuity Income Payments are consistent
Annuity Payout Options
Single Life - lasts one person’s life
Joint and Survivor - last’s 2 peoples life
Period Certain - lasts a specified # of years (whether a person is dead or alive)
Life with Period Certain - Lasts personal Life OR Certain Nubmer of years whichever lasts longer
Annuities (things to remember for the test)
-Grow Tax Deferred - Remember that money contributed is considered Post Tax Unless otherwise stated
-Variable Annuities Fee are Usually higher than Mutual fund
Life Insurance (things to remember for the test)
Younger People Should buy Term because its cheaper
Variable Life:
cannot be loaned out for the first 3 years
then 75% or more can be loaned out
Should you use Accretion Amortization for all Bond Total Gain/ Loss Questions?
No
Only those where you help the Bond for longer than 1 year
Technical Analysis
Cares about the Stock
Focuses on the graphs and charts of securities
Fundamental Analysis
Cares about the health of Company
Looks at:
Income Statement
Balance Sheet
Mutual Fund
A pool of investors funds invested and managed by a company
Portfolio and NAV calculated at the end of every market day
ON THE TEST IS ALWAYS CONSIDERED AND OPEN END A CLASS FUND UNLESS OTHERWISE STATED
Management Company
Another word for Mutual Fund
NAV
Net Asset Value
Used in Mutual Funds
calculated at the end of every trading Day
Portfolio Value / # Shares Outstanding
(Value = Assets - Liabilities)
(it’s the dollar amount each share is worth)
POP
Public Offering Price
The price the fund is offered to the public
NAV + Sales Charge = POP
A B and C shares are for what type of Mutual Fund
Open End Fund
Class A Shares
Front End Loaded
Buy Shares @ POP
Sell Shares @ NAV
Good for Long Term Investing (8+ years)
Class B Shares
Also Known as Contingent Sales Charge
Back End Loaded
Buy @ NAV
Sell @ NAV - Sales Charge (If they have one. The longer you invest, usually the smaller the Sales charge on these)
Good for Mid Term Investing (5-8 years)
Class C Shares
Small Management Fee
Called Level Load Funds
Buy @ NAV
Sell @ NAV
Charged a small annual fee based on the size of the account
Good for Short Term Investing (1-5 Years)
What are Closed-End Funds bought and sold at
the CMV of shares in the secondary market
not POP or NAV!!!
Class I Shares
Open-end Fund Shares
Used for Institutional Investors (i shares)
minimum of $250k needed to invest into these shares
What is the sales charge when swapping from one fund to another in the same investment company?
$0
They can only charge a sale charge once.
New fund is always bought and sold at NAV
(or CMV if closed-end fund)
Front end Loaded Also Called What?
Class A Shares
Back End Loaded Also Called What
Class B Shares
Breakpoints
The more money you have in the account
the smaller the sales charge
Like a bracket system
For A Class Shares Only
Breakpoint Sales Violations
If a client is close to a breakpoint you need to make that known to them so that if they want they can contribute more money and have a smaller fee.
If you dont that is a violation
ROA
Rights of Accumulation
Open-end Investment companies consider all accounts someone has with them together when calculating their breakpoint for fee’s
LOI
Letter Of Intent
You Submit an LOI to Investment Company Promising to contribute more money to a fund for the purpose of adding to the breakpoints and reducing your fee.
They will consider those funds as ALL READY IN the fund for the sake of fee’s and breakpoints
Good for 13 months
Can be backdated for 90 days
Open End Fund Max Sales Charge
8.5%
if on test a sales charge is higher than this that means its a Closed-End Fund
12B1 Fee’s
For Open End Funds ONLY
A fee that pays for anything to do with the Distribution (Selling and Marketing) of the fund
Paid Quarterly
Max 12B1 Fee:
Load Fund => .75%
No Load Fund => .25%
When Calculating Sales Charge What do you Apply that to?
What it cost you for that share
THAT MAY OR MAY NOT BE THE NAV
On questions with A B or C share or Open End Fund Questions, what should you remember?
Always assume its an A share unless it says differently
AND
open and closed end funds can invest in common, preffered and bonds
AND
they can only charge a sales charge once so if you move from one fund to another in the same company they cant charge you another sales charge
Are Closed-End Funds Activly or Passivly Managed?
Passively Managed
will make trades 2-3 times per year
On a Question that asks you if something is an Open or Closed Fund What do you need to remember
Closed End can have:
POP greater than 8.5% (Sales Charge)
and
POP less than NAV
Are ETF and ETN the Same Thing
No
Are ETF’s a Type of Open or Closed End Fund
Closed End
ETF
Type of Closed-End Fund
Passively Managed
Invested Like an Index Fund
2 EXTREMELY IMPORTANT things about ETF’s questions on the Test
If Ticker Symbol starts with an S
that means Short - you have to times all returns from it by -1 (inverse them)
AND
If you see 3X or 2X etc
the fund is leveraged by that amount - you have to times the return by the number
ETN
Exchange Traded Note
Issuer purchases Bonds and packages then as notes then sells it to investors
Biggest Risk:
The Credit Quality Of The Issuer
Are UIT’s Investment Companies
Yes
BUT
NOT REGULATED BY THE INVESTMENT COMPANY ACT OF 1940
(THEY ARE STILL A INVESTMENT COMPANY THEY JUST ARNT GOVERNED BY THE ACT)
Not classified at one under Investment Company Act of 1940
Instead classified under Each UIT’s Individual Trust
RIET’s
Pool of investor funds Invested into Real Estate
Can Be Listed (Trades on an Exchange)
or
Unlisted (Doesnt Trade on an Exchange)
Can only distribute gains to Share holders NO LOSSES
Difference Between Private Equity and Hedge Funds
Hedge Funds Managers typically put some of their own $ into the Fund
Private Equity Managers Do NOT
Venture Capital Funds
Invests In Young Start Up Companies
Hoping 1 or 2 of them will turn into HUGE businesses that they can then sell
(Its OK that the rest fail)
Similarities Between:
Private Equity Funds
Hedge Funds
Venture Capital Funds
Very Illiquid
Fund can invest the money however it wants
(very low transperancy)
Can be very Risky but might make huge reward aswell
Usually have very high mnnimums to enter the fund
How Annuities Distributions are taxed
LIFO - Last In First OUT
2 Parts of the Annuity Money
What you Contributed (considered After Tax Already)
What Growth the Account Had (considered Pre Tax or Tax Deffered)
Which amount came in Last?
Usually the Growth of the account. so that gets taxed First
How Annuities Annuitization is taxed
Part Tax - The Growth
and
Part POST TAX (already paid taxes on) - What You Contributed To It
What to remember about Annuities With a Bonus
You don’t get the bonus up front you have to be vested through the life of the plan
All Business Entities Flow the Taxes on to the individual EXCEPT
C-Corps and Trusts
That means that except for these 2
the taxes will show up on your personal tax return
What to remember about Sole P.
On the test the
Sole P
and
Individual
are considered 2 different entities and so it does “Flow” the taxes on to the individual
Max Loss for a Limited Partner
Their Investment
(they can’t come after their house or car or other money etc…)
Max Loss for a General Partner
Everything
(they CAN come after their house or car or other money etc…)
List the different Types of Joint Tennet Accounts
JT with Rights of Survivorship
-if you die => 100% goes to the remaining tenants
-if sued => they can come after 100% of the account
JT in Common
-if you die => your % goes to Beneficiaries/ Estate
-if sued => they can come after ONLY you % of the account
JT by Entirety
-if you die => 100% goes to the remaining tenants
-if sued => they can only come after the person and none of the JT Account
(Married Couples ONLY)
(The JT Account is considered its own Entity separate from both individuals)
Affiliates
Affiliated - Director, Officer, employee, or 5% ownership of company
Different from Control Person!!!!!
