All Flashcards
How long do records of retail communications need to be maintained?
3 years from the date of last use
How long do records of independently prepared reprints need to be maintained?
3 years from the date of last use
How long do records of outgoing electronic securities business correspondence need to be maintained?
3 years
In an intrastate offering (under Rule 147), when may a resident purchaser of these securities resell them to a nonresident?
6 months after the investor’s purchase date
If RMDs do not begin by April 1 of the year after the individual turns 70.5 what is the penalty?
- 50% insufficient distribution penalty
- ordinary income taxes
Which act determines a RR must sell primary offerings of no exempt issues with a prospectus?
Securities Act of 1933
Who has no liability in an underwriting for unsold shares in a firm commitment?
- the selling group members
- they act in an agency capacity-if they sell any shares then they get paid, and if they don’t sell anything they don’t get paid
What happens when the registration statement for corporate securities becomes effective?
- the issuer amends the preliminary prospectus
- the final offering price is added to the red herring
What does Regulation D mandate?
- a special inscription or legend on the stock certificate indicates that its transfer is restricted
- if the offering is advertised, all purchasers must be accredited
- investors agree to to terms by signing an investment letter
- a maximum of 35 nonaccredited investors may participate in the purchase of securities under a Regulation D exempt offering
How does FINRA 2210 treat interactive electronic forum posts (such as social media status updates)?
As retail communications
What is a third market transaction?
When listed securities trade over-the-counter
Code of Procedure
-handles complaints filed with FINRA regarding violations of the Conduct Rules
Value funds
-focus on companies whose stocks are currently undervalued
•the earnings potential is not reflected in the stock price
-dividend yields tend to be higher than growth funds
A BD that purchases securities for or sells securities from its own inventory is acting as __________.
Principal
A BD facilitating a transaction between a buyer and seller is acting as an __________.
Agent
Principals charge ________ on sales from inventory.
Mark-ups
What will result from an unrealized loss?
- a lower NAV per share
- reduction of the amount of proceeds payable to shareholders who liquidate their shares
What type of investment company can have an asking price below the NAV?
Only closed-end companies
What type of investment company security is most likely to have a NAV that is 90% of its offer price?
closed-end company share
What is the maximum sales charge on open-end shares?
8.5% of the POP
An open-end share’s NAV must be at least ___________.
91.5% of its offered price
Dividends from municipal bond funds are __________. Capital gains distributions are ___________.
Tax-exempt; taxable
Zero-coupon bonds have duration _________ maturity.
Equal to
A bond that makes interim payments has a duration _________ its maturity.
Shorter than
Management fees paid by an investment company are part of __________.
The operating expenses of the fund
What is a sales load part of?
Contained within the underwriting agreement
Fixed-time withdrawal plan (offered by a mutual fund)
- end date of the plan is fixed
- individual payment amount is uncertain
- unspecified number of shares is liquidated each month based on the number of months left to distribute and the NAV of the investment
- ex. $10,000/120 months = $83.33
On what form are dividend distributions reported on?
IRS form 1099-DIV
How are dividends paid?
- as declared by BOD
- paid from the company’s NII (net investment income)
How are capital gains paid?
- annually
- generated when an investor redeems appreciated shares of the investment company and when portfolio securities are sold
How soon does an open-end investment company have to redeem its shares (in any quantity)?
Within 7 days
Credit risk
- involves possibility of issuer default
- danger of losing all or part of the invested principal as the result of the issuer’s failure
What is the maximum fee that can be charged for distribution and promotion under a 12b-1 plan?
0.75% of average net assets
What is the only form of communication with the public that is not required to include the name of the member firm?
Recruitment advertising
If the owner of a variable annuity dies during the accumulation period, what will happen to any death benefit?
It will be paid to a designated beneficiary
What are some features of Class C mutual fund shares?
- typically charge no front-end load
- typically impose lower CDSCs than Class B shares for a shorter period
- no conversion to Class A shares regardless of how long they’re held
What is the exchange privilege?
Offers exchange without an additional sales charge, but the exchange is still taxable
What are Ginnie Mae pass-through certificates?
Investor receives principal and interest after the homeowner has made his monthly mortgage payment
What are some advantages of Section 529 plans?
- account remains the property of the donor even after the beneficiary reaches legal age
- few restrictions as to who may be designated first beneficiary
- assets in the account are not regarded as part of the owner’s estate for tax purposes
What is the exchange privilege offered by open-end investment companies?
Allows investors to exchange shares of one open-end fund for another in the same fund family at a net asset value basis
If an annuitant dies during the accumulation period and the annuity goes to the beneficiary, what does the beneficiary pay taxes on?
The growth & accumulation portion of the total
Characteristics of commercial paper
- maximum maturity of 270 days
- exempt from registration
- unsecured debt obligations of corporations in need of short-term financing
12b-1 fees
- may be charged by open-end management companies
- FINRA permits members to charge 0.25% as a shareholder servicing fee which is not included in the 12b-1 limits
- cover distribution costs
- 0.75% maximum set by FINRA
Speculative investor
Tries to earn higher than average returns by investing in securities that carry higher than average risk
Money market securities
High-quality debt issues with maturities of 1 year or less
Who could a 457 plan cover?
- employees of a corporation
- city employees
457 plan
Nonqualified deferred compensation plan for municipal employees as well as for independent contractors performing services for those entities
When a fund is selling below its NAV, it must be a ________.
Closed-end fund
What should you expect if you invest in a front-end load mutual fund and choose automatic reinvestment?
- dividend distributions will be reinvested at NAV
- capital gains distributions will be reinvested at NAV
When a customer receives payment during the annuity period of a variable annuity, how is it taxed?
-only the amount that represents investment income is subject to tax at an ordinary income rate
How are units in a UIT sold and purchased?
Directly through the issuer
Where can an investor expect to find closed-end investment company shares traded?
- OTC market
- exchanges
If interest rates in general are rising, the price of T-bills should _______.
Fall
If an employee of a FINRA member firm wishes to open an account at another member firm, what needs to take place?
The member firm opening the account must obtain the employing firm’s permission to open the account
A __________ payout provides the investor with the largest payments when the contract is annuitized.
Straight life
SEP IRAs
- allow employers to make contributions
- usually set up at a bank or other financial institution
- established for small-businessowners and their employees
What can a 12b-1 fee be used for?
- sales literature costs
- advertising
- promotional expenses
What are 12b-1 fees used for?
Facilitating share distributions
Reinvestment risk
Risk that between now and when the bond matures or is called, interest rates will fall
Where can open-end investment company shares be purchased and sold?
- from the open-end company
- in the primary market
What is the maximum 12b-1 charge for marketing and promotion?
0.75%
What additional 12b-1 percentage may be charged as a shareholder servicing fee?
Additional 0.25%
For a nonexempt security, Regulation T requires payment be made in how many business days after regular way settlement?
2 days
Who is the most common issuer of commercial paper?
Corporations
In a variable life policy, the face value will fluctuate with the separate account’s performance, but it will never decrease below__________.
The original face value
What is the open-end investment company share price quoted in the newspaper?
Bid price (always shows the NAV)
After validating the transfer initiation form (TIF) from a BD, the carrying firm has _____ business day(s) to validate the information on the form, and then _____ business day(s) after validation to complete the transfer.
1, 3
During the accumulation period of a variable annuity contract, an investor will receive _________ of tax liability on investment income and capital gains earned in the separate account.
A deferral
To receive a dividend, the buyer must be on the issuer’s books as the owner on the _________.
Record date
How long will a straight life annuity give monthly payments?
For as long as the annuitant lives
T-bills
- trade at discount to par
- maturities 1 year or less
- noncallable
- direct obligation of US gov
Unless _______ of net assets is specifically mentioned, assume any 12b-1 fund is a loaded fund.
0.25%
Class C shares carry a ________, often referred to as a ________.
12b-1 charge, level load
What type of retirement plans would have to conform to the requirements of ERISA?
Private sector qualified plans
Features of class c mutual fund shares
- typically charge no front-end load
- typically impose lower CDSCs than Class B shares for a shorter period
- do not convert to Class A shares
When does mortality risk turn out unfavorably for an insurance company?
- when an annuitant lives longer than expected
- when a life insurance holder dies sooner than expected (the insurance company would have to pay the death benefit sooner than expected-before receiving some of the expected premium payments)
If the ask price is less than the NAV, the fund must be a ________.
Closed-end investment company
What is the result of dollar cost averaging?
Obtain a lower average COST per share than average PRICE per share
Death benefit clause of a variable annuity
If a client dies during the accumulation phase, his heir or estate will receive the amount of money invested or the current value of the account, whichever is GREATER
Regulated investment company
Acts as a conduit for dividend distributions
When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?
As ordinary income based on an exclusion ratio
Which companies sell shares directly to the public?
No-load mutual funds
A UIT does not have a board of directors, it has a _________.
Board of trustees
What is the mutual fund exchange privilege?
Gives a shareholder the right to convert shares to a different mutual fund within the same family of funds on a dollar-for-dollar basis
Which share classes typically have a higher expense ratio than Class A shares?
Class B shares and Class C shares
__________ convert to Class A shares after the CDSC expires.
Class B shares
When do Class B shares convert to Class A shares?
After the CDSC expires
If an open-end investment company wishes to change its investment objective, it may only do so with _________.
Majority vote of the outstanding shares (not shareholders)
What does a variable annuity contract guarantee?
- fixed mortality expense
- capped administrative expense
(Regarding interest rates and price fluctuations of debt securities), __________ prices fluctuate more than ___________ prices.
Long-term, short-term
(Regarding interest rates and price fluctuations of debt securities), ___________ interest rates fluctuate more than ____________ interest rates.
Short-term, long-term
If an annuity is cashed in before age 59 1/2, what are the taxes/penalties?
The growth and accumulation portion of its value is taxable as ordinary income and there is a 10% tax penalty on the growth withdrawn
Discretionary order
- authorizes a representative to choose the security, the amount of shares, or whether to buy or sell
- time and/or price alone are not discretionary decisions
Cash settlement for a trade in a customer’s account must settle _______.
The day of the trade
Tombstone
An announcement of a new issue that includes the name of the issuer, the price of the security, and the name of the underwriter from whom it can be purchased
What does a tombstone include?
- name of the issuer
- the price of the security
- the name of the underwriter from whom it can be purchased
How is a beneficiary taxed on a lump sum payment for a variable annuity?
The amount of the lump sum payment minus the deceased’s cost basis is taxed at the beneficiary’s ordinary income rate
When is the record date for corporate securities?
1 business day after the ex-date
An investor might expect to receive the greatest gain on an investment in a corporate bond by purchasing _________ bonds when interest rates are _______.
Long-term, high
Antidilution feature
The issuer will increase the number of shares available upon conversion if the company declares a stock split or stock dividend
If a fund distributes 90% or more of its NII to shareholders and therefore did not have to pay tax on what it distributed, it is a(n) _________.
Regulated investment company under Subchapter M of the Internal Revenue Code
What kind of alpha is desired?
Positive
Municipal securities do not have a preliminary prospectus or prospectus, but a(n) __________ and a(n) ___________.
Preliminary official statement (POS), official statement (OS)
What does the expense ratio include?
•the expenses of operating the fund compared to fund assets
- expenses include management fees, administrative fees, brokerage fees, and taxes * *underwriters may NEVER be an expense to the fund
