Series 6 Missed test questions

Regulation S-P

"privacy notice" must be distributed to all clients at least annually.

Calculating the sales charge percentage when the NAV and POP are given:

(POP - NAV) ÷ POP = Sales Charge percentage For example, if the POP is $10 and the NAV is $9.15, the sales charge dollar amount is $0.85. The sales charge percentage is .85 ÷ 10 = 8.5%.

The XYZ Mutual Fund has an underwriter's concession of 5 cents, a sales charge of 25 cents, and an NAV per share of $4.75. Assuming an investor has $2,500 to invest, how many shares could he/she purchase?

500 shares Because: NAV (4.75) plus sales charge (.25) equals POP equals $5. $2500/5 = 500 shares. The underwriter's concession is included in the sales charge.

Order Ticket

A ticket filled out by a registered representative when placing an order to buy or sell securities for the client. Also it must be prepared at the time of execution and signed by the supervising principal.The firm must keep a blotter of each ticket, and the ticket cannot be altered The written record of any changes to an executed order ticket is called a cancel and rebill. Erroneous reports, errors, cancels and rebills may subject the RR to disciplinary actions.

The fund manager of ABC Mutual Fund reported unrealized appreciation of 12%, and a 3% increase in net income. The net result is:

An increased value in the portfolio The net results are not ready for distribution since 12% was unrealized appreciation. Unrealized appreciation cannot be distributed until the assets are sold. The portfolio increases in value when the securities increase or when the fund receives income. There was an increase in income, but no increase in capital gains. Capital gains occur (are realized) when a security is sold at a gain. An increase in the value of a security is called unrealized appreciation until it's sold. Once it's sold, it's called a capital gain.

Life Income (Pure or Straight Life)

Annuity income is payable for as long as the annuitant lives, and upon death all payments cease. This option provides the highest monthly income than any of the other options.

Fanny is 65-years old and she has chosen to take random withdrawals from her nonqualified variable annuity. Each withdrawal will:

Be taxable in full as ordinary income until the earnings have been paid out, then she will withdraw the amount contributed in a tax-free basis Since Fanny has chosen not to annuitize, but simply to take withdrawals from her contract, the IRS would tax Fanny as if she were taking the earnings out of the contract first. This last-in, first-out (LIFO) tax treatment means that until she has withdrawn the amount that she has earned in the account, each payment would be taxable in full as ordinary income.

Blend/Core Funds

Capital appreciation is primary with a mix of value and growth stocks.

Growth Funds

Capital appreciation primary objective, portfolio is built of common stock.

Conservative Growth Funds

Capital appreciation primary, common stock in large-cap companies for lower risk.

Aggressive Growth Funds

Capital appreciation with rapid growth, common stock in small-cap emerging growth companies—technology, younger investors with risk tolerance, high risk. They carry very almost none little purchasing power risk. Because they usually move with inflation or outperform it.

Value Funds

Capital appreciation, common stock in established large-cap companies with undervalued stock due to market inefficiency and long increasing dividend payment history.

Sector Funds

Considered aggressive growth investment—investments are concentrated in a particular industry or geographic region. & can be extemely volatile

Jane and Joe would like to put some money aside for their one-year old child in an UGMA account. What would be the most appropriate fund in which for them to invest?

Domestic growth fund Since Jane and Joe are investing in an account for their one-year old child, we assume they are investing for a long-term period. The longer the term, the higher the risk they can take on the investment. On the flip side, they also will not want to put their child's money into something highly aggressive like the emerging markets small cap growth fund. Therefore, the domestic growth fund is the best choice for this investor.

FINRA Rules Opening an Account outside of the employing BD

FINRA rules require that before opening an account for an employee of a broker-dealer at another firm, the associated person (employee) must obtain written consent from his or her employing broker-dealer. Duplicate account information must be sent to the employing broker-dealer if the firm requests it.

The custodian and transfer agent of a mutual fund are compensated:

From the assets of the fund Operating expenses are charged against the fund's assets. Underwriting expenses are paid from the sales charge. Compensation is variable according to the fund's assets rather than any fixed salary. Shareholders cannot be assessed.

Precious Metals Funds

Invest in mining companies that produce gold, silver, platinum, but also can invest directly in the commodities—may provide a hedge against inflation.

Leveraged ETFs

Leveraged ETFs use derivatives and bonds to magnify the returns of an underlying index. Leveraged funds can be used as an alternative to margin, which also takes advantage of borrowed money to increase returns; these funds have higher costs and risk. Leveraged funds are used for short-term investing.

Index Funds

Mirrors the performance of the market by investing in stocks of a specific index (such as S&P 500)—lower management fees, passively managed.

Calculate NAV when the POP and sales charge percentage are given:

POP ($) x Sales Charge (%) = Sales Charge ($) POP ($) - Sales Charge ($) = NAV ($) For example, if the POP is $10 and the sales charge is 8.5%, the sales charge is $0.85. $10 POP - $0.85 SC = $9.15 NAV

variable annuity

RR must know this before offering this product to a prospective purchaser: Does the client have adequate life, health, homeowners, and automobile insurance? Are they participating in Retirement Programs, Participation in Employer-Sponsored Benefit Plans, Estate Planning , Wealth Events

If an investor thinks the U.S. equity market is going to crash in the short-term and wants to make the most money, which one of the following should they consider investing in? A S&P 500 Inverse Leveraged ETF B S&P Inverse ETF C S&P 500 Leveraged ETF D S&P 500 ETF

S&P 500 Inverse Leveraged ETF, Because: Inverse Leveraged ETFs use a combination of leverage and the inverse fund concept. These are often called "ultra short" funds since they are trying to obtain a return that is a multiple of the Inverse ETF.

Money Market Funds

Safety and high liquidity—invests in short-term debt instruments, check writing privileges.

GNMA Bond Funds

Safety and income are key—invests in mortgage-backed securities backed by the federal government—interest-rate, extension and prepayment risk.

U.S. Treasury Funds

Safety and preservation of capital: invests in T-Bills, T-Notes, T-Bonds, virtually default-free (the mutual fund shares are not guaranteed by government), interest—rate risk.

How often must a mutual fund issue updated financial statements to shareholders?

Semi-annually Updated financial statements must be issued semi-annually to shareholders. Annually, an audited report is sent to both the SEC and to shareholders. Broker-dealers must provide dormant accounts with quarterly account statements and active accounts with monthly account statements.

Municipal Bond Funds

Tax-free income at federal level (and possible state and local)—invests in portfolio of municipal bonds, recommended for investors in higher tax bracket.

Keoghs Plans

The employer contribution is 100% vested to the employee when it is made. No vesting schedule is permissible. Keogh plans are available to self-employed individuals and their employees. Contributions are tax deductible to the employer; employees may not contribute to the plan.

Earnings before interest and taxes (EBIT)

The operating income is gross margin minus the operating expenses. Non-Operating Income is the income earned on items like bank accounts or investment accounts. When non-operating income is added to operating income, the result is total income, or earnings before interest and taxes (EBIT).

Why are support and resistance levels important to a technical analyst?

To help the investor determine what type of trade to place

open-end management company (mutual fund)

engages in forward pricing

call option

gives the buyer the right to buy stock at a stated price.

put option

gives the buyer the right to sell stock at a stated price

Interactive communications

involve real-time dialogue with third parties, such as comments made to a post on a Twitter feed. This content does not require approval prior to use if it follows the firm's written supervisory procedure

Regulated investment company (RIC)

is a corporation eligible under Subchapter M of the Internal Revenue Code to pass at least 90% of its "Net Investment Income(NII)" to its shareholders in order to avoid being taxed at both the investment company and shareholder levels. The process of a RIC passing the income tax liabilities through to the investor is referred to as the Conduit or Pipeline Theory. NII is composed of dividends + portfolio interest - (minus) expenses.

Dealer

is an entity trading for its own account, acting in a principal capacity, which involves risk. A firm acting as a principal, trading for its own account, and who charges a mark-up on purchases or mark-down on sales instead of being paid commission

Family of funds

is best described as the same investment company that offers various mutual funds with different investment objectives. Exchanges or switches within a fund family are typically done at NAV but are considered taxable events by the IRS if done in a non-qualified account.

Capital Asset Pricing Model (CAPM)

is used to determine the required rate of return(RRR) of an asset or portfolio, factoring in any risk taken above the risk-free rate. In addition, CAPM includes the Beta of that security in the calculation. Remember, Beta measures the non-diversifiable or systematic risk of that security. From this calculation, an expected or required rate of return is derived for a security with the additional amount of risk. The exam typically considers the T-bill rate as the current risk-free rate.

Blend/Core Funds

its primary focus it Capital appreciation with a mix of value and growth stocks.

Net Working Capital(Working capital)

measures a company's liquidity, efficiency, and overall financial health. It is the amount of money a company has for its operations after using current assets to pay current liabilities. Net Working Capital = Current Assets - Current Liabilities

capital gain distribution

occurs when the fund manager sells securities in the portfolio for a profit and then shares the profit with fund investors. According to the Investment Company Act of 1940, a fund can only pay out capital gain distributions on an annual basis. Capital gain distributions are considered long-term and are taxable to the investor in the year received at preferential rates, usually 15%. The holding period is based on the fund's holding period for the underlying security, not the investor's holding period on the fund shares. When a fund manager sells securities in the portfolio for a profit and has held them for 1 year or less, these short-term gains are passed on to the investors as ordinary dividends.

All of the following regarding institutional money markets are true, except:

$1.00 NAV "Retail money market funds transact at a stable NAV of $1.00." Institutional funds have a floating NAV that will fluctuate. Money market funds are often structured to fit various types of investors. Some funds are intended for the retail investor, while others are intended for institutional investors. Retail accounts can only be held by individual investors while institutional accounts can held by larger investors, such as small businesses, corporations, and pension plans. One key difference between retail and institutional accounts is the minimum investment required at account opening. The minimum investment for an institutional money market fund could be as high as $25,000,000. Retail money market funds transact at a stable NAV of $1.00. Institutional funds have a floating NAV that will fluctuate.

A mutual fund prospectus is good for how many months?

16 months

All portfolio earnings from a mutual fund paid out to an investor is in the form of:

A dividend, Regardless of what a mutual fund portfolio invests in, an investor who purchases a mutual fund acquires common shares of the fund; therefore, all earnings are paid out to the investor in the form of a dividend. Dividend distributions are taxable in the year they are paid to the investor. Mutual fund dividends can be qualified or ordinary. "Qualified dividends" are taxed at long-term capital gains rates. "Ordinary dividends" are taxed as ordinary income.

Broker

A firm acting as an agent, executing orders on behalf of customers, and who gets paid commission.

Which one of the following is an investment company?

A mutual fund An investment company is an entity, such as a corporation, trust, or partnership that issues securities and engages in the business of investing, reinvesting, owning, holding, or trading securities. Investors pool their money to collectively purchase a portfolio of securities which offers instant diversification. An open-end investment company is more commonly known as a mutual fund, so the two can be used interchangeably.

Reduced Sales Charges

A mutual fund may offer reduced sales charges as an incentive to investors who purchase Class A shares. To obtain a reduced sales charge, an investor may be required to make a minimum purchase, but the larger the investment, the greater the reduction in sales charge. The reduction also applies if the investor has combined assets in the fund family that meets the same thresholds through total purchases in various other accounts, such as shares of the fund owned in a qualified retirement plan, having an account with other family members, or investing in several funds in the same family (complex). The qualifying purchases must meet uniform requirements applicable to all retail customers, known as breakpoints or rights of accumulation. For a mutual fund to charge the maximum sales charge of 8.5%, both breakpoints and rights of accumulation must be offered to investors.

The policyholder on a variable life policy may do all of the following, EXCEPT:

Add additional riders without additional premiums The policyholder can select from different time periods to pay his premium to the insurer. Premiums can generally be paid according to the following modes: monthly, quarterly, semiannually, and annually. A policyholder may cancel the policy within 10 days after receiving it or within 45 days after the application was signed, whichever occurs last, and receive a full refund of the premiums. Many variable life policies can be exchanged for a fixed benefit whole life policy. Additional benefits or riders are optional and many require an additional premium. The most common riders are: disability benefit, purchasing additional insurance, and term riders. The accelerated death benefit rider is offered free of charge but when utilized there is normally an administrative fee and interest rate charged.

When must a mutual fund make payment to a customer requesting redemption?

An investment company is required to send payment to a customer within "7 calendar days" of the redemption request. IS NOT BUSINESS DAYS IS CALENDAR DAYS

What happens if an annuitant needs access to contract values due to a disability or nursing home confinement a couple of years after the policy was issued?

Annuity funds can be withdrawn free of any surrender charges A common provision in an annuity contract is the waiver of surrender charge. This provision will waive or reduce the surrender charge penalty if the annuitant needs access to the annuity funds due to a disability or confinement in a nursing home.

Life Income Period Certain

Annuity income is payable for life, or for a specified period of time, whichever is longer. If the annuitant lives beyond the stated period, benefits continue for the life of the annuitant. If the annuitant dies prior to the end of the period certain, a beneficiary receives the balance of the payments for the remaining time period.

Life Income with Refund

Annuity income is payable for the lifetime of the annuitant. Upon death, if an annuitant has not received an amount equal to the total of all payments made into the annuity (not the growth), the balance is refunded to the beneficiary, either in a lump sum cash refund, or in installments.

Joint and Last Survivor

Annuity income is payable to 2 named annuitants (in one check) while both are living. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount or reduced to 2/3 or 1/2 for the survivor's income until the survivor dies. These options may be referred to as Joint and Full Survivor, Joint and 2/3 Survivor, or Joint and ½ Survivor.

Rule 147 (Intrastate Offering)

Another exempt transaction is an offering made to investors in only one state. It is known as a Rule 147 Intrastate Offering. Issuers using the exemption under Rule 147 must meet all the following requirements: 80% of the issuer's gross revenues must come from business activities within the state; 80% of the issuer's assets are located within the state; 80% of the net proceeds from the offering must be used within the state; A majority of the issuer's employee's must be based within the state. Securities purchased under Rule 147 may not be sold outside of the state for "6 months". The appropriate disclosures must made to purchasers on the limitations of resale. Certificates must be marked with the appropriate legend stating any restrictions. These securities still must be registered under blue sky laws.

Balance Sheet

Assets and Liabilities are found in this sheet

Which of the following must be registered under the Securities Exchange Act of 1934? I A common stock IPO II A variable annuity subaccount III Broker-dealers IV A universal life policy

Broker-dealers, Because: The Securities Act of 1934 focuses on trading in the secondary market, including the registration and regulation of securities exchanges and broker-dealers. New issues of securities must be registered under the Act of 33 and traditional insurance is not registered as a security. Variable contracts are regulated under the Securities Act of 1933, the Investment Company Act of 1940. the Investment Advisers Act of 1940, as well as state insurance laws, rules and regulations.

Nonqualified retirement plan

Contributions to nonqualified plans are nondeductible. However, earnings grow "tax deferred". Nonqualified plans may "discriminate"(only available to select group), and taxable withdrawals from retirement plans are always taxed at ordinary income rates; not capital gains rates. Also these plans are often much cheaper to administer and provide employers with much more latitude on the design of the plan. These nonqualified plans may lose most of the tax advantages afforded to the employer/employees under a qualified plan.

The following are included in current liabilities, EXCEPT:

Debentures, Because they are a type of bond, and are carried on the balance sheet as long-term debt. This are included: Accrued interest, Accrued expenses, Notes payable

Equity Income Funds

Dividend income primary, typically preferred stock, dividend paying large-cap companies, energy, utilities.

Why would an investor buy an "Asset backed security (ABS)"?

For a higher interest rate, (ABS) are a form of pooled fixed income investment. They were created to take advantage of higher interest rates of other types of debt. Often auto loans, credit card debt and home equity loans are used in the pool. Often, a bundle of loans is divided into separate securities with different levels of risk and returns. Payments on the loans are distributed to the holders of the lower-risk, lower-interest securities first, and then to the holders of the higher-risk securities.

NAV + Sales Charge (in dollars) = Public Offering Price (POP)

For example: If the NAV is $9.15 and the sales charge is $0.85, the POP is $10. ($9.15 + $0.85 = $10.00)

Corporate Bond Funds

Higher risk than U.S. government and Municipal bond funds—invests in corporate debt instruments. High Grade Bond Fund - Investment grade, lower risk, lower yield. High Yield Bond Fund - Speculative (junk bonds), higher risk.

DNR (Do Not Reduce)

If any person has an open order placed below the market (open sell limits or open buy stops) and the orders are marked DNR (Do Not Reduce), the customer does not want their orders reduced on the ex-dividend date by the amount of the cash dividend.

Jane, a 25-year-old customer service representative, would like to invest in a mutual fund that would afford her the ability to invest in the market as a whole with the lowest possible cost. Which of the following funds would be the most suitable for her investment?

Index Fund, In this question our investor, Jane, wants to invest in the 'market as a whole' and pay little in costs. Index funds traditionally mirror a particular index (for example, the S&P 500), and they act as a benchmark for the overall performance of the market. In addition, index funds are passively managed (the fund traditionally will only change securities in the portfolio when the actual index changes securities.) Therefore, the expenses of the fund are lower than actively managed funds.

Interval shares

Interval funds are registered closed-end management investment companies but do not have the same characteristics as traditional closed-end funds. Instead of offering a fixed number of shares during an IPO, these funds are permitted to continuously offer their shares based on the fund's NAV. Interval fund shares typically do not trade in the secondary market. The fund periodically offers to buy back, or repurchase, its shares every 3, 6, or 12 months as stated in the prospectus. Shareholders are not required to accept these offers, which are called tender offers. Interval funds are classified as closed-end funds because the shares are not redeemed daily.

Inverse ETF's

Inverse ETFs use derivatives to receive a return from the opposite, or inverse, move of an underlying index. For example, the S&P 500 Inverse Fund will make money when the S&P 500 goes down in price. This strategy is used instead of shorting stock in a margin account. They are often referred to as "short" funds. The use of derivatives adds to the expense and riskiness of these funds.

Inverse Leveraged ETFs

Inverse Leveraged ETFs use a combination of leverage and the inverse fund concept. These are often called "ultra short" funds, since they are trying to obtain a return that is a multiple of the Inverse ETF.

Which of the following are considered a Management Investment Company under the Investment Company Act of 1940?

Management investment companies, including open-end (mutual funds) and closed-end management companies, face amount certificates, and unit investment trusts are types of investment companies. Banks, insurance companies and broker-dealers are financial intermediaries that sell investment company securities such as mutual funds and UITs. They are "NOT INVESTMENT COMPANY" Don't confuse the financial provider with the product.

Which of the following describes the reason dealers are unable to sell open-end funds on margin?

Mutual fund share purchases are always new issues and are ineligible for margin according to the Exchange Act Open-end funds are in continuous issuance, which is a fancy way of saying they're always in IPO mode. The Exchange Act forbids underwriters, including mutual fund dealers, from selling new issues on margin until 30 days have elapsed from the end of the offering. Since mutual fund offerings never end, they are always subject to this restriction.

Asset Allocation Funds

Objective to protect investor against significant losses by dividing the portfolio (allocating a % of investment) among stocks, bonds, and cash.

When the NAV and POP are given, the sales charge dollar amount is calculated as follows:

POP - NAV = Sales Charge For example, if the POP is $10 and the NAV is $9.15, the sales charge is $0.85.

Calculating POP when the NAV and sales charge percentage are given:

POP = NAV ÷ (100% - Sales Charge %) For example, if the NAV is $9.15 and the sales charge is 8.5%. POP = $9.15 ÷ (100% - 8.5%, or 1 - 0.085) or 0.915 = $10.00

Variable Life

Premium Deductions Administrative fees State premium taxes Sales charges (maximum 9%) Separate Account Deductions Expense risk fee Mortality risk fee Investment management fee also is required to send an annual statement to the policyholder detailing the contract's current death benefit and cash value.

Growth & Income (Blended) Funds

Provide diversification by investing in different asset classes (stocks, bonds, money market instruments, and cash) Asset allocation and target date funds may rebalance or shift portfolio mix to adjust for investment needs

Bond Funds (Fixed-Income)

Provides current income—portfolio of a variety of debt securities, investor does not own bonds, but common stock of bond fund, interest passes through as a dividend.

An investor places an order to liquidate shares of the ABC Closed-End Fund on Monday, at 3:23 p.m., Eastern time. What price will most likely be received?

The current bid price of the fund at the time the order was placed Because Closed-end fund shares are not redeemable; investors liquidate them by selling them in the secondary market. When selling shares, investors receive the current bid price.

Reduction for Qualifying Groups

The customer may NOT be an investment club. The investor has to be a single individual or a fiduciary, legal entity such as a corporation, a married couple in a joint account, or a parent and minor child.

Options

There is only 2 types of contracts they are puts and calls. Option is a legal financial contract between two parties, the option writer (seller) and the option holder (buyer). Options exist on stock, bond yields, bond prices, stock market indices, and foreign currency. For the Series 6, assume an option is on stock unless the question stipulates otherwise. An options contract gives the option holder the right to buy or sell 100 shares of a specific stock at a predetermined price (the strike price) for a specified time period. The option writer sells the contract to the option holder for a premium and is obligated to fulfill the terms of the contract (either buy or sell the specific stock) as exercised by the holder.

Shareholder approval(Shareholder Voting rights)

They can vote for: -Changes in the investment objectives and policies -Charge or increase 12b-1 fees -Change in sales loads -Make loans -Change in business structure (no longer be an investment company) -Change in type of management company (open-end to closed-end) -Change in diversified / nondiversified status -Change in administrative fees or ratify selection of independent auditors -Issue or underwrite securities of other entities -Purchase or sell real estate Additionally, shares vote to elect the board of directors and approval of the renewal/termination of the fund manager and underwriter.

Why would an investor choose a leveraged ETF?

To increase returns on a short-term basis. Leveraged ETFs use derivatives and bonds to magnify the returns of an underlying index. Leveraged funds can be used as an alternative to margin which also takes advantage of borrowed money to increase returns. These funds have higher costs and risk. Leveraged funds are used for short-term investing.

What correctly states the maximum amount that a mutual fund is allowed to have in debt from borrowed funds?

Up to 1/3 of net assets By law, a fund must have assets of at least 300% of its liabilities (the amount owed by the fund). Therefore, the maximum amount the fund can borrow is 1/2 of its net assets since borrowed funds are then added to the total net assets. Example: A fund with $300,000 in net assets can borrow $150,000. That will bring their total assets to $450,000 and debt is $150,000 or 3:1 asset to debt ratio.

Beta

Volatility is the frequency and size of fluctuations in a security's value compared to changes in the overall market. Volatility is measured in terms of beta. Beta describes the likely movement of a security compared to the market. A beta of 1.0 indicates that the security has about the same volatility as the overall market A beta greater than 1.0 indicates a security is more volatile than the overall market A beta of less than 1.0 indicates a security that is less volatile than the market

A broker-dealer must tape record all conversations conducted by its entire sales force:

Whenever a broker-dealer's sales force contains a specified percentage of registered representatives formerly employed at a broker-dealer that was expelled from membership in an SRO or whose SEC registration was revoked, the broker-dealer must tape record all conversations conducted by its entire sales force.

Conversion privilege

a client has two years to convert assets in a "variable life policy" to a "whole life contract". The conversion privilege is designed to give customers who discover they are uncomfortable with the complexities of a variable contract the ability to change their policies into a simpler form of insurance.

Mutual fund - POP & NAV

a mutual fund POP cannot exceed the NAV by more than 8.5% of the POP. If the POP exceeds the NAV by more than 8.5%, assume the fund is closed-end, since closed-end shares trade in the secondary market

What are the categories "assets" are separated into?

are defined as what is owned by the company and are listed in order of liquidity (how quickly they can be turned into cash). Assets are separated into 3 categories: current, fixed, and intangible assets. Fixed and intangible assets are considered noncurrent assets. Current and noncurrent assets comprise the total assets on the balance sheet.

Bond Funds (Fixed Income Funds)

are mutual funds that seek "current income" and can invest in a variety of debt securities, including bonds issued by corporations, municipalities, and/or the U.S. government. Interest paid on bonds in the portfolio will be passed through to investors in the form of a dividend, since investors own common stock of the bond fund.

Interval funds

are registered closed-end management investment companies but do not have the same characteristics as traditional closed-end funds. Instead of offering a fixed number of shares during an IPO, these funds are permitted to continuously offer their shares based on the fund's NAV. Interval fund shares typically do not trade in the secondary market. The fund periodically offers to buy back, or repurchase, its shares every 3, 6, or 12 months as stated in the prospectus. Shareholders are not required to accept these offers, which are called tender offers. Interval funds are classified as closed-end funds because the shares are not redeemed daily.

Alpha

is a measure of return performance against a specific benchmark. It is often used to gauge the results of a mutual fund manager. For example, a Large Cap Mutual Fund manager's year-end performance for the fund will be matched up against a Large Cap index and how it performed. If the index had an 8% return and the manager had an 11% return, the manager has provided value with the positive alpha of 3 points over the index. A manager could provide negative alpha also. This would take place when the manager's return is below the relative index.

Market analysis(Technical analysis)(Chartists analysis)

is a method of analyzing the value of securities by studying historical prices, price movement, and the trading volume of a specific security. The tools used, various charts where price data and volume are plotted on a graph over time. Historical price data that has been plotted, recorded and charted begins to form patterns and trends. These specific patterns and trends are used to predict short-term price levels for stocks usually no more than 6 weeks in the future. They believe that history will always repeat itself in the price trend of a stock. They also use trendline which illustrates the price movement of a security by placing the price changes on a graph. This will show analysts where the support and resistance levels are for a specific stock. Support, resistance, and breakout are technical analysis terms that are used to forecast the future price movement for specific securities or entire markets based on their trendlines.

Assumed interest rate(AIR)

is an arbitrary benchmark number expressed in percentage terms that is used by the insurance company to project the rate of growth of the separate account during the contract's payout period. Remember, once the contract is annuitized, the insurance company owns the assets. The AIR is simply one of the factors used in determining the amount of the "initial payment".

Non-Systematic risk

is another term for individual security selection risk; the risk that the security purchased loses money even though the rest of the market is doing well. When someone has high concentrations of one stock in their portfolio, they expose themselves to this risk. Non-systematic risk is easily reduced through diversification of a portfolio. As the old expression goes, "don't put all of your eggs in one basket." EX: John has 40% of his 401k invested in his company's stock. He has no other savings. He is exposed to Non-Systematic risk

FINRA's Mediation Program

is designed to settle disputes between member firms, and between members and their customers. This process is a lot more flexible than the traditional arbitration process, which often leads to a resolution which may be fraught with resentment by the losing party. Through mediation, which may run concurrently with an arbitration proceeding, the parties can compromise and find a middle ground unavailable through arbitration. In addition, no one can be forced in mediation. Both parties must agree to it.

Static content

is posted for longer periods and does not involve real time conversation. This content must be approved by the principal prior to use and may be required to be filed with FINRA.

Income Statement

items include: "Gross Sales" are any sales that have been logged and billed. Returns would be any purchased goods that have been returned for credit. These are deducted from gross sales. Cost of Goods Sold is the cost of producing a finished product, including: labor, materials purchased, freight and transportation, and any other costs of manufacturing of the goods that were sold. This does not include depreciation. Gross Margin is found by subtracting the cost of goods sold from the net sales number. Gross margin shows how much the amount received for the sale of a product exceeded the basic cost of producing it.

An investor is interested in the XYZ Mutual Fund. XYZ has a sales charge of 8.5% that reduces to 7.5% on purchases of $15,000 and to 6% on purchases of $25,000. The investor signs a letter of intent for $25,000 and makes an initial payment of $5,000. During the term of the LOI, the investor invests an additional $15,000 and at the termination date, the value of the account is $25,500. The underwriter:

must requests an additional $300 since the requirements of the LOI have not been satisfied Because: 7.5% - 6% = 1.5% $20,000 invested x 1.5% = $300 additional sales load due. If the investor chooses not to remit $300, the underwriter will use the investor's escrowed shares to satisfy the additional sales charge. If the customer DOES remit $300, the escrowed shares will be released into his account.

Capital Preservation

primary goal is to prevent loss of an investment's total value, usually through money market funds. Risk tolerance is very conservative. Also if the rate of return is less than inflation, an investor's purchasing power will be reduced. This is more for a person close to retirement or in retirement already

Closed-end fund

shares trade in the secondary market like stocks and are subject to intraday pricing driven by market demand. Unlike mutual funds, which only issue common stock, closed-end management companies may also issue preferred stock and bonds. Both open-end and closed-end management companies may invest in any security that meets the objective of the fund; common stock, preferred stock, bonds, money market instruments, and cash. are often referred to as publicly traded funds.

Sales literature

that includes investment company performance data is limited to quotations of: -The average annual total return and after-tax return for 1, 5, and 10 years, or since the inception of the fund if less than 5 or 10 years -Current yield -Tax-equivalent yield