Series 66 (1)

The death benefit of a variable life policy must be calculated at least:

The death benefit must be calculated annually and the cash value monthly.

Distributable Net Income includes:

dividends and interest plus capital gains that have not been reinvested into the trust

The classic definition of the Dividend Growth Model is

"a stock valuation model that deals with dividends and their growth, discounted to today".

Under the USA, an agent is:

"any individual other than other than a BD that represents a BD or issuer in effecting or attempting to effect purchases or sales" -Only individuals can be agents -a person who sells for a BD is an agent -an administrative person who is considered an agent if they take securities orders from the public

The current yield on mutual funds is calculated by

dividing the annualized yield by the POP. In calculating the current yield, the law prohibits the inclusion of capital gains and growth.

The NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, requires an adviser who does not have custody of customer funds or securities but has discretionary power over customer accounts to have a minimum net worth of

$10,000

Willful violations under the Investment Advisers Act of 1940 may result in

$10,000 fine. A prison term of up to 10 years. Being barred from association with any investment adviser.

The current gift tax exclusion (2017) is

$14,000 per donor to each recipient. A married couple can give $28,000 to a single individual and qualify for the exclusion. In this case, the married couple can give $28,000 to their son and $28,000 to their daughter-in-law without paying any gift tax.

Sharpe Ratio

(Actual Return-RF)/ SD

Order tickets

do not include the name of the customer. The account number is the appropriate identifier.

Under the CAPM

, using the SML, we can determine the expected return of any given stock by taking the risk-free rate and adding to that the product of that stock's beta coefficient and the difference between the expected return on the market and the risk-free rate. Standard deviation is not a factor in this computation. CAPM is built on the theory that investors must receive a return commensurate with the amount of risk taken over a specified period of time.

Family balance sheet will include:

-Jewelry -loans secured -and balances outstanding -expenses already paid for are not included

Life Annuity/Straight Life/Pure Life

-annuitant recieves periodic payments over his lifetime -at death the deal is terminated

Coverdell ESAs

-contributions are not tax deductible -limited to 200 per year per recipient

Whole life insurance (also known as permanent or cash value insurance)

-coverage begins on date of issue and continues until the insureds death -benefit payable is the face amount of the policy, which remains constant through the policys life -premium remains level

Agents changing employers from one BD to another must:

-have their registration transferred immediately -the new and previous employers must notify the administrator as well as the agent himself

Universal life

-policy owner may increase or decrease the death benefit -flexible premium payments -cash value has a guaranteed minimum

Term Insurance

-protection for a specified period -provides pure protection and is the least expensive form -dont accumulate cash value -pay the death benefit only if the insured dies within the term

Under the USA a purchaser may void a securities transaction if:

-the trade is contrary to the provisions of the act -civil liabilities apply -the purchaser must be paid the original cost plus 6% interest and any attorneys fees

Under the investment advisers act of 1940, an sec registration application as an investment adviser must be granted, or a proceeding must be initiated denying registration within?

45 days

Under the USA, a registered person has up to

60 days to appeal any disciplinary finding by the state Administrator.

Under current regulations, the maximum sales charge permitted over the life of the policy is:

9%

The Annual Update to Form ADV must be filed by a registered investment adviser no later than

90 days following the adviser's fiscal year-end (which may happen to be a calendar year).

matched orders

A "matched order", sometimes known as "painting the tape", is defined as when trades are coordinated for the purchase or sale of a security. Essentially an order is placed with the knowledge that another order (or orders) of substantially the same size, at substantially the same time, and at substantially the same price, has been or will be entered. The effect is to cause an appearance of market activity and price movement that is not market driven.

the following are required for an initial application for registration as an investment adviser?

A consent to service of process. A fee. Disclosure as to whether the applicant will have discretionary powers over client funds and/or securities. Disclosure as to whether the applicant will have custody of client funds or securities

One problem facing agent and client alike is determining how much life insurance is necessary to meet future needs. One tool that is useful for making that determination is a:

A life insurance capital needs analysis takes into consideration the future needs of the insured and family and then factors in how much needs to be filled in by life insurance.

renewable level term

A life insurance policy where the premium increases each time the policy is renewed while the face amount remains level Level term insurance offers a fixed face amount over the life of the policy. If the policy is renewable, the owner has the ability to renew it for that same face amount and the new term, but at new, higher premiums as the insured's age increases.

Complex trust.

A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Only a complex trust allows the two features which she demands. Simple trusts may not make charitable contributions, and provide no discretion on income distribution. The two types of charitable trusts mentioned provide no ongoing discretion as to when income is distributed or who the beneficiaries are.

Irrevocable Life Insurance trust (ILIT)

A professional tennis player seeking advice regarding the purchase of life insurance would like to avoid inclusion in her taxable estate at death, and would like the death proceeds to be income tax free to her beneficiary 9-year-old daughter. What do you suggest? Use an Irrevocable Life Insurance trust (ILIT) to purchase the policy. She will gift the premiums to the trust. Only an ILIT can provide the features which she desires. A direct purchase will subject the proceeds to inclusion in the gross estate if she transfers or gifts the policy to the daughter within 3 years before she dies. A sale will trigger transfer for value rules and subject the beneficiary to income tax on the proceeds upon the death of the insured.

REIT

A real estate investment trust (REIT) is an investment that makes direct investments in real estate, generating its income from renting the property (e.g., apartments, shopping malls) to lessees. Alternatively, it can make mortgage loans and generate income from them. Depending on its distribution of income, it may qualify for the same type of special tax treatment as a regulated investment company. REITS are not flow-through vehicles as are DPPs.

viatical settlement

A viatical settlement is the sale of a life insurance policy to a third party (the investor). The owner (viator) of the life insurance policy sells the policy for an immediate cash benefit. The buyer becomes the new owner of the life insurance policy, pays future premiums, and collects the death benefit when the insured dies. At one time, most viatical settlements were from people with a life-threatening illness. Now, individuals who are not facing a health crisis may sell their life insurance policies to get cash.

statements concerning the books and records of an investment adviser under the Investment Advisers Act of 1940

All books and records required to be maintained-including investment letters, advertisements, or other communications to ten or more persons-must be preserved in a readily accessible place for five years from the end of the fiscal year in which they were created or communicated. For the first two years they must be maintained in the appropriate office of the adviser. The adviser remains responsible for the preservation of the records for the period required after ceasing business, generally three years, and must notify the SEC of their exact location.

Withdrawal of registration as an Agent

Although the normal time for withdrawal of a registration is the 30th day after filing the Form U5, the Administrator has the jurisdiction to shorten that period if circumstances warrant it.

Many investors use trusts to avoid probate. However, not all trusts are designed to do so. Those that would avoid probate include

Although there can be exceptions, especially when the trust document is poorly written, in most cases, assets in an irrevocable trust, a revocable trust, and a living trust (generally, the terms revocable trust and living trust mean the same thing) avoid probate. A testamentary trust, which goes into effect after death, does not avoid probate.

exculpatory provision

An exculpatory (culpa meaning fault) provision is never acceptable in an investment advisory contract. Its purpose is to exclude officers and directors from liability for disregard of their duties. This might also be phrased as the client waiving his rights, and is also not permitted.

According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must describe all of the following

An investment advisory contract is not required to disclose securities industry violations by the investment adviser. These must be disclosed, however, in Form ADV. The investment advisory contract must include the amount of prepaid fee to be returned if the contract is terminated, the fact that assignment of the contract cannot occur without client consent, and the fact that the agreement does or does not contain discretionary authority.

Definition of a security

An investment in a common enterprise for profit with management by a third party

Dollar Cost averaging

An investor puts the same amount of money each interval buying more shares when prices are low and less shares when prices are high.

alternative minimum tax

The excess of the alternative tax over the regular tax is added to the regular tax amount. The taxpayer does not have the option of paying the alternative tax or the regular tax depending on his tax bracket. The purpose of the alternative minimum tax is to ensure that certain taxpayers pay a tax consistent with their wealth and income.

Market Cap generalizations

The general consensus is that companies with a market capitalization between $300 million and $2 billion are considered small-cap. Less than that is micro-cap; larger is either mid-cap or large-cap.

Registration by filing:

The issuer must be in business for the past 3 years and profitable for 2 of those years -used most likely for a secondary offering from an established company

selling away

in the U.S. securities brokerage industry is the inappropriate practice of an investment professional (such as a registered representative, stockbroker, or financial adviser) who sells, or solicits the sale of, securities not held or offered by the brokerage firm with which he is associated (affiliated).

Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that:

Contracts between funds and their advisers may not be terminated with more than 60 days notice and these contracts must be in writing. The initial contract is for a 2-year period and then renewed on an annual basis. Whether the fund can trade on margin is not a function of the management contract.

Whether a state or federal covered investment advisers, a copy of the IA's brochure, assuming there have been material changes, must be sent to all clients

no later than 120 days after the close of the IA's fiscal year.

Traditional whole life policy

offer guaranteed cash values and death benefits. the insurer assumes the investment risk by promising a fixed rate of policy return, regardless of investment performance.

discounted cash flow (DCF) techniques?

Both net present value (NPV) and internal rate of return (IRR) take the time value of money into account.

State Blue Sky laws provide for registration of:

Broker dealers Agents IAs IA reps

A testamentary trust

one that is created in the grantor's will ("last will and testament") and that does not become effective until the grantor dies. A trust expressly created during the grantor's life is a living trust.

Under what circumstances may an Administrator cancel the registration of an agent?

Cancellation is a form of non-punitive termination. If an agent dies, is declared mentally incompetent, or mail is returned with no forwarding address, registration will be canceled.

A registrant's registration may be canceled by the Administrator:

Cancellation is non-punitive - nothing wrong was done. But, when the Administrator is unable to locate the registrant, or the registrant is declared mentally incompetent or is deceased, registration is canceled.

Registration statements for securities under the Uniform Securities Act are effective for:

one year from the effective date.

Rule 501 of the Securities Act of 1933 creates a category of person known as an accredited investor. Included in that definition would be all of the following

pension plans. banks. insurance companies.

covered account

In general, business accounts are not included in the term covered account. There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. That is unlikely to be the case with a listed company.

A banner on a broker-dealer's website is considered

In most cases, a broker-dealer's website is static. That is, only the firm can make changes and those changes are infrequent. Certainly a banner ad on the website fits that description. Entanglement and adoption are terms applying to a securities professional making use of third-party information on social media.

Current Yield

Dividend/ Price

An estate account with an investment adviser must be managed at the direction of the:

Estates executor or administrator

Under the USA, agent registrations expire:

Every agent, broker-dealer, investment adviser, and investment adviser representative registration expires each year on December 31.

Private Placement under the USA is:

For a private placement to remain an exempt transaction under the Uniform Securities Act, the offer may be directed to no more than 10 individuals during any 12-month period. Additionally, no commissions may be paid to agents of the offering broker on sales to noninstitutional buyers, and there must be reasonable belief that the purpose in buying the securities by noninsitutional clients is for investment rather than resale purposes. However, just as with any other securities purchase, payment must be made in accordance with industry standards.

Form ADV Part 2A

Form ADV Part 2A contains information regarding business activities and affiliations and an audited balance sheet, and it discloses how fees will be calculated. It does not contain the personal financial information of any partners, directors, or affiliates. If this were a federal covered adviser, the balance sheet is required when the substantial prepayments are more than $1,200.​

hich of these features are common to both variable annuities and scheduled premium variable life insurance?

Income earned in the separate account is tax deferred. Contract owners have voting rights. All variable products offer tax deferral of earnings in the separate account. Unit holders of a variable annuity vote on the basis of the number of units they own; holders of variable life insurance receive one vote for each $100 of cash value. With variable life insurance, AIR applies only to the death benefit, not to cash value.

Excluded from the definition of an IA:

IA reps depository institutions(Banks) BDs professionals who only give incidental advice publishers of general circulation -periodicals that dont give specific investment advice about specific client situations -federal advisors

Under the Securities Act of 1933, which of the following are accredited investors?

Insurance companies. Banks. Employee benefit plans with over $5 million in assets. Investment companies. Accredited investors are financial institutions, wealthy persons, and, for a particular issue, persons involved in the management of the issuer. Certain institutional purchasers such as banks, insurance companies, investment companies, and employee benefit plans that have total assets in excess of $5,000,000 are included in the SEC's definition. In addition, any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1 million, excluding the value of the primary residence, or has earned in excess of $200,000 in each of the past 2 years and expects to earn more than $200,000 in the current year ($300,000 for married couples) is an accredited investor.

the following are key assumptions of the Capital Asset Pricing Model (CAPM)?

Investors hold diversified portfolios Investors can borrow and lend at the risk-free rate There is a perfect capital market

Administrator jurisdictions

Jurisdiction rests with the Administrator of the state from which the offer was made (Georgia), where the offer was directed (Alabama), and where the offer was accepted (Mississippi).

The USA's three non persons

Just remember the three non-persons: minors, those who are deceased, and those declared mentally incompetent.

the following are characteristics of negotiable certificates of deposit

Minimum face value of $100,000. Maturities rarely extend beyond 360 days. May be sold on the secondary market. unlike no negotiable CDs

Premium Bond

Nominal Current YTM YTC

A mutual fund would have net redemptions when

One of the characteristics of an open-end investment company (mutual fund) is the ease of redeeming holdings. When the dollar amount of shares being redeemed exceeds that of those being purchased, the result is net redemptions. Although poor performance could lead to net redemptions, that is not always the case so it is not always a true statement.

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients:

Passing the exams does not automatically give one an effective investment adviser representative's license. Notice is received by the investment adviser from the appropriate state and/or federal authorities and then, in accordance with that firm's procedures, advisory activity may start. The Administrator does not have direct contact with the individual.

Which of the following is a possible advantage of scheduled premium variable life insurance over whole life insurance?

Possible inflation protection for the death benefit Scheduled (fixed) premium variable life has fixed, not flexible, premium payments. The distinguishing factor is the variable death benefit. The insured assumes more risk, not less, in exchange for the possibility that the death benefit will provide protection from inflation.

Under the Uniform Securities Act, Private placements

Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly. Such transactions are exempt from registration requirements. The fraud provisions apply to any person involved with the purchase or sale of a security, whether registered or exempt, and the prospectus delivery requirements apply to registered securities. Please note that when it comes to institutional clients, there are no numerical limitations on offers, no required holding period, and no restrictions on payment of commissions.

Under SEC Release 1A-1092, which three standards are used to define an investment adviser?

Provides advice, reports, or analyses concerning securities. Is in the business of providing securities-related advice or analysis. Receives compensation.

A state-registered investment adviser must keep business records available for examination by the Administrator:

Records must be preserved for five years. However, the Administrator may prescribe a different period for certain types of records. For example, when an IA's business closes down, partnership agreements or articles of incorporation must be kept for three years after the business has ended.

Regulation S-P

Regulation S-P deals with privacy of customer information for financial institutions. Regulation FD requires public companies to make full disclosure of material information to all investors at the same time.

Section 529 Plans

Section 529 Plan withdrawals are exempt from federal income tax if used for the right expenses. In almost all cases, if the plan is one operated by your state of residence, it will be exempt from your state's income tax. But, if you elect to contribute to a plan operated by another state, more than likely, any withdrawals will be subject to your state's income tax. Because the plans are state operated, the maximum contribution limits are set by each state.

Total Returns

Sum of all payments plus capital gains divided by the cost

Capital Market Line (CML)

The CML provides an expected return for a portfolio based on the expected return of the market, the risk-free rate of return, and the standard deviation of the portfolio in relation to the standard deviation of the market. The equation for the CML uses the: expected return of the portfolio risk-free rate return on the market standard deviation of the market standard deviation of the portfolio

In the Howey decision, the U.S. Supreme Court held that a security must represent:

The Howey decision defined a security as (1) an investment of money (2) in a common enterprise (3) where there is an expectation of a profit (4) through the efforts of a third party and not the investor.

Under the Securities Exchange Act of 1934, which of the following is (are) TRUE regarding the authority of the SEC to suspend trading?

The SEC may suspend all trading on a specific exchange for up to 90 days with prior notification of the President of the United States and may summarily suspend securities trading in a registered security listed on a stock exchange for up to ten days. The SEC does not have the authority to suspend trading in exempt securities.

Record Retention USA Vs. Investment Adviser

The Usa requires a record retention period set by the state admin The Investment advisers act requires a 5 year retention period

Which of the following best describes the death benefit provision of a variable annuity?

The death benefit insures that the investor will never receive back less than the original amount contributed to the account. Unlike life insurance proceeds, with annuities, anything above the cost basis is taxed as ordinary income.

Totten trust

The name comes from a 1904 decision in a New York case called In re Totten. The court ruled that someone could open a bank account as a trustee for another person, who had no right to the money until the account owner died. The account owner is the trustee, in control of money that will eventually go to the trust beneficiary, and could change beneficiaries as desired. But whether the arrangement is called a Totten trust or a POD account, the result is the same.

A wealthy individual has set up a GRAT. Should he die during the time the trust is active, how are the remaining assets in the trust taxed?

The original value plus any appreciation is taxed as part of the grantor's estate. One of the risks in setting up a GRAT is that if the grantor dies during the term of the trust (usually 2-10 years), the assets put in the GRAT, plus any appreciation, are included in his or her estate.

Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer?

The transactions are authorized in writing by the broker-dealer before execution of the transactions. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered contrary to the standards imposed for an agent to effect securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer before execution of the transaction.

Under the Securities Act of 1933, a registration statement for a security must be signed by:

The underwriter's signature is not required on a registration statement, but the chief executive officer, the chief financial officer, and a majority of the board of directors must all sign.

Exempt from registration as an IA:

They are defined as an IA but do not have to register in the state -any person with no place of business in the state whose only clients are other advisers, federal covered advisers, BDs, deposit taking institutions, insurance companies, investment companies, gov agencies, and employee benefit plans with at least 1 million -also exempt is any person with no place of business in the state with 5 or fewer clients in the past 12 months

qualified pension plans

They must not discriminate. They must have a vesting schedule. They must be in writing. Annually the employer must update the current status of all accounts.

moving averages.

To avoid the volatility frequently present in stock price trends, analysts will frequently use moving averages. These averages reduce short-term distortions to a minimum

All the following securities are bought at a discount

Treasury bills zero coupon bonds commercial paper

Net Present Value

Uses compound interest to discount future cash inflows and outflows to their net present value

There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:

commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

Discount Bond

YTC YTM Current Nominal

Net present value

a computation taking into consideration future cash flows, discounted to the present, and comparing that to the capital investment necessary to obtain those flows. It is always expressed in monetary units and, if positive, indicates a potentially worthwhile investment.

Treasury Bills are quoted at:

a discount from principal with no coupons attached

Market Maker

a firm that sells out of its own account or buys securities into its own account.

Federal covered IAs are:

advisers managing at least 25,000,000 of assets and investment advisers to investment companies. -advisers to insurance companies dont count since insurance companies are regulated at the state level only. -need only to register with the sec and not required to register with the state -may be required to file notice with the state

When registering a security under the Uniform Securities Act, the registrant must indicate all of the following

all other states in which the security is to be registered the amount of securities to be offered in the state adverse rulings by a court, regulatory authority, or the SEC with respect to the offering

The 457 Plan

allows participants to withdraw funds at any time, not just after age 59½, without incurring the 10% tax penalty. Income taxes would, of course, be due, but no penalty.

Under the Securities Act of 1933, the definition of a prospectus

an offer of a security made in a personal letter.

Structured products

are created as a tool to meet the issuer's debt financing needs when they will result in a lower cost than a standardized financial instrument available in the market place

Regulation D of the Securities Act of 1933

are private placements and, under the NSMIA, are considered federal covered securities.

two types of alternative investments

are the limited partnership investments sold as DPPs and hedge funds.

prudent investor

as expressed in the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.

The 4 unsystematic risks

business liquidity political regulatory

The Capital Asset Pricing Model (CAPM) is most commonly used to determine an investor's

expected return The CAPM suggests that we can determine the expected return of any security (or portfolio) by using the following mathematical formula: Er = Rf + Beta(expected return on the market − Rf). Er stands for expected return, Rf is the risk-free return.

Universal variable life policies are

insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Because they have a separate account, the investor assumes the investment risk. Unlike scheduled premium variable life, flexible premium (universal) variable life does not guarantee a minimum death benefit equal to the face amount of the policy.

Strategic asset allocation

involves the deployment of customer investment capital to meet long-term objectives, while tactical asset allocation is an active style using market timing.

A money purchase pension plan

is a defined contribution plan established by the employer, thereby making the contributions mandatory. Employee participation by making voluntary contributions to the plan is optional. Employees who contribute to the plan usually contribute a percentage of their income.

The computation of book value per share

is basically net tangible worth per share of common stock. Therefore, we subtract both the par value of the preferred stock and the value listed on the balance sheet for the intangible assets, such as patents.

The Form ADV-E (E for Examination)

is completed by every investment adviser who maintains custody of client assets. Then, the form is used by the independent accountant who performs the surprise annual examination of the adviser's records. The accountant is the one who submits the ADV-E to the SEC (or the state if appropriate).

Alpha

is the difference in the expected return of the portfolio, given the portfolio's beta and the actual return the portfolio achieved. The higher the alpha, the better the portfolio has done in achieving excess or abnormal returns. The risk of the portfolio associated with the macroeconomic factors that affect all risky assets is systematic risk. The portfolio's average return in excess of the risk-free rate divided by the standard deviation in returns of the portfolio is the Sharpe ratio or measure. The measure of the variance in returns of a portfolio around its average return is the standard deviation.

Alpha

is the extent to which a security's performance exceeds (or falls short of) what would be expected based on its beta. A stock with a beta of 1.4 would be expected to perform 40% better in an up market than one with a beta of 1.0. Because XYZ with a beta of 1.0 gained 12%, ABC should return 140% of that or 16.8% (12% x 1.4). With an actual return of 18.8%, ABC beat the expected by 2% and that is its alpha.

The expected return on an equity investment

is the risk-free (for example, T-bill) rate of return added to the equity risk premium (3% + 4% = 7%).

The discounted cash flow

is used to assess the value of a fixed income security is by looking at the future expected free cash flow and discounting it to arrive at a present value. This is basically nothing more than taking the income payments you are scheduled to receive over a given future period and adjusting that for the time value of money.

The Administrator has jurisdiction from the state in which an offer is:

made (ND), received (WY), and accepted (ID). Mailing of the certificate is of no consequence.

The specialist's role is to

maintain a fair and orderly market in the stocks in which he is appointed specialist. The term, "specialist" has been replaced with Designated Market Maker (DMM), but it is likely that specialist will be the term used on the exam.

universal life insurance

may include a minimum guaranteed interest rate. offers the policyowner exceptional flexibility in adjusting the premiums, cash value, and death benefit. there are two death benefit options.

Brochure rules

new customers of an IA must recieve the brochure at least 48 hours prior to entering into a verbal or written advisory contract existing customers must be given a brochure at least annually whether or not the advisor takes custody of customer funds

The hypothecation agreement

permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement.

The National Securities Markets Improvement Act

preempts state registration of covered securities. State administrators may not impose registration requirements on securities that are subject to federal regulation.

The capital asset pricing model (CAPM) is an investment theory that serves as a model for

pricing securities based on their systematic risk

An advisory contract must

prohibit assignment without the client's consent and must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated. In addition, it must describe the fee or the formula for computing the fee. Contracts would never contain information regarding the adviser's past performance.

401(k) plans

provide for hardship withdrawals, a choice of investment options, and employer matching

Term Insurance

pure insurance protection and builds no cash value

Reinvestment of mutual fund distributions has all of the following benefits

reinvestment of capital gains at NAV. reinvestment of dividends at NAV. compounding of returns.

The safe harbor requirements of ERISA Section 404(c)

relieve the trustee of a 401(k) plan of liability if the plan participants have the ability to select from at least 3 different investments and are allowed to make selection changes no less frequently than quarterly.

Portfolio rebalancing strategy

seeks to maintain a certain percentage of an original investments allocation

The credit agreement

sometimes referred to as the margin agreement, which contains all of the terms of the loan. In addition to explaining how the interest is charged and the right of the firm to liquidate collateral if a call for additional funds is not made, the credit agreement contains the terminology which authorizes the broker-dealer to use the value of the account as collateral for the margin loan made by the BD to the client.

Covered call writing

strategy where an investor sells a cal on a security that he owns to reduce the volatility of a stocks returns and to generate premium income

The doctrine of limited liability

that the owners of a corporation (the shareholders) are not personally liable for the corporation's debts.

Under the Uniform Securities Act, an investment advisory contract must contain (in writing) all of the following provisions

the adviser, if a partnership, must notify the client of any change in the partnership's membership. no assignment of the investment advisory contract may be made without the client's consent. the investment adviser's compensation shall not be based on capital gains in client accounts.

Any order ticket submitted by an agent for execution at a broker-dealer will always include

the agent's name and that of the BD. All order details must be listed, e.g. the number of shares, limit or market, etc. but the current market price is never included.

Under the Uniform Securities Act, any securities registration statement must include

the amount of securities to be offered in that state a list of the other states in which the security will be registered. a copy of the prospectus or offering circular. any adverse finding by any court, any Administrator, or the SEC. may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed.

Under the Uniform Securities Act, any securities registration statement must include:

the amount of securities to be offered in that state. a list of the other states in which the security will be registered. a copy of the prospectus or offering circular.

Investment advisory contracts must disclose

the duration of the contract and the terms by which prepaid fees are refunded to clients who cancel their contracts. Automatic assignment is never permitted.

The internal rate of return

the earnings rate required to reach a specified future value from an amount that is currently available to invest. This is a future value computation, but there is no such term as future value rate.

The entanglement theory means

the firm or its personnel is entangled with the preparation of the third-party post. A similar concept is that of adoption. This is when the broker-dealer explicitly or implicitly endorsed or approved the content posted by the third party.

A registration statement must contain

the identity of owners of more than 10% of the issuer's stock, an estimate of the proceeds and a description of the use to which they will be put, and the identity of the underwriter, amongst many other things. It must also identify all the issuer's officers and directors, their holdings of the issuer's securities, and their salaries. Since the description of the personnel manager does not use the term officer or director, this employee need not be identified in the registration statement.

Unit Refund Option for an annuity:

the insurer pays the annuitant a minimum number of payments, and at death, the survivor recieves a lump sum payment.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser may loan money to a client if:

the investment adviser is a financial institution in the business of loaning money. the investment adviser is also a broker-dealer. the client is an affiliate of the investment adviser.

Commercial paper may qualify as an exempt security if

the minimum denomination is $50,000, it has a maturity of not more than 270 days, and it is rated in 1 of the 3 highest rating categories by a nationally recognized rating agency.

The market capitalization is

the number of outstanding shares multiplied by the current market price per share and has nothing to do with the company's dividend policies.

Sector rotation

the practice of moving out of those industries that are heading for a decline and into those whose fortunes are likely to rise as the economy follows the business cycle

Notice filing.

the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.

In the federal regulations, the statute of limitations for a civil action is

the sooner of one year after discovery or three years after the action. Under the USA, it is the sooner of two years after discovery or three years after the action.

Under the USA, it is

the sooner of two years after discovery or three years after the action.

alternate valuation date

the value per share is the value at the date six months after death, unless the property is sold prior.

The purpose of SEC Release IA-1092 is

to clarify the definition of investment adviser in the Investment Advisers Act of 1940 and to clarify the types of activities that are subject to regulation.

Under the USA, all of the following are exempt transactions

transaction executed by a trustee in bankruptcy. unsolicited customer orders. isolated nonissuer transactions. Exempt transactions include isolated nonissuer transaction; transactions between an issuer and an underwriter; transactions by an executor, Administrator, sheriff, marshal, trustee in bankruptcy, guardian, or conservator; any sale or offer to a bank, savings institution, investment company, or other financial institution; and private placements.

3 versions of the EMH

weak semi strong strong

Registration by qualification is effective

when determined by the Administrator. Qualification is the only form of registration where the timing of the effective date is determined by the Administrator.