Series 65 Exam Prep

Index Annuity

*Earnings rate based on stock market index Usually have a floor, cap and participation rate. This is to help overcome inflation risk -tend to have lomger surrender charge periods

Lump Sum Withdrawals

Also uses LIFO Before 59.5 subject to 10% early withdrawal fee on the taxable portion

Taxation of Annuities

-contributions made with AFTER-tax dollars -interest, dividends, and capital gains taxes are deferred until distributions are made -anything exceeding the cost basis is taxed at ordinary income -exclusion ration: percentage of contribution basis to total -distributions to beneficiaries taxed as ordinary income

State Securities Registration Procedures

-ongoing reports to the administrator can't be required more often than quarterly

Definition of Investment Advisor

1. Provides investment advice, reports, or analysis with respect to securities 2. Is in the business of providing advice or analyses and 3. Receives compensation directly or indirectly for these services.

How Index Annuities are Credited

1. Annual Reset - compare index value at the end of the year to the beginning of the year 2.High-water mark - highest value reached by the index between anniversary dates is compared to the value at the beginning of the year 3.Point-to-point is when interest computed based on the value of the index at the end of the contract compared to the beginning

Dodd-Frank and Assets Under Management 3 Thresholds

Large Investment Advisors - $100M Plus eligible, $110 M AUM plus required Small-Less than $25 M is state unless they would be required to register in 15 or more state. Mid size - 25-100

Money Market

Money market may be defines as the market for buying and selling short-term loan able funds in the forms of securities or loans The buyer is the lender and the seller is the borrower Maturity of one year or less Many issued at a discount and not pay interest All considered safe but some more than others like a T bill is more safe than commercial paper

Zero-Coupon Bonds

More volatile than normal bonds

Client Referrals between IA and BD

Must be disclosed and make sure the services beign rendered for the RD cost reasonable amount

Exchange

Must be registered which is completed by filing an application with the SEC. This is accepted or denied in 90 days

Financial Responsibility Rules Under the Sec Exch Act of 1934

Must have enough net capital requirements

One respect in which the NASAA treats the handling of discretionary authorization by an IA different than that of the SEC is that

NASAA allows use of oral discretion for the first 10 business days after the date of the first transaction

Treasury Bills

Direct short-term debt obligations of the US gov. 4,13,26 weeks are issued every week. 52 week traded once a month -only treasury security issued at a discount

Custodian Banks for ADRs

Domestic branches of large commercials US banks issues ADRs. A custodian, typically a bank in the issuer's country, holds the shares of foreign stock that the ADRs represent.

Securities Amendments Act of 1975

Federal legislation that established the Municipal Securities Rulemaking Board. -Registration of Muni Securities dealers with the SEC

TIPS

Treasury inflation protection securities. These help protect investors against purchasing power risk. They are issued with a fixed interest rate but the principal amount is adjusted semi annually by an amount equal to the change in the consumer price. -5/10/30 years Real Rate of Return = Coupon Rate

Real Estate Investment Trust (REIT)

Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax. Dividends not considered qualified for tax purposes and are taxed as ordinary income

Convertible Bond

a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock -Only offered by corporations

Eurodollar bonds

dollar-denominated bonds sold outside the United States

Moving Average

attempts to modify the fluctuations of stock prices into a smoothed trend

Treasury Securities

governments with short terms also include treasury notes and bonds in their last year before maturity Advantages: 1. No credit risk 2.extremely highly liquid3. Interest exempt from state income tax

Assumed Interest Rate (AIR)

Rate of growth built into an annuity table which determines payout on a variable annuity

Liquidation Priority

Secured creditors (mortgage bonds, equipment trust certificates, collateral trust bonds) Unsecured creditors (general creditors including debenture holders) Subordinated debt holders Preferred Stockholders Common stockholders

Random Withdrawals on an Annuity

Taxed under LIFO

Escrow

The administrator may require the security to be placed in escrow if the security issued -within the past three years -to a promoter at price substantially different than the offering price -to any person for a consideration other than cash

Tax Equivalent Yield

the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. Tax equivalent yield= tax free municipal bond yield/ 1- tax rate

Agent

individual who represents broker-dealer Excluded are clerical and admin staff unless they take on security related functions

Life Insurance

insurance paid to named beneficiaries when the insured person dies

Fundamental Analysis

study of the business prospects of an individual company within the context of its industry and the overall economy

Variable Life Insurance Voting Rights

one vote per $100 of cash value For variable annuities and mutual funds its one vote per unit or share

Open-End Funds

Front end funds- difference between POP and net NAV Back end load - contingent deferred sales loads 12-b1 fees (asset-based fees, technically not a sales charge)

Indebture

The terms of the loan of a bond are expressed in the indenture. Also referred to as a deed of trust, states the issuers obligations to pay back a specific amount of money on a specific date

Divided Growth Model

This model assumes that the amount of the annual dividend will grow at a constant rate

For a bond, what does DEF5s35@106 mean?

This would mean a 5% coupon bond maturing in 2035 at a price of 106

Bond Issued at a Discount

YTC (Yield to Call) >YTM (Yield to Maturity)>Current Yield > Coupon (Nominal) Rate

Eurobond

bond issued outside the country in whose currency it is denominated -Not limited to European issuers

Foreign Bonds

bonds sold in a foreign country and denominated in that country's currency Advantage: 1. Potentially higher returns 2. Diversification 3.Hedging against a drop in value of the US dollar Disadvantage: 1. Currency Risk 2. Potentially higher risk of default 3. Generally less liquidity 4.Generally higher trading costs

Notice Filing

(1) Method by which a registered investment company and certain other federal covered securities file records with state securities Administrators. (2) SEC-registered advisers (federal covered) may have to provide state securities authorities (the Administrator) with copies of documents that are filed with the SEC and pay a filing fee. May require: 1. Documents filed along with their registration statements filed with the SEC 2. Documents filed as amendments to the initial federal registration statement 3. A report to the value of such securities offered in the stae 4. Consent to service of process.

Registration by Coordination

- same offering is being registered under Sec Act of 1933 - coordination with fed *becomes effective same time as fed

Bond Issued at a Premium

Coupon (Nominal) Rate> Current Yield > YTM>YTC

CDs

Deposit as little as $500 penalty from early withdrawal 3 months to 5 yers

Dividends vs. Capital Gains

Dividends either reported as ordinary income ro qualified with a max rate of 15% and capital gains must be reported as long term capital gains if they are long term

Common Stock

Equity ownership of a corporation

Fundamental Analysts

Evaluated broad based economic trends, current business conditions within industries, and the quality of a particular corporation's business or finances and management

No business in the state

Excluded from the definition of broker-dealer no office in the state and exclusively deal with issuers of the security, other broker-dealers, other financial institutions like banks, trust companies, isnurance companies, invets companies, employee beenfit plans with assets 1M and up -lisenced in the state where they conduct business

When must an advisor withdraw from the SEC

If an adviser reports on its annual updating amendment that it has less than $90 million under management and it is not otherwise eligible to register with the SEC, it must withdraw from SEC registration within 180 days of the adviser's fiscal year-end by filing Form ADV-W. The adviser could consult the securities departments of states in which it maintains offices or conducts business to determine the appropriate state registration requirements.

Right of Recission

If the seller of the securities discovers that a sale has been ade in violation of the USA, they can offer to repurchase the securities from the buyer. They must pay back the original purchase price and interest as determined by the Administrator

Breakpoint Sale

In mutual funds the dollar investment required to make the investor eligible for a lower sales charge. -Prohibited -attempting to make higher commissions by selling shares just below the point at which a sales charge is redcued

Emerging Markets

Markets in lesser developed countries Associated with: 1. Low levels of income 2. Low levels of equity capitalization 3. Questionable market liquidity 4.Potential restrictions on currency conversion 5. High volatility 6. Prospects for economic growth and development 7. Stabilizing political and social institutions 8. High taxes and commission costs for foreign investors 9. Restrictions on foreign ownership and on foreign currency conversion 10. Lower regulatory standards resulting in a lack of transparency

Breakout

Movement of a stock price out of an established trading range either above a resistance level or below a support level

Person

Only three nonperson(s) 1. minor 2. deceased 3. mentally incompetent

Control Person

Over 10% of voting stock

Rights

Preemptive rights entitle existing stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company offers them to the general public A rights offering allows these stockholders to purchase common stock below the current market price. The rights are values separately from the stock and trade in secondary market during the subscription period

Coupon Rate

Return/Investment

Registration Statement with the SEC for IPO

Signed by CEO, CFO, and the majority of the board of directors Contains the following infromation 1. Purpose of issue 2. Public offering price 3. Underwriter's commissions or discounts 4. Promotion expenses 5. Expected use of the net proceeds of the issue to the company 6. Balance Sheet 7. Earnings statement for the last 3 years 8. Names, bios of officer, directors, underwriters and stockholders who own more than 10% of the outstanding shares 9. Copy of underwriting agrrement 10. Copies of article of incorporation

Convexity

The curvature of the price-yield curve; Duration is linear When comparing two bonds, the one with the higher convexity will show a greater price increase when yield falls and a smaller decrease when prices rise If we find two bonds with the same duration. the one with the higher convexity offers greater interest rate protection

Net Capital Requirements for Broker-Dealers

The net capital requirements for broker/dealers in each state follow the net capital requirements under federal rules, which require a minimum capitalization (liquid net worth) of -may have to post surety bonds, limted to the amount set by the Securities Exchange Act of 1934 -net capital requirements of the states may not exceed that of the SEC

cease and desist order

to stop a person not a security

Stop Order

to stop the selling of a security

Bond Pricing

Corporate/Municipal - each bond point = $10 and each 1/8 = $1.25 Government bonds are quoted as a percentage of par each point is $10 and each 0.1 represents 1/32 ($.3125) -gov bond quoted at 90.8 is $902.5

Brady Bonds

Debt instruments, generally from third world countries, that may have a US Treasury bond as collateral.

Investment-Grade Debt

Debt obligation with a credit rating of AAA, AA, A, or BBB

Asset backed pass-through securities

Debt obligations backed by a pool of mortgages

Investment Discretion

Discretion is defined as the authority to decide: 1. Which securities 2. Buy or sell? 3. Number of shares or units NOT Timing or price when acquired. If given discretion have to do in one day unless written permission otherwise

Schedule G filings

Ease beneficial ownership requirements for passive investors

Investing in Foreign Markets

Emerging Markets Developed Markets

Exclusions from the Definition of Agent for these Exempt Securities (5)

Exempt Securities: 1. Any security issued or guaranteed by the US, an state, any political subdivision, agency of one or more of these, any security issued by Canada, canadian province or any political subdivision of any such province. 2. Securities from foreign governments with which the US has diplomatic relationships 3. Any issue by or guaranteed by any bank under the laws of the US, bank, savings institution, trust company organized and supervised under the laws of the state 4. Commercial paper rated in the top 3 categories by major ratings agencies with denom pf 50k or more 5. Investment contracts issued in connection with employee's stock purchase, savings, pensions, or profit-sharing

Exclusions from the Definition of Agent for Personnel Representing Issuers

Exempt from registration in the state 1. Certain exempt securities 2. Exempt from registration 2. With existing employees, partners, or directors of the issuer if no sales-relate commission or other remuneration is paid or given directly or indirectly for solciiting any person in this state

Rule 147

Exempt under federal law but not under the Uniform Securities Act so will probably have to register with the state Rule 147 Issue: Any security offered and sold only to persons resident within a single state where the issuer of such security is a person resident and doing business within such a territory. 80/80/80 rule

Revenue Bonds

investments secured by the revenue generated by a state or municipal project

General Obligation Bonds

investments secured by the taxing power of the jurisdiction that issues them

Incentive Stock Options

No income recognized when option is granted no tax due when option is exercised Tax is due when stock is sold -Gain is capital if held at leats 1 year and sold at least 2 years after grant -Otherwise ordinary income Difference between option price and the FMV on date of exercise is an add back for AMT purposes

Employee Stock Options

Non qualified Stock Options Incentive Stock Options

Voting Client Securities

Part 2A of form ADV must be ifno on how advisor's vote pn client securities. If the IA has or will accept authority to vote they have to give a brief descirption pn voting procedures . If the advisor doesn't have authority this must be disclosed

Treasury Notes

Pay semiannual interest intermediate maturities (2,3,5,7 and 10 year) -mature at par value

Annuity Stage

Payout period for an annuity

Subordinated

junior in claim on assets to other debt, that is, repayable only after other debts with a higher claim have been satisfied. No matter how subordinated the debenture it is still senior to any stocholder

Consent to Service of Process

appoints the state administrator as the applicant's attorney to receive and process noncriminal securities-related complaints against the applicant (1-37)

Post-Registration Broker-dealer

make and keep accounts, blotters, correspondence, memoranda, paper, books, etc. These must be preserved for three years with the first two years being easily accesible in the principal office. Also included in this is emails

Section 13(f) Filings

over 4$100M must file form 13F with the SEC quarterly within 45 days of the end of each quarter 13F funds include exchange funds but not mutual funds

Treausry Bonds

10-30 years Older 30 year bonds are usually callable at par beginning 25 years after issue

Foreign Investments: American Depository Receipts (ADRs)

Facilitates the trading of foreign stocks in the U.S. markets because everything is done in English and the US dollar An ADR is a negotiable security that represents a receipt for shared of stocks in a non-US corporation, usually from to shared. ADRs are bought and sold in the US securities market like any stock

Exchange Traded Notes (ETNs)

are debt instruments in which the issuer promises to pay a return based on the performance of a specific debt index after deducting specified fees. ETN register under the securities exchange act of 1933 and ETFs register under the invetsment company act of 1940

Senior Security

A security that grants its holder a prior claim to the issuer's assets over the claims of another security's holders. For example, a bond is a senior security over common stock.

Letter of Intent (LOI)

A signed agreement allowing an investor to buy mutual fund shares at a lower overall sales charge based on the total dollar amount of the intended investment. A letter of intent is valid only if the investor completes the terms of the agreement within 13 months of signing the agreement. A letter of intent may be backdated 90 days. Syn. statement of intention.

wash trade

A wash trade occurs when a customer enters a purchase order and a sale order for the same security at the same time. It is done to create a false appearance of activity in a security. This is a prohibited practice.

Registered Owners of ADRs

ADRs are registered on the books of the US banks responsible for them. The banks collect the dividends and convert them to US dollars for US owners ans withhold any required foreign tax payments

Form D

Under Rule 503, issuer that is issuign security in reliance with regulation D must file no later than 15 days after final sale

Restricted Securities

Unregisterd securities purchased by an investor in private placement restricted from resale for a specified amount of time

Technical Analysts

Uses price and volume data to determine past trends, which are expected to continue into the future

28(e) safe Harbor

What would fall under as soft-dollar compensation 1. Research reports analyzing the performance of a particular company or stock 2. Financial newsletters and trade journals could be eligible research if the relate with appropriate specificity 3. Seminars or conferences with appropriate content 4. Effecting and clearing securities trade What would NOT Fall under 1. telephone lines 2. Office furniture 3. Travel expenses 4. rent 5. any software that does not relate directly to the analysis of stocks 6. payment for training courses for this exam 7. internet services

Directed Brokerage

When an IA suggests that a client sneds trades through a speciifc BD, it must disclose and conflicts of interest

churning

excessive buying and selling of securities to generate commissions

Types of Preferred Stocks

- Straight = No special features beyond the fixed dividend - Cumulative = Pays dividends missed (arrears) - Participating = can be paid a dividend beyond the fixed dividend - Callable = can be retired by issuer (used as interest rates decline) - Convertible = convertible into issuers common stock - Adjustable Rate = Dividend tied to an index (possible hedge against inflation)

Variable Annuities

-Considered Securities -Payments fluctuate according to the value of an account invested primarily in common stocks - provides conservative to aggressive investments that are not guaranteed Portfolio of equities, debt, money market instruments Separate account Resistant to inflation

Periodic Payment Deferred Annuity

-allows investments over time; payments of benefits on -this type of annuity are always deferred until a later date selected by the annuitant

Reductions in Sales Charge

-for an investment company to qualify for the maximum 8.5% sales charge, they must offer both of the following: 1. Breakpoints -a schedule of discounts a mutual fund offers -allows an investor a lower % fee for more shares purchase -can be done through an LOI (letter of intent) which states that the investor intends to purchase more shares within 13 months, allowing him to reach a particular breakpoint (firm binding only, can backdate 90 days) -Investment clubs/associations do not qualify 2. Rights of Accumulation -do not apply to initial transactions -are available for subsequent investments -allow investor to use prior share appreciation to qualify -NO time limits -not accept in excess of $100,000

Exclusions from the Definition of Investment Advisor Under Federal Law

1. Any bank as defined in the Bank Holding Company Act of 1956 is excluded 2. Any lawyer, accountant, teacher, or engineer whose advice is solely incidental to the practice of his profession. The exclusion is not available to those who have established a separate advisory business or holds himself out as offering investment advice. 3. Any broker-dealer whose performance of such services is solely incidental to the conduct of his business as a broker dealer and received no special compensation (like a wrap fee program) 4. Author and publisher of a newspaper that is general and impersonal in nature, bona fide in that is contains disinterested commentary and analysis and of general and regular circumstances. 5. Any person whose advice or reports are only to securities that are direct obligations guaranteed by the US or by certain US gov-sponsored organizations designated by the Secretary of the treasury (FNMA, GNMA) 6. Any national recognized rating agencies

Exempted Securities under the Securities Act of 1933

1. Any security issued or guaranteed by the US, any state, or any political subdivision of a state (all fed gov issues and muni securities) 2. Any commercial paper that has a maturity at the time of issuance of no more than 270 days 3. Any security organized and operating for religious, educational, benevolent, fraternal or charitable purposes 4. Any interest in railroad company trust 5. Any security issued by federal or state bank (DOES NOT INCLUDE BANK HOLDING COMPANIES)

Exclusions from the Definition of Investment Advisor under State Law

1. Banks, savings institutions, trust companies 2. Any lawyer, accountant, teacher, or engineer whose advice is solely incidental to the practice of his profession. The exclusion is not available to those who have established a separate advisory business or holds himself out as offering investment advice. 3. Any broker-dealer whose performance of such services is solely incidental to the conduct of his business as a broker dealer and received no special compensation (like a wrap fee program) 4. Author and publisher of a newspaper that is not specific to certain customers 5. Investment Advisor Representatives 6. Any person who is a federal covered advisor 7. Any person excluded from the Investment Advisors Act of 1940 8. Any other person the Administrator specifies

What is excluded from the definition of sale and offer

1. Bona fide pledge or loan 2. Gift of non assessable stock 3. stock dividends 4.Class vote by stockholders 5. Act incidental to a judicially approved reorganization

Persons subject to state registration

1. Broker/Dealers -generally legal persons such as corporations or partnerships 2. Agents -always individuals (natural persons) 3. Investment Advisers -generally legal persons such as corporations or partnerships 4. Investment Adviser Representatives -always individuals (natural persons) *Pay attention to which type of person*

Registration under the 1934 Act

1. Brokers/Dealers operating in interstate commerce, including those operations under exchanges and the over the counter market(broker-dealer file application for membership on form BD and the SEC has 45 days to accept or deny 2. Securities Exchanges (90 days) 3. National Securities Associations like FINRA and the mSRB 4. Corporations with listed securities

Classes of Fund Shares

1. Class A Shares -front-end loads -pay at time of purchase 2. Class B Shares -back-end loads -declines annually -pay at redemption 3. Class C Shares -level load -no charge to purchase -usually a 1% CDSC for one year, and -continuous 12 B-1 fee

What is Not a Security

1. Collectibles 2. Commodities such as precious metals, and grains, including future contracts 3. Condos used as a personal residence 4. Currency 5. Interest in a retirement plan such as an IRA or Keogh plan 6. An insurance or endowment policy or fixed annuity contract

Not included in the fee disclosure documents are

1. Commissions 2. Markups and Markdowns 3. Advisory Fees

Disadvantages to investing in variable annuities

1. Earnings taxed as ordinary income 2. Expenses higher than mutual funds 3. Before 59.5 10% penalty 4. Conditional deferred sales charge

Types of Investment Companies Defined under the Investment Company Act of 1940

1. Face Amount Certificate Companies 2. Unit Investment Trusts (UIT's) - unmanaged investment company that does not have a board of directors or IAs or actively manage their own portfolios -UIT shares must be redeemed by the trust 3. Management Investment Companies A. Closed End - IPOs. also can offer bonds and preferred stock. Commonly known as pubicly traded funds. Also country stoks like the Korea fund are considered closed ended B. Open End - or like a mutual fund - does not specify the exact amount of sharesit intends to issue. Onloy issue common stock A mutual fund's public offering price (POP) is the Net asset value (NAV) per share plus any applicable sales charges. The NAV is calculated daily by deducting the fund's liabilities from its assets An open end investment company sells redeemable securities, when an investor sells their shares, the company redeems them at their NAV

Registration of Investment Company

1. File with SEC under Securities Act of 1933 2. Under Investment Company Act of 1940

Private Fund Adviser Exemption Under State Law

1. If qualified for exemption as 3 (c)(1). All investors must be qualified with 1 M in assets managed or 2M net worth not primary residence 2. No bad actors

Exemption from Registration Under Federal Law

1. Intrastate Advisors - advisers whose clients, other than an investment advisor who acts as an investment advisor to any private fund, are residents of the state in which the adviser has its principal office and place of business and who do not give advice dealing with securities listed on any national exchange are exempt. 2. Advisors to insurance companies 3. Private Fund Advisors - (A) an exemption to advisors solely to private funds with less than $150 million in assets under management in the US. (B) Non US advisors with no place of business in the US and minimal assets (under $25 milllion) attributable to US clients and investors. Has in total or fewer than 15 clients (C) An investor solely to venture capital funds 4.

Definition of Security

1. Investment of money 2.In a common enterprise 3. With an expectation of profit 4.Results solely from the efforts of others

Exempt transactions under USA

1. Isolated non-issuer transactions - usually do not involve securities professionals, happen infrequently 2. Unsolicited brokerage transactions 3. Underwriter transactions 4. Bankruptcy, guardian or conservator transaction - executor, administrator, sheriff marshal, receiver, guardian or trustee in bankruptcy 5. Institutional investor transactions 6. Limited Offering Transactions - include any offering directed at not more than 10 persons called offees other than institutional investors during the previous 12 consecutive months -seller believes that all non institutional buyers are purchasing for investment purposes only - No commissions or other remuneration is paid -no general solicitation or advertising is used 7. Pre-organization certificates - if no commission, number of subscribers does not exceed 10 and no payment is made by any subscriber 8. Transactions with existing securities holders- exempt if no commission is paid 9. Nonissuer transactions by pledges

Largest Monthly Payout to Smallest Monthly Payout

1. Life annuity- straight life -the annuitant receives periodoic (usually monthly) payments for their lifetime 2.Life Annuity with Period Certain - an annuitant receives payment for life. If they die before the period certain, then their beneficiary receives payments. Annuitant will continue to receive the payments through their life even after the period certain 3. Joint Life with Last Survivor Annuity - covers two or more people and payout is conditioned on both lives 4. Refund Annuity - will be paid out until the full value of the principal is returned 5. Mortality Guarantee - if the annuiant lives longer than expected than the insurance company assumes the increased mortality cost 6. Operating Expenses Guarantee - Puts a ceiling on the insurance companies operating expenses

Actions to be taken by the administrator

1. Make, amend or rescind rules and orders 2. Conduct investigations and issue subpoenas 3. Issue cease and desist orders and seek injunctions 4. Deny, suspend, cancel or revoke registrations and licenses

Federal Covered Investment Advisor

1. Meet a minimum threshold of $110 m AUM 2. Those under contract to manage an investment company registered under the Investment Company Act of 1940 3. Those not registered with the SEC because they are covered in the definition of the Investment Advisors Act of 1940

Methods of State Registration of Securities

1. NOTICE FILING 2. REGISTRATION BY COORDINATION 3. REGISTRATION BY QUALIFICATION **Factors that Apply to ALL 3 Methods** 1. consent to service of process must be filed with the Administrator 2. registration statements remain effective for 1 YEAR from its effective date 3. registration statement may be amended after its effective date to change the number of shares offered and sold, two conditions: A. public offering price is unchanged, and B. underwriters discounts and commissions are unchanged

Required for a pre organization subscription to be an exempt transaction

1. No more than 10 subscribers 2. No commission paid 3. subscriber makes no purchase until they purchase the underlying security

Application for 1934 Act Resgistration

1. Organization, financial structure, and nature of the business 2. terms, positions, rights and privledges of different rights of outstanding securities 3. Term on which securities are to be and have been in the past 3 years offered ti the public 4. Directors, officers, and underwriters and each security holder or record holding more than 10% -Balance, p&l statements of the past three years 6. SIPs 7. Transfer agents

Categories of Federal Covered Securities

1. Securities issued by a company that is registered with the Investment Company Act of 1940 2. Securities listed on the NYSE, Chicago stock exchange, Nasdaq. Also any security equal in senority(rights or warrants) or senior to these securities (bonds and preferred stocks) 3. Securities offered pursuant to the provisions 506(b) or (c) of regulation D under the Securities Act of 1933 4. Bonds issued by municipalities except in the state

Registration by Qualification

1. Securities not eligible for another method 2. Securities only sold in one state A process that allows a security to be sold in a state. It is available to an issuer who files for the security's registration with the state Administrator, disclosure, and other requirements, and files appropriate registration fees. The state registration becomes effective when the Administrator so orders.

Technical Market Theory

1. Short Interest - refers to the number of shares that have been sold short. Because short positions must be repurchased eventually, some analysts believe that short interest reflects mandatory demand that creates a support level for stock prices. High short interest is a bullish indicator 2. Odd-lot trading - transactions of fewer than 100 shares. Odd lot theorists believe that small investors invariably buy and sell at the wrong time 3. Advance/Decline Theory - The number of shares of an issue closing up or down on a specific day reflects market breadth. The number of advances or declines can be significant indiciation of the market's relatives strength

What are considered securities?

1. Stock 2. Bond 3. Debenture 4. Right or warrant 5. Note 6. Put, call, straddles, privileges on securities or other option 7.Limited Partnership interest 8. Certificate of interest in a profit-sharing agreement 9.Treasury Stock 10. Evidence of indebtedness 11. Collateral Trust certificates 12. Pre-organization certificates or subscriptions 13. Transferable shares 14. Investment Contracts 15. Voting trust certificates 16. Certificate of deposit for a security 17. Certificate of interest or participation in an oil, gas, or mining title or lease

Advantages of Variable Annuities

1. Tax deferred participation in the equity markets 2. Lifetime income - protection against longevity risk 3. IRS Section 1035 transfers -transfer to different annuity tax free 4. No 70 1/2 restrictions (aka no RMD's) 5. No probate -passes directly to beneficiaries 6. No contribution limits 7. Tax-free transfers between sub accounts 8. Guaranteed death benefit: at least get back the original investment 9. No RMDs

Exclusions from the Definition of Agent for these Exempt Transactions (4)

1. Unsolicited brokerage transactions 2. Transactions between the issuers and underwriters 3. Transactions between financial institutions 4. Private placement

Order Ticket Requirements (7)

1. account ID 2. description of security 3. number of shares or par value 4. terms of order (market or limit) 5. time of order entry and execution 6. execution price 7. identity of agent who accepted the order **client name or address NOT needed**

Other than when acting summarily, no order to deny, suspend, or revoke may be entered without:

1. appropriate prior notice to the applicant or registrant 2. Opportunity for hearing 3. Written findings of fact and conclusions of law

Insider Transactions Under the Securities Exchange Act of 1934

1. every person who directly or indirectly the beneficial owner of more than 10% of any class of equity security 2. Officers or directors of the issuers of such securities

Restrictions on Money Market Funds

1. front cover must state that investments are not insured by the US government 3. investments limited to securities with remaining maturities of 397 days or less; average portfolio maturity may not exceed 60 days 4. investments limited to securities that have received a rating from a recognized rating agency in one of the two highest short-term rating categories

Other testable policy facts

1. minumum of 75% of the cash value must be available for a policy loan after the loan has been in force for three years 2. Insurer never required to loan 100% of the cash value. This would be surrendering 3. If the insured died with a loan outstanding rhe death benefit is reduced by the amount if the loan 4. Variable life insurance can be exchaged for permenant insurance with comparable benefits within 24 months

Which fees are deducted from the separate accounts

1. mortality risk(the cost of insurance) 2. Expense risk fee 3. Investment management fee

If the SEC suspects a violation of the law or its rules, it may take the follwijg actions:

1. subpoena witness 2. acquire evidence 3. subpoena books and records 4. administer oaths 5. Go to a competent court of jurisdiction to obtain an injunction enjoining a person from continued activity until the results of a hearing 6. Refer to the appropriate court for criminal prosecution 7. fine of no more than $10,000 and jail time of no more than 5 years 8. place limitation for 12 months 9. Appeal filed within 60 days Under the USA 1. No max suspension time 2. appela made through state court 3. $5000 and 3 years of prison time

Surrendering the Whole Life Insurance by stop paying premiums

1. surrender for cash value 2. reduced paid up policy where death benefits decrease and no mre future premiums required 3. take extended term insurance

Credit Requirements (Margin)

50% payment in cash now in transactions. New issue cannot use credit

Statue of Limitations for violations of the civil provisions of the USA

3 years from the date of sale or 2 years after discovering the violation

US Federal Agency Securities

4. Federal National Mortgage Association (Fannie Mae) -purchases and sells real estate mortgages -primarily those that are insured by the Federal Housing Administration (FHA) or guaranteed by VA -issue mortgage backed bonds that can be purchased by investors -Pay semiannual interest, issued at par **1-4 are all MORAL obligations* 5. Government National Mortgage Association (Ginnie Mae) -known as modified pass through certificates -represent an interest in pools of FHA-insured mortgages -as home owners make monthly mortgage payments, they are collected in a pool and shares pass through to investors -payments are received monthly -subject to state, local and fed tax Tennessee Valley Authortiy (TVAs) Nation's ;argest public power providor and a corp of the US gov. Backed not by the gov but by the revenues generated by the agencies' projects *5 is a DIRECT obligation of the government*

Statue of Limitations from Criminal Offenses under the USA

5 years from the date of the offense. 5-5-3. 5 year statue of limitation, $5,000 max penalty, 3 years of jail time

Schedule 13D

5% beneficial ownership, must file report with: Issuer, SEC and market where security trades within 10 days of transaction that results in more than 5% beneficial ownership

SEC Regulation D Rule 506 Private Placement

506(b) - no advertisement but can have 35 non-accredited investors and unlimited accredited investors 506(c) permits advertising but only accredited investors and have to reasonably believe they are accredited by taking reasonable steps

Country Risk

A composite of all the risks of investing in a particular country.

Investment Company

A corporation or trust through which people invest in professionally managed portfolios of securities by pooling their funds with other investors.

Developed Market

A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness to foreign ownership, ease of capital movement, and efficiency of market institutions.

Guaranteed Bond

A debt instrument guaranteed by an entity other than the issuer

Debenture

A long-term bond that is not secured by a mortgage on specific property.

Technical Analysis

A method of attempting to predict stock trends over the near term. This prediction is based on current stock price trends and the relationship to the present trend to prior trend. These trends are measured through charts of price movements.

Fiduciary

A person legally appointed and authorized to hold assets in trust for another person

Broker-Dealer (BD)

A person or firm in the business of buying and selling securities. A firm may act as both broker (agent) and dealer (principal), but not in the same transaction. Broker/dealers normally must register with the SEC, the appropriate sros, and any state in which they do business. Exclusions: 1. Agents 2. Issuers 3. Banks, savings institutions, trust companies Commercial banks unless they deal with selling securities

Accumulation Unit

An accounting measure that represents a contract owner's proportionate unit of interest in a separate account during the accumulation period of a variable annuity.

Deferred Annuity

An annuity in which the rents begin after a specified number of periods. Also referred to as a single premium deferred annutiy

Investment Advisor

An individual or firm that advises clients on investment matters on a professional basis.

Rule 3(c)(1)

An investment adviser with discretion over more than 100 accounts using pooled client funds might be considered to be running an investment company and could require registration under both the Investment Company Act of 1940 and the Advisor Act.

YTM Calculation

Annual Interest +/- (Discount(Premium)/years to maturity)/Average Price of the Bond Average Price of the Bond = Par+(premium-par)/2 or Par- (par - Discount)/2 Also known as the market-driven yield b/c it reflects the internal rate of return

Prospectus

Any notice, circular, letter or communication, written or broadcast by radio or television that offers any security for sale or confirms the sale of a security

Person Associated with an investment advisor

Any partner, officer, or director of the investment advisor or any person directly or indirectly controlling or controlled by the investment advisor including any of the employee except clerical and admin employees

Rule 12b-1

Asset based sales load by registered Open End investment Management Co Rule allows Mutual Fund to act on its own behalf instead of using U/W and with an asset-based load. *Direct or indirect financing of sales or promotional services or activities in connection w distribution of shares. May not used the term NO LOAD fund if 12b-1 fee is more than .25% (25 basis points) Max 12b-1 fee is .75% (75 basis points) FINRA allows another ,25% on top on min / max as service fee

Non-qualified Stock Options

Basically treated as a form of compensation -Taxed as ordinary income not capital gaisn -Company receives a tax deduction for salary expense from the difference between strike price and the market price

Advantages and Disadvantages to Mortgage Backed Securities

Benefits: compared to other debt securities with similar ratings, they pay a higher rate of return Risks to the investors: 1. Among the most complicated of securities so they are hard to understand 2. Prepayment risk due to refinancing or early payments of loans 3. Default risk 4. Reinvestment risk 5. liquidity risk

Warrant

Certificate granting its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price. Usually a long-term instrument

Collateralize Mortgage Obligation (CMOs)

Collateralized by mortgages or mortgage backed securities Different than a pass through because CMOs are stated with a stated maturity. As the principal of the mortgage is being paid, it is used exclusively for the newest maturiy in the sequence until each maturity is paid off -Most of the mortgages are private mortgages not qualified under VA or FHA

Freddie Mac Participation Certificates

Comprise of qualifying FHLMC, conventional, residential mortgages on single-family homes -not backed by the full faith and credit of the US gov -yield slightly higher than Ginnie Maes

Investment Company Act of 1940

Congressional legislation regulating companies that invest and reinvest in securities. The act requires an investment company engaged in interstate commerce to register with the SEC.

Timely Prospectus Delivery

Failing to furnish to a customer purchasing securities in an offering, no later than the due date of confirmation of the transaction, either a final prospectus or a preliminary prospectus. Under Registration by Coordination, a prospectus must be sent or given to each person to whom an offer is made no later than with confirmation of trade Under Registration by Qualification, must be sent or given to each person to whom an offer is made prior to sale of the security rather than prior to the offer.

Agent's Registration Requirements

Form U-4 -Disclosing citizenship -Can only do clerical work until registered -Agent's registration not effective during any period where the agent is not associated with a broker-dealer registered within the same state -No net worth requirements -but if an agent has discretion over a client's account

Municipal Bonds

General Obligation Bonds Revenue Bonds

Exemption for the Registration for Investment Advisors under USA

If they have no place of business in the state and the only clients are 1. Broker Dealers registered under the act 2. Other Investment Advisors 2. Institutional investors 3. Existing clients not resident in the state 4. 5 or fewer clients resident in the state during the preceding 12 months

Matched Orders

Illegal manipulative practice of offsetting buy and sell orders to create the impression of activity in a security, causing upward price movement that benefits the participants.

Investment Company Includes and Does not Include

Includes: 1. Face-amount certificate company: Security that represents an obligation on the part of its issuer to pay a stated sum at a fixed date more than 24 months from the date of issuance and periodic installments of a stated amount: 2. Unit Investment Trust: Investment company that does not have a board of directors and issues only redeemable securities 3. Management Companies - usually managed by advisors for a fee Not Includes: 1. Broker-dealers and underwriters 2. Banks and savings and loans 3. Insurance companies 4. holding companies 5. issuers whose securities are beneficialy owned by no more than 100 persons 6. Issuers who trade investments other than securities

Fixed Annuities

Insurance product not an annuity Investment risk assumed by the insurance company Portfolio of fixed income securities vulnerable to inflation Insurance regulation

whole life insurance

Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be. -guaranteed interest rate on cash value -Builds cash with the ability to borrow -Remains in effect until age 100 aslong as premiums are paid -Traditional life insurance reserves are held in the insurer's gerneral accounts

Taxable Bonds

Interest on Corporate Bonds are taxed as ordinary income on the state and federal level Treasury Bond Interest is taxable only on the federal level Municipal Bond Interest in most cases is free of federal taxes and if the investor resides in the issuer's state, is also free of state taxes

London Interbank Offered Rate (LIBOR)

Interest rate that international banks charge one another for overnight Eurodollar loans. The world's most widely used benchmark for short-term interest rates

International vs Global Funds

International - entire portfolio international Global - some US

Negotiable CDs

Issued by banks. Minimum face of $100,000. Mature in 1 yr or less. Unsecured if over $250,000. Interest bearing. -Jumbo CDs pay interest semi annually -Negotiable CDs do not have a prepayment penalty -Negotiable CDs must have a face value of $100,000 or more with $1 million and more being the most common

Term Insurance

Life insurance coverage for a specified period of time, less expensive than whole -only pays benefits if the isnured dies during the time of the coverage -do not accumulat cash value -Highest face amount for the lowest premium

Exceptions Under Dodd Frank

Register with the SEC for pension consulatants if they control at least 200m in AUM -Investment advisors expected to eb elgiible for SEC registration within 120 days

The Cooling Off Period

Registration can be effective as early as 20 calendar days after the SEC has received the registration statement In this time period, no one can solicit sales but indication of interest can be solicited with a red herring

Registration Broker-dealer, investment advisors, representatives

Renewal Date for ALL registrations is December 31 and there is no proration of fees. The registrations goes into effect at noon, 30 days after the later of the date of an applications is filed or the date the amendment to an application is filed

Section 16 Filings

Requires executive officers, directors, and greater than 10% stockholders (i.e. control persons) to file transaction reports for trades of an equity security in which they are considered an insider.

Which charges are deducted from the gross premiums

SAS Sales load administrative fees state premium fees

Corporate Bonds

Secured debt securities are backed by various kinds of assets of the issuing corporation Unsecured Debt are backed only by reputation, credit record and financial stability of the corporation

Exempt Securities under USA

Securities exempt from state registration are also exempt from state filings of sales literature 1. US and Canadian municipal securities 2. Foreign government securities - political subdivisions not included 3. Depository Institutions - includes (a)any security issued by and representing an interest in or a debt of or guaranteed by any bank organized under the laws of the USA or any bans, savings institution or trust company (b) ny security issued by and representing an interest in or a debt of or guaranteed by any federal savings loan, or building and loan association (c) Any security issued by any federal credit union or any credit union, industrial loan association, or similar suoervised under the laws of the state 4. Insurance company securities - nyyot variable life policies or annuities sold by the companies 5. Public Utility Securities 6. Federal Covered Securities 7. Securities issued by nonprofit organizations 8. Securities issued by cooperatives 9. Securities of employee benefit plans 10. Certain money market instrumentd

Stock Funds

Small Cap - $300M to $2 B Mid Cap - $2B to $10B Large Cap $10B +

Supports and Resistance

Support level is the price where the stock price "bottoms". That is when it gets that low there is an imbalance between buyers and sellers. Here the price begins to rise Resistance levels- where the stock price reaches a high enough level where there are more sellers than buyers and the stock price begins to drop

Annuity Unit

The accounting measure used to determine the amount of each payment to an annuitant during the payout period

Yield Spread

The difference in yield between a credit-risky bond and a credit-risk-free bond of similar maturity

Duration

The longer the duration, the greater the market price movement. Basically a measurement of of the time it takes for the cash flows to repay the invested principal Usually the higher the coupon rate - the shorter the duration and vice versa The longer a bonds maturity, the longer the duration For coupon bonds, duration is always less than the bonds maturity For 0 coupon bonds, the duration of a zero coupon bond is its maturity The longer the bond's maturity, the more its value will change for a 1% change in interest rates

Accumulation Stage

The period during which an annuitant is making contributions to an annuity contract.

Forward Pricing

The valuation process for mutual fund shares, whereby an order to purchase or redeem shares is executed at the price determined by the portfolio valuation calculated after the order is received. Portfolio valuations occur at least once per business day. Before 4 PM, then NAV at the end of the business day After 4 PM, the valuation at the end of the next business day

Dividend Discount Model

The value of a stock should be equal to the present value of all future dividends

Eurodollar

US currency held in banks outside the United States. Held in US currency Usually short term anywhere from overnight to 180 days Interest Rate usually based on LIBOR

Rule 501 accredited investors

This only applies to private placement 1. A bank, insurance, or registered investment company 2. An employee benefit plan if the bank, insurance company or registered investment advisor makes the investment decisions or the plan has over $5 million in total assets 3. Charitable organizations with assets exceeding $5 mil 4. Directors, executive officers, general partners of the issuer 5. Any natural person who had an individual income of over 200k or with spouse 300k 6. Individual with assets over a mil not including primary residence 7. Entities made up of accredited investors

SEC Rule

Those who wish to sell control stock or restricted stock must do so by filing a Form 144

Exempted Transactions under the Securities Act of 1933

Transactions by any person other than the issuer underwriter, or dealer and Transactions by an issuer that do not involve a public offering

Insider Trading and Securities Fraud Enforcement Act of 1988

can get treble damages - 3 times the ill gotten gains or losses avoided

Immediate Annuity

contract owner gets money immediately only if it is funded with a lump sum

Annuities

contracts in which the insurer promises the insured a series of periodic payments and are a type of investment that provides investors with tax-deferred growth

high-yield bonds

corporate bonds that pay higher interest, but also have a higher risk of default AKA Junk bonds

Frequency of insurance calculations

death benefits calculated annually cash value calculated monthyl separate accoutn acsh values daily

universal life policy

is a variation of whole life insurance. Features: a death benefit + a savings components, but offers consumers a great deal of flexibility in how their premium is applied. More options on interest rates for savings, loans, and repayments Invests in mutual funds

Call Protection

is the number of years into the issue before the issuer may exercise a call provision

Commercial Paper

short-term unsecured debt issued by large corporations primarily to raise working capital commercial paper is exempt from registration on the state and federal level as long as the maturity is less than 9 months - usually negotiable -issued at a discount

Annuitizing

when the investor converts from the accumulation stage to the distribution stage Once the decision to annuitize the contract locks in the specified payout option, the contract holder may not vhange it

An adviser can sell securties to its customers from its own proprietary accoutn

with consent of client before completion of the trade