The Boston Institute of Finance Mutual Fund Advisor Course: Series 6 and Series 63 Test Prep

206 Pages·2005·1.01 MB·English

by  Boston Institute of Finance

Boston Institute of Finance

Mutual Fund Advisor Course

Series 6 and Series 63 Test Preparation

John Wiley & Sons, Inc.

Boston Institute of Finance

Mutual Fund Advisor Course

Boston Institute of Finance

Mutual Fund Advisor Course

Series 6 and Series 63 Test Preparation

John Wiley & Sons, Inc.
Copyright © 2005 by The Boston Institute of Finance. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada

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Library of Congress Cataloging-in-Publication Data:

Boston Institute of Finance
Boston Institute of Finance mutual fund advisor course: series 6 and series 63 test preparation / The
Boston Institute of Finance.
p. cm.
ISBN-10 0-471-71234-5 (pbk.)
ISBN-13 978-0-471-71234-3 (pbk.)
1. Mutual funds—Problems, exercises, etc. I. Title.
HG4530.B676 2005
332.63'27' 076—dc22
2004027075

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1
CONTENTS
Preface ix
Series 6 Test Preparation 1
Introduction 3
1 Investment Securities 9
Introduction............................................................................................. 9
Money and Capital Markets.................................................................... 9
Common Stock....................................................................................... 10
Preferred Stock....................................................................................... 10
Corporate Bonds..................................................................................... 11
Other Types of Corporate Bonds................................................................. 12
Convertible Bonds.................................................................................. 12
Zero Coupon Bonds................................................................................ 12
Interest Rate Risk.................................................................................... 13
Yields...................................................................................................... 13
Rights...................................................................................................... 13
Warrants.................................................................................................. 14
Collateralized Mortgage Obligations...................................................... 14
Interest Rates and Bond Concepts.......................................................... 14
US Government Securities...................................................................... 15
Municipal Bonds..................................................................................... 16
Money Market Instruments..................................................................... 16
Bankers’ Acceptances........................................................................... 16
Commercial Paper................................................................................ 16
Negotiable Certificates of Deposit.......................................................... 17
Interbank Market for Foreign Currencies............................................... 17
Eurodollar Bonds.................................................................................... 17
Additional Concepts............................................................................... 17
Review Questions................................................................................... 19
Answers to Review Questions................................................................ 22
2 Securities Markets 23
Introduction............................................................................................. 23
Types of Investment Risk....................................................................... 23
Economic Factors................................................................................... 25
Suitability and Risk Factors.................................................................... 25
Review Questions................................................................................... 27
Answers to Review Questions................................................................ 29
3 Open-End Investment Companies 31
Introduction............................................................................................. 31
Types of Funds....................................................................................... 32
Classes of Shares.................................................................................... 33
Mutual Fund Accounts............................................................................ 34
Distributions by Funds............................................................................ 35
Taxation of Mutual Funds....................................................................... 36
Mutual Fund Expenses............................................................................ 36
Review Concepts.................................................................................... 37
v
Important Points...................................................................................... 37
Additional Concepts............................................................................... 38
Review Questions................................................................................... 40
Answers to Review Questions................................................................ 44
4 Regulation of Investment Companies 45
Introduction............................................................................................. 45
Sales Charges.......................................................................................... 46
Breakpoints............................................................................................. 46
Advertising by Funds.............................................................................. 47
Mutual Fund Sales Literature................................................................. 48
Dollar Cost Averaging............................................................................ 48
NASD Rules Concerning Investment Companies.................................. 48
Mutual Fund Sales by Banks.................................................................. 50
Additional Concepts............................................................................... 51
Review Questions................................................................................... 53
Answers to Review Questions................................................................ 57
5 Variable Annuities and Retirement Plans 59
Introduction............................................................................................. 59
Fixed Annuities....................................................................................... 59
Variable Annuities.................................................................................. 59
Additional Concepts—Variable Annuities............................................. 61
Variable Life Insurance.......................................................................... 62
Main Points—Variable Life Insurance Contracts................................... 63
Employee Retirement Income Security Act of 1974.............................. 64
Keogh Plans............................................................................................ 64
Individual Retirement Accounts............................................................. 64
Simplified Employee Pension Plan......................................................... 66
Pension and Profit Sharing Plans............................................................ 66
401(k) Plans............................................................................................ 66
403(b) Plans............................................................................................ 67
Review Questions................................................................................... 68
Answers to Review Questions................................................................ 72
6 NASD Rules and Regulations 73
Certificate of Incorporation.................................................................... 73
Bylaws of the NASD.............................................................................. 73
Advertising Rules................................................................................... 74
Broker/Dealers........................................................................................ 75
Recommendations Made to Customers.................................................. 75
Private Securities Transactions............................................................... 76
Prompt Receipt and Delivery of Securities............................................. 76
Proxy Material........................................................................................ 76
NASD Hot-Issue Rules........................................................................... 76
Charges for Services............................................................................... 77
Confirmations......................................................................................... 77
Discretionary Accounts........................................................................... 78
Dealing with Nonmembers..................................................................... 78
Other Provisions of NASD Rules........................................................... 78
vi
NASD Code of Procedure....................................................................... 80
Uniform Practice Code........................................................................... 80
Confirmations or Comparisons............................................................... 80
Good Delivery of Securities................................................................... 80
Trade Date and Settlement Date............................................................. 80
Investment Companies and NASD Rules of Fair Practice..................... 81
Review Questions................................................................................... 82
Answers to Review Questions................................................................ 87
7 Federal and State Regulations 89
Securities Act of 1933............................................................................ 89
Exempted Securities under the 1933 Act................................................. 89
Red Herring Prospectus............................................................................ 90
Final Prospectus....................................................................................... 90
Effective Date of Registration Statement................................................. 90
Liabilities under the 1933 Act.................................................................. 90
The Securities Exchange Act of 1934..................................................... 91
Insider Transactions........................................................................... 91
Market Manipulation................................................................................ 92
Securities Investor Protection Act of 1970............................................. 92
State Securities Laws.............................................................................. 93
Uniform Gifts to Minors Act—Uniform Transfer to Minors Act........... 93
Review Questions................................................................................... 95
Answers to Review Questions................................................................ 97
Glossary 99
Series 6 Final Examination 105
Additional Practice Questions 1 119
Answers to Additional Practice Questions 1 122
Additional Practice Questions 2 123
Answers to Additional Practice Questions 2 126
Additional Practice Questions 3 127
Answers to Additional Practice Questions 3 130
Series 63 Test Preparation 131
Introduction 133
Important Terms..................................................................................... 134
Licensing/Registration Requirements..................................................... 138
Capital Requirements.............................................................................. 139
Recordkeeping........................................................................................ 139
Administrative Sanctions........................................................................ 140
Registration of Securities........................................................................ 141
Notification (Filing)................................................................................. 141
Coordination............................................................................................. 141
Qualification............................................................................................. 142
Registration Provisions............................................................................ 142
Denial of Registration.............................................................................. 142
Exempt Securities................................................................................... 142
vii