Free Series 6 Exam Flashcards

An investment company that continuously issues and redeems shares at NAV. No limit on shares outstanding. Shares are redeemable, not traded on exchanges. Must redeem shares within 7 days of request.

An investment company with a fixed number of shares that trade on exchanges like stocks. Shares may trade at a premium or discount to NAV. Does not continuously issue or redeem shares after the IPO.

The per-share value of a mutual fund. Formula: (Total Assets - Liabilities) / Shares Outstanding. Calculated once daily at 4:00 PM ET. Used to price purchases and redemptions of open-end fund shares.

The price at which mutual fund shares are purchased. Formula: NAV + Sales Charge. For no-load funds, POP equals NAV. Sales charge expressed as percentage of POP, not NAV.

A sales charge paid at the time of purchase. Maximum allowed is 8.5% of POP. Offers breakpoint discounts for larger purchases. Lower ongoing expenses (12b-1 fees) compared to B or C shares.

Contingent Deferred Sales Charge - a fee paid when shares are redeemed. Typically decreases the longer shares are held (e.g., 6% in year 1, 5% in year 2). Often converts to Class A shares after 6-8 years.

An annual fee charged by mutual funds for marketing and distribution expenses. Maximum: 0.75% for distribution + 0.25% for service fees (1% total). Deducted from fund assets, reducing returns.

A dollar amount at which the sales charge percentage decreases for mutual fund purchases. Example: 5.75% for <$25,000, 5.00% for $25,000-$49,999. Available only on Class A shares. Applies to lump sum and accumulated purchases.

A written pledge to invest a specified amount in a mutual fund over 13 months to qualify for breakpoint discounts. Not legally binding, but if not fulfilled, higher sales charges may be applied retroactively.

A feature allowing investors to receive breakpoint discounts based on the current value of existing holdings plus new purchases. Unlike LOI, this is based on current account value, not a future commitment.

An insurance product where contributions are invested in separate accounts (subaccounts). Investment risk is borne by the contract owner. Offers tax-deferred growth. Payments vary based on investment performance.

The investment account within a variable annuity or variable life insurance policy. Invested in securities (typically mutual fund-like subaccounts). Assets are segregated from the insurer's general account.

A unit of ownership in a variable annuity during the pay-in (accumulation) phase. Value fluctuates with the performance of the separate account investments. Converts to annuity units at annuitization.

A unit of ownership in a variable annuity during the payout (annuitization) phase. The number of units is fixed at annuitization, but the dollar value of each unit fluctuates based on investment performance.

The hypothetical rate of return used to calculate the initial variable annuity payment amount. If actual returns exceed AIR, payments increase. If actual returns fall below AIR, payments decrease.

A permanent life insurance policy with a fixed premium and guaranteed minimum death benefit. Cash value invested in separate accounts and fluctuates with market performance. Death benefit may increase but not fall below the guaranteed minimum.

Combines variable life and universal life features. Flexible premiums, adjustable death benefit, and cash value invested in separate accounts. Policyholder bears investment risk. No guaranteed minimum cash value.

A fee charged when a variable annuity or life insurance policy is surrendered or when withdrawals exceed free withdrawal limits. Typically decreases over time (e.g., 7% in year 1 down to 0% after 7 years).

A period (typically 10-30 days depending on state) after receiving a variable annuity or life insurance contract during which the purchaser may return it for a full refund without penalty.

A tax-free exchange of one insurance or annuity contract for another. Allows transfer of accumulated value without triggering taxable event. Must be between like contracts (e.g., annuity to annuity, life insurance to annuity).

An employer-sponsored qualified retirement plan allowing pre-tax salary deferrals. 2024 contribution limit: $23,000 ($30,500 if 50+). Employer may match contributions. Subject to vesting schedules. Early withdrawal penalty: 10% before age 59 1/2.

A tax-sheltered annuity plan for employees of public schools, hospitals, and 501(c)(3) nonprofits. Similar to 401(k). Investments typically limited to annuities and mutual funds. Same contribution limits as 401(k).

Individual Retirement Account with tax-deductible contributions (subject to income limits if covered by employer plan). Tax-deferred growth. Taxed as ordinary income upon withdrawal. RMDs begin at age 73. 10% penalty before 59 1/2.

IRA funded with after-tax contributions. Qualified withdrawals are completely tax-free. No RMDs during owner's lifetime. Income limits apply for eligibility. 5-year holding period required for tax-free earnings withdrawal.

Mandatory annual withdrawals from Traditional IRAs and qualified retirement plans beginning at age 73 (SECURE 2.0). Penalty for missed RMD: 25% of required amount (10% if corrected promptly). Roth IRAs have no RMDs during owner's lifetime.

Federal law setting minimum standards for employer-sponsored retirement plans. Requires reporting, disclosure, fiduciary responsibility, and plan funding. Establishes PBGC to insure defined benefit plans. Does not cover government or church plans.

The process by which an employee earns ownership of employer contributions to a retirement plan. Employee contributions are always 100% vested. Employer contributions may vest gradually (e.g., 20% per year) or cliff vest after a set period.

Qualified plans (401k, IRA) meet IRS requirements for tax benefits: tax-deductible contributions, tax-deferred growth. Non-qualified plans (deferred compensation) don't receive preferential tax treatment but have fewer restrictions.

Federal law regulating investment companies (mutual funds, closed-end funds, UITs). Requires registration with SEC, prospectus delivery, board of directors oversight, and restrictions on affiliated transactions.

A legal disclosure document that must be delivered to investors before or at the time of sale of mutual fund shares or variable contracts. Contains investment objectives, risks, fees, and performance history.

A supplement to the prospectus containing more detailed information about the fund. Also called Part B of the prospectus. Available upon request but not required to be delivered automatically.

Requires that recommendations be suitable for the customer based on their investment profile: financial situation, tax status, investment objectives, time horizon, liquidity needs, risk tolerance, and other investments.

SEC rule requiring broker-dealers to act in the retail customer's best interest when making recommendations. Requires disclosure of material conflicts, care in making recommendations, and policies to address conflicts.

A brokerage account owned by one person who has full control and is solely responsible for all taxes and liabilities. Upon death, assets transfer to the estate or named beneficiary.

A joint account where all owners have equal, undivided interest. Upon death of one owner, their share passes directly to surviving owner(s), bypassing probate. Common for spouses.

A joint account where each owner has a specified percentage interest. Upon death, the deceased's share passes to their estate (NOT other owners). Interests may be unequal.

Account held by an adult custodian for benefit of a minor. One custodian, one minor per account. Assets are irrevocable gifts to the minor. Minor gains control at age of majority (18 or 21 depending on state).

An account managed by a person with legal authority to act on behalf of another (fiduciary). Examples: trustee, executor, guardian, conservator. Fiduciary must act in the best interest of the beneficiary.

Investment earnings (dividends, interest, capital gains) that are not taxed until withdrawn. Common in retirement accounts (IRAs, 401k) and annuities. Allows compound growth without annual tax drag.

Tax on profit from selling an asset for more than its cost basis. Short-term (held 12 months or less): taxed as ordinary income. Long-term (held more than 12 months): taxed at preferential rates (0%, 15%, or 20%).

The original value of an asset for tax purposes, typically the purchase price plus commissions. Used to calculate capital gains or losses when the asset is sold. May be adjusted for reinvested distributions.

Income taxed at regular income tax rates. Includes wages, interest, short-term capital gains, and distributions from Traditional IRAs and 401(k)s. Tax brackets range from 10% to 37% (2024).

Methods for determining cost basis when selling partial mutual fund holdings. FIFO (First In, First Out): oldest shares sold first. LIFO: newest shares first. Average Cost: average of all shares. Affects tax liability.

The market where newly issued securities are sold for the first time. Proceeds go to the issuer. Examples: IPOs, new bond issues. Investment banks underwrite and distribute new securities.

The market where previously issued securities are traded between investors. Proceeds go to the selling investor, not the issuer. Includes stock exchanges (NYSE, NASDAQ) and OTC markets.

An investment strategy of investing fixed dollar amounts at regular intervals regardless of share price. Results in buying more shares when prices are low, fewer when high. Reduces impact of market volatility over time.

A prohibited practice of selling mutual fund shares just below a breakpoint to deny the customer a reduced sales charge. Representatives must inform customers of breakpoints and help them qualify.

Moving a customer's assets from one mutual fund family to another primarily to generate sales charges. May be suitable in some cases but is a violation when done solely to earn commissions.

Any written communication distributed to more than 25 retail investors within a 30-day period. Requires principal pre-approval before first use. Subject to FINRA filing requirements.

Written communication to 25 or fewer retail investors within 30 days. Does not require principal pre-approval but must be supervised. Subject to review procedures established by the firm.