WILEY FINRA SERIES This series includes the following titles: Wiley Series Exam Review 2016 + Test Bank: National Commodities Futures Examination Wiley Series Exam Review 2016 + Test Bank: The Registered Options Principal Examination Wiley Series Exam Review 2016 + Test Bank: The Investment Company and Variable Contracts Products Representative Examination Wiley Series Exam Review 2016 + Test Bank: The General Securities Representative Examination Wiley Series Exam Review 2016 + Test Bank: The General Securities Sales Supervisor Examination—Option Module Wiley Series 10 Exam Review 2016 + Test Bank: The General Securities Sales Supervisor Examination—General Module Wiley Series 24 Exam Review 2016 + Test Bank: The General Securities Principal Examination Wiley Series 26 Exam Review 2016 + Test Bank: The Investment Company and Variable Contracts Products Principal Examination Wiley Series 55 Exam Review 2016 + Test Bank: The Equity Trader Examination Wiley Series 62 Exam Review 2016 + Test Bank: The Corporate Securities Representative Examination Wiley Series 63 Exam Review 2016 + Test Bank: The Uniform Securities State Law Examination Wiley Series 65 Exam Review 2016 + Test Bank: The Uniform Investment Adviser Law Examination Wiley Series 66 Exam Review 2016 + Test Bank: The Uniform Combined State Law Examination Wiley Series 99 Exam Review 2016 + Test Bank: The Operations Professional Examination For more on this series, visit the website at www.wileysecuritieslicensing.com WILEY SERIES 65 EXAM REVIEW 2016 The Uniform Investment Adviser Law Examination The Securities Institute of America, Inc Cover Design: Wiley Cover Image: © iStockphoto.com / LuisB Copyright © 2016 by The Securities Institute of America, Inc All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Previous editions published by The Securities Institute of America, Inc Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation Y ou should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 5724002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com ISBN 9781119112396 (Paperback) ISBN 9781119138846 (ePDF) ISBN 9781119138822 (ePub) CONTENTS About the Series 65 Exam Taking the Series 65 Exam How to Prepare for the Series 65 Exam? Why Do I Need to Take the Series 65 Exam? What Score Is Needed to Pass the Exam? Are There Any Prerequisites for the Series 65 Exam? How Do I Schedule an Exam? What Must I Take to the Exam Center? How Soon Will I Receive the Results of the Exam? About This Book About the Test Bank About The Securities Institute of America Chapter 1: Equity Securities What Is a Security? Equity = Stock Common Stock Corporate Time Line Values of Common Stock Book Value Par Value Rights of Common Stockholders Preemptive Rights Characteristics of a Rights Offering Determining the Value of a Right Cum Rights Determining the Value of a Right Ex Rights Voting Limited Liability Freely Transferable The Transfer Agent The Registrar CUSIP Numbers Inspection of Books and Records Residual Claim to Assets Why Do People Buy Common Stock? Income What Are the Risks of Owning Common Stock? How Does Someone Become a Stockholder? Preferred Stock Features of All Preferred Stock Types of Preferred Stock Callable Preferred Types of Dividends Dividend Distribution Taxation of Dividends Selling Dividends Dividend Disbursement Process Warrants How Do People Get Warrants? American DepositAry Receipts (ADRs)/American DepositAry Shares (ADSs) Currency Risks Functions of the Custodian Bank Issuing ADRs Real Estate Investment Trusts/REITs Direct Participation Programs and Limited Partnerships Limited Partnerships Tax Reporting for Direct Participation Programs Limited Partnership Analysis Tax Deductions vs Tax Credits Other Tax Considerations Dissolving a Partnership Pretest Chapter 2: Corporate and Municipal Debt Securities Corporate Bonds Types of Bond Issuance Bond Pricing Par Value Discount Premium Corporate Bond Pricing Bond Yields Yield to Maturity: Premium Bond Yield to Maturity: Discount Bond Calculating the Yield to Maturity Calculating the Yield to Call Realized Compound Yield Returns Yield Spreads The Real Interest Rate Bond Maturities Series Issue Types of Corporate Bonds Guaranteed Bonds Convertible Bonds Converting Bonds into Common Stock Parity Price Advantages of Issuing Convertible Bonds Disadvantages of Issuing Convertible Bonds Convertible Bonds and Stock Splits The Trust Indenture Act of 1939 Bond Indenture Ratings Considerations Exchange Traded Notes (ETNs) Euro and Yankee Bonds Variable Rate Securities Retiring Corporate Bonds Municipal Bonds Types of Municipal Bonds Taxation of Municipal Bonds Tax-Equivalent Yield Purchasing a Municipal Bond Issued in the State in Which the Investor Resides Triple Tax Free Original Issue Discount (OID) and Secondary Market Discounts Amortization of a Municipal Bond's Premium Bond Swaps Analyzing Municipal Bonds Analyzing General Obligation Bonds Duration Convexity Bond Portfolio Management Pretest Chapter 3: Government and Government Agency Issues Series EE Bonds Series HH Bonds Treasury Bills, Notes, and Bonds Purchasing Treasury Bills Treasury Notes Treasury Bonds Treasury Bond and Note Pricing Treasury STRIPs Treasury Receipts Treasury Inflation Protected Securities (TIPS) Agency Issues Government National Mortgage Association (GNMA) Federal National Mortgage Association (FNM) Federal Home Loan Mortgage Corporation (FHLMC) Federal Farm Credit System Collateralized Mortgage Obligation (CMO) CMOs and Interest Rates Types of CMOs Pretest Chapter 4: Investment Companies Investment Company Philosophy Types of Investment Companies Open End vs Closed End Diversified vs Nondiversified Investment Company Registration Registration Requirements Investment Company Components Mutual Fund Distribution Selling Group Member Distribution of No-Load Mutual Fund Shares Distribution of Mutual Fund Shares Mutual Fund Prospectus Characteristics of Open-End Mutual Fund Shares Mutual Fund Investment Objectives Other Types of Funds Bond Funds Alternative Funds Valuing Mutual Fund Shares Sales Charges Other Types of Sales Charges Recommending Mutual Funds Calculating a Mutual Fund's Sales Charge Percentage Finding the Public Offering Price Sales Charge Reductions Breakpoint Schedule Letter of Intent Breakpoint Sales Rights of Accumulation Automatic Reinvestment of Distributions Other Mutual Fund Features Dollar Cost Averaging Mutual FUnds Voting Rights Mutual Fund Yields Portfolio Turnover Pretest Chapter 5: Variable Annuities and Retirement Plans Annuities Bonus Annuity Equity-Indexed Annuity Recommending Variable annuities Annuity Purchase Options Accumulation Units Annuity Units Annuity Payout Options Factors Affecting the Size of the Annuity Payment The Assumed Interest Rate (AIR) Taxation Types of Withdrawals Annuitizing the Contract Sales Charges Investment Management Fees Variable Annuity vs Mutual Fund Retirement Plans Individual Plans Individual Retirement Accounts (IRAs) Corporate Plans Types of Plans Rolling Over a Pension Plan Employee Stock Options Employee Retirement Income Security Act of 1974 (ERISA) ERISA 404C SAFE HARBOR Life Insurance Tax Implications of Life Insurance Pretest Chapter 6: Fundamental and Technical Analysis Fundamental Analysis Balance Sheet Capitalization Changes in the Balance Sheet The Income Statement Industry Fundamentals Top-Down and BOTTOM-UP Analysis Dividend Valuation Models Technical Analysis Market Theories and Indicators Efficient Market Theory Statistical Analysis Market Capitalization Pretest Round lot Rule 144 Rule 147 Rule 200 Rule 203 Rule 2210 Rules and regulations See also specific rules and regulations FINRA Insider Trading and Securities Fraud Enforcement Act of 1988 Investment Advisers Act of 1940 Investment Company Act of 1940 National Securities Market Improvement Act of 1996 Patriot Act pretest SEC Securities Act of 1933 Securities Acts Amendments of 1975 Securities Exchange Act of 1934 SIPC Telephone Consumer Protection Act of 1991 Trust Indenture Act of 1939 USA Rule changes, by state securities administrators Rule of 72 Rush orders S “Safe Harbor” (ERISA 404C) Sale (defined) Sales charges SAR (Suspicious Activity Report) S corporations SDBK (super display book system) SEC, see Securities and Exchange Commission SEC disclaimer Secondary markets Sector funds Secured bonds Securities: defined registration of, see Registration of securities trading of, see Trading securities types of Securities Act of 1933 Securities Acts Amendments of 1975 Securities and Exchange Commission (SEC) broker dealer registration with creation of FOK/IOC order rules investment adviser registration with investment company registration with IPO registration with and registration statements Regulation SHO and soft dollars transaction regulations Securities Exchange Act of 1934 Securities Investor Protection Corporation Act of 1970 (SIPC) Securities transactions Self-directed 401K plans Self-incrimination Self-regulatory organizations (SROs) Sell (defined) Selling: calls dividends puts Selling group members Sell limit orders Sell stop orders Seminars, free lunch Semi-strong-form efficiency SEP (simplified employee pension) IRA Serial bonds Serial maturity Series EE Bonds Series HH Bonds Series issue Services, free Settlement dates Settlor function 75-5-10 test Share identification Sharpe ratio Short calls Short interest theory Short puts Short sales Short stock long calls Short stock short puts Short straddles Short-term municipal financing Shredding Simplified employee pension (SEP) IRA Single payment deferred annuity Single payment immediate annuity “Sin” taxes SIPC (Securities Investor Protection Corporation Act of 1970) SLP (supplemental liquidity provider) Small capitalization Soft dollars Sold option Solicitors S&P (Standard & Poor's) S&P 500 Special assessment bonds Specialists/DMMs Specialist bills Specially Designated Nationals Special tax bonds Specified program Speculation as investment objective Speculative rate bonds Spread (defined) SROs (self-regulatory organizations) Standard & Poor's, see S&P Standard power of attorney State regulation: broker dealer registration and coordination and exempt securities stop orders State securities administrators actions by broker dealer registration with and civil/criminal penalties jurisdiction of notice filing with pretest and right of rescission and statute of limitations Uniform Securities Act and Statistical analysis Statute of limitations Statutory debt limit Statutory voting method Stocks, see Common stock; Equities; Preferred stock; Securities Stock dividends Stock exchanges Stockholders' equity Stockholders' rights Stock splits Stop limit orders Stop loss orders Stop orders Stopping stock Stop price Straddles Straight life annuity Straight line depreciation Straight preferred stock Strategic asset allocation Street name Strike price STRIPs Strong-form efficiency Subchapter S corporations Subordinated debentures Subscription price Suitability obligation Summary order Super display book system (SDBK) Supplemental liquidity provider (SLP) Supply side economics Support (technical analysis) Suspicious Activity Report (SAR) Systematic rebalancing Systematic risk T T+3 (settlement date) T+5 (payment date) Targeted amortization class (TAC) CMOs Tax and revenue anticipation notes (TRANs) Tax anticipation notes (TANs) Taxation AMT and annuities and charitable donations corporate dividend exclusion and cost base of multiple purchases and direct participation programs of dividends estate taxes as fiscal policy and foreign securities gains and losses and inherited/gifted securities of interest income and Keogh plans and life insurance and municipal bonds of partnerships pretest and SEP IRAs of trusts of TSA/TDA distributions of UGMA accounts and wash sales withholding tax Tax benefits, as investment objective Tax credits Tax deductions Tax-deferred accounts (TDAs) Tax-equivalent yields Tax-exempt organizations (501C3) Tax-sheltered annuities (TSAs) Technical analysis and efficient market theory market theories/indicators pretest and statistical analysis Telemarketing Telephone Consumer Protection Act of 1991 Television advertising Tender offers Term bonds Term definitions under USA Testamentary trusts Testimonials Third market Third-person accounts 30-day emergency withdrawal 3C7 funds Thrift plans Time value: of money of options Timing risk TIPS (Treasury inflation protected securities) Tombstone advertisements Top down analysis Total return Trade date Trading ahead Trading securities arbitrage brokers vs dealers crossing stock DNR FINRA percent markup policy over the counter/Nasdaq pretest regulation of by specialists/DMMs state securities administrator's jurisdiction over stock exchanges stock splits stopping stock types of orders Traditional IRAs Tranches TRANs (tax and revenue anticipation notes) Transactions, see Trading securities Transfer agents Treasury, U.S Department of Treasury bills Treasury bonds Treasury inflation protected securities (TIPS) Treasury notes Treasury receipts Treasury stock Treasury STRIPs Trend lines Trigger prices Troughs Trusts Trust accounts Trust indentures Trust Indenture Act of 1939 TSAs (tax-sheltered annuities) Two-dollar brokers Two-sided markets U UGMA (Uniform Gifts to Minors Act) UITs (unit investment trusts) Ultra ETFs Unauthorized transactions Uncovered calls Underwriters, transactions with Uniform Gifts to Minors Act (UGMA) Uniform Prudent Investors act of 1994 (UPIA) Uniform Securities Act (USA) agent registration under civil/criminal penalties under and exempt financial institution transactions and exempt securities penalties under state administrator's powers under State Securities Administrator pretest State Securities Administrator role/responsibilities term definitions term definitions pretest Units (common shares with warrants) Unit investment trusts (UITs) Universal life insurance Universal variable life insurance Unsecured bonds Unsolicited orders UPIA (Uniform Prudent Investors act of 1994) Upward trend lines USA, see Uniform Securities Act USA PATRIOT Act Utility stocks V Valuation ratios Variable annuities Variable life insurance Variable Rate Demand Obligations (VRDOs) Variable rate securities Variable universal life insurance Veterans Affairs, U.S Department of (VA) Voting rights VRDOs (Variable Rate Demand Obligations) W Warrants Wash sales Weak-form efficiency Websites, FINRA regulations for Weighted returns Whole life insurance Withholding tax Working capital Wrap accounts Y Yankee bonds Yields Yield-curve analysis Yield spreads Yield to call Yield to maturity Z Zero-coupon bonds Z tranches Your purchase of Wiley Series 65 Exam Review includes access to the accompanying test bank If you have purchased an electronic version of this book, please visit www.wileysecuritieslicensing.com to request an accesscode WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley's ebook EULA ... Wiley Series 63 Exam Review 2016 + Test Bank: The Uniform Securities State Law Examination Wiley Series 65 Exam Review 2016 + Test Bank: The Uniform Investment Adviser Law Examination Wiley Series. .. Principal Examination Wiley Series 55 Exam Review 2016 + Test Bank: The Equity Trader Examination Wiley Series 62 Exam Review 2016 + Test Bank: The Corporate Securities Representative Examination Wiley. .. Exam Review 2016 + Test Bank: The Uniform Combined State Law Examination Wiley Series 99 Exam Review 2016 + Test Bank: The Operations Professional Examination For more on this series, visit the