Primerica - Series 6

Series 6 Review
Student Workbook
FOR INTERNAL USE ONLY. NOT TO BE USED WITH, OR DISTRIBUTED TO, THE PUBLIC.
2012 Primerica / 12pol100 / 6.12
Checklist
1. Set-up securities profile
2. Submit your U-4
3. Complete the fingerprint process
4. Complete the Pre-Study Material (Kaplan or TesTeachers)
5. Open your exam window
6. Schedule to take the Series 6 exam 5 7 days after
participating in Prep to Pass
7. Bring a highlighter to the broadcast
Prep to Pass Series 6 Review
Registered Representative
(Series 6) Review
Chapter 1 (8 questions)
Securities Markets, Investment Securities, and Economic Factors
1-1 Primary Market
The New Issue Market
Initial Public Offering (IPO)
Net proceeds from IPO go to the issuing corporation to raise working capital
Underwriter Contracts
Best Efforts - Issuer has financial risk
All or None - Issuer has financial risk
Mini-Max - Issuer has financial risk
Stand by - Underwriter has financial risk
Firm commitment - Underwriter has financial risk
Red Herrings
Solicitation for interest in upcoming IPO
Cannot purchase stock yet
Tombstone Ads
Announcing an upcoming IPO
Must include disclaimer
1-2 Secondary Market

Trading of Issued Securities
Exchange Market
Auction style
Physical Location (NYSE)
Highest Bidder
Over The Counter Market (OTC)
Negotiated market
Telephone to Telephone or Computer to Computer
No physical location
Fourth Market (Instinet)
Institutional Trading
1-3 Market Terms
Trade Date
The recorded date of the transaction
Settlement Date (a Regular way settlement)
Corporate & municipal securities (T+3)
Government Securities (T+1)
Cash Trades (Mutual Funds) same day
1-4 Dividend Dates

Declaration Date
The day the Board Of Directors authorizes the dividend
Record Date
The day the shareholder must officially own shares to receive the dividend
Ex-Dividend Date
Two business days prior to the Record Date
Must purchase shares before EX date if you want to receive the dividend
Payment Date
The date on which the declared dividend will be paid
Ex-Dividend Dates
November
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
10
11
12
13
14
15
16
17
22
23
24
Ex-Dividend (A)
for OTC
& Exchange
18
Record Date (A) Ex-Dividend

(Ex-Dividend
(B) for OTC
(A) for Mutual
& Exchange
Funds)
19
20
21
Record Date (B) Ex-Dividend

(Ex-Dividend
(C) for OTC
(B) for Mutual
& Exchange
Funds)
Record Date (C)

(Ex-Dividend
(C) for Mutual
Funds)
Thanksgiving
1-5 Price Quote Terms

Bid Price (Wholesale)
The smaller number in a quote (NAV)
The highest price a buyer is willing to pay
You sell at Bid
Asked Price (Retail)
NAV + SC = POP or Asked
Larger number in a quote
You buy at Asked
1-6 Corporate Securities
Equity Securities = Ownership
Common Stock
Speculative capitalization for investor
When you buy common stock you become part owner in corporation
Stock Diagram
When a company incorporates,
they are authorized to issue a
certain number of shares.
Capitalize to raise money
1,000,000
Authorized
600,000
Issued
Reasons to Buy Back

1) Employee Stock Option Plan
2) Think Stock will go up
3) No Voting rights
4) Receives No Dividends
400,000
Unissued
200,000
Treasury
400,000
Outstanding
Saved to raise
money at a
later date
Investing Public
Pre-emptive Right
A common stock shareholders right to maintain their proportionate
share of ownership in the corporation
Preferred Stock
No voting rights
Dividend or Cumulative preferred
All the dividends that are in arrears must be paid before the
common stockholders can receive any dividends
Straight preferred
Pays a stated dividend; does not pay dividends that are in arrears
Participating preferred
Pays a stated dividend and allows shareholders to participate in
additional dividends
1-7 American Depository Receipts

Issued by American banks
Represents ownership shares in foreign companies
Listed on foreign exchanges
Reduces currency exchange risk
1-8 Voting rights

Statutory voting
1 vote per BOD vacancy per share
Statutory Voting
Investor
100 Shares
Director 1
100 Votes
Director 2
100 Votes
Director 3
100 Votes
Director 4
100 Votes
Cumulative voting
Number of shares x number of vacancies on BOD
Cumulative Voting
Investor
100 Shares
Director 1
0 Votes
Director 2
0 Votes
Director 3
0 Votes
Director 4
400 Votes
1-9 Rights, Warrants, Options
Rights
Warrants
Options
Life Span
Short usually less

than 60 days
Long Usually three to

five years, but could be
longer
Varies usually nine

months or less, but
many be as long as
three years
Underlying
Instruments
Stocks
Stocks, bonds
Stocks, bonds,
indexes, and foreign
currencies.
Use
Allow existing stockholders to maintain

their proportionate
interest in a company
Sweetener attached
to issues of stocks and
bonds to encourage
investors to buy them
Hedging and
Speculation
Bullish
Call Defined
Buyer
has the right to purchase
securities at strike price
Bearish
Put Defined
Buyer
has the right to sell
securities
1-10 Debt Securities

Bonds are debt securities that represent an investors loan to the issuer
Bond yields
Premium, Face/Par, Discount
Nominal Yield or Coupon Rate
Current Yield
Yield to Maturity
Bond Yields (Bond See-Saw)

YTM
Premium
$ ________
CY _____%
NY or CR
NY
Face or Par
$ 1,000
Discount
$ ________
CY _____%
Annual
Interest
$ ________
YTM
1-11 Secured Bonds

Mortgage Bonds
Most common type
Backed by real property that the issuer owns
Equipment Trust Certificate
Backed by a specific piece of equipment
Example: Airplanes or Railroad cars
Not backed by issuer
Collateral Trust Certificate

Issued by corporations that own subsidiaries companies
Stock of the subsidiary company pledged as collateral for their bond issue
Example: Pepsi . . . Yum! Brands
1-12 Unsecured Bond (Debentures)
Back by only the good faith and credit of the issuing corporation
1-13 Convertible Bonds
Allow holders to convert to common shares of the same corporation at a
pre-determined price
Generally offered at lower interest rate than non convertible because of the
value added benefit of converting to common stock
1-14 Bond Features
Speculative capitalization for corporations
Redemption - On the bonds maturity date the bondholder receives his principle
and final interest payment (the debt is considered retired)
Call Provision - The issuer has the flexibility to retire the debt prior to maturity
Pay debt off early
Refinance debt to lower interest rate
Not callable for at least 5 years
10
1-15 Government Securities

Marketable Transferable
U.S. Government Securities

Marketable
U.S. Bonds
Minimum
Denominations
Interest
Price
T Bills
(13 26 52) Weeks

or
(3 6 12) Months
$ 1,000
At Maturity
Discount
TNotes
1 10 Years
$ 1,000
1/2 Year
Par
T Bonds
10 30 Years
$ 1,000
1/2 Year
Par
Maturity
Test Tip: _________________________________________________

Non marketable Redeemable

Sold at Discount
Earns Interest
Sold at Face Value

Pays Interest
Series EE
Series HH
Denominations
$50 $10,000
$500 $10,000
Purchased or Sold At:
50% Discount
At Face Value
in Exchange for Series E
Non-Marketable
Agency Bonds Government National Mortgage Association (Ginnie Mae) the

only agency backed by U.S. Government
11
1-16 Municipal Bonds (Federally Tax Free)

General Obligation (GO bonds)
Issuers must have taxing authority
Cities and Counties generate tax revenue through property tax (Ad Valorem)
States issues are generally secured by income, gasoline, and sales taxes
Revenue Bonds
Issued to fund a distinct project (Toll Roads, etc.)
Not backed by taxation
1-17 Money Market Instruments
Treasury Bills
Certificate of deposit (CD)
Minimum denomination is $100,000
Commercial Paper
Short-term debt instrument only issued by highly rated corporations
Maximum maturity of 270 days
Bankers Acceptance
Import and export business
Re-purchase Agreement
One financial company borrows from another
Borrower sells government securities to lender
Borrower agrees to buy it back at a higher price, which equals the interest on
the loan
12
1-18 Monetary Policy

Controlled by Federal Reserve Board (FRB)
Primary focus is to control inflation
Supervise and regulate banks
Maintain a stable financial system
1-19 Fiscal Policy
Controlled by Federal Government
Primary focus is stable economic growth and high levels of employment
The Governments use of taxes and expenditures
13
Notes
14

Securities And Tax Regulations
2-1 Securities Act of 1933
Primary Market
Paper Act
2-2 Securities Exchange Act of 1934
Secondary Market
People
2-3 Exempted Securities
Securities that do not have to register with SEC
Municipal
Commercial Paper
2-4 Exempted Offerings
Regulation D
Private Placement
Sold to no more than 35 non-accredited investors
Accredited investor
Any individual that has a net worth of at least 1 million dollars or
has earned at least $200,000 for the past 2 years
Letter stock
15
Regulation A
The small issue exemption
New issues raising less than 5 million dollars during a 12 month period
2-5 Broker and Dealers
Agency vs. Principal Transactions

Agency
Principal
Broker
Dealer
Others
Acts for
Agent
Acts as
Principal
Commission
Paid by
Mark-up
No Risk
Assumes
Self
(Owner)
Risk
2-6 Financial Industry Regulatory Authority

FINRA
Self-Regulatory Organization (SRO)
Statutory Disqualification (SD)
Promote self-discipline among members
Enforce rules of fair practice
Member firms cant misuse FINRA name
16
2-7 Registrations of Members

Registered Representatives (Series 6) and Registered Principals (Series 26)
Must renew registration once every year by the end of the year
Non-renewal for 2 years means Rep must retest
2-8 Securities Exchange Commission (SEC)
5-member board, 5 year term, appointed by President, confirmed by Senate
No more than 3 members can be affiliated with any one political party
2-9 Securities Investor Protection Act (SIPC)
Protect investors cash and securities in the event their broker becomes insolvent
Limits
$500,000 in securities or $250,000 in securities and max $250,000 in cash
Unlimited protection if all of the securities are registered in the name of the client
2-10 Investment Advisor (IA)
Any person who advises for a fee, not a commissions
IA managing less than $100 million in assets must register with the state(s)
Under SEC regulations, advisors managing between $100-110 million have the option
to register with either the state(s) or the SEC
If managing in excess of $110 million, the IA must register at the federal level
2-11 Exclusions from IA
Banks
Lawyers, accountants, teachers, and engineers (L.A.T.E.)
The advice must be incidental to their practice and they cannot be paid for that advice
Publishers
17
2-12 Investment Company Act of 1940

3 types of Investment Companies
Types of Investment Companies

U.I.T.
(Unit Investment Trust)
Unit Investment
Trust issue Shares
of beneficial
interest
Management
Companies
Open-End
(Mutual Funds)
Closed End
(Stock)
Open-End
Investment
Companies
issue
Closed-End
Investment
Companies Nonredeemable
Face Amount
Certificates
(24 Months)
Face Amount
Certificate
Companies
issue debt
2-13 Insider Trading Act 1988

Any person who purchases or sells securities while in possession of material
non-public information, or communicates such information to another person is
in violation
Civil Penalties
Not to exceed the greater of $1 million or 3 times the profit gained or loss avoided
Criminal Penalties
Criminal penalties may also be imposed (up to 20 years in prison)
2-14 Registered Representatives (RR)
Must submit U-4 form
Must pass qualifying exams (Series 6, 63)
18
2-15 Continuing Education

Regulatory Element
Must be completed by Rep on their second renewal date and then every 3 years
thereafter
Firm Element
Company compliance (Annual Compliance Meeting) once a year
2-16 Exempt from Registration
Persons limited to clerical functions
2-17 Cash and Non-cash compensation
Gifts cannot exceed $100 annually
2-18 Selling Agreements
Can only sell products with which the Reps company has a selling agreement
2-19 Selling Dividends
Convincing a client to purchase shares of a stock or mutual fund shortly before a
dividend is paid so that they will make extra money
This is a violation because there is no monetary benefit in acquiring securities shortly
before the dividend
2-20 Regulated Investment Company
Conduit or Pipeline theory
Sub chapter M of the Internal Revenue Code
The Investment Company must distribute at least 90% of net investment income so
that the tax obligation passes to the shareholders
19
2-21 Individual Investors Tax Consequences

Cost Basis
All the after-tax contributions to an investment; includes any sale charges
Form 1099 Div
Reports taxable distributions taxed at a flat 15%
Form 1099 B
Reports proceeds on the sale of shares
Short-term gain is any gain held less than 1 year
Shareholder will be taxed at their ordinary income tax rate
Long term gain is any gain held 1 year or longer
Shareholder will be taxed at a flat 15%
Max capital loss write-off is $3,000 per year
2-22 First In, First Out (FIFO) accounting
You will not be taxed until you pull more money out than you put in
2-23 Gift of securities
Recipients cost basis is same as Donors cost basis
Recipient only pays tax on the amount above the cost basis when they sell the shares
2-24 Inheritance of securities
The amount the recipient receives is their cost basis
2-25 Wash Sale
If an individual sells a security at a loss and then repurchases a substantially similar
security within 30 days the IRS will disallow the loss.
20
2-26 Tax Treatment of Variable Annuity Contracts

Accumulation Period
Non-qualified annuity units are purchased with after tax dollars, thus creating a
cost basis
Annuity Period
Payments received during annuity period are divided into 2 parts:
Cost Basis the money that has already been taxed
Taxable portion the growth above the cost basis
Exclusion Ratio
Determines how much is cost basis (already been taxed) and how much is
considered growth (taxable)
Taxes & Penalties
All gains that are received from an annuity are taxed at the ordinary income tax
rate of the annuitant
10% IRS penalty if withdrawn before 59 1/2
2-27 Death Benefit Provision of an Annuity
The beneficiary will receive the larger amount of money between:
How much the annuitant contributed or
The value of the annuity on the day they died
Any gain that results will be taxed at the Beneficiarys ordinary income tax rate
21
2-28 1035 Exchange

A non-qualified insurance company contract transfer to another non-qualified
insurance company contract
Non-qualified annuity to non-qualified annuity
Life policy to life policy (not term)
Life policy to non-qualified annuity
Cannot move annuities into life policies
2-29 Tax Treatment of Variable Life Insurance
All investment income grows tax deferred
Upon death all proceeds pass to the beneficiary tax-free
IRS adds value of policy to deceaseds estate
Upon full or partial surrender, FIFO applies
Policyholder is not taxed until they pull out more money than they put in
A gain would be taxed at policyholders ordinary income rate
2-30 Traditional IRA
Anyone with earned income who has not reached age 70 1/2 may contribute
Max contribution is $5,000 or 100% of earned income, which ever is less
Last day to contribute is April 15th of the following year
Withdrawals prior to 59 1/2 will be accessed a 10% IRS penalty
Catch up provision allows investors who are 50 years old or older to invest up to an
extra $1,000 for a total of $6,000
Pay out must begin by the next April 1st after investor turns 70 1/2
Required Minimum Distribution (RMD) penalty is 50% what should have
been withdrawn
Gains are taxed at the investors ordinary income rate
22
2-31 Spousal IRA

Allows a non wage-earning spouse to contribute up to $5,000 into their IRA
2-32 IRA Rollover
Moving money from IRA to another within 60 days to avoid taxes and penalties
Only allowed once every 12 months
2-33 Roth IRA
Contribution limits are same as Traditional IRA
Contributions are subject to income limits
After tax non deductible contributions only
Tax free distribution if:
Account is open for at least 5 years
Withdrawals begin after 59 1/2
RMD does not apply (70 1/2 rule)
Penalty free withdrawals for 1st time homebuyer
$10,000 lifetime cap
Qualified higher education expenses
Disabled owner
23
2-34 Keogh Plan

Only a self-employed person or an employee of a self-employed person is eligible
Eligibility rules (1 1 1)
Must be 21 years old
Must have worked with the company for at least 1 year
Must have worked at least 1,000 hours in that year
Voluntary employee contributions are allowed up to the lesser of 10% of earned
income or $2,500
Max contributions are 20% of pretax income up to $49,000
59 1/2 and 70 1/2 rules apply
2-35 SEP Plan
For self employed individuals and their eligible employees
Eligibility rules:
21 years old
Worked for same employer 3 out of the last 5 years
Has received $550 in compensation from the employer
Employer contributions only
Max contribution is the lesser of 25% of gross earning or $49,000
2-36 Simple IRA Plan
Small business plan
No more than 100 eligible employees
Any employee that make $5,000 during the previous year
Employees may contribute to their account up to the annual limit
24
Employer must contribute either by:

2% method or
3% $ for $ match
Employees are immediately 100% vested on employers contributions
2-37 529 Plans
State sponsored college saving plans
No income limits
Withdrawals are tax free when used for higher education expenses
Non-qualified withdrawals are subject to a 10% penalty and ordinary income tax on gains
Investor can switch beneficiaries if the child decides not to go to college
529s allow for accelerated gift tax limits
5 years worth of contributions ($13,000 x 5 = $65,000) per parent
2-38 Educational IRA
Income limits apply
No contributions can be made after the child turns 18 years old
Max annual contribution is $2,000
Tax free withdrawals for elementary, secondary or college costs
25
2-39 Defined Contribution Plans

Profit Sharing Plans
No profit, no sharing
The only qualified plan that has no mandatory annual contribution
401 (k) Plans
Pre-tax contributions, grows tax deferred
No mandatory matching
Employee picks where money goes
Employees are always 100% vested on their contributions
Distributions prior to 59 1/2 will receive a 10% penalty
All withdrawals will be taxable
403 (b) Plans
Public school employees, non-profit hospitals, and churches
Contributions are made by salary deduction
Distributions made prior to 59 1/2 will receive a 10% penalty
All withdrawals will be taxable
2-40 Deferred Compensation Plans
Non-qualified plan in which the employer promises to pay retirement benefits to
employee in the future
457 plans are available to state and local government employees
Police, Fire fighters, school teachers
After tax/non-tax deductible contributions
26

Marketing, Prospecting, And Sales Presentations
3-1 Prospectus
Current prospectus must be updated at least annually
Anything a reasonable shareholder needs to know before they invest must be included
in the prospectus
A current prospectus must be delivered prior to or during the sale
The funds current portfolio is not included in the prospectus
3-2 Statement of Additional Information
SAI must be attached to the prospectus to keep it current
SAI does not extend the life of a prospectus
3-3 Unlawful Representation
SEC no approval clause
RR can never imply the SEC has approved them or the securities they are selling
3-4 SIPC
Created to protect investors in the event their brokers go bankrupt
Limits are $500,000 in securities and a max of $250,000 in cash per separate
customer Example: Husband, wife, and joint accounts)
Unlimited protections if all the securities are registered in the clients name
3-5 Advertisements
Defined as materials used in the media
Newspapers, magazines, radio, and television
27
3-6 Sales Literature

Defined as any written or electronic communication made generally available to
the public
Reprints, telemarketing scripts, performance reports, and circulars
3-7 Approval, Record Keeping and Filing Requirements
Advertisements and Sales Literature must be kept on file for 3 years
Advertisements and Sales Literature must be filed with FINRA within 10 days
after use
3-8 Telemarketing
Calling people you dont know to try to get them to buy something
No private residence can be called before 8:00 am their time or after 9:00 pm in
their local time zone
Established business relationship
Telemarketer has made a financial transaction within 18 months of call
The telemarketer is the Broker/Dealer of record on the clients account
The person contacted the telemarketer within 3 months of the call
Personal Relationship
Family, friends, and acquaintances
3-9 Tombstones Advertisement
Advertises an upcoming IPO
Not considered a prospectus
Disclosure must be included at bottom of Tombstone
28
3-10 Free riding and Withholding

A practice where an underwriter does not make a legitimate public offering of a hot
issue, but instead holds back shares for its own use
3-11 Front Running Policy
The unethical practice of a broker buying a security for himself just before his
brokerage firm makes a large purchase
3-12 Supervisory System
Each member firm must supervise the activities of each of their RRs
All supervisory systems must be in writing
Member firm must designate principals (S26) to supervise the activities of their RRs
Must designate an Office of Supervisory Jurisdiction (OSJ) in each location
Member firms must conduct an internal audit of each office at least annually
All transactions must be reviewed and endorsed in writing by the Registered Principal
3-13 Customer Complaints
Written complaint is defined as any written communication from a client to the
member firm regarding the activities of their reps in regards to transactions,
securities, or funds
OSJs must maintain a file of:
All written complaints
Any action taken on such complaints
29
3-14 Selling Away

When a broker solicits a potential customer to purchase a security not offered or
held by his brokerage firm
We dont sell it, you cant sell it
30

Evaluation Of Customers
4-1 Types of Investment Risk
Business/Credit Risk
Risk that an issuer may not be able to meet interest or principal payments
Interest Rate Risk
Threat of suffering a loss due to a change in the interest rate
Purchasing Power Risk (Inflationary Risk)
Investing in a fixed income security over a long period of time
Taxability
Risk that changes in the tax law would adversely affect the profitability of
your investment
Market Risk
If you are invested in the market, you have risk
31
4-2 Suitability Factors

Recommending suitable investments for a specific client is not an exact science
RR has to make a judgment based on the totality of information obtained from
the client
RR must ask the client questions pertaining to:
Invest objective (Goal for money)
Time frame (How long)
Financial status (Can they afford it)
Risk tolerance
RR should use a client profile questionnaire that the client signs to verify that the
suitability evaluation has been done
4-3 Investment Objectives Of Clients
Determining a clients investment objective is critical to the overall success of the plan
Types of Investment Objectives
Preservation of capital - Maximum protection against loss of principal
Current income - Income now as opposed to sometime in the future
Growth - Seeking capital growth over a long period of time; more volatility in
the short term
4-4 Risk Tolerance Of Clients
Defined as degree of uncertainty that investors can tolerate with regards to a negative
change in the value of their portfolio
An asset allocation questionnaire will assist the RR in determining the clients risk
tolerance
32
4-5 Recommendations To Customers

If a customer insists on purchasing a security that the RR feels is unsuitable, the RR
may execute the order:
The RR should mark order unsolicited and
The RR should obtain a written statement that the order was not
recommended for the client
4-6 Churning
Excessive trading in a clients account solely to generate commissions
4-7 Trading In Mutual Fund Shares
Commonly known as Switching
Moving a mutual fund client from one fund family to another solely to
generate a commission for the RR
4-8 Recommending Purchases Beyond Customers Capability
It is a violation of the standard of fair dealings to recommend to a customer to
borrow money to invest or to reach a breakpoint
33
Notes
34

Product Information
5-1 Comparison Of Closed End - Open End Funds
Comparison of Closed End and Open End Funds
Closed End (Stocks)
Open End (Mutual Funds)
Buying Shares
Single IPO of a fixed number

of shares
Full shares only
Continuous primary offering of

unlimited number
Full or fractional shares
Trading Shares
(Redeeming)
Secondary market exchange

or OTC
No secondary market, redeemed

by the fund
Types of Shares
(Capitalization)
Common, preferred, or debt

securities
Common shares only
Share Pricing
Supply and demand
NAV + SC = POP
Shareholder
Rights
Voting
Dividends
Preemptive rights
Voting
Dividends
5-2 Mutual Fund Features and Characteristics

Max sales charge is 8.5%
Professional management-is one of the greatest advantages to investing in mutual
funds, especially for the smaller investor
All research and analysis is conducted by Mutual Fund management
Each fund has a specific objective stated in the prospectus
Shareholders have voting rights through proxies
35
Types of funds
Type
Portfolio
Growth
Suitable For
Common Stocks
Conservative Growth
Aggressive Growth
Blue-Chip, Large-Cap stocks
Long-term investors seeking

capital appreciation
Small-Cap, and Mid-Cap stocks
Equity Income
Common and Preferred Stocks
Investors who want income

along with some small potential
for capital appreciation
Growth and Income
Stocks
People who want both capital

appreciation and income
Bond Funds
Debt Securities (Fixed Income)
Those primarily interested in

current income
U.S. Government Bonds
Treasury Securities
People who want income and a

high degree of safety
Municipal Bond Funds
Municipal Securities
Investors who want tax-exempt

income
Corporate Bond Funds
Investment-Grade Corporate Bonds
Investors who need income
Non-Investment-Grade Corporate Bonds

(Junk Bonds)
Investors who want high income

and are willing to accept a high
degree of capital risk
Balanced Funds
Mixture of Stocks, Bonds, and Cash

Equivalents (Money-Market Instruments)
Will always have some of each
Investors who want to have

something in all three classes
of assets
Asset Allocation
Funds
Stocks, Bonds, and Cash Equivalents

The proportions may be changed and the
percentage in any class could drop to zero
Investors who want

diversification among asset
classes in a single fund
Index Funds
Securities selected to mirror a

particular index
Investors who want to peruse a

passive investment strategy and
want low fees
Specialized or
Sector Funds
Securities of one industry or

geographic area
Investors willing to assume more

risk in exchange for a higher
potential return
Foreign Funds
Non-U.S. Securities
Investors willing to assume extra

risks and who want to diversify
outside the U.S. markets
Emerging Market Funds
Securities of emerging market countries
Aggressive investors only
Money-Market
Funds
Cash Equivalents (T-Bills, Commercial

Paper, Negotiable CDs, and Bankers
Acceptances)
Short-term investors who want

liquidity and safety
High-Yield Funds
36
5-3 Structure And Function Of A Mutual Funds Board Of Directors

Board of Directors must be structured so a minimum of 40% be unaffiliated (from
the outside)
60% can be employees, underwriters, or its advisor
5-4 Functions Of Investment Advisor
The IA is elected by the BOD to manage the funds portfolio
The IA is paid a fee based on the percentage of AUM over a specific period of time
This fee is classified as an operating expense of the fund
The IA must conform to the objectives of the fund stated in the prospectus
5-5 Functions Of Custodian
Mutual funds are required to have national bank or any qualifying institution to act as
its custodian
Duties of the custodian include:
Safeguard the physical assets
Perform payable and receivable functions
Register the receipt of interest and dividends for the fund
Custodian does not perform any management, supervisory or
investment functions
Custodian is not involved in the selling of any MF shares
37
5-6 Functions of Transfer Agent

Shareholder services
The transfer agent is contracted by the fund to perform basic clerical functions:
Issue the shares
Redeem the shares
Distribute the dividends and capital gains
5-7 Shareholder Rights
Voting rights by proxy
Approving investment objective or policies changes
Approving investment advisory agreement
Approving changes in fees
Electing directors but not officers
5-8 Automatic Reinvestment
Mutual funds typically offer automatic reinvestment of dividends and capital gains
at NAV (without sales charge)
5-9 Dollar Cost Averaging
Investing a fixed amount of money systematically over a period of time
Reduces average cost per share
38
Dollar Cost Averaging

Which would you prefer?
Tracking two $200.00 per month
Investments for Six months
Both Investments start out at the same price per share.
Share Price
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Month
Number of Shares Purchased

Investor
Total Shares
Purchased
A
B
25.00
25.00
20.00
40.00
16.67
66.67
14.28
100.00
12.50
50.00
1 1 .1 1
25.00
99.56
306.67
Growth in Value of the Shares

Investor
Amount
Invested
Total Number
of Shares
Average Cost
Per Share
Ending
Value
A
B
$1,200
$1,200
99.56
306.67
$12.05
$3.91
$1,792.08
$2,453.36
39
5-10 Exchange Privileges Within Families Of Funds

Moving money from one Mutual Fund to another Mutual Fund within the same family
of funds
There will be no additional sales charge
The IRS always counts an exchange as a sale and must be reported regardless of
gain or loss
Shareholder will not be taxed until they transfer more money to the new fund than
they put in (FIFO)
5-11 SEC Rule 12b-1
12b-1 is a fee charged to the investor to cover expenses associated with the
promotion and distribution of the fund
Allowable expenses include:
Printing of sales literature
Distribution of sales literature
Advertising
Commissions
The 12b-1 fee must be originally approved and annually approved by:
The majority of the funds Board of Directors
The majority of the outstanding voting shares
Requirement to terminate the 12b-1
The majority vote of the non-interested Board of Directors
The majority of the outstanding voting shares
40
5-12 Forward Pricing

NAV is calculated once every business day at 4:00 pm EST
Client receives next calculated NAV from when their funds post at the fund company
Example:
Clients funds post 2 pm Monday, so the client will receive Monday close of
business. NAV Clients funds post 5 pm Friday, so client receives Monday close
of business NAV
Redemption of shares works the same way
5-13 Share Classes
Class A Shares
Known as front end load
A percentage of all new money invested goes to SC
Investor may be able to take advantage of breakpoints and rights of
accumulation
A shares are not good for an investor with a short time horizon
A shares typically have low 12b-1 fees
Class B Shares
Shares are purchased at NAV (no upfront sales charge) but have a potential back-end
load charge (CDSC)
Class B shares are most beneficial for long-term investors (5-8 years)
Class B shares convert to A shares after a period of time, this is beneficial
because A shares have a lower annual expense charge
No breakpoints for B share investors
Class C Shares
Better for short-term investors
Carries higher 12 b 1 fee
41
5-14 Breakpoint
The dollar amount for the purchase of the funds shares that qualifies an investor for a
reduced sales charge (load)
Investment clubs and co-ops are excluded from breakpoints
Amount of Purchase at Offering Price ($)
Sales Charge as % of Offering Price
Less than $25,000
5.00%
$25,000 but less than $50,000
4.25%
$50,000 but less than $100,000
3.75%
$100,000 but less than $250,000
3.50%
$250,000 but less than $500,000
2.00%
$500,000 but less than $1,000,000
0.50%
$1,000,000 and above
0.00%
5-15 Letter Of Intent (LOI)

A letter of intent allows an investor to qualify for the sales discounts without initially
investing the entire amount required
A Letter of Intent is good for 13 months
An investor can back-date a Letter of Intent for 90 days
Only contributions count towards Letter of Intent, not accumulation
5-16 Rights Of Accumulation
The investors have a right to receive cumulative quantity discounts when purchasing
shares of a mutual fund
The investors are permitted to combine assets from their accounts and the accounts
of their immediate family (spouse, children under age 21, and financially dependent
family members)
Appreciation of the shares are considered
42
5-17 Timely Payment By Fund

ICA40 requires mutual fund companies to pay redemption proceeds within
7 calendar days
5-18 Variable Contracts
The underlying assets held in VA or VL must be kept in the insurance companys
separate account
No guaranteed return on investment
Investor bears the risk
Resistant to inflation
Variable annuities and Variable life are over seen by the SEC and the State Board of
Insurance
RRs must have both a securities license and life insurance license to sell VAs and VLs
Variable annuities offer payments for life
Money invested into a VA grows tax deferred
VA investors have voting rights
All growth that is received from an annuity is taxed at the annuitants ordinary income
tax rate
Max sales charge is 8.5%
5-19 Types of Variable Annuities
Immediate Annuity
Can only be funded by a single lump sum
Payment begins 1 payment period after a lump sum deposit into the contract
43
5-20 Deferred Annuity

An annuity that can be purchased by either a single lump sum (single premium
deferred annuity) or is purchased through periodic payments (flexible premium
deferred annuity)
Payments cant begin before at least 1 year from date of purchase
5-21 Fixed Annuity
The insurance company guarantees principal and interest rate
Money must be held in the general account
Money grows tax deferred
Subject to inflationary risk (purchase power risk) insurance company bears the risk
The growth is taxed at the annuitants ordinary income tax rate
5-22 Settlement Options
Straight-life Annuity
Highest monthly payment
This option carries the most risk
When the annuitant dies the payments stop
Life Annuity with Period Certain
The annuitant will be paid for their lifetime
If the annuitant dies before the period certain then the beneficiary will either receive
a lump sum or continue to receive payments until the period certain is over
The most common period certain options are (10 year, 15 year, and 20 year)
44
Joint and Last Survivor Life Annuity

Payment is made to 2 people, if 1 dies the payments continue to be made to the
surviving annuitant until they die, all payments stop at that time
Combination Fixed and Variable Annuity Pay-out
This is a combination of guaranteed fixed dollars for a base income and variable
dollars as a hedge against inflation
5-23 Contractual Provisions
Mortality Guarantee
This guarantees the annuitant that they will not out live their money (payments for life)
Expense Guarantee
This establishes the max the insurance company can charge the contract
These provisions would be listed in the contract as the M & E charge
The max sales charge for a VA is 8.5%
5-24 Assumed Interest Rate
The AIR is part of annuity contract and is used to calculate the amount of each
annuity payment
The AIR remains fixed; it never changes
To calculate the next months payment, follow these rules:
If AIR is greater than the rate of return of the separate account, the payment
will be lower than the previous month
If AIR is lower than rate than the rate of return of the separate account, the
payment will be higher than the previous month
If AIR is the same as the rate of return of the separate account, the payment
will be the same as the previous month
45
Example:
AIR = 4%
March separate account return is 5% - payment is higher than previous month
April separate account is 3% - payment is lower
May separate account is 4% - payment is the same as separate account is
June separate account is 7% - payment is higher
July separate account is 5% - payment is higher
5-25 Similarities Between Whole Life And Variable life
Death Benefit
Both have a fixed minimum death benefit
Premium Payments
Generally paid in fixed amounts at fixed intervals
Loans
Both policies allow for loans, however:
With Whole life policyholder can borrow 100% of cash value
With VL policyholder can only borrow a percentage of the cash value
5-26 Features of Variable Life
Max sales charge is 9%
Proceeds past to beneficiary tax free
Value of policy is included for estate tax purposes
Policyholder has voting rights
Conversion Privilege
Allows Variable Life to convert to whole life or universal life without proof of insurability
Money is held in the separate account
46

Opening And Servicing Customer Accounts
6-1 Account Documentation
It is important for a RR to obtain essential facts about a customer opening an account
Customer name and residence
Whether or not they are of legal age
Signature of RR
6-2 Bank Secrecy Act
Designed to help identify the source, volume, and movement of money transported
into or out of the US
Banks are required to maintain records of all financial transactions and to report any
suspicious transactions
Transmittal of funds in excess of $ 3,000, B/D must:
Obtain specific information about the transmitter and the recipient
Must keep transmittal order
For transactions exceeding $10,000 B/D must file a currency transaction report
(CTR)
This could be a single transaction or multiple transactions that exceed
$10,000 during a single business day
Patriot Act of 2001
Amended The Bank Secrecy Act
Financial Crime Enforcement Network (FINCEN) answers to the Department of the
Treasury
FINCEN enforces anti-money laundering programs
47
6-3 Anti-Money Laundering Compliance Program

Every member firm must develop and implement a written AML program
Customer identification program
The part of a new account application where the RR must verify the identity
of the customer by seeing and documenting a non-expired Government issued
picture ID (drivers license, military ID, or passport)
Suspicious activity report (SAR) and describe suspicious activities
6-4 Privacy and Opt-Out Notices
B/D must make customer aware of the companys privacy policy with respect to
customers non-public information
Privacy policy flier must be given to customer at time of sale
Must be sent to customer annually
Customer has right to opt-out by sending form
Company website does not need to be on the notice or flier
6-5 Forms Of Ownership
Registration of accounts
6-6 Individual Accountants
Registered in the name of one individual
6-7 Joint Tenants With Rights Of Survivorship (JTWROS)
Each owner owns 100% of the account
Either party may transact business in the account
Sole ownership passes to the surviving tenant
Typically used by married couples
48
6-8 Tenants In Common (TIC)

Each tenant owns a percentage of the account
When a tenant dies their percentage is added to their estate
All tenant signatures are required for trading in the account
6-9 Custodial Accounts
Uniform Gift to Minors Act (UGMA)
One minor and one custodian per account
All securities are registered in the minors name
Contributions to the account are considered an irrevocable gift to the minor
UGMA account must include custodians name, the name and social security
number of the minor
As of 2011,
The Kiddie tax rule applies to children under age 19 (or 24 if full-time
student and claimed as dependent on parents tax return)
The first $950 of unearned income is tax free
The next $950 is taxed at the childs rate
Unearned income over $1,900 is taxed at the parents top marginal bracket
Tax liabilities are the minors responsibility
Age of majority for UGMA is 18
Uniform Transfer to Minors Act (UTMA)
Age of majority for UTMA is between 18 and 25
49
6-10 Customers Securities or funds

RRs cannot, in any way, guarantee a profit to the customer
For a RR to share in a clients account:
The agreement must be in writing
The RR must share in direct proportion to the profits and/or the losses
6-11 Borrowing or Lending To A Customer
It is not permitted unless:
Existing written procedures are in place by B/D
The customer is a member of the RRs immediate family
6-12 Immediate Family
Parents, grandparents, spouses, mother-or father-in-law, sibling, sister-or brother-inlaw, daughter or son-in-law, children, grand children, cousins, aunts, uncles, nieces
and nephews
6-13 Influencing Employees of Other Members
B/Ds may not pay compensation to employees of other members except:
The employing firm gives written permission
Gifts less than $100
6-14 Code of Arbitration
Simplified Arbitration
For claims under $25K
Eligible claims for submission
Between or among members
Between members and associated persons
Between members, associated persons and public customers
50
6-15 Federal Reserve Board/Regulation T

The FRB was granted authority, under Reg T to establish margin requirements for B/Ds
The margin requirement now is 50%; this means you can borrow up to 50% of
the value of your account with your B/D
Must pay B/D within 7 business days or your account will be frozen for 90 days
Once your account is frozen you can only do cash trades
The B/D may apply to FINRA in writing and they may grant an extension
of time; if not, account is frozen
6-16 Holding Mail
The broker may hold customers mail, if request is made in writing
Mail may be held for 2 months for domestic travel
Mail may be held for 3 months for foreign travel
51
Notes
52
Practice Questions
For Series 6 Review
53
Chapter 1
1. A 6% bond is selling to yield 4.5%. The next time interest is paid, an investor who
owns $1,000 face amount of the bonds will receive:
A. $45
B. $22.50
C. $60
D. $30
Answer D, $30, is correct. The bond is a 6% bond. The total amount paid each
year on the bond is $60 but the amount for an individual, semi-annual interest
payment, is $30. The phrase the next time interest is paid in the question is
important in getting this one right.
2. A bond offered at face value has a nominal yield:
A. less than its yield to maturity
B. more than its current yield
C. more than its yield to maturity
D. equal to the nominal yield
Answer D, equal to the nominal yield, is correct. When a bond is selling at par,
its coupon or nominal rate, current yield and yield to maturity are all the same.
54
Chapter 2
1. A customer has a cash account that has securities with a market value of
$200,000 and $300,000 in cash. The customer also has a joint account with her
husband that has securities with a market value of $300,000 and $200,000 in
cash. If the B/D were to become insolvent, the customer would be covered under
SIPC for cash and securities of:
A. $500,000 cash and securities for both accounts
B. $1,000,000 total for both accounts
C. $250,000 cash for her account and $250,000 cash for the joint account
D. $450,000 cash and securities for her account and $500,000 cash and
securities for the joint account
Answer D is correct. There are two separate customers, each entitled to the
$500,000 SIPC protection but since SIPC only covers up to $250,000 in cash,
the customer will not get full coverage for the $300,000 cash in her account.
2. In June, a customer invested $10,000 in the XYZ Mutual Fund. In December of the
same year, XYZ distributed a capital gain on securities it had held for three years.
In May of the next year, the customer decided to redeem her shares for a capital
gain. How are both of the capital gains treated for taxation purposes?
I. The capital gain distribution is treated as long term
II. The capital gain from redemption is treated as long term
III. The capital gain from redemption is treated as short term
IV. The capital gain distribution is treated as short term
A. I and III
B. II and IV
C. I and II
D. III and IV
55
Answer A, I and III, is correct. The tax payable on capital gains depends on the
holding period of the security sold or redeemed. The mutual fund had held the
securities for three years prior to the sale, making the capital gain long term.
The capital gain from the redemption took place after the mutual fund shares had
been held for less than a year, making the capital gain short term.
3. Jack is the annuitant in a variable plan, and Donna is the beneficiary. Upon Jacks
death, during the accumulation period, Donna takes a lump-sum payment. What is
her total tax liability?
A. The entire amount is taxed as ordinary income, because it is not like life
insurance
B. The proceeds, minus Jacks cost basis, taxed as ordinary income, at
Donnas tax rate
C. None, because it is the proceeds from a life insurance company
D. The ordinary income on the proceeds over the coast basis, plus 10% of the
net gain (if any), if Donna is younger than 59 1/2 years old
Answer B is correct. Annuity death benefits are generally paid in a lump sum.
The beneficiary is taxed at ordinary income rates during the year the lump sum
is received. The amount taxed is the amount of the lump-sum payment, minus
the deceaseds cost basis in the investment.
56
Chapter 3
1. Which of the following statements regarding Cold-Calling are TRUE?
I. Faxes may be sent at any time of the day on an unsolicited basis
II. Upon request, contact names must be placed on a Do-Not-Call list and the
request must be honored
III. Cold calls may not be made before 8:00 am or after 9:00 pm in the
contacts time zone
IV. The rule imposes a time limit on the length of a call to a customer
A. III and IV
B. I and IV
C. I and II
D. II and III
Answer D, II and III, is correct. The Cold-Calling Rule restricts the time during
which cold callers may telephone prospects but does not restrict conversations
with customers. Faxes may not be sent to the homes or offices of non-customers
unless requested. B/Ds must maintain Do-Not-Call lists and train their
representatives in their use.
57
Chapter 4
1. Which of the following statements regarding the suitability of investment
recommendations are TRUE?
I. A clients investment objectives, prior investment experience, financial
profile, and risk tolerance aid in determining suitability
II. Suitability will vary with each investor
III. Only the client is responsible for learning about the investments that
are purchased
IV. Growth and income mutual funds are suitable for all investors
A. III and IV
B. II and III
C. I and III
D. I and II
Your answer D, I and II, is correct. Knowledge of the clients investment
objectives, investment experience, financial and tax status, and risk tolerance
all contribute to an understanding of a clients suitability. No two investors have
precisely the same investment needs and characteristics.
58
Chapter 5
1. Which of the following are among the objectives of a balanced fund?
I. Tax advantages
II. Exploitation of special circumstances
III. Capital appreciation
IV. Income
A. II and III
B. III and IV
C. I and IV
D. I and II
Answer B is correct. Balanced funds, also known as hybrid funds, invest in stocks
for appreciation and bonds for income. The relative proportion of each is adjusted
by the fund manager.
2. A shareholder invested in a mutual fund and has signed a letter of intent to invest
$50,000. Her original investment was $15,000 and her account value is $20,000.
For her to complete the LOI, she must deposit:
A. $15,000
B. $30,000
C. $37,000
D. $35,000
The correct answer is D, $35,000. Under an LOI, the full contribution is requested
for the letter to be completed. Appreciation is not considered.
59
3. If your customer invests in a variable annuity and chooses to annuitize at age 60,
which of the following statements are TRUE?
I. He will receive the annuitys entire value in a lump-sum payment
II. He may choose to receive monthly payments for the rest of his life
III. The accumulation units value is used to calculate the total value of the
account
IV. The annuity units value represents a guaranteed return
A. II and III
B. I and IV
C. II and IV
D. I and III
The correct answer is A. When a variable contract is annuitized (distributed
in regular payments, not as a lump sum), the number of accumulation units
is multiplied by the unit value to arrive at the accounts current value. An
annuity factor is taken from the annuity table, which considers, for example,
the investors sex and age. This factor is used to establish the dollar amount of
the first annuity payment. Future annuity payments will vary according to the
separate accounts performance.
4. Your client owns a variable annuity contract with an AIR of 5%. In April, the actual
net return to the separate account was 7%. If this client is in the payout phase, how
would her May payment compare to her April payment.
A. It cannot be determined until the May return is calculated
B. It will be lower
C. It will stay the same
D. It will be higher
Answer D is correct. If the separate account of a variable annuity with an AIR of
5% had actual net earnings of 7% in April, the May payment will be higher than
the April payment.
60
Chapter 6
1. To comply with the regulations regarding customer identification programs, the
minimum identifying information that must be obtained from each customer
before opening an account includes:
I. Name
II. Verbal assurance that the customer is of legal age
III. A street address, unless the primary mailing address is a post office box
located in the state of residence
IV. A taxpayer identification number
A. III and IV
B. II and III
C. I and IV
D. I and II
Your answer C, I and IV, is correct. Mere verbal assurance that the customer is of
legal age is not sufficient; the actual date of birth must be obtained. A post office
box is never acceptable without a physical address. In addition, the identity of the
person opening the account must be verified through documentation such as an
unexpired drivers license or passport.
61
Notes
62

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Primerica - Series 6

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Series 6 Review

Prep to Pass Series 6 Review

Prep to Pass Series 6 Review

1-2 Secondary Market

1-4 Dividend Dates

Record Date (A) Ex-Dividend

Record Date (B) Ex-Dividend

Record Date (C)

Prep to Pass Series 6 Review

1-5 Price Quote Terms

Capitalize to raise money

Reasons to Buy Back

Prep to Pass Series 6 Review

1-7 American Depository Receipts

1-8 Voting rights

Prep to Pass Series 6 Review

1-9 Rights, Warrants, Options

Short usually less

Long Usually three to

Varies usually nine

Allow existing stockholders to maintain

1-10 Debt Securities

Bond Yields (Bond See-Saw)

1-11 Secured Bonds

Prep to Pass Series 6 Review

Collateral Trust Certificate

1-15 Government Securities

U.S. Government Securities

(13 26 52) Weeks

Test Tip: _________________________________________________

U.S. Government Securities

Sold at Face Value

Purchased or Sold At:

Agency Bonds Government National Mortgage Association (Ginnie Mae) the

Prep to Pass Series 6 Review

1-16 Municipal Bonds (Federally Tax Free)

1-18 Monetary Policy

Prep to Pass Series 6 Review

Chapter 2 (23 questions)

Prep to Pass Series 6 Review

2-5 Broker and Dealers

Agency vs. Principal Transactions

2-6 Financial Industry Regulatory Authority

2-7 Registrations of Members

2-12 Investment Company Act of 1940

Types of Investment Companies

2-13 Insider Trading Act 1988

2-15 Continuing Education

Prep to Pass Series 6 Review

2-21 Individual Investors Tax Consequences

2-26 Tax Treatment of Variable Annuity Contracts

Prep to Pass Series 6 Review

2-28 1035 Exchange

2-31 Spousal IRA

Prep to Pass Series 6 Review

2-34 Keogh Plan

Employer must contribute either by:

Prep to Pass Series 6 Review

2-39 Defined Contribution Plans

Chapter 3 (18 questions)

3-6 Sales Literature

3-10 Free riding and Withholding

Prep to Pass Series 6 Review

3-14 Selling Away