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Series 7

Debt Ceiling The limit in the amount of debt that an issuer is able to incur (GO Bonds)
Tracking trends in __________ provides a good indication of a communities health. (GO Bonds) Real estate valuation
Overlapping Debt *Coterminous Debt* When multiple authorities in the same geographic area have the ability to tax the same residents.
Total Bonded Debt The sum of both the long and short term debt of a municipality plus its applicable share of overlapping debt.
Revenue Bonds are considered __________ than GO Bonds since the generated revenues may prove to be insufficient to fud debt service. Riskier
Special Tax Bonds Backed by special taxes. Ex. tobacco, gas
Special Assessment Bonds Payable only from an assessment on those who directly benefit from the facilities. Ex. sidewalks, street improvements
Certificates of Participation - COPs A type of lease financing agreement that's issued as a tax-exempt muni revenue bond. A method of monetizing existing surplus real estate. Provides long term funding through a lease instead of a loan that eliminates the need for a public referendum or vote
Industrial Developmental Bonds Issued by a municipality and secured by a lease agreement with a corporation. The purpose is to build a facility for a private company. Because the private company is a substantial user, federal tax on interest is applied.
Private Activity Bond When 10% + is used to finance a project for a private entity and 10+ is used to by the private entity. Interest on these bonds may be subject to the AMT and may be taxed at the federal level.
AMT Disclosure The purchase of a private activity bond could lead to potential AMT liabilities therefore MSRB requires an RR to disclose the bond's details on a confirmation.
Direct Payment Bond (BAB) Provides issuers with a reimbursement from the US Treasury for 35% of the interest paid on the bonds.
Double-Barreled Bonds Backed by a specific revenue source (other than property taxes) as well as the full faith and credit of an issuer with taxing authority. SO... taxes plus revenues to pay off this debt
Advance-Refunded Bonds Also know as pre-refunded or defeased bonds. This is outstanding debt obligations that have been collateralized by US Gov. securities. They are usually paid off by their next available call date and carry high credit ratings.
Escrowed- to-Maturity Bonds (ETM) This is outstanding debt obligations that have been collateralized by US Gov. securities. Not callable and have a high credit rating (similar to Advance-Refunded Bonds
Parity Bonds Exists when two or more issues of revenue bonds are backed by the same pledged revenues.
Legal Opinion Written to attest to the legality and validity of the muni issue.
Ex-legal The delivery of certificates w/o legal opinions or other docs at the time of the trade.
Net Revenue Pledge Operating and Maintenance Expenses are deducted from the gross project revenues.
Gross Revenue Pledge Debt service is paid prior to operating and maintenance expenses being deducted.
Debt Service Coverage Ratio Measures the amount of available revenue compared to the amount of revenue needed to satisfy the debt service requirement. 2:1 is an average ratio.
Debt Service Coverage Ratio Equation Coverage Ratio = Net Revenue/Debt Service
Trust Indenture Also called the bond resolution or trust agreement. It is a contract between the issuer and the trustee that has been appointed to represent the bondholders interests. It includes the covenants.
Rate Covenant Issuers pledge to maintain rates
Maintenance Covenant Issuers pledge to maintain the project in good working order
Insurance Covenant Issuers pledge to carry insurance on the property
Financial Reports and Audits Issuers pledge to maintain proper records. Used to avoid the possibility of funds being misused.
Issuance of Additional Bonds Closed-end indenture - no additional bonds can be issued. Open-end - additional bonds can be issued.
Catastrophe Call Provides municipalities insurance against natural disasters.
Flow of Funds Establishes the order and priority of handling, depositing, and disbursing pledged revenues, as set forth in the bond contract.
Revenue Fund The account in which all receipts and income (gross revenues) are deposited and recorded
Sinking Fund Fund in which revenue is accumulated in order to retire bonds prior to their maturity
Surplus Fund The fund where excess money is placed for emergencies
The typical flow of funds for a revenue issue 1. Operating and Maintenance Fund 2. Debt Service Fund 3. Debt Service Reserve Fund
Muni Notes Short term issues that are issued to assist in the financing of a project. They are interest bearing securities that pay interest at maturity.
Tax Anticipation Notes - TANs Issued to finance muni operations in anticipation of future tax receipts from property taxes. These are usually GO securities.
Revenue Anticipation Notes - RANs Issued to finance muni operations in anticipation of future federal or state revenues. These are usually GO securities.
Tax and Revenue Anticipation Notes - TANs A TAN and RAN issued together
Bond Anticipation Note - BANs Issued to obtain financing for projects that will eventually be financed through the sale of long term bonds
Grant Anticipation Notes - GANs Issued in the expectation of receiving funds from a grant from the gov
Construction Loan Note - CLN Issued for construction that will eventually be funded by a bond issue.
Ratings for Muni Notes Use MIG ratings MIG 1-3 SG - Speculative Grade
Auction Rate Securities Long term investments with interest rates and dividends resetting at frequent intervals through Dutch auctions.
Dutch Auctions They may fail and funds may not be available immediately. The lowest bid rate establishes the interest/dividend rate, also known as the clearing rate. - Single price auction
Variable Rate Demand Obligations (VRDOs) A long term investment with a changing interest rate that is adjusted at specified intervals. Interest rates are reset by the dealer as opposed to in an auction and allows it to be sold at par value. Has a put option unlike ARSs
Commercial Paper Tax-Exempt, max maturity of 270 days, backed by a bank line of credit.
529 Plan Security Updates Changes can not be made more than twice every 12 months
529 Disclosure Requirements 1. Disclose risks and costs 2. Provide a disclaimer telling the client they should read the official statement 3. Recommend that the client check with their home state to see if they offer tax benefits for inventing in its plan
LGIPs Created by the state and local gov. to provide muni entities a place to invest funds.
Ordinary Income Includes wages, interest, and qualified withdrawals from retirement plans
Taxable Equivalent Yield Equation = Muni Yield/(100%-tax bracket%)
Original Discount Bonds Issued at a deep discount and must be accreted. Annual accretion is not taxable, suitable for clients who do not wish to incur a tax liability. No taxable gain if held to maturity.
Zero Coupon Muni Bonds are treated the same as _________ for capital gain/loss purposes. Original Issue Discount Bonds
Secondary Market Discount (Muni) If purchased in the 2nd market at a discount and held to maturity will cause a taxable gain with accretion. Treated as ordinary income and subject to federal taxation.
Firm Quote Quote the dealer is committed to honor. A recall period can be established.
All or none An all or none order is an instruction to fill the order completely at the specified price or cancel it. Not immediately
Fill or Kill A Fill or Kill (FOK) order is an order that is executed immediately at a specified price or canceled, if the price is unavailable.
Savings Bonds Non-negotiable, cannot be sold in the 2nd market. Can only be redeemed by the US Gov.
Treasury Inflation Protected Securities - TIPS 1. Interest rate is fixed, principal varies based on the CPI 2. Issued in book entry form in $100 increments, available in 5, 10, and 30 year terms 3. Semi-annual interest In the year the principal is adjusted, it will be taxed as ordinary income.
T-Bills are quoted _____________? On a discounted yield basis.
Treasury Receipts Not backed by the gov, created by brokerage firms but are collateralized by underlying U.S. government securities. A form or zero-coupon bond.
Treasury STRIPS A form of a zero coupon bond that is backed by the US gov. and quoted on a yield basis
Cash Management Bills - CMBs 1. Unscheduled 2. Short term debt offerings 3. Used to smooth out Treasury cash flows 4. Issued at a discount, mature at face value
Accrued Interest on Treasury Bonds/Notes - Paid semi-annually and is earned on the basis of actual days in each month and a 365 day year
Competitive Tenders Bids that specify the price and/or yields at which the firm is willing to buy Treasuries at the auction.
FFCB - Federal Farm Credit Banks Make loans to farmers. Interest is taxed at the federal level only.
FHLBs - Federal Home Loan Banks Interest taxed federally only. Not backed by the US gov.
Sallie Mae Able to lend directly to educational institutions. Interest is taxed federally and may be subject to state and local
Pass through certificate Each certificate represents an in-divided interest in the pool and are entitled to share in the cash flow that is generated by the pool. - Monthly payments (includes principal and interest) -Can be sold on the 2nd market
FHLMC - Federal Home Loan Mortgage Corp. Freddie Mac provides liquidity to federally insured savings institutions that are in need of extra funds to finance new housing. 1.Monthly payments, interest is fully taxable
Fannie Mae 1.Interest is fully taxable
GNMA 1. Backed by the gov. 2. Interest is fully taxable 3. Guarantees monthly payments
Prepayment Rate Measures the speed at which mortgages in the pool are being paid off or how quickly prepayments of principal are being received.
Average Life Measures the average number of years that each dollar of principal is expected to remain outstanding
Passive Income Comes from DPP's and personal real estate rentals
Portfolio Income Income from securities
Which tax is considered to be regressive? Sales tax is considered regressive because the rate remains constant irrespective of the amount being taxed. Income taxes, for example, take more from a person with a high income than from a person with a low income
Basis is also called? YTM
When the basis is more than the coupon the bond is being offered at a ___________? Discount
When the basis is less than the coupon the bond is being offered at a ___________? Premium
Bank-Qualified Municipal Issue One that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry the bonds.
Bond counsel Attests to the legality of a bond issue and issues a legal opinion on a proposed new municipal bond issue
Nasdaq Level 1 Nasdaq Level 1 quotes represent the highest bid and lowest asking prices of all dealers. This is known as the inside market.
Securities Act of 1933
Securities Act of 1934
Trust Indenture Act of 1939
CMO's 1. Subject to registration with both 1934 and Trust Indenture Act 2. Monthly interest payments are fully taxable 3. Principal is not taxable-considered a return on principal
Planned Amortization Class - PACs 1. Top priority and receives principal payments up to a specific amount 2. Pre-determined schedule of principal payments
Targeted Amortization Class - TACs 1. Protection from contraction risk (a shorter maturity schedule), not extension risk
Z-Tranches Deferred interest bonds with the longest average life and no cash flow. Similar to a zero coupon where interest compounds and is paid last after all other tranches
Floating Rate Tranches Interest rates fluctuate with an interest rate index such as LIBOR and COFI. The interest rate is re-set periodically to a margin above the index but is subject to a cap and a floor.
CDO's 1.Collateralized by a pool of bonds, loans, and various other assets. 2. Interest is fully taxable 3. Subject to filing with 1933,1934, and the Trust Indenture Act of 1939
Federal agencies taxable at all levels GNMA, FNMA, FHLMC
Federal agencies taxable only at the federal level Federal farm, Federal Home Loan, Sallie Mae,
To be qualified as diversified company the portfolio must be invested as follows: 1. 75% of the assets must be invested 2. No more than 5% in any one company 3. No more than 10% of the voting stock in one company
RIA's must be registered under which Act Investment Advisors Act of 1940
Mutual Funds 1. Can be Issued and redeemed at the end of each trading day - forward pricing 2. Shares can be exchanged for another fund within the same fund family for the NAV - no sales charge 3. Prospectus must be sent before or at the time of the sale
POP The NAV plus the sales charge
Management Fee The largest expense of an investment company. The investment advisor is paid based on the assets under management not performance.
Transfer Agent Performs record keeping functions for the fund: 1. Issues new shares/cancels shares that have been redeemed 2. Distributes capital gains and income dividends to shareholders 3. Mails the required documents
High Risk MFs 1. Aggressive Growth Funds 2. Specialized or Sector Funds 3. International or Global Funds
Moderate Risk MFs 1. Growth Funds 2. Equity Income Funds 3. Growth and Income Funds 4. Bond Funds 5. Index Funds 6. Balanced Funds 7. Asset Allocation Funds
Low Risk MFs Money Market Funds 1. Commercial Paper 2. T-Bills 3. Negotiable CDs 4. Bankers Acceptances
Aggressive Growth Funds Small and mid-cap stocks for long term investors looking for capital appreciation
Conservative Growth Funds Blue-chip and large cap stocks for long term investors looking for capital appreciation
Specialized or Sector Funds 1. These funds invest in companies that are undergoing some type of change. 2. Suitable for clients who are looking to speculate on a sector in the economy. 3. More risk for a potentially higher return
Growth Funds 1. Long term- Capital Appreciation objective - common stocks 2. More volatile than other securities and more market risk
Equity Income Funds Investors who want income with a small potential for capital appreciation - Includes common and preferred stock
Growth and Income Funds Investors who want both income and capital appreciation - Stocks
Bond Funds Investors who want current income - Debt Securities
US Gov. Funds Investors who want income and a high degree of safety - Treasuries
Index Funds A passive strategy that attempts to produce the same return as an index and offers low fee's
Mutual Fund Transactions Settle on the same day as the buy/redemption
To be marketed as a no load... 1. Can not have a front end load 2. No CDSC 3. No 12b-1 fee that exceeds .25% of the funds average annual net assets
12B-1 Fee's Used to pay the costs of distributing the funds shares to the public, cover concessions, and advertising and printing prospectus's - Ongoing fee deducted on a quarterly basis
Service Fee's Charges deducted under the 12B-1 fee that are used to pay for personal services or the maintenance of shareholder accounts
Expense Ratio Total Expenses/Average Net
What does the expense ratio consist of? Management Fee, Admin Fee, and 12B-1 Fee - NOT the sales charges
Letter of Intent - LOI Deposit is required over 13 months and can be backdated 90 days
Rights of Accumulation The reduced sales charge is based on the total investment made within the family of funds provided the shares are bought in the same class. Once reached, all future purchases are entitled to the reduced sales charge
MF Taxable Events 1. Receiving dividends 2. Reinvesting dividends 3. Exchanging Shares (w/in fund family) 4. Switching Shares (outside a fund family)
ETF's Represents an interest in an underlying basket of securities that mirror a specific index. 1. Priced - Supply and Demand 2. Low expenses 3. Can be sold short and bought on margin 4. Pay commissions
Inverse ETFs Attempt to go up when the market drops and vice versa. Best used for short term trading to take advantage of intraday price swings on a given index
Leveraged ETF Seeks to provide a multiple of the return on a benchmark index. Best used for short term trading to take advantage of intraday price swings on a given index
Created by: Karladda1