Series 26

Independent auditor finds records are not current:

it must notify the broker-dealer that, in turn, must send immediate telegraphic or facsimile notice to its examining authority and the SEC. The broker-dealer must follow up the notice by sending a report within 48 hours detailing the steps it is taking to correct the situation.

SEC not responsible for:

passing judgment on the investment merits of a security, nor does the SEC pass on the adequacy or accuracy of information in a prospectus.

Non-US Person

the firm must obtain the client's name, address, date of birth and one of the following: passport and country of issuance, taxpayer identification number, or any other government-issued document with a photograph. An RR would always need to verify the client's personal information regardless of whether the customer was referred by an existing client. DOES NOT NEED TIN

Equity Indexed Annuity (EIA)

the owner receives a guaranteed minimum interest rate with a potential upside based on the performance of the designated equity index. If the return on this index is less than the guaranteed rate, the owner receives the minimum. If the index return is greater than the guarantee, the owner receives the greater return up to the capped maximum. In this case, the index earned 14% but the client only receives the maximum 10% capped rate. If the return on this index is less than the guaranteed rate, the owner receives the minimum. Many contracts only pay a portion of the index return. In this example, the client is entitled to 80% of the index return capped at a 12% maximum. The index earned 10%, so the client receives 80% of that amount, or 8%. NO PROSPECTUS.

Mutual fund sales charge

the sales charge is stated as a percentage of the offering price, which consists of the net asset value and the sales charge.

Annuity sales charges

the sales charge is stated as a percentage of the total amount invested into the separate account (at NAV) plus the sales charge.

Advertising

used to communicate with the public. Examples of advertisements under industry rules include traditional communications tools such as newspapers, radio, TV, magazines, and billboards as well as Web sites, which are not password-protected, and telephone tape recordings.

Advertisements and sales literature must disclose:

whether the ranking takes into account sales charges, fee waivers, the fund category, and the number of companies in the category. A communication that does not specifically refer to the securities by name of a particular investment company, does not constitute an offer to sell and is called generic advertising. Advertisements offering employment with a member firm must comply with the rules regarding any advertisement. The ad must be approved by a principal of the firm prior to first use and a copy must be kept in the firm's advertising file. However, the ad must be filed with FINRA 10 days in advance only during the first year after the firm begins advertising. Firms may use blind ads (no name is mentioned) when seeking applicants for employment.

In order to make a public offering, an investment company must have a minimum net worth of:

$100,000

Simplified Arbitration

$25k or less between members or $25k or less between customers and members

ESA

$2k max. Tax deferred and withdrawals are tax free if used for educational expenses. Elementary or higher education.

Senior Securities

(Preferred Stock and Bonds) may not be issued by open-end investment companies.

Securities related misdemeanor penalty:

10 years

Regulatory Element

2 year anniversary of intial registration, every 3 years after that. Rep will become inactive if not taken within 120 days of anniversary. If the rep was subject to disciplinary action, must take again within 120 days of that action. There is no requirement to retake the Series 6 Examination.

Spread-load plan

20% sales charge first year and can only average 16% over first 4 years. (2 prospectuses)

Electronic communications must be kept on file for:

3 years

Regulated Investment Company

90% of net investment income to shareholders. Subchapter M (no taxes on income).

U4

A broker-dealer is required to verify the most recent three years of business activity for any person filing Form U4

SAR

A firm must file a Suspicious Activity Report (SAR) whenever a transaction (or group of transactions) equals or exceeds $5,000

Complaint

A firm must forward customer complaints to its office of supervisory jurisdiction (OSJ) where, under FINRA's record-keeping rules, they must be maintained for a period of four years. A written customer complaint that includes allegations of theft or misappropriation of funds or securities, or forgery must immediately be reported to FINRA. Written complaints may be answered in written or oral form.

Fidelity Bond

A member firm is required to carry a fidelity bond covering officers and employees to protect against such things as forgery, securities loss, embezzlement, theft, and fraudulent trading. The amount of the fidelity bond is based on the member firm's net capital requirement. A member is required to report the cancellation, termination, or substantial modification of the bond to FINRA within 10 business days of the cancellation.

Under Rule 17a-3, a broker-dealer must prepare and maintain:

A memorandum of every order for a customer, whether executed or unexecuted, showing all terms and conditions of the order . A memorandum of every purchase and sale for the broker-dealer's account indicating price and time of execution. Copies of confirmations of all purchases and sales of securities for the account of customers. Copies of confirmations of all purchases and sales of securities for the account of partners of the member firm.

Code of Arbitration

A person may initiate arbitration by filing a Submission Agreement, a Statement of Claim, and the required deposit fee Respondents may file a counterclaim against the person initiating the arbitration. If a customer is involved in an arbitration, a majority of the arbitrators must be from outside the securities industry. The Code of Arbitration does not provide for appeal of arbitration decisions by any party. No appeals! Not used for disciplinary actions (breakpoints sales, etc.) Disputes involving members against other members, members against persons associated with members, and a customer against a member.

Arbitration

A public customer may request that the arbitration panel consist of a majority of representatives from the securities industry. All awards must be in writing and rendered to claimants within 30 business days. At the time a claim is submitted, the deposit of a fee based on the amount of money in dispute is required. A favorable decision of the arbitration panel eliminates any records of the client's complaint. The RR does not need to report the complaint on his U4 and can file an amended Form U4 to eliminate the complaint from his record.

Rights of Accumulation

Add all past purchases within the same fund complex.

Roth IRA

All contributions to Roth IRAs are made with after-tax dollars. Earnings are not only tax-deferred, but may be taken out tax-free if the withdrawal occurs five years or more after the Roth was established, and the account owner is more than 59 1/2 years old. Withdrawals from Roth IRAs for qualified higher education expenses are not subject to the 10% premature withdrawal penalty, but do not qualify for tax-free treatment. The ability to make contributions to the Roth IRA is subject to income limitations.

Qualified Plan Eligibility

All employes > 21 and worked for the employer for at least 2 years (1 for 401k). Vesting: Fully vested after 5 years or 20% vested after 3 years and fully vested after 7 years. Strict fiduciary guidlelines for plan assets.

Who needs to be fingerprinted?

All personnel who handle securities or cash must be fingerprinted regardless of their registration status. Salespersons who handle products that do not involve certificates are exempt from the fingerprinting requirement.

Immediate Annuity

Always single payment.

Investment Adviser does not include:

An accountant, broker-dealer, or a registered representative

Instant Messaging

An instant message may be considered sales literature or correspondence depending upon the number of people and type of person to whom it is sent. An instant message sent to 25 or more prospective retail customers is considered sales literature. An instant message to one customer or prospective customer, or to an unlimited number of existing retail customers and/or less than 25 prospective retail customers within 30 days is considered correspondence.

Shareholder Reports

Annual and Semi-annual. Most current information.

A mutual fund must inform its shareholders of the right to reinvest dividends at the net asset value:

Annually

Who is exempt from the registration requirements of the Investment Advisers Act of 1940?

Authors of business periodicals, banks, and broker-dealers are specifically exempted from the registration requirements of the Investment Advisers Act of 1940. A financial planner receives a fee for providing financial advice and must therefore be registered.

Death Benefit (Variable Annuity)

Beneficiary receives the greater of: all payments made or value of annuity on the date of death. The annuity beneficiary would be required to pay taxes on any portion of the benefit received that exceeds the contribution amount. Annuity beneficiaries will receive a minimum amount equal to the contributions, but may receive a greater amount if the contract value has appreciated.

ADV (Investment Adviser Registration) Part II

Can be given directly to clients to provide disclosure about the adviser's business

Deferred Annuity

Can be single payment or periodic payment.

Non-registered person

Cannot solicit order for new accts, provide investment advice, make recommendations, give pricing info, or execute transactions

Discretionary Account

Client grants a third party the authority to act on an account. Must be in writing. Reps can be given limited authority. The member firm must obtain the written consent of the customer prior to exercising discretion. The account may not be handled on a discretionary basis until it is accepted by a partner, officer or designated official. Orders that are entered in a discretionary account must be approved on the day the order is entered by a partner, officer or designated official. Normal customer account information and a full power of attorney would be needed for discretionary accounts where the fiduciary has permission to also withdraw money. Written discretionary approval of a customer is not required when the customer only gives discretion as to time and price. If the customer specifies the name of the security, whether it is to be bought or sold, and the number of shares involved, the registered representative may accept discretion as to the time and price of execution without requiring written consent.

Bonus Annuities

Clients must be made aware that these upfront benefits are typically offset by higher annual charges. The bonus is not taxable nor is it negotiable.

Qualified Plan Benefits

Contributions are tax deferred. Not taxed on gains until disbursement. Employers may deduct all contributions into employees' accts.

12b-1 fees

Deduct marketing costs from the actual fund assets

Mutual Fund Taxable Events

Divs received, reinvested, and exchanges

Tombstone Ad

Does not have to be filed with FINRA

Equity-Indexed Annuities

EIAs are not considered securities under federal law and are not subject to prospectus delivery requirements.

FINRA registration:

Each FINRA member must appoint an executive representative and termination of registration must be in writing.

OSJ

Each OSJ is responsible for the maintenance of a file of customer complaints and for taking appropriate action in regard to the complaints. Inspected every year. (Non-OSJ branch = 23 years) (Inspections are done by Compliance)

Tenants-in-common

Each tenant does not need to have an equal portion of the account. If one owner of the account should die, the deceased person's interest in the account would be passed on to his or her estate.

Defined Benefit Plan

Employees receive a fixed monthly stipend at retirement. Employer finances the plan and bears all investmnet risk.

Profit Sharing Plan

Employer not required to make contributions. Predetermined formula for these contributions.

Blotter

Entries on the blotter are posted as of the trade date.

Stolen Stock is reported to:

FBI, SIC, and transfer agent

Selling Away

Failure of a registered representative who wishes to participate in securities transactions outside the normal scope of her employer's business (private securities transactions) must notify the employer in writing.

FOCUS Report (Part II)

Filed Quarterly with the SEC (17 days past quarter date)

Posteffective Period

Final prospectus is completed. Price of offering is set.

SEC standardized yield

For rankings based on yield, the SEC standardized yield must be used. In addition, rankings based on total return must accompany these yield rankings.

Cancel after 45 day free look

Front-end = (up until 18 months) shares current NAV plus sales charges > 15% of total investment. After 18 months = shares NAV only. Spread-load = Shares current NAV only

Shareholders must approve:

Fund investment policy, diversified vs. non-diversified. Must approve all Bd of Directors changes except divs/caps.

Long Term Capital Loss

Funds decrease in value (held the shares for more than one year)

Fund of Hedge Funds

Funds of hedge funds are invested in illiquid securities (individual hedge funds), and typically do not offer a guaranteed daily right of redemption.

Uniform Gifts to Minors Act

Gifts of securities may be made as well as gifts of cash. There can be only one custodian for one minor in a particular account. Only an adult may give a gift to a minor. Another minor could not give a gift under the Uniform Gifts to Minors Act. Gifts given to minors are irrevocable in all circumstances.

Prospectus

Given to clients at the time of the sale or preceding the sale. Includes mutual funds, variable products, UIT, and face-amt certificates. May not contain information more than 16 months old. A prospectus may be delivered electronically as a standalone document. Must be filed with the SEC. Is required by the registration provisions of the Securities Act of 1933. Must provide full and fair disclosure. This applies to open-end management companies (mutual funds) and unit investment trusts.

Fixed Annuity

Guaranteed rate of return. Invested in general account. Drawback: Inflation risk. Not a security, so no prospectus.

Corporate Bond Funds

High yield, high risk

Straight Life Annuity

Highest possible payout. Payments for life. Payments stop at annuitants death (no bene).

Annuity Loans

IRS considers it a distribution

Suspension from FINRA

If a broker-dealer is suspended from membership in FINRA, member firms must treat it in the same manner as they treat nonmembers.

Rep can work FT and PT at two separate employers

If a member firm wishes to hire an employee of another member firm in a part-time capacity, it may do so only with the permission of the other member firm. FINRA does not have to approve.

If a purchaser of an open-end investment company sells the fund within seven business days of the purchase:

If a purchaser of a mutual fund redeems the fund within seven business days of the purchase, both the dealer who sold the customer the fund and the fund's underwriter are required to forfeit the sales charge to the fund. The purpose of the rule is to dissuade member firms and underwriters from encouraging customers to engage in short-term trading of mutual funds. By requiring the member firm and the underwriter to forfeit the sales charge, FINRA has removed any incentive for them to encourage short-term trading.

Branch Office

If a representative uses a vacation home to transact business for 30 business days or more per year, the location qualifies as a branch. A registered representative who works from home may enter orders reviewable by his branch and e-mail clients through the firm's Web e-mail system.

Spousal IRA

If both work, max $5k each. If one works, also max $5k each.

Code of Procedure

If the Department of Enforcement believes that a registered person has violated industry rules, they can issue a complaint. Respondents have 25 days to answer a complaint once received and the Hearing Panel, which has original jurisdiction in Code of Procedure matters, must render a decision within 60 days after all evidence has been received. When FINRA expels a member, it is effective as soon as the decision is served on the respondent.

registered representative is asked by the sponsor of a limited partnership to sell partnership units to the rep's clients. Since the partnership is not being sold through the representative's broker-dealer, the sponsor will compensate the representative directly:

In order for the representative to participate, the broker-dealer must give written approval for the transaction and must record the transaction on its books.

Insider Trading Fines:

Individuals: $5M and/or 20 yrs (for criminal) Civil penalty is 3x the gain/loss.

U.S. Gov't Funds

Invest in Treasury securities. Interest-Rate Risk.

ETF

Invested in specific index. Traded on an exchange and commissions are paid whenever bought or sold. Not suitable for small $ investors. These securities may be purchased on margin and may be sold short. Lower fees than mutual funds b/c it is not actively managed. Prospectus delivery is only required when the ETF is sold as a new issue. ETFs are tax-efficient due to the products' low or nonexistent portfolio turnover. Exchange-traded funds have lower operating expenses than mutual funds. ETFs are not actively managed and advisory fees are low. The holdings of an ETF are transparent since the portfolio is stable. ETFs trade in the secondary market and are not redeemed at NAV. ETF dividend distributions are taxable.

General Account

Investment account for an insurance company. Funds traditional insurance (not variable products). Investments belong to the insurance company.

Separate Account

Investment account for variable annuities. Investments belong to the client.

Closed-End Investment Company

Issues stock to the public once. Traded in secondary market (OTC or NYSE). Can be traded for more or less than their NAV. No prospectus in secondary market.

Exemptions for companies to avoid Fingerprinting:

It limits its business exclusively to the sale of mutual funds, UITs, variable contracts, limited partnership interests, and real estate investment trusts. Its sale of variable annuities is regulated by a state insurance department. It is properly bonded regarding fraud by employees. It is current in its obligation to disclose to regulators whether any of its employees or partners is subject to statutory disqualification.

Long or Short term Capital Gain Distribution

Length of time the fund held the securities, not how long the shareholder held the fund.

Letter of Intent

Lower sales charge without depositing all of the money immediately.

Who may open a representative's mail?

Mail directed to a representative may not be opened by the addressee or any person directly under the representative's control. A sufficiently trained nonregistered person is permitted to review correspondence.

Fund Profile

Many mutual funds are using shorter summary versions of the prospectus. This document is sometimes referred to as a profile or a short prospectus. These reader-friendly documents highlight the most relevant information found in the complete prospectus. They are intended to encourage potential investors, who may be intimidated by the complete prospectus, to do their due diligence prior to investing. An investor may buy shares based solely on the content of this document, but must be made aware that she is entitled to a complete (full version) prospectus prior to making a purchase. A complete copy of the prospectus will be sent with the client's confirmation of purchase. The complete prospectus is typically also available on the sponsor's Web site.

Traditional IRA

Max $5k (unless > 50). Rollover within 60 days. Early withdrawals = 10% penalty plus ordinary income. Otherwise, ordinary income taxes.

403(b) Plan

May only invest in annuities, mutual funds, and retirement income accounts. NO STOCKS.

Mediation

Mediation is an informal dispute resolution process which is nonbinding. Both FINRA members and customers may engage in this process. The goal is to find a solution satisfactory to all parties and avoid either arbitration or litigation. However, if the parties cannot negotiate an acceptable settlement, they may still benefit from the process by narrowing the issues to be arbitrated or litigated. Attorneys for parties to mediation may be present during the meeting(s).

Gifts

Members of FINRA are restricted in the amount of gifts that they may give to other members' employees in relation to the business of the recipient's employer. The maximum gift that may be given is $100 per person per year. Permission of either the employer or FINRA is not required. Cannot give gifts for selling ONE fund. No SPOUSES.

FOCUS Report (Part 1)

Must be filed monthly with SEC (10 days beyond month)

Privacy Notices

Must be given to clients at the time of account establishment.

Do Not Call

Must be put on list within 30 days of receipt and stays on file for 10 years

Subaccounts

Must be registered investment companies with the SEC.

How long do the records relating to a terminated employee stay on record?

Must be retained for three years after termination

Confirmations

Must be sent the date of transaction settlement

Telemarketing/Cold Calling

Must disclose name, contact info, and purpose of the call.

A RR does not have to tell his employer about outside:

Mutual Funds or UITs

ADV (Investment Adviser Registration) Part I

Name, # of employees, background of partners, how the adviser will maintain assets.

Variable Annuity

No guaranteed rate of return. Invested in separate account. Designed to fight inflation. Prospectus required. Rebalancing subaccounts in a variable product will not create a tax liability since the contract is tax-sheltered. A variable annuity is most suitable for an investor seeking long-term, tax-deferred income for retirement They have higher fees, due to: management fee, administrative fees, and mortality and expense risk charges. Variable annuities are considered to be securities by the SEC, and therefore must be registered with the SEC and the State Insurance Commission. (not FINRA or NYSE) Surrender fees may be waived by the insurance company.

Diversified Funds

No more than 5% invested in any one company. If the percentage changes (say 5 to 8%), no updates in the portfolio are required.

Hedge Funds

Often employ aggressive financial strategies such as short selling, the use of leverage (borrowed funds), and establishing large speculative positions in individual companies or sectors of the market. These funds are not generally required to register with the SEC due to the accredited status of their investors, nor do they typically offer daily redemption privileges. Traditional hedge funds are not required to register with the SEC

May a member of FINRA may share in the profits and losses in a customer's account?

Only in direct proportion to each party's financial contribution

Parking

Parking refers to the practice of temporarily holding a position for a customer, often to avoid certain regulatory filing or net capital requirements.

Life with Period Certain

Payments for life and guaranteed for a certain period. Bene receives remaining payments if annuitant dies prior to period being over.

Unit Refund Life Annuity

Payments for life. Certain amount of payments guaranteed. Bene receives balance when annuitant dies.

Joint and Last Survivor Annuity

Payments for life. Payments stop once second annuitant dies.

Variable Life Insurance

Policyholder has choices about how premiums are invested (Investment risk). Invested in separate account. Death benefit is guaranteed as long as all premiums are paid and no loans have been taken. The death benefit of a variable life contract must be computed at least annually. (NAV computed daily). Increases in cash value are tax deferred. LOANS: only for a limited percentage of cash value. A fixed interest rate is charged.

Preregistration Period

Preparation of registration statement to be filed with the SEC. Underwriters may not discuss the new issue with customers.

ERISA

Prevent the misuse of funds by plan managers. Fiduciaries act soley in the interest of the plan.

Board of Directors

Protects shareholder interests. Select Investment Policy/Provider, Underwriter, Custodian, Transfer Agent. When divs/caps are paid. 12b-1 fees. Majority must be independent directors.

CRD

Provides registration info regarding Bkr/dlrs and registered persons

Customer Ledger

Purchases and sales are posted on the customer's ledger as of the settlement date.

Breakpoints

Purchases made at different brokerage firms may be aggregated.

Transfer Agent

Recordkeeping Functions. Distributes Caps/Divs

Instant Messaging / Texts / Emails

Records of all electronic communications must be maintained for three years. Instant messaging, similar to e-mail messaging, must be supervised and there must be review procedures in place.

Cash Settlement

Refers to a trade that will settle the same day. Both parties must agree to the shortened settlement prior to the execution of the trade.

Military Service

Registration expires 90 days following the completion of active military service. Rep may receive transaction-related compensation, but he is prohibited from servicing clients during his active tour of duty. He may share in the compensation with the representative servicing the account during his military service. Both the Regulatory and Firm Elements of Continuing Education are deferred during active duty

Aggregate Indebtedness

Rule 17a-11 requires that broker-dealers file with the examining authority and the SEC if the broker-dealer's aggregate indebtedness exceeds 15 times its net capital, or if its dollar amount of net capital falls below the minimum required by Rule 15c3-1 (the net capital rule). In the event that either of the above circumstances occur, the broker-dealer must send immediate telegraphic or facsimile notice to the examining authority and the SEC. Broker-dealers that fail to maintain Rule 15c3-1 minimum net capital standards must cease doing business.

UIT

Run by TTEEs. Invest in redeemable fixed income securities only. Portfolio remains static. No management fees. NOT A MANAGEMENT COMPANY. Investors can sell shares in secondary market.

REIT

Run by directors. Ownership must be by 100 or more. No more than 50% may be owned by 5 or fewer individuals.

Waiting Period / Cooling Off Period

SEC reviews registration statement for completeness and does not contain misleading information. Underwriters may discuss fund with customers, (indications of interest), but may not accept $. Red herring (preliminary prospectus) may be given to clients.

Custodian

Safeguards the fund's cash and securities.

Front End Sales Charge (Class A)

Sales Charge divided by Offering Price. Small or no 12b-1 fees. Reduced sales charges for large purchases.

Sales Literature

Sales literature is sent to a larger targeted group

General Sales Literature

Sales literature of a general nature must be approved by a partner, officer or designated official of a member firm prior to use. Such material need not be filed with FINRA.

Advertising Involving Bond Ratings

Sales literature regarding bond mutual funds that uses bond mutual fund volatility ratings must be filed with an SRO at least 10 business days before use and must indicate the date intended for use.

SIPC

Securities registered in the name of the customer are not protected by SIPC when they are held by the customer. A money-market fund is considered a security and not cash for the purpose of SIPC coverage. When determining the amount of coverage for a customer, SIPC will use the market price of the securities on the date that a court appoints a trustee. It is a nonprofit organization that only broker-dealers may join. It provides insurance for customer accounts in the event of bankruptcy by a broker-dealer. Does not protect against market losses. Whole life insurance is not covered.

Keogh Plans

Self-employment funds only. Max contribution = lesser of 100% of compensation or $50k. Distributions prior to 59 1/2 =10% penalty + taxed as ordinary income. Since all of a brokerage firm employee's income is derived from employment (the bonus is treated like salary), a Keogh plan would not be permitted.

Underwriter

Sells shares directly or indirectly (via dealers) to the public. Must be under contract and registered with the SEC.

Correspondence

Sent to a single individual or a few persons (fewer than 25 prospects in a 30-calendar-day period). Examples of correspondence include letters, e-mail, and text messages to a single person or a limited number of persons.

Wrap Account registration

Series 65 or 66

Cancel during 45 day free look

Shares current NAV plus all sales charges.

Insider Trading

Sharing material, nonpublic information with clients.

529 Plan

Tax deferred and withdrawals are tax free if used for educational expenses. Higher education only.

U5

Termination Filing. Must be retained for 3 years and It must contain the reason(s) the RR has left the firm and a copy must be provided to the RR within 30 days. FINRA must be notified within 30 days. Must provide a copy of the form within 2 business days to new employer.

1940 Investment Company Act

The Investment Company Act has delegated to FINRA the authority to make rules regarding sales practices for investment company shares. FINRA does not determine the maximum size of an investment company (there is no such rule) nor the maximum maturity of money fund instruments. FINRA has, under its authority to regulate sales practices, mandated that if a mutual fund purchase is redeemed within seven calendar days, the investor must receive a full refund of any sales charges incurred.

SAI

The SAI is filed with the SEC as part of the fund's registration statement. A mutual fund is required to send an SAI to anyone who requests one.

SIC

The Securities Information Center must be notified if securities are discovered to be missing, whether or not criminal activity is suspected. If counterfeit securities are discovered, a report must also be filed with the SIC.

To sell variable life insurance, must register with:

The State Insurance Commissioner The State Securities Administrator FINRA

Payments for variable contracts are considered received when:

The contract application has been accepted by the insurance company. As an alternative, it can be considered received, by mutual agreement, when the payment from the client is actually received by the dealer.

Discounts

The dealer must have a selling agreement in effect with the underwriter before it may purchase fund shares at a discount, to either fill a customer order or for its own investment account.

Annuitant

The person whose benefit an annuity is purchased. Contract owner does not have to be the annuitant, but usually is.

Replacement

The practice of selling one annuity contract and reinvesting the proceeds in another. The client may incur additional sales charges and/or be subject to a new holding period

A registered representative is accused of churning and unauthorized trading. Upon review of the complaint, he decides to settle the dispute for $9,000. What action must be taken concerning Peter's U4?

The registered rep is required to report the complaint on his U4. Specifically, he must answer yes on Form U4 for 24 months after the settlement.

Investment Adviser's Contract:

The renewal of an investment adviser's contract with an investment company must be approved by either the board or the shareholders. The initial contract must be approved by the shareholders and a majority of the disinterested directors

Third Party Trading Authorization

The standard requirement is that it be in written form. A handwritten note would be acceptable although many firms use standardized forms.

Turnover Ratio

The turnover ratio expresses the percentage of a fund's assets that have been liquidated and replaced over the course of a given period. This period is typically one year. The turnover ratio of a mutual fund provides an indication of the level of trading activity that the fund manager employs to achieve the fund's goals.

Investment Company

There are three types of investment companies: (1) face-amount certificate companies, (2) unit investment trusts, and (3) management companies (open-end and closed-end funds).

Investment Companies:

There are three types of investment companies: (1) face-amount certificate companies, (2) unit investment trusts, and (3) management companies (open-end and closed-end funds). While variable annuity separate accounts are not defined as investment companies, they are regulated by the Investment Company Act of 1940. Real estate investment trusts (REITs) and hedge funds are excluded from the definition of investment companies.

When must a rep transmit payment to the home office?

Third business day following the receipt of a customer's order

Limited Partnership Offering

To participate in a limited partnership offering, the broker-dealer must maintain a $5,000 minimum net capital.

NAV

Total net assets divided by shares outstanding. Computed once daily. Dividend payouts decrease the NAV even if all holders choose to reinvest. Each client owns more shares, but at a lower NAV. The NAV falls since the assets remain the same while the outstanding shares increase. UIT and mutual funds always redeem at NAV. Daily as of the close of the New York Stock Exchange.

Dealer

Transacts business for its own account

Broker

Transacts business for others

Accts can be opened without a SS#

True. The attempt must be made to obtain it.

Limitation of Actions

Under Section 13 of the Securities Act of 1933, a person seeking damages must take action within one year of discovery but not later than three years after the actual transaction.

Front-end load plan

Up to 50% of the first year's payments can be used for a sales charge. Max of 9% sales charge over life of plan. (2 prospectuses)

AIR (Assumed Interest Rate)

Used to determine first and subsequent annuity payments. Never guaranteed. If the separate account performs better, the payment increases, and vice versa.

Class C Shares

Usually 1% sales charge plus annual 12b-1 fee (usually equal to 1% of fund's assets)

Back End/CDSC (Class B)

Usually no up-front sales charge. Higher 12b-1 fees. CDSC lowers and shares convert to A after extended periods of time. A confirmation should be sent disclosing that a sales charge may have to be paid upon redemption. Watch for large purchases in B shares on test.

Annuity Surrender (early)

Usually result in charges and tax penalties. Expense risk charges are paid from the separate account periodically, so the client would not have to pay this at the time of surrender. Cannot surrender during annuity period.

Highest Expense Ratio: UIT, ETF, Annuity, Mutual Fund?

Variable annuities would have the higher expense ratio out of the choices listed. Variable annuities require maintenance in the form of fees (i.e., management fee, administrative fees, and mortality and expense risk charges). Unit investment trusts (UITs), index mutual funds, and exchange-traded funds (ETFs) have lower expense ratios because the investments are not actively managed

A registered representative decides to leave a brokerage firm and become an engineer.

When a registered representative leaves a brokerage firm for other full-time employment, the individual must formally resign from the brokerage firm and the firm must file a termination notice with FINRA (Form U5). An individual who wanted to return to a brokerage firm as a registered representative without having to requalify with FINRA would have to do so within a two-year period.

Associate accounts (other company)

When opening an account for an employee of another securities firm, the carrying firm is generally required to give written notice to the employing firm.

Firm Element (by bkr/dlr)

Yearly. Investment risks, sales suitability, regulatory requirements. Each firm must demonstrate to the regulators that at least once a year they have analyzed and prioritized the training needs of their covered personnel and developed a written training plan based on that needs analysis.

Tax-Deferred Annuity (Qualified)

Zero cost basis. Taxed as ordinary income when withdrawn.