Series 65 - Third Times a Charm

Farm Credit Administration (FCA)

government agency that coordinates bank activity in Farm Credit System

current ration =

(cash, inventory & acct rec)/(debt & acct pay)

Beta =

(company IRR - risk free rate)/index IRR-risk free rate)

Index Annuity

*Earnings rate based on stock market index Usually have a floor, cap and participation rate. This is to help overcome inflation risk -tend to have lomger surrender charge periods

correlation

+1 perfect 0 random -1 opposite

Securities Amendments Act of 1975

-Federal legislation establishing the MSRB

Form D

-SEC form -filed for Regulation D private placement

earnings per share (EPS)

-a companies net income available for common stock/number of shares

NYSE

-listed securities -price determined by auction -NYSE regulated -traded on floor on wall street

Prepaid Tuition Plan (Section 529)

-locks in tuition -covers only tuition and mandatory feeds -state plans backed by state -age/grade limits -residency requirements -limited enrollment period

liabilities

-long term > year -short term < year

normal yield curve

-long term debt has higher yields that short term

markup

-lowest offer price among dealers -higher price dealer charges customers

call

-option giving owner the right to buy

foreign currency

-options and futures on foreign currencies are traded on US exchanges

closing purchase

-options transaction -seller buys back option in same series -transactions cancel out, position liquidated

defined contribution plan

-qualified retirement plan -specifies annual contributions

S corporation

-small business taxed as a partnership -retains limited liability

support level

-technical term describing stocks historical trading range

pension plan

A contract between an individual and an employer, a labor union, a government entity, or another institution that provides for the distribution of pension benefits at retirement.

support level

A technical analysis term describing the bottom of a stock's historical trading range.

AGI

Adjusted gross income.

bid

An indication by an investor, a trader, or a dealer of a willingness to buy a security; the price at which an investor can sell to a broker/dealer.

______records the income and outlay of a company's cash.

Cash flow statement

Agents register with _______; IARs register with ________.

FINRA; the state Administrator(s)

FRB

Federal Reserve Board.

Inflation tends to keep pace with ______

GDP

___ is a a measure of a nation's total output

GDP

Municipal Bonds

General Obligation Bonds Revenue Bonds

Total Return

Income ( dividends or interest) + gain or loss/ original investment

Fixed Annuities

Insurance product not an annuity Investment risk assumed by the insurance company Portfolio of fixed income securities vulnerable to inflation Insurance regulation

index fund

Investors who wish to invest passively can invest in this fund, which seeks to replicate the performance of a security market index.

Dodd-Frank and Assets Under Management 3 Thresholds

Large Investment Advisors - $100M Plus eligible, $110 M AUM plus required Small-Less than $25 M is state unless they would be required to register in 15 or more state. Mid size - 25-100

balanced fund

mutual fund objective of income and growth

Class C mutual fund shares offer

no front-end sales charge, lower CDSCs than Class B shares for a shorter period, and no conversion to Class A shares regardless of how long they are held

diversified fund 75/5/10

75% in securities max of 5% invested in any one issuer max holding 10% of of voting in one issuer

initial public offering (IPO)

A corporation's first sale of common stock to the public. See new issue market; public offering.

The term bond premium describes the amount ____ an investor is willing to pay for a bond.

over par value

holder

owner of security

What are the conditions that exist when a portfolio lies outside/above the Efficient Frontier curve?

portfolios above the line are not possible

IAs must send itemized statements at least ___

quarterly

A stock's beta represents the

real rate of return

depression

A prolonged period of general economic decline.

Federal National Mortgage Association (FNMA)

A publicly held corporation that purchases conventional mortgages and mortgages from government agencies, including the Federal Housing Administration, Department of Veterans Affairs, and Farmers Home Administration.

contributory plan

A retirement plan to which both the employee and the employer make contributions.

exchange-listed security

A security that has met certain requirements and has been admitted to full trading privileges on a stock exchange. The NYSE and regional exchanges set listing requirements for volume of shares outstanding, corporate earnings, and other characteristics.

common stock

A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. See equity; preferred stock.

consumption

A term used by economists to refer to the purchase by household units of newly produced goods and services.

holding period

A time period signifying how long the owner possesses a security. It starts the day after a purchase and ends on the day of the sale.

price-earnings ratio (PE)

A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. It is calculated by dividing the current market price of a stock by the earnings per share.

agency transaction

A transaction in which a broker/dealer acts for the accounts of others by buying or selling securities on behalf of customers.

nonqualified stock option

A type of employee stock option. When theey are exercised, the difference between the current market price at the time of exercise and the strike price is reported as wages on the tax returns of the employer and the employee.

callable preferred stock

A type of preferred stock issued with a provision allowing the corporation to call in the stock at a certain price and retire it.

gross revenues

All money received by a business from its operations. The term typically does not include interest income or income from the sale, refinancing, or other disposition of properties.

capital stock

All of a corporation's outstanding preferred stock and common stock, listed at par value.

sector rotation

An active portfolio management technique that attempts to take advantage of the fact that different sectors of the economy rise and fall in the business cycle at different times. Rotating from one to the other at the right times can lead to investment success.

profit-sharing plan

An employee benefit plan established and maintained by an employer whereby the employees receive a share of the business's profits. The money may be paid directly to the employees or deferred until retirement. A combination of both approaches is also possible.

testimonial

An endorsement of an investment or service by a celebrity or public opinion influencer. The use of testimonials by investment advisers is prohibited.

bear

An investor who acts on the belief that a security or market is falling or will fall

current yield (stock)

Annual Dividend / Current Market Price

person

As defined in securities law, an individual, corporation, partnership, association, fund, joint stock company, unincorporated organization, trust, government, or political subdivision of a government.

RMD

required minimum distribution.

____ bonds are issued by governments to finance projects and facilities that are expected to generate enough revenue to pay bondholders back without resorting to tax money

revenue

When do registration for persons in the securities industry expire?

their licenses expire December 31st unless properly renewed

current assets

Cash and other assets that are expected to be converted into cash within the next 12 months. Examples include such liquid items as cash and equivalents, accounts receivable, inventory, and prepaid expenses.

_____ reports events and transactions only when cash is actually disbursed or received by an entity

Cash-basis accounting

bridge loan

short term loan made to bridge gap until permanent financing decided

Range

In a group of numbers the difference between the highest and the lowest one.

Mode

In the group of numbers, the one appearing most frequently

For JTWROS accounts, shares go to the ____ when a cotenant dies.

surviving cotenant

Purchasing power risk is an example of ___ risk

systematic

inside information

Material information that has not been disseminated to or is not readily available to the general public.

Unsystematic risks include

tenure, political, and financial risks

____ life insurance will be the least expensive form of insurance

term

Money Market

Money market may be defines as the market for buying and selling short-term loan able funds in the forms of securities or loans The buyer is the lender and the seller is the borrower Maturity of one year or less Many issued at a discount and not pay interest All considered safe but some more than others like a T bill is more safe than commercial paper

cash dividend

Money paid to a corporation's stockholders out of the corporation's current earnings or accumulated profits. The board of directors must declare all dividends.

Breakout

Movement of a stock price out of an established trading range either above a resistance level or below a support level

Ask or Bid? A market maker will purchase a security from a willing seller at what price?

the Bid

NASAA

North American Securities Administrators Association.

security

Other than an insurance policy or a fixed annuity, any piece of securitized paper that can be traded for value. Under the Act of 1934, this includes any note, stock, bond, investment contract, debenture, certificate of interest in a profit-sharing or partnership agreement, certificate of deposit, collateral trust certificate, preorganization certificate, etc.

Number of shares for conversion

Par Value / Conversion Price

Voting Client Securities

Part 2A of form ADV must be ifno on how advisor's vote pn client securities. If the IA has or will accept authority to vote they have to give a brief descirption pn voting procedures . If the advisor doesn't have authority this must be disclosed

Treasury Notes

Pay semiannual interest intermediate maturities (2,3,5,7 and 10 year) -mature at par value

Annuity Stage

Payout period for an annuity

hypothecation

Pledging to a broker/dealer securities bought on margin as collateral for the margin loan.

capital structure

The composition of long-term funds (equity and debt) a corporation has as a source for financing.

fraud

The deliberate concealment, misrepresentation, or omission of material information or the truth, so as to deceive or manipulate another party for unlawful or unfair gain.

parity price of convertible

The dollar amount at which a convertible security is equal in value to its corresponding common stock. It is calculated by multiplying the market price of the common stock by its conversion ratio.

conversion price

The dollar amount of a convertible security's par value that is exchangeable for one share of common stock.

trough

The end of a period of declining business activity throughout the economy, one of the four stages of the business cycle.

Farm Credit Administration (FCA)

The government agency that coordinates the activities of the banks in the Farm Credit System.

federal funds rate

The interest rate charged by one institution lending federal funds to another.

long-term gain

The profit earned on the sale of a capital asset that has been owned for more than 12 months. See capital gain; capital loss; long-term loss.

A stop order from an Administrator goes into effect

immediatley

federal funds

The reserves of banks and certain other institutions greater than the reserve requirements or excess reserves. These funds are available immediately.

money supply

The total stock of bills, coins, loans, credit, and other liquid instruments in the economy. It is divided into four categories—L, Ml, M2, and M3— according to the type of account in which the instrument is kept.

industrial revenue bond (IRB)

industrial development bond.

Life Insurance

insurance paid to named beneficiaries when the insured person dies

Bond values have an ____ relationship to the yield the bond pays.

inverse

Breakpoint discounts are not available to ____.

investment clubs

Divided Growth Model

This model assumes that the amount of the annual dividend will grow at a constant rate

______ reflect conditions such that a nation's imports exceed its exports

Trade deficit

eurodollar

US currency held in banks outside the United States.

guaranteed security

Under the Uniform Securities Act, the term guaranteed means guaranteed by a third party as to payment of principal, interest, or dividends, but not capital gains.

active management style

Unlike the passive style, analysts believe they can identify industries that are undervalued or overvalued in order to weigh them appropriately and achieve returns in excess of the market. Some managers engage in sector rotation, which is overweighting or underweighting industries based on the current phase of the business cycle.

cease and desist order

Used by the Administrator when it appears that a registered person has or is about to commit a violation. May be issued with or without a prior hearing.

callable bond

issuer can redeem the bond before maturity at a predetermined price

unemployment and average prime rate are _____ indicators

lagging

Uniform Securities Act (USA)

Model legislation for securities industry regulation at the state level. Each state may adopt the legislation in its entirety or it may adapt it (within limits) to suit its needs.

Employee Stock Options

Non qualified Stock Options Incentive Stock Options

Control Person

Over 10% of voting stock

face value

Par Value

deficiency letter

The SEC's notification of additions or corrections that a prospective issuer must make to a registration statement before the SEC will clear the offering for distribution.

profitability

The ability to generate a level of income and gain in excess of expenses.

net worth

The amount by which assets exceed liabilities.

effective date

The date the registration of an issue of securities becomes effective, allowing the underwriters to sell the newly issued securities to the public and confirm sales to investors who have given indications of interest.

dividends per share

The dollar amount of cash dividends paid on each common share during one year.

liquidity

The ease with which an asset can be converted to cash in the marketplace. A large number of buyers and sellers and a high volume of trading activity provide high liquidity.

Current yield ( debit security )

annual interest /current market price

appreciation

The increase in an asset's value.

prime rate

The interest rate that commercial banks charge their most creditworthy customers, generally large corporations.

unsystematic risk

The potential for an unforeseen event to affect the value of a specific investment. Examples of such events include strikes, natural disasters, poor management decisions, introductions of new product lines, and attempted takeovers. This risk is diversifiable.

short-term capital gain

The profit realized on the sale of an asset that has been owned for 12 months or less.

NAV per share

The value of a mutual fund share, calculated by dividing the fund's total net asset value by the number of shares outstanding.

Adjusted Gross Income

basically amount of income subject to tax

For a bond, what does DEF5s35@106 mean?

This would mean a 5% coupon bond maturing in 2035 at a price of 106

SEC Rule

Those who wish to sell control stock or restricted stock must do so by filing a Form 144

overnight repurchase

between banks (member institutions) and the fed

Eurobond

bond issued outside the country in whose currency it is denominated -Not limited to European issuers

parity

bond market value/ number of shares

call holder, long call

bullish unlimited upside max loss = premium

_____ risk describes the risk that a business will have worse-than-expected profits or that it will record a loss instead of a profit

business

protect long stock

buy put

capitalization ratio

calculates value of bonds, preferred stock, or common stock as percentage of total cap

dollar cost average

Total dollars invested / Number of shares purchased

After-Tax Return

Total return minus the marginal tax bracket

28(e) safe Harbor

What would fall under as soft-dollar compensation 1. Research reports analyzing the performance of a particular company or stock 2. Financial newsletters and trade journals could be eligible research if the relate with appropriate specificity 3. Seminars or conferences with appropriate content 4. Effecting and clearing securities trade What would NOT Fall under 1. telephone lines 2. Office furniture 3. Travel expenses 4. rent 5. any software that does not relate directly to the analysis of stocks 6. payment for training courses for this exam 7. internet services

Callable bonds allow the company to take advantage of reduced interest rates by

calling in high bonds with high interest rates and replacing them with lower ones

Insider Trading and Securities Fraud Enforcement Act of 1988

can get treble damages - 3 times the ill gotten gains or losses avoided

capital asset

all long term, tangible property

net worth =

assets - liabilities

Moving Average

attempts to modify the fluctuations of stock prices into a smoothed trend

Which is a derivative - Calls or Warrants

both

When investing in a specific company, the investor assumes ____ risk.

business

The cash flow statement includes ___ from OPERATING activities.

cash receipts (like those from interests and dividends)

brochure supplement

discloses supervised people

Earnings per share =

earnings/number of outstanding shares

positive curve

expect interest rates to rise, economy growing

_____ bonds are issued to pay for improvements that benefit a community, but don't produce income and are repaid from tax revenue.

general obligation (GO)

disgorgement

giving up illegal profits

Revenue Bonds

investments secured by the revenue generated by a state or municipal project

Call Protection

is the number of years into the issue before the issuer may exercise a call provision

____ risk describes the risk that the regulatory environment will negatively impact an industry, like gun control on firearms industry.

regulatory

equity securities =

stocks or shares

What effect does the declaration of a cash dividend have on the market price of a stock?

the market price drops by the amount of the dividend on the ex-date.

cease and desist order

to stop a person not a security

Stop Order

to stop the selling of a security

The cash flow statement includes ____ from investing activities.

transactions (purchase or sale)

Beta tells

volatility in comparison to market

Agency Cross Transaction

when an IA acts as a broker for both his client and the other party -must have prior consent

An adviser can sell securties to its customers from its own proprietary accoutn

with consent of client before completion of the trade

Types of Preferred Stocks

- Straight = No special features beyond the fixed dividend - Cumulative = Pays dividends missed (arrears) - Participating = can be paid a dividend beyond the fixed dividend - Callable = can be retired by issuer (used as interest rates decline) - Convertible = convertible into issuers common stock - Adjustable Rate = Dividend tied to an index (possible hedge against inflation)

Regulation T

-Federal Reserve Board regulation -governs customer cash accounts -governs amount of credit B/Ds may give to customers -sets loan value at 50% -deadline 2 days beyond regular way

Form 1041

-IRS form -used by estates and trusts to report income

diversified investment company

-Investment Company Act of 1940 -must pass the 75-5-10 test

Form 709

-US Gift tax return form -Generation Skipping Transfer form

Internal Revenue Service (IRS)

-US government agency responsible for collecting federal taxes -administers tax rules and regulations

opening purchase

-buying calls/puts to enter the options market

open market operations

-buying/selling of securities by the FOMC -to control money supply -primarily buy government/agency debt -increase/decrease the level of bank reserves available

dealer

-buys/sells securities for own account -acts as principle and charges mark ups/mark downs

generation skipping trust

-bypass trust -assets pass to grandchildren/great grandchildren -skip one generation of estate tax

joint tenants with right of survivorship (JTWROS)

-deceased tenant's fractional interest in the account goes to survivors -used almost exclusively by husband/wives

Insider Trading and Securities Fraud Enforcement Act of 1988

-defines what is illicit use of nonpublic information -includes liabilities and penalties

portfolio income

-interest/dividends/nonbusiness investments

high yield bond

-less than investment grade rating -junk bond

cooling off period

-minimum of 20 days -time between registration statements filing date with SEC and effective date

collateralized mortgage obligation

-mortgage backed corporate security -attempt to return interest and principle at prior rate

DJIA

-most widely used -30 large, actively traded industrial stocks

combination privilege

-mutual fund benefit of combining funds -pooling funds may qualify for breakpoint

sector fund

-mutual fund objective to capitalize on return potential

soft dollar compensation

-non cash compensation -received by IA from B/D -usually for exchange of directed brokerage transaction -must always be disclosed -should come under safe harbor provisions of Section 28e

conversion ratio

-number of shares of common stock per par value

gross margin

-operating profit of a business =sales-COGS -disclosed as percentage/margin of profit

put

-option giving buyer the right to sell -specified price/time

sell stop order

-order to sell -set at price below CMV -triggered when price hits set price

leading indicator

-predict changes in economy -new orders for durable goods, slowdowns in deliveries by vendors, and numbers of building permits issued

Federal Home Loan Mortgage Corporation (FHLMC)

-publicly traded company -promotes secondary market in mortgages -issues mortgage backed pass through debt certificates

political risk

-results from change in government/nationalization/military control

enjoined

-subject to mandatory, prohibitory, preliminary injunctions or temporary restraining order by court

parity price of common

-where common stock is equal in value to its convertible security -convertible security's market value/conversion ratio

geometric mean

-will always be lower than arithmetic mean unless numbers are the same -multiply numbers instead of adding

fiscal year

doesn't need to end dec 31

____ bonds are revenue bonds that also have the backing of the taxing authority

double-barrel

monetary policy tightened

during economic expansion, increase short term rates, which flattens the yield curve out

On the ___, the security is available for sale and a final prospectus must be available.

effective date

disposable income (DI)

excess that goes to spending and saving

churning

excessive buying and selling of securities to generate commissions

Qualification term for long-term capital gain/loss

1 year and 1 day

What variables are used to calculate the efficient frontier curve? (3)

expected returns, standard deviations, correlations

The first step of the financial planning process

gather information

fiscal policy

government's ability to tax and spend to affect economy

industrial development bond (IDB)

-backed by credit of private company -debt security issued by municipal authority

nondiversification

-concentration of securities for higher returns

lagging indicator

-confirm long term trends -avg duration of employment, corporate profits, and labor cost per unit of output

mutual fund

-continously offers new equity shares in an actively managed portfolio -shares redeemable at NAV -invests what prospectus determines

payment date

-date a dividend is payed -payed to those holding stock on the record date

effective date

-date registration of issue is effective -allows underwriters to sell issue to public

deferred annuity

-delays payments until investor decides to take it

Chinese wall

-division with in brokerage firm that stops insider trading

Keogh plan (HR-10)

-qualified tax deferred plan -for self employed/unincorporated people that earn extra income through personal services

investment banker

-raises capital for corporations/municipalities -may not accept deposits or make commercial loans

prime rate

-rate commercial banks charge creditworthy customers -used for big corporations

spousal IRA

-separate individual retirement account -for spouse with little/no income -contributions made by working spouse grow tax deferred -taxed on withdrawel

supply

-total amount of good/service available for purchase

eurodollar

-us currency held in banks outside US

nonrecourse financing

-using the asset as collateral for the money borrowed to pay for it

Variable Annuities

-variable payments and rate -equity, debt, and money market used -separate account -inflation resistant -units -used for growth/income -redeemed by issuer -price based on formula

coincident indicator

-varies directly with business cycle -tells current state of economy -ie non agricultural employment, personal income, and industrial production

secured bond

A debt security backed by identifiable assets set aside as collateral. In the event that the issuer defaults on payment, the bondholders may lay claim to the collateral.

zero-coupon bond

A debt security usually issued at a deep discount from face value. The bond pays no interest; rather, it may be surrendered at maturity for its full face value. The duration of this debt is equal to its maturity.

convertible bond

A debt security, usually in the form of a debenture, that can be exchanged for equity securities of the issuing corporation at specified prices or rates.

ADR

American depositary receipt.

all or none order (AON)

An order that instructs the floor broker to execute an entire order in one transaction; if the order cannot be executed in its entirety, it is allowed to expire.

immediate-or-cancel order (IRC)

An order that instructs the floor broker to execute it immediately, in full or in part. Any portion of the order that remains unexecuted is canceled.

fill-or-kill order (FOK)

An order that instructs the floor broker to fill the entire order immediately; if the entire order cannot be executed immediately, it is canceled.

Which securities out of ETFs, Face Amount Certfiicate, UIT, or Open-End Mutual Fund is not redeemable?

ETF's are traded among investors rather than being redeemed by the issuer.

firm quote

The actual price at which a trading unit of a security (such as 100 shares of stock or five bonds) may be bought or sold. All quotes are these unless otherwise indicated.

realized gain

The amount a taxpayer earns when he sells an asset. See unrealized gain.

underwriting

The procedure by which investment bankers channel investment capital from investors to corporations and municipalities that are issuing securities.

National Association of Securities Dealers, Inc. (NASD)

The self-regulatory organization for the over-the-counter market. Organized under the provisions of the 1938 Maloney Act.

retained earnings

-amount of net income after dividends paid

level load

-annual mutual fund sales fee -based on net asset value of a share

bond yield

-annual rate of return for bond -nominal yield, CY, YTM, and YTC -dependent on discount, premium, or par

current yield

-annual rate of return on security -interest or dividends/current market price

joint life with last survivor

-annuity payout option -covers two or more people -payments as long as one is alive

wrap fee program

-any advisory program where fees not based on transactions are charged for advisory services and execution of transactions -there is no exclusion from IA definition if offering wrap fees

material information

-any fact that could sway an investor

customer

-anyone that opens account with broker/dealer -classified by account ownership, trading authorization, payment method or types of securities

The term for a stock that is stuck in a narrow trading range.

consolidation

Immediate Annuity

contract owner gets money immediately only if it is funded with a lump sum

____ bonds may be exchanged at some point for stock in the issuing company and not redeemed at par value

convertible

The effective date under registration by ____ is set by the SEC

coordination

high-yield bonds

corporate bonds that pay higher interest, but also have a higher risk of default AKA Junk bonds

The ____ of a bond is the fixed rate of interest paid to the investor.

coupon

The rate of interest is known as the

coupon

Current yield =

coupon rate/current market price

Margin Account Agreements

credit agreement: discloses terms hypothecation agreement: gives permission to pledge securities held on margin loan consent (optional): permission for firm to lend securities held in account to other brokers

financial risk

credit risk.

Steel is ____ and is not considered defensive; defensive stocks are generally less affected by the business cycle

cyclical

Frequency of insurance calculations

death benefits calculated annually cash value calculated monthyl separate accoutn acsh values daily

agency issue

debt security issued by agency of federal government -not backed by US government (except GNMA)

A measurement of a company's liabilities (debt) compared to owners' or shareholders' equity is the _____

debt-to-equity ratio

capital surplus

excess money raised on stock

For TIC (tenants in common) accounts, shares go to the ____ when a cotenant dies.

heirs

junk bond

high yield bond.

put contract

holder to sell the security sell to put somewhere else put = obligates writer to buy

long put

holder/buyer gains when market falls

long call

holder/buyer gains when market goes up

Another term for convertible securities?

hybrid securities

variable life

like whole life but cash value is invested in separate account premiums are fixed and level guaranteed min death benefit SECURITY

_____ risk is the risk that an investor will not be able to liquidate or receive cash for the investment in a timely manner

liquidity

Contributions in a Roth IRA are ____.

nondeductible

Which of the following actions is the Administrator empowered to do: issue injunctions; impose criminal penalties, impose fines, make arrests

none of them

Which of these can be purchased on margin - Options, Open-End Funds, or IPOs?

none of them

Forward contracts and futures contracts are ___.

nonsecurities derivatives.

Order of repayment to creditors

secured debtors (secured bonds) unsecured debtors (unsecured bonds) preferred stockholders common stockholders

short put

writer/seller gains when market goes up

IRR of a zero coupon bond =

yield to maturity

basis

yield to maturity

What portion of a tax-sheltered annuity will be taxable as ordinary income, if 2/3 of the value was contributed, and the other 1/3 was growth?

you never pay capital gains rates on retirement money, so 100% is taxable as ordinary income.

volatility

The magnitude and frequency of changes in the price of a security or commodity within a given period.

inelasticity

-lack of responsiveness to change in prices

optimal portfolio

-modern portfolio theory assumes that minimal risk with highest possible return

operating income

The profit realized from one year of operation of a business.

front running

The prohibited practice of entering an order for the benefit of a firm or a securities professional before entering customer orders.

CMO

collateralized mortgage obligation.

____ assets are NOT included on a balance sheet.

current (like inventory)

A measure of the company's current condition by comparing current assets to current liabilities is the

current ratio

custodial account

custodian enters trades on behalf of owner

churning

excessive trading

A person whose business model is selling reports on a subscription basis is a(n)

investment advisor

Investment Advisors Act of 1940 regulates

investment advisors

Over-the-counter market agents are called ___ and are members of FINRA.

market makers

Which promissory notes are exempt from registration with the Administrator? (3)

matures in 9 months/270 days or less is for less than $50,000 is rated in top 3 credit tiers by nationally recognized statistical rating agency

Highly rated coupon bonds are generally ____ volatile than stocks and offer annual income.

less

Buying bonds at a discount is the practice of investors paying ____ for a bond.

less than par value

Beta < 1

less volatile than the market

T-bills are issued in denominations of ____ up to $5M

$1,000

Broker-dealers, IAs, IARs, and agents with discretion may be required to maintain surety bonds in amounts up to $______?

$10,000

Typically, commercial paper is issued in denominations of ____

$100,000

demand deposit (DDA)

-account held at banks/financial institution -customer may withdraw at any time -checking/savings accounts

institutional account

-account held for benefit of others -include banks, trusts, pension and profit sharing, mutual funds, and insurance companies

directed brokerage

-IA/client ability to choose broker/dealer

fill or kill order (FOK)

-fill whole order immediately -if not possible, cancel

Under the Investment Advisors Act of 1940, IAs must retain investment records for ___ years.

5

variable annuity

A SECURITY no guarantee of returns annuitant assumes risk trust - only mutual funds bought performance is based on the separate account and will vary accumulation units tax deferred reinvestment keep pace with inflation!!!

Wells notice

A Wells notice indicates that the regulator intends to bring an enforcement action against an individual or a business. If the notice is against a publicly traded company, it usually has the effect of depressing the current market price.

Registered Owners of ADRs

ADRs are registered on the books of the US banks responsible for them. The banks collect the dividends and convert them to US dollars for US owners ans withhold any required foreign tax payments

This represents what the market maker pays and the customer receives, if the customer wants to sell the security. This term represents both what the customer will pay and the market maker will receive if the customer wants to buy the security.

BID ASK/OFFER

____ shows assets, liabilities, and owners'/shareholders equity

Balance sheet

______ bonds are bonds issued developing countries, usually by the governments of Latin American nations.

Brady

DNI

Distributable net income.

Dealer

Dealers act as Principles for Profit

nonrecourse financing

Debt incurred for the purchase of an asset that pledges the asset as security for the debt but that does not hold the borrower personally liable.

Brady Bonds

Debt instruments, generally from third world countries, that may have a US Treasury bond as collateral.

Brady bonds

Debt instruments, generally from third world countries, that may have a US Treasury bond as collateral.

Investment-Grade Debt

Debt obligation with a credit rating of AAA, AA, A, or BBB

Pink Sheets

OTC Link.

capital asset pricing model (CAPM)

See alpha.

holder

The owner of a security.

protect short stock

buy call

IPO

initial public offering.

individual retirement account (IRA)

-allows annual contribution of 100% of earned income up to max of $5,500 -$6,500 if 50 or older

Investment Advisers Act of 1940

-governs who must register with the SEC as an investment adviser

Variable Annuities

-Considered Securities -Payments fluctuate according to the value of an account invested primarily in common stocks - provides conservative to aggressive investments that are not guaranteed Portfolio of equities, debt, money market instruments Separate account Resistant to inflation

vesting

-ERISA guideline saying employees (employed or not) have right to all retirement benefits in certain time period -basically after working somewhere for awhile, they can't touch your retirement account -once vested you have access to employer benefits

grantor trust

-grantor/spouse taxed on income if taken -grantor has power to revoke/amend trust

Registration by Coordination

- same offering is being registered under Sec Act of 1933 - coordination with fed *becomes effective same time as fed

senior security

-grants holder prior claim to issuer's assets over other security holders in case of default

corporate bond

-$1000 par -taxable -term maturity -traded on major exchange

DJUA

-15 utility stocks

recession

-18 months -2 consecutive quarters of decline

Maloney Act

-1938 amendment to broaden Section 15 of Securities Exchange Act of 1934 -provided creation of self regulatory organization for OTC securities markets

DJTA

-20 transportation stocks

National Association of Securities Dealers Automated Quotation System (NASDAQ)

-3500 OTC stocks -all federally covered under NSMIA 1996

Federal Reserve Board (FRB)

-7 members -directs Federal Reserve system -president picks board members -subject to congressional approval

OTC market

-B/D negotiate directly with one another -trades over computer/telephone that link B/Ds around the world -municipal, US government, listed and OTC securities

toxic debt

-debt with high chance of defaulting

liquidity

-high volume trading is liquid

Not included in the fee disclosure documents are

1. Commissions 2. Markups and Markdowns 3. Advisory Fees

Exemptions for registration as an investment advisor:

1. investment advice is incidental; 2. trust companies and banks; 3. a BD agent who recommends model portfolios for executing trades; 4. agent selling US Treasury bonds to institution (but not individual)

Which fees are deducted from the separate accounts

1. mortality risk(the cost of insurance) 2. Expense risk fee 3. Investment management fee

US Federal Agency Securities

4. Federal National Mortgage Association (Fannie Mae) -purchases and sells real estate mortgages -primarily those that are insured by the Federal Housing Administration (FHA) or guaranteed by VA -issue mortgage backed bonds that can be purchased by investors -Pay semiannual interest, issued at par **1-4 are all MORAL obligations* 5. Government National Mortgage Association (Ginnie Mae) -known as modified pass through certificates -represent an interest in pools of FHA-insured mortgages -as home owners make monthly mortgage payments, they are collected in a pool and shares pass through to investors -payments are received monthly -subject to state, local and fed tax Tennessee Valley Authortiy (TVAs) Nation's ;argest public power providor and a corp of the US gov. Backed not by the gov but by the revenues generated by the agencies' projects *5 is a DIRECT obligation of the government*

Under the USA, civil penalties for criminal activities follow the 5-5-3 rule. What does that state?

5 year statute of limitation, $5,000 max fine, up to 3 years in prison

full power of attorney

A written authorization for someone other than an account's beneficial owner to make deposits and withdrawals and to execute trades in the account.

What's the difference between Form ADV and Form U4?

ADV is filed with the SEC or the State. U4 is used by broker-dealers and IAs and contains more information like criminal civil judicial records.

Pension Reform Act

AKA Employee Retirement Income Security Act of 1974.

Q trust

AKA QTIP trust

The antifraud provisions of the USA apply to ____.

ANY person who acts fraudulently

grantor

An individual or organization that gives assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries.

margin

The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.

______ from the sale of municipal bonds is taxable.

capital gains

Non-qualified Stock Options

Basically treated as a form of compensation -Taxed as ordinary income not capital gaisn -Company receives a tax deduction for salary expense from the difference between strike price and the market price

Advantages and Disadvantages to Mortgage Backed Securities

Benefits: compared to other debt securities with similar ratings, they pay a higher rate of return Risks to the investors: 1. Among the most complicated of securities so they are hard to understand 2. Prepayment risk due to refinancing or early payments of loans 3. Default risk 4. Reinvestment risk 5. liquidity risk

The par value of TIPS increases as ____ rises.

CPI

____ is a a measure of inflation

CPI

partnership management fee

The amount payable to the general partners of a limited partnership, or to other persons, for managing the day-to-day partnership operations.

Coupon Rate

Return/Investment

mean

When referring to a series of values, such as portfolio returns, the average. A measure of central tendency known as the arithmetic mean. Could also refer to the geometric mean.

median

When viewing a series of values, such as portfolio returns, the number that has as many occurrences above as below. A measure of central tendency.

Consent to Service of Process

appoints the state administrator as the applicant's attorney to receive and process noncriminal securities-related complaints against the applicant (1-37)

Face-amount certificate companies and unit investment trusts (UIT) [are/are not] qualified as management companies.

are not

Treasury Securities

governments with short terms also include treasury notes and bonds in their last year before maturity Advantages: 1. No credit risk 2.extremely highly liquid3. Interest exempt from state income tax

Any income to a revocable trust will be taxable to the ____.

grantor

lower coupon

greater volatility

Class B shares

no up front sales charge CDSC that goes to 0 the longer they stay in the fund higher 12b-1 fee (.50) intermediate term investment

Class C shares

no up front sales charge "rear load" is smaller when the investor leaves highest annual 12b-1 fees short term investments

coupon yield

nominal yield.

foreign exchange rate

one countries currency compared to another

In a ___ interest rate environment, new bonds produce higher yields for the same outlay of principal to the investor. This decreases the demand for existing bonds.

rising

What must Advisers who automatically deduct management fees from the client account do to avoid maintaining higher net worth or having the CPA audit? (2)

the adviser must obtain the client's written authorization to bill the custodian directly the adviser must provide both the custodian and the client with a billing statement showing how they arrived at their fee.

For funding goals of a child's college expenses, an IA needs to know

the age of the child, current college costs, and expected inflation rate.

The amount that a person can contribute to a Traditional IRA is reduced by

the amount contributed to their Roth IRA

When auditors account for numerical accuracy but not GAAP accuracy, the statements are _____.

unaudited

suitability

-decision made by agent whether securities match customers objectives -must have enough customer information to make judgement

Internal Revenue Code (IRC)

-defines tax liabilities and deductions for US taxpayers

nonqualified stock option

-difference of exercise and strike price reported as wages on tax return

Federal Home Loan Bank (FHLB)

-government regulated -operates credit reserve for nations savings and loan institutions

yield curve

-graph of actual/projected yields of fixed income securities related to maturity -single issuer securities usually plotted over different maturities

Fixed Annuities

-guaranteed fixed payments and interest rate -risk taken by insurance company -fixed income portfolio -general account -inflation problem

Term Insurance

-highest face amount for lowest premium -does not build cash value -pure protection for a period of time

separate account

-holds funds paid by variable annuity contract holders -funds are kept separate from general account -invest in matching objectives

capping

-illegal market manipulation -attempts to keep a security from rising -used by people with short positions

selling dividends

-inducing customers to buy mutual fund shares -saying upcoming distribution will help them -illegal

goodwill

-intangible representation of firms reputation -not included in net worth due to finding book value per share

indication of interest

-interest after preliminary prospectus -not a commitment

nominal yield

-interest rate on face value of the bond

impersonal investment advice

-investment advisory services that do not concern with specific individuals/accounts

covered call writer

-investor that sells call option while owns underlying security

redeemable security

-issuer redeems upon holder's request -mutual fund shares/treasury notes

pecuniary

-relating to money

listed security

-satisfies minimum requirements -traded on regional/national exchange ie NYSE

collateral trust bond

-secured bond backed by stocks/bonds of another issuer -collateral held by trustee

underlying securities

-securities that are bought/sold when option/right/warrant are exercised

note

-short term debt security -usually maturity of 5 years or less

calender year

ends Dec 31

Monetary policy

money supply (Federal Reserve Board)

Long term bond values tend to move ____ dramatically than short term.

more

Beta > 1

more volatile than the market

convexity

most accurate way to predict debt securities interest rate sensitivity

CIP Customer Identification Program requires

name, DOB, SSN, and address

Money from an UTMA may NOT be used for ____.

necessities (food, clothing, shelter)

balanced investment strategy

A method of portfolio allocation and management aimed at balancing risk and return. This may combine stocks, bonds, packaged products such as investment companies, DPPs, or REITs, and cash equivalents.

expansionary policy

A monetary policy that increases the money supply, usually with the intention of lowering interest rates and combating deflation.

acid test

A more stringent test of liquidity than the current ratio. It is computed by taking the current assets, less the inventory, and dividing by the current liabilities.

quick asset ratio

A more stringent test of liquidity than the current ratio. It is computed by taking the current assets, less the inventory, and dividing by the current liabilities.

collateralized mortgage obligation (CMO)

A mortgage-backed corporate security. These issues attempt to return interest and principal at a predetermined rate.

general obligation bond (GO)

A municipal debt issue backed by the full faith, credit, and taxing power of the issuer for payment of interest and principal.

revenue bond

A municipal debt issue whose interest and principal are payable only from the specific earnings of an income-producing public project.

level load

A mutual fund sales fee charged annually and based on the net asset value of a share.

municipal bond fund

A mutual fund that invests in municipal bonds and operates either as a unit investment trust or as an open-end fund. The fund's objective is to maximize federally tax-exempt income.

money market fund

A mutual fund that invests in short-term debt instruments. The fund's objective is to earn interest while maintaining a stable net asset value of $1 per share. Always sold with no load, the fund may also offer check-writing privileges and a low initial minimum investment.

sector fund

A mutual fund whose investment objective is to capitalize on the return potential provided by investing primarily in a particular industry or sector of the economy.

US government and agency bond fund

A mutual fund whose investment objective is to provide current income while preserving safety of capital through investing in securities backed by the US Treasury or issued by a government agency.

tax-exempt bond fund

A mutual fund whose investment objective is to provide maximum tax-free income. It invests primarily in municipal bonds and short-term debt.

preferred stock fund

A mutual fund whose investment objective is to provide stable income with minimal capital risk. It invests in income-producing instruments such as preferred stock.

bond fund

A mutual fund whose investment objective is to provide stable income with minimal capital risk. It invests in income-producing instruments, which may include corporate, government, or municipal bonds.

special situation fund

A mutual fund whose objective is to capitalize on the profit potential of corporations in nonrecurring circumstances, such as those undergoing reorganizations or being considered as takeover candidates.

no-load fund

A mutual fund whose shares are sold without a commission or sales charge. The investment company distributes the shares directly.

balanced fund

A mutual fund whose stated investment policy is to have at all times some portion of its investment assets in bonds and preferred stock, as well as in common stock, in an attempt to provide both growth and income.

regional exchange

A stock exchange that serves the financial community in a particular region of the country. These exchanges tend to focus on securities issued within their regions, but also offer trading in NYSE and Nasdaq-listed securities.

assessable stock

A stock that is issued below its par or stated value. The issuer and/or creditors have the right to assess the shareholder for the deficiency. All stock issued today is nonassessable.

listed security

A stock, a bond, or another security that satisfies certain minimum requirements and is traded on a regional or national securities exchange such as the New York Stock Exchange.

Fiduciary

A person legally appointed and authorized to hold assets in trust for another person

fiduciary

A person legally appointed and authorized to hold assets in trust for another person and manage those assets for that person's benefit.

trustee

A person legally appointed to act on a beneficiary's behalf.

nominee

A person or company whose name is given as having title to a stock, real estate, and so forth, but who is not the actual owner.

transfer agent

A person or corporation responsible for recording the names and holdings of registered security owners, seeing that certificates are signed by the appropriate corporate officers, affixing the corporate seal, and delivering securities to the new owners.

Any cash transactions over $________ require the broker-dealer to keep specified information, and file a Currency Transaction Report (CTR) with ________.

$10,000 FinCEN

the U.S. Treasury Dept under the Bank Secrecy Act requires that for transmittals of funds of $______ or more, broker-dealers are required to obtain and keep certain specified information concerning the parties sending and receiving those funds.

$3,000

NASAA has a model rule that declares the minimum net capital for an adviser based on certain activities: Adviser with custody: $________ Adviser with discretion but not custody: $______ Adviser accepting prepayment > $________ six + months in advance; positive net worth

$35,000 $10,000 $500

Non-MSRB - If a covered associate is eligible to vote for an official, he can contribute up to $______ to the political campaign of any one official of the ISSUER, or up to $______ for a candidate for whom the covered associate is not entitled to vote, but wanted to support.

$350 $150

Broker-dealers must report any transaction through a Suspicious Activity Report (SAR) that involves at least $________ if the broker-dealer knows, suspects, or has reason to suspect that it does not pass the smell test.

$5,000

If an adviser was SEC-registered the previous year, they may remain so as long as their assets under management have not fallen below $_____.

$90 million

stop order

(1) A directive from the SEC or the Administrator that suspends the sale of new issue securities to the public when fraud is suspected or filing materials are deficient. (2) A customer order that becomes a market order when the market price of the security reaches or passes a specific price.

control person

(1) A director or an officer of an issuer. (2) A stockholder who owns more than 10% of any class of a corporation's outstanding securities. (3) Spouse or other immediate family of any of the previous.

depreciation

(1) A tax deduction that compensates a business for the cost of certain tangible assets. (2) A decrease in the value of a particular currency relative to other currencies.

vesting

(1) An ERISA guideline stipulating that employees must be entitled to their entire retirement benefits within a certain period of time even if no longer employed. (2) The amount of time that an employee must work before retirement or before benefit plan contributions made by the employer become the employee's property without penalty. The IRS and the Employee Retirement Income Security Act of 1974 set minimum requirements for vesting in a qualified plan.

dealer

(1) An individual or a firm engaged in the business of buying and selling securities for its own account, either directly or through a broker. (2) The role of a firm when it acts as a principal and charges the cus-tomer a markup or markdown.

Agent

(1) An individual who affects securities transactions for the accounts of others. (2) Under state law, a securities salesperson who represents a broker/dealer or issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually receives or simply solicit orders.

call

(1) An option contract giving the owner the right to buy a specified amount of an underlying security at a specified price within a specified time. (2) The act of exercising a call option.

put

(1) An option contract giving the owner the right to sell a certain amount of an underlying security at a specified price within a specified time. (2) The act of exercising a put option.

Quick ratio =

(Current Assets - Inventory) / Current Liabilities

Tax-equivalent yield =

(desired yield) / (1 - tax rate)

Farm Credit System (FCS)

-37 privately owned banks -provide credit to farmers and farm property -included are: -federal land banks -federal intermediate credit banks -banks for cooperatives

DJCA

-65 of industrial, transportation, and utilities averages

participation

-Employee Retirement Income Security Act of 1974 -requires all employees in qualified retirement plan be covered within reasonable time frame

business cycle

A predictable long-term pattern of alternating periods of economic growth and decline. The cycle passes through four stages: expansion, peak, contraction, and trough.

monetary policy

-Fed's actions that determine size and rate of money supply's growth -affects interest rates

Telephone Consumer Protection Act of 1991 (TCPA)

-Federal legislation restricting phone solicitation -must disclose name/address -illegal to call back if they say do not call

Securities Exchange Act of 1934

-Federal legislation that created SEC -aims to protect investors by: regulating exchanges OTC market extension of credit by the Federal Reserve Board broker/dealer insider transactions trading activities client accounts net capital

Form 706

-IRS form -computes estate tax -9 months to file unless extension

Form 1040

-IRS form -individual income tax -schedule C is used to report business income for sole proprietorships

dividend exclusion rule

-IRS provision -allows company to exclude 70% of dividends received from domestic preferred and common stocks from taxes -tax reform act of 1986 repealed for individual investors

12b-1 asset based fees

-Investment company act of 1940 -allows mutual fund to collect money for promotion

federal covered adviser

-NSMIA of 1996 -IA registered with the SEC -exclusions from definition of IA by IA Act of 1940 -Under Dodd Frank, $100 million threshold

Federal covered security

-NSMIA of 1996 -states require notice filing -securities listed on major US exchanges and Nasdaq -investment companies registered with the SEC -securities offered that go with Rule 506 of Reg D under Act of 1933

tombstone advertisement

A printed advertisement that is used to generate interest in a securities offering. The text is limited to basic information about the offering, such as the name of the issuer, type of security, names of the underwriters, and where a prospectus is available. Not considered to be an offering of the subject security.

confirmation

A printed document that states the trade date, settlement date, and money due from or owed to a customer. It is sent or given to the customer on or before the settlement date.

Accredited Investor

-Rule 501 of Regulation D -net worth of $1 million or $200,000 annual income ($300,000) with spouse -exempt from registration

deficiency letter

-SEC notification that issuer must fix registration statement

Rule 147

-SEC rule exempts registration/prospectus requirements -for securities offered/sold intrastate -1933 Act

Rule 144

-SEC rule requires those with control/restricted securities sell in limited quantity -all sales of restricted stock by control person must be reported to SEC -filed with Form 144

Regulation D

-Securities Act of 1933 -exempts registration for private placements -Rule 506b limits sale to 35 max unaccredited investors -limited for 12 month period -no advertising permitted -506c permits advertising but all investors must be accredited

Section 28e

-Securities Exchange Act of 1934 -deals with soft dollar compensation

exempt security

-Securities act of 1933 -Uniform Securities Act extra exempts - foreign government -insurance company -federal covered (those listed on exchanges etc)

Treasury Bill

-US government debt security -marketable -mature less than one year -issued at discount from par -given to highest bidder -no fixed interest rate

Treasury note

-US government security -fixed interest -marketable -matures between 2 and 10 years

Treasury bond

-US government security -more than 10 year maturity -marketable -fixed interest

qualified person

-a client that can be charged performance based fees -minimum net worth of $2 million or $1 million AUM

institutional investor

-a person/organization that gets preferential treatment/low commissions due to large quantities -order can be any size -covered by fewer regulations because its assumed they have knowledge

revocable trust

-a trust that can be altered/canceled by the grantor -income earned is given to grantor for life of trust -only after grantor's death does property transfer to beneficiaries

preliminary prospectus

-abbreviated prospectus -issued while SEC reviews registration statement -contains all essential facts except the underwriting spread/final public offering price/date

solvency

-ability for a company to meet long term fixed expenses -along with having enough money for long term expansion/growth

employee stock options

-ability to get issuer's stock -two forms: nonqualified stock options (NSOs) incentive stock options (ISOs)

make a market

-accepts risk of holding the position in the security -buy/sell security as dealer for own account

simple trust

-accumulates income -distributes to beneficiaries annually

performance based fee

-advisory fee based on share of capital gains -may only be charged to certain high net worth clients -not the same as % of assets fee

Roth IRA

-after tax contributions -qualified withdrawals are tax free -there are earnings limits -no required 70.5 distributions

gross income

-all income of a taxpayer

Prospectus (1933)

-all material facts -given no later than w/confirmation of sale -all forms of communication except word of mouth

gross revenues

-all money received from operations -usually does not included interest income, refinancing, or other disposition of properties

regulated investment company

-allows flow through of tax consequences on distribution to shareholders -Subchapter M of Internal Revenue Code -if 90% of income is passed through, company not subject to tax on the income

Periodic Payment Deferred Annuity

-allows investments over time; payments of benefits on -this type of annuity are always deferred until a later date selected by the annuitant

registration by qualification

-allows security to be sold in a state -file a registration statement with the state -meets minimum net worth/disclosure/other and files registration fees -registration effective when Administrators orders it

registration by coordination

-allows security to be sold in a state -for issuer filing under Securities Act of 1933 -sends duplicate to state Administrator -effective same date if on file for required period -Administrator needs to have it on file for 10-20 days

hedge fund

-alternative investment strategies -very high minimum investment requirements

sales load

-amount added to mutual funds NAV to get offer price

net worth

-amount assets exceed liabilities

risk premium

-amount excess of risk free rate -demanded by investors to make up for additional risk

par

-amount issuer assigns a security -not related to current equity securities market price -usually $1,000 for bonds

tax liability

-amount of tax payable on earnings -(adjusted gross income-standard/itemized deductions-personal exemptions) x tax rate

time value

-amount paid for option above its intrinsic value -reflects time until expiration -premium paid-intrinsic value

efficient market theory

-as new information introduced, stock immediately reflects -weak, semi-strong, strong

bond ratio (debt ratio)

-assess the degree of safety offered by a companies bonds -measures % of capitalization provided by long term debt -calculated by dividing total face value of outstanding bonds by total capitalization

selling away

-associated person in private securities -chooses not to hire a B/D -violates NASAA policy

high net worth individual

-at least 1 million managed by IA -2 million or more net worth (includes jointly held assets) -Performance based fees may be charged to these clients

growth style investing

-attempts to find stocks with positive earnings momentum -typically sell at high side of 52 week range -high PE -small dividends

discretion

-authority to make investment decisions -type of security -amount -whether to buy/sell -timing/price is not discretion

stop limit order

-becomes limit order when price triggered

bond quote

-bid prices from previous days bond market -corporate bonds quoted in 1/8 increments -government bonds quoted in 1/32 increments -municiple bonds quoted on dollar basis or YTM

Dow Jones averages

-big cheese of stock price change measurement

premium bond

-bond sells at higher price than face value

listed option

-bought/sold on national exchanges on continuous secondary markets -carry standard strike prices and expiration dates

Wilshire 5000

-broadest index for US equity market -measures performance of all US equity securities -includes 6,700 issues

yield to call (YTC)

-calculated to earliest date bond may be called -rate of return that accounts for difference of cost and return including interest income

retiring bonds

-calling outstanding bonds -purchases bonds in open market -repays bondholders principal

limited liability

-can only lose what invested

reserve requirement

-cash amount Federal Reserve Board requires commercial banks to have on hand

Federal Reserve System

-central bank system of US -regulates flow of money and credit -12 regional banks -24 branch banks -hundreds of national/state banks

regulatory risk

-change in regulations may affect company

interest

-charge for the privilege of borrowing money -expressed as annual percentage rate

depreciation expense

-charged against earnings

inverted yield curve

-chart showing long term debt with lower yields than short term debt

Ineligible IRA Investments

-collectibles -whole life -term life -short sales -options -margin trading

equity

-common and preferred stockholders' ownership

residual claim

-common stockholder gets last dibs

equity security

-common/preferred stock -interest in a limited partnership/joint venture -securities with right to be traded for equity (ie convertible bonds, rights and warrants -put and call options on equity securities

total capitalization

-companies long term debt/stock accounts/ and capital excess of par

quote machine

-computer provides representatives and market makers with Consolidated Tape information -information condensed to symbols/numbers

tergiversation

-continually changing ones mind/attitude/opinion

pension plan

-contract between individual and employer/labor union/government entity/other institution -gives pension benefits at retirement

solicitor

-contracted/employed by IA -if employee, must register as IAR -if contracted, must not be disqualified from registration & subject to terms of written agreement

Roth 401k

-contributions not tax deductible -qualified withdrawals free from income tax -no earnings limits -RMD no later than 70.5

registration by qualification

A process that allows a security to be sold in a state. It is available to an issuer who files for the security's registration with the state Administrator, meets minimum net worth, disclosure, and other requirements, and files appropriate registration fees. The state registration becomes effective when the Administrator so orders.

corporate account

-corporate agreement says who can access -need standard margin docs and copy of charter and bylaws

nonqualified retirement plan

-corporate retirement plan -does not meet standards of Employee Retirement Income Security Act of 1974 -contributions are not tax deductible

exercise price

-cost per share where option/warrant holder can buy/sell underlying security

guardian

-court appointed fiduciary -manages assets of a minor/incompetent person

market maker

-dealer accepting risk of holding a security in its own account to make trading that security easier

money market

-deals in high quality, short term debt -very liquid -Treasury Bills, commercial paper, and jumbo CDs

capital market

-deals with one year maturity or longer -long term debt and equity -money market is for short term

debenture

-debt backed by general credit -unsecured bond

subordinated debenture

-debt obligation backed by general credit -subordinate claims to all other liabilities

mortgage bond

-debt obligation secured by pledged property -represents a lien/mortgage against the issuing companies real estate assets

secured bond

-debt security backed by identifiable assets set aside as collateral -if default, bondholders may lay claim to collateral

zero coupon bond

-debt security usually issued at a deep discount -no interest payments -surrendered at maturity at full face value -duration equals maturity

Section 457 Plan

-deferred compensation plan -for employees of a state/political subdivision of a state/any agency of the state -may also be offered to employees of tax exempt organizations (not churches) -independent contractors may be covered

fraud

-deliberate concealment, misrepresent, or omission

top heavy

-describes 401k plans that offer skewed benefits to key employees -top heavy testing must be done annually -exempt if plan qualifies as a safe harbor 401k

exchange traded fund

-designed to track specific index -market price fluctuates -can buy on margin and sell short

spread

-difference of securities bid/ask price

IRA transfer

-direct transfer from tax deferred qualified plan to individual retirement account -owner never takes possession -transfer from custodian to custodian

control person

-director/officer of an issuer -10% or more stockholders -spouse or other immediate family

registration statement

-discloses all pertinent about the security offering -submitted to SEC and/or Administrator -must fill Securities Act of 1933 requirements and/or USA -forms the basis of the final prospectus

growth fund

-diversified common stock fund -invests in companies that reinvest in R&D

customer statement

-document showing activity, positions and balance -SEC requires them to be sent quarterly

durable power of attorney

-document that gives full/limited authority to third party -survives mental/physical incompetence (not death) of grantor

nondiversified investment company

-does not meet Investment Company Act of 1940 requirements -not restricted in choice of securities/concentration of interest

nonaccredited investor

-does not meet minimum requirements of Reg D -counted for purpose of 35 investor limit of Rule 506b

general partnership (GP)

-does not need formation documents -partners are jointly and severally liable

noncumulative preferred stock

-does not pay dividends in arrears

agent

-does securities transactions for others -state law: salesperson for b/d or issuer. Considered agent whether receives or only solicits orders

passive income

-earnings from rental property, limited partnership, or other where not actively involved -does not include earnings from wages, dividends, interest, or capital gains

ordinary income

-earnings other than capital gain

supply side theory

-economic theory that boosting supply boosts growth -advocate for income tax reduction because this increases private investment in corporations/facilities/equipment

board of directors

-elected by stockholders for corporate management policies -decides on dividends

Savings Incentive Match Plan for Employees

-employer sponsored IRA -for businesses with 100 or less employees -earned $5,000 or more the previous year -employer cannot have another retirement plan

partnership account

-empowers members to act on behalf of partnership

trough

-end of a declining business period

peak

-end of the period of expansion

Closed End

-fixed, one time offering -issue common/preferred stock, and debt securties -IPO, secondary trade on OTC or exchange, no redeem -priced by CMV+commissions, supply & demand -shareholder right to dividend, voting, and preemptive

Universal Variable Life Insurance

-flexible premium -variable death benefit -premiums to separate account -no guaranteed cash value

immediate or cancel order (IRC)

-floor broker must do immediately in full/part -not executed portions cancelled

modern portfolio theory (MPT)

-focuses on relationships among all investments in portfolio -allows measurement and control of risk/return

Reductions in Sales Charge

-for an investment company to qualify for the maximum 8.5% sales charge, they must offer both of the following: 1. Breakpoints -a schedule of discounts a mutual fund offers -allows an investor a lower % fee for more shares purchase -can be done through an LOI (letter of intent) which states that the investor intends to purchase more shares within 13 months, allowing him to reach a particular breakpoint (firm binding only, can backdate 90 days) -Investment clubs/associations do not qualify 2. Rights of Accumulation -do not apply to initial transactions -are available for subsequent investments -allow investor to use prior share appreciation to qualify -NO time limits -not accept in excess of $100,000

prudent expert rule

-for those with fiduciary responsibility -for qualified plans -work under ERISA

tenants in common (TIC)

-form of joint ownership -deceased tenants interest retained by estate

Schedule K-1

-form supplied by a partnership/LLC/S corporation -indicate proportionate share of income/loss reported on Form 1040 tax return

constant dollar plan

-formula method that attempts to maintain fixed dollar in specific asset class -account periodically checked to maintain fixed dollar level

intangible asset

-formula, copyright, goodwill

fractional share

-frequently used for mutual funds -today usually for cash equivalent

stop order

-from SEC/Administrator that suspends sale of new issue -customer order becomes market order when price reaches trigger point

QTIP trust

-funded with qualified terminable interest property -spouse's interest ends upon death -Q trust, C trust, current income trust

standardized contract

-futures contract -all terms are set by the exchange except price

profitability

-generate more income than expenses

home state

-if state registered -state with principle office

pegging

-illegal market manipulation -attempts to keep price from falling -used by those with a long position

earned income

-includes wages, salary, tips, commissions, and bonuses -alimony included -must have earned income to give to IRA

unearned income

-income from investments/other sources not related to employment services -include interest from savings account/bond interest/dividends from stock

tax preference item

-income that receives favorable tax treatment -must be added to taxable income for alternative minimum tax -include accelerated depreciation/r&d costs/intangible drilling costs/munis/incentive stock options

inflation

-increase in general price levels

stock split

-increase in outstanding shares -decreases the stocks par value -market value remains the same -reductions calculated by stocks market price/fraction of the split

growth industry

-industry growing faster than economy as a whole

purchasing power risk

-inflation risk -money will be worth less

new issue market

-initial public offering

balance of payments

-international accounting record of all transactions made by a singular country with others for a period -compares foreign currency taken in with own currency paid out

underwriter

-investment banker that works with an issuer -helps bring security to market and sell to public

underwriting

-investment bankers channeling of investment capital from investors to corporations/municipalities that are issuing securities

unit investment trust (UIT)

-investment company -sells redeemable shares -organized as trust indenture, not a corporate charter

management company

-investment company -trades various securities in a portfolio based on prospectus objectives

conduit theory

-investment company can avoid taxation net investment income distributed to shareholders -if mutual fund acts as conduit, only taxed on income fund keeps

hedge

-investment made to reduce risk

legislative risk

-investment/tax law risk

yield

-investments rate of return -usually expressed as annual %

intrastate offering

-issue exempt from SEC -for companies that only do business and sell securities in that state

pubic offering

-issue of common stock -going public/issue more shares

interstate offering

-issue registered with the SEC -sold in other states than issuing

assessable stock

-issued below par or at stated -issuer/creditors have right to assess shareholder

municipal bond

-issued by state, municipality, or other subdivision (school, parks, sanitation) -used to build highways etc.

closed end investment company

-issues fixed number of shares -actively managed portfolio of securities -traded on secondary market -price determined by supply and demand (not NAV)

balance of trade

-largest part of country's balance of payments -export and import of merchandise (not services)

bona fide

-latin 'good faith' -authentic (ie bona fide quote)

good til canceled order (GTC)

-left on books until executed/canceled

Bonds

-limited rights under interest payment defaults -taxable as ordinary income in most cases

Preferred Stock

-limited rights, may have participation -taxable as dividend in most cases

eurobond

-long term debt of government/corporation -given in currency of issuer's country but issued/sold in different country

capital structure

-long term funds (equity/debt) as a source of financing

Financial Industry Regulatory Authority (FINRA)

-made in July 2007 -NASD and NYSE wanted to harmonize regulation -NASD became FINRA

volatility

-magnitude/frequency of changes in the price of a security/commodity

business risk

-management decisions that effect equity securities -reduce risk with diversification

value style investing

-management style looking for distressed stocks with solid fundamentals -typically sell at lower end of 52 week range -low PE ratios -higher than average dividends

parity price of convertible

-market price of common stock x conversion ratio -when convertible=common stock

margin of profit ratio

-measure corporations relative profitability -operating profit/net sales

fundamental analysis

-measure intrinsic value of a particular stock -overall economy, industry conditions, financial/management of company

basis point

-measure of a bond's yield -100 basis points = 1%

point

-measure of bonds price -$10, 1% of $1,000

book value per share

-measure of net worth of each common stock -total net worth less intangible assets and preferred stock, then dividing that by number of shares

total risk

-measured by standard deviation -total risk = unsystematic risk + systematic risk

profitability ratio

-measures company's relative profit related to sales

Uniform Securities Act (USA)

-model registration for state level -each state may modify

expansionary policy

-monetary policy -increases money supply -trying to lower interest rates and stop deflation

general obligation bond (GO)

-municipal debt issue -backed by full faith, credit, and taxing power of issuer

revenue bond

-municipal debt issue -interest/principal only payable from specific earnings of an income producing public project

joint account

-must be designated as joint tenants in common or joint tenants with right of survivorship

new account form

-must be filled out for each new account opened with a brokerage firm -has account owner, trading authorization, payment method, and types of appropriate securities

right of accumulation

-mutual fund benefit -based on fund accounts total dollar value -investor may have reduced sales load for additional purchases

withdrawal plan

-mutual fund benefit of receiving money from systematic liquidation of shares -amounts may be based on fixed dollar/fixed percent/fixed period

front end load

-mutual fund commission/sales fee -charged at time of purchase -load added to shares NAV for public offering price

exchange privilege

-mutual fund feature allowing investment transfer of funds under same sponser -no additional sales charge

money market fund

-mutual fund objective to earn interest with stable NAV of $1 per share -always sold with no load -fund may offer check writing privileges/low minimum investment

no load fund

-mutual fund where shares do not have commission/sales charge -shares distributed directly

College Savings Plan (Section 529)

-no lock on college costs -cover tuition, room/board, mandatory fees, books etc -contribution limits in excess of $250,000 -no state guarantee -no age limits -no residency requirement -enrollment open all year

Securities Investor Protection Corporation (SIPC)

-nonprofit membership corporation -protects clients of brokerage firms forced to bankruptcy -composed of all B/Ds registered under the Act of 1934/all national exchanges/most FINRA members -provides brokerage firm customers up to $500,000 coverage ($250,000 cash only)

deferred compensation plan

-nonqualified retirement plan -employee defers pay for larger payout at retirement, disability, or death

sell

-not a bona fide pledge/loan/stock dividend

wash trade

-occurs when a buy and sell order of the same security is placed at the same time -creates false appearance of activity -prohibited practice

Advertisement

-offers analysis, report, or publication about securities. determination whether to buy. which security to buy -any graph, chart, formula (must disclose) -any other advisory service with regard to securities

principal office and place of business

-office with officers/partners/control/coordinate business activities

growth stock

-often pays low dividends -sells at high PE

donor

-once given, all rights given up -Uniform Gift to Minors Act provides tax advantages

forward contract

-one buyer, one seller -specific commodity -direct commitment -not liquid -not standardized like futures/options

effective tax rate

-overall rate paid on someones total taxable income -always less than marginal tax rate

long term gain

-owned more than 12 months

direct participation program (DPP)

-pass on all income, gains, losses, and tax benefits to owners -usually structured as limited partnership -ie oil & gas, real estate, agricultural, cattle, condos programs, and subchapter S corporate offereings

marital trust

-pass property to spouse -takes advantage of marital deduction -also known as A trust

index fund

-passive investments -index mutual funds and ETFs

passive management style

-perfect world everyone would be passive because management fees would be excess cost -inefficient market prices cause active management to be able to generate positive risk adjusted returns

Uniform Gift to Minors Act (UGMA)

-permits gift of money/securities to minor -held in custodial account -income/capital gains transferred to minor and taxed as such -if child under specified age and has unearned income about certain level, taxed at parents rate

negotiability

-permits owner to assign, give, transfer, or sell security -third party permission not needed

trustor

-person that gifts assets to a beneficiary -transfers fiduciary duty to trustee -trustee maintains assets

transfer agent

-person/company in charge of keeping names/holdings of registered security owners -sees certificates are signed and delivers to new owners

nominee

-person/company whose name is on title -stock, real estate, etc. -not actual owner

hypothecation

-pledging securities bought on margin as collateral -broker/dealer

investment company

-pools investors money to trade securities -face amount certificate companies, unit investment trusts, and management companies

public offering price (POP)

-price of new shares in the prospectus -price for mutual fund shares to new investors -NAV+sales charge

cost basis

-price paid for asset -includes commissions/fees -used to calculate capital gains/losses when sold

market value

-price that investors buy/sell stock/bond at a given time -determined by buyers/sellers interaction

firm quote

-price where trading unit is bought/sold -all quotes are firm quotes unless indicated otherwise

quotation

-price/bid a market maker or B/D offers for a security

tombstone advertisement

-printed ad used to generate interest in an offering -limited to basic info -name -type of security -underwriter names -where prospectus is available -not considered to be an offering

stock certificate

-printed evidence of equity ownership

intestate

-probate court usually appoints administrator to handle estate -under USA, administrator transactions are exempt

anti-dilutive covenant

-protective clause in most convertible issues (preferred or debentures) -adjusts conversion rate for stock splits/stock dividends -ensures holder will not suffer dilution in value

safe harbor

-provides protection against legal action -Section 28e of Securities Exchange Act of 1934 -research/brokerage activities used by IA -Section 404c of ERISA -fiduciary of qualified plan minimizing liability -top heavy 401k -if employer covers all employees with immediate vesting

Federal National Mortgage Association (FNMA)

-publicly held company -buys mortgages -government mortgages include Federal Housing administration, department of veterans affairs and farmers home administration

defined benefit plan

-qualified retirement plan -specifies total amount of money to be received at retirement

yield to maturity (YTM)

-rate of return on a bond based on: -purchase price -maturity return -interest payments

tax equivalent yield

-rate of return on taxable bond vs municipal bond -number varies with customers tax bracket

rating service

-rates various debt/preferred issues for safety of principal/interest/dividends

investment grade security

-ratings at/above BBB/baa

unit of beneficial interest

-redeemable share in a unit investment trust -represents ownership of undivided interest

street name

-refers to customer securities held in B/D name as nominee

Investment Company Act of 1940

-regulates companies that invest/reinvest in securities -requires interstate commerce investment companies to register with the SEC

IRA rollover

-reinvesting a qualified tax deferred retirement plan into an individual retirement account -within 60 days -may reinvest all/part of sum -any portion not reinvested taxed as ordinary income

Investment Company Act Amendments of 1970

-requires sales charges relate to services a fund provides

portfolio manager

-responsible for investing mutual fund assets -implements strategy/manages day to day

refunding

-retiring an outstanding bond before maturity -use money from the sale of a new debt offering

risk adjusted return

-return adjusted with market risk -usually measured by Sharpe ratio

dollar cost averaging

-same amount of money used every time

Variable Life Insurance

-scheduled premium -minimum guaranteed and variable death benefits -premiums to general and separate account -no guaranteed cash value

control security

-security owned by officer/director/10% stockholder -who owns security, not security itself, determines

pass through certificate

-security representing interest in a pool -pool receives principal and interest and pass through to certificate holders -may/may not be guaranteed -VA, FHA, other agency mortgages

book entry security

-security sold without delivery of certificate -ownership maintained by central agency (ie treasury records t bill purchases)

equity financing

-selling common/preferred to raise money -give ownership of company

unit

-share of ownership of a DPP -entitles investor to interest in programs gains/losses/distributions

municipal note

-short term security issued in anticipation of other funds

letter of intent (LOI)

-signed agreement allows investor to buy mutual fund shares at a lower sales charge -only valid if investor completes within 13 months -may be backdated 90 days

arbitrage

-simultaneous buying and selling of same security in different markets -not considered market manipulation

net investment income

-source of investment companies dividend payments -total dividends and interest-operating expenses

holding period

-starts day after purchase -ends on the day of the sale -length of time security is held

legal list

-state approved security selection for fiduciary accounts -lay framework for mutual savings banks, pension funds, and insurance companies -used in states without the prudent investor rule

blue sky laws

-state regulations governing securities industry

specialist

-stock exchange member -stands by ready to trade securities for himself/customers -role is to maintain fair and orderly market for stocks they are responsible

income statement

-summary of corporations revenues/expenses

progressive tax

-takes larger % from high income earners

regressive tax

-takes more from low income earners -gas/cigarettes

fixed asset

-tangible physical property used in everyday operations

Qualified Plans

-tax deductible contributions -approved by IRS -no discrimination -subject to ERISA -accumulation tax deferred -withdrawal tax -plan is a trust

depreciation

-tax deduction -decrease in value of currency

Form 1120 and 1120s

-tax returns for corporations and s corps

distributable net income (DNI)

-taxable income from trust -determines amount of income taxable to beneficiaries

moving average chart

-technical analysis to track commodity price movement -avg daily settlement prices over defined period

trendline

-technical tool to trace movement by connecting reaction lows in upward trend -rally highs in downward trend

regional exchange

-tend to focus on securities issued within regions

Dodd Frank Bill

-term for Wall Street Reform and Consumer Protection Act of 2010 -most important since 1930s acts

over the counter (OTC)

-term used to describe security not traded on a stock exchange

time horizon

-time needed to reach financial goal

money supply

-total stock of bills, coins, loans, credit, and other liquid instruments -four categories: L, M1, M2, M3

confirmation

-trade date -settlement date -money due from or owed to customer -sent/given before/on settlement date

required minimum distribution (RMD)

-traditional/SEP IRA owners and qualified plan participants -amount that must be taken by April 1 following the year they reach 70.5 years -exceptions for those still employed -RMD amounts given on Dec 31

grantor

-transfers assets to third party for beneficiaries -creates a trust -transfers fiduciary responsibility

defensive industry

-unaffected by business cycle -nondurable goods; food and utilities

offer

-under USA, any attempt to solicit a purchase/sale in a security -indication by an investor, trader, or dealer of willingness to sell -price where a investor can buy from a B/D

guaranteed security

-under USA, guaranteed by third party -will pay principal, interest, dividends, but not capital gains

nonsystematic risk

-unforeseen event affects investments -this risk is diversifiable

security market index

-used to represent performance of an asset class/security market/segment of a market -usually created as portfolios of single securities -assigned a number value based on securities

forward pricing

-valuation process of mutual fund shares -initiated for purchase/redeem orders -occur at least once a day

NAV per share

-value of a mutual fund share -total net assets/number of shares outstanding

Common Stock

-voting rights and residual claim -taxable as dividend in most cases

systematic risk

-when a security moves with same types of securities -diversification/any other strategy cannot eliminate this risk

in the money

-when an option has value

oversubscribed

-when demand exceeds supply for a new issue -stock usually climbs the first day

out of the money

-when option has no intrinsic value

principal transaction

-where B/D buys/sells securities from/to customer -for B/D inventories

full power of attorney

-written authorization -make deposits, withdrawals, execute trades

Federal statute of limitations is

1 year from discover, 3 years from transaction

How Index Annuities are Credited

1. Annual Reset - compare index value at the end of the year to the beginning of the year 2.High-water mark - highest value reached by the index between anniversary dates is compared to the value at the beginning of the year 3.Point-to-point is when interest computed based on the value of the index at the end of the contract compared to the beginning

Exempted Securities under the Securities Act of 1933

1. Any security issued or guaranteed by the US, any state, or any political subdivision of a state (all fed gov issues and muni securities) 2. Any commercial paper that has a maturity at the time of issuance of no more than 270 days 3. Any security organized and operating for religious, educational, benevolent, fraternal or charitable purposes 4. Any interest in railroad company trust 5. Any security issued by federal or state bank (DOES NOT INCLUDE BANK HOLDING COMPANIES)

Exclusions from the Definition of Investment Advisor under State Law

1. Banks, savings institutions, trust companies 2. Any lawyer, accountant, teacher, or engineer whose advice is solely incidental to the practice of his profession. The exclusion is not available to those who have established a separate advisory business or holds himself out as offering investment advice. 3. Any broker-dealer whose performance of such services is solely incidental to the conduct of his business as a broker dealer and received no special compensation (like a wrap fee program) 4. Author and publisher of a newspaper that is not specific to certain customers 5. Investment Advisor Representatives 6. Any person who is a federal covered advisor 7. Any person excluded from the Investment Advisors Act of 1940 8. Any other person the Administrator specifies

What is excluded from the definition of sale and offer

1. Bona fide pledge or loan 2. Gift of non assessable stock 3. stock dividends 4.Class vote by stockholders 5. Act incidental to a judicially approved reorganization

Classes of Fund Shares

1. Class A Shares -front-end loads -pay at time of purchase 2. Class B Shares -back-end loads -declines annually -pay at redemption 3. Class C Shares -level load -no charge to purchase -usually a 1% CDSC for one year, and -continuous 12 B-1 fee

Disadvantages to investing in variable annuities

1. Earnings taxed as ordinary income 2. Expenses higher than mutual funds 3. Before 59.5 10% penalty 4. Conditional deferred sales charge

Registration of Investment Company

1. File with SEC under Securities Act of 1933 2. Under Investment Company Act of 1940

Exemption from Registration Under Federal Law

1. Intrastate Advisors - advisers whose clients, other than an investment advisor who acts as an investment advisor to any private fund, are residents of the state in which the adviser has its principal office and place of business and who do not give advice dealing with securities listed on any national exchange are exempt. 2. Advisors to insurance companies 3. Private Fund Advisors - (A) an exemption to advisors solely to private funds with less than $150 million in assets under management in the US. (B) Non US advisors with no place of business in the US and minimal assets (under $25 milllion) attributable to US clients and investors. Has in total or fewer than 15 clients (C) An investor solely to venture capital funds 4.

Definition of Security

1. Investment of money 2.In a common enterprise 3. With an expectation of profit 4.Results solely from the efforts of others

Methods of State Registration of Securities

1. NOTICE FILING 2. REGISTRATION BY COORDINATION 3. REGISTRATION BY QUALIFICATION **Factors that Apply to ALL 3 Methods** 1. consent to service of process must be filed with the Administrator 2. registration statements remain effective for 1 YEAR from its effective date 3. registration statement may be amended after its effective date to change the number of shares offered and sold, two conditions: A. public offering price is unchanged, and B. underwriters discounts and commissions are unchanged

Application for 1934 Act Resgistration

1. Organization, financial structure, and nature of the business 2. terms, positions, rights and privledges of different rights of outstanding securities 3. Term on which securities are to be and have been in the past 3 years offered ti the public 4. Directors, officers, and underwriters and each security holder or record holding more than 10% -Balance, p&l statements of the past three years 6. SIPs 7. Transfer agents

Definition of Investment Advisor

1. Provides investment advice, reports, or analysis with respect to securities 2. Is in the business of providing advice or analyses and 3. Receives compensation directly or indirectly for these services.

Categories of Federal Covered Securities

1. Securities issued by a company that is registered with the Investment Company Act of 1940 2. Securities listed on the NYSE, Chicago stock exchange, Nasdaq. Also any security equal in senority(rights or warrants) or senior to these securities (bonds and preferred stocks) 3. Securities offered pursuant to the provisions 506(b) or (c) of regulation D under the Securities Act of 1933 4. Bonds issued by municipalities except in the state

Registration by Qualification

1. Securities not eligible for another method 2. Securities only sold in one state A process that allows a security to be sold in a state. It is available to an issuer who files for the security's registration with the state Administrator, disclosure, and other requirements, and files appropriate registration fees. The state registration becomes effective when the Administrator so orders.

Technical Market Theory

1. Short Interest - refers to the number of shares that have been sold short. Because short positions must be repurchased eventually, some analysts believe that short interest reflects mandatory demand that creates a support level for stock prices. High short interest is a bullish indicator 2. Odd-lot trading - transactions of fewer than 100 shares. Odd lot theorists believe that small investors invariably buy and sell at the wrong time 3. Advance/Decline Theory - The number of shares of an issue closing up or down on a specific day reflects market breadth. The number of advances or declines can be significant indiciation of the market's relatives strength

What are considered securities?

1. Stock 2. Bond 3. Debenture 4. Right or warrant 5. Note 6. Put, call, straddles, privileges on securities or other option 7.Limited Partnership interest 8. Certificate of interest in a profit-sharing agreement 9.Treasury Stock 10. Evidence of indebtedness 11. Collateral Trust certificates 12. Pre-organization certificates or subscriptions 13. Transferable shares 14. Investment Contracts 15. Voting trust certificates 16. Certificate of deposit for a security 17. Certificate of interest or participation in an oil, gas, or mining title or lease

Advantages of Variable Annuities

1. Tax deferred participation in the equity markets 2. Lifetime income - protection against longevity risk 3. IRS Section 1035 transfers -transfer to different annuity tax free 4. No 70 1/2 restrictions (aka no RMD's) 5. No probate -passes directly to beneficiaries 6. No contribution limits 7. Tax-free transfers between sub accounts 8. Guaranteed death benefit: at least get back the original investment 9. No RMDs

Exclusions from the Definition of Agent for these Exempt Transactions (4)

1. Unsolicited brokerage transactions 2. Transactions between the issuers and underwriters 3. Transactions between financial institutions 4. Private placement

Order Ticket Requirements (7)

1. account ID 2. description of security 3. number of shares or par value 4. terms of order (market or limit) 5. time of order entry and execution 6. execution price 7. identity of agent who accepted the order **client name or address NOT needed**

Other than when acting summarily, no order to deny, suspend, or revoke may be entered without:

1. appropriate prior notice to the applicant or registrant 2. Opportunity for hearing 3. Written findings of fact and conclusions of law

Other testable policy facts

1. minumum of 75% of the cash value must be available for a policy loan after the loan has been in force for three years 2. Insurer never required to loan 100% of the cash value. This would be surrendering 3. If the insured died with a loan outstanding rhe death benefit is reduced by the amount if the loan 4. Variable life insurance can be exchaged for permenant insurance with comparable benefits within 24 months

Net redemptions indicate

1. performance suffering because of premature sells of positions; 2. an increase in expense ration because expenses fixed and assets decreasing (e/a)

If the SEC suspects a violation of the law or its rules, it may take the follwijg actions:

1. subpoena witness 2. acquire evidence 3. subpoena books and records 4. administer oaths 5. Go to a competent court of jurisdiction to obtain an injunction enjoining a person from continued activity until the results of a hearing 6. Refer to the appropriate court for criminal prosecution 7. fine of no more than $10,000 and jail time of no more than 5 years 8. place limitation for 12 months 9. Appeal filed within 60 days Under the USA 1. No max suspension time 2. appela made through state court 3. $5000 and 3 years of prison time

Surrendering the Whole Life Insurance by stop paying premiums

1. surrender for cash value 2. reduced paid up policy where death benefits decrease and no mre future premiums required 3. take extended term insurance

call protection

A provision in a bond indenture stating that the issue is noncallable for a certain period (e.g., 5 years or 10 years) after the original issue date. See call provision.

Bonds are quoted in percentages of $1,000 (par) so 1% equals $___.

10

A person can't operate as an IAR if convicted within the last ____ years of any securities-related misdemeanor or any felony or is the subject of an order entered within the past ____ years by the securities administrator or any other state or by the SEC denying or revoking registration as a broker-dealer, agent, or IA.

10 5

A corporate insider includes an individual who owns ____% or more of the company common stock. Corporate insiders are constrained under what rule of the Securities Act of 1933? Insiders can't sell their holdings unless the shares have been held for a minimum of _____? A Form 144 must be filed for a proposed sale no later than _______, and the insider can sell only what amount of what period?

10% Rule 144 1 year at the time of the sale; 1% of outstanding stock or the most recent 4-week average trading volume, over the next 90 days.

A bond selling for $20 above par would be quoted

102

When an Administrator acts to postpone or suspend a registration of a security, a hearing must be held within ____ of written request of the registrant.

15 days

Form ADV

1A: -locations (all states registered in) -form and method of business and activities -control person details -custody/discretion -disciplinary history 1B: -Only required by state 2A: -Brochure (customer related information) -compensation -types of clients, investments, strategies, and analysis -educational/business background -audited balance sheet if substantial prepayment 2B: -info about supervised persons

A recession is defined as ___ or more consecutive quarters of economic decline.

2

USA statute of limitations is

2 years from discovery, 3 years from transaction

Coverdell max contribution is $____

2,000

dollar cost averaging

A system of buying mutual fund shares in fixed dollar amounts at regular fixed intervals, regardless of the share's price. The investor purchases more shares when prices are low and fewer shares when prices are high, thus lowering the average cost per share over time.

ADV Part _____ includes the disclosure brochure, and if applicable, the appendix known as the wrap fee brochure. Part _____ is the supplement providing disclosure on the advisory personnel/investment adviser reps who provide advice to the firm's clients.

2A 2B

safe harbor

A provision in a regulatory scheme that provides protection against legal action if stated procedures are followed. In this exam, it may apply in three different cases: (1) Section 28(e) of the Securities Exchange Act of 1934 describes those research and brokerage activities that may be received by an investment adviser in exchange for directed brokerage transactions; (2) Section 404c of ERISA describes what a fiduciary of a qualified plan must do to minimize personal responsibility; and (3) top-heavy 401 (k) concerns are minimized if the employer covers all employees with immediate vesting.

What is the penalty imposed by the SEC for convictions of insider trading?

3 times the amount of the benefit from using the information

Statue of Limitations for violations of the civil provisions of the USA

3 years from the date of sale or 2 years after discovering the violation

What are the criminal penalties for willful violations under the Uniform Securities Act? (4)

3 years in prison, a $5,000 fine, or both, per violation

fixed asset

A tangible, physical property used in the course of a corporation's everyday operations, including buildings, equipment, and land.

When an individual registered with a broker-dealer has a change of residence, an amended Form U4 must be filed within ___ days

30

skip persons are relatives at least two generations younger or unrelated persons > _______ years younger than the grantor.

37.5

individual retirement account (IRA)

A retirement investing tool for employed individuals that allows an annual contribution of 100% of earned income up to a maximum of $5,500 ($6,500 for those 50 and older).

Statue of Limitations from Criminal Offenses under the USA

5 years from the date of the offense. 5-5-3. 5 year statue of limitation, $5,000 max penalty, 3 years of jail time

Client records must be kept by the Adviser in an easily accessible place for a period of ___________.

5 years from the end of the fiscal year during which the last entry was made, and for 2 years, the records must be maintained in the adviser's principal office.

Schedule 13D

5% beneficial ownership, must file report with: Issuer, SEC and market where security trades within 10 days of transaction that results in more than 5% beneficial ownership

Roth/Traditional IRA max contribution changes at age

50

When a client buys stock in a margin account, Reg. T call requires ___% of the purchase total to be deposited.

50

Credit Requirements (Margin)

50% payment in cash now in transactions. New issue cannot use credit

SEC Regulation D Rule 506 Private Placement

506(b) - no advertisement but can have 35 non-accredited investors and unlimited accredited investors 506(c) permits advertising but only accredited investors and have to reasonably believe they are accredited by taking reasonable steps

Account for education that gives donor greatest control over assets (because s/he can take the money back)

529 plan

Withdrawals from a Roth IRA after age ____ are tax free, provided the account has been open for at least 5 years.

59.5

A depression is defined as ___ or more consecutive quarters of economic decline.

6

A customer changing jobs has ____ days to roll over a lump-sum distribution from a qualified pension plan into an IRA.

60

Commercial paper is exempt from prospectus under USA unless the maturity is greater than

9 months

An amended Form ADV needs to be filed no later than

90 days after end of adviser's fiscal year

progressive tax

A tax that takes a larger percentage of the income of high-income earners than that of low-income earners. An example is the graduated income tax.

gross domestic product (GDP)

=consumption+investment+government spending+(exports-imports)

Retail communications delivered to _______ retail investors first must be approved by a compliance principal.

>25

exempt security

A security exempt from the registration requirements (although not from the antifraud requirements) of the Securities Act of 1933 or the Uniform Securities Act. Examples include US government securities and municipal securities.

equity security

A security representing ownership in a corporation or another enterprise. Examples of equity securities include: ■ common and preferred stock; ■ interests in a limited partnership or joint venture; ■ securities that carry the right to be traded for equity securities, such as convertible bonds, rights, and warrants; and ■ put and call options on equity securities.

book-entry security

A security sold without delivery of a certificate. Evidence of ownership is maintained on records kept by a central agency; for example, the Treasury keeps records of Treasury bill purchasers. Transfer of ownership is recorded by entering the change on the books or electronic files.

cash equivalent

A security that can be readily converted into cash. Examples include Treasury bills, certificates of deposit, and money market instruments and funds.

warrant

A security that gives the holder the right to purchase securities from the issuer at a stipulated subscription price. Usually long-term instruments, with expiration dates years in the future.

senior security

A security that grants its holder a prior claim to the issuer's assets over the claims of another security's holders. For example, a bond is a ________ over common stock.

redeemable security

A security that the issuer redeems upon the holder's request. Examples include shares in an open-end investment company and Treasury notes.

investment-grade security

A security to which the rating services (e.g., Standard & Poor's and Moody's) have assigned a rating of BBB/Baa or above.

commission

A service charge an agent assesses in return for arranging a security's purchase or sale. A commission must be fair and reasonable, considering all the relevant factors of the transaction.

Federal Reserve Board (FRB)

A seven-member group that directs the operations of the Federal Reserve System. The President appoints board members, subject to Congressional approval.

unit

A share in the ownership of a direct participation program that entitles the investor to an interest in the program's net income, net loss, and distributions.

right of accumulation

A benefit offered by a mutual fund that allows the investor to qualify or reduced sales loads on additional purchases according to the fund account's total dollar value.

combination privilege

A benefit offered by a mutual fund whereby the investor may qualify for a sales charge breakpoint by joining separate investments in two or more mutual funds under the same management.

reinstatement privilege

A benefit offered by some mutual funds, allowing an investor to withdraw money from a fund account and then redeposit the money without paying a second sales charge.

rating service

A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. The issuing company or municipality pays a fee for the rating. See bond rating; rating.

qualified retirement plan

A corporate retirement plan that meets the standards set by the Employee Retirement Income Security Act of 1974. Contributions to a qualified plan are tax deductible. Syn. approved plan.

earnings per share (EPS)

A corporation's net income available for common stock divided by its number of shares of common stock outstanding.

guardian

A court-appointed fiduciary who manages the assets of a minor or an incompetent for that person's benefit.

stop limit order

A customer order that becomes a limit order when the market price of the security reaches or passes a specific price.

corporate bond

A debt security issued by a corporation. A corporate bond typically has a par value of $1,000, is taxable, has a term maturity, and is traded on major exchange.

industrial development bond (IDB)

A debt security issued by a municipal authority, which uses the proceeds to finance the construction or purchase of facilities to be leased or purchased by a private company. The bonds are backed by the credit of the private company, which is ultimately responsible for principal and interest payments.

municipal bond

A debt security issued by a state, a municipality, or another subdivision (such as a school, a park, a sanitation, or another local taxing district) to finance its capital expenditures. Such expenditures might include the construction of highways, public works, or school buildings.

suitability

A determination made by an agent as to whether a particular security matches a customer's objectives and financial capability. The agent must have enough information about the customer to make this judgment.

forward contract

A direct commitment between one buyer and one seller for a specific commodity. Because they are direct obligations between a specific buyer and seller (unlike futures and options, they are not standardized), they are not easily transferred and are considered illiquid.

dividend

A distribution of a corporation's earnings. Dividends may be in the form of cash, stock, or property. The board of directors must declare all dividends.

secondary distribution

A distribution, with a prospectus, that involves securities owned by major stockholders (typically founders or principal owners of a corporation). The sale proceeds go to the sellers of the stock, not to the issuer.

growth fund

A diversified common stock fund that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research, or development.

conversion privilege

A feature the issuer adds to a security that allows the holder to change the security into shares of common stock. This makes the security attractive to investors and, therefore, more marketable.

balance sheet equation

A formula stating that a corporation's assets equal the sum of its liabilities plus shareholder's equity.

NASD 5% markup policy

A guideline for reasonable markups, markdowns, and commissions for secondary over-the-counter transactions. According to the policy, all commissions on broker transactions and all markups or markdowns on principal transactions should equal 5% or should be fair and reasonable for a particular transaction.

bank holding company

A holding company whose primary asset is a commercial bank.

limited liability company (LLC)

A hybrid between a partnership and a corporation in that it combines the pass-through treatment of a partnership with the limited liability accorded to corporate shareholders.

inelasticity

A lack of responsiveness on the part of consumers and producers to a change in prices.

What is the difference between a stop-order and a limit-order?

A limit order is filled at a stated price or not at all. A stop order is triggered only when a trade occurs between 2 other investors at the top price or higher (buy stop) or lower (sell stop). If stop is reached, it becomes a market order.

proxy

A limited power of attorney from a stockholder authorizing another person to vote on stockholder issues according to the first stockholder's instructions. To vote on corporate matters, a stockholder must either attend the annual meeting or vote by proxy.

S corporation

A small business corporation that meets certain requirements and is taxed as a partnership while retaining limited liability.

breadth-of-market theory

A technical analysis theory that predicts the strength of the market according to the number of issues that advance or decline in a particular trading day.

efficient market theory

A theory based on the premise that the stock market processes information efficiently. The theory postulates that, as new information becomes known, it is reflected immediately in the price of a stock and therefore stock prices represent fair prices. There are three forms of this theory: weak, semi-strong, and strong, depending upon the amount of information available.

Debenture

A long-term bond that is not secured by a mortgage on specific property.

auction market

A market in which buyers enter competitive bids and sellers enter competitive offers simultaneously. The NYSE is an auction market.

bear market

A market in which prices of a certain group of securities are falling or are expected to fall.

Dow Jones Transportation Average (DJTA)

A market indicator composed of 20 transportation stocks.

Dow Jones Composite Average (DJCA)

A market indicator composed of the 65 stocks that make up the Dow Jones Industrial, Transportation, and Utilities Averages.

Treasury bill

A marketable US government debt security with a maturity of less than one year. Treasury bills are issued through a competitive bidding process at a discount from par; they have no fixed interest rate.

Treasury note

A marketable, fixed-interest US government debt security with a maturity of between 2 and 10 years.

coincident indicator

A measurable economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy. Examples include nonagricultural employment, personal income, and industrial production.

point

A measure of a bond's price; $10 or 1% of the par value of $1,000.

basis point

A measure of a bond's yield, equal to 1/100 of 1% of yield. A bond whose yield increases from 5.0% to 5.5% is said to increase by 50 __________.

capitalization ratio

A measure of an issuer's financial status that calculates the value of its bonds, preferred stock, or common stock as a percentage of its total capitalization.

principal transaction

A transaction in which a broker/dealer either buys securities from customers and takes them into its own inventory or sells securities to customers from its inventory.

exempt transaction

A transaction that does not trigger a state's registration and advertising requirements under the Uniform Securities Act. Examples: ■ non issuer transactions in outstanding securities (normal market trading); ■ transactions with financial institutions; ■unsolicited transactions; and ■ private placement transactions. No transaction is exempt from the Uniform Securities Act's antifraud provisions.

testamentary trust

A trust created as a result of instructions from a deceased's last will and testament.

living trust

A trust created during the lifetime of the grantor; also known as an inter vivos trust.

incentive stock option

A type of employee stock option. As long as stock purchased through exercise of a(n) _____ is held at least two years after the date of grant and one year after the date of exercise, any profits are reported as long-term capital gains.

Standard & Poor's Composite Index of 500 Stocks (S&P 500)

A value-weighted index that offers broad coverage of the securities market. It is composed of 400 industrial stocks, 40 financial stocks, 40 public utility stocks, and 20 transportation stocks. The index is owned and compiled by Standard & Poor's Corporation.

wash trade

A wash trade occurs when a customer enters a purchase order and a sale order for the same security at the same time. It is done to create a false appearance of activity in a security. This is a prohibited practice.

Government National Mortgage Association (GNMA)

A wholly government-owned corporation that issues pass-through mortgage debt certificates backed by the full faith and credit of the US government.

brochure supplement

A written disclosure statement containing information about an investment advisors supervised persons. This disclosure is usually accompanied by the delivery of Form ADV Part 2B to most clients and prospective clients.

Alpha ( RF not given)

Actual return - (beta x market return)

Broker

Agents that are Brokers for Commissions that must be Disclosed

gross income

All income of a taxpayer, from whatever source derived.

capital asset

All tangible property, including securities, real estate, and other property, held for the long term.

Lump Sum Withdrawals

Also uses LIFO Before 59.5 subject to 10% early withdrawal fee on the taxable portion

Investment Company Act Amendments of 1970

Amendments to the Investment Company Act of 1940 requiring, in particular, that sales charges relate to the services a fund provides its shareholders.

dividend exclusion rule

An IRS provision that permits a corporation to exclude from its taxable income 70% of dividends received from domestic preferred and common stocks. The Tax Reform Act of 1986 repealed the dividend exclusion for individual investors.

preliminary prospectus/red herring

An abbreviated prospectus that is distributed while the SEC is reviewing an issuer's registration statement. It contains all of the essential facts about the forthcoming offering except the underwriting spread, final public offering price, and date on which the shares will be delivered.

corporate account

An account held in a corporation's name. The corporate agreement, signed when the account is opened, specifies which officers are authorized to trade in the account. In addition to standard margin account documents, a corporation must provide a copy of its charter and bylaws authorizing a margin account.

custodial account

An account in which a custodian enters trades on behalf of the beneficial owner, often a minor.

discretionary account

An account in which the customer has given the agent authority to enter transactions at the representative's discretion.

last in, first out (LIFO)

An accounting method used to assess a corporation's inventory in which it is assumed that the last goods acquired are the first to be sold. The method is used to determine cost basis for tax purposes; the IRS designates last in, first out as the order in which sales or withdrawals from an investment are made.

average basis

An accounting method used when an investor has made multiple purchases at different prices of the same security; the method averages the purchase prices to calculate an investor's cost basis in shares being liquidated. The difference between the average cost basis and the selling price determines the investor's tax liability.

Deferred Annuity

An annuity in which the rents begin after a specified number of periods. Also referred to as a single premium deferred annutiy

joint life with last survivor

An annuity payout option that covers two or more people, with annuity payments continuing as long as one of the annuitants remains alive.

monetarist theory

An economic theory holding that the money supply is the major determinant of price levels and that therefore a well-controlled money supply will have the most beneficial impact on the economy.

OTC Link

An electronic inter-dealer quotation system that displays quotes from broker/dealers for many over- the-counter securities. Formerly known as the Pink Sheets, it does not require companies whose securities are quoted on its systems to meet any listing requirements.

no-par stock

An equity security issued without a stated value.

Investment Advisor

An individual or firm that advises clients on investment matters on a professional basis.

high net worth individual

An individual with at least $1 million managed by the IA or whose net worth the firm reasonably believes exceeds $2 million. The net worth of an individual may include assets held jointly with that individual's spouse. Performance-based fees may be charged to these clients.

management company

An investment company that trades various types of securities in a portfolio in accordance with specific objectives stated in the prospectus.

regulated investment company

An investment company to which Subchapter M of the Internal Revenue Code grants special status that allows the flow-through of tax consequences on a distribution to shareholders. If 90% of its income is passed through to the shareholders, the company is not subject to tax on this income.

bull

An investor who acts on the belief that a security or market is rising or will rise.

risk tolerance

An investor's ability and willingness to lose some or all of the original investment in exchange for greater potential returns. An aggressive investor, or one with a high _____, is more likely to risk losing money in order to get better results. A conservative investor, or one with a low _____, tends to favor investments that will preserve the original investment.

indication of interest

An investor's expression of conditional interest in buying an upcoming securities issue after the investor has reviewed a preliminary prospectus. This is not a commitment to buy.

limited liability

An investor's right to limit potential losses to no more than the amount invested. Equity shareholders, such as corporate stockholders and limited partners, have limited liability.

intrastate offering

An issue of securities exempt from SEC registration, available to companies that do business in one state and sell their securities only to residents of that same state.

interstate offering

An issue of securities registered with the SEC sold to residents of states other than the state in which the issuer does business.

primary offering

An offering in which the proceeds of the underwriting go to the issuing corporation, agency, or municipality. The issuer seeks to increase its capitalization either by selling shares of stock, representing ownership, or by selling bonds, representing loans to the issuer.

private placement

An offering of new issue securities that complies with Regulation D of the Securities Act of 1933. According to Regulation D, a security generally is not required to be registered with the SEC if it is offered to no more than 35 nonaccredited investors or to an unlimited number of accredited investors.

Administrator

An official or agency that administers a state's securities laws.

listed option

An option contract that can be bought and sold on a national securities exchange in a continuous secondary market. Listed options carry standardized strike prices and expiration dates.

limit order

An order that instructs the broker/dealer to buy a specified security below a certain price or to sell a specified security above a certain price. These orders are entered either for the day or good-til-canceled (GTC).

day order

An order that is valid only until the close of trading on the day it is entered; if it is not executed by the close of trading, it is canceled.

market order

An order to be executed immediately at the best available price. A market order is the only order that guarantees execution.

buy stop order

An order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.

sell stop order

An order to sell a security that is entered at a price below the current market price and that is triggered when the market price touches or goes through the sell stop price.

negotiable certificate of deposit (CD)

An unsecured promissory note issued with a minimum face value of $100,000. It evidences a time deposit of funds with the issuing bank and is guaranteed by the bank.

commercial paper

An unsecured, short-term promissory note issued by a corporation for financing accounts receivable and inventories. It is usually issued at a discount reflecting prevailing market interest rates. Maturities range up to 270 days.

YTM Calculation

Annual Interest +/- (Discount(Premium)/years to maturity)/Average Price of the Bond Average Price of the Bond = Par+(premium-par)/2 or Par- (par - Discount)/2 Also known as the market-driven yield b/c it reflects the internal rate of return

basis

Another term for yield to maturity

wrap fee program

Any advisory program under which a specified fee or fees not based directly upon transactions in a client's account is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions. The exclusion from the definition of investment adviser available under both state and federal law to broker/dealers is not in effect for those offering these programs.

material information

Any fact that could affect an investor's decision to trade a security.

hedge clause

Any legend, clause, or other provision that is likely to lead an investor to believe that he has in any way waived any right of action he may have.

Prospectus

Any notice, circular, letter or communication, written or broadcast by radio or television that offers any security for sale or confirms the sale of a security

control security

Any security owned by a director or an officer of the issuer or by a stockholder who owns more than 10% of any class of a corporation's outstanding securities. Who owns a security, not the security itself, determines whether it is a control security.

diversified investment company

As defined by the Investment Company Act of 1940, an investment company that meets certain standards as to the percentage of assets invested. These companies use diversification to manage risk. See management company; nondiversified investment company; 75-5-10 test.

federal covered adviser

As defined by the NSMIA of 1996, either an investment adviser registered with the SEC or excluded from the definition of investment adviser by the Investment Advisers Act of 1940. Under Dodd-Frank, these advisers registering with the SEC must generally meet a threshold of $100 million or more in assets under management.

accredited investor

As defined in rule 501 of Regulation D, any institution or individual meeting minimum net worth requirements for the purchase of securities qualifying under the Regulation D registration exemption. An individual accredited investor is generally accepted to be one who, individually or with spouse, has a net worth, excluding the net equity in the primary residence, of 1 million dollars or more, or has had an annual income of $200,000 or more in each of the two most recent years, (or 300,000 jointly with a spouse), and who has a reasonable expectation of reaching the same income level in the current year.

Roth 401 (k)

As with a Roth IRA, contributions are not tax deductible, but qualified withdrawals are free from income tax. There are no earnings limits in order to participate, but it is required that distributions begin no later than age 701/2

Rule 12b-1

Asset based sales load by registered Open End investment Management Co Rule allows Mutual Fund to act on its own behalf instead of using U/W and with an asset-based load. *Direct or indirect financing of sales or promotional services or activities in connection w distribution of shares. May not used the term NO LOAD fund if 12b-1 fee is more than .25% (25 basis points) Max 12b-1 fee is .75% (75 basis points) FINRA allows another ,25% on top on min / max as service fee

Shareholders' Equity

Assets - Liabilities

_____ use a third party to show financials represented by company are true and reliable

Audits

ADV Part 2A - Brochure

Brochure .... advisors name and business contact info material changes description of business fee disclosure types of clients investment strategies/analysis legal/disciplinary actions conflicts of interest solicitors custody/discretion

ADV Part 2B - Brochure supplement

Brochure supplement key people/supervised persons education

A corporation with no residency restriction and earnings received as dividends would be classified as a(n) ____.

C-Corp

collateral

Certain assets set aside and pledged to a lender for the duration of a loan. If the borrower fails to meet obligations to pay principal or interest, the lender has claim to the assets.

Warrant

Certificate granting its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price. Usually a long-term instrument

CBOE

Chicago Board Options Exchange.

CHX

Chicago Stock Exchange.

Collateralize Mortgage Obligation (CMOs)

Collateralized by mortgages or mortgage backed securities Different than a pass through because CMOs are stated with a stated maturity. As the principal of the mortgage is being paid, it is used exclusively for the newest maturiy in the sequence until each maturity is paid off -Most of the mortgages are private mortgages not qualified under VA or FHA

Securities and Exchange Commission (SEC)

Commission created by Congress to regulate the securities markets and protect investors. It is composed of five commissioners appointed by the President of the United States with the advice and consent of the Senate. Enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.

CPI

Consumer Price Index.

Tax-free equivalent yield

Corporate rate x (100% - tax bracket)

Bond Pricing

Corporate/Municipal - each bond point = $10 and each 1/8 = $1.25 Government bonds are quoted as a percentage of par each point is $10 and each 0.1 represents 1/32 ($.3125) -gov bond quoted at 90.8 is $902.5

Bond Issued at a Premium

Coupon (Nominal) Rate> Current Yield > YTM>YTC

Asset backed pass-through securities

Debt obligations backed by a pool of mortgages

toxic debt

Debt whose quality has dropped and is now indicating a high likelihood of default. This can be toxic for the investor's portfolio.

demutualization

Demutualization is the process through which a member-owned company becomes share-holder-owned. Historically, this has usually been done by mutual life insurance companies (think MetLife and Prudential) , but, in recent years has been done by other member-owned entities such as the New York Stock Exchange.

CDs

Deposit as little as $500 penalty from early withdrawal 3 months to 5 yers

Treasury Bills

Direct short-term debt obligations of the US gov. 4,13,26 weeks are issued every week. 52 week traded once a month -only treasury security issued at a discount

Investment Discretion

Discretion is defined as the authority to decide: 1. Which securities 2. Buy or sell? 3. Number of shares or units NOT Timing or price when acquired. If given discretion have to do in one day unless written permission otherwise

Dividends vs. Capital Gains

Dividends either reported as ordinary income ro qualified with a max rate of 15% and capital gains must be reported as long term capital gains if they are long term

Custodian Banks for ADRs

Domestic branches of large commercials US banks issues ADRs. A custodian, typically a bank in the issuer's country, holds the shares of foreign stock that the ADRs represent.

intestate

Dying without a legal will. Usually the probate court will appoint an administrator to handle the deceased's estate. For purposes of the Uniform Securities Act, transactions by this administrator (a fiduciary) are considered exempt transactions.

What is EBITDA? What is another name for EBIT?

Earnings Before Interest, Taxes, Depreciation and Amortization. (these are line items on the income statement) operating profit or operating earnings

passive income

Earnings derived from a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Therefore it does not include earnings from wages or active business participation, nor does it include income from dividends, interest, and capital gains.

portfolio income

Earnings from interest, dividends, and all nonbusiness investments.

ordinary income

Earnings other than capital gain.

Schedule G filings

Ease beneficial ownership requirements for passive investors

Investing in Foreign Markets

Emerging Markets Developed Markets

retiring bonds

Ending an issuer's debt obligation by calling the outstanding bonds, by purchasing bonds in the open market, or by repaying bondholders the principal amount at maturity.

opening sale

Entering the options market by selling calls or puts.

Common Stock

Equity ownership of a corporation

Fundamental Analysts

Evaluated broad based economic trends, current business conditions within industries, and the quality of a particular corporation's business or finances and management

principal

Every business transaction has two of these _______ —the buyer and the seller. When a broker/dealer trades for its own account, it is acting in the capacity of a _______.

churning

Excessive trading in a customer's account by an agent who ignores the customer's interests and seeks only to increase commissions; violates NASAA's policies on unethical business practices.

Futures

Exchange-traded obligations for a specific commodity. A buyer goes long, or establishes a long position, and is obligated to take delivery of the commodity on the future date specified. A seller goes short, or establishes a short position, and is obligated to deliver the commodity on the specified future date. If the seller does not own the commodity, his potential loss is unlimited because he has promised delivery and must pay any price to acquire the commodity to deliver. May be highly leveraged.

No business in the state

Excluded from the definition of broker-dealer no office in the state and exclusively deal with issuers of the security, other broker-dealers, other financial institutions like banks, trust companies, isnurance companies, invets companies, employee beenfit plans with assets 1M and up -lisenced in the state where they conduct business

Which Act requires the 3 major credit reporting agencies and the FTC to provide a way for consumers to monitor their credit reports? The FTC's red flags rule requires broker-dealers and other financial institutions to create written "Identity Theft Protection Programs (ITPPs). What are the 4 elements of ITPP? Who approves the ITPP?

FACT Act (Fair and Accurate Credit Transactions Act) identify red flags; detect red flags; respond appropriately; update the ITPP periodically Board of Directors of the firm or designated member of senior management

Foreign Investments: American Depository Receipts (ADRs)

Facilitates the trading of foreign stocks in the U.S. markets because everything is done in English and the US dollar An ADR is a negotiable security that represents a receipt for shared of stocks in a non-US corporation, usually from to shared. ADRs are bought and sold in the US securities market like any stock

Timely Prospectus Delivery

Failing to furnish to a customer purchasing securities in an offering, no later than the due date of confirmation of the transaction, either a final prospectus or a preliminary prospectus. Under Registration by Coordination, a prospectus must be sent or given to each person to whom an offer is made no later than with confirmation of trade Under Registration by Qualification, must be sent or given to each person to whom an offer is made prior to sale of the security rather than prior to the offer.

Freddie Mac

Federal Home Loan Mortgage Corporation.

Telephone Consumer Protection Act of 1991 (TCPA)

Federal legislation restricting the use of telephone lines for solicitation purposes. A company soliciting sales via telephone, facsimile, or email must disclose its name and address to the called party and must not call any person who has requested not to be called.

Securities Amendments Act of 1975

Federal legislation that established the Municipal Securities Rulemaking Board.

Securities Amendments Act of 1975

Federal legislation that established the Municipal Securities Rulemaking Board. -Registration of Muni Securities dealers with the SEC

Securities Exchange Act of 1934

Federal legislation that established the Securities and Exchange Commission. The act aims to protect investors by regulating the exchanges, the OTC market, the extension of credit by the Federal Reserve Board, broker/dealers, insider transactions, trading activities, client accounts, and net capital.

agency cross transaction

For an advisory client, a transaction in which a person acts as an investment adviser in relation to a transaction in which that investment advisor, or any person controlling, controlled by, or under common control with that investment advisor, acts as broker for both and advisory client and for another person on the other side of the transaction.

Agent's Registration Requirements

Form U-4 -Disclosing citizenship -Can only do clerical work until registered -Agent's registration not effective during any period where the agent is not associated with a broker-dealer registered within the same state -No net worth requirements -but if an agent has discretion over a client's account

Open-End Funds

Front end funds- difference between POP and net NAV Back end load - contingent deferred sales loads 12-b1 fees (asset-based fees, technically not a sales charge)

Roth IRA

Funded with after-tax contributions, but, if qualified, withdrawals are tax-free. There are earnings limits but no required distributions at age 701/2

Matched Orders

Illegal manipulative practice of offsetting buy and sell orders to create the impression of activity in a security, causing upward price movement that benefits the participants.

passive management style

In a perfectly efficient market, investors should use this management style (i.e., buying a broad market index of stocks and holding it) because other types will underperform due to transactions costs and management fees.

spread

In a quotation, the difference between a security's bid and ask prices.

Breakpoint Sale

In mutual funds the dollar investment required to make the investor eligible for a lower sales charge. -Prohibited -attempting to make higher commissions by selling shares just below the point at which a sales charge is redcued

liquidation priority

In the case of a corporation's liquidation, the order that is strictly followed for paying off creditors and stockholders: 1, unpaid wages; 2, taxes; 3, secured claims like mortgage bonds, equipment trust certificates, and collateral trust bonds; 4, unsecured liabilities (debentures) and general creditors; 5, subordinated debt; 6, preferred stockholders; and 7, common stockholders.

earned income

Income derived from active participation in a trade or business, including wages, salary, tips, commissions, and bonuses. Also included is alimony received. One must have earned income in order to make contributions to an IRA.

unearned income

Income derived from investments and other sources not related to employment services. Examples of unearned income include interest from a savings account, bond interest, and dividends from stock.

board of directors

Individuals elected by stockholders to establish corporate management policies. A board of directors decides, among other issues, if and when dividends will be paid to stockholders.

selling dividends

Inducing customers to buy mutual fund shares by implying that an upcoming distribution will benefit them. This practice is illegal.

Inflation/Interest Rates/Bond $/Bond Yield

Inflation up, interest rates up, then; bond prices down, bond yields up

whole life insurance

Insurance that is kept in force for a person's entire life and pays a benefit upon the person's death, whenever that may be. -guaranteed interest rate on cash value -Builds cash with the ability to borrow -Remains in effect until age 100 aslong as premiums are paid -Traditional life insurance reserves are held in the insurer's gerneral accounts

Taxable Bonds

Interest on Corporate Bonds are taxed as ordinary income on the state and federal level Treasury Bond Interest is taxable only on the federal level Municipal Bond Interest in most cases is free of federal taxes and if the investor resides in the issuer's state, is also free of state taxes

London Interbank Offered Rate (LIBOR)

Interest rate that international banks charge one another for overnight Eurodollar loans. The world's most widely used benchmark for short-term interest rates

impersonal investment advice

Investment advisory services that do not purport to meet the objectives or needs of specific individuals or accounts.

Negotiable CDs

Issued by banks. Minimum face of $100,000. Mature in 1 yr or less. Unsecured if over $250,000. Interest bearing. -Jumbo CDs pay interest semi annually -Negotiable CDs do not have a prepayment penalty -Negotiable CDs must have a face value of $100,000 or more with $1 million and more being the most common

This retirement plan, also known as a "HR-10", is only available to sole proprietors.

Keogh

prudent investor rule

Legally known as the Uniform Prudent Investors Act of 1994 (UPIA). A modern adaptation of the prudent man rule, which, as a result of the development of modern portfolio theory, applies the standard of prudence to the entire portfolio rather than to individual investments. It requires the fiduciary to measure risk with respect to return.

Insider Trading and Securities Fraud Enforcement Act of 1988

Legislation that defines what constitutes the illicit use of nonpublic information in making securities trades and the liabilities and penalties that apply.

Uniform Gift to Minors Act (UGMA)

Legislation that permits a gift of money or securities to be given to a minor and held in a custodial account that an adult manages for the minor's benefit. Income and capital gains transferred to a minor's name are usually taxed at the minor's rate. However, if the child is under a specified age and has unearned income above a certain level, those earnings are taxed at the parent's rate.

Emerging Markets

Markets in lesser developed countries Associated with: 1. Low levels of income 2. Low levels of equity capitalization 3. Questionable market liquidity 4.Potential restrictions on currency conversion 5. High volatility 6. Prospects for economic growth and development 7. Stabilizing political and social institutions 8. High taxes and commission costs for foreign investors 9. Restrictions on foreign ownership and on foreign currency conversion 10. Lower regulatory standards resulting in a lack of transparency

Zero-Coupon Bonds

More volatile than normal bonds

Tax Equivalent Yield

Municipal Rate / (100% - Tax Bracket)

Client Referrals between IA and BD

Must be disclosed and make sure the services beign rendered for the RD cost reasonable amount

Exchange

Must be registered which is completed by filing an application with the SEC. This is accepted or denied in 90 days

Financial Responsibility Rules Under the Sec Exch Act of 1934

Must have enough net capital requirements

Filing fees for USA

Must pay 100% (no prorating) with initial registration

Which markets are "negotiated markets?" (rather than "auction" markets)

NASDAQ and all OTC trading facilities

Nasdaq

National Association of Securities Dealers Automated Quotation System.

NASD

National Association of Securities Dealers, Inc.

CD

Negotiable certificate of deposit.

Incentive Stock Options

No income recognized when option is granted no tax due when option is exercised Tax is due when stock is sold -Gain is capital if held at leats 1 year and sold at least 2 years after grant -Otherwise ordinary income Difference between option price and the FMV on date of exercise is an add back for AMT purposes

soft-dollar compensation

Noncash compensation received by an investment adviser from a broker/dealer, generally in exchange for directed brokerage transactions. Must always be disclosed and should come under the safe harbor provisions of Section 28(e).

What is the organization for state and Canadian provincial securities regulators called?

North American Securities Administrators Association (NASAA)

Investment Policy Statement

Objectives: Return Requirements Risk Tolerance Constraints: Time Horizon Liquidity Taxes Laws and Regulation Unique Circumstances

wash trade

Occurs when a customer enters a purchase order and a sale order for the same security at the same time. It is done to create a false appearance of activity in a security. This is a prohibited practice.

pecuniary

Of or relating to money, such as operating for pecuniary profit

head and shoulders

On a technical analyst's trading chart, a pattern that has three peaks resembling a head and two shoulders. The stock price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head), drops again but recovers to another, lower peak (the right shoulder). A head and shoulders top typically forms after a substantial rise and indicates a market reversal.

profitability ratio

One of several measures of a corporation's relative profit or income in relation to its sales.

bond ratio

One of several tools used by bond analysts to assess the degree of safety offered by a corporation's bonds. It measures the percentage of a corporation's capitalization that is provided by long-term debt financing, calculated by dividing the total face value of the outstanding bonds by the total capitalization.

Moody's Investors Service

One of the best known investment rating agencies in the United States. A subsidiary of Dun & Bradstreet, Moody's rates bonds, commercial paper, preferred and common stocks, and municipal short-term issues.

Person

Only three nonperson(s) 1. minor 2. deceased 3. mentally incompetent

North American Securities Administrators Association

Organized in 1919, the oldest international organization devoted to investor protection. Voluntary association whose membership consists of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the US Virgin Islands, Canada, and Mexico.

Financial Industry Regulatory Authority (FINRA)

Organized in July 2007 as a joint effort of NASD and the NYSE to harmonize regulation in the securities industry.

Qualified Domestic Relations Orders (QDROs)

Premature distributions that are taken pursuant to this are exempt from the 10% penalty. A court-issued order that gives someone the right to an individual's qualified plan assets, typically an ex-(or soon-to-be-ex-) spouse, and this is usually issued in the course of divorce proceedings or to satisfy child support obligations. Applies only to assets in a qualified employer plan; it would not be applicable to an IRA or a SEP.

Two other terms for "par value?"

Principal face amount

stock certificate

Printed evidence of ownership in a corporation.

equity financing

Raising money for working capital or for capital expenditures by selling common or preferred stock to individual or institutional investors. In return for the money paid, the investors receive ownership interests in the corporation.

Assumed Interest Rate (AIR)

Rate of growth built into an annuity table which determines payout on a variable annuity

What regulation did the SEC enact to fight identity theft and protect customers from having too much of their information shared with people they've never met? What is the financial institution's responsibility according to this regulation? How often must IAs deliver notices to customers explaining their privacy policies?

Regulation S-P provide customers with a notice of its privacy policies and practices, and must not disclose nonpublic personal information to non-affiliated 3rd parties initially (no later than when the firm establishes a customer relationship with the individual) and annually

Section 16 Filings

Requires executive officers, directors, and greater than 10% stockholders (i.e. control persons) to file transaction reports for trades of an equity security in which they are considered an insider.

FINRA

Result of the cooperative effort of NASD and the NYSE to harmonize regulation in the securities industry.

refunding

Retiring an outstanding bond issue before maturity by using money from the sale of a new debt offering.

risk-adjusted return

Return from a security adjusted for the market risk associated with it. Usually measured by the Sharpe Ratio.

Corporate insiders are constrained under what section of the Securities Act of 1993? What is a "corporate insider?" (3)

Rule 144 corporate officers, members of the board, anyone owning 10% or more of the common stock.

A corporation with a limited number of shareholders who cannot be nonresident alien and that flows earnings and losses through to shareholders is a(n) ___.

S-Corp

Which charges are deducted from the gross premiums

SAS Sales load administrative fees state premium fees

Rule 144

SEC rule requiring that persons who hold control or restricted securities may sell them only in limited quantities, and that all sales of restricted stock by control persons must be reported to the SEC by filing a Form 144, Notice of Proposed Sale of Securities.

Rule 147

SEC rule that provides exemption from the registration statement and prospectus requirements of the 1933 Act for securities offered and sold exclusively intrastate.

Broker-dealers follow the net capital requirements that ______ establishes under which law? Who establishes net capital for state-registered advisers? Can securities be used in lieu of cash for net capital requirements?

SEC; Securities Exchange Act of 1934 The Administrator (but they don't go above what the SEC requires under the Investment Advisers Act of 1940. Yes - the Administrator must take a deposit of securities and not just cash

S.I.M.P.L.E. Plan

Savings Incentive Match Plan for Employees.

Liquidation Priority

Secured creditors (mortgage bonds, equipment trust certificates, collateral trust bonds) Unsecured creditors (general creditors including debenture holders) Subordinated debt holders Preferred Stockholders Common stockholders

Full Disclosure Act

Securities Act of 1933.

Average Market Price

Share Price Total / Number of Investments

What is the most commonly used risk-adjusted calculation?

Sharpe Ratio

Name 2 risk-ADJUSTED return measures.

Sharpe ratio and alpha

Registration Statement with the SEC for IPO

Signed by CEO, CFO, and the majority of the board of directors Contains the following infromation 1. Purpose of issue 2. Public offering price 3. Underwriter's commissions or discounts 4. Promotion expenses 5. Expected use of the net proceeds of the issue to the company 6. Balance Sheet 7. Earnings statement for the last 3 years 8. Names, bios of officer, directors, underwriters and stockholders who own more than 10% of the outstanding shares 9. Copy of underwriting agrrement 10. Copies of article of incorporation

Arithmetic means

Simple average of numbers

specialist

Stock exchange member who stands ready to quote and trade certain securities either for his own account or for customer accounts. Role is to maintain a fair and orderly market in the stocks for which he is responsible.

Supports and Resistance

Support level is the price where the stock price "bottoms". That is when it gets that low there is an imbalance between buyers and sellers. Here the price begins to rise Resistance levels- where the stock price reaches a high enough level where there are more sellers than buyers and the stock price begins to drop

distributable net income (DNI)

Taxable income from a trust that determines the amount of income that may he taxable to beneficiaries.

Random Withdrawals on an Annuity

Taxed under LIFO

monetary policy

The Federal Reserve Board's actions that determine the size and rate of the money supply's growth, which in turn affect interest rates. See fiscal policy.

Form 1041

The IRS form used by estates and trusts to report their income for tax purposes.

Form 706

The IRS form used for the computation of estate tax. It must be filed within nine months of death unless an extension has been obtained.

Form 1040

The IRS form used to file individual income tax. Schedule С of the Form 1040 is used to report business income for sole proprietorships.

Form D

The SEC form required to be filed when engaging in a Regulation D private placement.

Internal Revenue Service (IRS)

The US government agency responsible for collecting most federal taxes and for administering tax rules and regulations.

Form 709

The United States Gift (and Generation-Skipping Transfer) Tax Return is filed on Form 709.

Wilshire 5000

The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. As of the date of printing, it includes some 6,700 issues.

solvency

The ability of a corporation both to meet its long-term fixed expenses and to have adequate money for long-term expansion and growth.

directed brokerage

The ability of an investment adviser or a client to determine broker/dealers to be used in the execution of transactions in their advisory accounts.

separate account

The account that holds funds paid by variable annuity contract holders. The funds are kept separate from the insurer's general account and are invested in a portfolio of securities that match the contract holders' objectives.

GAAP

The acronym for generally accepted accounting principles, the standard method used in the United States by professional accountants.

sales load

The amount added to a mutual fund share's net asset value to arrive at the offering price.

time value

The amount an investor pays for an option above its intrinsic value; it reflects the amount of time left until expiration. The amount is calculated by subtracting the intrinsic value from the premium paid.

unrealized gain

The amount by which a security appreciates in value before it is sold. Until it is sold, the investor does not actually possess the sale proceeds..

required minimum distribution (RMD)

The amount that traditional and SEP IRA owners and qualified plan participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age 701⁄2. Exceptions apply to those covered under a qualified plan who are still employed. Amounts must then be distributed by December 31 that year and each subsequent year.

dividend yield

The annual rate of return on a common or preferred stock investment. The yield is calculated by dividing the annual dividend by the stock's purchase price. See current yield; dividend.

open-market operations

The buying and selling of securities (primarily government or agency debt) by the Federal Open Market Committee to effect control of the money supply. These transactions increase or decrease the level of bank reserves available for lending.

Federal Reserve System

The central bank system of the United States. Its primary responsibility is to regulate the flow of money and credit. The system includes 12 regional banks, 24 branch banks, and hundreds of national and state banks.

commingling

The combining by a brokerage firm of one customer's securities with another customer's securities and pledging them as joint collateral for a bank loan; unless authorized by the customers, this violates SEC Rule 15c2-1.

exercise price

The cost per share at which an option or a warrant holder may buy or sell the underlying security.

maturity date

The date on which a bond's principal is repaid to the investor and interest payments cease.

call date

The date, specified in the prospectus of every callable security, after which the security's issuer has the option to redeem the issue at par or at par plus a premium.

payment date

The day on which a declared dividend is paid to all stockholders owning shares on the record date.

filing date

The day on which an issuer submits to the SEC the registration statement for a new securities issue.

credit risk

The degree of probability that the issuer of a debt security will default in the payment of either principal or interest. Securities issued by the US government are considered to have virtually no credit risk. Note: Only refers to debt securities—common stock doesn't have this because there is no debt obligation to the owner

discount

The difference between the lower price paid for a security and the security's face amount at issue.

markup

The difference between the lowest current offering price among dealers and the higher price a dealer charges a customer.

IRA transfer

The direct reinvestment of retirement assets from one qualified tax-deferred retirement plan to an individual retirement account. The account owner never takes possession of the assets but directs that they be transferred directly from the existing plan custodian to the new plan custodian.

peak

The end of a period of increasing business activity throughout the economy, one of the four stages of the business cycle.

principal office and place of business

The firm's executive office from which the firm's officers, partners, or managers direct, control, and coordinate the activities of the firm.

Schedule K-1

The form supplied by a partnership, LLC, or S corporation to owners indicating their proportionate share of income/loss to be reported on their Form 1040 tax returns.

new account form

The form that must be filled out for each new account opened with a brokerage firm. The form specifies, at a minimum, the account owner, trading authorization, payment method, and types of securities appropriate for the customer.

Dodd-Frank Bill

The general term by which the Wall Street Reform and Consumer Protection Act of 2010 is known. Considered to be the most significant legislation impacting the securities industry since the 1930s.

Federal Deposit Insurance Corporation (FDIC)

The government agency that provides deposit insurance for member banks and prevents bank and thrift failures.

Form 1065

The information return filed by a partnership or LLC. Because income and losses flow through to owners, the entity pays no tax.

discount rate

The interest rate charged by the 12 Federal Reserve Banks for short-term loans made to member banks.

nominal yield

The interest rate stated on the face of a bond that represents the percentage of interest the issuer pays on the bond's face value.

registration statement

The legal document that discloses all pertinent information concerning an offering of a security and its issuer. It is submitted to the SEC (and/or the Administrator) in accordance with the requirements of the Securities Act of 1933 and/or the Uniform Securities Act, and it forms the basis of the final prospectus distributed to investors.

final prospectus

The legal document that states a new issue security's price, delivery date, and underwriting spread, as well as other material information. It must be given to every investor who purchases a new issue of registered securities.

Internal Revenue Code (IRC)

The legislation that defines tax liabilities and deductions for US taxpayers.

secondary market

The market in which securities are bought and sold subsequent to their being sold to the public for the first time.

blue-sky laws

The nickname for state regulations governing the securities industry. The term was coined in 1911 by a Kansas Supreme Court justice who wanted regulation to protect against "speculative schemes that have no more basis than so many feet of blue sky."

market capitalization

The number of outstanding shares multiplied by the current market price. Classed as large-cap, mid-cap, small-cap and micro-cap.

conversion ratio

The number of shares of common stock per par value amount that the holder would receive for converting a convertible bond or preferred share.

gross margin

The operating profit of a business prior to interest and taxes. It is computed by subtracting the cost of goods sold (COGS) from the company's sales (or revenues).

optimal portfolio

The optimal portfolio under modern portfolio theory assumes that investors seek a portfolio of assets that minimizes risks while offering the highest possible return.

call risk

The potential for a bond to be called before maturity, leaving the investor without the bond's current income. Because this is more likely to occur during times of falling interest rates, the investor may not be able to reinvest his principal at a comparable rate of return.

systematic risk

The potential for a security to decrease in value owing to its inherent tendency to move together with all securities of the same type. Neither diversification nor any other investment strategy can eliminate this risk.

market risk

The potential for an investor to experience losses owing to day-to-day fluctuations in the prices at which securities can be bought or sold.

nonsystematic risk

The potential for an unforeseen event to affect the value of a specific investment. Examples of such events include strikes, natural disasters, poor management decisions, introductions of new product lines, and attempted takeovers. This risk is diversifiable.

intrinsic value

The potential profit to be made from exercising an option. A call option is said to have intrinsic value when the underlying stock is trading above the exercise price.

liquidity risk

The potential that an investor might not be able to sell an investment when desired without adverse price disruption.

purchasing power risk

The potential that, because of inflation, a certain amount of money will not purchase as much in the future as it does today. Syn. inflation risk.

tergiversation

The practice of continually changing one's mind, attitude, or opinion

Regulation D

The provision of the Securities Act of 1933 that exempts from registration offerings sold in private placements. Rule 506(b) limits the sale to a maximum of 35 nonaccredited investors during a 12-month period with no advertising permitted, while Rule 506(c) permits advertising but requires that all purchasers be accredited investors.

investor

The purchaser of an asset or security with the intent of profiting from the transaction.

tax-equivalent yield

The rate of return a taxable bond must earn before taxes in order to equal the tax-exempt earnings on a municipal bond. This number varies with the investor's tax bracket.

yield to maturity (YTM)

The rate of return on a bond that accounts for the difference between the bond's acquisition cost and its maturity proceeds, including interest income.

yield to call (YTC)

The rate of return on a bond that accounts for the difference between the bond's acquisition cost and its proceeds, including interest income, calculated to the earliest date that the bond may be called by the issuing corporation.

yield

The rate of return on an investment, usually expressed as an annual percentage rate.

marginal tax rate

The rate of taxation on any additional taxable income received. It is sometimes referred to as the tax on the "next" dollar or the "last" dollar of income.

operating ratio

The ratio of operating expenses to net sales; the complement to the margin of profit ratio.

interest rate risk

The risk associated with investments relating to the sensitivity of price or value to fluctuation in the current level of interest rates; also, the risk that involves the competitive cost of money. This term is generally associated with bond prices, but it applies to all investments. In bonds, prices carry interest risk because if bond prices rise, outstanding bonds will not remain competitive unless their yields and prices adjust to reflect the current market.

regulatory risk

The risk that changes in regulations may negatively affect the operations of a company.

alpha

The risk-adjusted returns that a portfolio manager generates in excess of the risk-adjusted returns expected by the capital asset pricing model (CAPM). Suppose an index return is 10%, the portfolio beta is 1.5, and the actual return is 25%. According to the CAPM, the portfolio should be expected to return 15% (1.5 times 10%). This is because the portfolio is 1.5 times riskier than the market. The difference between the actual return of 25% and expected return of 15% represents this of the portfolio. In this case, we have a positive ________ of 10%.

new issue market

The securities market for shares in privately owned businesses that are raising capital by selling common stock to the public for the first time.

oversubscribed

The term used to describe a new security issue where the demand for the shares greatly exceeds the available supply. The issues usually appreciate rapidly on the first day of trading and failure to properly allocate them is a prohibited practice.

over the counter (OTC)

The term used to describe a security traded through the telephone-linked and computer-connected market rather than through a stock exchange.

fiscal year

The term used to describe an accounting year that ends other than December 31st (calendar year accounting).

in-the-money

The term used to describe an option that has intrinsic value, such as a call option when the stock is selling above the exercise price or a put option when the stock is selling below the exercise price.

out-of-the-money

The term used to describe an option that has no intrinsic value, such as a call option when the stock is selling below the exercise price or a put option when the stock is above the exercise price.

long

The term used to describe the owning of a security, contract, or commodity. For example, a common stock owner is said to have a long position in the stock.

short

The term used to describe the selling of a security, contract, or commodity that the seller does not own. For example, an investor who borrows shares of stock from a broker/dealer and sells them on the open market is said to have a short position in the stock.

Indebture

The terms of the loan of a bond are expressed in the indenture. Also referred to as a deed of trust, states the issuers obligations to pay back a specific amount of money on a specific date

call provision/ call feature

The written agreement between an issuer and its bondholders or preferred stockholders giving the issuer the option to redeem its senior securities at a specified price before maturity and under certain conditions.

Rule 501 accredited investors

This only applies to private placement 1. A bank, insurance, or registered investment company 2. An employee benefit plan if the bank, insurance company or registered investment advisor makes the investment decisions or the plan has over $5 million in total assets 3. Charitable organizations with assets exceeding $5 mil 4. Directors, executive officers, general partners of the issuer 5. Any natural person who had an individual income of over 200k or with spouse 300k 6. Individual with assets over a mil not including primary residence 7. Entities made up of accredited investors

What is the term for the compounded returns an investor makes by reinvesting all dividends and capital gains distributions into more shares?

Total Return

Annualized Return

Total return on an annualized basis

TIPS

Treasury inflation protection securities. These help protect investors against purchasing power risk. They are issued with a fixed interest rate but the principal amount is adjusted semi annually by an amount equal to the change in the consumer price. -5/10/30 years Real Rate of Return = Coupon Rate

This Act requires that securities such as bonds, debentures, and notes can't be offered to the public unless a formal agreement between the issuer of the bonds and the bondholder (known as the trust indenture), conforms to the standards of this Act. A corporation must offer a contract or indenture with a trustee, who enforces the terms of the indenture to the benefit of the bondholders, and can initiate bankruptcy if there is non-payment, as long as the amount of the bonds is $____ or more, and they mature outside of ____ years.

Trust Indenture Act of 1939 $5,000,000; one year

Real Estate Investment Trust (REIT)

Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax. Dividends not considered qualified for tax purposes and are taxed as ordinary income

conversion parity

Two securities, one of which can be converted into the other, of equal dollar value. A convertible security holder can calculate parity to help decide whether converting would lead to gain or loss.

Eurodollar

US currency held in banks outside the United States. Held in US currency Usually short term anywhere from overnight to 180 days Interest Rate usually based on LIBOR

The ____ has the greatest effect on financial aid when using FAFSA.

UTMA

Form D

Under Rule 503, issuer that is issuign security in reliance with regulation D must file no later than 15 days after final sale

qualified person

Under both state and federal law, a client for whom an investment adviser may charge performance-based fees. Currently, the requirements are a minimum net worth of $2 million or at least $1 million in AUM with that adviser.

Federal covered security

Under the NSMIA of 1996, a new definition was created: covered security, generally referred to as federal covered security on the exam. State securities registration requirements were preempted with respect to covered securities, other than the ability to require notice filing, particularly in the case of registered investment companies. The most tested federal covered securities include those listed on the major US exchanges and Nasdaq as well as investment companies registered with the SEC and securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933 (private placements).

Restricted Securities

Unregisterd securities purchased by an investor in private placement restricted from resale for a specified amount of time

investment policy statement

Used by those administering employee benefit plans to set out the objectives, policies, investment selections, and monitoring procedures for the plan. May also be used by investment advisers to determine policies to be followed with their clients.

security market index

Used to represent the performance of an asset class, security market, or segment of a market. They are usually created as portfolios of individual securities, which are referred to as the constituent securities of the index. An index has a numerical value that is calculated from the market prices (actual when available, or estimated) of its constituent securities at a point in time. An index return is the percentage change in the index's value over a period of time. Popular examples are the S&P 500 and the Russell 2000.

Technical Analysts

Uses price and volume data to determine past trends, which are expected to continue into the future

What is Portfolio Optimization? What is Rebalancing?

Using the efficient frontier to match an investor's risk tolerance and objectives with the most efficient portfolio possible on a risk-adjusted basis. selling some securities and purchasing others in order to return the allocation to prescribed targets

What is a "notice filing?" What act created this concept? What other entity did this act create?

When a firm registers with the SEC, but also need to notify the state where they have a place of business, they do a notice filing. National Securities Markets Improvement Act (NSMIA) federal covered advisers

Directed Brokerage

When an IA suggests that a client sneds trades through a speciifc BD, it must disclose and conflicts of interest

When is performance-based compensation allowed for an investment adviser?

When the adviser has a contract with a Qualified Client? (certain institutional clients and individuals with either $2 million net worth or $1 million of assets under management) Period covered must be at least 1 year.

mode

When viewing a series of values, the one that occurs the most frequently. A measure of central tendency.

Bond Issued at a Discount

YTC (Yield to Call) >YTM (Yield to Maturity)>Current Yield > Coupon (Nominal) Rate

What is a Treasury Receipt?

Zero coupon bonds created by broker-dealers, backed by Treasury securities held in escrow. Not an obligation of US Government.

Convertible Bond

a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock -Only offered by corporations

What is "duration" in reference to a bond?"

a bond's price sensitivity to a small change in interest rates. The years it takes to receive a bond's true cost.

A short sale of stock means that

a client is obligated to replace stock she sold after borrowing it from the broker dealer.

What are the 2 client exceptions to the disclosure brochure rule?

a registered investment company doesn't receive the disclosure brocher a client receiving impersonal advisory services only

According to Modern Portfolio Theory, investors should construct portfolios in which securities have what type of correlation?

a slightly negative correction, which helps to balance the portfolio as a whole

All tax questions should be directed to

a tax specialist

What is "arbitrage?"

a trading tactic that involves taking advantage of the disparity of 2 things.

Accumulation Unit

accounting measure to determine proportionate interest in insurer's separate account

share ratio

actual return-RF/ standard deviation

Who may register as Investment Advisers under the Investment Advisers Act of 1940? (2)

adisers who have at least $100 million of assets under management or advise a registered investment company

What is another name for an "income bond," and what is it's characteristic?

adjustment bond. it can skip interest payments without going into default (issued by a company coming out of bankruptcy)

Do advisers keep the originals of client correspondence, or does the client get the original?

advisers keep the originals of correspondence received from clients

What is "cherry picking?"

an adviser allocates a bunched trade to favored clients if the price movement was favorable, but to other accounts if the price movement was unfavorable.

Who can invest in a crowdfunding security? the investor is limited in how much they can invest during any _________ period. If either the investor's annual income or net worth is less than $_____, then during any 12-month period, he can invest up to the greater of either $_______ or ___% of the lesser of his annual income or net worth. If annual income and net-worth are equal to or more than $________, then during any 12-month period he can commit up to ___% of annual income or net worth, whichever is less, but not to exceed $_____. Crowdfunding investors have up to ______ prior to the end of the offer period to change their mind and cancel their investment commitment for any reason. Investors are limited in their ability to resell their investment for how long?

anybody 12 month $100,000; $2,000; 5% $100,000; 10%; $100,000 48-hours for the 1st year, and may need to hold for an indefinite period

Exchange Traded Notes (ETNs)

are debt instruments in which the issuer promises to pay a return based on the performance of a specific debt index after deducting specified fees. ETN register under the securities exchange act of 1933 and ETFs register under the invetsment company act of 1940

Foreign stocks [are/are not] registered with the Securities Exchange Commission

are not

Personal items, copyrights, goodwill, franchise rights, patent rights, and marketing rights [are/are not] included in net assets.

are not

flow through

as if business activities are incurred to an individual directly

What are the conditions that would permit the number Can the public offering price be changed/

as long as the terms at which the securities are to be acquired are not altered for ANY buyer no

normal yield curve

as maturities get longer yields increase because investors demand premium for the added risk

The Uniform Securities Act lays out what 3 main concerns for advisory contracts?

assignment - can't assign contract to another without client's consent change in partnership composition - client must be notified of any changes within a reasonable time compensation - adviser can't be compensated based upon performance

STRIPS

avoid reinvestment risk, zero coupons treasury obligations

debt-to-equity ratio would be found on the

balance sheet

Foreign Bonds

bonds sold in a foreign country and denominated in that country's currency Advantage: 1. Potentially higher returns 2. Diversification 3.Hedging against a drop in value of the US dollar Disadvantage: 1. Currency Risk 2. Potentially higher risk of default 3. Generally less liquidity 4.Generally higher trading costs

agency transaction

broker/dealer buys/sells securities on customers behalf

put writer, short put

bullish max loss = strike-prem max gain = prem

To protect against unlimited loss when selling a short (because the price keeps increasing instead of decreasing), an investor enters a(n) ____ order.

buy stop

____ a buy at future date for lower purchase price.

call

____ bonds are those bonds that are issued with a clause stating times and conditions that a bond may be redeemed early

callable

A realized profit from the sale of an investment will result in

capital gain

The Administrator can take what 2 specific actions without 1st giving notice and an opportunity for a hearing? 2 orders that are non-punitive? The Administrator can initiate a suspension or revocation proceeding for up to _____ years after an agent's departure The district attorney or attorney general's office must come after an offender within ___ years of an alleged misdeed. If a client discovered that some type of deception took place, the buyer can sue if he initiates action within ____ years of discovery, or ____ years from the event.

cease & desist order summarily suspend a registration pending final determination of the matter withdrawal and cancellation 1 year 5 years 2 years; 3 years (whichever comes 1st)

Both a REIT and a DPP are run by ______.

centralized management

Simple trusts may not make _____ contributions

charitable

When may an IAR/IA borrow money or securities from a client? (3) When may money be loaned to a client?

client is a broker/dealer an affiliate of the IA a financial institution engaged in the business of loaning funds IA is a financial institution engaged in the business of loaning funds or the client is an affiliate of the IA.

What is the standard for determining that an investment is "suitable" for a client? (3)

client's investment objectives financial situation and needs any other information known by the investment advisor

What is the only investment company product that can not be redeemed?

closed-end mutual fund (UITs are redeemable!)

collateral trust certificate

collateral trust bond.

___ are loans that large corporations use to finance accounts receivable and inventory that typically are no more than 9 months

commercial paper

An agent charges a ____

commission

Federal Open Market Committee (FOMC)

committee that looks at Feds operation to control money supply

____ stock is an equity security representative of shares of ownership in a company.

common or preferred

The investment with the greatest capital risk is

common stock

convertible preferred stock can be converted into

common stock

[Common stockholders/Preferred stockholders/Both] receive the right to vote in matters of operation.

common stockholders

callable preferred stock

company may call in the stock at specified price

point to point

compares index value at purchase date to value at end date

When setting up a trust, a person who is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries should establish a ____ trust.

complex

Annuities

contracts in which the insurer promises the insured a series of periodic payments and are a type of investment that provides investors with tax-deferred growth

Brokers should be aware of these and report them to customers as is appropriate. In order to avoid conflicts of interest and thereby protect customers, brokers are required to disclose any _____ relationships they have with the issuers.

control

What is the term for when the Administrator issues a subpoena or a cease and desist, and the affected party fails to respond or cooperate?

contumacy

If not all of the value of the preferred share is converted to common stock, the remaining value is referred to as the ____

conversion premium

A high coupon is very attractive for an investor seeking ____ income

current

discretionary account

customer has given authority of discretion

qualified

deductible against contributors taxable income meaning the contribution amounts have not been taxed build tax deferred distributions are taxable ***All ERISA plans

options (both puts and calls), futures (and forwards), and warrants (and stock rights) are

derivatives

Rule of 72

divide 72 by the interest rate to find the # of years it will take for your money to double. Or divide 72 by the known number of years =interest rate required to double investment

Preferred stocks tend to pay higher ____ than common stocks and are less volatile (do not appreciate as quickly).

dividends

Eurodollar bonds

dollar-denominated bonds sold outside the United States

If financial plan is not accepted because of a lack of understanding,

educate client further but accept final decision belongs to client.

The IRR would make the present value of ______________ equal to zero.

expected cash flows

What are the vertical and horizontal axes on the Efficient Frontier?

expected return; standard deviation

regulation T

fed reserve sets initial margin to buy or sell stock under regulation T finra set lower level, min maintenance margin, and maintenance call is used to bring account back up Long account = 25% and short account is 30%

repurchase by feds

feds buy loosens credit bc they have cash decreased rates

reverse repurchase (matched sale)

feds sell tightens credit increases rate

An Administrator can take action under the USA by

filing a civil complaint, issuing a cease and desist, filing a criminal complaint.

FOK

fill-or-kill order.

Scheduled premium variable life insurance as a ___ premium.

fixed

____ assets are included on a balance sheet.

fixed

Universal life insurance has a ____ premium.

flexible

universal life

flexible insurance change premiums and death benefit builds cash value if over paid and invests in general account guaranteed min death benefit savings component

_____ accounts are pre-tax deductions that cannot be invested.

flexible spending (FSA)

How long are securities registrations effective? What item would allow for an extension of the one year?

for 1 year from the effective date a shelf offering

What is the free-look period?

for a variable annuity, the buyer has 10 business days to change his mind and receive a full refund

_____ contracts have no active secondary market because they have only one buyer and one seller, are not standardized, and have no exchange.

forward

If material information is not given to the client, the agent has committed ____.

fraud

For Section 529 plans,

funds withdrawn for qualified education expenses are always free of federal income tax, and the maximum contribution limits are determined on a state level

What types of soft-dollar compensation is not allowed by regulators? (4) What types of soft-dollar compensation is allowed?

furniture & office equipment salaries or overhead vacations cell phones, etc. . . a service that helps the clients of the adviser (research reports, trade processing, software, etc. . . )

ADV Part 1

general info about IA (name, address, business, states) statutory disqualification number of employees at the firm, number of clients, AUM

GAAP

generally accepted accounting principles

Brady Bonds

generally third world debt that may use US Treasury Bonds as collateral

farther away the yield is from the coupon rate

greater volatility bonds trading at large discounts or large premiums are more volatile in price movements

GDP

gross domestic product.

fixed annuity

guaranteed rate of return insurance company assumes risk invests in general account mortality and expense risk annuitant assumes inflation/purchasing power risk

____, unlike FSA, permits employees to invest in a wide variety of securities.

health savings account (HSA)

A ______ beta indicates a riskier portfolio or security.

higher

A bond purchased at a discount will have a ____ YTM (yield to maturity) than a bond purchased at a premium or at par if the bonds have the same fixed rate of interest and date of maturity.

higher

With rising interest rates, new bonds produce _____ yields for the same outlay of principal to the investor

higher

Class A shares

higher up front sales charge no or very low annual 12b-1 fees (.25%) long term investment

call contract

holder to buy the security call someone to buy called = obligates the writer to deliver

To be pledged as a security for a loan is called what?

hypothecation

What is the difference between strategic and tactical asset allocation?

if the investment allocation is based on the investor, that is strategic asset allocation. If the allocation is based on market timing, that is tactical asset allocation.

It is not illegal to hold restricted stock; it is [legal/illegal] to sell it to another investor without taking the proper steps to inform the SEC of the sell and complying with the regulations as stated in section 1244 of the Internal Revenue Code

illegal

A disclosure brochure is not required if the advice is ___________ and costs less than $_______. What is the opposite of impersonal advice, which is when the adviser tailors advice to each client.

impersonal (not tailored to specific client situations); $500 supervisory services

A strong dollar increases ____

imports to US

Median

in a group of numbers, the one with an equal above and below, or, the number in the middle

REITs allow the direct pass through of ___.

income (NOT losses)

When inflation is high, price levels

increase

high water mark

index value yearly as of anniversary date of purchase and bases interest added on the highest index value over the life

Agent

individual who represents broker-dealer Excluded are clerical and admin staff unless they take on security related functions

What is a solicitor? Which advisers are permitted to use a solicitor?

individuals or small firms that solicit new business on behalf of an investment adviser only advisers who are registered, who have a written agreement between solicitor & adviser

____risk describes the risk that an investor's investments' return will not keep pace and that s/he will ultimately lose purchasing power

inflation

A trust established while the grantor is alive is called inter-_______.

inter vivos trust

_____ from municipal bonds is tax-free at a federal level.

interest income

treasury notes

intermediate term, 1-10 years and a stated coupon

UGMA and UTMA accounts give custodians only the authority to _____ not to to take back money.

invest and disburse

portfolio income

investment - dividends and interest (cash dividends) and capital gains

Wrap fees for broker dealers include charges for

investment advice and brokerage transactions

Once the broker-dealer decides to offer wrap fee programs, it would become required to register on either the state or federal level as an

investment adviser

What are the 4-pronged items under the Supreme Court's "Howey Decision" to determine if an investment is a security?

investment of money due to . . . an expectation of profits arising from . . . a common enterprise. . . which depends solely on the efforts of a promoter or 3rd party

General Obligation Bonds

investments secured by the taxing power of the jurisdiction that issues them

Warrants differ from call options in that they originate from the issuing company, and calls are sold by other ____

investors

universal life policy

is a variation of whole life insurance. Features: a death benefit + a savings components, but offers consumers a great deal of flexibility in how their premium is applied. More options on interest rates for savings, loans, and repayments Invests in mutual funds

During the red herring phase, the IPO [is/is not] available for public purchase.

is not

Subordinated

junior in claim on assets to other debt, that is, repayable only after other debts with a higher claim have been satisfied. No matter how subordinated the debenture it is still senior to any stocholder

A higher P/E may indicate that investors predict _____ earnings in the future

larger

Money supply, orders, and permits are _____ indicators.

leading

duration definition

length of time it takes for the price of the bond to be repaid by its internal cash flows

lower coupon =

less yield

Closed ended are ___ in their number of shares to be purchased.

limited

most volatile bond issue

long term zero coupon

greater the duration is

longer the maturity and lower the coupon, most volatile

If GDP and inflation increase, investors funds ____ purchase power.

lose

A lower standard deviation means ____ volatility.

lower

negative curve

lowering interest rates, the economy is slowing and fed is trying to restimulate

Discount Bonds

lowest to highest yield: Nominal Current yield yield to maturity yield to call

Post-Registration Broker-dealer

make and keep accounts, blotters, correspondence, memoranda, paper, books, etc. These must be preserved for three years with the first two years being easily accesible in the principal office. Also included in this is emails

All shorts and longs are made in ____ accounts.

margin

A principal (one who purchases securities for sale from inventory) charges a ____

mark-up

_____ risk describes the chance that an investor may suffer losses because of dynamics that affect the general performance of the market, like a terrorist attack.

market

zero coupon duration

maturity

a debt instrument is issued at par value with a fixed interest rate is assigned a

maturity date

In a scheduled premium variable life insurance policy, ____ is NOT guaranteed

minimum cash value

In a scheduled premium variable life insurance policy, ___ is guaranteed

minimum death benefit

Tbills =

money market securities (backed by FDIC)

Only the ______________ plan requires a mandatory contribution from the employer.

money purchase plan SIMPLE Plan (flat 2% or matching up to 3%)

A single preferred share usually converts to ___ share(s) of common stock because of its initial higher price.

multiple

____ bonds are the only bonds whose discounts are not accreted

municipal

open-end funds

mutual fund continuously issued, not in secondary market redeemable (paid in 7 days) NAV computed daily max sales charge 8.5% of POP dividend reinvestment at NAV

____ are the most common type of open-ended investment company.

mutual funds

If the NPV is _____, the investment being analyzed in not worth being pursued

negative

The ____ show the value of a dollar today compared to the value of the same dollar in the future, accounting for inflation and returns (returns - inflation)

net present value

When does the nominal yield on a bond change?

never - it is named on the bond and never changes

When may an ex-culpability clause be used for investment advisory client contacts?

never. An advisory contract can not as the client to hold the adviser Without-fault, no mater what.

T bills are issued at a discount to par and redeemed at par so they have _____ interest payments.

no

May a person who has a life & health insurance license, split commissions with an securities agent from the same firm?

no - one has to be securities licensed to receive commissions

term life

no cash value premiums vary on age death benefit non-renewable after a certain age

When and how often must access persons file reports to their chief compliance officer on their securities holdings and transactions? How often must transaction reports be submitted? What must an access person do prior to purchasing an IPO or limited offering? How are automatic investment plan transactions reported? What other investments do not need to be reported? (7)

no later than 10 days after becoming an access person, and once a year an update. information must be accurate as of no more than 45 days prior to filing the report every financial quarter, no more than 30 days after the end of the quarter he must receive per-approval from the chief compliance officer they are not transactions that must be reported US debt obligations, banker's acceptances, bank cd's, commercial paper, shares of money market funds, open-end fund shares, UIT shares in an open-end fund

When must an investor receive a final prospectus for a primary offering?

no later than the due date for confirmation of the transaction

Which of the following are considered "securities?": fixed annuity; whole life insurance; term life insurance; universal life insurance; endowment policy

none of them are securities

non-qualified

not deductible against contributors taxable income meaning the contribution amount have been taxed earnings build tax deferred distributions - original is not taxed and build up is taxed ***variable annuity

Interest income from municipal bonds is ordinarily

not taxed or tax exempt

Are Anti-Money Laundering requirements under the Bank Secrecy Act applicable to Investment Advisers?

not yet

In order to use discretionary power for a client account, what must be done and when by the IA/IAR? Is the rule the same for a Broker-dealer? What 2 items are exempt from the discretionary rule?

obtain written authority from the client within 10 business days after the date of the 1st transaction, pursuant to oral discretionary authority No - broker-dealers need written discretionary authority BEFORE making any trades the price at which, and the time when, an order involving a definite amount of a specified security is executed

Under the USA, an investment advisor rep is anyone who

offers advice, manages client accounts, determines security recommendations, or supervises personnel engaged in advisory activities

The tax consequence from transferring proceeds from one fund to another within the same family of funds is incurred ___

on the date of transaction.

How often can Section 529 funds be moved to a different plan?

once per 12 months

Variable Life Insurance Voting Rights

one vote per $100 of cash value For variable annuities and mutual funds its one vote per unit or share

If an IA/IAR advertises the performance of their stock picks, the period shown must be at least ___________. What does the rule say about providing a complete list of stock picks?

one year if it isn't provided in the ad, the ad must indicate how the reader can obtain the complete list free of charge

Dividends and interest are taxed as ____ income.

ordinary income

Section 13(f) Filings

over 4$100M must file form 13F with the SEC quarterly within 45 days of the end of each quarter 13F funds include exchange funds but not mutual funds

If XYZ common stock is listed for trading on the NYSE, ___ are considered covered

participating preferred stock,first mortgage bonds, warrants to purchase XYZ common stock, rights issued in advance of an offering of additional XYZ common stock

3 examples of intangible assets?

patents, trademarks, goodwill (things that can't be seen or touched, but do contribute to company sales & profits)

ERISA regulates

pension plans

Accumulation Stage

period when contributions are made to annuity account

whole life

permanent insurance higher premiums but remain level guaranteed cash value (can be used to pray prem) fixed death benefit

The 3 phases of money laundering are:

placement layering integration

____ risk describes the risk that ensues from political upheaval or instability and unrest in a country

political

____ indicates how much needs to be invested today at a given interest rate to equal a specific cash value in the future

present value of a dollar

Market value is the

price per share

PE ratio

price-earnings ratio.

_____ compares a company's market value to a company's value based on its assets versus liabilities listed on the balance sheet.

price-to-book ratio

bank holding company

primary asset is a commercial bank

Under the Uniform Securities Act, there is no ____ in situations where an adviser proves that he had no prior knowledge of rules or orders violated.

prison sentence

Testimonials promoting investment advisers' services are ____ under both state and federal law, regardless of whether a spokesperson receives compensation.

prohibited

Under USA, offering shares of an unregistered, nonexempt security to retail customers or selling to customers in a state in which the agent is not registered are ___.

prohibited

call protection

provision in bond indenture stating bond is not callable for a certain period

closed-end funds

publicly traded funds issued once not redeemable discount or premium to NAV

inflation risk

purchasing power risk.

The effective date of registration by _____ is set by the Administrator.

qualification

Short term liquidity can be determined using the

quick ratio

federal funds rate

rate charged by one institution lending federal funds to another

A _____ prospectus enables the investor to become familiar with the issue, but it is not yet available for public purchase

red herring

The NAV of shares purchased = the NAV of shares

redeemed

____stock is stock that is held in a company that was not offered as part of an initial public offering.

restricted

annual reset

return achieved each year and adds interest

alpha

risk adjusted returns in excess of CAPM risk adjusted returns

What is the formula for the Capital Asset Pricing Model (CAPM)?

risk free rate of return + beta (expected return - risk free rate)

earned income

salaries and wages and bonuses

The ____ ratio compares the net sales of the business with its earnings. Companies with a higher percentage of earnings from each dollar of sales are more profitable.

sales-to-earnings

industry fund

sector fund.

____ is the practice of changing investment emphasis based on patterns to the business cycle.

sector rotation

According to the USA, an agent sells (or accepts order for)

securities (NYSE)

current market value

securities account value

earn income on long stock

sell call

An investor always _____ a short hoping that the future price of the stock will decrease.

sells

When bonds are issued, ___ does not change.

shareholder's equity

lower the duration is

short maturities and high coupons, least volatile

The FRB's policies are primarily executed by affecting growth and supply through ____

short term interest rates

Commercial Paper

short-term unsecured debt issued by large corporations primarily to raise working capital commercial paper is exempt from registration on the state and federal level as long as the maturity is less than 9 months - usually negotiable -issued at a discount

treasury bills

short-term, less than a year, issued at discount to par and mature at par

What are the 2 types of instances where a person may be an "exempt reporting adviser" and not subject to SEC registration, but do have to file annual reports with the SEC and provide much of the information on the Form ADV??

solely an adviser to one or more venture capital funds solely an adviser to private funds with less than $150 million of assets

A(n) _____ is the term used to describe a person on the floor of the stock exchange who stands ready to buy or sell shares of a specific stock.

specialist

stop order

stop a loss sell stop order if market drops to stop further loss, once trade occurs at stop the oder is filled the next trade SELL STOP = FALLING buy stop order if market is going up to stop further loss BUY STOP = RISING

Fundamental Analysis

study of the business prospects of an individual company within the context of its industry and the overall economy

capitalization

sum of long term debt, stock, and surplus

_____ risk is intrinsic to the whole market or market subdivision and may not be negated through diversification, like wars or volatile interest rates.

systematic

____ asset allocation continuously adjusts the asset allocation in an attempt to take advantage of changing market conditions.

tactical

Assets must be ___

tangible

Employee stock options are [taxable/tax deferred/tax exempt].

tax deferred until redemption

For municipal bonds, dividends are ___, but capital gains are always taxed.

tax free

Nonqualified plans are [taxable/tax deferred/tax exempt].

taxable upon receipt instead of redemption

What is a progressive tax? What is a regressive tax?

taxes whose rates increase as the amount being taxed increases any flat tax is regressive (sales tax)

Life insurance that has premiums that increase each time the policy is renewed with no cash value build up are ___

term

What is the model for state securities law?

the Uniform Securities Act

A bond's yield to maturity is

the annualized return on a bond if it is held to maturity

The SEC defines an advertisement for an adviser by what 2 factors?

the communications addresses more than one person concerning the firm's advisory services

In XYZ Industries 5s debenture of '25, what does the 5s mean?

the coupon rate is 5% or $50 per year

What procedure needs to be completed when FINRA requests documents for a disciplinary investigation? What else must be encrypted?

the data must be encrypted if submitted on a portable media device customer Emails

What is "internal rate of return?" What is the "Net Present Value?

the discount rate that makes the net present value of the cash flows equal to zero. Any calculation that is greater than zero results in an attractive investment. the difference (either positive or negative), between the present values of an investment's cash inflows and its cash outflows.

interest rates on repurchase agreements track

the federal funds rate

What is a "market not held" order?

the firm could take a market order from a customer and then have the "time and price discretion" to enter it later, when they are convinced the customer can get a better price.

Which return takes the total amount earned, and divides it by the invested principal, regardless of the time frame? another name for this?

the holding period return total profit

On a zero coupon bond, the internal rate of return is easily determined because

the interest rate is 0% (the bond is bought at a discount and $$ earned by par redemption at maturity)

Before prospects sign the agreement with the advisory firm, they must receive what? When must it be delivered to the prospect? When must it be delivered, if the adviser is federally registered?

the investment advisor's Disclosure Brochure (ADV Part 2) for a state-registered adviser, within 48 hours (before) signing the contract, or at the time of signing if the client has 5 days to cancel without financial penalty before or at the time the client signs the advisory agreement

NAV

the net asset value of a mutual fund; equal to the market value of the assets in the mutual fund portfolio divided by the number of shares outstanding

Tax Equivalent Yield

the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. Tax equivalent yield= tax free municipal bond yield/ 1- tax rate

What is "counterparty risk?"

the risk that the other side of the transaction will default on the contract

What is "alpha?" What is beta?

the risk-adjusted return compared to the benchmark the measure of risk (volatility)

What is the difference between a qualified and non-qualified variable annuity? Is there a death benefit with a non-qualified variable annunity?

the taxes are not deferred when making deposits yes - they charge M&E fees to provide the death benefit

What is "market capitalization?" What is "capital structure?"

the total value of the outstanding shares of stock the amount & types of fixed-income and equity securities issued by the corporation

What 2 factors would allow 2 agents from different firms to share commissions with each other?

they need permission form their firms the firms must be affiliated by either direct or indirect common control

How do you calculate the "holding period return?"

total amount of the profit / principal invested

When a company pays cash dividends, ____ change.

total assets and total liabilities

Inflation-Adjusted Return

total return minus the CPI

ETF (exchange traded fund) are like a mutual fund EXCEPT they

trade throughout the day, have lower taxable distributions, and lower annual expenses

Both exchange-traded funds and closed-end investment companies are

traded on exchanges and require commissions when purchasing and liquidating shares.

___ are short-term debt issued by the United States government, usually with 1, 3 or 6 month maturities.

treasury bills (T-bills)

___ are issued at par with fixed interest and maturities of greater than ten years

treasury bonds (T bonds)

___ are issued with maturity dates of 1 to 10 years at par value with a fixed rate of interest and fall in the fixed income sector of the market.

treasury notes

buy stop order

triggered when market hits predetermined price

A ____ trust is unmanaged because sold in secondary market and held to maturity or termination.

unit investment (UIT)

Open ended are ___ in their number of shares to be purchased.

unlimited

Adjusted Basis

value of asset/security that reflects the gain or loss

____ life insurance allows the policyowner to decide how the cash value is invested through a number of subaccounts

variable

EIA - equity indexed annuity

variation of a fixed annuity track an index and promise stock market gains guaranteed minimum inflation hedge, protected from bear market participation rate "collaring" = buying puts and selling calls

Long term bonds have more ____

volatility

Standard deviation determines

volatility

Standard deviation (alpha) indicates _____ of investment

volatility (risk)

____ are derivative securities that allow the investor to buy securities directly from the issuer at a given price within a defined period of time.

warrants

If an investor swaps identical issues of stock to establish a loss that is disallowed, the transaction is known as a

wash sale

Does the holding-period on a stock end when the stock is sold, or when it is actually settled?

when it is sold.

flat yield curve

when short maturities equal long maturities

What is an Agency Cross Transaction? How often must the adviser send a statement itemizing all agency cross transactions effected on behalf of their client?

when the adviser runs a trade for an advisory client through the related broker-dealer at least once per year

When does the broker-dealer share his disaster recovery plan with his customers? (3)

when the customer opens the account, upon request, and on the firm's website

When is the only time that an agent can share profits and/or losses with a customer? When can an agent split a commission with a customer?

when they are in a joint account with the customer and they have received the customer's authorization as well as the broker-dealer's. Never. Commissions can be split only with registered agents at the firm or a firm directly related to the firm.

Substantive changes to a firm, requires the filing of another Form ADV Part 1 within what time period? How often is renewal submitted with the ADV Part 1? An adviser with over $_______ of assets under management MUST register with the SEC.

within 30 days of the change Every year, within 90 days of the end of each fiscal year $110 million

This type of account charges a flat fee as a percentage of the account value regardless of the number of trades executed.

wrap account

bond at a discount

ytm is higher than current yield and current yield is higher than the nominal yield since the discount price is taken into account

For IRR the time value of money equals

zero

_____bonds are bonds which sell at a discounted price because they do not pay interest

zero coupon

passive loss

A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Can be used to offset passive income only, not wage or portfolio income.

nondiversified investment company

A management company that does not meet the diversification requirements of the Investment Company Act of 1940. These companies are not restricted in the choice of securities or by the concentration of interest they have in those securities.

growth style investing

A management style that attempts to find stocks with positive earnings momentum. These stocks typically sell at the upper end of their 52-week price range, have high P/E ratios and lower than average dividend payout ratios.

value style investing

A management style that looks for stocks currently selling at distressed prices that have solid underlying fundamentals. These stocks typically sell at the lower end of their 52-week price range and have low P/E ratios and higher than average dividend payout ratios.

bull market

A market in which prices of a certain group of securities are rising or will rise.

Dow Jones Utilities Average (DJUA)

A market indicator composed of 15 utilities stocks.

Treasury bond

A marketable, fixed-interest US government debt security with a maturity of more than 10 years.

book value per share

A measure of the net worth of each share of common stock is calculated by subtracting intangible assets and preferred stock from total net worth, then dividing the result by the number of shares of common outstanding.

aggressive investment strategy

A method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors place a high percentage of their investable assets in equity securities and a far lower percentage in safer debt securities and cash equivalents, and they pursue aggressive policies including margin trading, arbitrage, and option trading.

defensive investment strategy

A method of portfolio allocation and management aimed at minimizing the risk of losing principal. Defensive investors place a high percentage of their investable assets in bonds, cash equivalents, and stocks that are less volatile than average.

front-end load

A mutual fund commission or sales fee that is charged at the time shares are purchased. Added to the share's net asset value when calculating the public offering price.

Taxation of Annuities

-contributions made with AFTER-tax dollars -interest, dividends, and capital gains taxes are deferred until distributions are made -anything exceeding the cost basis is taxed at ordinary income -exclusion ration: percentage of contribution basis to total -distributions to beneficiaries taxed as ordinary income

partnership management fee

-amount payable to general partners of a limited partnership -for managing day to day operations

margin

-amount put down as percentage of total value

unrealized gain

-amount security increases before sold -investor does not possess sale proceeds until sold

position

-amount security is owned/owed (long/short) -dealers maintain long positions to facilitate trading

realized gain

-amount taxpayer gets when selling an asset

tax credit

-amount that can be taken from tax liability -tax credit reduces tax amount dollar for dollar

qualified retirement plan

-corporate retirement plan that meets standards set by the Employee Retirement Income Security Act of 1974 -contributions are tax deductible

real estate investment trust (REIT)

-corporation/trust that pools capital to invest in direct ownership of income property/mortgage loans -offer tax benefits -interest/capital gains distributions -not 'flow through'

Qualified Domestic Relations Orders (QDROs)

-court issued order -gives someone the right to an individuals qualified plan assets -typically for an ex spouse -usually issued in divorce proceedings/or to satisfy child support -only applies to assets in a qualified employer plan -not applicable to an IRA or SEP

standard deviation

-measurement of total risk -bigger standard deviation means returns vary from average -big standard deviation=high volatility

working capital

-measures corporate liquidity -ability to transfer assets into cash to meet short term obligations -total current assets-total current liabilities

return on common equity

-measures corporations profitability -after tax income/common shareholder equity

debt to equity ratio

-measures leverage -total long term debt/total stockholders equity

tax sheltered annuity (TSA)

-an annuity contract that entitles holder to exclude contributions from gross income -taxes deferred until funds are withdrawn -available primarily through 403b plan

chartist

-analyst that uses past prices to predict future

technical analysis

-analysts do not measure a securities intrinsic value -analyze market activity

investment objective

-any goal a client wants to achieve -income, growth, preservation of capital

hedge clause

-any legend, clause, or other provision that makes someone think they've waived rights

stock exchange

-any organization/association/group that maintains/provides a marketplace for securities

investment adviser representative (IAR)

-any partner, officer, director, or other employee associated with someone giving advice, soliciting, or supervising those that do

security

-any securitized paper that can be traded for value -not an insurance policy/fixed annuity

investment adviser

-anyone that receives flat fee or % of assets managed for recommendations -for investment company, the guy investing cash/securities in fund's portfolio on day to day basis

insider

-anyone with access to material nonpublic information -directors, officers, and 10% stockholders

prudent investor rule

-applies to standard prudence of entire portfolio -not for individual investments -requires fiduciary to measure risk with respect to return

limited power of attorney

-authorization for third party to make certain investment decisions

convertible preferred stock

-can be switched for common stock -dividends may be cumulative or non

passive loss

-can only be used to offset passive income -not wage/portfolio income

irrevocable trust

-cannot be altered/canceled by the grantor

loss carryover

-capital loss in one tax year carried over to next/later year for use as capital loss deduction

capital stock

-companies outstanding preferred and common stock -listed at par

holding company

-company investing/managing other companies -control can occur with 50% or more of voting rights or dominant influence -referred to as parent organization

Standard & Poor's Corporation

-company rates stocks/corporate & municipal bonds -rates based on risk profiles -also publishes variety of financial/investment reports

beta

-compares a securities return to the return of the overall market -beta of 1 means it moves with the market -if greater than 1, outperform the market

price earnings ratio (PE)

-compares common stocks based on corporate earnings -current market price/earnings per share

expense ratio

-compares mutual fund efficiency -funds expenses/net assets

current ratio

-measures liquidity -total current assets/total current liabilities -working capital ratio

duration

-measures percent change in price of bond as interest rates change -measures time in years for a bond to pay for itself

return on equity

-measures profitability -measures return on assets -after tax income/tangible assets

Sharpe Ratio

-measures risk adjusted return -excess return over 90 day T bill rate/ standard dev. -measures reward per unit of risk -higher the ratio, the better

exchange listed security

-meets listing requirements for volume, earnings,and other things

demutualization

-member owned company becomes shareholder owned -usually done by mutual life insurance companies -recently don by NYSE

notice filing

-method to file with state Administrators -for registered investment companies/federal covered advisers

defensive investment strategy

-minimize risk or losing principle -lots of bonds, cash equivalents, and low volatile stocks

cash flow

-money received less cash paid out -net income plus depreciation

monetarist theory

-money supply is the major player in price levels -control the money supply

immediate annuity

-monthly payments start immediately after deposit of the invested funds -usually start within 30 to 60 days

quick asset ratio (acid test ratio)

-more strict test of liquidity than current ratio -(current assets-inventory)/current liabilities

US government and agency bond fund

-mutual fund objective to provide current income and preserve capital -invests in US Treasury backed securities -invests in government agencies

tax exempt bond fund

-mutual fund objective to provide max tax free income -primarily municipal bonds and short term debt

bond fund

-mutual fund provides income and limited risk

net asset value (NAV)

-mutual fund share's value -calculated once a day on closing market prices -(total assets-liabilities)/number of shares outstanding

municipal bond fund

-mutual fund that operates as unit investment trust/open end fund -maximizes federally tax exempt income

special situation fund

-mutual fund with objective to capitalize on companies with nonrecurring situations -reorganizations/takeover candidates/etc.

preferred stock fund

-mutual fund with stable income objective -minimum capital risk

private placement

-new issue of securities that complies with Reg D of the 1933 Securities Act -35 nonaccredited/unlimited accredited investors -exempt from SEC registration

reinstatement privilege

-offered by some mutual funds -allows investor to withdraw from fund and redeposit in another without a sales charge

return on investment (ROI)

-often expressed as % -profit/loss from a security transaction

remainderman

-one entitled to inherited property upon estate termination -usually occurs due to death/termination of former owner's life estate

Federal Intermediate Credit Bank (FICB)

-one of 12 banks providing short term financing to farmers -part of Farm Credit System

Moody's Investors Service

-one of best known in US -rates bonds, commercial paper, preferred/common stock, and municipal short term issues

secondary offering

-one or more major stockholders sell all/large portion of holdings -underwriting proceeds are paid to stockholders, not corporation -typically occurs when founder of a business wants to go private -offering does not increase outstanding shares

limited partnership (LP)

-one or more partners liable for amount invested -limited partners do not get dividends but get direct flow through income/expenses

State Securities Registration Procedures

-ongoing reports to the administrator can't be required more often than quarterly

day order

-only valid until close of trading day, closed after

operating ratio

-operating expenses/net sales -complement of margin of profit ratio

market order

-order to be executed immediately at best price -only order that guarantees execution

North American Securities Administrators Association (NASAA)

-organized in 1919 -oldest international organization devoted to investor protection -voluntary association -67 state, provincial, and territorial securities administers -50 states, District of Columbia, Puerto Rico, US Virgin Islands, Canada, and Mexico

market capitalization

-outstanding shares x current market price -large cap, mid cap, small cap, micro cap

taxable gain

-portion of mutual fund shares subject to tax at sale/distribution

call risk

-potential for bond to be called before maturity -leaves investor without income -more likely when interest rates are falling -investor may not be able to reinvest at similar rate of return

unsystematic risk

-potential for unforeseen event to affect value of investments -strikes, disasters, etc. -risk is diversifiable

intrinsic value

-potential profit from exercising an option

primary offering

-proceeds of underwriting go issuing corporation/agency/municipality -issuer wants to increase capitalization through stocks/bonds

operating income

-profit from one year of operation in business

short term capital gain

-profit realized within 12 months

front running

-prohibited practice -entering order before customer

marginal tax rate

-rate on any additional taxable income received -referred to as tax on the 'next' dollar or the 'last' dollar of income

reverse split

-reduction in a companies shares outstanding -increases par value of stock/earnings per share -market value of the shares stays the same

American depositary receipt

-represents a number of shares in a foreign company -issued by domestic bank -bought and sold in US securities markets in $

right

-represents stockholders right to buy new shares -issued at specified price (normally less that CMV) -issued in proportion to shares already owned -offered for short time then expire

Securities Act of 1933

-require full/fair disclosure of all material information for new issues

cash account

-required by SEC regulation T to pay full price for securities -no later than two days after standard period set by industry codes

redemption

-return of investor's principal -bond/preferred stock/mutual fund shares -mutual fund shares must be redeemed in 7 days of request

interest rate risk

-risk that involves the competitive cost of money -outstanding bonds can not remain competitive unless yields and prices adjust to reflect current interest rates

Whole Life Insurance

-scheduled premium -fixed death benefit -premiums to general account -guaranteed interest rate on cash value buildup -builds cash with borrowing ability -in effect to age 100 while premiums are paid

cash equivalent

-security that can be readily converted to cash -ie T bills, CDs, and money market instruments/funds

warrant

-security that gives the holder the right to buy securities from warrant issuer at a subscription price -usually long term instruments

speculation

-security with higher than average risk for higher return potential -effected only for profit, not a means of hedging

Chicago Board Options Exchange

-self regulating -jurisdiction over all writing and trading of standard options and relevant contracts -first national exchange for trading listed options

National Association of Securities Dealers, Inc. (NASD)

-self regulating organization for the OTC market -organized under the provisions of the 1938 Maloney Act

Municipal Securities Rulemaking Board (MSRB)

-self regulating organization regulates issuance/trading of municipal securities -functions under SEC supervision -no enforcement powers

short

-selling a security that you do not own

opening sale

-selling calls/puts to enter options

wash sale

-selling securities at a loss for tax purposes -within 30 days before/after buying the same/identical stock -IRS does not allow the claimed loss

cyclical industry

-sensitive to business cycle and price changes -durable goods, raw materials, heavy equipment

matched orders

-simultaneous buying/selling of identical orders -appears actively traded -violates antifraud provisions of 1934 and USA

resistance level

-technical analysis -describes the top of a stocks historical trading range

head and shoulders

-technical analysis -indicates market reversal/advance

pattern

-technical analysis -used to predict future movement

breadth-of-market theory

-technical analysis that predicts strength of market -based on number of issues that advance or decline in a trading day

volume of trading theory

-technical analysis theory saying the ratio of shares traded to total outstanding shares indicated strong/weak market

personal income (PI)

-total earnings from wages/passive income/investments

conversion parity

-two securities that can be converted at equal value -convertible security holder can find parity to see gain/loss

investment banking business

-underwrites/distributes new issues of securities -buys/sells securities for accounts of others

Estate tax

-unlimited amount to US spouse/charity, no fed tax -Assets sold at FMV -Payment no more than 9 months after death

Open End

-unlimited cap, continuous offering -no debt securities, margin allowed -sold and redeemed by fund only -priced by NAV+sales charge, in prospectus -shareholder right to dividend and voting

OTC

-unlisted securities -prices determined by negotiation -FINRA regulated -many locations

restricted security

-unregistered, nonexempt security -acquired directly/indirectly from issuer/affiliate of issuer -transaction does not involve a public offering

commercial paper

-unsecured, short term promissory note -issued by company for financing accts rec. and inventory -usually issued at discount reflecting interest rate -maturity up to 270 days

qualified tuition plan

529 plans

liability

A legal obligation to pay a debt owed.

eurobond

A long-term debt instrument of a government or corporation that is denominated in the currency of the issuer's country but is issued and sold in a different country.

Senior Security

A security that grants its holder a prior claim to the issuer's assets over the claims of another security's holders. For example, a bond is a senior security over common stock.

letter of intent (LOI)

A signed agreement allowing an investor to buy mutual fund shares at a lower overall sales charge based on the total dollar amount of the intended investment. A letter of intent is valid only if the investor completes the terms of the agreement within 13 months of signing the agreement. A letter of intent may be backdated 90 days.

Letter of Intent (LOI)

A signed agreement allowing an investor to buy mutual fund shares at a lower overall sales charge based on the total dollar amount of the intended investment. A letter of intent is valid only if the investor completes the terms of the agreement within 13 months of signing the agreement. A letter of intent may be backdated 90 days. Syn. statement of intention.

regressive tax

A tax that takes a larger percentage of the income of low-income earners than that of high-income earners. Examples include gasoline tax and cigarette tax.

flow-through

A term that describes the way income, deductions, and credits resulting from the activities of a business are applied to individual taxes and expenses as though each incurred the income and deductions directly.

trendline

A tool used by technical analysts to trace a security's movement by connecting the reaction lows in an upward trend or the rally highs in a downward trend.

moving average chart

A tool used by technical analysts to track the price movements of a commodity. It plots average daily settlement prices over a defined period of time (for example, over three days for a three-day moving average).

irrevocable trust

A trust that cannot be altered or canceled by the grantor at any time.

marital trust

A trust that seeks to pass property to a survivor spouse while taking advantage of the marital deduction; also known as an A trust.

brochure

A written disclosure statement that investment advisers must provide to most clients and prospective clients. The Forum ADV Part 2A may be used for this prupose.

equity

Common and preferred stockholders' ownership interests in a corporation.

premium

-amount of cash option buyer pays seller -difference of higher security price and its face value

custodian

-makes decisions for others -mutual funds have custodian banks to safeguard securities and do clerical work

income fund

-mutual fund -stable current income -securities that pay interest/dividends

noncontributory plan

-only employer makes contributions

testamentary trust

-trust created as result from a last will and testament

liquidation priority

-unpaid wages -taxes -secured claims (mortgage bonds, equipment trust certificates, collateral trust bonds) -unsecured liability (debentures and general creditors) -subordinated debt -preferred stockholders -common stockholders

negotiable certificate of deposit (CD)

-unsecured promissory note -minimum face of $100,000 -shows a time deposit of funds with issuing bank -guaranteed by the bank

maturity date

-when bonds principal is repaid -interest payments stop

Exclusions from the Definition of Investment Advisor Under Federal Law

1. Any bank as defined in the Bank Holding Company Act of 1956 is excluded 2. Any lawyer, accountant, teacher, or engineer whose advice is solely incidental to the practice of his profession. The exclusion is not available to those who have established a separate advisory business or holds himself out as offering investment advice. 3. Any broker-dealer whose performance of such services is solely incidental to the conduct of his business as a broker dealer and received no special compensation (like a wrap fee program) 4. Author and publisher of a newspaper that is general and impersonal in nature, bona fide in that is contains disinterested commentary and analysis and of general and regular circumstances. 5. Any person whose advice or reports are only to securities that are direct obligations guaranteed by the US or by certain US gov-sponsored organizations designated by the Secretary of the treasury (FNMA, GNMA) 6. Any national recognized rating agencies

agency issue

A debt security issued by an authorized agency of the federal government. Such an issue is backed by the issuing agency itself, not by the full faith and credit of the US government (except GNMA issues).

Consumer Price Index (CPI)

A measure of price changes in a "market basket" of consumer goods and services used to identify periods of inflation or deflation.

withdrawal plan

A benefit offered by a mutual fund whereby a customer receives the proceeds of periodic systematic liquidation of shares in the account. The amounts received may be based on a fixed dollar amount, a fixed number of shares, a fixed percentage, or a fixed period.

premium bond

A bond that sells at a higher price than its face value.

discount bond

A bond that sells at a lower price than its face value.

high yield bond

A bond with a less than investment grade rating, characterized by a return commensurate with the higher risk.

investment banking business

A broker, dealer, or municipal or government securities dealer that underwrites or distributes new issues of securities as a dealer or that buys and sells securities for the accounts of others as a broker.

direct participation program (DPP)

A business organized so as to pass all income, gains, losses, and tax benefits to its owners, the investors; the business is usually structured as a limited partnership. Examples include oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, and Subchapter S corporate offerings.

loss carryover

A capital loss incurred in one tax year that is carried over to the next year or later years for use as a capital loss deduction.

negotiability

A characteristic of a security that permits the owner to assign, give, transfer, or sell it to another person without a third party's permission.

normal yield curve

A chart showing long-term debt instruments having higher yields than short-term debt instruments.

inverted yield curve

A chart showing long-term debt instruments that have lower yields than short-term debt instruments.

flat yield curve

A chart showing the yields of bonds with short maturities as equal to the yields of bonds with long maturities. Syn. even yield curve.

customer statement

A document showing a customer's trading activity, positions, and account balance. The SEC requires that customer statements be sent quarterly, but customers generally receive them monthly.

Section 28(e)

A code section of the Securities Exchange Act of 1934 hat deals with soft-dollar compensation.

yield curve

A graphic representation of the actual or projected yields of fixed-income securities in relation to their maturities. In most cases, the securities of a single issuer are plotted over varying maturities.

Federal Open Market Committee (FOMC)

A committee that makes decisions concerning the Fed's operations to control the money supply.

growth stock

A common stock that is believed to offer significant potential for capital gains. It often pays low dividends and sells at a high price-earnings ratio.

investment company

A company engaged in the business of pooling investors' money and trading in securities for them. Examples include face-amount certificate companies, unit investment trusts, and management companies.

holding company

A company organized to invest in and manage other corporations. Control can occur through the ownership of 50% or more of the voting rights or through the exercise of a dominant influence. It is sometimes referred to as the parent organization.

Standard & Poor's Corporation (S&P)

A company that rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes. The company also publishes a variety of financial and investment reports.

Country Risk

A composite of all the risks of investing in a particular country.

quote machine

A computer that provides representatives and market makers with the information that appears on the Consolidated Tape. The information on the screen is condensed into symbols and numbers.

demand

A consumer's desire and willingness to pay for a good or service.

nonqualified retirement plan

A corporate retirement plan that does not meet the standards set by the Employee Retirement Income Security Act of 1974. Contributions are not tax deductible.

real estate investment trust (REIT)

A corporation or trust that uses the pooled capital of many investors to invest in direct ownership of either income property or mortgage loans. These investments offer tax benefits in addition to interest and capital gains distributions. However, unlike DPPs, these are not "flow-through" vehicles.

Investment Company

A corporation or trust through which people invest in professionally managed portfolios of securities by pooling their funds with other investors.

current liabilities

A corporation's debt obligations due for payment within the next 12 months. Examples include accounts payable, accrued wages payable, and current long-term debt.

market maker

A dealer willing to accept the risk of holding a particular security in its own account to facilitate trading in that security.

Guaranteed Bond

A debt instrument guaranteed by an entity other than the issuer

debenture

A debt obligation backed by the issuing corporation's general credit.

mortgage bond

A debt obligation secured by a property pledge. It represents a lien or mortgage against the issuing corporation's properties and real estate assets.

subordinated debenture

A debt obligation, backed by the general credit of the issuing corporation, that has claims to interest and principal subordinated to ordinary debentures and all other liabilities.

Section 457 Plan

A deferred compensation plan set up under Section ____ of the tax code that may be used by employees of a state, political subdivision of a state, and any agency or instrumentality of a state. This plan may also be offered to employees of certain tax-exempt organizations (hospitals, charitable organizations, unions, and so forth), but NOT churches. Even independent contractors may be covered under these plans.

Chinese wall

A descriptive name for the division within a brokerage firm that prevents insider information from passing from corporate advisers to investment traders, who could make use of the information to reap illicit profits. See Insider Trading and Securities Fraud Enforcement Act of 1988.

Municipal Securities Rulemaking Board (MSRB)

A self-regulatory organization that regulates the issuance and trading of municipal securities. The Board functions under the Securities and Exchange Commission's supervision; it has no enforcement powers.

durable power of attorney

A document giving either full or limited authority to a third party that survives the mental or physical incompetence (but not death) of the grantor.

exchange privilege

A feature offered by a mutual fund allowing an individual to transfer an investment in one fund to another fund under the same sponsor without incurring an additional sales charge.

spousal IRA

A separate individual retirement account established for a spouse with little or no earned income. Contributions to the account made by the working spouse grow tax deferred until withdrawal.

audited financial statement

A financial statement of a program, a corporation, or an issuer (including the profit and loss statement, cash flow and source and application of revenues statement, and balance sheet) that has been examined and verified by an independent certified public accountant.

partnership

A form of business organization in which two or more individuals manage the business and are equally and personally liable for its debts.

generation skipping trust

A form of bypass trust that is designed to have assets pass to grandchildren (or great-grandchildren) in order to "skip" a generation of estate tax.

employee stock options

A form of employee compensation where the employing corporation makes available the opportunity for employees to acquire the issuer's stock. There are two forms: nonqualified (NS0s) and incentive (IS0s).

Savings Incentive Match Plan for Employees

A form of employer sponsored IRA for businesses that have 100 or fewer employees who earned $5,000 or more during the preceding calendar year. In addition, the employer cannot currently have another retirement plan.

tenants in common (TIC)

A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account is retained by his estate.

joint tenants with right of survivorship (JTWROS)

A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account passes to the surviving tenant(s). Used almost exclusively by husbands and wives.

standard deviation

A measurement of a security's or a portfolio's total risk. The greater the standard deviation, the more the security's returns deviate from its average return, hence indicating greater volatility.

constant dollar plan

A formula method of investing that attempts to maintain a fixed dollar, rather than ratio, amount in a specific asset class. Periodically, the account is reviewed and the specified asset class is either sold or purchased in order to get to the fixed dollar level.

constant ratio plan

A formula method of investing that contemplates maintaining a fixed ratio, rather than dollar amount, between specific asset classes in the portfolio. Periodically, the account is reviewed and the specified asset class is either sold or purchased in order to get to the fixed ratio level.

hedge fund

A fund that can use one or more alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage. These funds tend to have very high minimum investment requirements.

cyclical industry

A fundamental analysis term for an industry that is sensitive to the business cycle and price changes. Most of these industries produce durable goods, raw materials, and heavy equipment.

recession

A general economic decline lasting from six to 18 months (at least two consecutive quarters of declining or negative DGP growth).

Federal Home Loan Bank (FHLB)

A government- regulated organization that operates a credit reserve system for the nation's savings and loan institutions.

What is a "request for no-action relief?" What are the 3 prongs that if all were "yes", would lead the SEC to rule that the person IS an investment adviser?

A granting from the SEC allowing a person to do what they are proposing without registering as an investment adviser. Does the professional provide investment advice? Is he/she in the business of providing advice? Do they receive compensation for this advice?

conduit theory

A means for an investment company to avoid taxation on net investment income distributed to shareholders. If a mutual fund acts as a conduit for the distribution of net investment income, it may qualify as a regulated investment company and be taxed only on the income the fund retains.

beta

A means of measuring the co-movement of the return of a security or a portfolio of securities to the return on the overall market. A _____ of 1 indicates that the securities return will be expected to move in tandem with the market. A ______ greater than 1 indicates that a security's returns will be expected to exceed those of the market. A ______ less than 1 means returns will be expected to be lower than those of the market.

lagging indicator

A measurable economic factor that changes after the economy has started to follow a particular pattern or trend. Lagging indicators are believed to confirm long-term trends. Examples include average duration of unemployment, corporate profits, and labor cost per unit of output.

leading indicator

A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are believed to predict changes in the economy. Examples include new orders for durable goods, slowdowns in deliveries by vendors, and numbers of building permits issued.

current ratio

A measure of a corporation's liquidity; that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by dividing total current assets by total current liabilities.

working capital

A measure of a corporation's liquidity— that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by subtracting total current liabilities from total current assets.

dividend payout ratio

A measure of a corporation's policy of paying cash dividends, calculated by dividing the dividends paid on common stock by the net income available for common stockholders. The ratio is the complement of the retained earnings ratio.

return on common equity

A measure of a corporation's profitability, calculated by dividing after-tax income by common shareholders' equity.

return on equity

A measure of a corporation's profitability, specifically its return on assets, calculated by dividing after-tax income by tangible assets.

margin of profit ratio

A measure of a corporation's relative profitability. It is calculated by dividing the operating profit by the net sales.

Technical Analysis

A method of attempting to predict stock trends over the near term. This prediction is based on current stock price trends and the relationship to the present trend to prior trend. These trends are measured through charts of price movements.

modern portfolio theory (MPT)

A method of choosing investments that focuses on the importance of the relationships among all of the investments in a portfolio rather than the individual merits of each investment. The method allows investors to quantify and control the amount of risk they accept and return they achieve.

technical analysis

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. These analysts do not attempt to measure a security's intrinsic value.

fundamental analysis

A method of evaluating securities by attempting to measure the intrinsic value of a particular stock. Fundamental analysts study the overall economy, industry conditions, and the financial condition and management of particular companies. See technical analysis.

American depositary receipt (ADR)

A negotiable certificate representing a given number of shares in a foreign corporation. It is issued by a domestic Bank. Bought and sold in the American securities market, and are traded in English and US dollars.

contraction

A period of general economic decline, one of the business cycle's four stages.

expansion

A period of increased business activity throughout an economy; one of the four stages of the business cycle.

deflation

A persistent and measurable fall in the general level of prices.

broker/dealer (BD)

A person in the business of buying and selling securities. A firm may act as both broker (agency) and dealer (principal), but not in the same transaction. Broker/dealers normally must register with the SEC, the appropriate SROs, and any state in which they do business.

Broker-Dealer (BD)

A person or firm in the business of buying and selling securities. A firm may act as both broker (agent) and dealer (principal), but not in the same transaction. Broker/dealers normally must register with the SEC, the appropriate sros, and any state in which they do business. Exclusions: 1. Agents 2. Issuers 3. Banks, savings institutions, trust companies Commercial banks unless they deal with selling securities

donor

A person who makes a gift of money or securities to another. Once the gift is donated, the donor gives up all rights to it. Gifts of securities to minors under the Uniform Gift to Minors Act provide tax advantages to this person.

nondiversification

A portfolio management strategy that seeks to concentrate investments in a particular industry or geographic area in hopes of achieving higher returns.

fractional share

A portion of a whole share of stock. Mutual fund shares are frequently issued in fractional amounts. Fractional shares used to be generated when corporations declared stock dividends, merged, or voted to split stock, but today it is more common for corporations to issue the cash equivalent of fractional shares.

intangible asset

A property owned that is not physical, such as a formula, a copyright, or goodwill.

anti-dilutive convenant

A protective clause found in most convertible issues (preferred stock or debentures) that adjusts the conversion rate for stock splits and/or stock dividends. This ensures that the holder of the convertible will not suffer a dilution in value.

defined contribution plan

A qualified retirement plan that specifies the amount of money that the employer will contribute annually to the plan.

defined benefit plan

A qualified retirement plan that specifies the total amount of money that the employee will receive at retirement.

Keogh plan

A qualified tax-deferred retirement plan for persons who are self-employed and unincorporated or who earn extra income through personal services aside from their regular employment.

expense ratio

A ratio for comparing a mutual fund's efficiency by dividing the fund's expenses by its net assets.

unit of beneficial interest

A redeemable share in a unit investment trust, representing ownership of an undivided interest in the underlying portfolio.

dilution

A reduction in earnings per share of common stock. Dilution occurs through the issuance of additional shares of common stock and the conversion of convertible securities.

reverse split

A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares remains the same.

pattern

A repetitive series of price movements on a chart used by a technical analyst to predict future movements of the market.

balance sheet

A report of a corporation's financial condition at a specific time.

noncontributory plan

A retirement plan to which only the employer makes contributions.

diversification

A risk management technique that mixes a wide variety of investments within a portfolio, thus minimizing the impact of any one security on overall portfolio performance.

secondary offering

A sale of securities in which one or more major stockholders in a company sell all or a large portion of their holdings; the underwriting proceeds are paid to the stockholders rather than to the corporation. Typically, such an offering occurs when the founder of a business (and perhaps some of the original financial backers) determine that there is more to be gained by going public than by staying private. The offering does not increase the number of shares of stock outstanding.

collateral trust bond

A secured bond backed by stocks or bonds of another issuer. The collateral is held by a trustee for safekeeping.

chartist

A securities analyst who uses charts and graphs of the past price movements of a security to predict its future movements.

note

A short-term debt security, usually maturing in five years or less.

bridge loan

A short-term loan made to bridge the gap until permanent financing is arranged.

municipal note

A short-term municipal security issued in anticipation of funds from another source.

resistance level

A technical analysis term describing the top of a stock's historical trading range.

volume of trading theory

A technical analysis theory holding that the ratio of the number of shares traded to total outstanding shares indicates whether a market is strong or weak.

simple trust

A trust that accumulates income and distributes it to its beneficiaries on an annual basis.

complex trust

A trust that accumulates income over time and is not required to make scheduled distributions to its beneficiaries.

revocable trust

A trust that can be altered or canceled by the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.

bypass trust

A trust that is funded with property in an amount equal to the exemption equivalent of the transfer tax credit amount applicable to the decedent ($5.25 million in 2013 and $5.34 million in 2014); thus, the property is not subject to federal estate tax.

QTIP trust

A trust that is funded with qualified terminable interest property, meaning that the spouse's interest in the property terminates upon his death; also known as a Q trust, С trust, or current income trust.

grantor trust

A trust that requires that the grantor be taxed on income produced by trust property if trust income is distributed to the grantor or to the grantor's spouse; trust income discharges a legal obligation of the grantor or grantor's family; and the grantor retains power to revoke or amend the trust.

demand deposit

A type of account held at banks and financial institutions that may be withdrawn at any time by the customer. The majority of such demand deposit accounts are checking accounts, although many now include savings accounts in the definition as well.

geometric mean

A type of average that indicates the central tendency of a set of numbers that, instead of finding the sum as with the arithmetic mean, takes the product of the numbers and divides that by the nth root (where n is the count of numbers). It will always be lower than the arithmetic mean

callable bond

A type of bond issued with a provision allowing the issuer to redeem the bond before maturity at a predetermined price.

limited power of attorney

A written authorization for someone other than an account's beneficial owner to make certain investment decisions regarding transactions in the account.

___ reports when revenues are earned and expenses incurred.

Accrual-basis accounting

alternative minimum tax (AMT)

An alternative tax computation that adds certain tax preference items back into adjusted gross income.

Maloney Act

An amendment enacted in 1938 to broaden Section 15 of the Securities Exchange Act of 1934. Named for its sponsor, the late Sen. Francis Maloney of Connecticut, the amendment provided for the creation of a self-regulatory organization for the specific purpose of supervising the over-the-counter securities market.

tax credit

An amount that can be subtracted from a tax liability, often in connection with real estate development, energy conservation, and research and development programs. Every dollar of tax credit reduces the amount of tax due, dollar for dollar.

deferred annuity

An annuity contract that delays payment of income, installments, or a lump sum until the investor elects to receive it.

immediate annuity

An annuity contract that provides for monthly payments to begin immediately after deposit of the invested funds. Payments usually commence within 30 to 60 days.

selling away

An associated person engaging in private securities transactions without the employing broker/dealer's knowledge and consent. This violates the NASAA Policy on prohibited practices.

supply-side theory

An economic theory holding that bolstering an economy's ability to supply more goods is the most effective way to stimulate economic growth. These theorists advocate income tax reduction insofar as this increases private investment in corporations, facilities, and equipment.

tax preference item

An element of income that receives favorable tax treatment. The item must be added to taxable income when computing alternative minimum tax. Include accelerated depreciation on property, research and development costs, intangible drilling costs, tax-exempt interest on municipal private purpose bonds, and certain incentive stock options.

preferred stock

An equity security that represents ownership in a corporation. It is issued with a stated dividend, which must be paid before dividends are paid to common stockholders. It generally carries no voting rights.

rating

An evaluation of a corporate or municipal bond's relative safety, according to the issuer's ability to repay principal and make interest payments. Bonds are rated by various organizations, such as Standard & Poor's and Moody's. Ratings range from AAA or Aaa (the highest) to С or D, which represents a company in default.

capping

An illegal form of market manipulation that attempts to keep the price of a subject security from rising. It is used by those with short position.

capital appreciation

An increase in an asset's market price.

stock split

An increase in the number of a corporation's outstanding shares, which decreases its stock's par value. The market value of the total number of shares remains the same. The proportional reductions in orders held on the books are calculated by dividing the stock's market price by the fraction that represents the split.

settlor

An individual or organization that gifts assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries.

trustor

An individual or organization that gifts assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries.

ask

An indication by a traitor or a dealer of a willingness to sell a security or a commodity; the price at which an investor can buy from a broker/dealer.

closing purchase

An options transaction in which the seller buys back an option in the same series; the two transactions effectively cancel each other out and the position is liquidated.

good-til-canceled order (GTC)

An order that is left on the specialist's book until it is either executed or canceled.

Farm Credit System (FCS)

An organization of 37 privately owned banks that provide credit services to farmers and mortgages on farm property. Included in the system are the Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives.

restricted security

An unregistered, nonexempt security acquired either directly or indirectly from the issuer, or an affiliate of the issuer, in a transaction that does not involve a public offering.

investment objective

Any goal a client hopes to achieve through investing. Examples include current income, capital growth, and preservation of capital.

HR-10 plan

Keogh plan.

Freddie Mac Participation Certificates

Comprise of qualifying FHLMC, conventional, residential mortgages on single-family homes -not backed by the full faith and credit of the US gov -yield slightly higher than Ginnie Maes

The _____ legislates fiscal policy.

Congress (so must be voted on and passed)

Investment Company Act of 1940

Congressional legislation regulating companies that invest and reinvest in securities. The act requires an investment company engaged in interstate commerce to register with the SEC.

opening purchase

Entering the options market by buying calls or puts.

FNMA

Federal National Mortgage Association.

Fannie Mae

Federal National Mortgage Association.

FOMC

Federal Open Market Committee.

The ___ sets and enacts monetary policy.

Federal Reserve Bank

The Securities Exchange Act of 1934 gave __________ the power to regulate margin.

Federal Reserve Board

Securities Act of 1933

Federal legislation requiring the full and fair disclosure of all material information about the issuance of new securities.

calendar year

For accounting purposes, a year that ends on December 31st. When an accounting year ends any other time, it is called a fiscal year.

bona fide

From the Latin "good faith," something that is genuine, authentic, and real.

NAV of mutual fund share

Fund NAV / Number of Shares Outstanding

When must an advisor withdraw from the SEC

If an adviser reports on its annual updating amendment that it has less than $90 million under management and it is not otherwise eligible to register with the SEC, it must withdraw from SEC registration within 180 days of the adviser's fiscal year-end by filing Form ADV-W. The adviser could consult the securities departments of states in which it maintains offices or conducts business to determine the appropriate state registration requirements.

home state

If an investment adviser is registered with a state Administrator (state covered adviser), the firm's home state is the state where it maintains its principal office and place of business.

Right of Recission

If the seller of the securities discovers that a sale has been ade in violation of the USA, they can offer to repurchase the securities from the buyer. They must pay back the original purchase price and interest as determined by the Administrator

Exemption for the Registration for Investment Advisors under USA

If they have no place of business in the state and the only clients are 1. Broker Dealers registered under the act 2. Other Investment Advisors 2. Institutional investors 3. Existing clients not resident in the state 4. 5 or fewer clients resident in the state during the preceding 12 months

disgorge(ment)

In legal usage, the forced giving up of profits made through illegal activity, most commonly insider trading.

One respect in which the NASAA treats the handling of discretionary authorization by an IA different than that of the SEC is that

NASAA allows use of oral discretion for the first 10 business days after the date of the first transaction

_____ shows income versus expense (profit).

Income statement

International vs Global Funds

International - entire portfolio international Global - some US

Uniform Transfers to Minors Act (UTMA)

Legislation adopted in most states that permits a gift of money or securities to be given to a minor and held in a custodial account that an adult manages for the minor's benefit until the minor reaches a certain age (not necessarily the age of majority). Income and capital gains transferred to a minor's name are usually taxed at the minor's rate. However, just as with UGMA, if the child is under a specified age and has unearned income above a certain level, those earnings are taxed at the parent's rate.

Investment Advisers Act of 1940

Legislation governing who must register with the SEC as an investment adviser.

Term Insurance

Life insurance coverage for a specified period of time, less expensive than whole -only pays benefits if the isnured dies during the time of the coverage -do not accumulat cash value -Highest face amount for the lowest premium

LLC

Limited liability company.

foreign currency

Money issued by a country other than the one in which the investor resides. Options and futures contracts on numerous foreign currencies are traded on US exchanges.

Exceptions Under Dodd Frank

Register with the SEC for pension consulatants if they control at least 200m in AUM -Investment advisors expected to eb elgiible for SEC registration within 120 days

Chicago Stock Exchange

Registered stock exchange located in Chicago's downtown "loop." Referred to with the initials CHX.

What are the 3 ways to register securities with the state securities Administrator?

Registration by Coordination - register 1st with SEC, then coordinate with States where sold. (used for small-company offerings) Registration by Filing - Still requires registration with the SEC, and used when issuer and any predecessors have been in continuous operations for at least 5 years. (becomes active at 3 pm eastern time on the 2nd full business day after filing) Registration by Qualification - May be used by any securities offering, but is the most arduous method. Requires a specific response from the Administrator.

Registration Broker-dealer, investment advisors, representatives

Renewal Date for ALL registrations is December 31 and there is no proration of fees. The registrations goes into effect at noon, 30 days after the later of the date of an applications is filed or the date the amendment to an application is filed

ALL IPOs must be registered with the

SEC

Exempt Securities under USA

Securities exempt from state registration are also exempt from state filings of sales literature 1. US and Canadian municipal securities 2. Foreign government securities - political subdivisions not included 3. Depository Institutions - includes (a)any security issued by and representing an interest in or a debt of or guaranteed by any bank organized under the laws of the USA or any bans, savings institution or trust company (b) ny security issued by and representing an interest in or a debt of or guaranteed by any federal savings loan, or building and loan association (c) Any security issued by any federal credit union or any credit union, industrial loan association, or similar suoervised under the laws of the state 4. Insurance company securities - nyyot variable life policies or annuities sold by the companies 5. Public Utility Securities 6. Federal Covered Securities 7. Securities issued by nonprofit organizations 8. Securities issued by cooperatives 9. Securities of employee benefit plans 10. Certain money market instrumentd

street name

Term used in the industry to refer to customer securities held in the name of the broker/dealer as nominee.

Regulation T

The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities. Currently sets the loan value of marginable securities at 50% and the payment deadline at two days beyond regular way settlement.

Form 1120 and 1120S

The tax returns filed by corporations. The "S" is for an S corporation.

Annuity Unit

The accounting measure used to determine the amount of each payment to an annuitant during the payout period

Convexity

The curvature of the price-yield curve; Duration is linear When comparing two bonds, the one with the higher convexity will show a greater price increase when yield falls and a smaller decrease when prices rise If we find two bonds with the same duration. the one with the higher convexity offers greater interest rate protection

bond yield

The annual rate of return on a bond investment. Types of yield include nominal yield, current yield, yield to maturity, and yeild to call. Their relationships vary according to whether the bond in question is at a discount, at a premium, or at par.

current yield

The annual rate of return on a security, calculated by dividing the interest or dividends paid by the security's current market price.

arithmetic mean

The average of a set of numbers, such as annual returns on an investment.

interest

The charge for the privilege of borrowing money, usually expressed as an annual percentage rate.

legal list

The selection of securities a state agency (usually a state banking or insurance commission) determines to be appropriate investments for fiduciary accounts such as mutual savings banks, pension funds, and insurance companies. This is used in states that do not have the prudent investor rule.

Yield Spread

The difference in yield between a credit-risky bond and a credit-risk-free bond of similar maturity

par value

The dollar amount assigned to a security by the issuer. For an equity security, it is usually a small dollar amount that bears no relationship to the security's market price. For a debt security, it is the amount repaid to the investor when the bond matures, usually $1,000.

correlation

The extent to which two or more securities or portfolios move together. Ranges from -1 to +1. A perfect ____ would have a coefficient of +1, whereas two securities that move in total opposite directions would have a -1. A coefficient of 0 would reflect a totally randomness between the two securities.

Under NSMIA (National Securities Markets Improvement Act), Administrators retain authority to enforce

antifraud provisions

What office is designed to protect against the threat of terrorism? Broker-dealers must make sure they do what if they find a person who is on this list of OFAC? Persons on the OFAC's list of threats, who U.S. persons are generally prohibited from dealing with, are referred to as what?

The federal government's Office of Foreign Asset Control (OFAC). don't open an account for them; block/freeze the assets if they do set up an account. Specially Designated Nationals (SDNs)

fiscal policy

The federal tax and spending policies set by Congress or the President. These policies affect tax rates, interest rates, and government spending in an effort to control the economy.

call buyer

investor that pays premium for an option contract

____ protection against price decline.

put

balance of trade

The largest component of a country's balance of payments; it concerns the export and import of merchandise (not services). Debit items include imports, foreign aid, domestic spending abroad, and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy, and foreign investments in the domestic company.

convexity

The most accurate way of indicating a debt security's sensitivity to changes in interest rates.

Duration

The longer the duration, the greater the market price movement. Basically a measurement of of the time it takes for the cash flows to repay the invested principal Usually the higher the coupon rate - the shorter the duration and vice versa The longer a bonds maturity, the longer the duration For coupon bonds, duration is always less than the bonds maturity For 0 coupon bonds, the duration of a zero coupon bond is its maturity The longer the bond's maturity, the more its value will change for a 1% change in interest rates

short-term capital loss

The loss incurred on the sale of a capital asset that has been owned for 12 months or less.

capital loss

The loss incurred when a capital asset is sold for a price lower than the purchase price.

long-term loss

The loss realized on the sale of a capital asset that has been owned for more than 12 months.

corporation`

The most common form of business organization, in which the organization's total worth is divided into shares of stock, each share representing a unit of ownership. Characterized by continous life and and its owners' limited liability.

capital surplus

The money a corporation receives in excess of the stated value of stock at the time of first sale.

cash flow

The money received by a business minus the money paid out. Equal to net income plus depreciation or depletion.

reserve requirement

The percentage of depositors' money that the Federal Reserve Board requires a commercial bank to keep on deposit in the form of cash or in its vault.

cooling-off period

The period (a minimum of 20 days) between a registration statement's filing date with the SEC and the registration's effective date. In practice, the period varies in length.

Accumulation Stage

The period during which an annuitant is making contributions to an annuity contract.

accumulation stage

The period during which contributions are made to an annuity account.

taxable gain

The portion of a sale or distribution of mutual fund shares subject to taxation.

legislative risk

The potential for an investor to be adversely affected by changes in investment or tax laws.

participation

The provision of the Employee Retirement Income Security Act of 1974 requiring that all employees in a qualified retirement plan be covered within a reasonable time of their dates of hire.

political risk

The risk that an investment's returns could suffer as a result of political changes or instability in a country such as from a change in government, orderly or not, nationalization of industries, or military control.

redemption

The return of an investor's principal in a security, such as a bond, preferred stock, or mutual fund shares. By law, redemption of mutual fund shares must occur within seven days of receiving the investor's request for redemption.

residual claim

The right of a common stockholder to Corporate assets in the event that the corporation ceases to exist. A common stockholder may claim assets only after the claims of all creditors and other security holders have been satisfied.

business risk

The risk inherited in equity securities that poor management decisions will have a negative impact on the stock's performance. Can be reduced through diversification.

public offering

The sale of an issue of common stock, either by a corporation going public or by an offering of additional shares.

net investment income

The source of an investment company's dividend payments. It is calculated by subtracting the company's operating expenses from the total dividends and interest the company receives from the securities in its portfolio.

speculation

Trading a security with a higher than average risk in return for a higher than average profit potential. The trade is effected solely for the purpose of profiting from it and not as a means of hedging or protecting other positions.

enjoined

This term includes being subject to a mandatory injunction, prohibitory injunction, preliminary injunction, or a temporary restraining order issued by a court of competent jurisdiction.

sell

To convey ownership of a security or another asset for money or value. This includes giving or delivering a security with or as a bonus for a purchase of securities, a gift of assessable stock, and selling or offering a warrant or right to purchase or subscribe to another security. Not included in the definition is a bona fide pledge or loan or a stock dividend if nothing of value is given by the stockholders for the dividend.

make a market

To stand ready to buy or sell a particular security as a dealer for its own account. A market maker accepts the risk of holding the position in the security.

Exempted Transactions under the Securities Act of 1933

Transactions by any person other than the issuer underwriter, or dealer and Transactions by an issuer that do not involve a public offering

TIPS

Treasury Inflation Protected Securities, fixed interest rate, principal amount adjusted every 6 months. Protected against purchasing power risk. Lower interest rate than other securities, only long term issues interest amount will increase if the principal amount is adjusted upwards due to inflation and decrease if the principal amount is decreased due to inflation

leverage

Using borrowed capital to increase investment return.

Where is an appeal filed to an outcome from an Administrator's ruling? within how many days? May the agent/IAR still function while waiting for the appeal?

a court of law 60 no - the suspension/revocation stay in effect until the court rules otherwise

When is a broker-dealer required to register in a State?

when they have any non-institutional customers (humans) residing in the state. he has a place of business in the state

Tbills have ____ interest rate.

no stated (because sold at discount at weekly auction)

conversion price

par value amount that is exchangeable for one share

proxy

-limited power of attorney -authorizes one stockholder to vote for another -to vote, must attend meeting or proxy

broker

(1) An individual or a firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. (2) The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.

investment adviser

(1) Any person who makes investment recommendations in return for a flat fee or a percentage of assets managed. (2) For an investment company, the individual who bears the day-to-day responsibility of investing the cash and securities held in the fund's portfolio in accordance with objectives stated in the fund's prospectus.

asset

(1) Anything that an individual or a corporation owns. (2) A balance sheet item expressing with a corporation owns.

notice filing

(1) Method by which a registered investment company and certain other federal covered securities file records with state securities Administrators. (2) SEC-registered advisers (federal covered) may have to provide state securities authorities (the Administrator) with copies of documents that are filed with the SEC and pay a filing fee.

Notice Filing

(1) Method by which a registered investment company and certain other federal covered securities file records with state securities Administrators. (2) SEC-registered advisers (federal covered) may have to provide state securities authorities (the Administrator) with copies of documents that are filed with the SEC and pay a filing fee. May require: 1. Documents filed along with their registration statements filed with the SEC 2. Documents filed as amendments to the initial federal registration statement 3. A report to the value of such securities offered in the stae 4. Consent to service of process.

premium

(1) The amount of cash that an option buyer pays to an option seller. (2) The difference between the higher price paid for a security and the security's face amount at issue. See discount.

public offering price (POP)

(1) The price of new shares that is established in the issuing corporation's prospectus. (2) The price to investors for mutual fund shares, equal to the net asset value plus the sales charge.

offer

(1) Under the Uniform Securities Act, any attempt to solicit a purchase or sale in a security for value. (2) An indication by an investor, a trader, or a dealer of a willingness to sell a security; the price at which an investor can buy from a broker/dealer. See bid.

total risk

(As measured by standard deviation) can be broken down into its component parts: unsystematic risk and systematic risk. It = systematic risk + unsystematic risk.

Aloha ( RF given)

(actual return)- RF - ( beta x {market return- RF}

self regulatory organization (SRO)

-accountable to the SEC -enforces federal securities laws -supervises securities practices within jurisdiction

average basis

-accounting method used when multiple purchases of same security at different prices -averages purchase prices to find cost basis in shares liquidated -difference of avg cost basis and selling price is tax liability

complex trust

-accumulates income over time -not required to make scheduled distributions

Keynesian economics

-active government intervention

sector rotation

-active portfolio management style -rotating from one sector to another predicting the business cycle

alternative minimum tax

-adds tax preference items back into AGI -if AMT is more than regular tax, regular tax and AMT excess over regular tax are paid

cease and desist order

-administrator smells something fishy -does not need a prior hearing

Securities and Exchange Commission (SEC)

-created by Congress/Securities Act of 1934 to regulate the securities markets and protect investors -has 5 commissioners appointed by potus with senate consent -SEC enforces the Securities Act of 1933/Securities Exchange Act of 1934/Trust Indenture Act of 1939/Investment Company Act of 1940/Investment Advisers Act of 1940

living trust

-created during the lifetime of the grantor -inter vivos trust

market risk

-day to day risk of fluctuations in prices

filing date

-day when issuer submits registration statement to SEC

dividend payout ratio

-dividends payed on common stock/net income available for common stockholders -complement of retained earnings ratio

exempt transaction

-does not trigger registration and advertising requirements under USA -nonissuer transactions w/outstanding securities -transactions w/financial institutions -unsolicited -private placement

OTC Link

-electronic inter dealer system that displays quotes from B/D for many OTC securities -formerly known as pink sheets -no listing requirements for companies

OTC Bulletin Board (OTCBB)

-electronic quotation system for equity securities not listed on a national exchange/nasdaq -not federal covered securities -generally require registration with both SEC/states

contributory plan

-employee and employer make contributions

incentive stock option (ISO)

-employee stock option -if held 2 years after grant date and one year after exercise date, recorded as long term capital gains -if time limits failed, taxed as NSO

profit sharing plan

-employees receive share of business' profits -money can be paid directly/deferred to retirement

testimonial

-endorsement of a investment by a celebrity/influential person -illegal for IAs to use

partnership

-equally and personally responsible for business debts

no par stock

-equity security issued without stated value

rating

-evaluates corporate/municipal bonds safety according to issuers ability to repay principal and make interest payments -S&P/Moodys

principal

-every transaction has 2 principals, buyer/seller -when B/D trades for own account, acting as principal

Nonqualified Plans

-excess over cost base taxed -opposite than qualified

federal funds

-excess reserves a commercial bank deposits at regional Federal Reserve -lent to other commercial banks at federal funds rate -used to help banks met reserve requirements

futures

-exchange traded obligations for commodities -long position means obligated to take delivery on date specified -short position obligated to deliver -if seller does not own, loss potential unlimited because of promised delivery -may be highly leveraged

bypass trust

-exemption equals tax credit -property not subject to federal estate tax

fiscal policy

-federal tax and spending policy -set by congress/president -affect tax rates, interest rates, and government spending

constant ratio plan

-formula method that keeps fixed ratio between asset classes -periodically rebalanced

derivative

-gets value from other security -futures, forwards, and options -used to increase return or hedge risk

Federal Deposit of Insurance Corporation (FDIC)

-government agency that provides deposit insurance for member banks -prevents bank and thrift failure

NASD 5% markup policy

-guideline for reasonable markups, markdowns, and commissions for secondary OTC markets -should be 5% or reasonable

limited liability company (LLC)

-hybrid partnership/corporation -combines pass through treatment with limited liability

Wells notice

-indicates a regulator intends to enforce an action against a person -if against a publicly traded company, usually depresses current price

settlor

-individual/organization that gifts assets to beneficiary -transfers fiduciary duty to third party trustee -trustee then manages assets for beneficiaries

Form 1065

-information return filed by a partnership/LLC -income and losses flow through to owner so no tax

limit order

-instructs b/d to buy/sell below/above a certain price -entered for the day or good til canceled

fixed annuity

-insurance contract with fixed payments -earnings and principle guaranteed

call writer

-investor that gets the premium -obligated to sell

secondary distribution

-involves securities owned by major stockholders -distribution with prospectus -proceeds go to sellers of stock, not the issuer

final prospectus

-legal document must be given to every investor that buys the security -price -delivery date -underwriting spread -other information

fiduciary

-legally appointed person -holds assets in trust for other -manages those assets for other person

trustee

-legally appointed person to act on behalf of beneficiaries

Uniform Transfers to Minors Act (UTMA)

-legislation adopted in most states -permits gift of money/securities to be given to minor in custodial account -taxes usually at minors rate -taxed at parents rate if kid is under age and has unearned income above certain level

75-5-10 test

-used to judge if an investment company meets diversification standards -based on Investment Company Act of 1940 -75% in cash/receivable/invested securities -no more than 5% of total assets in one company -of the 75% no investment can be more than 10% -25% is free

convertible bond

-usually debenture that can be exchanged for equity

full trading authorization

-usually provided by full power of attorney -for someone other that customer to have full trading privileges in an account

limited trading authorization

-usually provided by limited power of attorney -limited to purchases/sales -withdrawal of assets is not authorized

Standard & Poor's Composite Index of 500 Stocks (S&P 500)

-value weighted index -400 industrial stocks -40 financial stocks -40 public utility stocks -20 transportation stocks -index is owned and compiled by Standard & Poor Corporation

commingling

-violates SEC Rule 15c2-1 unless authorized -combining customers securities

liquidity risk

-when investor may not be able to sell without adverse price disruption

Government National Mortgage Association (GNMA)

-wholly government owned -issues pass through mortgage debt certificates -backed by full faith and credit of US government

risk tolerance

-willingness to lose some/all of initial investment -aggressive has high risk tolerance

call provision

-written agreement with issuer and bondholders/pref stockholders -gives issuer the option to redeem its senior securities

Persons subject to state registration

1. Broker/Dealers -generally legal persons such as corporations or partnerships 2. Agents -always individuals (natural persons) 3. Investment Advisers -generally legal persons such as corporations or partnerships 4. Investment Adviser Representatives -always individuals (natural persons) *Pay attention to which type of person*

Registration under the 1934 Act

1. Brokers/Dealers operating in interstate commerce, including those operations under exchanges and the over the counter market(broker-dealer file application for membership on form BD and the SEC has 45 days to accept or deny 2. Securities Exchanges (90 days) 3. National Securities Associations like FINRA and the mSRB 4. Corporations with listed securities

What is Not a Security

1. Collectibles 2. Commodities such as precious metals, and grains, including future contracts 3. Condos used as a personal residence 4. Currency 5. Interest in a retirement plan such as an IRA or Keogh plan 6. An insurance or endowment policy or fixed annuity contract

Types of Investment Companies Defined under the Investment Company Act of 1940

1. Face Amount Certificate Companies 2. Unit Investment Trusts (UIT's) - unmanaged investment company that does not have a board of directors or IAs or actively manage their own portfolios -UIT shares must be redeemed by the trust 3. Management Investment Companies A. Closed End - IPOs. also can offer bonds and preferred stock. Commonly known as pubicly traded funds. Also country stoks like the Korea fund are considered closed ended B. Open End - or like a mutual fund - does not specify the exact amount of sharesit intends to issue. Onloy issue common stock A mutual fund's public offering price (POP) is the Net asset value (NAV) per share plus any applicable sales charges. The NAV is calculated daily by deducting the fund's liabilities from its assets An open end investment company sells redeemable securities, when an investor sells their shares, the company redeems them at their NAV

Private Fund Adviser Exemption Under State Law

1. If qualified for exemption as 3 (c)(1). All investors must be qualified with 1 M in assets managed or 2M net worth not primary residence 2. No bad actors

Exempt transactions under USA

1. Isolated non-issuer transactions - usually do not involve securities professionals, happen infrequently 2. Unsolicited brokerage transactions 3. Underwriter transactions 4. Bankruptcy, guardian or conservator transaction - executor, administrator, sheriff marshal, receiver, guardian or trustee in bankruptcy 5. Institutional investor transactions 6. Limited Offering Transactions - include any offering directed at not more than 10 persons called offees other than institutional investors during the previous 12 consecutive months -seller believes that all non institutional buyers are purchasing for investment purposes only - No commissions or other remuneration is paid -no general solicitation or advertising is used 7. Pre-organization certificates - if no commission, number of subscribers does not exceed 10 and no payment is made by any subscriber 8. Transactions with existing securities holders- exempt if no commission is paid 9. Nonissuer transactions by pledges

Largest Monthly Payout to Smallest Monthly Payout

1. Life annuity- straight life -the annuitant receives periodoic (usually monthly) payments for their lifetime 2.Life Annuity with Period Certain - an annuitant receives payment for life. If they die before the period certain, then their beneficiary receives payments. Annuitant will continue to receive the payments through their life even after the period certain 3. Joint Life with Last Survivor Annuity - covers two or more people and payout is conditioned on both lives 4. Refund Annuity - will be paid out until the full value of the principal is returned 5. Mortality Guarantee - if the annuiant lives longer than expected than the insurance company assumes the increased mortality cost 6. Operating Expenses Guarantee - Puts a ceiling on the insurance companies operating expenses

Actions to be taken by the administrator

1. Make, amend or rescind rules and orders 2. Conduct investigations and issue subpoenas 3. Issue cease and desist orders and seek injunctions 4. Deny, suspend, cancel or revoke registrations and licenses

Federal Covered Investment Advisor

1. Meet a minimum threshold of $110 m AUM 2. Those under contract to manage an investment company registered under the Investment Company Act of 1940 3. Those not registered with the SEC because they are covered in the definition of the Investment Advisors Act of 1940

Required for a pre organization subscription to be an exempt transaction

1. No more than 10 subscribers 2. No commission paid 3. subscriber makes no purchase until they purchase the underlying security

Insider Transactions Under the Securities Exchange Act of 1934

1. every person who directly or indirectly the beneficial owner of more than 10% of any class of equity security 2. Officers or directors of the issuers of such securities

Restrictions on Money Market Funds

1. front cover must state that investments are not insured by the US government 3. investments limited to securities with remaining maturities of 397 days or less; average portfolio maturity may not exceed 60 days 4. investments limited to securities that have received a rating from a recognized rating agency in one of the two highest short-term rating categories

Treausry Bonds

10-30 years Older 30 year bonds are usually callable at par beginning 25 years after issue

standardized contract

A futures contract in which all the contract terms are set by the exchange except for price.

defensive industry

A fundamental analysis term for an industry that is relatively unaffected by the business cycle. Most defensive industries produce nondurable goods for which demand remains steady throughout the business cycle; examples include the food industry and utilities.

depreciation expense

A bookkeeping entry of a non-cash expense charged against earnings to recover the cost of an asset over its useful life.

Developed Market

A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness to foreign ownership, ease of capital movement, and efficiency of market institutions.

net asset value (NAV)

A mutual fund share's value, as calculated once a day on the basis of the closing market price for each security in the fund's portfolio. It is computed by deducting the fund's liabilities from the portfolio's total assets and dividing this amount by the number of shares outstanding.

diversified common stock fund

A mutual fund that invests its assets in a wide range of common stocks. The fund's objectives may be growth, income, or a combination of both.

income fund

A mutual fund that seeks to provide stable current income by investing in securities that pay interest or dividends.

Securities Investor Protection Corporation (SIPС)

A nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms that are forced into bankruptcy. Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most FINRA members. Provides brokerage firm customers up to $500,000 coverage for cash and securities held by the firms (although cash coverage is limited to $250,000).

deferred compensation plan

A nonqualified retirement plan whereby the employee defers receiving current compensation in favor of a larger payout at retirement (or in the case of disability or death).

inflation

A persistent and measurable increase in the general level of prices.

solicitor

A person either contracted or employed by an investment adviser for the purpose of bringing in advisory business. If an employee, registration as an IAR is required. If contracted, the person must not be statutorily disqualified from registration and is subject to the terms of a written agreement between the IA and the solicitor.

executor

A person given fiduciary authorization to manage the affairs of a decedent's estate. An executor's authority is established by the decedent's last will.

institutional investor

A person or an organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment and lower commissions. An institutional order can be of any size. Covered by fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves.

registration by coordination

A process that allows a security to be sold in a state. It is available to an issuer that files for the security's registration under the Securities Act of 1933 and files duplicates of the registration documents with the state Administrator. The state registration becomes effective at the same time the federal registration statement becomes effective as long as paperwork is on file with the Administrator for the required period, which ranges from 10 to 20 days depending on the state.

Federal Home Loan Mortgage Corporation (FHLMC)

A publicly traded corporation that promotes the nationwide secondary market in mortgages by issuing mortgage-backed pass-through debt certificates.

right

A security representing a stockholder's entitlement to the first opportunity to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued for a short time only, after which they expire.

pass-through certificate

A security representing an interest in a pool of conventional, Veterans Administration, Farmers Home Administration, or other agency mortgages. The pool receives the principal and interest payments, which it passes through to each certificate holder. Payments may or may not be guaranteed.

institutional account

An account held for the benefit of others. Examples include banks, trusts, pension and profit-sharing plans, mutual funds, and insurance companies.

cash account

An account in which the customer is required by the SEC's Regulation T to pay in full for securities purchased not later than two days after the standard payment period set by industry practice codes.

joint account

An account in which two or more individuals possess some form of control over the account and may transact business in the account. The account must be designated as either joint tenants in common or joint tenants with right of survivorship.

partnership account

An account that empowers the individual members of a partnership to act on the behalf of the partnership as a whole.

Accumulation Unit

An accounting measure that represents a contract owner's proportionate unit of interest in a separate account during the accumulation period of a variable annuity.

accumulation unit

An accounting measure used to determine an annuitant's proportionate interest in the insurer's separate account during an annuity's accumulation (deposit) stage.

first in, first out (FIFO)

An accounting method used to assess a company's inventory, in which it is assumed that the first goods acquired are the first to be sold. The same method is used by the IRS to determine cost basis for tax purposes.

tax-sheltered annuity (TSA)

An annuity contract that entitles the holder to exclude all contributions from gross income in the year they are made. Taxes payable on the earnings are deferred until the holder withdraws funds at retirement. Available primarily through a 403(b) plan to employees of public schools, church organizations, and other tax-exempt organizations. .

general partnership (GP)

An association of two or more entities formed to conduct a business jointly. The partnership does not require documents for formation, and the general partners are jointly and severally liable for the partnership's liabilities.

limited partnership (LP)

An association of two or more partners formed to conduct a business jointly and in which one or more of the partners is liable only to the extent of the amount of money they have invested. The partners do not receive dividends but enjoy direct flow-through of income and expenses.

full trading authorization

An authorization, usually provided by a full power of attorney, for someone other than the customer to have full trading privileges in an account.

limited trading authorization

An authorization, usually provided by a limited power of attorney, for someone other than the customer to have trading privileges in an account. These privileges are limited to purchases and sales; withdrawal of assets is not authorized.

OTC Bulletin Board (OTCBB)

An electronic quotation system for equity securities that are not listed on a national exchange or included in the Nasdaq system. These are not federal covered securities and generally require registration with both the SEC and the states.

convertible preferred stock

An equity security that can be exchanged for common stock at specified prices or rates. Dividends may be cumulative or noncumulative.

noncumulative preferred stock

An equity security that does not have to pay any dividends in arrears to the holder.

cumulative preferred stock

An equity security that offers the holder any unpaid dividends in arrears. These dividends accumulate and must be paid to the cumulative preferred stockholder before any dividends can be paid to the common stockholders.

pegging

An illegal form of market manipulation that attempts to keep the price of a subject security from falling. It is used by those with a long position.

personal income (PI)

An individual's total earnings derived from wages, passive business enterprises, and investments.

growth industry

An industry that is growing faster than the economy as a whole as a result of technological changes, new products, or changing consumer tastes.

investment banker

An institution in the business of raising capital for corporations and municipalities. An investment banker may not accept deposits or make commercial loans.

custodian

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another. Mutual funds have custodian banks responsible for safeguarding certificates and performing clerical duties.

fixed annuity

An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.

goodwill

An intangible asset that represents the value that a firm's business reputation adds to its perceived value. It is not included in net worth for purposes of computing book value per share.

balance of payments

An international accounting record of all transactions made by one particular country with others during a certain period; it compares the amount of foreign currency the country has taken in with the amount of its own currency it has paid out.

Rule 3(c)(1)

An investment adviser with discretion over more than 100 accounts using pooled client funds might be considered to be running an investment company and could require registration under both the Investment Company Act of 1940 and the Advisor Act.

performance-based fee

An investment advisory fee based on a share of capital gains on, or capital appreciation of, client assets. A fee that is based upon a percentage of assets that the IA manages is not this type of fee. This fee may only be charged to certain high net worth clients.

underwriter

An investment banker that works with an issuer to help bring a security to the market and sell it to the public.

exchange traded fund

An investment company designed to track a specific index that is traded on a stock exchange. Rather than basing the price on NAV, the market price of this is constantly changing as does the price of any other listed stock. May be purchased on margin and sold short.

mutual fund

An investment company that continuously offers new equity shares in an actively managed portfolio of securities. All shareholders participate in the fund's gains or losses. The shares are redeemable on any business day at the net asset value. Each portfolio is invested to match the objective stated in the prospectus.

closed-end investment company

An investment company that issues a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes; they are traded in the secondary marketplace, either on a stock exchange or over the counter. The market price of the shares is determined by supply and demand and not by net asset value.

unit investment trust (UIT)

An investment company that sells redeemable shares in a professionally selected portfolio of securities. It is organized under a trust indenture, not a corporate charter.

hedge

An investment made to reduce the risk of adverse price movements in a security. Normally, consists of a protecting position in a related security.

derivative

An investment vehicle, the value of which is based on another security's value. Futures contracts, forward contracts, and options are among the most common types of derivatives. Institutional investors generally use derivatives to increase overall portfolio return or to hedge portfolio risk.

nonaccredited investor

An investor not meeting the net worth requirements of Regulation D. Counted for purposes of the 35-investor limitation for Rule 506(b) Regulation D private placements.

call buyer

An investor who pays a premium for an option contract and receives, for a specified time, the right to buy the underlying security at a specified price.

call writer

An investor who receives a premium and takes on, for a specified time, the obligation to sell the underlying security at a specified price at the call buyer's discretion.

covered call writer

An investor who sells a call option while owning the underlying security or some other asset that guarantees the ability to deliver if the call is exercised.

advertisement

Any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, that offers (1) any analysis, report, or publication concerning securities, or that is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or (3) any other investment advisory service with regard to securities.

stock exchange

Any organization, association, or group of persons that maintains or provides a marketplace in which securities can be bought and sold. Examples include the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE).

investment adviser representative (IAR)

Any partner, officer, director, or other individual employed by or associated with an investment adviser whose job function involves the rendering of advice, solicitation for clients, or supervision of those who do.

Person Associated with an investment advisor

Any partner, officer, or director of the investment advisor or any person directly or indirectly controlling or controlled by the investment advisor including any of the employee except clerical and admin employees

customer

Any person who opens a trading account with a broker/dealer. A customer may be classified in terms of account ownership, trading authorization, payment method, or types of securities traded.

insider

Any person who possesses or has access to material nonpublic information about a corporation. Insiders include directors, officers, and stockholders who own more than 10% of any class of equity security of a corporation.

short sale

The sale of a security that the seller does not own, or any sale consummated by the delivery of a security borrowed by or for the account of the seller.

asset class allocation

Dividing an investment portfolio among different asset categories, such as stocks, bonds, cash, and tangible assets such as real estate and precious metals and other commodities.

duration

Duration measures the percentage change in the price of a bond (or bond portfolio) as a result of a small change in interest rates. Also a measure of the time, in years, that it takes a bond to pay for itself.

Exclusions from the Definition of Agent for these Exempt Securities (5)

Exempt Securities: 1. Any security issued or guaranteed by the US, an state, any political subdivision, agency of one or more of these, any security issued by Canada, canadian province or any political subdivision of any such province. 2. Securities from foreign governments with which the US has diplomatic relationships 3. Any issue by or guaranteed by any bank under the laws of the US, bank, savings institution, trust company organized and supervised under the laws of the state 4. Commercial paper rated in the top 3 categories by major ratings agencies with denom pf 50k or more 5. Investment contracts issued in connection with employee's stock purchase, savings, pensions, or profit-sharing

Exclusions from the Definition of Agent for Personnel Representing Issuers

Exempt from registration in the state 1. Certain exempt securities 2. Exempt from registration 2. With existing employees, partners, or directors of the issuer if no sales-relate commission or other remuneration is paid or given directly or indirectly for solciiting any person in this state

Rule 147

Exempt under federal law but not under the Uniform Securities Act so will probably have to register with the state Rule 147 Issue: Any security offered and sold only to persons resident within a single state where the issuer of such security is a person resident and doing business within such a territory. 80/80/80 rule

adjusted gross income (AGI)

Gross income from all sources minus certain adjustments to income, such as deductible contributions to an IRA and net capital losses. It is basically the amount of income that will be subject to tax.

The initial sale of stock by a company that was privately owned is the

IPO

___ is the rate of expected growth

IRR

Investment Company Includes and Does not Include

Includes: 1. Face-amount certificate company: Security that represents an obligation on the part of its issuer to pay a stated sum at a fixed date more than 24 months from the date of issuance and periodic installments of a stated amount: 2. Unit Investment Trust: Investment company that does not have a board of directors and issues only redeemable securities 3. Management Companies - usually managed by advisors for a fee Not Includes: 1. Broker-dealers and underwriters 2. Banks and savings and loans 3. Insurance companies 4. holding companies 5. issuers whose securities are beneficialy owned by no more than 100 persons 6. Issuers who trade investments other than securities

Which electronic system do federal covered advisers use to register? What is the Central Registration Depository (CRD) use for?

Investment Advisers Registration Depository (IARD) used by FINRA to store and maintain records associated with the brokerage industry

12b-1 asset-based fees

Investment Company Act of 1940 provision that allows a mutual fund to collect a fee for the promotion or sale of or another activity connected with the distribution of its shares. This fee will not exceed .75%.

When may an IA place a trade without first talking to the client? When may an IA place a discretionary order for a customer? When may an IA place a margin order for a customer

Investment advisers can place trades that they feel are SUITABLE, without first talking to the client, after receiving oral authorization from the client for 10 business days before getting the authorization in writing. Only after getting discretionary authority in writing from the client. Only after the firm gets a signed margin agreement promptly after the initial transaction.

This Act regulates the organization of companies that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public, and is designed to minimize conflicts of interest. This Act classified investment companies as what 3 entities? To meet the definition of an investment company, its shares must be able to easily be ______ and the number of shareholders must exceed _______.

Investment company Act of 1940 face amount certificate companies; unit investment trusts; management companies (open-end, closed-end) sold; 100

Sharpe ratio

Measures the risk adjusted return of an investment. It is calculated by dividing the excess return of an asset over the 90-day Treasury bill rate by its standard deviation. It measures the reward per unit of risk so the higher the ratio, the better.

Which theory proposes that relatively uncorrelated investments can reduce the risk in an investment account? What is the Capital Asset Pricing Model? (CAPM) How does CAPM differ from the Sharpe ratio? What is the basic premise of Modern Portfolio Theory?

Modern Portfolio Theory proposes that the expected return on a stock is = the risk-free return of a 3-month T-Bill + the potential return on the stock over and above the risk-free rate. CAPM calculates an expected return, while Sharpe adjusts returns for the risk the portfolio experienced looks at how an investment affects the risk/reward ratio of the ENTIRE portfolio - not just one security.

Rights

Preemptive rights entitle existing stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company offers them to the general public A rights offering allows these stockholders to purchase common stock below the current market price. The rights are values separately from the stock and trade in secondary market during the subscription period

The Cooling Off Period

Registration can be effective as early as 20 calendar days after the SEC has received the registration statement In this time period, no one can solicit sales but indication of interest can be solicited with a red herring

Under this exemption _________, an issuer can sell a small offering of securities without going through a full registration process. Or, if issuer agrees to sell the stock to residents of only one state, they qualify for a _____ exemption. What are the 3 stipulations in order to qualify for a Rule 147 exemption? What is a Regulation D transaction?

Regulation A Rule 147 issuer's business is in that state; 80% of its assets are located there; can't sell the security to a non-resident for 9 months after the close of the offering period a private placement to accredited investors, institutional investors, or insiders of the corporation (officers, directors, large stockholders)

Corporate Bonds

Secured debt securities are backed by various kinds of assets of the issuing corporation Unsecured Debt are backed only by reputation, credit record and financial stability of the corporation

wash sale

Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS disallows the claimed loss. Contributions to the account made by the working spouse grow tax deferred until withdrawal.

matched orders

Simultaneously entering identical (or nearly identical) buy and sell orders for a security to create the appearance of active trading in that security. This violates the antifraud provisions of the Securities Exchange Act of 1934 and the USA.

Stock Funds

Small Cap - $300M to $2 B Mid Cap - $2B to $10B Large Cap $10B +

What is the difference between "after-tax yield" and "tax-equivalent yield?"

The 1st is calculated after taxes have been taken out. The 2nd is calculated on a tax-exempt bond.

Escrow

The administrator may require the security to be placed in escrow if the security issued -within the past three years -to a promoter at price substantially different than the offering price -to any person for a consideration other than cash

risk premium

The amount in excess of the risk-free rate demanded by investors to compensate for the additional risks inherent in the specific security being described.

retained earnings

The amount of a corporation's net income that remains after all dividends have been paid to preferred and common stockholders.

position

The amount of a security either owned (a long position) or owed (a short position) by an individual or a dealer. Dealers take long positions in specific securities to maintain inventories and thereby facilitate trading.

tax liability

The amount of tax payable on earnings, usually calculated by subtracting standard and itemized deductions and personal exemptions from adjusted gross income, then multiplying by the tax rate.

discretion

The authority given to someone other than an account's beneficial owner to make investment decisions for the account concerning the security, the number of shares or units, and whether to buy or sell. The authority to decide only timing or price does not constitute discretion.

parity price of common

The dollar amount at which a common stock is equal in value to its corresponding convertible security. It is calculated by dividing the convertible security's market value by its conversion ratio.

par

The dollar amount the issuer assigns to a security. For an equity security, this is usually a small dollar amount that bears no relationship to the security's market price. For a debt security, this is the amount repaid to the investor when the bond matures, usually $1,000.

portfolio manager

The entity responsible for investing a mutual fund's assets, implementing its investment strategy, and managing day-to-day portfolio trading.

issuer

The entity, such as a corporation or municipality, that offers or proposes to offer its securities for sale.

time horizon

The expected number of months, years, or decades over which the investments will be made to achieve a particular financial goal. An investor with a longer _____ may feel more comfortable taking on a riskier, or more volatile, investment because that investor can wait out slow economic cycles and the inevitable ups and downs of our markets. By contrast, an investor saving up for a teenager's college education would likely take on less risk because of the shorter _____.

gross domestic product (GDP)

The market value of all final goods and services produced within a country in a given period of time. GDP = consumption + investment + government spending + (exports -imports) investment.

Dow Jones averages

The most widely quoted and oldest measures of change in stock prices. Each of the four averages is based on the prices of a limited number of stocks in a particular category.

Dow Jones Industrial Average (DJIA)

The most widely used market indicator, composed of 30 large, actively traded issues of industrial stocks.

National Association of Securities Dealers Automated Quotation System (Nasdaq)

The nationwide electronic quotation system for up-to-the- second on approximately 3,500 over-the-counter stocks trade information. Sometimes referred to as the Nasdaq Stock Market. All securities traded here are federal covered

Net Capital Requirements for Broker-Dealers

The net capital requirements for broker/dealers in each state follow the net capital requirements under federal rules, which require a minimum capitalization (liquid net worth) of -may have to post surety bonds, limted to the amount set by the Securities Exchange Act of 1934 -net capital requirements of the states may not exceed that of the SEC

effective tax rate

The overall rate paid on a taxpayer's total taxable income. It will always be less than the marginal tax rate. See marginal tax rate.

remainderman

The person who inherits or is entitled under the law to inherit property upon termination of the estate of the former owner. Usually, this occurs due to the death or termination of the former owner's life estate.

market value

The price at which investors buy or sell a share of common stock or a bond at a given time. Determined by buyers' and sellers' interaction.

foreign exchange rate

The price of one country's currency in terms of another currency.

quotation

The price or bid a market maker or broker/dealer offers for a particular security.

cost basis

The price paid for an asset, including any commissions or fees, used to calculate capital gains or losses when the asset is sold.

return on investment (ROI)

The profit or loss resulting from a security transaction, often expressed as an annual percentage rate.

capital gain

The profit realized when a capital asset is sold for a higher price than the purchase price.

IRA rollover

The reinvestment of assets that an individual receives as a distribution from a qualified tax-deferred retirement plan into an individual retirement account within 60 days of receiving the distribution. The individual may reinvest either the entire sum or a portion of the sum, although any portion not reinvested is taxed as ordinary income.

Federal Intermediate Credit Bank (FICB)

One of 12 banks that provide short-term financing to farmers as part of the Farm Credit System.

bond quote

One of a number of quotations listed in the financial press and most daily newspapers that provide representative bid prices from the previous day's bond market. Quotes for corporate and government bonds are percentages of the bond's face values (usually $1000). Corporate bonds are quoted in increments of 1/8. Government bonds are quoted in instruments of 1/32. Municipal bonds may be quoted on a dollar basis or on a yield-to-maturity basis.

self-regulatory organization (SRO)

One of eight organizations accountable to the SEC for the enforcement of federal securities laws and the supervision of securities practices within an assigned field of jurisdiction. For example, the National Association of Securities Dealers regulates the over-the-counter market; the Municipal Securities Rulemaking Board supervises state and municipal securities; and certain stock exchanges, such as the New York Stock Exchange and the Chicago Board Options Exchange, act as these to promote ethical conduct and standard trading practices.

money market

The securities market that deals in high quality, short-term debt. Money market instruments are very liquid forms of debt that mature in one year or less. Treasury bills, commercial paper, and jumbo CDs are examples of money market instruments.

underlying securities

The securities that are bought or sold when an option, right, or warrant is exercised.

When does an agent not need to be registered, in order to sell a security in a state? (3)

The security is exempt from registration The security is federal covered The security is sold in an exempt transaction

OTC market

The security trading system in which broker/ dealers negotiate directly with one another rather than through an auction on an exchange floor. The trading takes place over computer and telephone networks that link brokers and dealers around the world. Both listed and OTC securities, as well as municipal and US government securities, trade here.

capital market

The segment of the securities market that deals in instruments with more than one year to maturity - that is, long term debt and equity securities. In contrast, the money market is the raising of short-term capital such as Treasury bills and commercial paper.

Chicago Board Options Exchange (CBOE)

The self-regulatory organization with jurisdiction over all writing and trading of standardized options and related contracts listed on that exchange. Also, the first national securities exchange for the trading of listed options.

arbitrage

The simultaneous buying and selling of the same security in two different markets to take advantage of a temporary price disparity. This is not considered market manipulation.

75-5-10 test

The standard for judging whether an investment company qualifies as diversified under the Investment Company Act of 1940. Under this act, a diversified investment company must invest at least 75% of its total assets in cash, receivables, or invested securities, of which no more than 5% of its total assets can be invested in any one company's voting securities. In addition, of that 75% no single investment may represent ownership of more than 10% of any one company's outstanding voting securities.

total capitalization

The sum of a corporation's long-term debt, stock accounts, and capital in excess of par.

capitalization

The sum of a corporation's long-term debt, stock, and surpluses.

disposable income

The sum that people divide between spending and personal savings.

income statement

The summary of a corporation's revenues and expenses for a specific fiscal period.

qualified tuition plan

The technical name for Section 529 Plans.

top heavy

The term used to describe a 401 (k) plan that offers a disproportionate benefit to key employees. _____ testing must be done on an annual basis unless the plan qualifies as a safe harbor 401 (k).

Keynesian economics

The theory that active government intervention in the marketplace is the best method of ensuring economic growth and stability.

supply

The total amount of a good or service available for purchase by consumers.

forward pricing

The valuation process for mutual fund shares, whereby an order to purchase or redeem shares is executed at the price determined by the portfolio valuation calculated after the order is received. Portfolio valuations occur at least once per business day.

Forward Pricing

The valuation process for mutual fund shares, whereby an order to purchase or redeem shares is executed at the price determined by the portfolio valuation calculated after the order is received. Portfolio valuations occur at least once per business day. Before 4 PM, then NAV at the end of the business day After 4 PM, the valuation at the end of the next business day

adjusted basis

The value attributed to an asset or security that reflects any deductions taken on, or capital improvements to, the asset or security. Used to compute the gain or loss on the sale or other disposition of the asset or security.

Dividend Discount Model

The value of a stock should be equal to the present value of all future dividends

current market value (CMV)

The worth of the securities in an account. The market value of listed securities is based on the closing prices on the previous business day.

What is "parity?"

When a convertible bond's or convertible preferred stock's market price is exactly equal to the value of the shares to which it converts.

What do companies typically file through the SEC's EDGAR site?

all kinds of filings including prospectuses, annual reports, quarterly reports, 8Ks, Form 144 filings, investment company filings, etc. . .

As defined in the USA, an investment adviser is

any person who, for compensation, engages in the business of advising others as the to the value of securities.

put holder, long put

bearish max gain = strike-prem max loss = prem

call writer, short call

bearish unlimited downside (naked) max gain = premium

Securities Exchange Act of 1934 regulates

broker-dealers and transfer agents

limit order

buy limit order is to be filled at that price or lower BUY LIMIT = FALLS sell limit order is to be filled at that price or higher SELL LIMIT = RISES

If a corporate bond is ____, the issuing corporation has the option to redeem the bond before it matures.

callable

12b-1 fees

cannot be more than 0.75%

repurchase agreements

dealers in gov securities carry a large inventory at any given time. in order to improve liquidity (get cash) dealer will SELL securities to another dealer with agreement to buy them back repos = eligible securities

ADV Part 2

descriptive info about advisory firm may be used by IA to satisfy requirements for Brochure

In rising interest rate environments, bonds are bought at a ___ because sellers lower the price of the bond to counteract the lower interest rate.

discount

Unsystematic risk, also known as ____ risk

diversifiable

ERISA

employer established plans are regulated under ERISA profit sharing plans defined contributions defined benefit 403b - tax deferred annuity payroll deductions gov/state retirement plans are exempt from ERISA

A third-party post has been made on a broker-dealer's Facebook page. If the firm has involved itself in the preparation of the content, this would be known as

entanglement

Non-exempt securities must be registered in the State(s), unless they are offered and sold through an ________? Exempt securities are granted an automatic exemption. What about exempt transactions?

exempt transaction they must be claimed by the issuer, once the transaction is completed, with the Administrator

A weak dollar increases ____

exports from US

Are IAs and IARs in a fiduciary or agent relationship with their clients?

fiduciary

discount rate

interest rate charged by 12 Fed banks for short term loans to member banks

According to the Investment Advisers Act of 1940, which advisers must register with the SEC? (2) Who are Registered Investment Companies? (4) Who do IARs and Financial Planners register with?

investment advisers with $100 million of assets advise a registered investment company portfolio managers, pension fund consultants, mutual fund portfolio managers, multi-state advisers state Securities Administrators

higher coupon

less volatility

certificate of deposit (CD)

negotiable certificate of deposit.

A stock split has __ of the investor's position.

no effective change in the value

What are the terms for a "no-load-fund?" (2)

no front or back-end sales charge 12b-1 fee no greater than .25%

Assuming there is no problem with the information in a U4, the Administrator will grant the registration within what time period?

no later than noon of the 30th day after filing

When do investment advisors not have to register in the state? (2)

no place of business in the state and clients are not humans no place of business in the state and during any period of 12 consecutive months he does not direct business into the state to more than 5 clients other than those specified above

_____ compares a security's market value to the company's earnings per share

price-to-earnings

In order to deny, suspend, or revoke a license ( stop order), what must the Administrator 1st provide to the affected parties? (3) Do the same 3 things have to be done for an emergency cease and desist order?

prior notice; opportunity for a hearing; written findings of fact/conclusions of law they can be, but don't have to be

federal funds rate

rate for overnight loans of reserves from bank to bank

What is a valuation ratio?

ratios that are used to determine the value of a publicly traded stock. E.G. - price-to-earnings ratio

the lower the coupon rate

the greater the interest rate risk

GDP is

the value of all final goods and services produced domestically within a given period of time.

The ____ is the assumption that money held today is worth more than money received tomorrow

time value of money

What is the Sharpe Ratio used for? A higher Sharpe Ratio score means what? What is the formula for the Sharpe Ratio?

to measure risk-adjusted returns the investor is being compensated for the risk he is taking (Portfolio Return - RFR) / STD DEV Portfolio

Annuitizing

when the investor converts from the accumulation stage to the distribution stage Once the decision to annuitize the contract locks in the specified payout option, the contract holder may not vhange it

short call

writer/seller gains when market falls