Series 7 Regulations

Money Laundering

The acceptance of large amounts of cash from individuals or businesses where the money is suspected
of being used for illegal purposes.

Suspicious Activity Report (SAR)

must be filed when any transaction conducted through a Broker Dealer involving funds or assets of
$5,000 or more takes place and where the Broker-Dealer detects any known or suspected Federal
Criminal Violation.

Securities Investor Protection Act of 1970 (SIPC)

Put into place for the purpose of protecting public customers against the risk of loss due to the failure of
a Broker-Dealer.

SIPC will provide protection for customers of up to $500,000 per separate customer for cash and
securities, but not more than $250,000 may be paid for a cash claim.

SIPC protection limits provided for customers:

up to $500,000 per separate customer for cash and securities, but not more than $250,000 may be paid
for a cash claim.

MSRB rules are enforced by:

The SEC, FINRA, Governors of the Federal Reserve Banks, the Comptroller of Currency, and the Federal
Deposit Insurance Corporations (FDIC)

Self Regulatory Organizations (SRO)

SROs set rules, regulations, and penalties related to the securities and transations which they oversee.
Examples include FINRA, the MSRB, and Excanges such as the NYSE.

Insider Trading

A violation of Federal Securities Laws and applies to anyone that trades securities based on material,
non-public information.

The MSRB requires charges (commission, mark-up/down, prices) to be fair and reasonable.

FINRA Code of Arbitration

Its purpose is to handle any disputes, claims, or controversies arising out of or in connection with the
business of any member of FINRA.

The Municipal Securities Rulemaking Board (MSRB)

was created in 1975 to formulate rules to regulate all firms transacting business in municipal securities.
Securities Exchange Act of 1934

Designed to protect the public against unfair and inequitable practices in secondary market securities
transactions.

The five ways the Federal Reserve regulates the flow of money and credit in the economy

1. Open Market Operations

2. Changing the primary reserve requirement
3. Changing the discount rate
4. Changing the margin required by broker-dealers
5. Moral suasion

Decisions by Code of Arbitration

Are final and binding on all parties.

FINRA's 5% Markup Policy

Applies to all OTC principal and/or agency trades.

When does the 5% markup policy Not apply?

When a prospectus or offering circular must be delivered. For example: New Issues, Registered
Secondary Offerings, and Sales of Open End Investment Company Shares.

Broker Dealers who transfer funds, including wire fund transfers of $3,000 or more, must collect, retain,
and record certain information.

Account statement timing requirement

Statements must be sent out monthly if there is activity and quarterly if there has been no activity in the
account.

SEC Rule 144: control stock that can be sold within a 90 day window

1% of the outstanding stock; OR

the average trading volume for the previous4 weeks, whichever is greater

Markup Policy

The 5% guideline that must be used when calculating the markup or markdown on transactions between
a market maker and customer.

SEC Rule 144

sets forth the conditions under which a holder of unregistered securities may make a public sale without
filing a registration statement with the SEC. It covers the resale of restricted and control stock.

Restricted stock holding period

Restricted securities must be fully paid for and owned for at least 6 months.
FINRA Code of Procedure

Purpose: to handle trade practice complaints relating to violations of the rules.

The Securities Act of 1933

1. Requires registration of new issues with the SEC before sale to the public.
2. Calls for full and fair disclosure
3. Requires the delivery of a prospectus for the sale of new issues
4. prohibits fraud in the sale of new issues

FINRA (Financial Industry Regulatory Authority)

the SRO that was created when the regulatory divisions of the NYSE and the NASD joined to form one
regulatory body, eliminating duplication of regulation of members.

Currency Transaction Reports (CTR)

Broker-Dealers must file CTRs for transactions involving currency (cash) over $10,000.
Series 7 Treasury
T-Bonds

Fixed income securities which pay semi-annual interest and mature in 10-30 years

Treasury Bills (T-Bills)

Direct short-term debt obligations of the federal government - an extremely liquid investment of the
highest quality.

T-Notes

Fixed income securities which pay semi-annual interest payments and mature in 2-10 years.

T-Notes and T-Bonds minimum denomination

$1,000

T-Notes and T-Bonds settlement

T+1

Treasury Inflation-Protected Securities (TIPS)

Treasury notes and bonds where the interest and redemption payments are indexed to the current
inflation rate based on the Consumer Price Index (CPI).
Series 7 Investment Banking (IPO)
Investment Banker

A firm dedicated to assisting in distributions of new securities as well as other corporate-related

matters.

Three primary functions of an Investment Banker

1. Raise capital for corporations through the issuance of securities

2. Serve as underwriters, sponsors, distributors, or syndicate members in an underwriting
3. Provide advice on corporate mergers and acquisitions

Underwriting / Syndicate Member

When a new issue of securities is coming to market, a syndicate is formed. Members of the syndicate
are referred to as syndicate members or underwriters. These are firms that are involved in the
distribution of the new issue of securities and are typically headed by a Managing Underwriter.

Third Market

Where exchange-listed securities are traded OTC.

Fourth Market

Financial institutions trading directly with each other.

Reallowance

A fee paid to non-syndicate outside broker/dealer firms who requested shares or assisted in the
distribution of shares during an underwriting.

Good Delivery of Stock Certificates:

Units of 100 shares, Multiples of 100 shares, or Combinations permitting 100 share units

Good Delivery

A stock or bond certificate is in a readily transferred form of ownership between Broker-Dealers

Secondary Distribution

The redistribution of a large block of securities typically held by a few owners (insiders).

Primary Distribution

The distribution of authorized but previously unissued shares to the public.

Ex-dividend date

The date on which the stock begins to trade without a declared dividend. When buying on or after the
ex-date, new owners are not entitled to the dividend.
Designated Market Maker (Formerly Specialist)

The DMM is the key individual on an exchange trading floor who is required to maintain a fair and
orderly market in the security assigned to him or her.

OTC Bulletin Board (OTCBB)

A quotation service that displays real-time quotes, last-sale prices, and volume information in low priced
OTC securities and other thinly traded securities.

Tombstone Ads

Announce the availability of a new issue for sale.

Manager's Fee

Fee collected by the managing underwriter for performing managerial functions for the syndicate.

Dual Member Firm

When a member firm is a participant with both the OTC market and the Exchanges.

NYSE(New York Stock Exchange)

The largest stock exchange in the world by dollar value of its listed securities.

Shelf Registration

Using a single registration statement, a corporation can register all securities it intends to issue in the
upcoming three-year period, then issue them from the "shelf" without filing again with the SEC.

Managing Underwriter

The firm that serves as head of the syndicate group and determines the scale on a serial bond or the
pricing on a term bond issue.

Over the Counter Market (OTC)

All securities trades that take place off the floor of an organized exchange.

Insider

An officer, director, or principal stockholder (more that 10% ownership in a company).

Selling Concession

A fee collected by selling group members for their assistance in distribution of an underwriting.

Competitive Bidding

Municipality requests sealed bids from underwriters or underwriting syndicates and awards the bonds
to the group which offers the municipality the lowest net interest cost.
Western Agreement (Divided)

Each member is responsible for their own bonds and not for any other member's unsold bonds.

Eastern Agreement (Undivided)

Each member of the syndicate is severally and jointly responsible for the underwriting according to their
fixed participation percentage.

Underwriter's Compensation

A fee collected by selling syndicate members for participation in an underwriting and any financial risk
taken.

Negotiated Underwriting

The managing underwriter is hired and the terms of the new issue are negotiated (commonly used for
municipal revenue bond issues)
Series 7 Account Types
Tenants in Common

If one of the tenants dies, his interest will pass to his estate and not to the other joint owner.

Individual Accounts

Accounts opened for one person only.

529 College Plans

Established and maintained by States and allow individuals to set up plans to pay for student's qualified
higher education expenses with tax-free withdrawals for qualified educational expenses.

Transfer on Death (TOD)

Upon the death of an individual investor, or the last surviving account owner in a joint account, the
assets in the account are passed on to beneficiaries according to the written TOD agreement, thus
eliminating the need for probate.

Cash Account

Requires the customer to pay cash in full for all securities purchased in account.

Trust Accounts

A trust is an arrangement in which property is managed by one person for the benefit of another
person.

Coverdell and Education Savings Accounts

Tax-exempt accounts for the qualified education expenses of a designated beneficiary to pay for
education expenses.

Pre-Paid Tuition 529 Plans

allow anyone to establish an account in the name of a beneficiary and "lock in" the cost of a specific
number of academic periods or units at current prices for use in the future by the beneficiary.

Joint Tenants with Rights of Survivorship (JTWROS)

Account for two or more people. Upon the death of either party, the surviving tenant becomes the sole
owner of the securities.

Coverdell - Education Savings Accounts Contribution Limits

Contributions must be in cash and are limited to $2,000 per year per beneficiary. Contributions are not
tax deductible. Eligibility is phased out for taxpayers with certain levels of modified AGI.

Uniform Gift to Minors Act (UGMA)

Uniform Transfer to Minors Act (UTMA)

Series 7 Equities
Short Against the Box

When a customer is long a stock in their account and sells the same stock short, this is considered to be
a neutral market position.

Short position

Investor "borrows" stock from their B/D and then sells the stock that they borrowed.

Time and Price Discretion (Not Held Order)

Orders where the RR determines the Time and Price ONLY. The RR cannot determine the Size of the
order or the Security being traded.

Short Sale

attempts to make money by borrowing and then selling a companys stock at a high price and then later
buying and replacing that amount of stock at a lower price. Investors that sell stock short generally
expect the market price of the stock to decline (bearish).

Short Sale

The sale of stock by a customer who has borrowed the stock from their Broker-Dealer. Customers intend
to make money at a later date by buying the stock at a lower price and replacing the shares that they
borrowed.

Long Position

When an investor "buys" and owns any security.

Discretionary Authority

When a person other than the individual who owns the account has discretion to make purchases and
sales in an account. This can be a registered representative at the firm, or an investment adviser
representative, etc. Prior to executing discretion, written authorization from the client is required.

Common stock

Equity security that represents ownership in a corporation. Those who purchase common stock are
referred to as shareholders and have equity in the corporation.

Regular way settlement

Trade date plus three business days (T + 3).

The order of asset distributions upon liquidation

1. Taxes
2. Secured debt
3. Unsecured debt
4. Preferred stockholders
5. Common stockholders

Preferred stock

Equity security that represents ownership in the corporation and has priority over common stock in
receiving dividends and sharing in assets if the company is dissolved. Typically pays a fixed dividend and
generally classified as a fixed income security.

Record date

Date on which the corporation closes the updating of the stock record book.
Series 7 Bonds
Bonds

A debt security - investor becomes a creditor who receives interest payments for lending capital.

If interest rates go UP, prices on bonds go DOWN

Term Bonds

Bonds that are all issued with the same maturity date.

Coupon Rate/Nominal Yield

Fixed rate of interest paid to investors.

Serial Bonds

Bonds issued with staggered maturity dates.

General Obligation Bonds (GOs)

Bonds that are a general obligation of the issuing municipality (state, country, city, school district, etc.).

Bond Point

1 bond point = $10

Municipal Bond

Bonds issued by state and local government entities such as cities, counties, school districts, authorities
(transit, etc), and the state.

Flows of funds - Order of payment for a Net Revenue Pledge

1. Operation and maintenance fund

2. Bond service account for principal and interest
3. Debt service reserve fund and/or sinking fund
4. Reserve maintenance fund
5. Surplus fund or general fund of the municipality

Revenue Bonds

Bonds for which the payment of bond interest and principal depends on specific identified sources of
revenues such as user charges, lease payments, licenses fees, or "special" taxes.

How are General Obligation bonds secured?

General Obligation bonds are secured by taxes collected by the municipality. They are not secured by
revenues from revenue-generating facilities (these would be revenue bonds).

Double Barreled Bonds

Revenue bonds which are also backed by the full faith and credit of a municipality.
Premium Bond

The bond's market price is above par value.

Flows of funds - Order of payment for a Gross Revenue Pledge

1. Bond service account for principal and interest

2. Operation and maintenance fund
3. Debt service reserve fund and/or sinking fund
4. Reserve maintenance fund
5. Surplus fund or general fund of the municipality

During periods of deflation, you would buy long term bonds.

During periods of inflation, you would buy short term bonds.

Long term bonds react the greatest to changes in interest rates.

Short term bonds react the quickest to changes in interest rates.

If interest rates go DOWN, prices on bonds go UP.

Zero coupon bonds

sold at a deep discount and pay no interest while the bonds are outstanding.

Sinking Fund

Ensures that money is set aside for the redemption of bond principal at maturity when required

Interest on Municipal Bonds

Municipal bonds pay interest semi-annually. Interest from munis is exempt from federal income tax and
exempt from state and local taxes in the state of issuance. Outside of the state of issuance, interest may
be subject to state and local income taxes.

Legal Opinion

A statement from a reputable independent law firm hired by the issuer pertaining to the tax-exempt
status of municipal bonds.

A discount bond

The bond's market price is below par value.

Par Value of a Bond - $1,000

Zero Coupon Bonds

Bonds sold at a deep discount which mature at face value.

Refunding Bonds

Bonds issued by a municipality to pay off existing bonds.

Series 7 Orders
Two orders entered below the market

1. Buy Limit
2. Sell Stop

Two orders entered above the market

1. Sell Limit
2. Buy Stop

Market Order

Order to buy or sell a security at the best price available when it reaches the marketplace.

Stop Order

A memorandum order from a customer that becomes a market order if a trade takes place at or through
the price stated in the memorandum.

Stop Order Purpose

Can protect a profit or limit losses on an existing position, but cannot assure a specific price of
execution.

Limit Order

Order to buy or sell a security at a specific price or better.

Stop Limit Order

A combination of a stop and a limit order. It is first a stop order, then becomes a limit order.
Series 7 Investment Company
Net Asset Value (NAV)

Reflects the closing market value of all the securities in the funds' portfolio plus any interest or dividend
income received on the securities in the portfolio. Net Asset Value is presented on a per share basis,
which requires the total NAV to be divided by the number of fund shares outstanding.

Breakpoints

When an investor receives a reduced sales charge based on a quantity investment.

Managed Companies: Open End

Also called Mutual Funds, they issue only redeemable shares (no secondary market).

Managed Companies: Closed End

They issue shares once, which are then publicly traded in the secondary market.

Offering Price formula

Offering Price = Net Asset Value (NAV) / (100% - Sales Load %)

Investment Company

A financial institution principally engaged in investing in securities. Investment companies pool the
money of investors and invest the funds in securities, attempting to achieve a stated goal.

Dollar Cost Averaging

Purchasing a mutual fund by investing a fixed dollar amount at set intervals.

Dollar Cost Averaging

Purchasing equal dollar amounts of a specific security at regular pre-established time intervals.
Series 7 Capital Gains/Losses

Long Term Capital Gains

Realized profits on assets held over 12 months.

Short Term Capital Gains

Realized profits on assets held 12 months or less.

Net losses may be written off against ordinary income up to a maximum of $3,000 per year.

Tax liability for a Long Term Capital Gain

15%, unless the investor is in the 39.6% tax bracket then the long term capital gain rate would be 20%.

Tax liability for a short Term Capital Gains

The rate of the investor's income tax rate

Series 7 Options, etc.
What happens when the buyer of an equity call option exercises?

The buyer of the call buys 100 shares of underlying common stock at the exercise price.

The seller of a Call has the obligation to Sell Stock.

The buyer of a Call has the right to Buy Stock

The seller of a Put has the obligation to Buy Stock

The buyer of a Put has the right to Sell Stock.

Long Puts protect or hedge a LONG stock position.

Long Calls protect or hedge a SHORT stock position.

Investors who are bullish will either SELL a put option or BUY a call option.

Investors who are bearish will either SELL a call option or BUY a put option.

Equity option contract: typical number of shares

1 option contract = 100 shares of stock

What happens when the seller of an equity call option receives an exercise notice?

The seller of the call option is obligated to sell 100 shares of the underlying common stock at the
exercise price.

When must a customer be approved for options trading?

Each customer must be specifically approved for options trading by a Registered Options Principal (ROP)
prior to the time that the firm accepts an option order from the customer.

Registered Options Principals (ROPs)

approve customer options trading

In the Money or Intrinsic Value for a Put

When the market price of the stock is less than the exercise price of the option

In the Money or Intrinsic Value for a Call

When the market price of the stock is greater than the exercise price of the option

Memory Aid: "Call Up" (+) "Put Down" (-)

Breakeven formula for put options (No stock transactions involved)

Breakeven = Exercise Price - Premium

Exercise or Strike Price

The fixed price of an option contract at which call buyers buy stock on exercise and put buyers sell stock
on exercise.

Options Premium

The price at which an option contract trades. Premiums are paid by buyers and received by sellers.

What happens when the buyer of an equity put option exercises?

The buyer of the put option sells 100 shares of the underlying common stock at the exercise price.

Index Options

Options (puts and calls) on stock indices (ex. S&P 500) that settle in CASH, not stock.

Straddle

An equal number of puts and calls, both Long or both short, on the same stock with the same strike
price, and the same expiration month.

Long Straddle = Buy Call and Buy Put

Short Straddle = Sell Call and Sell Put

An investor who establishes a Short Straddle expects the market to remain neutral.

An investor who establishes a Long Straddle expects the market to make a major move, either up/down.

Spread

A long and short position in two call contracts or two put contracts on the same underlying stock.

Call Spread = Buy Call and Sell Call

Put Spread = Buy Put and Sell Put

Bull Spread - will profit from a RISE in the market price of the stock.

Bear Spread - will profit from a DECLINE in the market price of the stock.

World Currency Options

Foreign currency options that are U.S. Dollar-settled and are issued and guaranteed by the OCC.

Interest Rate Options

Options on the YIELD of U.S. Treasury securities (not price). The value of these options is based on the
interest rate and interest rate movements, not on the market price of the underlying treasuries.

Long-term Equity Anticipation Securities (LEAPS)

Long-term options on stocks and on stock indexes
Series 7 Alternative Investments
Exchange Traded Funds (ETF)

Funds similar to normal index mutual funds with a portfolio that mirrors a specific index or industry
sector basket of securities. The primary difference between an ETF and an index is that ETFs have shares
that trade like common stock shares.

General Partners

Mange the DPPs, General Partnerships, and Limited Partnerships.

Direct Participation Program (DPP)

A program which allows investors certain tax advantages for the underlying asset.

Main advantages offered by Oil and Gas Partnerships

Intangible drilling costs, depletion, tax deferral, flow through of tax benefits, depreciation deductions

What can Real Estate Direct Participation Programs invest in?

Residential, commercial, industrial, Government assisted housing, condominium securities, and raw land
properties

Limited Partners (LP)

Liability is limited to the amount of their "at risk" investment in the entity

Priority of claims to be paid upon dissolution of an LP

Creditors - secured then general creditors

Limited Partners - profit claims, then capital claims
General Partners - profit claims, then capital claims

The Tax Code allows up to $25,000 of losses from rental real estate activities to be deducted each year
against ordinary income.

Unit Investment Trusts (UIT)

Generally have a fixed portfolio of diverse municipal or corporate bonds. They only issue redeemable
units and they are not managed but are supervised.

Eurodollar Certificates of Deposit (Eurodollar CDs)

Short term instruments issued by banks outside the US.

Exchange Traded Notes (ETN)

Debt instruments issued by banks. The bank promises to repay the principal amount less investor fees at
final maturity and the performance of the ETN is linked to a specific index or a particular strategy of
investing.
Eurodollar Bonds

Bonds issued outside the US by either foreign or domestic corporations.

Individual Certificates of Deposit (CDs)

Short term instruments which are guaranteed by banks in return for time deposits.

Real Estate Investment Trust (REITs)

companies that manage a portfolio of real estate to earn profits for their shareholders, generally formed
to invest in real estate.

Equipment trust certificate

An instrument of debt that is generally issued by transportation companies to purchase new equipment,
which are secured by the new equipment. These bonds are usually not callable, are normally issued in
serial form, and rarely ever default.

Jumbo Certificates of Deposit (Jumbo CDs)

Short term instruments with a minimum deposit of $100,000 issued and guaranteed by banks.

Eurodollars

Deposits in US dollars with banks outside of the US that are frequently used to settle international
transactions.

Banker's Acceptances

Used to finance foreign trade.

Ginnie Mae (GNMA)

A government agency which offers investors an undivided interest in a pool of mortgages (VA and FHA)
guaranteed by the US Government.

Collateralized Mortgage Obligation (CMO)

A bond that is secured by a pool of mortgage loans. CMOs are mortgage-backed securities.

Collateral trust certificate

An instrument of debt issued by a company using securities of other companies as collateral (mostly
stocks and bonds). The securities are placed on deposit with a trustee while the collateral trust
certificates are outstanding.

Freddie Mac (FHLMC)

A publically owned, government sponsored company which trades on the NYSE using conventional
mortgage payments made by homeowners to pay principal and interest.
Fannie Mae (FNMA)

A publically owned government sponsored company which trades on the NYSE. It buys mortgages from
lenders and is the largest source of home mortgage funds (VA and FHA) for low, moderate, and middle
income home buyers in the U.S.

Commercial Paper

Unsecured promissory notes of corporations - one of the best ways for a corporation to raise short term
funds.

Repurchase Agreements (REPOs)

Short-term money market instruments sold by a firm with the agreement to repurchase them at a later
date at an agreed upon price.

American Depositary Receipts (ADR)

Receipts traded in the U.S. for foreign securities held in bearer form by an American bank in the foreign
country. They have no voting privileges, dividends are paid in U.S. dollars, and they are not issued as
callable.
Series 7 Margin
Margin Account

Account where the customer can use borrowing power to purchase additional securities (Reg T 50%
deposit, 50% borrowing), called leverage and will magnify gains and losses to account. Clients must have
a margin account to sell stock short.

NYSE minimum maintenance for a LONG margin account

Customer must maintain 25% of the current market value of securities in the form of equity in the
account.

What can be used to meet the initial margin requirement in a margin account long?

1. A deposit of cash equal to the Reg T amount, OR

2. A deposit of securities which have a market value that is 2 X the Reg T requirement

Reg T Initial Requirements for a Margin Account Long

Customer must deposit 50% of the purchase price or $2000, whichever is greater. An exception to this
rule is if the purchase price in the account is less than $2,000, then the customer must deposit the full
amount of the purchase.

NYSE minimum maintenance for a SHORT margin account

Customer must maintain 30% of the current market value of securities in the form of equity in the short
margin account.

Regulation T settlement

Trade date plus five business days (T + 5).

Regulation T margin deposit

Generally 50% of the purchase price. This means that the customer deposits 50% of the purchased
amount and can borrow the remaining 50% from the broker/dealer (loan value).

Special Memorandum Account (SMA)

A line of credit available to the client based on prior buying power within the margin account.

Reg T Initial Requirements for a Margin Account Short

1. Minimum equity to open a short account is $2,000, no exceptions

2. Stock price of:

a) $0 up to $5: Deposit of $2.50 per share or 100% of the market value, whichever is greater
b) $5 up to $17: Deposit of $5.00 per share
c) $17 and over: Regulation T (50%)
Series 7 Formulas

Current yield formula

Current Yield = Annual Interest / Current Market Price

Breakeven formula for call options (No stock transactions involved)

Breakeven = Exercise Price + Premium

Corporate Equivalent Yield Formula

Taxable Equivalent Yield = Municipal Yield / (100% - Investors Tax Rate)

Annual coupon amount

Coupon Rate X Par Value

Equity in a Long Margin Account

Equity = Current Market Value Long - Debit Balance

Equity In A Short Margin Account = Proceeds of the Short Sale + Reg T deposit OR
Credit Balance - Current Market value short

Current yield
Current Yield = Annual Dividends / Market price

Parity Formula for Convertible Securities when given the Market Price of the Convertible Security

Parity Price = Market Value of the Bond or Preferred Stock

Common Shares Produced in the Conversion Formula
Series 7 IRA & ERISA
Traditional IRA

Account designed to encourage employed individuals to save for retirement by providing them with tax
incentives. Tax incentives include a deduction for contributions for individuals whose income does not
exceed maximum amounts and tax deferral of growth within the account. Distributions after retirement
are taxed as ordinary income.

Traditional IRA - Distributions

may begin at age 59.5 and are mandatory by 70.5.

Traditional IRAs - Contribution Conditions

1. Contributions may be made annually up to specified limits

2. Individuals who are at least 50 years of age may contribute an additional "Catch Up"
3. Contributions may not be made after age 70.5

Traditional IRAs - Individuals who ARE active in a retirement plan at work maybe able to deduct
contributions to an IRA depending upon income limitations and adjusted gross income.

Traditional IRAs - Individuals who are NOT active in a retirement plan at work may deduct ALL of their
contributions up to annual contribution limitations.

Roth IRAs

Another way for individuals to save for retirement. Contributions are NOT tax deductible from the
owner's gross income but the incentive to invest is that the withdrawals of the contributions and
qualified earnings are tax-free if certain conditions are met.

Roth IRAs - Qualified Distributions

There are no tax consequences on the distribution.

Roth IRAs - Contribution Conditions

1. Contributions may be made annually up to specific limits

2. Individuals who are at least 50 years of age may contribute an additional "Catch up"
3. Contributions are NOT tax deductible (After-tax dollars are used)
4. Contributions may continue after age 70.5

Roth IRAs - Non-qualified Distributions

A portion of the distribution may be included in the account owner's gross income and will generally be
subject to a 10% early withdrawal penalty.
Rollovers

Distributions from one retirement plan to another retirement plan or account.

Rollover from a Roth plan to a Qualified Plan

It is NOT permissible to rollover from a Roth plan to a Qualified plan.

Is it permissible to rollover from a Qualified Plan to a Roth plan?

Yes, but the rollover would be subject to income taxes.

The Simplified Employee Pension Plan (SEP)

Plan used by small businesses to provide retirement benefits for themselves and their employees used
due to low administrative costs. Employer makes tax-deductible contributions into IRA and employees
make their own additional contributions.

Employee Retirement Income Security Act (ERISA)

Provides for minimum standards for established private sector retirement plans: disclosure, standards,
accountability, remedies, guarantees. It does not compel an employer to have a retirement plan or to
provide minimum benefits in a plan.
Series 7 Annuities
Annuities

A contract issued by a life insurance company to provide a series of periodic payments (stream of
payments) to an annuitant(s) for life.

Qualified or Tax Qualified Annuity

Annuity where the investor contributes pre-tax dollars

Non-tax Qualified Annuity

Annuity where after-tax dollars are contributed.

Fixed Annuities

Fixed structure, meaning it pays the same predetermined dollar amount each period.

Variable Annuities

Variable in structure. Premiums paid by annuity holders go into a separate account and are invested
according to the annuity holder's wishes. Variable annuities participate in market movements, offering
more risk, but the potential for more returns. They are classified as securities.
Series 7 MISC
Who needs to sign the New Account Report Form?

The Branch Manager or Principal and the Registered Representative. The customer does not need to
sign the form, once completed.

Type of security an older client should invest in?

Fixed income securities and some cash

Type of security a younger client should invest in

Equities

Asset Allocation

The diversification of investments in a customer's account determining the percentage of assets which
should be invested in stocks, bonds, real estate, and other asset classes.

Considerations when determining a customer's risk tolerance

1. Number of dependents and their educational needs

2. Investment objectives
3. Net worth
4. Time Horizon

Customers wishing to minimize risk in a common stock portfolio can accomplish this by investing so
that:

1. The largest percentage of the securities in the portfolio are affected differently by economic
conditions
2. The largest percentage of the portfolio consists of leading common stocks.

Foreign currency values will generally move inversely to the U.S. Dollar.

To stimulate the economy, the Fed would BUY US Gov't securities. This pumps money into the economy.

To slow down the economy the Fed would SELL US Gov't securities. This takes money out of the
economy.

Federal Funds

Funds deposited by commercial banks at Federal Reserve Banks that are in excess of bank reserve
requirements.

Solicitations may be placed only between the hours of 8 a.m. and 9 p.m. local time of the party called.
A US balance of payments deficit would decrease (improve) due to:

New foreign investments in the US, Commodity exports

Spending by foreign tourist in the US
Increased dividend and interest earned on foreign investments
Money coming into the US

A US balance of payments deficit would Increase (worsen) due to:

An increase in US investments abroad

US tourists spending abroad
US loans to other countries
Raising dividends and interest payments on foreign-owned securities
Money going out of the US

Efficient Market Hypothesis

Investment theory that states it is impossible to "beat the market" because the stock market is efficient,
meaning that current share prices always reflect all relevant information.

Fundamental Analysis

Concerned with a specific company and factors specific to the company such as the company's earnings,
price per share, debt level, etc.

Technical Analysis

Concerned with market price movements and market trends. For example charting is a form of technical
analysis.

Maximum gift tax exclusion

One person = $13,000

Married couple = $26,000

Under MSRB rules, municipal securities dealers are prohibited from giving a gift in excess of $100 dollars
per person per year.

Maximum gift amount to spouse

Unlimited

Gift Limits between associated persons and from associated persons to customers
Gifts are computed annually and may not exceed $100 giving or receiving per person per year.

Fiduciary
A person vested with legal rights and powers to be exercised for the benefit of other persons. Examples
include: Trustees, Executors, Administrators, Guardians, Custodians, and accounts For the Benefit Of
(FBO) another person.