Definitions

Question 1

1035 exchange

Answer 1

A tax-free exchange between like contracts. This provision applies to transfers from annuity to annuity, life to life, and life to annuity. It cannot be used for transfers from an annuity to life insurance policy.

Question 2

12b-1 fee

Answer 2

A section of the Investment Company Act of 1940 that permits and open-end investment company (mutual fund) to levy an ongoing charge for advertizing and sales promotional expenses. This fee may not exceed 0.75% and, if above 0.25%, the fund may not describe itself as no-load.

Question 3

401(k) Plan

Answer 3

A tax-deferred defined contribution retirement plan offered by a private-sector employer.

Question 4

403(k) Plan

Answer 4

a tax-deferred retirement plan available to employees of public schools and certain non-profit organizations.

Question 5

529 Savings Plans

Answer 5

Plans designed by states to provide tax-advantaged means of saving for eligible education expenses.

Question 6

75-5-10 Test

Answer 6

the standard for judging whether an investment company qualifies as diversified under the Investment Company Act of 1940. 75% of a fund’s assets must be invested in such a way that no more than 5% of its total assets are invested in any one company’s voting securities, and no single investment may represent ownership of more that 10% of any one company’s outstanding voting securities. There are no restrictions on the remaining 25% of the funds’ assets.

Question 7

Acceptance, Waiver, and Consent

Answer 7

A form of plea bargaining under the Code of Procedure. FINRA’s Enforcement Department brings disciplinary actions against a respondent and, if the respondent agrees, the proposed settlement is accepted, all rights to a hearing are waived, and the respondent consents to the penalty submitted.

Question 8

Account Executive/Registered Representative (RR)

Answer 8

An associated person engaged in the investment banking or securities business. This includes any individual who supervises, solicits, or conducts business in securities or who trains people to supervise, solicit, or conduct business in securities.

Question 9

Accredited Investor

Answer 9

Any institution or individual meeting minimum requirements for the purchase of securities qualifying under the Regulation D registration exemption.

Question 10

Accrued Interest

Answer 10

The interest that has accumulated since the last interest payment, up to but not including the settlement date, and that is added to the contract price of a bond transaction. (see also: flat)

Question 11

Accumulation Stage

Answer 11

The period during which contributions are made to an annuity contract. (see also: accumulation unit)

Question 12

Accumulation Unit

Answer 12

An accounting measure used to determine an annuitant’s proportionate interest in the insurer’s separate account during a variable annuity’s accumulation (deposit) stage. (See also: accumulation stage, annuity unit, separate account)

Question 13

Acid-Test Ratio

Answer 13

A measure of a corporation’s liquidity, calculated by adding cash, cash equivalents, and accounts and notes receivable, but not inventory, and dividing the result by total current liabilities. It is a more stringent test of liquidity than current ration. (see also: current ratio)

Question 14

Ad Valorem Tax

Answer 14

A tax based on the value of real or personal property.

Question 15

Adjusted (Cost) Basis

Answer 15

Adjusted basis is used to compute the gain or loss on the sale or other disposition of the asset or security.

Question 16

Adjusted Gross Income (AGI)

Answer 16

Gross income from all sources minus certain adjustments to income, such as deductible contributions to an IRA and net capital losses. It is the amount of income that will be subject to tax. (see also: tax liability)

Question 17

Administrator

Answer 17

1) The official or agency administering the securities laws of a state. 2) A person authorized by a court of law to liquidate an intestate decedent’s estate.

Question 18

American Depositary Receipt (ADR)/ American Depositary Shares (ADS)

Answer 18

Facilitate trading in foreign securities in the U.S. domestic markets. Sometimes these are shown as ADS (American Depository Shares) and are similar to a GDR (Global Depositary Receipt), which is traded outside the United States.

Question 19

Advertisement

Answer 19

Any promotional material where the firm has little control over the type of individuals being exposed to the material.

Question 20

Advisory Account

Answer 20

An account through which a registered investment adviser (RIA) or investment adviser representative (IAR) or the RIA provides investment advice to her clients for a fee.

Question 21

Affiliated Person

Answer 21

Anyone in a position to influence decisions made in a corporation, including officers, directors, principal stockholders, and members of their immediate families. Their shares are often referred to as “control stock”.

Question 22

Agency Basis/ Agency Transaction

Answer 22

A transaction in which a broker-dealer (BD) acts for the accounts of others by buying or selling securities on behalf of customers. (Syn. agency basis. See also: agent; broker; principal transaction)

Question 23

Agency Issue

Answer 23

A debt security issued by an authorized agency of the federal government. Such issues are backed by the issuing agencies themselves, not by the full faith and credit of the U.S. government (except GNMA and Federal Import Export Bank issues). (see: government security)

Question 24

Agent

Answer 24

1) An individual or firm that effects securities transactions for the accounts of others. 2) 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 solicits orders. (see: broker; broker-dealer; dealer; principal)

Question 25

Aggregate Exercise Price

Answer 25

The strike price expressed in total dollars. The aggregate exercise price for a standard July 40 call contract is $4000 (100 shares at $40 per share).

Question 26

Aggressive Investment Strategy

Answer 26

A method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors pursue aggressive policies, including margin trading, arbitrage, and option trading. (see also: balanced investment strategy, defensive investment strategy)

Question 27

Agreement Among Underwriters (AAU)

Answer 27

The agreement that sets forth the terms under which each member of an underwriting syndicate will participate in a new issue offering and states the duties and responsibilities of the underwriting manager (see: syndicate; underwriting manager)

Question 28

Agreement of Limited Partnership

Answer 28

The contract that establishes guidelines for the operation of a direct participation program, including the roles of the general and limited partners

Question 29

Assumed Interest Rates (AIR)

Answer 29

1) The net rate of investment return that must be credited to a variable life insurance policy to ensure that at all times, the variable death benefit equals the amount of the death benefit. The AIR forms the basis for projecting payments, but it is not guaranteed. 2) The rate that a variable annuity payments level. If the account earns more than the AIR, the next payment will increase; if it earns less, the next payment will decrease.

Question 30

All-Or-None Order (AON)

Answer 30

An order that instructs the firm to execute the entire order. Firm does not have to execute immediately.

Question 31

All-Or-None Underwriting (AON)

Answer 31

A form of best efforts underwriting in which the underwriter agrees that, if it is unable to sell all the shares (or a prescribed minimum), the issuer will cancel the offering.

Question 32

Alternative Minimum Tax (AMT)

Answer 32

An alternative tax computation that adds certain tax preference items back into adjusted gross income. If the AMT is higher than the regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid. (see: tax preference item)

Question 33

American Depositary Receipt (ADR)

Answer 33

Facilitate trading in foreign securities in the U.S. domestic markets. Sometimes these are shown as ADS (American Depositary Shares) and are ssimilar to a GDE (