Series 39 key terms

An investment in which investors put up capital and share directly in the income, gains, losses, deductions and tax credits of an underlying business, usually organized as a limited partnership that is not taxed at the entity level.

A business structure with one or more general partners who manage the enterprise and carry unlimited liability, plus limited partners who contribute capital, share profits and losses, and risk only what they invested.

The person or entity that runs a limited partnership's business, bears unlimited personal liability for its obligations, and usually receives a share of profits and fees for managing the program.

A passive investor in a limited partnership who supplies capital, shares in income, gains and losses according to the partnership agreement, and whose liability generally cannot exceed the amount invested.

A contract a prospective investor signs to buy units of a program, stating the number of units, the purchase price, and representations about the investor's eligibility, net worth and investment intent.

A program that raises investor money before identifying the specific properties or projects it will acquire, so investors must rely entirely on the general partner's judgment and track record.

A combination of several limited partnerships, often illiquid and trading at a discount, into one larger entity, typically by exchanging limited partner interests for shares or units in the surviving company.

Expenses of drilling and completing wells that have no salvage value, such as labor, fuel, rig time and supplies; they are generally deductible in the year incurred for tax purposes, subject to limits.

Costs of equipment and materials with salvage value, such as casing, tubing, pumps and tanks, which are capitalized and recovered through depreciation or cost depletion rather than deducted immediately.

An ownership share in an oil and gas lease that gives the holder the right to drill and produce and also obligates the holder to pay development and operating costs, usually reduced by royalty burdens.

A right to receive a portion of production or revenue from oil and gas properties without bearing drilling or operating costs, frequently retained by the landowner who leased the property.

A tax deduction recognizing that a natural resource such as oil, gas or minerals is gradually used up; percentage depletion is figured from gross income, while cost depletion is based on the investor's basis.

Costs of forming a program and selling its units, including legal, accounting and selling expenses; these are typically paid from offering proceeds and capped by the partnership agreement.

The smallest sum that must be raised, often held in escrow, before the general partner may accept subscriptions and begin operations; if the amount is not reached, investor funds are returned.

The disclosure document for a private program offering that describes the business, the general partner, risks, fees, conflicts of interest and tax consequences; it is not a registered prospectus.

A program that invests in property such as existing income-producing buildings, new construction, raw land or government-subsidized housing, passing rental income, gains, losses and depreciation through to investors.

A FINRA rule requiring a firm to have a reasonable basis to believe a recommended transaction or strategy is suitable for a particular customer, given the customer's profile and the investment's risks and costs.

A FINRA rule requiring firms to use reasonable diligence to learn each customer's essential facts, including financial situation, tax status, investment objectives and experience, before making recommendations.

A FINRA rule governing sales material and advertising, requiring fair and balanced presentations, principal approval of certain items, and filing of retail communications with FINRA when required.

A required supervisory process in which the firm reviews incoming and outgoing written communications of registered representatives, usually on a sampling basis, to catch misleading claims or misconduct.

The requirement that a firm recommending a program or other new issue investigate the issuer, its management and the offering terms so that it has a sound factual basis for its recommendation.

A person or entity meeting SEC income or net worth thresholds, such as individual income above $200,000 or net worth above $1,000,000 excluding the primary residence, who may buy certain private offerings.

The procedures a member firm must maintain under FINRA Rule 3110 describing how it supervises representatives, offices and activities, and which principal is responsible for each supervisory function.

A firm office designated under FINRA rules where supervisory functions such as order review, hiring or advertising approval occur, and which requires on-site supervision by a registered principal.

An associated person who has passed the required principal-level qualification examinations and is approved to supervise a member firm's sales, trading or operational activities.

A FINRA rule requiring registered persons to give their firm written notice before accepting employment or compensation from another business, so the firm can evaluate conflicts of interest.

A FINRA rule requiring associated persons to notify their firm before participating in an outside securities transaction for compensation; the firm may prohibit the activity or record it as if done in-house.

The obligation of registered persons to complete a firm-designed training element each year and a computer-based regulatory element within 120 days of the second anniversary of registration, then every three years.

The uniform application used to register representatives and principals with FINRA and state regulators, disclosing employment history and any disciplinary, financial or criminal events.

A condition, such as certain criminal convictions or regulatory bars, that makes a person ineligible for FINRA membership or registration unless the firm obtains a special exemption from FINRA.

A written, risk-based program requiring a firm to maintain policies, designate a compliance officer, train employees and conduct independent testing to detect and report suspected money laundering.

A broad FINRA rule requiring members, in the conduct of their business, to observe high standards of commercial honor and just and equitable principles of trade.

A firm's written plan for responding to disruptions such as natural disasters, technology failures or loss of key personnel, and for continuing critical operations with minimal interruption to customers.

An SEC rule requiring a broker-dealer to keep a minimum amount of liquid capital above its liabilities, computed after applying haircuts to securities, so it can meet obligations to customers.

An SEC rule requiring firms to keep customer securities and free credit balances separate from firm assets, and to maintain a special reserve bank account computed on a weekly or monthly basis.

The periodic financial and operational report that broker-dealers file with the SEC and FINRA, showing net capital, the customer reserve computation and other required financial data.

The requirement that a broker-dealer promptly notify the SEC and FINRA when its net capital falls below specified thresholds or when other defined signs of financial difficulty appear.

A FINRA recordkeeping rule requiring members to make and keep books and records, including those required by SEC Rules 17a-3 and 17a-4, and to preserve them for specified periods in an accessible form.