series 66

An investor owns five DEF call options with a strike price of $40. The options are European style. If the holder exercises, the cost will be

$20,000.

3 A's of a discretion

-Action (buy/sell) -Asset (abc stock, xyc bonds) -Amount (10 shares, 10 bonds - if the RR does any of the 3 it is discretion -time and price are not discretion

Federally imposed exemption from state securities registration under USA (3)

-Securities listed on recognized exchanges or quoted on Nasdaq -Investment companies registered under the investment company act of '40 -Private placements under reg D

The Investment Advisers Act of 1940 excludes from the definition of "investment adviser" persons whose advice

-relates solely to securities issued or guaranteed by the U.S. Treasury -is solely incidental to their professional practice as an engineer

The sale of the unregistered stock is not an exempt transaction (private placement) IF offered to more than _______ noninstitutional investors over a _______month period.

10 retial 12 months

Any person who violates SEC rules is subject to a fine of up to ________ nd/or a prison term of up to______.

10K 5 years

An investor purchases $10,000 of A-rated debentures in early January. At the end of the year, $500 in interest has been received and the value of the investment is $9,500. If the investor is in the 25% tax bracket, the after-tax yield is

3.75% The only return (as far as yield is concerned) is the $500 of interest. Subtracting 25% for taxes leaves $375 which, when divided by the $10,000 initial cost, is an after-tax yield of 3.75%.

Any person who violates Uniform Securities Act is subject to a fine of up to ________ nd/or a prison term of up to______.

5k 3 years in prison

Under the Securities Act of 1933, commercial paper is exempt from the prospectus delivery requirements or registration, unless its maturity is more than how many months?

9 months

A letter of intent for a mutual fund purchase may be backdated to include previous investments in the same fund during the past

90 calendar days

If a client prefers mutual fund investments in companies that primarily generate capital appreciation to companies that pay a steady dividend, what type of mutual fund and associated investment objective would you recommend?

A growth fund

Surety bond

A guarantee that protects a business when another person or business fails to fulfill the terms of a contract between them

Forms BD/ADV expiration

December 31 unless renewed

USA termination procedure - State IAR

IA notifies administrator

USA termination procedure- Federal IAR

IAR notifies administrator

Under the Uniform Securities Act when can A cease and desist be issued

Prior to, or after a hearing the Administrator may provide prior notice and hearing or may issue the order without prior notice or hearing (summarily).

Small corporations that satisfy certain criteria can elect not to pay income tax at the corporate level but instead pass their earnings through to their shareholders. These corporations are known as

S corporations

Under the Investment Company Act of 1940, regarding the renewal of an investment adviser's contract must happen how often and is initially good for how long

The contract is for 2 years initially and must be renewed annually thereafter

discretionary authorization is not required when the IAR is going to determine_______

Time or price

If an agent has been given limited power of attorney to exercise discretion in an account by the account holder

a designated supervisory individual must frequently review the account.

Being a limited partner in a direct participation program is analogous to being

a holder of common stock in a corporation.

A broker-dealer is defined as

a person in the business of effectuating securities transactions for its own account or the account of others.

When an investment company employs an outside investment advisory firm to manage its portfolio, the Investment Company Act of 1940 requires _____

a written contract setting forth the adviser's compensation

when facilitating a transaction between a buyer and seller the BD is acting as_____

agent

The USA specifically excludes ___________________ from the definition of a broker-dealer.

agent/issuers and banks,

Those employed to open new accounts are defined as

agents

As defined in the Uniform Securities Act, a gift of warrants would be considered ________

an "offer to sell"

Under the Investment Company Act of 1940, a contract for an outside investment advisory firm to manage accounts must be terminable _______

at any time with no penalty, upon a majority vote of the board of directors or of the outstanding shares

Agents charge _______

commission

The current ratio is the current_____

current assets divided by the current liabilities. The higher the ratio, the more liquid the company.

C corporation earnings taxation

earnings are taxed at the corporate level and again at the individual level when they are paid out as dividends

Grantor retained annuity trust (GRAT)

estate planning tool designed to pass assets to beneficiaries minimizing gift and/or estate taxes all income is taxed to the grantor

Those seeking to raise new capital are defined as

issuers

Under the Uniform Securities Act ___________ may provide investment advice incidental to their normal business without requiring registration as an investment adviser (4)

lawyers, accountants, teachers, and engineers.

mid-cap stocks

market capitalization between $2 billion and $10

Principals charge______

markups

Purchasing a security for the account of a client and then buying 100 shares of it for her own account (is it fraud?)

no, because the purchase was made after the client's purchase

series 24 principal

review and approve account opening and transactions

What is NOT required under the customer identification program

sex

when a client is considering B class shares it is important to consider

the size of the investment and weather Breakpoints would apply most funds do not offer B class on over 100k

All qualified retirement plans must be established under _______

under a trust agreement

Keogh plans must have eligibility requirements that cover all employees that are ______ (3)

who are full- time, are at least 21 years of age, and have 1 or more years of service.

USA Registration procedure- Registration effective date

§ noon of the 30th day

NSMIA

· Federal covered securities are nationally exempt

Regulation D 506(B)

- No advertising -Investors must sign an investment letter attesting they understand risk -Accredited investors/35 nonaccredited (must be sophisticated) -investors receive restricted securities

Regulation D Rule 504

- Offer and sale up to 5Mill in a 12-month period -No general solicitation or advertising -Investors receive restricted securities for 1 year unless the issuer registers the resale with the SEC

USA - No person can lawfully offer or sell any security in state unless (4)

- The security is registered under the USA -The security is exempt - The security is federally covered -The transaction Is exempt

Discretionary Account

- Type of account where RR has authority to act on customer account without explicit consent from customer - Must have prior written approval from principal

The de minimis exemption

- no place of business in state - no more than 5 noninstitutional clients - 12 consecutive months *DOES NOT APPLY TO BROKER DEALER

Surety bond requirement BD, IAR, IA (is there one)

-BD: for custody and discretion -IAR: for discretion -IA: for custody and discretion

difference between regulation D rules 506 B and C

-C requires verification that investor is accredited - B allows the customer to simply say they are accredited

Regulation D 506(C)

-General advertising and directed solicitation are okay -All investors must be accredited; Issuer is obligated to ensure they are - issues Lettered stock; Unregistered securities: legend restricts transfers for a minimum of 6 months

Exempt transactions (7)

-Preorganization certificates -non issuer transactions (second market trading) -transactions between an issuer and an underwriter; -Fiduciary transactions (those in positions of trust) -Financial institutions (sophisticated/professional investors) -private placements. - Issuer transactions (between issuers and underwriters (going public))

Exempt securities under the USA (7)

-Securities issued by the U.S. government or federal agencies -Municipal bonds (local government bonds) -Securities issued by banks, savings institutions, and credit unions -Public utility stocks or bonds -Securities issued by religious, educational, or nonprofit organizations -Notes, bills of exchange, bankers' acceptances, and commercial paper with an initial maturity of 270 days or less -Insurance policies and fixed annuities

Securities act of 1933

-Truth in securities -Issuers must register securities with SEC - Require that investors receive financial and other information about securities being offered and prohibits deceit

USA Registration procedures- application

-application -Background and history -Convictions (10 years; felonies and securities related misdemeanors) -Financial condition (BD and investment adviser only)

USA Registration procedure- Consent to service of process

-approval for investigation § Power of attorney allowing administration to receive legal papers on behalf of other party § Must accompany new applications for BD, agents, investment advisor, and RRs § Part of permanent record · Only has to be submitted once

discretionary authorization is required when the IAR is going to determine_______

-asset, -amount -action

In an effort to benefit from the economies of scale, Liquid Assets Management, Inc. (LAMI) and Strategic Assets Management Company (SAMCO), both registered with the Administrator as investment advisers, have merged into a new firm with the name of Strategic and Liquid Assets Management Company (SLAMCO). This would_______

-be considered an assignment of the advisory contracts and would require consent of the clients -would have to register with a new FORM ADV, as a successor company, no registration fees would be due until renewal on December 31

Net worth requirement for investment advisers (for discretion and custody)

-for Discretion only: must have minimum net worth of 10k -for custody: must 35k minimum net worth (unless BD with minimum net capital) § must notify admin when net worth drops below minimum by the end of the next business day § File financial reports with admin within one business day of notice, including statement with the number of client accounts

Under the Uniform Securities Act, the Administrator has the power to deny, suspend, or revoke the registration of an issue if (3)

-it is in the public interest -the Administrator of another state has revoked the issue's registration -an officer of the registrant has been convicted of a securities-related crime

annuity taxation

-random withdrawals are taxed on a LIFO basis. -gains are taxed as ordinary income. -Taxes on dividends, interest, and capital gains are deferred and paid later, when the owner withdraws money from the contract.

A feasible portfolio is defined as

a portfolio that an investor can construct given the assets available. The feasible set is the collection of all feasible portfolios. Once we have the feasible set, we can select the efficient set

A broker-dealer that purchases securities for, or sells securities from, its inventory is acting as ______

a principal

what is considered to be an assignment

an assignment is whenever a majority interest in an adviser changes hands. Pledging a client's contract is considered to be an assignment.

Even though interests in a credit union are normally exempt securities, the exemption does not apply to the

antifraud provisions of the Act.

Exempt Charitable, religious, and nonprofit orgs under USA

any not for profit

clients of a broker-dealer could be

any person -Minors, deceased individuals, and mentally incompetent individuals are not persons.

which Public utilities and common carriers are exempt under USA

any that are regulated by a state or federal agency

Both exchange-traded funds and closed-end investment companies are traded on

exchanges; therefore, investors pay a commission when purchasing and liquidating share

Only the trustee can withdraw funds, provided the withdrawal ____

is done in a manner consistent with the trust document.

457 plan is unique in that

it is the only tax-qualified retirement plan permitting withdrawals, for any reason, before reaching 59½ without penalty

All other factors being equal, bonds of higher quality experience----- price volatility than do bonds of lower quality.

less

When market interest rates rise, bonds having higher coupons will decline----- than bonds having lower coupons.

less

Under the Investment Company Act of 1940, what is required for the approval of an outside investment advisory firm to manage accounts____

must be initially approved by a majority vote of the outstanding shares AND the noninterested members of the board of directors -and annually renewed by either a majority vote of the board of directors or of the outstanding shares, as well as a majority vote of the noninterested members of the board.

If a married couple establishes a JTWROS account with a balance of $25 million and the wife dies, what is the husband's estate tax liability?

none The surviving spouse is not taxed on assets transferred in this manner

USA Termination Procedure- effective date

noon of 30th day, but Administrator retains jurisdiction for one year

USA termination procedure - agent

notification to administrator by BOTH agent and BD - and new BD if applicable

European style options are exercisable_______

only at expiration

sell stop order

protect against a decline in the stock's price beyond the point the investor is willing to lose, If the stock should fall to that price, the order is triggered, a market order is entered, and the stock is sold.

If an investment adviser's client wishes to save current income taxes by placing certain investments in a charitable trust, ethically, the investment adviser should

recommend the client consult with a qualified attorney

series 26 principal

review and approve public communications and customer complaints

reinvestment risk

risk that periodic interest payments cannot be reinvested at the same yield as the bond providing the interest payments

An exemption from registration under the Securities Act of 1933 is available to securities that are

sold only to persons resident in one state when the issuer is a resident doing business within that state

An investor redeeming his shares in a MF will receive ________

the NAV less any redemption fee

Under the Uniform Securities Act, custody indicates______

the adviser has physical possession over its clients' certificates and monies.

Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as

the feasible set

Commodity prices tend to have a high correlation with________

the inflation rate

An efficient portfolio

the most return for a given amount of risk, or the least risk for a given amount of return

Under the Uniform Securities Act, securities issued by charitable organizations are exempt if

the organization is a nonprofit company

Email correspondence is treated like_____ and records must be kept for ______

the same as written correspondence. The records must be kept for three years.

In a TIC account, when one of the cotenants dies, that individual's share of the account pass____

to their estate, not directly to the survivor

can the securities Administrator conduct an onsite examination of an investment adviser registered in his state if the adviser does not have an office in that state

yes Administrators have the authority to conduct an onsite examination of a registered investment adviser, even if there is no place of business maintained in the Administrator's state.

forms BD/ADV parts (3)

§ Form of organization § Method of business § Registration of BD or IA automatically registers reps (agents or IARs) who are partner, officer, or director.

Exempt Issuers under the USA (3)

§ U.S. government agencies/ munis § Canadian govt (including munis) § securities Issued or guaranteed by foreign national governments with diplomatic relations (but not their munis)

Accredited investors

· 1 mil net worth not including primary residence OR · 200,000 annual income for last 2 years +current year - 300,000 joint for married couples

in order to qualify for a performance-based compensation program, the client must have either_______

$1 million in assets managed by the adviser or a net worth in excess of $2.1 million. If using joint assets, only those with a spouse are allowed.

capital losses up to________are deductible from taxable income

$3,000

SHAP RATIO

(actual rate of return - the risk free rate)/ (standard deviation of the security)

Securities exchange act of 1934

- Created SEC - Requires registration of BD, registered reps, and exchanges