S66 Review Questions (Updated)

If securities of an issuer registered with the state are outstanding, how long after the effective date of registration must an issuer wait before the registration may be withdrawn?

12 months. Registration statements are usually effective for a period of one year from the effective date and may not be withdrawn during this period if any of the securities of the issuer of the same class are still outstanding.

What is the maximum amount of bitcoin that will ever be in circulation?

21 million

Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days?

270 days

A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is?

5% The current yield formula is annual dividends per share divided by current market price. The dividends per share are $36 million ÷ 20 million shares = $1.80 per share. Current yield is $1.80 ÷ $36.00 = 5%.

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

90 Days Letters of intent may be backdated up to 90 calendar days, provided the total investment period used to qualify for the breakpoint does not exceed 13 months.

Which of the following terms best describes ETNs and leveraged ETFs?

Alternative investments

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to rollover the entire account into an IRA, the tax treatment would be:

As with any rollover from a qualified plan to an IRA, there is no current tax, but any withdrawals would be taxed as ordinary income.

Which of the following is most likely to be regarded as a defensive stock?

B.

Regarding open-end investment companies, which of the following sales charges is based on the NAV per share?

B. If the fund has a redemption charge (CDSC), it is based on the NAV per share, not the public offering price (POP). That is, if the client liquidated shares when the NAV was $10 per share and the POP was $10.50, the CDSC would be charged based on the $10 rather than the $10.50. *Commission is not a term used with mutual funds. The 12b-1 fee is a charge against overall assets of the fund; it is not considered to be a charge related to the buying or selling of fund shares.*

An investment adviser (IA) has its primary office in State A. It has branches in States B and C, and it advertises in States D, E, and F. What net capital requirements must it meet? A) The state where the largest number of its clients reside B) Where its principal office is located C) Whichever state is the highest D) All the states combined

B. The Administrator of every state, other than State A, follows the rule that every investment adviser that has its principal place of business in a state other than his state need maintain only the minimum capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in that state (State A) and is in compliance with that state's minimum capital requirement.

Which of the following industries would be least cyclical?

C. Industrial activity usually follows business cycles, which have more impact on some industries than others. The food industry is one for which the demand is not generally based on economic conditions.

Which of the following investments is the most liquid?

C. Money market funds are the most liquid investment. In virtually all cases, they come with check-writing privileges.

Which of the following statements regarding advisers who maintain custody over client accounts is not true? A) The adviser must maintain complete and accurate records of all accounts and ensure that the funds and securities are segregated by client. B) Advisers must send clients quarterly statements that itemize the funds and securities in the adviser's possession. C) If customer funds and securities are deposited in a bank, the bank account must only contain customer funds and identify the adviser who is acting as an agent for the customers. D) The adviser must arrange for the audit of client accounts by an independent public accountant on a systematic basis at least once a year.

D The adviser must arrange for the audit of client accounts by an independent public accountant without prior notice to the adviser and not on a systematic basis (hence the surprise audit).

An applicant for registration as an IAR in this state was convicted four years ago of a non-financially related crime in another state. Under that state's laws, the crime was a misdemeanor, but under this state's laws, it is a felony. When viewing this IAR's application, the Administrator will: A) censure the investment adviser for even thinking of employing this individual. B) treat the crime as a nonfinancial felony. C) treat the crime as any felony. D) treat the crime as a nonfinancial misdemeanor.

D. Even though the crime is a felony in the state where registration is being sought, the applicant's record shows a misdemeanor; therefore, this individual will not be subject to statutory disqualification.

Which of the following statements are true? I. The Uniform Securities Act is not the actual law of any state or territory of the United States. II. The National Securities Markets Improvement Act of 1996 requires states and the federal government to have identical registration requirements. III. The state securities Administrator has responsibility for the enforcement and administration of a state's securities laws.

I and III. The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. The NSMIA's purpose is to eliminate dual registration, not to require identical laws.

Which of the following statements about closed-end investment companies are true?

I, II and III. A closed-end investment company makes an initial public offering of stock, and once those shares have been purchased, no more shares are available from the company until it offers a new issue. Investors may purchase shares of a closed-end investment company on an exchange or over the counter at whatever price the market demands. This price may be more or less than net asset value. Investors may not buy or sell fractional shares but may trade only in full shares.

Which of the following securities are exempt from the registration requirements of the Uniform Securities Act? I. An investment contract issued in connection with an employee pension plan II. Securities issued by St. Paul's Catholic Church in Tempe, Arizona III. Securities issued by a public utility IV. Securities issued by the Canadian government

I, II, III and IV. All of the securities listed are exempt from registration under the USA.

Investing in emerging market stocks is least likely to expose your client to which of the following risks?

Interest rate risk

What is the NSMIA?

National Securities Markets Improvement Act of 1996. The NSMIA's purpose is to eliminate dual registration, not to require identical laws.

A profitable company reports net income of $10 million. A cash dividend of $7 million is declared. From an accounting standpoint, the other $3 million will be credited to which balance sheet account?

Retained Earnings. Retained earnings are increased to the extent that company profits (net income) are undistributed—in essence, retained. Capital surplus comes from original investors purchasing stock at a price in excess of stated or par value.

Unspecific or systematic risk that refers to investment risk that is

Risk that is undiversifiable and caused by common macroeconomic variables.

The document that provides the Administrator with limited power of attorney to accept documents issued in investigation of registrants in the Administrator's state is:

The consent of service process conveys to the state Administrator the authority to accept a subpoena that has been filed against an agent.

Which of the following are characteristics of newly issued warrants?

Time value but no intrinsic value. Which of the following are characteristics of newly issued warrants?

A sector fund is one where the assets are?

concentrated in a particular industry or geographical area

Specific or unsystematic risk refers to investment risk that is

diversifiable

A customer's portfolio has a beta coefficient of 1.1. If the overall market increases by 10%, the portfolio's value is likely to

increase by 11%

ABC Corporation has a 10% noncumulative preferred stock outstanding at $100 par value. Two years ago, ABC omitted its preferred dividend, and last year, it paid a dividend of $5 per share. To pay a dividend to common shareholders this year, each preferred share must be paid a dividend of

$10 This stock has a par value of $100 and a dividend rate of 10%. That means the annual dividend will be 10% of the $100 par, or $10. Because this is noncumulative preferred stock, the company must pay only this year's full stated dividend of $10 per share before paying dividends to the common shareholders.

If the Consumer Price Index (CPI) is up and consumer demand is also up, the economy is likely in which stage of the business cycle? A) Expansion to peak B) Recovery to trough C) Peak to contraction D) Contraction to trough

A. As prices trend higher and consumer demand increases, the economy is moving from expansion to a peak. As demand continues to increase, assuming supply remains constant, upward pressure will be put on prices through the expansion to the peak.

Which of the following securities is most likely to register by qualification in the state of Virginia?

An offering of common stock by a Virginia-based corporation to Virginia residents only. Although any issuer may register its securities at the state level by qualification, this cumbersome means of registration is mainly used in conjunction with intrastate (single state) offerings. If a security is offered by a corporation beyond its own home state, the issuer must register with the SEC at the federal level.

An agent in Illinois, Missouri, and Iowa had a client move from Chicago to Detroit on July 1, 2018. On September 1 of that year, he bought 100 shares of a nonexempt security in a nonexempt transaction. On August 1, 2019, the client discovered that the agent's firm never licensed him in Michigan; therefore, he is subject to civil liability to the purchaser. The statute of limitations for this sale runs out

August, 1st 2021 2 years post-discovery

The contraction phase of the business cycle is least likely accompanied by

C. An economic contraction is likely to feature increasing unemployment (i.e., decreasing employment), along with declining economic output and decreasing inflationary pressure. Watch out for the double negatives.

Which of the following statements regarding the powers of the Administrator under the Uniform Securities Act is not true? A) The administrator may issue cease and desist orders. B) Denial of registration may take place in the event of the filing of an incomplete application. C) A final order of the Administrator may not be appealed. D) In the case of noncompliance, the Administrator may apply to a court of competent jurisdiction for the issuance of an injunction.

C. Final orders of the Administrator may be appealed to the appropriate court within 60 days of the issuance of the order.

Which of the following persons is not excluded from the definition of investment adviser if their advice given is incidental to the individual's profession? A) Teacher B) Lawyer C) Economist D)Engineer

C. The exclusion applies to lawyers, accountants, engineers, and teachers, provided there is no separate fee for their investment-related advice. Economists are not specifically named in the exclusion.

The Investment Company Act of 1940 permits a reduction in sales charge when reaching a breakpoint for: A) a designated agent of an investment club. B) a mother and her 35-year-old son purchasing in separate accounts. C) purchasers meeting the definition of any person. D) clients of fee-only investment advisers.

C. The term any person specifically excludes an investment club. Groups put together for the purpose of investing together, such as an investment club or clients of an investment adviser, do not qualify. Although there are exceptions, the exam will only consider accounts held for minor children as being included in the definition.

A manufacturing company is in the process of registering a securities issue with the SEC. In order to make the shares available for sale in this state, the method of registration that would most likely be used is A) qualification. B) notification. C) notice filing. D) coordination.

D. Coordination is the method used for nonexempt companies that are registering with the SEC. Qualification is for intrastate registration of those companies not registered with the SEC. Notice filing is the procedure whereby federal covered investment companies notify the states in which they want to issue shares and to whom they must pay a fee.

n general, a broker-dealer is required to register with the SEC. An exception to that requirement would apply to a broker-dealer who

Functions strictly on an intrastate basis. The only exemption from SEC registration applies to broker-dealers which maintain a place of business in a single state, only deals with residents of that states, and does not execute transactions in securities traded on a national exchange

When comparing a time deposit account and a demand deposit account, you would expect?

Higher rate of interest paid on the time deposit account. The best example of a time deposit account is a CD. Money is deposited for a fixed length of time, generally at a fixed interest rate. Demand deposit accounts are checking accounts. Because the bank expects to have longer use of time deposit funds, interest rates are generally higher. DDAs offer the instant access of check-writing (or online payments). Typically CDs, have penalties for early withdrawal; there is no such charge on a checking account. Both are covered by FDIC up to the applicable limit.

If XYZ Mutual Fund has an expense ratio of 1.85% that includes a 12b-1 fee of 0.30%, which of the following statements are true? I. The fund may use the 12b-1 fee to pay for mailing sales literature. II. Advertising materials may state that the fund is no load. III. Management fees may be paid from the 12b-1 fee. IV. The fund's prospectus is required to disclose the fee.

I & IV. 12b-1 fees may only be used to cover promotional expenses, not fund-management expenses. The amount of the fee must be disclosed in the prospectus. Funds that charge 12b-1 fees of more than 0.25% cannot call themselves no-load funds.

The Uniform Securities Act provides for both civil and criminal prosecution. In which of these cases might an agent face civil liability? I. A sale was made of an unregistered, nonexempt security. II. During a sales presentation, the agent misstated a material fact that resulted in the prospect deciding to make the purchase. III. The agent was included in the judgment, along with the broker-dealer, for a civil infraction.

I, II, and III. These are all cases for civil, not criminal, liability. Unless it can be proven that the agent acted willfully and with knowledge, it is hard to have a criminal case.

Which of the following statements is true? I. An agent may never be simultaneously employed by more than one broker-dealer. II. An agent must submit separate registrations for each broker-dealer with which she is registered. III. Certain states prohibit agents from dual or multiple registration. IV. An agent who sells securities in several states must be registered with different broker-dealers in each state.

II and III In general, an agent will only be registered with a single broker-dealer. However, the USA does permit registration with more than one under certain conditions. An agent must submit separate registrations for each broker-dealer with which she is registered, and an agent may be prevented from multiple registration in those states that prohibit dual or multiple registration.

A registration of an investment adviser representative can be denied or revoked if it is in the public interest and which of these is true? I. The registrant failed to include the fact that he had been convicted of a non-securities-related misdemeanor within the last two years. II. The registrant has willfully violated the securities laws of a foreign jurisdiction. III. The registrant is qualified on the basis of knowledge and training but lacks experience. IV. The registrant has engaged in dishonest or unethical practices in the securities business.

II and IV. Just cause for denial, suspension, or revocation of an IAR's license would include engaging in dishonest or unethical practices in the securities business and willfully violating the securities laws of a foreign jurisdiction. Failure to include convictions for a securities-related misdemeanor (or any felony) constitutes filing an incomplete or misleading application, and that too would be just cause for taking action. Don't confuse this with the 10-year rule. These convictions must always be disclosed; 10 years is the time period during which it is almost a sure thing that the application will be denied. An Administrator may not deny a registration solely on the basis of lack of experience.

Your client, Jane, died, and her 35-year-old son, Patrick, is the beneficiary of her IRA account. There was $750,000 in the account at the time of her death. All contributions were made with pre-tax dollars. Ten years later, the account had grown to $1.2 million, and Patrick distributed all of the money during that year. The distributions will be

Taxed on the withdrawn amount in the given year.

What is a Summary Plan Description (SPD)?

The Summary Plan Description (SPD) is a Department of Labor (DOL)-required document that gives employees a summary of the plan and its features. It has nothing to do with determining how the money is invested.

A broker-dealer registered with State A created a website two years ago to promote its services. Recently, they hired a new media person who totally redesigned the site. Under the recordkeeping requirements of the Uniform Securities Act, how long is the firm required to keep records of this?

a copy of the original web page must be maintained for three years from original use.

Under the NSMIA, state securities Administrators retain authority to

enforcing the antifraud provisions of state and federal securities laws

A retired woman whose sole income comes from a portfolio of investments with a fixed rate of return is most affected by

high inflation

One reason for including commodities in an investment portfolio is because they have a high correlation to

inflation rate

You have a client with a margin account at your broker-dealer. If the market price of the securities in the client's account should fall to a point where your firm has to ask the client for additional funds, it is

maintenance margin call The original call for funds is the Regulation T or margin call. When the call is for additional money, it is known as maintenance margin.

In the event that a filing with the state securities Administrator is found to have material misstatements or omissions, a correcting amendment must be filed

promptly.

An employee is offered a nonqualified stock option with an exercise price of $20 per share. If the option is exercised when the current market value of the stock is $30, the employee?

taxed on $10 as if it were salary In the case of NSOs, the difference between the exercise (or strike) price and the current market value is considered salary to the employee.

Which of the following investment vehicles is not considered a security under the Uniform Securities Act? A) Annuities with a fixed rate of return B) Commercial paper maturing in fewer than 270 days C) Common stock issued and sold intrastate D) U.S. government bonds

A. A fixed annuity is not defined as a security and is subject to the rules and regulations of the state insurance commissioners. As such, a fixed annuity does not fall under the provisions of the Uniform Securities Act.

Federally registered investment advisers are obligated to maintain certain books and records as specified by the SEC. Which of the following statements regarding adviser recordkeeping is not true? A) Records must be kept for six years. B) Records are subject to surprise audits by the SEC. C) Written records may be reduced to microfilm. D) Records originally created on a computer may be stored in electronic media.

A. Records of an adviser must be maintained for five years. Records are subject to surprise audits by the SEC, written records may be reduced to microfilm, and records originally created on a company's computer may be stored in electronic media.

Which of the following would fall under the USA's definition of exempt transaction? A) An issuer sells a new issue to a broker-dealer. B) An agent accepts an order from a client after having sent a research report dealing with that security. C) An investment adviser purchases securities from the issuer. D) A real estate partnership sells interests to the public with no commission charge.

A. Transactions between issuers and broker-dealers (but not investment advisers) are exempt transactions. As long as the sale is to the public, regardless of commissions charged (or not charged), the transaction is nonexempt. Don't be lured into thinking that accepting an order from a client is unsolicited. That's not true in this case because it is the result of the research report.

Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states? A) Qualification B) Coordination C) Registration by publication D) Notice filing

B. Because the offering will be made in more than one state, registration with the SEC is required. Coordination is concurrent registration with the SEC and the state for public offerings. Notice filing pertains to certain federal covered securities, primarily by investment companies (mutual funds).

Registration statements for securities under the Uniform Securities Act are effective for: A) one year from the previous December 31. B) one year from the effective date. C) a period of time determined by the Administrator for each issue. D) one year from the date of issue.

B. Securities registration statements are generally effective for one year from the effective date.

Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except: A) it must be up-to-date. B) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. C) changes to the fee schedule must be announced in advance. D) changes to the fee schedule may be shown on the firm's website.

B. There is no requirement that the fee schedule be filed with the Administrator. It must be up-to-date, and any changes must be announced in advance (usually a minimum of 30 days). There are a number of ways to disclose the fees—the firm's website is one of them.

One way in which futures contracts differ from options contracts is that: A) only the seller is obligated on a futures contract whereas both parties are obligated on options contracts. B) both parties are obligated on futures contracts whereas only the seller is obligated on an options contract. C) both parties are obligated on futures contracts whereas only the buyer is obligated on an options contract. D) only the buyer is obligated on a futures contract whereas only the seller is obligated on an options contract.

B. Unlike options contracts, where only the seller of the option is obligated to perform (if the option is exercised), both parties to a futures contract are obligated to fulfill the terms. Right to Buy Obligated to Sell

MaryBeth is an agent with QuickTrade Securities, a subsidiary of QuickLoan Bankcorp, which is a holding company that also owns QuickIssue Capital Markets, an underwriter specializing in bringing new issues to market. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, MaryBeth would be permitted to split commissions resulting from securities transactions with any of the following individuals except: A) an agent registered with QuickIssue Capital Markets. B) another agent registered with QuickTrade Securities. C) an agent properly registered with USATrade Securities. D) the principal supervising her activities at QuickTrade Securities.

C. Under the NASAA policy, in order to split commissions, both individuals must be licensed as agents with either the same broker-dealer or ones under common control (ownership). What about sharing with your principal? Why not? In fact, many managers (principals) have commission overrides as a fundamental part of their compensation package. Remember, under the Uniform Securities Act, there is no separate principal registration as there is with FINRA; all principals are registered as agents (or IARs, as the case may be), just the same as you.

An agent omits certain details about an issue during a sales presentation. This omission would be fraudulent if: A) the information was not available in the prospectus. B) made to an individual client, but not to an institution. C) the information was material and was necessary to make other statements not misleading. D) this were a solicited transaction.

C. All material information must be disclosed. Omission or misstatement of material information is prohibited, regardless of whether the presentation was to an individual or institution or the sale was solicited or unsolicited. The key here is that certain details may be omitted, but those that are material may never be.

Which of the following is required to register as an investment adviser with the state securities Administrator?

C. An investment adviser must register in a state if it manages less than $100 million in assets. Publishers of general circulation books are exempt from state registration, as are advisers with no offices in the state whose only customers are institutions, such as banks and investment companies, in the state. Investment advisers with $110 million or more in assets under management must register with the SEC, not the state Administrator.

Which of the following is not correct regarding the capital asset pricing model (CAPM)? A) The market risk premium is the incentive required for the individual to invest in the securities market. B) The stock risk premium is the inducement necessary to entice the individual to invest in a particular stock. C) CAPM uses standard deviation as a measure of market risk. D) CAPM only considers the systematic risk.

C. CAPM accounts for the impact of systematic risk (as measured by beta) only and does not take into consideration unsystematic risk, which is assumed to have been diversified away.

An analyst attempting to determine the extent to which financial leverage is being employed by a company would examine the company's: A) working capital B) acid-test ratio C) debt-to-equity ratio D) book value per share

C. Financial leverage is the use of debt capital. The best way to see the extent to which that exists is through the debt-to-equity ratio.

The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would not be eligible for an exemption in your state? A) Equipment trust certificates issued by a regulated common carrier B) Common stock issued by the XYZ Trust Company, organized under the laws of a neighboring state but not authorized to do business in this state C) Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state but not authorized to do business in your state D) Bonds issued by the Province of Alberta

C. Securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state. Any issue from a state or Canadian province is always exempt. Equipment trust certificates issued by any regulated common carrier are always exempt. Banks, savings institutions, and trust company securities are also exempt as long as they are organized under the laws of the United States or any state.

Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment companies registered under the Investment Company Act of 1940 are required to register their securities: A) as exempt securities, at neither state nor federal levels. B) at both state and federal levels. C) at the federal level only. D) at the state level only.

C. The NSMIA requires that the SEC, rather than individual states, assume responsibility for the registration and regulation of federal registered mutual funds and other investment companies. Thus, these federal registered investment companies are no longer required to register at the state level; however, they will likely have to pay state filing fees by going through the notice filing procedure.

Wade Kimmons purchased 200 shares of ABC common stock on March 9, 2009, paying $32 per share. Since the date of the purchase, Mr. Kimmons has received $518 in dividends. With the stock selling for $89 per share on July 27, 2016, Wade gives all 200 shares to his niece, Kendra. One week later, Kendra sells all of the ABC stock for $85 per share. The tax consequences of this are

C. When securities are the subject of a gift, the donee (recipient) acquires the donor's cost basis and holding period. That means that Kendra's cost was $32 per share and the holding period was over 7 years. That is a gain of $53 per share or a total of $10,600, and it is long term. The dividends have nothing to do with the question.

Investors with a short time horizon most likely will invest in which class of mutual fund shares?

Class C shares Class C shares may be less expensive than Class A or B shares for investors with a short time horizon. The front-end load on Class A shares and the back-end load on Class B shares make them unattractive for short-term investors. Class A shares do not convert to Class B shares; it goes the other way.

An individual has been employed by a broker-dealer to solicit new subscriptions for the firm's free monthly stock market report. The individual is paid a salary plus bonus based on his success rate with signing up subscribers. Under the USA, this person would: A) only be allowed to contact existing clients of the broker-dealer. B) have to be registered as an investment adviser representative. C) have to be registered as an agent of the broker-dealer. D) not have to be registered as an agent of the broker-dealer.

D. Agents of broker-dealers are in the business of securities-related transactions on behalf of clients of the firm. A free market report is not a security, so this individual is not soliciting securities business.

XYZ Corporation has been in business for more than 20 years. They need additional capital for expansion, and they determine that a public offering in their home state and neighboring states is appropriate. Which method of securities registration would most likely be used to register this initial public offering? A) Registering by application. B) Registering by qualification. C) Providing notice filing to those states in which shares are to be issued. D) Registering by coordination.

D. Because this offering is being made in more than one state, SEC registration is necessary. The state registration method would be coordination, which is the simultaneous registration of a security with both the SEC and the states.

In which of the following does registration of an issue become effective when ordered by the Administrator? A) Coordination. B) Integration. C) Notice filing. D) Qualification.

D. The effective date of registration by qualification is set by the Administrator. The effective date under registration by coordination is set by the SEC, and notice filing is merely the filing of certain documents in order for the registrant to be able to offer securities in that state.

When reading the prospectus for a fund, you notice that it states that the fund may make portfolio purchases on margin, take short positions, and use arbitrage techniques. This is most likely what type of fund?

Hedge Fund

Under the Uniform Securities Act, one method of securities registration is qualification. When that method is used, which of the following statements is correct? I. The registration is valid for one year from the effective date. II. The registration is valid for one year from the effective date unless the underwriter or issuer still has some unsold shares. III. The registration is valid until the next December 31st. IV. The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation are not changed.

II and IV. Under the USA, when a security is registered, the registration is valid for one year after the effective date. However, the act provides that if the issuer or underwriter still has unsold shares from the offering, the effective date may be extended, so this is a more accurate choice. The act also allows the registration statement to be amended to allow for an increase in the number of shares to be offered as long as the public offering price and the underwriter's compensation are not changed.

On April 15, ABC Advisers, Inc., made application for registration as an investment adviser with State X. Absent a denial or stop order, registration will become effective:

May 15th If no denials or stop orders are in effect and no proceedings are pending to do so, registration automatically takes effect at noon on the 30th day after the application was filed.

Under the Uniform Securities Act (USA), it is unlawful to sell

Nonexempt, nonregistered securities cannot be lawfully sold in a state unless in an exempt transaction (and nothing in the question indicates that is the case). The fact that they are issued by a foreign corporation is irrelevant; nonexempt securities must be registered. A federal covered security need not be registered in a state. Securities issued by banks, not bank holding companies, are always exempt securities.

Covered call writing is a strategy where an investor

sells a call on a security he owns to reduce the volatility of the stock's returns and to generate income with the premium.

A pension consultant who advises corporate retirement plans with assets of $135 million must register with which of the following?

The State. Under the Dodd-Frank bill, until a pension fund manager has at least $200 million in AUM, registration with the states is required. Once the $200 million level is reached, SEC registration becomes an option.

Over which of the following would the investment adviser representative have discretionary authority? A) An account in which the investment adviser representative chooses portfolio securities on behalf of the client B) An account in which a trustee has power of attorney over another individual's account C) An account in which a customer has power of attorney over another individual's account D) An order that specifies the size of the trade and name of the security, but leaves the choice of price or time up to the investment adviser representative

A. An order is discretionary when it is placed for a customer's account by the advisory firm or its representative, without the customer's express authorization for that trade (there is a written discretionary power in the firm's file). Also, for the order to be considered discretionary, the firm must choose at least one of the following: size of the trade, whether to buy or sell, or the security. Choosing time or price is not considered to be an exercise of discretion. Because the question is asking about an investment adviser, the choices referring to a customer with a POA or a trustee don't deal with the question.

Washington, Adams, and Jefferson, Inc., (WAJI) is an investment adviser whose principal and only office is in Alexandria, VA. WAJI's sole business is advising institutional investors. Rutherford Buchanan is employed by the firm in the main office and has the responsibility of servicing the firm's bank and insurance company clients. Which of the following statements is correct regarding Rutherford's licensing requirements? A) Rutherford must register as an IAR of WAJI with the State of Virginia. B) Rutherford cannot register as an IAR of WAJI because providing advice exclusively to institutions exempts the firm from registration. C) Rutherford is exempt from registration because he has fewer than six retail clients. D) Rutherford is exempt from registration because his only clients are institutions.

A. Regardless of whom the clients are, Rutherford has a place of business in Virginia and that requires registration with the Administrator as an IAR. If WAJI does business in other states where it does not have a place of business, it is exempt from registration because the only clients are institutions. If WAJI is not registered in the state, Rutherford can't register as their IAR. The de minimis exemption for fewer than six retail clients only applies when there is no place of business in the state.

Jasper Quartermaine is interested in using the options market to create "insurance" against a severe drop in the value of a stock portfolio that he owns. How could he best accomplish this goal and what is this type of strategy called? Type of option Strategy A) Buy put options Protective put B) Buy call options Protective call C) Write call options Covered call D) Write call options Protective call

A. An investor who is long securities can obtain portfolio insurance by purchasing put options. Losses in the underlying portfolio are offset by gains in the put position. This is known as a protective put strategy.

Alex is planning on registering as an agent for a broker-dealer. Which of the following would be the least likely requirement for a successful application? A) Submitting fingerprints B) Taking and passing an examination C) Filing an application for registration D) Paying the filing fees

A. Fingerprints are not a specific requirement of the Uniform Securities Act. We know we are dealing with state law because the term agent is used, and that term describes representatives of broker-dealers under state law. This is one of those cases where you have to remember this is a NASAA exam, not a FINRA exam (where fingerprints are generally required).

Which method of securities registration would most likely be used to register an initial public offering that is intended to be offered for sale in several states? A) Coordination. B) Notice filing. C) Qualification. D) Registration by publication.

A. Since the offering will be made in more than one state, registration with the SEC is required. Coordination is concurrent registration with the SEC and the state for public offerings. Notice filing pertains to certain federal covered securities, primarily by investment companies (mutual funds).

As a general matter, the regulators do not treat posts by customers or other third parties as the firm's communication with the public. Under certain circumstances, however, third-party posts may become attributable to the firm. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content. Where the firm endorses or approves of the material but has no part in its creation, it is known as

Adoption. Used to describe material posted to a securities professional's social media site by a third party, where the securities professional explicitly or implicitly endorses or approves of the content but plays no role in its development. *Where the firm is involved in the preparation of the content, it is known as entanglement.*

Three years ago, one of your clients invested $100,000 into the newly formed GHI Corporate Bond UIT. Another client invested $100,000 into the JKL Corporate Bond Fund, an open-end investment company. At that time, both investments were yielding about 7%. Today, the yield on corporate bonds of comparable quality is 5%. Therefore, one would expect that: A) the investor owning the bond fund is receiving more current income than the investor owning the UIT. B) the investor owning the UIT is receiving more current income than the investor owning the bond fund. C) the management fee on the GHI UIT is higher than that of the JKL fun. D) both investors are receiving approximately the same current income.

B. A unit investment trust has a fixed portfolio. When a UIT is formed, the bonds in the initial portfolio would have a yield comparable to the going market rate, in this case 7%. Three years later, regardless of the current market interest rate, the UIT still holds those 7% bonds, so the current income hasn't changed. On the other hand, because a mutual fund is constantly bringing in new money and redeeming old shares, its portfolio composition is going to reflect the influence of the current market. That means many of the newly purchased bonds will be offering a return of 5%. The effect of this is that the current income of a bond mutual fund is going to fluctuate along with interest rate changes while that of a UIT will not. There is no management fee for a UIT because there is no ongoing management.

Which of the following business accounts does not require considering the suitability of the owners? A) Sole proprietorship B) C corporation C) General partnership D) S corporation

B. Because the C corporation is an entity separate from its shareholders, suitability for a C corporation account is based solely on the company itself. All of the others provide flow-through of income and loss to the individual owners so it is important to view the collective suitability of the individual owners (or single owner in the case of the sole proprietorship).

NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers would consider the adviser to be engaging in an unethical business practice if he loaned money to a client other than one: A) borrowing under the same terms and conditions as the client could find at a commercial bank. B) who was an affiliate of the adviser. C) who was in the money-lending business. D) who was an immediate family member of the adviser.

B. Loaning money to a client is prohibited unless the investment adviser (IA) is a financial institution engaged in the business of loaning funds or the client is an affiliate of the IA. Please note that because this question deals with an IA lending money, the fact that the IA's client is in the money-lending business is of no consequence. That would only be an issue if the question dealt with the IA borrowing money.

A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use: A) supplementation. B) notice filing. C) coordination. D) qualification.

B. Regardless of where shares of this closed-end investment company trade, like all investment companies registered under the Investment Company Act of 1940, it is a federal covered security. The company is basically exempt from state registration and is only required to follow a procedure known as notice filing.

Because many different securities qualify for an exemption from registration under the Uniform Securities Act, proof of qualification for an exemption is the responsibility of: A) none of these—the exemptions are automatic. B) the person requesting the exemption. C) the Administrator. D) any interested investor.

B. The USA provides for exemption from registration in a number of cases. If the exemption is challenged by the Administrator, it is up to the person—usually the issuer—requesting the exemption to prove that it is merited.

In order to compute a client's realized holding period return, it is not necessary to know A) the original investment B) paper losses C) value at the end of the holding period D) income received during the holding period

B. The question is asking for realized return. That means that we ignore paper losses, (just another term for unrealized loss).

When using the process of registration by coordination under the Uniform Securities Act, issuers shall simultaneously submit to the state, the documents filed with the SEC under the: A) Securities Exchange Act of 1934. B) Investment Company Act of 1940. C) Securities Act of 1933. D) National Securities Markets Improvement Act (NSMIA).

C. Under the Uniform Securities Act, an issuer registering its securities with the Securities and Exchange Commission (SEC) in accordance with the procedures found in the Securities Act of 1933 shall use the documents it submits to the SEC in its concurrent registration with states in which it plans to offer its securities.

When contrasting call options, preemptive rights, and warrants, it would be correct to state: A) only call options are traded on listed exchanges. B) all of these are issued by the underlying corporation. C) only call options and warrants have time value. D) only preemptive rights and warrants are issued by the underlying corporation.

D. Corporations issue preemptive rights (if called for in the corporate charter) when issuing additional shares. Warrants are issued by corporations usually as a sweetener to make a bond issue more attractive. Call options are issued by the options exchanges, not the underlying corporation. All three of these products trade on listed exchanges and all of them have time value with warrants generally having the longest expiration date.

Which of the following is specifically excluded from the definition of an investment adviser, provided the investment advice is solely incidental to the business in which the person is engaged? A) Sports representative who advises on securities for a fee B) Pension manager C) Movie star's business manager who handles the star's investment portfolio D) Industrial engineer

D. Lawyers, accountants, engineers, teachers, and broker-dealers whose advice is incidental to their profession and who do not charge a separate fee for investment-related advice are excluded from the definition under the Investment Advisers Act of 1940.

All of the following factors have an inverse relationship to a bond's duration except: A) current yield. B) coupon rate. C) yield to maturity. D) time to maturity.

D. The relationship between the time to maturity (length) and duration is a linear one. That is, the longer the time until the bond matures, the higher (longer) the duration - it is a direct relationship. *Yields, on the other hand, have an inverse relationship with duration. That is, the higher the yield, the lower (shorter) the duration. An example would be comparing a bond with an 8% coupon rate to one with a 6% coupon rate. All other things being equal, the bond with the 8% coupon rate will have a shorter duration than the one with a 6% coupon; the relationship is inverse rather than linear.*

The Investment Company Act of 1940 allows a majority vote of the outstanding shares of a registered investment company to authorize the fund to do all of the following except: A) change the objectives of the fund. B) change the nature of its business and cease to be an investment company. C) change from an open-end to a closed-end investment company. D) invest in securities consistent with the fund's objectives.

D. Shareholder approval is not necessary to authorize the fund to invest consistent with the fund's objectives; it is required as part of the contract with the fund's investment adviser. Under the Investment Company Act of 1940, a vote of the majority of outstanding shares may approve changing from an open-end to a closed-end company, changing the investment objectives of the fund, and deciding to cease to be an investment company.

If the executor of an estate containing a substantial stock portfolio is of the opinion that the economy is about to enter a down cycle, estate taxes could be reduced by: A) asking for an extension to file the return. B) reallocating the assets to less risky securities. C) liquidating the portfolio in advance of the market downturn. D) using the alternative valuation date.

D. The executor of an estate has the option of valuing the assets either as of the date of death or six months later (the alternative valuation date). If stock prices fall, then the estate will shrink, resulting in lower estate taxes.

Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration? I. Foreign investment advisers with fewer than 15 clients per year, who do not hold themselves out as investment advisers to the public and who have less than $25 million in AUM in the United States II. Investment advisers who conduct all of their business in one state, do not provide advice on securities listed on an exchange, and have no private funds as clients III. Investment advisers whose only clients are banks

I and II. Usually, anyone who meets the federal definition of investment adviser must be registered with the SEC. Some investment advisers are not excluded from the definition but are exempt from the registration requirements of the SEC. One example is an adviser whose clients are all residents of the state in which the adviser maintains its principal office who renders no advice on any exchange-listed security and does not give advice to any private funds. Advisers whose clients are limited to insurance companies are exempt from registration, as are foreign advisers who limit themselves to fewer than 15 clients a year (none of whom can be investment companies), do not advertise or hold themselves out to be investment advisers, and have less than $25 million in AUM in the United States. There is no exclusion for advisers whose only clients are banks.

Under the Uniform Securities Act, which of the following would constitute a fraudulent practice in connection with a sale or offer of securities? I. Susan tells a client that she is good friends with the CFO of a listed company and has the "inside track" on what is going on. Susan has never met the CFO. II. John makes a material misstatement during a sale, but the sale is not made. III. Joe omits material facts while making an offer, but the client makes money on the securities. IV. Harold, who is excluded from the definition of investment adviser, omits material facts during an offer.

I, II, III and IV. Failure to state material facts that are known to the agent or adviser and that would make other statements not misleading is fraudulent. Securities professionals may not be deliberately selective of which material facts to present to clients or prospective clients. In recommending the purchase or sale of a security, misleading or untrue statements of material facts include inaccurate market quotations; incorrect statements of earnings or projected earnings; inaccurate statements of commissions, markup, markdown, or other charges; implying approval by the SEC or state Administrator; using rumors or inside information to induce transactions; indicating approval of a security by any regulatory body; or failure to describe important facts or risks.

According to the Uniform Securities Act, an offer or a sale does not exist if it is which of these? I. A reclassification of the issuer's securities II. A bona fide pledge or loan III. An act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares IV. A stock dividend of stock other than the issuer's for which nothing of value was given

I, II, III and IV. The Uniform Securities Act specifically excludes these four choices from the definitions of offer and sale.

A fiduciary of an ERISA plan is preparing an investment policy statement. Included would probably be I. specific security selection II. methods of performance measurement III. determination for meeting future cash flow needs IV. the Summary Plan Description

II and III. The IPS will include methods of performance measurement (if it is meeting objectives) and a way to determine how future cash flow needs will be met (based on expected numbers of retirees).

According to the Investment Advisers Act of 1940, which of the following statements regarding Part 2 of Form ADV are true? I. It must be filed with the state Administrator. II. A balance sheet must be submitted if the adviser collects prepaid fees of more than $1,200, six or more months in advance. III. Certain minimum business and education qualifications must be met before an investment adviser can file. IV. It may be used to satisfy the brochure requirements of the act.

II and IV. An investment adviser required to register with the SEC under the Investment Advisers Act of 1940 must submit its Form ADV to the SEC. In some cases, the Form ADV will also be filed with the state Administrator, but that is state law, not a federal requirement. A balance sheet must be submitted with Part 2 if the adviser receives "substantial" prepayments of fees. Part 2 may be used as an investment adviser's disclosure brochure to clients.

Ebony sets up a revocable trust, naming her daughter, Sylvia, as the sole beneficiary. Ebony has appointed the Pacific Atlantic Trust Institution (PATI) as the trustee. Any income to the trust will be taxable to

the grantor. In almost all cases, income received into a revocable (grantor) trust, whether distributed or not, is taxable to the grantor. Things are different when the trust is irrevocable, but much more complicated and not likely to be tested.