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Which of the following would be considered a sale of securities? A car dealership gives each customer a gift of one free share of stock for buying a new car. An investor converts a bond into 50 shares of common stock. A minor is named as a beneficiary of a trust containing common stock. An individual inherits a security from the estate of a deceased parent. I only I and II only II, III, and IV only I, II, III, and IV

A If an individual is required to pay for an item in order to receive a free security, then the security investment is not actually free. The required payment would constitute a sale of the security. The other examples involve either the gift or transfer of securities and would not be considered a sale.

Which of the following securities would NOT be considered federal covered, but would still be considered exempt under the Securities Act of 1933? A municipal bond issued by a state and sold only in that state A variable annuity contract subject to the insurance commissioner's oversight A certificate issued by a court-approved trustee An exchange-traded futures contract

A While a municipal bond is considered an exempt security under the Securities Act of 1933, it is NOT a federal covered security. Federal covered securities include those listed on a national exchange (NYSE, AMEX, or Nasdaq) and those issued by a registered investment company. There is no federal exemption for either variable annuities or trust certificates

Under the Securities Act of 1933, which of the following would MOST LIKELY be included in the definition of an underwriter? An agent A broker-dealer An investment adviser representative An issuer

B A broker-dealer is considered an underwriter when it helps issuers raise capital through the sale of their new issues. Agents (of broker-dealers) and investment adviser representatives (of investment advisers) are the individual employees of their respective firms and are, therefore, not considered broker-dealers

In order to clarify items in the balance sheet or income statement, a corporation may include them as: An addendum Footnotes A supplement A correcting amendment

B Footnotes on a financial statement are used to provide additional information or to clarify information, i.e., methods of depreciation used, inventory valuation methods, reserves for future events, etc.

Under the Investment Company Act of 1940, which of the following situations requires shareholder approval? A mutual fund enters into a contract with an underwriter. A mutual fund adviser wants to deviate from its investment policy. A mutual fund wants to terminate the existing contract with its investment adviser. A mutual fund wants to use the fund's assets to pay for the cost of distributing shares. I only II and IV only I, III, and IV only All of the above

B The Investment Company Act of 1940 requires shareholder approval for a company to make changes to its investment policy statement or to have the cost of underwriting or distributing shares paid from the fund's assets (12b-1 fees). The other two choices involve decisions that are made by the fund's board of directors. To fire the adviser, the board must approve of the action, while approval by a majority of the board's disinterested members is required to establish a contract with an underwriter.

Which of the following would NOT be defined as an affiliated person under the Investment Company Act of 1940? An insider who owns more than 10% of an investment company's shares An officer or director of an investment company The outside legal counsel for an investment company An employee of an investment company

C According to the Investment Company Act of 1940, an affiliated person is considered any officer, director, partner, copartner, or employee of the investment company. The term also includes any person who directly or indirectly owns, controls, or holds, with power to vote, 5% or more of the outstanding securities.

According to the Securities Exchange Act of 1934, which of the following is NOT required to be included on the confirmation statement for a bond trade? Disclosure of the bond's yield at the time of the trade Disclosure of the bond's yield-to-maturity Disclosure of the bond's rating Disclosure of the bond's purchase price

C Although a bond's rating is not required to be included on a confirmation statement, it must disclose if a bond is unrated. A bond's price and its yield-to-maturity at the time of the trade must be disclosed on a confirmation.

According to the Securities Act of 1933, a pooled investment fund is considered a federal covered security when it: Registers as a hedge fund Is managed by a federal covered adviser Registers with the SEC under the Investment Company Act of 1940 Files an application with an Administrator seeking an exemption

C An investment pool is considered a federal covered security when recognized as an investment company under the Investment Company Act of 1940 and when its offering is registered with the SEC. Requesting an exemption or employing a federal covered adviser does not make an investment pool an investment company.

All of the following choices are required to be included in a trade blotter, EXCEPT: The account in which the trade was executed The trade date The amount of interest or dividends the investor will receive The unit value and total value of the transaction

C Broker-dealers and investment advisers are required to keep certain books and records. One of them is a blotter, which is a daily record of all purchases and sales of securities. The trade blotters contain information concerning the transaction such as the account in which the trade was executed, the trade date, the unit value and total value of the transaction, the name and amount of securities, and whom the securities were bought from or sold to. Blotters are also required when a firm receives or delivers securities as well as receives or disburses cash.

Which of the following forms would a publicly traded corporation typically file with the SEC during its lifetime? SEC Form 1092 Form 10-K Form 8-K Form 10-Q I and III only I, II, and III only II, III, and IV only I, II, III, and IV

C Publicly traded companies disclose their annual financial reports on Form 10-K and quarterly reports on Form 10-Q. Public companies must also report certain material corporate events on a more current basis. Form 8-K is the current report companies must file with the SEC to announce major events that shareholders should be informed about. SEC Release 1092 was published by the SEC to provide guidance to investment advisers

According to Sarbanes-Oxley, a public corporation's financial statements must be certified by the corporation's: Chief auditor Chief executive officer Legal counsel Chief financial officer Compliance officer I only I and II only II and IV only II, III, and V only

C Sarbanes-Oxley is a federal law that, among other things, requires a corporation's annual and quarterly financial reports to be certified by the CEO and CFO of the corporation

Which right is NOT granted to shareholders under the Investment Company Act of 1940? The right to approve changes to the firm's investment policy The right to approve the investment adviser's contract The right to receive real-time updates of changes in the firm's portfolio The right to vote for or elect the firm's board of directors

C Under the Investment Company Act of 1940, shareholders are not entitled to current information about the composition of the fund's portfolio. This information is considered to be proprietary and is not released in real-time. All of the other statements are true. On a semiannual basis, shareholders will receive reports which contain updated financial information about the fund as well as a list of the securities in the fund's portfolio

Which of the following statements is TRUE regarding an omitting prospectus for an investment company? Investment advisers may not omit a prospectus under any circumstances Performance data may not be included An application to invest may be included An investor must be informed that she should read the full prospectus

D Certain investment company advertising may be published even if it meets the definition of a prospectus. An omitting prospectus is an exempt investment company advertisement that only includes information available in the full prospectus (such as performance). An application to invest may not be included. The customer must be informed as to how she may obtain the actual prospectus, and that the prospectus should be read prior to investing any money. An application to receive a prospectus may be included

Under the Securities Act of 1933, with whom are nonexempt issuers required to file registration statements? FINRA Only the state in which the issuer is headquartered Only the state in which the securities will be sold SEC

D If issuers do not qualify for an exemption from the Securities Act of 1933, they are required to register with the SEC. Broker-dealers and their registered representatives file their registration statements with FINRA, while the Administrator handles all filings required under the Uniform Securities Act

According to the Investment Advisers Act of 1940, when advertising the performance of its managed accounts, an investment adviser must deduct which of the following? The management fees, but not expenses The expenses, but not the management fee The management fees and a small percentage of the expenses All management fees and expenses

D It is a violation of the Investment Company Act of 1940 to advertise a fund's performance unless it deducts all of the associated fees and expenses. By not deducting the fees or expenses, returns would be exaggerated and the advertising would be considered misleading or unethical.

According to the Uniform Securities Act, is an agent of a broker-dealer required to provide its clients with disclosure of a material public fact about an issuer? No, since the fact has already been made public and is in the news No, since the agent's broker-dealer must check the fact first and preapprove any disclosure Yes, firms must provide clients with a written disclosure of all facts for decision-making purposes Yes, as the disclosure of material facts is necessary for the client to make an informed investment decision, although the information may be public

D Material facts are the facts that investors need in order to make informed investment decisions. Agents should make a good faith effort to fully and fairly disclose all material facts during sales presentations. While it may not be possible to disclose every fact, omitting a material fact in order to make an investment appear more attractive is a violation.

According to NASAA and FINRA guidelines, the maximum that may be charged for organizational and offering expenses is: 0 10% 10.5% 15%

D The guideline for offering compensation and expenses is 10.5%. The guideline for organizational and offering expenses is 15%. Organizational costs include filing fees and marketing costs, such as printing a prospectus.

Which of the following transactions would NOT be considered exempt under the Securities Act of 1933? A private placement An intrastate offering An unsolicited brokerage transaction An initial public offering of an investment company's common stock

D With the exception of the public offering of investment company shares, all of the transactions listed are exempt from the Securities Act of 1933. Generally, when investment company shares are offered to the public, they must be registered and sold with a prospectus.