Series 65
Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include: filing a report with the SEC annually, or more frequently if required. sending semiannual reports to shareholders. notifying shareholders of changes in the portfolio as those changes occur.
A) I and III. B) I, II and III. C) II and III. D) I and II. Explanation (D) Investment companies must file reports with the SEC at least annually (more frequently if required) and send at least semiannual reports to shareholders. They are not required to notify shareholders of changes in the portfolio as they occur.
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle?
A) Tactical portfolio management B) Segment rotation C) Strategic portfolio management D) Cyclical rotation Explanation (B) Segment rotation, more commonly known as sector rotation, involves altering portfolio composition based on which sectors are poised to outperform as the business cycle is changing phases.
A corporate bond valued at $1,012.50 is shown in the Standard & Poor's Bond Guide as: A) 101.25. B) 101-4/16. C) 101-¼. D) 101-8/32.
Explanation (C) Corporate bonds are quoted as a percentage of par in eighths. The quote of 101-¼ = $1,012.50 is correct. This represents $1,010 (101% of par) + $2.50 (¼ of $10). Each point in a corporate bond is equal to $10.
If a woman turned 70 on July 16, 2011, when must the first required minimum distribution (RMD) be made from her IRA?
A) December 31, 2012. B) December 31, 2011. C) April 1, 2012. D) April 1, 2013. Explanation (D) The IRS requires that RMDs commence no later than April 1 of the year following the year that the owner turned 70-½ years old. She turned 70-½ on January 16, 2012. Therefore, distributions must commence by April 1, 2013.
An investor who resides in New York reads a newspaper ad for advisory services in a newspaper published in New Jersey. More than 80% of the newspaper's circulation is in the state of New York. According to the Uniform Securities Act, an offer has been made in:
A) New York. B) New Jersey. C) neither New Jersey nor New York. D) New Jersey and New York. Explanation (C) An offer is not made when a newspaper is circulated but not published in the state, or if it is published in the state but has more than 2/3 of its circulation outside of the state.
Which of the following debt instruments generally present the least amount of default risk? A) Municipal general obligation bonds B) Convertible senior debentures C) Municipal revenue bonds D) High-yield corporate bonds
Explanation (A) Because the full taxing power of the municipality backs a general obligation municipal bond, it will exhibit the least amount of default risk. A corporate debenture is an unsecured debt security with potentially a greater degree of risk, as is a junk or high-yield corporate bond.
Which of the following regarding the Federal Reserve is NOT correct? A) The Bank Borrowing Rate is the overnight lending rate between member banks. B) Open market operations is the process by which the Federal Reserve purchases and sells government securities in the open market. C) The Federal Reserve discount rate is the rate at which member banks can borrow funds from the Federal Reserve to meet reserve requirements. D) The reserve requirement for a member bank of the Federal Reserve is the percentage of deposit liabilities that must be held in
Explanation (A) The Fed Funds Rate is the overnight lending rate between member banks.
What risk factor is the most important to an investor in long-term debt? A) Yield to maturity. B) Purchasing power. C) Marketability. D) Coupon rates.
Explanation (B) Because debt instruments pay a nonvariable fixed percentage, an investor holding a bond paying 5% would lose purchasing power over time if inflation were tracking at 6%.
The total of the cash from operations, investing, and financing, as reported on the statement of cash flows, is: A) reported as a separate line item on the balance sheet. B) the net change in the cash position of the firm for the reporting period. C) reported as cash income on the income statement. D) an integral part of the footnotes to the balance sheet required by generally accepted accounting principles.
Explanation (B) The total of the cash from operations, investing, and financing, as reported on the statement of cash flows, is the net change in the cash position of the firm for the reporting period. The sum total, or the net change in cash, is not reported on either the balance sheet or the income statement. It is the sum total of the entries on the statement of cash flows which is a separate financial statement.
A respected analyst reports that last week's T-bill rate at 6% is lower than the rate for the preceding week and lower than the average for the past month. Which of the following is TRUE? A) The general level of interest rates is increasing. B) Investors are paying more for T-bills. C) The yield curve is inverted. D) Investors are paying less for T-bills.
Explanation (B) When the rate is lower, the price has gone up; this means investors are paying more as interest rates are going down.
Which of the following items would be found on a family balance sheet? A) Dividends and interest received B) Income taxes paid C) Spouse's engagement ring D) Annual salary
Explanation (C) A balance sheet, whether for a family or a business, shows assets and liabilities, not income and expenses. The ring is certainly an asset; the others are income or expenses.
The general rules dealing with a broker-dealer extending credit for a customer to purchase securities are found in Regulation T of the Federal Reserve Board. However, Regulation T does NOT address A) mixed margin accounts B) loan value of securities C) maintenance margin D) initial margin requirements
Explanation (C) Maintenance margin levels are set by the SROs.
Under the Uniform Securities Act, which of the following statements regarding private placements is TRUE? A) A prospectus must be provided before the offering. B) Being an exempt transaction, the antifraud provisions do not apply. C) The security that is the subject of the private placement need not be registered. D) The offering must be made to fewer than 15 noninstitutional persons.
Explanation (C) Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly. Such transactions are exempt from registration requirements. The fraud provisions apply to any person involved with the purchase or sale of a security, whether registered or exempt, and the prospectus delivery requirements apply to registered securities. Please note that when it comes to institutional clients, there are no numerical limitations on offers, no required holding period, and no restrictions on payment of commissions.
A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable? A) ETNs B) ETFs C) Insured bank CDs D) Treasury bonds
Explanation (C) The question describes an individual with a low risk tolerance, so the Treasury bonds and CDs would certainly be considered appropriate. Because ETNs are a debt security backed solely by a single issuer while an ETF based on a specific index of debt securities represents a large group of issuers, they are only suitable for those who can understand and take the risks involved.
Under the Uniform Securities Act, which of the following is (are) excluded from the definition of an investment adviser when providing investment advice solely incidental to the business? Lawyer. Accountant. Engineer. Teacher.
A) I and III. B) I, II and IV. C)I, II, III and IV. D) II and IV. Explanation (C) Certain professionals are excluded from the definition of an investment adviser if the advice provided is incidental to the practice of their profession and no additional compensation is charged for the advice. Lawyers, accountants, engineers and teachers are excluded. This is best remembered through the acronym LATE. An Administrator has the power to exclude any person from the definition.
Under the USA, if an agent in New York calls a prospective client in Ohio recommending the purchase of a listed security, the Administrators of which state(s) has (have) jurisdiction? A) Both New York and Ohio. B) Neither state until a transaction takes place. C) New York. D) Ohio.
Explanation (A) Administrators have jurisdiction over offers made in the originating state (New York), the state to which the offer is directed (Ohio), and the state in which the offer is accepted.
A) the managing underwriter of the issuer. B) the chief executive officer of the issuer. C) a majority of the members of the board of directors. D) the chief financial officer of the issuer.
Explanation (A) The registration statement, which is an issuer document, must be signed by members of the board as well as by the CEO and the CFO. It is also signed by the lawyers and accountants representing the issuer who express their opinions on the legal and accounting aspects of the proposed new issue.
Under the Uniform Securities Act, an investment adviser would be exempt from registration in a state in which he has no place of business if he: A) is registered as a broker-dealer. B) had no more than 5 clients in that state within the past 12 months. C) had no more than 10 clients in that state within the past 12 months. D) had no more than 15 clients in that state within the past 12 months.
Explanation (B) An adviser who had no more than 5 clients in a state within the prior 12-month period or deals exclusively with institutions is not required to register in a state in which he has no place of business.
A portfolio that maximizes an investor's preferences with respect to return and risk is called A) an uncorrelated portfolio B) a diversified portfolio C) the efficient frontier D) an optimal portfolio
Explanation (D) An optimal portfolio will generally lie on the efficient frontier (which is a graph, not a portfolio). The special nature of an optimal portfolio is that it may not always be the most efficient portfolio (offering the greatest return for the least risk) because it takes into consideration the specific preferences of the individual investor, which might create a bias.
Under the USA, agent registrations expire: A) 3 years after the effective date. B) 365 days after the effective date. C) 2 years after the effective date. D) each year on December 31.
Explanation (D) Every agent, broker-dealer, investment adviser, and investment adviser representative registration expires each year on December 31.
With regard to the powers of the Administrator, which of the following statements are NOT correct? The Administrator must seek an injunction to issue a cease and desist order. The USA requires an Administrator conduct a full hearing, public or private, prior to issuing a cease and desist order. The USA grants the Administrator the power to issue injunctions to force compliance with the provisions of the act.
A) I and III. B) II and III. C) I and II. D) I, II and III Explanation (D) The Administrator need not seek an injunction to issue a cease and desist order. The Administrator can seek an injunction from a court. The USA does not require that an Administrator conduct a public or private hearing prior to issuing a cease and desist order. When time does not permit, the Administrator may issue a cease and desist prior to a hearing to prevent a pending violation. The USA does not grant the Administrator the power to issue injunctions to force compliance with the act. The act permits the Administrator to issue cease and desist orders and, if they do not work, to seek an injunction from a court of competent jurisdiction. A cease and desist order is an administrative order whereas an injunction is a judicial order.
Under the Uniform Securities Act, an investment adviser who has custody of client securities or funds must do which of the following? Notify the Administrator in writing. Have client funds and securities examined at least once a year by an independent public accountant on a surprise basis. If not held by a qualified custodian, deposit client funds into one or more bank accounts, not commingled with adviser funds, and notify the clients in writing of where and in what manner the funds are held. Send clients semiannual, itemized statements detailing the funds and securities in the adviser's custody at the end of the period and all transactions during the period.
A) I, II, III and IV. B) I, III and IV. C) I, II and III. D) I only. Explanation (C) The adviser must send clients quarterly, itemized statements listing the funds and securities in the adviser's custody at the end of the period and all transactions during the period. Unless using a qualified custodian, the adviser must deposit client funds into one or more bank accounts, not commingled with adviser funds, and notify the clients in writing of where and in what manner the funds are held. The adviser must also arrange for an annual, surprise audit by an independent public accountant of client funds and securities. The adviser must notify the Administrator that the adviser has or may have custody of client securities or funds.
An investment adviser runs an advertisement in the business section of the local newspaper. The ad describes the nature of the firm's model portfolio and indicates that it has outperformed the overall market by 800% over the past ten years, and the firm therefore guarantees that clients will more than keep pace with inflation. At the bottom of the ad, in smaller print, is the following statement: "Results are not guaranteed. Past performance is not indicative of future results. These results are not normal and cannot be expected to be repeated." This is an example of:
A) a properly worded disclaimer. B) an improper hedge clause. C) a wrap fee account. D) a violation of an investment adviser's fiduciary responsibility. Explanation (B) Hedge clauses may not be used to disclaim statements that are inherently misleading.
The Administrator may deny an application for registration as an agent if: the applicant has been convicted of a misdemeanor involving securities fraud within the past 120 months. the applicant is insolvent. the applicant has been convicted of a felony within 10 years of the date of application. the applicant has filed an incomplete application
A)I and IV. B)I and III. C)I, II, III and IV. D)I, III and IV. Explanation (C) A record of any felony conviction or misdemeanors involving securities fraud during the last 10 years is sufficient grounds for the Administrator to deny an application for registration in the securities industry. Insolvency and failure to file a complete application are also grounds for denial.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following must be included in an advisory contract? Whether the contract grants discretionary power to the adviser. The term of the contract. A clause preventing assignment without consent. The formula used for computing the fee.
A)I, II, III and IV. B) I, II and IV. C) I and II. D) II only. Explanation (A) Written advisory contracts must disclose services provided; the term of the contract; the amount of the fee or the formula used to compute it; the amount of fee to be refunded, if any, if the advisory fee is prepaid and the contract is terminated; provisions as to whether the adviser has discretionary authority and to what extent; and provisions requiring consent of the client to assign the contract.
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) Registration by publication. C) Qualification. D) Notice filing.
Explanation (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).
The Uniform Securities Act invests a great deal of power in the Administrator. These powers include all of the following EXCEPT A) waiving the requirement to take the licensing exam due to prior experience B) issuing a cease and desist order C) citing a witness for contempt of court for failing to appear at a hearing D) issuing a subpoena for a witness to appear at a hearing
Explanation (C) Only an official of the court (such as a judge) can find someone in contempt of court.
Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan and, after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral A) only Susan would have to make disclosure to Amanda B) she would have to obtain Mary's permission first C) both Susan and Mary would have to disclose the cash payment to Amanda D) she would be engaging in an prohibited practice
Explanation (D) Although there are circumstances under which cash payments may be made to solicitors, none of the required conditions found in the Investment Advisers Act of 1940 appear to be met here. A formal written agreement must be in effect, not just a one-time reward.
Which of the following bonds is most affected by interest rate risk? A) 7.5s of '24 yielding 7.2%. B) 7s of '22 yielding 7%. C) 7.8s of '27 yielding 7.3%. D) 7.6s of '31 yielding 7.2%.
Explanation (D) Interest rate risk is the loss in value due to a rise in interest rates. Since there is little difference in coupon rates, the bond with the longest maturity (highest duration) will experience the greatest fall in a rising interest rate market.
Because a trust account is managed for the beneficial interest of the beneficiary, the investment adviser representative can: A) place the securities in the trust fund in a noncustodial brokerage account. B) arrange to have the trust's funds pledged to support a loan for the trustee. C)have funds withdrawn from the account at the direction of the beneficiary. D)have a check drawn on the account payable to the trustee for expenses.
Explanation (D) The trustee can be reimbursed for expenses that are reasonable. A trust account must be managed by the trustee and not by the beneficiary. Only the trustee can withdraw funds, provided the withdrawal is done in a manner consistent with the trust document. Trust funds must be placed in custodial or trust accounts, not in noncustodial accounts.
Which of the following statements is TRUE regarding the civil liability provisions of the Securities Act of 1933? A) Purchasers may waive their rights to suit under the civil liability provisions if done so by the purchase contract. B) The statute of limitations for civil suits is three years from the date of discovery. C) Only those who actually signed the registration statement are exposed to potential liability. D) If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied.
Explanation (D) Under federal law, civil suits must be filed within one year of the date of discovery of the improper action or three years after the sale, whichever comes sooner. Purchasers may not waive their rights under the act for any provision. Although those who signed are liable, there is a list of others who also might be, including members of the board of directors, legal counsel, accountants, etc.
A fiduciary, acting in accordance with the UPIA, would choose investments on the basis of all of the following EXCEPT: A) general economic conditions. B) other resources of the beneficiaries. C) needs for liquidity, regularity of income, and preservation or appreciation of capital. D) transaction costs.
Explanation (D) Under the Uniform Prudent Investor Act, transaction costs are not a primary factor in a trustee's determination of which investments to choose for the trust. They may be a factor in determining where to execute the transactions. The key for the prudent investor is to use skill and caution examining all of the factors involved to meet the stated objectives.
Under the Investment Advisers Act of 1940, which of the following are exempt from the requirements for registration? Foreign investment advisers with fewer than 15 clients per year who do not hold themselves out as investment advisers to the public and have less than $25 million in AUM in the United States. Investment advisers who conduct all of their business in 1 state and who do not provide advice on securities listed on an exchange and have no private funds as clients. Investment advisers whose only clients are banks.
A) I only. B) II only. C) I and II. D)I, II and III. Explanation (C) 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 U.S. There is no exclusion for advisers whose only clients are banks.
Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered A) adoption B) estrangement C) entanglement D) fulfillment
Explanation (A) A firm will be responsible for the content of a linked third-party site if the firm "adopts" its content on any of the firm's sites. Adoption is defined as a firm's endorsement of the content of a third-party site. This is not illegal, but the firm is responsible for the content of the linked information and must be sure that it complies with the firm's policies. Entanglement is adoption taken one step further. This is when the firm (or one of its representatives) contributes to the third-party information and then posts it.
Annuity companies offer a variety of purchase options to owners. Which of the following definitions regarding these annuity options is NOT true? A) A single premium deferred annuity is a lump sum investment, with payment of benefits deferred until the annuitant elects to receive them. B) An accumulation annuity allows the investor to accumulate funds in a separate account prior to investment in an annuity. C) A periodic payment deferred annuity allows a person to make periodic payments over time; the contract holder can invest money on a monthly, quarterly, or annual basis. D) An immediate annuity allows an investor to deposit a lump sum with the insurance company; payout of the annuitant's benefits starts immediately (usually within 60 days).
Explanation (B) Accumulation does not refer to a purchase option. The pay-in period for an annuity is known as the accumulation stage. A single premium deferred annuity is an annuity with a lump-sum investment, with payment of benefits deferred until the annuitant elects to receive them. Periodic payment deferred annuities allow a person to make periodic payments over time. Immediate annuities allow an investor to deposit a lump sum with the insurance company payout of the annuitant's benefits starting immediately (usually within 60 days).
Which of the following are true of Ginnie Maes but NOT of CMOs? A) Collateralized by mortgages. B) Backed by the full faith and credit of the U.S. government. C) Yield more than T-bonds. D) Are pass-through securities.
Explanation (B) CMOs are not backed by the full faith and credit of the U.S. government. However, both Ginnie Maes and CMOs are collateralized by mortgages, yield more than T-bonds, and are pass-through securities.
Which of the following statements concerning transactions exempt from registration under the Uniform Securities Act is TRUE? A) An unregistered, nonexempt security may be lawfully sold in a nonexempt transaction. B) The antifraud provisions of the Uniform Securities Act apply to exempt transactions. C) The Administrator may require that a security be registered and a prospectus delivered in an exempt transaction. D) A security sold under an exempt transaction must be registered.
Explanation (B) The antifraud provisions of the act are always applicable, even if the securities or the transaction are exempt from the registration provisions of the act. Fraud is a crime, and no criminal acts are exempt from the law. If a security is nonexempt, it is required to be registered before sale. The term "exempt transaction" means that a determination of whether the security is registered or is exempt from registration is not necessary to do the transaction. Exempt transactions avoid the necessity of registration and prospectus delivery.
Under the Uniform Securities Act, an agent registered in one state may transact business in another state in which he is not registered with which of the following? An existing client visiting the state for a 2-week period. An existing client who moved to the state 6 months ago. An existing client who moved to the state less than 30 days prior. An acquaintance from another state who requests that the agent execute transactions on his behalf A) I and IV. B) II and IV. C) I and III. D) II and III.
Explanation (C) An agent may conduct business in a state in which he is not registered if an existing client is visiting in that state or if the client has moved to the state within the past 30 days.
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? A) He pays federal estate taxes on the entire balance. B) He pays federal estate taxes only on the amount that exceeds the estate tax credit. C) He pays no estate tax. D) He pays federal estate taxes on $12.5 million.
Explanation (C) Establishing a joint tenants with right of survivorship account allows for the transfer of assets to the survivor upon death. The surviving spouse is not taxed on assets transferred in this manner because under current tax law, there is an unlimited marital deduction.
Under the Uniform Securities Act, which of the following statements about federal covered securities is NOT true? A) The issuer of a federal covered security may be required to pay fees to the states. B) A security issued by an investment company registered under the Investment Company Act of 1940 is a federal covered security. C) Federal covered securities must be registered with the states. D) Federal covered securities include securities sold under Regulation D of the Securities Act of 1933.
Explanation (C) Federal covered securities are not required to be registered with the states, but issuers of federal covered securities may be required to pay fees to the states (notice filing). Private placements (Regulation D) and investment companies both describe types of federal covered securities.
Under the Investment Advisers Act of 1940, an adviser's registration usually becomes effective how many days after it is filed? A) 10 days. B) 20 days. C) 45 days. D) 30 days.
Explanation (C) In the absence of any denial order or pending proceedings, registrations of federal covered investment advisers (and broker-dealers) will become effective on the 45th calendar day after the date of filing (the date received in the SEC's office). The SEC may specify an earlier date.
The formula for computing the combined equity in a mixed margin account is A) debit balance in the long account, plus the credit balance in the short account, minus the current market value of the long and short positions B) current market value of the long positions, minus the credit balance in the short account, minus the debit balance in the long account, plus the current market value of the short positions C) current market value of the long positions, plus the credit balance in the short account, minus the current market value of the short positions, minus the debit balance in the long account D) credit balance in the short account, minus the current market value of the long positions, plus the current market value of the short positions, minus the debit balance in the long account
Explanation (C) This computation is basically subtracting what you "owe" from what you "own". You own the long stock and, just like with your credit card accounts, a credit balance is yours. You owe the debit balance in the long account and, because you must replace the borrowed stock in a short account, you "owe" the current market value it would cost to buy those shares back.
An applicant for registration as an IAR in this state was convicted 4 years ago of a nonfinancially 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) treat the crime as any felony. B) censure the investment adviser for even thinking of employing this individual. C) treat the crime as a nonfinancial felony. D) treat the crime as a nonfinancial misdemeanor.
Explanation (D) Even though the crime is a felony in the state where registration is being sought, the applicant's record shows a misdemeanor and, therefore, this individual would not be subject to statutory disqualification.
A professional tennis player seeking advice regarding the purchase of life insurance would like to avoid inclusion in her taxable estate at death, and would like the death proceeds to be income tax free to her beneficiary 9-year-old daughter. What do you suggest? A) Purchase the policy herself so that she will get the insurance. Then have her gift the policy and the premiums needed to pay for it to her daughter until she turns 19. B) Purchase the policy herself and gift the policy to an irrevocable trust (with her daughter as beneficiary) at least 3 years after purchase. C) Purchase the policy herself and sell it to her daughter at a price the daughter can afford when she is over 19 years old. D) Use an Irrevocable Life Insurance trust (ILIT) to purchase the policy. She will gift the premiums to the trust.
Explanation (D) Only an ILIT can provide the features which she desires. A direct purchase will subject the proceeds to inclusion in the gross estate if she transfers or gifts the policy to the daughter within three years before she dies. A sale will trigger transfer for value rules and subject the beneficiary to income tax on the proceeds upon the death of the insured.
Universal variable life policies: have investment risk that is assumed by the investor. do not have a separate account. guarantee the minimum face amount with the opportunity for increases based upon the performance of the separate account. are purchased primarily for their insurance features. A) I and II. B) III and IV. C) II and III. D) I and IV.
Explanation (D) Universal variable life policies are insurance company products that should be purchased primarily for the insurance features they offer rather than as an investment. Because they have a separate account, the investor assumes the investment risk. Unlike scheduled premium variable life, flexible premium (universal) variable life does not guarantee a minimum death benefit equal to the face amount of the policy.
Under the Investment Advisers Act of 1940, it is legal for an investment adviser to: rebate the commission on a mutual fund sale to a client who has already paid a fee for investment advice. keep the commission on a mutual fund sale when the client who purchased the shares has already paid for investment advice. reduce a client's advisory fee by any commissions earned on mutual fund sales to that client.
A) I, II and III. B) I and II. C) II and III. D) I and III. Explanation (C) Rebating commissions on mutual fund sales is prohibited. However, because mutual fund commission are not negotiable (as are secondary market transactions), the adviser may reduce the client's advisory fee by the commission or, with appropriate disclosure, keep the commission.
A securities trade is made. Under normal circumstances, all of the following would be noted on the order ticket EXCEPT: A) the name of the individual who transmitted the order. B) the account number. C) the registered agent who accepted the order. D) the time stamp of the time of order submission.
Explanation (A) Transmitting an order is a clerical function and we don't put that on the order ticket. A typical ticket will include: the account for which the trade is being made, the registered individual placing the order for the client, time stamps for entering and execution (or cancellation), execution price, and terms and conditions of the order (market, limit, etc.).
If an investment adviser representative is engaged in criminal activity while violating a rule under the Uniform Securities Act, but had no knowledge of the rule violated, the maximum penalty that may be imposed is a: A) $5,000 fine. B) $5,000 fine and 3 years in prison. C) 3 years in prison and a fine of 3 times the amount of the loss. D) $10,000 fine and 2 years in prison.
Explanation (A) The maximum penalty for criminal violations is $5,000 and/or 3 years imprisonment. However, no prison sentence can be imposed if the person can prove he had no knowledge of the rule being violated.
An agent of a broker-dealer has a client who lost her job but will be starting a new job in three weeks. The client is in need of $900 for the three week gap. Under what circumstances may the agent arrange a loan for the client? A) If the loan is less than $1,000 B) If the client is agent's niece C) If the client has $5,000 in her brokerage account D) If the loan is repaid within 30 days
Explanation (C) Loans may be made to clients if the person making the loan is in the lending business. Broker-dealers are permitted to lend money against securities held in client's portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.
Which of these are TRUE regarding a life settlement contract? Premiums will be paid by the contract owner. Premiums will be paid by the insured. Proceeds will be paid upon the death of the contract owner. Proceeds will be paid upon the death of the insured. A) I and III B) II and IV C) II and III D) I and IV
Explanation (D) A life settlement is the secondary sale of a life insurance policy. The buyer (the new owner) is responsible for paying the premiums and, upon the death of the insured, will receive the death benefit.
Which of the following would lead to a credit to our foreign account balance? A) Interest received on money loaned to foreign business enterprises. B) Services provided by foreign companies. C) Loans made to foreign governments. D) Dividends paid on foreign investment in the U.S.
Explanation (A) Our foreign accounts balance will be credited whenever "foreign" money comes in rather than going out. Interest received from foreigners represents money coming into the U.S. while the other choices represent money going out.
If the dollar weakens, which of the following statements is TRUE? A) Foreign securities denominated in their domestic currency decrease in value to the U.S. investor. B) A rise in U.S. interest rates might strengthen the dollar. C) U.S. exports will fall. D) The dollar buys more foreign currency.
Explanation (B) If U.S. interest rates rise, foreign investors would invest in U.S. dollar-denominated securities, thereby increasing the demand for dollars and causing the dollar to strengthen.
Which of the following is not traded on any exchange? A) Forward contracts B) ETFs C) Closed-end funds D) Futures contracts
Explanation (D) Forward contracts are non-standardized and, as such, do not trade on any exchange.
Suzie McQueen has a very successful interior design shop she has run as a sole proprietorship. She has just celebrated her 60th birthday and has been giving thought to an eventual sale of the business. She wants your opinion on whether she should incorporate or change to a partnership. You might respond A) the partnership form of business structure would be the easiest for ultimate transfer of ownership B) the partnership form of business structure would enable Suzie to maximize her sale price C) the corporate form of business structure would be the least expensive to form D) the corporate form of business structure would be the easiest for ultimate transfer of ownership
Explanation (D) In general, the corporate form of business leads to the easiest transfer of ownership. Since Suzie would probably own 100% of the stock, all she would have to do is sell that stock to a new purchaser and the corporation could continue just as before. In the case of a partnership, even though Suzie would be the only partner, transfer is not as easy as with the sale of stock.
Under the Uniform Securities Act, which of the following are prohibited actions of an investment adviser? Agency cross transactions. Selling securities as a principal to an advisory client without receiving consent of the client prior to the completion of the trade. Charging a performance fee to an elderly client whose net worth is $2.2 million, with only $150,000 of that under the adviser's management. The owner of a majority of the stock of the advisory firm pledges that stock to a bank as collateral for a loan. No notice is sent to clients as this is an operating decision, not one dealing with investment advice.
A) I and IV B) III and IV C) I and III D) II and IV Explanation (D) The USA prohibits an investment adviser from acting as principal or agent in a transaction with an advisory client without approval prior to completion (settlement) of the trade. Assignment of a majority interest in the company's stock is considered to be the same as assignment of client contracts; an action that may not be done without client acceptance. There is nothing wrong with agency cross transactions as long as disclosure is made and the trade is recommended to only one of the parties by the adviser. Performance fees may be charged, regardless of the client's age, to anyone with a net worth of at least $2.1 million or with at least $1 million under management with the firm.
Greater Wealth Managers, (GWM) is an investment adviser registered in States A, B, C, and D. They have recently hired an individual to solicit new advisory accounts for the firm. This person will not be engaged in giving advice of any kind, and all activities will be closely supervised by senior personnel of the firm. Under Section 201 of the Uniform Securities Act, A) registration as an investment adviser representative is required for this individual B) no registration is required, because this individual is not rendering investment advice C) no registration is required, because this individual is not rendering investment advice and is being closely supervised D) registration as an investment adviser representative and as an agent is required for this individual
Explanation (A) Because GWM is registered on the state level, it comes under the provisions of the Uniform Securities Act. Under the USA, the definition of investment adviser representative includes, among others, those who solicit for the services of the investment adviser. Therefore, these individuals must register as IARs.
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) coordination. B) notification. C) notice filing. D) qualification.
Explanation (A) 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.
A debt instrument, which may or may not be exchange traded, and where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index is known as A) an equity- or index-linked note (ELN or ILN) B)a bond fund C) a collateralized mortgage obligation (CMO) D) a preferred share
Explanation (A) Equity-linked notes are debt instruments where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index. Some—but not all—are exchange traded, and those that are can be referred to as exchange-traded notes (ETNs).
Which of the following types of compensation is an investment adviser prohibited from accepting? A) Quarterly fee based on account performance B) Commissions on trades effected for clients C)Annual fee as a fixed dollar amount D) Annual fee based on a percentage of assets under management
Explanation (A) Fixed annual fees, wrap fees, fees based on a percentage of assets under management, and commissions from trades effected for clients are acceptable forms of compensation. Unless the client has at least $1 million under management or a personal net worth of at least $2.1 million, performance-based fees are not permitted.
The XYZ corporation, listed on the NYSE, has 100 million shares of common stock outstanding. Warren has owned 4 million shares since 1999. If Warren were to acquire 1.1 million additional shares, which of the following statements is CORRECT? A) Schedule 13D would have to be filed within 10 business days of the transaction. B) Form 144 would have to be filed concurrent with the transaction. C) Schedule 13D would have to be filed before the end of the 2nd business day following the transaction. D) Because Warren does not own more than 10% of the outstanding shares, no form is required to be filed.
Explanation (A) Section 13(d) of the Securities Exchange Act of 1934 requires filing of a Schedule 13D within 10 business days of the transaction once a person becomes an owner of more than 5% of the outstanding voting shares of a reporting company. Section 16 of the Act requires filing within 2 business days of any transaction by a control person, which is not the case here.
A federal covered investment adviser may enter into a contract with a client that provides for performance-based compensation under all of the following conditions EXCEPT A) disclosure that the performance compensation may create an incentive for the adviser to take greater risks B) the client must meet certain minimum financial standards C) the formula used to calculate compensation includes realized capital losses and unrealized depreciation D) compensation is based on gains, less losses, for a period of no less than 1 year
Explanation (A) Since these types of compensation agreements may only be entered into with clients meeting minimum financial standards, the SEC assumes that clients understand the increased risks they are being exposed to. The minimum net worth requirement is $2.1 million, or a client is qualified if he has at least $1 million under management with the adviser. Any performance fee must take into consideration gains and losses, both realized and unrealized, and the performance period must be no less than one year. Please note - state covered investment advisers must make this "incentive" disclosure so if the question asked about them, there would be no exception.
When the securities professional is registered in his state, which of the following statements does NOT correctly reflect the power granted to the Administrator by the Uniform Securities Act? A) The Administrator may not examine the records of a broker-dealer without seeking a court order from a federal court. B) The Administrator may require examinations for investment advisers. C) The Administrator may require a broker-dealer to have a minimum net capital as a condition of registration. D) The Administrator may require financial reports from broker-dealers.
Explanation (A) The Administrator has inspection power to view all records within or outside the state as is appropriate or necessary in the public interest, without seeking court approval Administrators may require minimum capitalization as a condition of registration. The Uniform Securities Act states that the Administrator may, by rule, provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants. As a practical matter, an oral examination would apply to the business entity (broker-dealer or investment adviser) while written examinations are taken by agents and investment adviser representatives. The Administrator is also given the authority by the act to require the filing of financial reports regarding the net worth of the firm.
An Administrator has specific authority under the USA to: suspend the registration of a security if the suspension is in the public interest and the offering has excessive underwriting fees. issue emergency injunctions to prevent a violation of the act. enforce subpoenas in the state at request of an Administrator of another state for alleged violations that occurred in another state. require that the proceeds from an offering be held in escrow until issuer receives a certain percentage of the sale of the securities offered. A) I, III and IV. B) II and III. C) I only. D) I, II and IV.
Explanation (A) The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive fees or commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.
One of your annuity clients contacts you for some information. The client recently saw a presentation touting the benefits of variable life insurance and wants to know how that product is similar to the variable annuity in his portfolio. You could respond that both products A) offer a choice of separate account subaccounts B) permit withdrawal of cash value without any surrender charges C) require passing a physical examination before issuance D) provide a death benefit with proceeds free of income tax to the beneficiary
Explanation (A) The one similarity between these two variable contracts offered by life insurance companies is that money is deposited into a separate account. This separate account will generally have a number of subaccounts with different risk profiles in order to meet the client's objectives. Only the life policy will provide tax-free benefits at death; the death benefit of the VA is subject to income tax. Withdrawl of cash value without a surrender charge only applies to VL, not a VA, and only the VL policy requires a physical exam.
Among the ways in which UGMA accounts differ from UTMA accounts is that: A) the transfer of assets in a UTMA account can be deferred until the beneficial owner reaches as late as age 25; in a UGMA account, assets are transferred when the minor reaches the age of majority. B) there is no difference between the accounts. C) UGMA accounts transfer the assets of a deceased minor into the account of the custodian, while UTMA accounts retain the deceased minor's assets until the minor would have reached age 25. D) gifts given under UGMA are irrevocable, while UTMA accounts allow the transfer of assets in and out of the account at the custodian's discretion.
Explanation (A) Unlike UGMA accounts where the assets are always transferred when the minor reaches the age of majority in that state, UTMA accounts may extend the transfer period first established by the Uniform Gift to Minors Act to as late as age 25. In neither case are the gifts revocable and, upon death of the minor, assets in either account go to the deceased's estate.
When a will calls for property to be distributed per stirpes, it means that A) the property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants B) all living descendants of the ancestor receive equal shares in the property remaining after all estate expenses are paid C) the property is divided into as many equal shares as there are surviving children of the designated ancestor, with nothing going to surviving descendants of deceased children D) the property is divided into as many equal shares as there are surviving children and grandchildren of the designated ancestor
Explanation (A) When a will calls for a per stirpes distribution of assets, it provides that if any named beneficiary predeceases the testator (the maker of the will), surviving children of that individual share in the share that the individual would have received. For example, if the testator had three children and one of them died first, any children of the deceased would share in their parent's portion (they would split one-third of the estate between them).
Peter Smith, a prominent securities lawyer living in Connecticut, conducts his securities law practice full time in New York state. He must register as an investment adviser in New York state if: A) he advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high. B) Smith's clients, none of whom are residents of New York, receive investment advice as an integral part of Smith's legal services. C) the clients of Smith's law firm are all residents of Connecticut but conduct their business with Smith in New York. D) the clients of Smith's law firm are New York residents and seek advice on the construction of trust documents that may be helpful in reducing taxes on the securities in their estates.
Explanation (B) Smith must register as an investment adviser in New York when or if he is offering investment advice as an integral part of his practice. Since his place of business is in New York, he must register in New York as an investment adviser, even though his clients are not themselves residents of the state. If Mr. Smith advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high, he need not register in New York because he is not charging his wife a fee for investment advice. Mr. Smith, as a securities lawyer, need not register in New York as an investment adviser when he advises clients on the construction of trust documents.
Under the USA, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the U.S. government is: A) required to be a registered agent in the state. B) not required to be a registered investment adviser in the state. C) required to be a registered investment adviser in the state. D) required to be a registered investment adviser representative in the state.
Explanation (B) This question is referring to a federal covered adviser. The futures contracts are not securities, but, of course, the U.S. government securities are. However, the Investment Advisers Act of 1940 specifically excludes from the definition of "investment adviser" a person whose securities advice is confined to securities issued or guaranteed by the Treasury. The fact that this person is excluded under the Investment Advisers Act of 1940 makes that person federal covered under the NSMIA and not subject to state regulation as an investment adviser.
Which of the following are exempt transactions as defined in the Uniform Securities Act? An agent sells a security issued by a foreign government with which the United States has diplomatic relations to an individual client. An agent fills a buy order based upon an unsolicited request from an existing client to purchase a nonexempt security. The sale of an unregistered nonexempt security in a private, nonpublicly advertised transaction to 14 noninstitutional investors over a period not exceeding 12 months. The sale of unlisted securities by a trustee in bankruptcy. A) III and IV. B) II and IV. C) I and III. D) I and II.
Explanation (B) Unsolicited customer orders, regardless of the type of security involved, are always exempt transactions as are sales by fiduciaries. The private placement exemption is limited to 10-noninstitutional offerees, so 14 purchasers would certainly be over the limit. While a security issued by a foreign government with which we have diplomatic relations is an exempt security, a solicited sale by an agent to an individual client is not an exempt transaction.
In 1987, the SEC promulgated release IA-1092. One of the significant effects of the release was to expand the definition of investment adviser to include some financial planners. However, a financial planner would not be considered an investment adviser when: A) he does financial planning as part of offering a wrap fee program as a licensed agent of a broker-dealer. B) he is a licensed insurance agent and credits the commission earned on the sale of insurance policies included in a comprehensive financial plan against the fee charged for the plan. C) the extent of his planning is limited to wills, estates and trust creation. D) there is an upfront fee charged for creating a comprehensive financial plan, even when the plan is not put into place.
Explanation (C) Wills, estates and trusts are not securities so any advice given on them does not make one an investment adviser. Look for the term "comprehensive financial plan" because that always includes securities advice and, as long as a fee is charged, even when the advice is not followed, registration as an IA (or perhaps IAR) is required. Wrap fee programs may only be offered by IAs or IARs.
An investor goes short 5 soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires, A) only the buyer is obligated to perform B) only the Exchange is obligated to perform C) both the buyer and seller are obligated to perform D) only the seller is obligated to perform
Explanation (C) Among the ways in which futures differ from options is that both parties, long and short, are obligated to execute the contract. At expiration date, if not exercised before, the buyer must purchase at the contract price and the seller must deliver at the contract price. In the case of options, the buyer (long position) is the one who chooses to exercise or not, and it is the seller (short position) who becomes obligated to perform.
The agreement that the Administrator can receive subpoenas on behalf of a registered agent, broker-dealer, or investment adviser involved in any securities sale that violates the Uniform Securities Act is the: A) right of retribution. B) agreement to actionable offenses. C) consent to service of process. D) right of rescission.
Explanation (C) Every applicant for registration and every issuer must file an irrevocable consent to service of process appointing the Administrator as attorney to receive service of any lawful process in any civil suit, action, or proceeding. It has the same legal effect as if the person had been served personally.
An employee is offered a non-qualified 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: A) has a capital gain of $10 per share. B) is taxed on $20 per share as if it were salary. C) is taxed on $10 per share as if it were salary. D) is taxed on $30 per share as if it were salary.
Explanation (C) In the case of NSOs, the difference between the exercise (or strike) price and the current market value is considered salary to the employee.
Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? An office from which the representative regularly provides advisory services to clients. A location published in a professional directory, indicated on business cards, or telephone book listing that identifies it as a place where the representative will be available to meet or communicate with clients. A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business at that site. A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business. A) I and II. B) I only. C) I, II and III. D) I, II, III and IV.
Explanation (C) The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, or any other location held out to the public as a location where the representative will do any of these activities. The frequency of use is not a factor. Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. A hotel room is not included when it is not advertised and only used with existing clients, presumably when the adviser is traveling through their state.
Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange: A) for ten days, in its discretion. B) under no circumstances. C) only with prior notification to the President of the United States. D) only if it has cause to believe that such suspension is necessary to prevent criminal violations that are about to occur on the exchange.
Explanation (C) To suspend all trading on an exchange, the SEC must first notify the President of the United States. The SEC may summarily suspend trading in any nonexempt security for up to 10 days without prior notice.
In May, an investor purchased a futures contract to purchase 5,000 bushels of wheat at $4.30 per bushel for December delivery. On settlement date, the spot price of wheat is $4.20 per bushel. For the investor, this A) contract should be left to expire B) represents a successful hedge C) represents a loss of $500 D) represents a loss of $50
Explanation (C) Unlike options, both parties to a futures contract are obligated to perform. That is, the buyer must accept delivery of the contract (in this case, 5,000 bushels of wheat). In practical matters, instead of having a truck show up at the door, the wheat would be sold at its spot price to a user. Therefore, the investor would lose 10 cents per bushel which, on 5,000 bushels, is $500. It was the seller of the contract who had a successful hedge because, instead of having to sell at the $4.20 spot price, the wheat is sold at the strike price of $4.30.
According to North American Securities Administrators Association's (NASAA) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is NOT unethical? A) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares. B) An agent sold shares at a price less than authorized by a client. C) Within the first ten days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client. D) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority.
Explanation (D) An agent of a broker-dealer may exercise discretion in deciding the time or the price at which a sale takes place during the trading day without express written discretionary authority. Such action is not unethical because time and price are not considered true discretion. An agent may not exercise discretion over the number of shares to be sold without prior written discretionary authority. Oral discretion is only permitted for investment advisers and their representatives, (never broker-dealers or agents), during the first 10 business days after the initial discretionary transaction in the account.
All of the following statements regarding the disclosure investment adviser brochure rule of the Uniform Securities Act are true EXCEPT: A) the disclosure brochure must be delivered no later than 48 hours before entering into an advisory contract for there to be no requirement to offer a 5-day refund right. B) the brochure rule permits advisers to deliver the disclosure brochure when the client enters the contract, providing the client is allowed to cancel the contract without penalty within 5 business days. C) the disclosure brochure must contain essentially the same information as is contained in Form ADV, Part 2A and, if applicable Part 2B. D) the disclosure brochure must be signed by an officer or partner of the firm.
Explanation (D) An officer or partner of the firm need not sign the disclosure brochure. The investment adviser's disclosure brochure must contain the relevant information from Form ADV Part 2A and, for those where it applies, Part 2B. The rule does permit advisers to deliver the brochure when the client enters the contract, providing the client is allowed to cancel the contract without penalty within 5 business days; otherwise, the brochure must be delivered no later than 48 hours before entering into an advisory contract.
Which of the following statements describes a person who provides investment advice on a regular basis but does not charge fees, yet would be considered an adviser under Release IA-1092? A) A wealthy college professor who gives free lectures on sound investment practices and makes specific securities recommendations based on a quantitative model he has developed. B) The Secretary of the U.S. Treasury who, as part of his official duties, comments on conditions in the financial markets and their future investment implications. C) A retired chief investment officer of a well-known investment management company who, without compensation, writes a column in a general circulation newspaper commenting on the value of investing in equity securities; many readers find his advice useful and become clients of his former investment management company. D) A financial planner who sold his business and spends his time consulting with pension plans on whether to retain or hire new investment managers based on their performance. He does not charge fees; however, those managers retained as a result of his recommendations routinely provide him with noncash benefits such as vacations, computers, and office space.
Explanation (D) If an individual is in the business of providing advice and receives any economic benefit, such benefit is considered compensation under Release IA-1092. Since the financial planner is in the business of giving advice to pension plans, actually provides that advice, and is compensated for it, he meets all 3 elements in the definition of an adviser. The noncash benefit, as in this case, need not come directly from the beneficiary of the services to be considered compensation. The college professor, the chief investment officer, and the Secretary of the Treasury do not receive separate compensation, nor are they in the business of providing investment advice.
Which of the following statements regarding REITs are NOT true? Investors receive flow-through benefits of income as well as loss. Hybrid REITs own properties as well as making loans on others. Equity REITs are prohibited from using leverage to acquire properties. REITs are easily traded in the secondary market. A) I and IV B) II and III C) II and IV D) I and III
Explanation (D) It is not true that REITs offer flow-through of losses; they are not DPPs. As with most real estate purchasers, leverage, usually in the form of a mortgage, is used to acquire property. A hybrid REIT contains the features of both an equity REIT and a mortgage (debt) REIT, and most REITs trade on the exchanges or Nasdaq. Note: Even though there has been an increase in the number of non-traded REITS, unless something in the question indicates that, the question will be dealing with publicly traded REITS.
Jack, who is proficient in both fundamental and technical analysis, would like to become an investment adviser. Although Jack is fairly new to the securities business, he worked in the commodities business for many years. Five years ago, Jack's Commodity Pool Operator's license was suspended by the Commodity Futures Trading Commission for having willfully violated or willfully failing to comply with any provision of the Commodity Exchange Act. Which of the following best describes how Jack's application to open an investment advisory business will be handled under the Investment Advisers Act of 1940? A) Jack's application will likely be accepted because he has not violated any securities law. B) Jack's application will likely be denied because he has little experience in the securities industry. C) Jack's application will likely be accepted because his violation of investment-oriented regulations occurred 5 years prior to his application. D) Jack's application will likely be denied because he violated the Commodity Exchange Act within the 10-year period prior to his application.
Explanation (D) Jack's application will probably be denied because he was found guilty of violating the Commodity Exchange Act within the 10-year period prior to his application. Registration as an investment adviser will be denied to any party that has been convicted, within the 10-year period prior to application, of a violation of federal securities acts or the Commodity Exchange Act. Such statutory denial will also impact those enjoined under domestic or foreign court orders from engaging in the business of investing, presuming such orders were made in the 10-year period prior to the application date.
