STC SERIES 66 EXAMS SCRIPT UPDATED QUESTIONS AND
ANSWERS GRADED A+
✔✔Closed-End fund - ✔✔Usually do a one-time issuance of common shares.
-May issue preferred stock or bonds.
Shares may trade at a discount or premium to NAV (based on supply/demand) with a
commission or markup added.
Sponsor does not stand ready to redeem shares.
Shares trade in secondary market.
May be sold short.
✔✔Trust - ✔✔A legal arrangement in which an individual (creator) gives fiduciary
control of property to a person or institution (trustee) for the benefit of beneficiaries.
- Creator = Grantor, Donor, Trustor, Settlor, or Maker
✔✔Investment Company Act of 1940 - ✔✔Created to reduce abuses in the sales of
investment company securities.
Assures investors receive adequate and truthful information.
Three types of investment companies:
-Face Amount Certificate Companies.
-Unit Investment Trusts (UITs)
-Management Companies (two types)
*Open-End (mutual funds)
*Closed-End
✔✔The Investment Company Act of 1940 Identified 3 types of investment companies.
What are they? - ✔✔Face amount certificates, unit investment trusts, and management
companies (open- and closed-end).
✔✔What are the Rules and Regulations for the Investment Company Act of 1940? -
✔✔Companies with more than 100 shareholders must register with the SEC.
Company must have a minimum net worth of $100,000 before offering shares publicly.
To change fund objectives, a majority vote of shares is required.
Certain communication related to investment company securities may be distributed
prior to prospectus delivery, provided the full prospectus is offered (Omitting Prospectus
Rule).
✔✔What is a common use for a bypass trust? - ✔✔To pass assets from the 2nd
deceased parent to his children.
,✔✔What is not accountable to the SEC according to the Act of 1934? - ✔✔National
Banks, as they are not regulated by the SEC.
✔✔State (USA) Exemptions from IA Registration - ✔✔Adviser has no place of business
in the state AND
Institutional Exemption: Its only clients are specific institutional investors, OR
De Minimus Exemption: No more than 5 individual clients in a 12-month period who are
residents of the state.
✔✔Federal (IA Act of 1940) Exemptions from IA Registration - ✔✔Intrastate Advisers:
All clients are residents of the state where the adviser's office is located and it does not
provide advice on exchange-listed securities.
Advisers to Insurance Companies: All clients are insurance companies.
Private Fund Advisers: Provide advice to private funds (e.g., hedge funds) that have
less than $150 million in AUM in the U.S.
Venture Capital Advisers: Solely provide advice to one or more venture capital funds.
Foreign Private Advisers: Have no place of business in the U.S., have fewer than 15
U.S. clients in its private funds, and have less than $25 million in AUM attributable to the
U.S. clients.
✔✔Federal Covered Advisers (FCA): What has changed for Assets? - ✔✔Rules prior to
2012: Advisers managing over $30 million in assets.
Now under Dodd-Frank: Advisers managing over $100 million in assets.
✔✔Federal Covered Advisers (FCA): What has changed for States Covered? -
✔✔Rules prior to 2012: Advisers providing advice in 30 or more states.
Now under Dodd-Frank: Advisers providing advice in 15 or more states.
✔✔Federal Covered Advisers (FCA): What has changed for Employee Benefit Plan
Size? - ✔✔Rules prior to 2012: Pension consultants to plans with at least $50 million in
assets.
Now under Dodd-Frank: Pension consultants to plans with at least $200 million in
assets.
✔✔Federal Covered Advisers (FCA): What FCA standards remain the same? -
✔✔Advisers to registered investment companies regardless of the amount of assets
under management.
Advisers not regulated as IAs in the state in which the have their principal office.
, Newly-formed advisers who believe they will be eligible for federal registration within
120 days.
✔✔Exclusions from the State (USA) IA Definition - ✔✔1. Banks, savings institutions,
trust companies (NOT bank holding co.)
2. Professionals giving incidental advice (L.A.T.E.)
3. B/Ds and their agents.
4. Publishers of newspapers or periodicals (no timed/tailored advice)
5. Investment Adviser Representatives.
6. Federal Covered Advisers.
7. Any other person designated by Administrator.
✔✔Exclusions from the Federal (IA Act of '40) IA Definition - ✔✔1. Banks or bank
holding companies (NOT S&Ls or IA subsidiaries of banks).
2. Professionals giving incidental advice (L.A.T.E.)
3. B/Ds and their representatives.
4. Publishers of regular and general circulation publications.
5. U.S. Government Securities Advisers.
6. Any other person designated by SEC.
✔✔Account Documents: Durable Power of Attorney - ✔✔Allows an individual to
designate another person to act on her behalf even if she becomes disabled or
incapacitated.
✔✔Account Documents: Stock Power - ✔✔Power of attorney enabling a person other
than the owner to transfer stock ownership to another party.
✔✔Account Documents: Third Party Trading Authorization - ✔✔Required to permit a
person (Spouse, child, IA, etc.), other than an RR, to execute trades on behalf of the
account owner.
✔✔Account Documents: Certificate of Incumbency - ✔✔Issued by a court to appoint a
guardian to act on behalf of an incompetent/minor.
✔✔ERISA imposes high ethical standards on the following two categories of people: -
✔✔Parties in interest: Anyone providing services to the plan.
Fiduciary: Anyone who provides investment advice, exercises discretionary authority, or
is responsible for the administration of the plan.
✔✔Parties in interest are prohibited from what? - ✔✔They are prohibited from selling or
leasing property to the plan, loaning money to the plan, or using plan assets for their
own benefit.
ANSWERS GRADED A+
✔✔Closed-End fund - ✔✔Usually do a one-time issuance of common shares.
-May issue preferred stock or bonds.
Shares may trade at a discount or premium to NAV (based on supply/demand) with a
commission or markup added.
Sponsor does not stand ready to redeem shares.
Shares trade in secondary market.
May be sold short.
✔✔Trust - ✔✔A legal arrangement in which an individual (creator) gives fiduciary
control of property to a person or institution (trustee) for the benefit of beneficiaries.
- Creator = Grantor, Donor, Trustor, Settlor, or Maker
✔✔Investment Company Act of 1940 - ✔✔Created to reduce abuses in the sales of
investment company securities.
Assures investors receive adequate and truthful information.
Three types of investment companies:
-Face Amount Certificate Companies.
-Unit Investment Trusts (UITs)
-Management Companies (two types)
*Open-End (mutual funds)
*Closed-End
✔✔The Investment Company Act of 1940 Identified 3 types of investment companies.
What are they? - ✔✔Face amount certificates, unit investment trusts, and management
companies (open- and closed-end).
✔✔What are the Rules and Regulations for the Investment Company Act of 1940? -
✔✔Companies with more than 100 shareholders must register with the SEC.
Company must have a minimum net worth of $100,000 before offering shares publicly.
To change fund objectives, a majority vote of shares is required.
Certain communication related to investment company securities may be distributed
prior to prospectus delivery, provided the full prospectus is offered (Omitting Prospectus
Rule).
✔✔What is a common use for a bypass trust? - ✔✔To pass assets from the 2nd
deceased parent to his children.
,✔✔What is not accountable to the SEC according to the Act of 1934? - ✔✔National
Banks, as they are not regulated by the SEC.
✔✔State (USA) Exemptions from IA Registration - ✔✔Adviser has no place of business
in the state AND
Institutional Exemption: Its only clients are specific institutional investors, OR
De Minimus Exemption: No more than 5 individual clients in a 12-month period who are
residents of the state.
✔✔Federal (IA Act of 1940) Exemptions from IA Registration - ✔✔Intrastate Advisers:
All clients are residents of the state where the adviser's office is located and it does not
provide advice on exchange-listed securities.
Advisers to Insurance Companies: All clients are insurance companies.
Private Fund Advisers: Provide advice to private funds (e.g., hedge funds) that have
less than $150 million in AUM in the U.S.
Venture Capital Advisers: Solely provide advice to one or more venture capital funds.
Foreign Private Advisers: Have no place of business in the U.S., have fewer than 15
U.S. clients in its private funds, and have less than $25 million in AUM attributable to the
U.S. clients.
✔✔Federal Covered Advisers (FCA): What has changed for Assets? - ✔✔Rules prior to
2012: Advisers managing over $30 million in assets.
Now under Dodd-Frank: Advisers managing over $100 million in assets.
✔✔Federal Covered Advisers (FCA): What has changed for States Covered? -
✔✔Rules prior to 2012: Advisers providing advice in 30 or more states.
Now under Dodd-Frank: Advisers providing advice in 15 or more states.
✔✔Federal Covered Advisers (FCA): What has changed for Employee Benefit Plan
Size? - ✔✔Rules prior to 2012: Pension consultants to plans with at least $50 million in
assets.
Now under Dodd-Frank: Pension consultants to plans with at least $200 million in
assets.
✔✔Federal Covered Advisers (FCA): What FCA standards remain the same? -
✔✔Advisers to registered investment companies regardless of the amount of assets
under management.
Advisers not regulated as IAs in the state in which the have their principal office.
, Newly-formed advisers who believe they will be eligible for federal registration within
120 days.
✔✔Exclusions from the State (USA) IA Definition - ✔✔1. Banks, savings institutions,
trust companies (NOT bank holding co.)
2. Professionals giving incidental advice (L.A.T.E.)
3. B/Ds and their agents.
4. Publishers of newspapers or periodicals (no timed/tailored advice)
5. Investment Adviser Representatives.
6. Federal Covered Advisers.
7. Any other person designated by Administrator.
✔✔Exclusions from the Federal (IA Act of '40) IA Definition - ✔✔1. Banks or bank
holding companies (NOT S&Ls or IA subsidiaries of banks).
2. Professionals giving incidental advice (L.A.T.E.)
3. B/Ds and their representatives.
4. Publishers of regular and general circulation publications.
5. U.S. Government Securities Advisers.
6. Any other person designated by SEC.
✔✔Account Documents: Durable Power of Attorney - ✔✔Allows an individual to
designate another person to act on her behalf even if she becomes disabled or
incapacitated.
✔✔Account Documents: Stock Power - ✔✔Power of attorney enabling a person other
than the owner to transfer stock ownership to another party.
✔✔Account Documents: Third Party Trading Authorization - ✔✔Required to permit a
person (Spouse, child, IA, etc.), other than an RR, to execute trades on behalf of the
account owner.
✔✔Account Documents: Certificate of Incumbency - ✔✔Issued by a court to appoint a
guardian to act on behalf of an incompetent/minor.
✔✔ERISA imposes high ethical standards on the following two categories of people: -
✔✔Parties in interest: Anyone providing services to the plan.
Fiduciary: Anyone who provides investment advice, exercises discretionary authority, or
is responsible for the administration of the plan.
✔✔Parties in interest are prohibited from what? - ✔✔They are prohibited from selling or
leasing property to the plan, loaning money to the plan, or using plan assets for their
own benefit.
