STC Series 66 || with Complete Solutions.
Is a firm considered a BD if it has no office in a state and only deals with institutional clients
in the state? correct answers No. The firm is excluded from the BD definition.
May an IA use testimonials in its promotional material? correct answers No. IA's may not use
testimonials in promotional material.
True or False: Securities that are listed on the NYSE are exempt from state registration.
correct answers True. Securities that are listed on the NYSE are exempt from state
registration.
True or False: A trade of unregistered, non-exempt securities between two BDs is a violation
of the USA. correct answers False. A trade of unregistered, non-exempt securities between
two BDs is a violation of the USA IS an exempt transaction.
Does a solicitor for an IA provide securities recommendations? correct answers No.
Solicitors only solicit new clients; they do not recommend or approve transactions.
May the administrator set net capital requirements for BDs? correct answers Yes. The
administrator may set net capital requirements for BD
What form is used to notify administrators that an IA is maintaining custody of client assets?
correct answers Form ADV
The ____________________________ is an organization consisting of state administrators.
correct answers The North American Securities Administrators Association (NASAA) is an
organization consisting of state Administrators.
What is the three-pronged test for determining whether a firm meets the IA definition?
correct answers ABC. A = advice / analyses, B=business, C= compensation
An intrastate offering use which method of state securities registration? correct answers
Qualification
Does the de minimis exemption apply to BDs that have no place of business in a state?
correct answers No. The de minimis exemption only applies to IAs and IARs.
What criteria must be met for commercial paper to be exempt from registration? correct
answers A 270-day maximum life, minimum denomination of $50,000, rated in one of the
top-three categories according to an NRSRO.
What is form ADV-E? correct answers Form filed by an independent public accountant after
auditing the records of an IA maintaining custody of client assets.
IAs file their applications electronically through the ____________ correct answers IAs file
their applications electronically through the Investment Adviser Registration Depository
(IARD)
,Is Jim an agent if he works in ABC's retirement dept. and, once a year, places ABC stock in
employees' accounts? correct answers No, Jim is representing an issuer in an exempt
transaction.
A publicly traded corporation has 20,000,000 shares of common stock outstanding and an
investor buys 1,400,000 of the shares in the open market. Which of the following forms is the
investor required to file with the SEC? correct answers Form 13D
Any investor that acquires more than 5% of the common stock of a reporting company is
required to file Form 13D with the SEC. Since the client has acquired 7% of the 20,000,000
outstanding common shares ($1.4 million ÷ $20 million), he is subject to the filing
requirement. Form 13F is filed by institutional investment managers that exercise investment
discretion over $100 million or more in equity securities. Form 144 is filed when an investor
intends to sell restricted (private placement) stock or when an insider intends to sell control
stock.
Under Regulation D of the Securities Act of 1933, accredited investors include:
Accountants
Insurance companies
Any senior officer of a publicly traded company
Individuals with a net worth of one million dollars or more correct answers II and IV only
No single profession is specified in the definition of an accredited investor. Senior officers
are included if they are senior officers of the issuer. Institutional investors, such as insurance
companies, are specified in the regulation. A person with annual income of $200,000, or net
worth of $1 million, is also considered accredited.
When a client purchases mutual fund shares from a broker-dealer, she receives a summary
prospectus. When will the broker-dealer send the client a statutory (final) prospectus? correct
answers After the purchase has been completed, if requested
According to the Investment Company Act of 1940, a client who purchases mutual fund
shares must receive a statutory prospectus after the purchase has been completed. Therefore,
if a summary prospectus is delivered first, a client must receive or be given access to the
statutory prospectus, if requested.
According to the Securities Act of 1933, a pooled investment fund is considered a federal
covered security when it: correct answers Registers with the SEC under the Investment
Company Act of 1940
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.
Which of the following events would NOT require a public company to file a Form 8-K
report? correct answers A minority owned subsidiary changes locations
Form 8-K is the report that companies must file with the SEC to announce material corporate
events that shareholders should know about. A change in the location of a minority owned
subsidiary is not a material event which may affect the company or its shareholders. All of
the other answer choices represent events which require the filing of a Form 8-K.
Which of the following would NOT be defined as an affiliated person under the Investment
Company Act of 1940? correct answers The outside legal counsel for an investment company
,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.
A client purchases 1,500 shares of Bergman's Basketballs, an IPO that was underwritten by
Broker-Dealer X. If the salesperson who sold the shares to the client is employed by Broker-
Dealer Z, a member of the selling group, the client: correct answers Should receive the
prospectus from Broker-Dealer Z
Failing to furnish a client who has purchased shares of a new issue with a prospectus is an
unethical and/or dishonest business practice by a broker-dealer and/or an agent. The
responsibility to furnish this document falls on the broker-dealer that sold the security to the
client.
Under the Securities Act of 1933, which of the following would MOST LIKELY be included
in the definition of an underwriter? correct answers A broker-dealer
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.
A hedge fund is being sold to accredited investors as a private placement under Regulation D.
An agent believes that this fund would be an excellent investment for several of his clients.
The agent may recommend the fund to which of the following investors? correct answers A
middle-aged couple who are both physicians with a joint annual income of $400,000
Many hedge funds are issued as private placements under Regulation D. In order to qualify
for the exemption, they must be offered only to accredited investors and/or no more than 35
non-accredited investors. Accredited investors include:
Individuals with an annual income of at least $200,000 during the last two years who
reasonably expect to continue to earn that much in the future
A married couple with a joint income of at least $300,000 who reasonably expect their
income to continue at the same level in the future
An individual or a couple with a net worth of at least $1 million
The newly-retired investor meets the income requirement, but his income will likely drop
now that he's retired. The young, aggressive investor fails to meet either the income or the net
worth requirements. The couple that just won the lottery have income for the year that is
likely much higher than normal and it's unlikely to remain at the same level in the future.
Only the couple who are both physicians and in their prime earning years can reasonably
expect to continue making the same income.
Under the Uniform Securities Act, which of the following transactions is NOT exempt from
state registration? correct answers A Rule 147 offering
The Rule 147 (intrastate) exemption is a federal or SEC exemption and does not apply to the
Uniform Securities Act. For that reason, an issuer conducting an offering of securities in one
state is required to register the offering in that state. On the other hand, a transaction by a
fiduciary, such as an executor, sheriff, marshal, guardian, trustee in bankruptcy, is exempt
from state registration. Additionally, isolated, non-issuer transactions and transactions
executed on the New York Stock Exchange, Nasdaq, or any other recognized national or
regional exchanges are exempt from state registration.
, All the following descriptions are TRUE of a closed-end management company, EXCEPT:
Shares are purchased at the current offering price
Shares are redeemable
Investors can purchase full and fractional shares
The company may issue only common stock
When making a purchase, a customer will pay a markup or a commission correct answers II,
III, and IV only
Shares of a closed-end fund are not redeemable instruments. The shares are usually traded in
the open market on an exchange. The purchaser pays either a commission or a markup on
both a purchase and a sale. A closed-end fund may issue common stock, preferred stock, or
bonds. The fund may issue only full shares. Unlike a mutual fund, the closed-end
management company may not issue fractional shares.
In order to clarify items in the balance sheet or income statement, a corporation may include
them as: correct answers Footnotes
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.
Which one of the following investments trade independently from its net asset value (NAV)?
correct answers Closed-end fund
Mutual funds (open-end funds), unit investment trusts, and variable annuities are priced based
on their net asset values. A closed-end investment company share may sell at, above, or
below its net asset value since it trades on the stock exchange.
The ABC Growth Fund charges a 12b-1 fee. This fee is based on: correct answers The fund's
average annual NAV
A 12b-1 fee is assessed against the average annual NAV of a mutual fund and is used to
cover the costs associated with promotion, distribution, and the trailing commissions (trailers)
that are paid to registered personnel. The 12b-1 fee is a part of the operating expense ratio of
a mutual fund and the fee is ultimately paid by the shareholders.
What's required to be obtained by an investment adviser when it engages with a new client?
correct answers Tax ID
inancial institutions must collect certain information when they open accounts for clients.
Typically, a client's name, address, date of birth, and tax identification number (i.e., Social
Security number) must be obtained. A driver's license can be used to verify the information,
but it's not specifically required since financial institutions are permitted to use other forms of
identification. The employer's address and the date on which the account is opened are not
required to be documented.
A client who purchased a security from a broker-dealer has filed a lawsuit arguing that he is
entitled to damages after discovering a material error on the firm's part. Which of the
following is a reasonable defense to the suit? correct answers As the seller, the broker-dealer
may attempt to prove that the firm did not know about the error and that reasonable care was
taken to discover any errors
As the seller, if the broker-dealer took reasonable care in checking the facts and made an
unintentional, material error, it could make a reasonable defense against the lawsuit. The
buyer is not required to prove what the broker-dealer knew. Instead, the buyer is only
Is a firm considered a BD if it has no office in a state and only deals with institutional clients
in the state? correct answers No. The firm is excluded from the BD definition.
May an IA use testimonials in its promotional material? correct answers No. IA's may not use
testimonials in promotional material.
True or False: Securities that are listed on the NYSE are exempt from state registration.
correct answers True. Securities that are listed on the NYSE are exempt from state
registration.
True or False: A trade of unregistered, non-exempt securities between two BDs is a violation
of the USA. correct answers False. A trade of unregistered, non-exempt securities between
two BDs is a violation of the USA IS an exempt transaction.
Does a solicitor for an IA provide securities recommendations? correct answers No.
Solicitors only solicit new clients; they do not recommend or approve transactions.
May the administrator set net capital requirements for BDs? correct answers Yes. The
administrator may set net capital requirements for BD
What form is used to notify administrators that an IA is maintaining custody of client assets?
correct answers Form ADV
The ____________________________ is an organization consisting of state administrators.
correct answers The North American Securities Administrators Association (NASAA) is an
organization consisting of state Administrators.
What is the three-pronged test for determining whether a firm meets the IA definition?
correct answers ABC. A = advice / analyses, B=business, C= compensation
An intrastate offering use which method of state securities registration? correct answers
Qualification
Does the de minimis exemption apply to BDs that have no place of business in a state?
correct answers No. The de minimis exemption only applies to IAs and IARs.
What criteria must be met for commercial paper to be exempt from registration? correct
answers A 270-day maximum life, minimum denomination of $50,000, rated in one of the
top-three categories according to an NRSRO.
What is form ADV-E? correct answers Form filed by an independent public accountant after
auditing the records of an IA maintaining custody of client assets.
IAs file their applications electronically through the ____________ correct answers IAs file
their applications electronically through the Investment Adviser Registration Depository
(IARD)
,Is Jim an agent if he works in ABC's retirement dept. and, once a year, places ABC stock in
employees' accounts? correct answers No, Jim is representing an issuer in an exempt
transaction.
A publicly traded corporation has 20,000,000 shares of common stock outstanding and an
investor buys 1,400,000 of the shares in the open market. Which of the following forms is the
investor required to file with the SEC? correct answers Form 13D
Any investor that acquires more than 5% of the common stock of a reporting company is
required to file Form 13D with the SEC. Since the client has acquired 7% of the 20,000,000
outstanding common shares ($1.4 million ÷ $20 million), he is subject to the filing
requirement. Form 13F is filed by institutional investment managers that exercise investment
discretion over $100 million or more in equity securities. Form 144 is filed when an investor
intends to sell restricted (private placement) stock or when an insider intends to sell control
stock.
Under Regulation D of the Securities Act of 1933, accredited investors include:
Accountants
Insurance companies
Any senior officer of a publicly traded company
Individuals with a net worth of one million dollars or more correct answers II and IV only
No single profession is specified in the definition of an accredited investor. Senior officers
are included if they are senior officers of the issuer. Institutional investors, such as insurance
companies, are specified in the regulation. A person with annual income of $200,000, or net
worth of $1 million, is also considered accredited.
When a client purchases mutual fund shares from a broker-dealer, she receives a summary
prospectus. When will the broker-dealer send the client a statutory (final) prospectus? correct
answers After the purchase has been completed, if requested
According to the Investment Company Act of 1940, a client who purchases mutual fund
shares must receive a statutory prospectus after the purchase has been completed. Therefore,
if a summary prospectus is delivered first, a client must receive or be given access to the
statutory prospectus, if requested.
According to the Securities Act of 1933, a pooled investment fund is considered a federal
covered security when it: correct answers Registers with the SEC under the Investment
Company Act of 1940
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.
Which of the following events would NOT require a public company to file a Form 8-K
report? correct answers A minority owned subsidiary changes locations
Form 8-K is the report that companies must file with the SEC to announce material corporate
events that shareholders should know about. A change in the location of a minority owned
subsidiary is not a material event which may affect the company or its shareholders. All of
the other answer choices represent events which require the filing of a Form 8-K.
Which of the following would NOT be defined as an affiliated person under the Investment
Company Act of 1940? correct answers The outside legal counsel for an investment company
,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.
A client purchases 1,500 shares of Bergman's Basketballs, an IPO that was underwritten by
Broker-Dealer X. If the salesperson who sold the shares to the client is employed by Broker-
Dealer Z, a member of the selling group, the client: correct answers Should receive the
prospectus from Broker-Dealer Z
Failing to furnish a client who has purchased shares of a new issue with a prospectus is an
unethical and/or dishonest business practice by a broker-dealer and/or an agent. The
responsibility to furnish this document falls on the broker-dealer that sold the security to the
client.
Under the Securities Act of 1933, which of the following would MOST LIKELY be included
in the definition of an underwriter? correct answers A broker-dealer
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.
A hedge fund is being sold to accredited investors as a private placement under Regulation D.
An agent believes that this fund would be an excellent investment for several of his clients.
The agent may recommend the fund to which of the following investors? correct answers A
middle-aged couple who are both physicians with a joint annual income of $400,000
Many hedge funds are issued as private placements under Regulation D. In order to qualify
for the exemption, they must be offered only to accredited investors and/or no more than 35
non-accredited investors. Accredited investors include:
Individuals with an annual income of at least $200,000 during the last two years who
reasonably expect to continue to earn that much in the future
A married couple with a joint income of at least $300,000 who reasonably expect their
income to continue at the same level in the future
An individual or a couple with a net worth of at least $1 million
The newly-retired investor meets the income requirement, but his income will likely drop
now that he's retired. The young, aggressive investor fails to meet either the income or the net
worth requirements. The couple that just won the lottery have income for the year that is
likely much higher than normal and it's unlikely to remain at the same level in the future.
Only the couple who are both physicians and in their prime earning years can reasonably
expect to continue making the same income.
Under the Uniform Securities Act, which of the following transactions is NOT exempt from
state registration? correct answers A Rule 147 offering
The Rule 147 (intrastate) exemption is a federal or SEC exemption and does not apply to the
Uniform Securities Act. For that reason, an issuer conducting an offering of securities in one
state is required to register the offering in that state. On the other hand, a transaction by a
fiduciary, such as an executor, sheriff, marshal, guardian, trustee in bankruptcy, is exempt
from state registration. Additionally, isolated, non-issuer transactions and transactions
executed on the New York Stock Exchange, Nasdaq, or any other recognized national or
regional exchanges are exempt from state registration.
, All the following descriptions are TRUE of a closed-end management company, EXCEPT:
Shares are purchased at the current offering price
Shares are redeemable
Investors can purchase full and fractional shares
The company may issue only common stock
When making a purchase, a customer will pay a markup or a commission correct answers II,
III, and IV only
Shares of a closed-end fund are not redeemable instruments. The shares are usually traded in
the open market on an exchange. The purchaser pays either a commission or a markup on
both a purchase and a sale. A closed-end fund may issue common stock, preferred stock, or
bonds. The fund may issue only full shares. Unlike a mutual fund, the closed-end
management company may not issue fractional shares.
In order to clarify items in the balance sheet or income statement, a corporation may include
them as: correct answers Footnotes
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.
Which one of the following investments trade independently from its net asset value (NAV)?
correct answers Closed-end fund
Mutual funds (open-end funds), unit investment trusts, and variable annuities are priced based
on their net asset values. A closed-end investment company share may sell at, above, or
below its net asset value since it trades on the stock exchange.
The ABC Growth Fund charges a 12b-1 fee. This fee is based on: correct answers The fund's
average annual NAV
A 12b-1 fee is assessed against the average annual NAV of a mutual fund and is used to
cover the costs associated with promotion, distribution, and the trailing commissions (trailers)
that are paid to registered personnel. The 12b-1 fee is a part of the operating expense ratio of
a mutual fund and the fee is ultimately paid by the shareholders.
What's required to be obtained by an investment adviser when it engages with a new client?
correct answers Tax ID
inancial institutions must collect certain information when they open accounts for clients.
Typically, a client's name, address, date of birth, and tax identification number (i.e., Social
Security number) must be obtained. A driver's license can be used to verify the information,
but it's not specifically required since financial institutions are permitted to use other forms of
identification. The employer's address and the date on which the account is opened are not
required to be documented.
A client who purchased a security from a broker-dealer has filed a lawsuit arguing that he is
entitled to damages after discovering a material error on the firm's part. Which of the
following is a reasonable defense to the suit? correct answers As the seller, the broker-dealer
may attempt to prove that the firm did not know about the error and that reasonable care was
taken to discover any errors
As the seller, if the broker-dealer took reasonable care in checking the facts and made an
unintentional, material error, it could make a reasonable defense against the lawsuit. The
buyer is not required to prove what the broker-dealer knew. Instead, the buyer is only
