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Series 66


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Institutional investors may include ___, __, ___ and ____, _____
Mututal funds, pension funds, endowments and charitable trusts
bank trust departments
The USA regulates _____, ______, _____, Prohibits ______ and ______.
-Registration of broker dealers and their agents
-Registration of investment advisers and their IARs
-Registration of securities and exemptions from registration
-Prohibition of fraudulent practices in the offer, sale and advice
-Administration and enforcement of the act including penalties
A person failing the series 66 must wait ___ days before retaking, ___days after a second failure and ___ after a third.
C corporations are ____, and are taxed as _____. Income is taxed at ____ and distributions to stockholders are _____.
Separate entities from the owners
Corporate level
Taxed again
S corporations cannot have more than ___ shareholders and ___ must agree to S Corp status. There can be ___ class of stock. Advantges are ______, ____ and ______.
-protection of corporate structure, tax deductions for losses, creditors cannot go after owners personal assets.
An LLC is a combination of a ____ and a _____. Income and losses are reported on ______ and there is only ___ level of taxation. A disadvantage is that there are _____.
Partnership and a corporation
investors own tax return
One level of taxation
-Restrictions on how LLCs can raise capital
Trust accounts are established by:
1) delivery of a signed trust agreement to the IAR
2) normal new account documentation
Advantages of trust accounts are ___ and ____.
-Protect assets from creditors
-Gift assets without giving immediate control to the beneficiary
Recommendations made for a trust account must be suitable for _____ not he ____
Not the individual setting up the trust
Net worth=
Future Value=
Or future value after period N = Principal X (1 + rate of interets) to the power of the number of periods
Present value=
PV= FVn/ (1 + R) ^N
Or Future value = Future value after period N divided by (1 + rate of interest) to the power of number of periods
Internal rate of return is also called ___ and is found by ____. An example would be ____.
-Discount rate
-solving for the rate of interest given a future or present value and a compounding method
Holding period return=

Also known as ____
Or the market value at the end + cash distributions-market value at the beginning divided by the market vale beginning

Known as total return
Annualized return provides ___ and is calculated with the fomula ____ for less than 1 yr and ___ for greater than 1 yr.
Direct comparison of investments held over different periods
Annualized return = (1+r)^N-1
and (1=R)^1/N-1
MPT assumes that investors are ____
Risk averse
All income in a retirement plan is taxed as ____
Ordinary income

Retirement plans do not receive cap gains treatment
ERISA applies to ____, _____.

But does not cover ___, ___ ____ plans
Full time 1000hr+ per year employees, employed for 1 yr of more

Fed, state and local government plans
A named fiduciary of an ERISA plan woould have the following administrative duties: ___, ___, ___, ___, ___, ___
1. Describe investment alternatives
2. Explain circumstances for direct asset investment
3. Describe fees and expenses
4. Provide name, address and phone of plan fiduciary
5. Describe annual operating expenses
6. Provide propectuses, statments and reports
A statment of investment policy ______
Provides investment plan fiduciaries with guidelines concerning managemnt decisions
403 b plans are typically used for employees of:
Public and parochial school systems
Religious organizations
Qualified non profits
A person employed by a Broker Dealer who is effecting securities transactions with the public is an ___
Accordin to the USA a person is ___(10)
Individual, Corporation, Partnership, Association, Joint stock company, unincorporated association, government, political subdivision of a governemnt, certain trusts
Out of state BDs may do business in a state they are not registered only if ___
They do not have a place of business in the state and they deal only with institutions
IA 1092:
Provides guidanc on how existing rules affected new advisory services.
It is unethical for an IA or IAR to borrow funds from a client except:
Broker dealers, lending institutions, affiliates of IAs
All ___ trades and ___ market trades are exempt under the USA
Secondary Market
A rights offering is exempt under the USA if ___ and the Adminstrator ___
there is no comission paid and the administrator does not disallow it withing 5 business days
When must an administrator be informed of changes in the registration of a firm or individual?
Civil suits must be filed within ____ yrs of ___ or ___ yrs of ____ whichever comes ___.
3 yrs contract of sale
2 yrs of discovery
Whichever comes first
The diversification rule is known as___
The 75/5/10 rule
75% must be invested so that no more than 5% is in any one security
And no more than 10% ownership in any security
In order to deny registration of a security an administrator must have ___
Two reasons, one is the public interest
All ____ trades are considered exempt under the USA.
The USA specifically excludes ___, ___, ___ and ___ from the definition of an offer or sale
-Bona fide pledge or loan w/ stock as collateral
-Stock dividend as long as shareholder gives nothing of value in order to receive
-Exchanges of securities for mergers, reclassifications, or consolodations
-Exchanges with judicially approved reorganizations
When an issuer sells warrants, rights options or convertible securities, there is an ____ of the overlying and a ___ of the underlying
offer and sale
An offer that ___ is considered to have been made in that state
An offer that is ____ and ____ is made in that state
directed to and received in the state
An offer is accepted when:
it is communicated in the state to the person making the offer AND it has not been previously communicated orally or in writing in another state.
An offer is made by a publisher when:
Itpublishes in a state and less than 2/3 of its circulation are outside the state.
Radio and TV are offers in the state they:
During an investigation an administrator may ___, ___, ___, ____
-Administer oaths and affirmations
-Subpoena witnesses and compel attendance
-take evidence
-require production of documents
Maximum crminal penalties under USA:
3 yrs prison
Civil proceedings under USA can recover ___, ___ and ___ less ____
consideration paid for security, interest at state mandated rate, costs and reasonable attorney fees. Less any income received from the security
The buyer of a security may not sue if the seller offers to ____, plus ___, less ___ and he fails to accept within ___. This is called a ___>
refund what was paid, plus interest less any income receive
-30 days
-letter of recission
If a buyer receives a letter of recission when he ____, he may not sue unless he ____ in ____ within ___.
does not own the security
rejects the offer
in writing
30 days
An Investment Advisor with ____ or more is ___ to register with ____.

Between ___ and ___ an IA may register with ____.

And with less than ____ an must register with ____.
-greater than $30 mil, required, the SEC

-25 and 30, optionally w/ SEC

-$25 million states, SEC prohibited
The Investment Advisors Act of 1940 permits ___, ___, ___, ___ and ____ to register with the SEC even if not otherwise eligible.
-Certain pension consulttants
-IAs controlled, controlling with an SEC registered IA
-An advisor otherwise required in at least 30 states
-Advisors expecting to be eligible in less than 120 days
-Nationally recognized statistical rating organizations
_____ (6) are all exempt from federal registration of an IA though they meet the federal definition:
-Any IA whose clients are insurance companies
-Any IA w/ fewer than 15 clients (de minimis) in 12 months
-An IA w/ all clients in state who d/n furnish ....
-Charitable organization
-Pension plans by churches
-IA registered with commodities furtures trading
Records required by the IA Act must be kept for ___, the first __ they must be kept ____.
-5 years
-2 years in an appropriate office of the advisor
The USA ___ ____ contracts for advisory clients.

The IA of 1940 ____ have the same requirement.
requires written

does not
The IA of 1940 has a general prohibition against performance fees, w/ what 3 exceptions?
-Contracts w/ registered investment companies
-Accounts involving the investment of over $1 million
-Qualified clients

(Fulcrum fees are okay, will increase and decrease with respect to a benchmark)
Qualified clients according to the IA of 1940 are:
Have a NW of 1.5 million
Have at least 750,00 under mgmt
Are qualified purchasers
-at least 5 million in investements
-discretionary basis of 25,000,000 for others
___ and ___ are excluded from the federal definition of IA but not from the state definition.
Govt securities advisors
Bank holding companies
Under the USA IA advetising must conform to what 5 limitations?
-May not contain testimonials
-May not represent that a graph can be used to choose investments
-State that any report or analysis will be provided free (unless it is without condition)
-Contain any untrue fact or omission
-Refer directly to previous recommendation that would have made money
Slaespersons selling securities for a broker dealer are considered ___, ___ of the security.
An omnibus account requires:
One new account form and a third party authorization from each advisory client.
A registration statement may be filed by ___, ____, ___.
Issuer, underwriter, or and person on whose behalf the offer is made
An administrator has __ years to file a Criminal action
Five years
According to the USA agents are_____ regardless of ____
Any salesperson of broher dealers effecting securities transactions are considered agents regardlesso the security they sell.

Don't be confused by exemptions for securities and the status of the agent
Federally covered securities include ____, ____, ____, ____
-Securities listed on the NYSE, AMEX or National Market of NASDAQ or senior securities
-Investment companies under the 1940 act(Mutual, UIT)
-Securities sold to qualified purchasers
-Securities that are privately placed under Reg D
A bank or holding company is ___ from the definition of an IA unless _____
-unless it acts as an advisor to a registered investment company
Unregisterd, non-exempt securities may be sold to ____ and _____ provided _____.
Institutions and retail investors
-the trade is done on an unsolicited basis
Municipal bonds are ___ fedeal covered securities _____.
-The state in which the issuer is located
Advisers with assets exceeding ____ are ___ considered advisers under the USA since they are regulated by ____
-30 million
-The SEC
An investment advisor has ____ to establish itself at managing a fund, afte which it will be up for shareholder approval ____
-2 years
Criminal action must be taken within ___
-5 years
An investment advisors fiduciary duty requires:
to disclose all material information about its recommendations
IA reps of federally covered advisors ____ to register with a state unless ____
-Are not
-The rep has a place of business within the state
Under the USA registration will become effective at
Noon on the 30th day after filing
A security is best described as:
An investment of money in a common enterprise with the expectation of profit based on the efforts of a third party.
Employees of issuers who only deal with _____ are not considered agents
Investment bankers
Under the USA it is unlawful for an advisor to renew a contract unless it is ____ and discloses ____ (7).
-In writing
-Services, term, fees, formula for fees, discretionary powers, notification of partners, fact to compensation not based on cap gain/appreciation
Exclusion from the definition of an investment advisor include ______(6)
-IA reps
-Banks, S&L, Trusts
-Lawyers, accountants, teachers, engineers
-Broker dealsers and their agents
-Publishers of newspapers
-Federally covered advisors
An IAR does any of these 5 things:
-makes recommendations regarding securities
-Manages accounts or portfolios
-Determinies which advice is given
-solicits, offers or negotiates the sale of investment advisory services
-Supervises employees in any of the previous
IAs who maintain custody of client funds or securities must mainatain ____.
a minimum net worth of $35,000
IAs who have discretionary authority but do not have custody of funds must ___
Maintain a min net woth of $10K
IAs that accept prepayment of more than _____per client____in advance must ____
6 months
Maintain postitive net worth at all times
The 2 exemptions for IA registration are:
1) Have no place of business in state and only institutional clients
2) Have no place of business in state and no more than 5 non institutional clients
Institutional clients include:(9)
-registered investment companies
-Other IAs
-Federally covered advisers
Banks or trust companies
-Insurance companies
-Employee benefit splans over $1mil
-Gov't agencies
The brochure rule states that an IA must ____ not less than ____ or at the time of _____ if _____.
-deliver a brochure
-48 hours prior to entering into a contract
-entering into a contract
-they may terminate the contract in five days without penalty
Exceptions to the prohibition on performance based fees in the USA are ___ and ____.

Under the SEC they are ___ and _____
-more than $500,000 w/ the advisor and $1 million net worth

-more than $750,000 w/ advisor and 1.5 million net worth
Security registration by filing under the USA takes place when __, as long as ___, ___ and ___
Federal registration becomes effective
-stae registration of file for 5 business days
-required fee has been paid
-no stop order
Security registration through coordination takes place when ___ as long as ___, ___ and ___.
Federal registration statement becomes effective

-state registration of file 10 days
-statement of min/max offering prices on file for 2 full bus days
-no stop order
Security registration through qualification requires ___.
The most detailed information of any method.
A securities registration under the USA is good for _
1 year from the date it becomes effective
Under the USA the term guaranteed may be used with ___, ___ and ___.
principal dividends and interest payments
Securities isssued by a bank holding company ____ under the USA
Are not exempt from registration
A registration statement may be amended after the effective date to _____ if _____.
-increase the number of securities offered
-the public offering price, underwriters discounts and comissions have not changed
Painting the tape is best defined as:
Manipulative trading involving a series of purchases or a series of sales
Registrants seeking to use filing must price securities at ____ and underwriters comission must not exceed ____
Greater than $5
IAs may only borrow money from what 3 clients?
Other BDs, Financail institutions and affiliates
Form 13F is required for:
Investemnt companies where over which the manager has discretion over greater than 100 mil on last day of month
Form 13D/G are required wehn:
Any investor accumulates more than 5% of any companies asset class
Form 8k is filed when:
Major material events ocurr
The Sahrpe ratio=
Portfolio-Risk Free / standard deviation
Any issuer may register by:
_____ are not subject to advertising filing requirements under the USA
Exempt securities
According to the USA exemptions from registration exist for certain transactions identified by the:
manner of sale (ie instiutional buyers or unsolicited)
Tracking error accounts for:
The divergence of an index and its associated funds
A request for hearing must take place within____ and the affected party ,ay apply for judicial review within ___
15 days
60 days
Crossing stock is an ____ transfer from _____ to another. Comssions may be charged on ______ and ___ must approve _____.
-in house
-one customer to another
-both the sale and purchase
-must be approved by both customers in writing prior to the trade
According tot he USA in order for an exemption to exist for an isolated non-issuer transaction:
It must be for the benefit of an entity other than the issuer
Under the USa a signed margin agreement must be obtaine:
W/in 3 days of the initial account transaction
Under the USA, a broker has ___ to obtain ____ after a discretionary trade in a non-discretionary account.
-10 days
-written POA

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