Chapter 2 Part 1

Question 1

SEC versus Howey Co. The four elements that must be included are:

Answer 1

1. An investment of money 2. In a common enterprise 3. With the expectation of profits 4. Solely from the efforts of others

Question 2

It is often easier to remember the investment instruments that are NOT defined as securities. These include:

Answer 2

• Fixed annuity • Life insurance or an endowment policy • Commodity futures contract • Individual retirement account (IRA) or Keogh plan • Currency • Collectible • Condominium (primary residence)

Question 3

Stocks (equities), ADRs, Bonds (debentures, certificates of indebtedness), Rights, Warrants

Answer 3

securities

Question 4

Options on Stocks, Options on Currencies, Options on Commodities, Options on Futures

Answer 4

all securities

Question 5

Currencies, Commodities, Futures

Answer 5

not securities

Question 6

Variable Life Insurance, Variable Universal Life Insurance, (Any insurance product that includes the word variable)

Answer 6

all securities

Question 7

Whole Life Policies, Universal Life Policies, Term Life Policies, Endowments, (Any insurance product that does not include the word variable)

Answer 7

not securities

Question 8

Variable Annuities

Answer 8

securities

Question 9

Fixed Annuities (guaranteed contracts)

Answer 9

not securities

Question 10

Investment Companies (Face-Amount Certificates, Unit Investment Trusts, and Management Companies)

Answer 10

all securities

Question 11

Packaged Real Estate Investments, such as Interests in a Condominium Pool, REITs, or Real Estate Limited Partnershios

Answer 11

all securities

Question 12

Individual Real Estate Properties and Mortgages

Answer 12

not securities

Question 13

Participation in a Profit-Sharing Plan

Answer 13

securities

Question 14

Keogh Plans, IRAs, 401(k) Plans, and other Retirement Plans, Art, Antiques, and other Collectibles

Answer 14

not securities

Question 15

Investment Contracts

Answer 15

securities

Question 16

Limited Partnerships

Answer 16

securities

Question 17

Whiskey Warehouse Receipts, Multilevel Distribution Arrangements, Merchandise Marketing Schemes, Profit-Sharing Arrangements, Voting or Collateral Trust Certificates, Interests in Farmland or LivestockPreorganization Certificates,

Answer 17

all securities

Question 18

Whiskey warehouse receipts

Answer 18

represent a beneficial interest or title to whiskey held in a warehouse for future delivery. Under state law, the transfer of a whiskey warehouse receipt is equivalent to the delivery of the property it represents, and constitutes a security.

Question 19

real estate condominium

Answer 19

This instrument was added to the list of securities to cover investment opportunities in which a purchaser of a condominium would allow his property to be included in a rental pool that is managed by a third party. For example, the condominium might he part of a complex near a ski lodge and the buyer purchases the property for invesllnent purposes, rather than for occupancy. In this situation, offering this type of condon1iniun1 investment could be viewed as the offer of a security.

Question 20

Multilevel distributorships and merchandise marketing programs are structures used to

Answer 20

market products to the public.