Series 6 - Unit 4

A customer owns 200 shares of ABC Growth Fund, which has a POP of $12 and an NAV of $11. She wants to convert these shares to ABC Balanced Fund, which has a POP of $14.77 and an NAV of $13.66. ABC offers a conversion privilege. At what price will the ABC Balance Fund shares be purchased? A) $12. B) $14.77. C) $11. D) $13.66.

$13.66. The fund offers conversion privileges so that conversion occurs at the net asset value. Since the customer is exchanging into the ABC Balanced Fund, she will purchase shares at its NAV of $13.66.

Which of the following mutual fund share classes has no back-end load, lower operating expenses, and low or no 12b-1 fees? A) Class C upon conversion to Class B. B) Class A. C) Class C. D) Class B.

Class A. Class A shares, also known as front-end load shares, have an up-front sales charge that is usually subject to breakpoints. They have no back-end load and are sold with low or no 12b-1 fee and lower operating expenses.

Which of the following entities must review retail communications to be used by a member firm in connection with the offering of investment company shares? A) FDIC. B) SEC. C) SIPC. D) FINRA.

FINRA., was correct! All retail communications used in connection with a new offering must be filed for review with FINRA. A principal of the firm must approve its use and is responsible for corrections that FINRA may require.

To qualify for the quantity discount, which of the following could NOT be defined as a person? A) Husband and wife investing in separate accounts. B) Father and his 35-year-old son investing in separate accounts. C) Husband and wife investing in a joint account. D) Trust officer working on behalf of a single trust account.

Father and his 35-year-old son investing in separate accounts., was correct! For the purpose of qualifying for breakpoints, the definition of a person includes family units, but only spouses and minor children, not a relative of legal age.

When the annual report of a mutual fund is used as sales literature, which of the following statements are TRUE? The principal of the firm must approve its use for that purpose. A prospectus need not accompany the report, provided it includes instructions for obtaining a prospectus. The figures contained in the report must be as of a specific date. The report must contain a list of the industries in which the fund invests. A) II and III. B) I and III. C) I and IV. D) II and IV.

I and III., was correct! Sales literature is going to be defined as a retail communication. The principal of the firm must approve the use of the annual report as sales literature, and the figures contained must be current and complete. A prospectus is always required, as is a complete portfolio list, not merely a list of industries in which the fund invests.

To charge an 8.5% sales load, a mutual fund must offer all of the following rights and privileges EXCEPT conversion (exchange) breakpoints rights of accumulation redemption checks sent within 7 days of request A) I and II B) II and IV C) II and III D) I and IV

I and IV, was correct! Did you miss the word EXCEPT? Offering conversion privileges is not a must in order to charge 8.5%. Redemption checks must be sent within 7 days of request no matter what the sales charge is. In order to charge 8.5%, the mutual fund must offer breakpoints and rights of accumulation.

Which of the following constitute a public appearance? Interactive electronic forum. Radio advertisement. Television commercial. Television interview. A) I and III. B) I and IV. C) II and IV. D) II and III.

I and IV. A public appearance, which is considered a form of communication with the public, involves the personal presence of, or the possibility of interacting electronically with, an officer or other spokesperson of a firm.

Which of the following statements regarding investment companies are TRUE? Investment companies may offer breakpoints provided they are offered uniformly. Investment companies may tell their customers that the role of the custodian is to supervise the sale and purchase of portfolio securities. Investment companies must send all advertisements to FINRA within 30 days of their first use. The Securities Act of 1933 requires that a prospectus be provided in conjunction with the solicitation of orders for mutual fund shares. A) II and IV. B) II and III. C) I and III. D) I and IV.

I and IV. Breakpoints are allowed when they are offered uniformly to all investors. Sales literature or advertisements regarding investment companies must generally be sent to FINRA within ten days of the first use. The Securities Act of 1933 requires that a prospectus be provided with solicitations for mutual funds.

Which of the following actions comes under the guidelines concerning communication with the public? Posting an internal memo giving sales tips to registered representatives Distributing a letter to all clients regarding a new mutual fund family Distributing copies of a magazine article about investment opportunities to existing customers only Calling a client to discuss a new investment strategy A) II and IV B) II and III C) I and IV D) I and III

II and III, was correct! An internal memo is not a public communication. Under FINRA Rule 2210 communications with the public are defined as written, therefore the phone call is not a form of communication with the public.

If an investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are TRUE? He may discuss the investment returns of the mutual fund in general, provided he does not use a specific time frame. He may discuss the investment returns of the mutual fund using a specific time frame. He must disclose all material facts regarding the mutual fund to the audience. He may emphasize the positive aspects of the mutual fund and refer prospective investors to the prospectus for further details. A) II and III. B) II and IV. C) I and IV. D) I and III.

II and III. He may discuss the investment returns of the mutual fund as long as he uses a specific time frame. When discussing an investment, he must disclose all material facts pertaining to the investment, both negative and positive.

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? The letter can cover a period totaling 16 months. The letter may be backdated 90 days. Some shares purchased are held in escrow until the letter is completed. During the period covered by the letter, the customer may not redeem his shares. A) II and III. B) I and II. C) III and IV. D) I and IV.

II and III. Letters of intent permit investors to qualify for a reduced sales charge on the purchase of mutual fund shares over time. They are valid for 13-months and may be backdated by up to 90 days to include prior purchases. The investor is not legally obligated to comply with the terms of the letter, so some shares purchased at the reduced sales charge are held in escrow. These shares are liquidated to repay the reduction in sales charge if the letter is not completed.

If a registered representative wishes to distribute a copy of a national magazine article about the GAON Mutual Fund, which of the following statements is CORRECT? Because this material is already in the public domain, it is excluded from the rules on communication with the public. This material meets the definition of an independently prepared reprint. The article may be used without prior approval of a principal of the member firm. The article may not be sent without prior or concurrent delivery of the GAON Fund prospectus. A) I and IV. B) II and III. C) I and III. D) II and IV.

II and IV. Copies of published articles, neither paid for nor sponsored by the investment company, are considered independently prepared reprints and must be approved by the appropriate principal before use. As with any directed communication relating to investment companies, delivery of a prospectus is required.

In making a sales presentation to a prospective customer, a registered representative selling open-end investment company shares may compare the shares to a savings account at a bank if: it is pointed out that mutual funds have the advantage of federal backing. the risk of share price fluctuation is discussed. it is pointed out that mutual funds have the advantage of higher liquidity. a statement is made concerning variability of dividend returns. A) I and IV. B) II and III. C) I and III. D) II and IV.

II and IV. It would be misleading for a registered representative to compare mutual fund shares with bank savings accounts without indicating that savings accounts are insured by the federal government and mutual funds are not. Sales presentations of mutual fund shares should also include statements indicating that past performance is no guarantee of future results, that an investor's initial investment in mutual fund shares could be lost, and that dividends paid on mutual fund shares are not guaranteed.

The total return of a mutual fund: A) includes all realized and unrealized capital appreciation. B) includes the reinvestment of all unrealized dividend and capital gain income. C) assumes the reinvestment of all dividend and capital gains distributions. D) incorporates annualized fund dividends divided by the current POP.

assumes the reinvestment of all dividend and capital gains distributions. The total return assumes reinvestment of all dividend and capital gains distributions.

A promotional brochure for a mutual fund must: A) promise delivery of a prospectus when the shares are delivered to the purchaser. B) contain the statement, "A prospectus relating to these securities is available upon request." C) be preceded or accompanied by a prospectus. D) contain a warning that SEC supervision of the company does not guarantee protection against a decrease in the shares' market value.

be preceded or accompanied by a prospectus. All retail communications used in connection with the solicitation of mutual fund shares must be accompanied or preceded by the prospectus.

The price that an investor receives for open-end investment company shares on redemption is the: A) next computed public offering price. B) next computed net asset value. C) price in the financial section of the newspaper. D) next computed net asset value plus the sales load.

next computed net asset value. When an investor redeems open-end investment company shares, the investor receives the next computed net asset value (NAV) of those shares.

Regarding communications, filing with FINRA is required for A) retail communication that includes a ranking by an independent entity B) radio interview C) correspondence D) retail communication that does not promote a product or service of the firm

retail communication that includes a ranking by an independent entity Any retail communication that includes a ranking, whether independent (post-file) or not (pre-file) must be filed with FINRA. The radio interview is a public appearance with no filing requirements as there is no indication of any script, slides, or handouts (which would require filing).

Performance charts of a particular mutual fund must be based on an assumption that the investor paid: A) the lowest sales charge. B) the highest sales charge. C) no sales charge. D) the average sales charge.

the highest sales charge. It would be misleading to base performance charts on anything other than the highest sales charge.

A breakpoint sale is: A) the payment of compensation to a registered representative after he ceases to be employed by a member. B) the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions to incur the higher sales charge. C) the sale of shares where the client pays the smallest sales charge. D) the sale of investment company shares in anticipation of a distribution soon to be paid.

the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions to incur the higher sales charge. Breakpoint sales are a violation of the Conduct Rules. A breakpoint sale is the sale of fund shares just below the point where a sales charge is reduced in order to maintain the higher commission.