Series 6

If an individual purchases open-end investment company shares without first receiving a prospectus, the registered representative is in violation of the Act of:

1933 Under the 1933 Act, a registered representative must sell primary offerings of nonexempt issues by prospectus. The 1934 Act regulates secondary market trading (mutual fund shares do not trade on the secondary market). Under the 1940 act, the mutual fund issuer must register as an investment company.

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?

FINRA 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.

If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of the:

Final prospectus. (No literature may accompany a preliminary prospectus or red herring. All such information may only be used with a final or statutory prospectus.)

Under the Securities Act of 1933, which of the following actions may a broker-dealer take before the effective date of a new offering?

Give a client a preliminary prospectus. During the cooling-off period, the broker-dealer may not accept orders for, or provide sales literature about, the new issue. However, the broker-dealer may provide a preliminary prospectus.

Which of the following actions are the responsibility of an investment bank? I. Distributing large blocks of stock to the public and to institutions. II. Selling previously unissued securities to an issuer and buying them from the public. III. Raising long-term capital for corporations by underwriting new issues of securities. IV. Lending money to corporate customers that require debt financing.

I & III. An investment banker buys previously unissued securities from an issuer and sells them to the public. It does not lend money to corporate customers that require debt financing. Commercial bankers lend money; investment bankers help issuers raise money through securities offerings.

Which of the following is accurate with regard to using a summary prospectus for the sale of a mutual fund? I. A statutory prospectus must precede or accompany delivery of the summary prospectus. II. A statutory prospectus may be delivered after the summary prospectus. III. Electronic delivery of the statutory prospectus is allowed after the sale. IV. A paper prospectus must be delivered within 3 days of the sale.

I & III. The summary prospectus may include an application for sale. The statutory or full prospectus must be available online.

Which of the following constitute a public appearance? I. Interactive electronic forum. II. Radio advertisement. III. Television commercial. IV. Television interview.

I & 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.

The rules on communications with the public apply to a registered representative: I. appearing on a TV show to discuss market trends. II. conducting a Bible study class every Wednesday evening. III. sending an email to 17 existing clients regarding their upcoming 25-year college reunion. IV. writing a seminar script to be used by the firm's vice president of sales.

I & IV. The rules on communications with the public deal with public appearances, such as a TV program and seminar scripts, as long as the topic is related to the investment business. Making a presentation dealing with religious studies or a school reunion is not covered by public communications rules.

What will NOT be found in a final prospectus?

Agreement among underwriters. The final prospectus will include information that is material to investors in order for them to make an informed decision. The agreement among underwriters is a separate document that is between the members of the underwriting syndicate. Investors do not require knowledge of what is contained in this agreement.

An investor buys a mutual fund over the Internet. How does the investor get the required information?

By downloading an electronic copy of the statutory prospectus. Many funds make available the opportunity to purchase shares without ever seeing a registered representative. When done on the Internet, SEC rules require that a copy of the fund's prospectus be available for downloading.

Which of the following, though issued by a municipality, is NOT backed by its taxing authority?

Industrial development bond. An industrial development bond is issued by a municipality to provide funding for a business or commercial facility, which is then leased to a business enterprise. The interest and principal of the bond are then paid off by the business enterprise, not the municipality.

The ABC Government Bond Fund is subject to a requirement of having 80% of the securities in its portfolio in government bonds. This rule of the Investment Company Act of 1940, also known as the

Name Rule The Name Rule requires that any investment company whose name implies a certain type of security (i.e. government bonds) must have at least 80% of its assets invested as implied.

Which of the following federal acts governs the issue of new securities?

Securities Act of 1933. The Securities Act of 1933 is designed to prevent fraud and protect the public from misrepresentation in the sale of new issues of securities.

If a customer is considering an investment in the KPF Fund and desires long-term capital appreciation, which section of the prospectus would help to determine if this fund is appropriate?

The Investment Objectives - which defines the fund's goals for trading the portfolio

A registered representative making a sales presentation based on performance statements and charts is permitted to make which of the following observations?

The fund has had a positive performance in the last few years. Predictions are strictly prohibited, and conjecture about future trends or occurrences must be labeled as such.

What is classified as an independently prepared reprint (IPR)?

Wall Street Journal article on investing An IPR consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publisher (like the Wall Street Journal) and was not materially altered by the member.

Your firm is doing interviews of the top candidates from among those who responded to a recruiting advertisement. Advertising rules require that:

both the job opportunity and the industry itself be represented honestly.

A generic advertisement

must include the name of the broker-dealer placing the advertisement The name of the firm placing the ad must be disclosed. A generic (no-name) ad can never mention the name of the specific security being advertised. That is why it is called a generic ad. Since a specific security is not listed, performance of the security is not listed either. Generic advertisements for investment company securities are not filed with FINRA.

An announcement of a new issue of a security that gives the name of the issuer, the price and the name of the underwriter is called a(n):

tombstone. A tombstone is an announcement of a new issue that includes the name of the issuer, the price of the security, and the name of the underwriter from whom it can be purchased.

A preliminary prospectus...

(or red herring) is prepared after the filing of a registration statement with the SEC. It is the only item allowed to be given to prospective investors while gathering indications of interest during the cooling off period. May be used to gather indications of interest

What will be found in a final prospectus

- Date and offering price. - Business plan. - Statement that the SEC neither approves nor disapproves of the issue.

There are retention requirements for certain records of a broker-dealer. One of those is the firm's retail communications files. Under FINRA rules, copies of retail communications must be retained for:

3 years after last use. Although the file must be started from the date of first use, the 3 years record retention requirement begins from the date of final use of the piece.

All of the following are true regarding institutional communications EXCEPT

A) it includes communication to any entity with $50 million or more of total assets B) it may never be used with a retail investor C) it must have prior principal approval D) supervisory procedures regarding institutional communications must be readily available to FINRA Institutional sales material is not required to have prior principal approval, however each member shall establish written procedures for the review of institutional communications used by the member and its associated persons by an appropriately qualified, registered principal.

The provisions of the Securities Act of 1933 include all of the following EXCEPT:

A) prohibition of fraud in the sale of new securities. B) regulation of offerings of new securities. C) regulation of the secondary market. D) requirement that an issuer provide full and fair disclosure about an offering. The Securities Act of 1933 regulates new issues of corporate securities sold to the public and is designed to prevent fraud in the sale of newly issued securities. Trading and the secondary markets are regulated under the Securities Exchange Act of 1934.

Retail communications apply to all of the following EXCEPT

A) an email sent to 30 existing customers B) a public appearance C) billboard D) website Retail communications is defined as any written communication that is distributed or made available to more than 25 retail investors in any 30 calendar-day period.

All of the following are included under the term retail communication EXCEPT

A) research reports B) billboards C) Form letter distributed to 10 prospects per week D) internal memos Internal memos are not a type of public communication and therefore would not be governed under FINRA Rule 2210. Retail communication is defined as "any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period."

All of the following activities would be considered violations under FINRA rules EXCEPT:

A) when a broker-dealer places a paid advertisement in a local newspaper publicizing the range of investment banking services the firm has provided for locally based corporations. B) when a broker-dealer agrees to fund a major portion of the circulation expenses incurred by the publisher of a monthly investment newsletter in exchange for priority placements of news items and research opinions at the direction of the broker-dealer. C) when a featured columnist for a nationally distributed financial newspaper writes a favorable report on a certain company and is invited on an all-expenses-paid vacation sponsored by a market maker in that company's securities. D) when a broker-dealer offers sales incentives in the form of higher commissions to agents, but only on buy orders for a select list of equity securities in which the firm makes markets. Activities designed to manipulate the market in exchange for a direct or indirect payment, or to enhance sales of securities to those for whom they may not be suitable, are prohibited. Merely placing an advertisement publicizing investment banking services is not an attempt to do either of these.

According to the Conduct Rules, a FINRA member firm may give certain selling concessions to what?

Other member firms. Members may give other members selling concessions, but sales to the public and to nonmember firms must be made at the public offering price.

Under which of the following circumstances could a member firm make alterations to an article on securities before using it as an independently prepared reprint? I. The member firm could alter the presentation format to make it consistent with regulatory standards. II. The member firm could correct the reported number of shares being offered if the original article stated the number incorrectly. III. The member firm could make alterations, provided the article was commissioned by the issuer, not the member firm itself. IV. The member firm could make alterations of content as long as the publisher of the article was an affiliate of either the issuer or the member firm.

I & II. An article may be used as an independent reprint if the publisher is not affiliated with the issuer or the member firm in any way. The member firm may alter the contents of an independently prepared reprint only to correct factual errors or to make the article consistent with regulatory standards.

Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE? I. The material used to solicit the sale of mutual fund shares requires prior approval by a principal of the firm. II. FINRA must review all mutual fund retail communications within three days of its first use. III. If the mutual fund sponsor has had the literature reviewed by FINRA in advance, other firms need not submit it. IV. FINRA must review all mutual fund sales literature within seven days of its first use.

I & III. A firm's principal must approve all retail communications before use. If FINRA has reviewed the literature, it need not be submitted by every broker-dealer intending to use it. The FINRA review requirement is within 10 days of first use.

Which of the following is a form of retail communication? I. A form letter sent to more than 25 prospective retail customers within a 30-day period II. A letter to a prospect outlining the details of a recent meeting III. An email sent to 30 banks promoting IV. a new service of the broker-dealer A form letter sent to 20 prospective retail investors and 20 existing customers within a 30-day period

I & IV. Retail communication is defined as "any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period." Emails sent to banks represent an institutional communication and the single letter to a prospect represents a correspondence.

Which of the following may a registered representative use to solicit an order for open-end investment company shares? I. An annual report II. A prospectus III. A summary prospectus IV. A preliminary prospectus

II & III. The prospectus, sometimes referred to as the statutory or final prospectus, is the most complete one and may always be used. A summary prospectus, sometimes called a Rule 498 summary, may also be used as long as the client can access one online. A preliminary prospectus (red herring) may NEVER be used to solicit anything more than an indication of interest—not an order.

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: I. it is pointed out that mutual funds have the advantage of federal backing. II. the risk of share price fluctuation is discussed. III. it is pointed out that mutual funds have the advantage of higher liquidity. IV. a statement is made concerning variability of dividend returns.

II & 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.

Which of the following securities documents are NOT prepared by a broker-dealer? I. A research report on a new company II. A prospectus III. An ad for a company's stock IV. A preliminary prospectus

II & IV. The prospectus and the preliminary prospectus are prepared by the issuer of a new security, not the broker-dealer who will sell it.

Your firm has prepared some institutional sales material on several of the securities it deals in and has provided it to three mutual funds. One of the fund managers calls your firm to ask for some extra copies of the material, because he would like to send it to some of his investor friends. This request:

May not be complied with if your firm wishes to continue to treat the material as institutional communications. Institutional communication is just that: institutional. A member firm may not distribute such material to anyone who is not an institutional investor and may not treat material as institutional if the firm has reason to believe that it will be, or has been, forwarded to anyone who is not an institutional investor.

To which securities market does the Securities Act of 1933 apply?

The new issue market. The Securities Act of 1933 covers the registration and disclosure requirements regarding new issues. The new issue market is also known as the primary market.

Written recommendations prepared by a research department for dissemination to the public need prior approval of:

a principal of the firm This would be classified as a type of retail communication and as such, prior principal approval is required before use.

The Securities Act of 1933 addresses:

full and fair disclosure The Securities Act of 1933 requires a prospectus and registration statement disclosing the relevant facts concerning a new issue to be filed with the SEC. The act further requires a prospectus to be distributed before or during a solicitation for sale so that a prospective purchaser will be fully informed and fairly treated.

If a company intends to issue one million shares of common stock, a tombstone advertisement for the company's stock:

may be published during the cooling-off period. A tombstone ad may be published by an issuer of common stock during the cooling-off period. A tombstone for an equity issue is not considered advertising by the SEC and is not subject to FINRA filing requirements. A tombstone offers information by telling investors where they can acquire a prospectus about the issue. It does not replace a prospectus and does not constitute an offer to sell securities.

An application to open an account with an open-end investment company would be found:

online if the prospectus can be downloaded from that site. An application to open an account with an open-end investment company is considered a sales solicitation. Because they are continuous primary offerings, mutual funds must always be sold with a prospectus. Online sales are permitted if a copy of the prospectus can be downloaded from the fund's website.

According to the Conduct Rules, a member firm may give certain selling concessions to:

other FINRA member firms. Members of FINRA may give other member firms concessions but must deal with the public and nonmembers at the public offering price.