Series 6 Unit 1
Which of the following is accurate with regard to using a summary prospectus for the sale of a mutual fund? A statutory prospectus must precede or accompany delivery of the summary prospectus. A statutory prospectus may be delivered after the summary prospectus. Electronic delivery of the statutory prospectus is allowed after the sale. A paper prospectus must be delivered within 3 days of the sale.
A) II and III
Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE? The material used to solicit the sale of mutual fund shares requires prior approval by a principal of the firm. FINRA must review all mutual fund retail communications within three days of its first use. If the mutual fund sponsor has had the literature reviewed by FINRA in advance, other firms need not submit it. FINRA must review all mutual fund sales literature within seven days of its first use.
B) I and III.
All of the following communications may be filed with FINRA by an established firm within 10 business days after use EXCEPT
literature on an investment company that includes a ranking prepared by the member firm
An agent may deliver a preliminary prospectus for an IPO:
B) while the issue is in registration.
Which of the following entities must review retail communications for investment company shares prepared by principal underwriters? Principal of the underwriting broker-dealer distributing the shares FINRA SEC NYSE
B) I and II
If a company intends to issue one million shares of common stock, a tombstone advertisement for the company's stock:
B) may be published during the cooling-off period.
When comparing investment alternatives, all of the following must be considered EXCEPT:
B) state of incorporation of the companies.
To which securities market does the Securities Act of 1933 apply?
C) 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.
You have supplied a summary prospectus for a mutual fund to a customer rather than the full prospectus. The customer would like to purchase the fund immediately. Under what circumstances could you enter the order?
C) You may enter the order only if he is able to access a statutory prospectus online.
A national financial magazine advertisement for ABC mutual funds is permitted to include all of the following EXCEPT:
C) an application to invest.
If an individual purchases open-end investment company shares without first receiving a prospectus, the registered representative is in violation of the Act of:
D) 1933
Which of the following forms of written communication must a principal approve before use?
D) A Letter sent this month to 50 prospective customers offering advice about a stock
Statutory prospectus
full or final prospectus
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
Which of the following pieces of sales material is exempt from routine spot-checking by FINRA?
A) A public communication that simply offers a specific security at a specific price
If a registered representative is comparing two mutual funds for a customer, which of the following comparisons would NOT be permissible?
A) Comparing an equity growth fund to a money market fund with the intention of convincing an investor to purchase the growth fund. A characteristic of money market funds is that they deliberately avoid growth. Thus, for the growth investor, a comparison of a money market fund to a growth fund is an unfair comparison.
Under the rules on communication with the public, review of which of the following by a principal may take place either before or after distribution?
A) Correspondence to 25 or fewer retail investors within any 30 calendar-day period
Which of the following is classified as an independently prepared reprint (IPR)?
A) Wall Street Journal article on investing
A registered representative places an ad in her church newsletter promoting her services as an expert retirement planner. Does this advertisement need to be pre-approved by a principal?
A) Yes, the ad will be defined as retail communication requiring pre-approval of a principal. Although it isn't specified that the ad will be received by more than 25 retail investors during a 30-day period, the best answer is the ad will be defined as retail communication requiring pre-approval of a principal. How retail communication is delivered in this question is not relevant (mailed as opposed to handed out); whether promoting a service or product, either would need pre-approval, and the fact that the ad is placed in a church newsletter provides no exemption from pre-approval requirements.
Written recommendations prepared by a research department for dissemination to the public need prior approval of:
A) a principal of the firm.
A meeting between the issuer and underwriter to ensure that the prospectus is true and accurate is called:
A) due diligence meeting. The final meeting before the end of the cooling-off period is known as a due diligence meeting and is always held before the effective date of the new offering.
A preliminary prospectus:
A) may be used to gather indications of interest.
An application to open an account with an open-end investment company would be found:
A) 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.
Filing with FINRA is required for mutual fund-related
A) retail communication
All of the following must be disclosed in a mutual fund communication containing performance data EXCEPT
A) the SEC disclaimer stating that the securities have not been approved or disapproved by the SEC The SEC disclaimer is not required in public communication. The no-approval clause must be included in the prospectus.
An investor must be provided with a statement of additional information about a mutual fund:
A) upon request.
All of the following are exempt securities EXCEPT:
D) municipal bond funds. While municipal bonds are an exempt security, bond funds are not; they are investment company securities which must be registered with the SEC prior to public sale.
All of the following activities would be considered violations under FINRA rules EXCEPT:
D) 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.
All of the following actions are potential violations EXCEPT:
sending a copy of a newspaper article (with supervisory approval) about a company whose stock is being solicited
Which of the following is a form of retail communication? A form letter sent to more than 25 prospective retail customers within a 30-day period A letter to a prospect outlining the details of a recent meeting An email sent to 30 banks promoting 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
D) I and IV
An issuer who sells mutual funds that have been registered under the Securities Act of 1933 is allowed to make which of the following statements?
D) The securities offered are registered with the SEC.
When must a mutual fund investor receive a statement of additional information (SAI)?
D) Upon request.
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 III 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.
Which of the following statements are TRUE of the Securities Act of 1933? The act only applies to listed securities traded over the counter. The purpose of the requirements for registration and a prospectus is to provide full disclosure of pertinent information to the public. The act is designed to prevent fraud in the sale of newly issued securities. The act regulates exchanges and the OTC market.
A) II and III.
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) II and IV.
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) II and IV.
A registered representative at your firm made a public appearance that was not subject to the rules of conduct regarding public appearances. Which of the following might it have been?
B) Announcement on television that your firm's offices have moved. The television appearance did not involve mention of securities. The others all fit into the definition of public appearance and are required to meet the same standards as other communications with the public.
Under which of the following terms does the underwriter act in a dealer capacity?
B) Firm Commitment
The ABC Corporation would like to raise capital via a Regulation D private placement. In order to qualify for an exemption from registering with the SEC under Rule 506, which of the following is true? Advertising is allowed if only accredited investors may purchase the securities. Advertising is not allowed if selling to a minimum of 35 nonaccredited investors. If selling to a minimum of 35 accredited investors, general solicitation is allowed. If selling to nonaccredited investors, general solicitation is not allowed.
B) I and IV If the private placement sells to any nonaccredited investors (with the maximum number being 35) no advertising or general solicitation is allowed. If the sale is exclusively to accredited investors, the private placement may advertise.
An investment company offering securities registered under the Act of 1933 may make which of the following statements? "The SEC has passed on the merits of these securities as an investment." "The SEC has released our securities for sale to the public." "The SEC has passed on the accuracy of the information in our prospectus." "The SEC has declared this prospectus effective."
B) II and IV. When a security registers with the SEC, the date sales are allowed is known as the effective date. The SEC neither approves nor disapproves an issue, nor does it pass on the accuracy or adequacy (completeness) of the information presented in a prospectus.
Retail communications apply to all of the following EXCEPT
B) a public appearance 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.
If a registered representative wishes to place an advertisement in a local newspaper offering her services as a mutual fund representative for XYZ Funds, the advertisement must be approved by:
B) a registered principal.
All of the following must be sold with a prospectus EXCEPT
B) closed-end funds in the secondary market
The Securities Act of 1933 addresses:
B) full and fair disclosure.
A generic ad for an investment company placed by a broker-dealer would contain:
B) the name of the broker-dealer placing the ad, but not the name of the investment company. Generic advertising of investment companies presents a nonspecific introduction to investment company shares. A specific fund or investment company is not mentioned in generic advertising, but the broker-dealer who is placing the ad must be named.
Which of the following securities is NOT exempt from the registration provisions of the Securities Act of 1933?
C) A new stock being offered in 3 states. Government securities, debt offerings with a maturity not exceeding 270 days, and intrastate offerings are exempt from the registration provisions of the 1933 Act. A stock being offered in three states would have to register with the SEC and with those states unless qualifying for an exemption as a federal covered security.
The managing underwriter has indicated it is unlikely the issuer can sell $100 million of common stock to the public. In which of the following types of offerings does a syndicate have no financial obligation for unsold securities
C) Best efforts
Which of the following constitute a public appearance? Interactive electronic forum. Radio advertisement. Television commercial. Television interview.
C) I and IV.
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
C) Name Rule
Your firm is doing interviews of the top candidates from among those who responded to a recruiting advertisement. Advertising rules require that:
C) both the job opportunity and the industry itself be represented honestly.
The Securities and Exchange Commission regulates all of the following EXCEPT:
C) intrastate securities offerings.
In the sale of open-end investment company shares, the prospectus:
C) must be delivered to the client either before or during the sales solicitation.
TCB wants to offer $57 million worth of common stock in its home state and in three other states. To clear the offer for sale, TCB must file a(n):
C) registration statement. TCB must file a standard registration statement because it is a nonexempt issuer selling securities interstate.
Regarding communications, filing with FINRA is required for
C) retail communication that includes a ranking by an independent entity
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? The member firm could alter the presentation format to make it consistent with regulatory standards. The member firm could correct the reported number of shares being offered if the original article stated the number incorrectly. The member firm could make alterations, provided the article was commissioned by the issuer, not the member firm itself. 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 and II.
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.
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.
Retail Communications
IS WRITTEN ONLY