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Questions and Answers
Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE? (Select all that apply)
Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE? (Select all that apply)
- I and III (correct)
- II and III
- I and IV
- II and IV
Which of the following describes the price of a Class A mutual fund share paid by a dealer on contract with the fund's underwriter?
Which of the following describes the price of a Class A mutual fund share paid by a dealer on contract with the fund's underwriter?
- Public offering price minus the sales charge
- Public offering price minus the underwriter's concession
- Net asset value plus the underwriter's concession (correct)
- Net asset value plus the dealer's reallowance
All of the following are considered public communications EXCEPT:
All of the following are considered public communications EXCEPT:
- Prospectuses (correct)
- Telephone directory advertisements
- Market letters
- Research reports
Under the rules on communications with the public, filing of advertisements must be done:
Under the rules on communications with the public, filing of advertisements must be done:
Mutual fund shares that carry a level load are:
Mutual fund shares that carry a level load are:
If an investor liquidates 200 shares of ACE Fund purchased at a POP of $11.60 and with a NAV of $10.60, experiencing a current POP of $12.50 and current NAV of $11.50, what will the outcome be?
If an investor liquidates 200 shares of ACE Fund purchased at a POP of $11.60 and with a NAV of $10.60, experiencing a current POP of $12.50 and current NAV of $11.50, what will the outcome be?
The definition of retail communication includes:
The definition of retail communication includes:
A broker/dealer with a sales agreement with a mutual fund must return all concessions to the underwriter if a customer redeems his shares:
A broker/dealer with a sales agreement with a mutual fund must return all concessions to the underwriter if a customer redeems his shares:
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Study Notes
FINRA Regulations on Mutual Fund Literature
- All sales literature for mutual funds requires approval from a firm's principal before use.
- If FINRA reviews the material beforehand, subsequent firms do not need to resubmit it.
- FINRA's review timeline is within 10 days of the material's initial use.
Pricing of Class A Mutual Funds
- Class A mutual fund shares are purchased at net asset value (NAV) plus the underwriter's concession.
- The underwriter sells the shares to the dealer, adding their concession before the public offering price (POP) is set.
Definition of Public Communications
- Prospectuses are not classified as public communications as they are prepared by issuers and not broker/dealers.
- Public communications include telephone directory ads, research reports, and market letters.
Advertising Rules for Established Firms
- Established firms may file advertisements within 10 business days after first use, unlike new firms that must pre-file 10 days in advance.
- This rule applies to firms that have been in operation for over one year.
Mutual Fund Share Classes
- Class C shares carry a level load via a 12b-1 charge, distinguishing them from Class A and B shares, which have front-end and back-end loads, respectively.
Investor Gain/Loss Calculation
- An investor who bought 200 shares at a POP of $11.60 and now liquidates at a NAV of $11.50 incurs a total loss of $20.
- The loss is calculated based on the difference between the purchase price and the liquidation value multiplied by the number of shares.
Understanding Retail Communication
- Research reports are considered retail communication, while memos, emails to investment companies, and television interviews are classified differently.
Redemption and Concessions
- A broker/dealer must return concessions to the underwriter if a customer redeems shares within a specified period following purchase, highlighting the importance of timelines in transactions.
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