Chapter 12.3

Question 1

All transactions in an open-end investment company by a RR must be reviewed and endorsed by who?

Answer 1

A FINRA Principal, which could include partners, duly accredited executives, or a branch office manager.

Question 2

A FINRA member may purchase shares of an open-end investment company from the underwriter only:

Answer 2

• For its own investment account or
• To cover purchase orders already received
  
  • A FINRA member may not purchase shares of an open-end investment company from the underwriter to hold in inventory and later sell at a profit or loss out of their inventory to a customer.
  • FINRA members must pay underwriters “promptly” for investment company shares sold to customers

Question 3

A B/D may only purchase shares of an open-end investment company from a FINRA member who is a principal underwriter at a price other than the public offering price if:

Answer 3

• The buying B/D is also a member of FINRA, and

- A written sales agreement is in effect between the parties at the time of the sale

Question 4

A conditional order for open-end investment company shares can only be accepted by an underwriter…

Answer 4

At a specific price

Question 5

IF a RR is recommending that investors spread their investments between two different families of funds, what must the RR disclose?

Answer 5

They must disclose to the investors that they may qualify for breakpoints if the entire investment was made within the same family of funds.

Question 6

How are open end investment companies sold?

Answer 6

They are new issues so they cannot be sold using magazine articles or sales literature. New issue are sold based on delivery of a prospectus. Open-end investment company shares cannot be purchased on margin.
-After a mutual fund or UIT has paid for in full and held for 30 days or more it can be transferred into a margin account and credit can be extended to generate excess equity.

Question 7

Class A Shares of Open-end investment companies

Answer 7

Charge investors an upfront sales charge which cannot exceed 8.5% under FINRA rules. They offer the lowest annual expense charges.

Question 8

Class B Shares of Open-end investment companies

Answer 8

Back-end loaded funds that have a contingent deferred sales load. Expense charges are higher for Class B shares than for Class A shares. The sales load is charged on a declining scale. Therefore the longer the investor owns the shares, the lower the sales load will be.

Question 9

Class C Shares of Open-end investment companies

Answer 9

No upfront sales load and no back end load but have the highest annual expense charges.

Question 10

Maximum sales charges for the investment company act of 1940

Answer 10

States the maximum sales charge is 9% on periodic payment plans over the life of the plan.

Question 11

Maximum sales charges under FINRA Rules

Answer 11

States teh maximum sales charge on any contractual plan mutual fund transaction is 8.50% of the public offering price.
-The lowest price at which an underwriter may sell shares of an open-end investment company to a member is the net asset value per share

Question 12

Report requirements

Answer 12

Audited reports to the SEC must be filed by investment companies when requested by the SEC(minimum is annually).

Question 13

Every investment company must send it’s shareholders certain information at least semi-annually including:

Answer 13

• The balance sheet
• The statement of income
• A list of security holdings

Question 14

Who safeguards the cash and securities of the investment company fund?

Answer 14

A custodian bank. Such banks provide clerical services only.

Question 15

If a mutual fund is going to publish performance figures on a member firm’s website:

Answer 15

• It must display standardized performance figures as prominently as non-standardized performance figures
• The member firm may use hyperlinks to present performance figures

Question 16

When a B/D handles an order from a customer to buy shares of a mutual fund, the B/D must:

Answer 16

• Deliver a prospectus
• Assist the customer in the completion of the fund’s application
• Forward the signed and completed application to the fund’s transfer agent

**A buy order ticket would not have to be completed

Question 17

In advertising of mutual funds, the ad must disclose:

Answer 17

• Standardized performance information
• The maximum sales charges
• Total annual fund operating expense ratio

**This information must be set forth in a prominent text box which contains only this information.