A fund's 12b-1 fees may not be used to pay which of the following?
Answer(s): D
A fund's 12b-1 fees may not be used to pay the administrative expense of the fund's investment adviser. This would be part of the fund's management fees. SEC rule 12b-1 authorizes a fund to pay for distribution costs out of a fund's assets only if the fund has adopted a 12b-1 plan. The SEC defines these distribution costs to include the costs of marketing and selling the fund shares, including compensating brokers who help to sell the shares, and printing and mailing prospectuses and sales literature to existing and prospective customers.
What did the Howey Decision?
Answer(s): B
The Howey Decision defined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others. General partnerships do not fall under the definition of investment contracts since the general partners are actively involved in the business operations. Although both fixed annuities and bank CDs are excluded from the definition of a security, this was not part of the Howey Decision.
A discretionary account authorization permits a registered representative to decide:
A discretionary account authorization permits a registered representative to decide on all three issues-whether to make a purchase or a sale; what specific asset should be purchased or sold; and how much of that asset to buy or sell.
Total Investments, a family of mutual funds, has prepared some new PowerPoint slides that it will use at a free financial planning seminar it offers to the general public. The new slides:I). must be signed and dated by a registered principal of Total Investments.II). must be filed with FINRA 10 business days prior to their first use.III). must be kept in a separate file by Total for three years after the date of their first use.
Answer(s): C
Only Selections I and III are correct. The PowerPoint slides that are being used at a financial planning seminar fall under the definition of sales literature and, as such, must be signed and dated by a registered principal of Total Investments and must be maintained in a separate file by Total for three years after the date of their first use. Sales literature must also be filed with FINRA within 10 business days of first use, but not prior to the first use, unless it concerns bond volatility ratings.
The AGRO Mutual Fund invests in aggressive growth stocks of midcap corporations. The fund is running an advertisement on the radio that informs the listeners that AGRO earned a 22% return last year while the S&P 500 Index returned only 10%. The ad also contains information regarding how an interested investor can contain a fund prospectus.Has AGRO violated any securities laws with this advertisement?
Yes. When AGRO runs an advertisement that informs the listeners that it earned a 22% return last year while the S&P 500 Index returned only 10%, it has violated securities laws because although the fund provided the return on the S&P 500 as well as its own return, it failed to mention that the S&P 500 Index is comprised of large company stocks of average risk, which is not an appropriate benchmark for AGRO to use. The appropriate index is one comprised of similar stocks, such as the Russell Mid-Cap Growth Index. Furthermore, any advertisement referencing past returns must contain a statement that past performance is not indicative of future performance.
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