Series 6 Seeking Business and Communications Practice Questions
Question 1
Which description fits an offering made under Rule 506(b) of Regulation D?
- A. Sales to a maximum of 35 purchasers of any type, with general solicitation allowed through media advertisements, provided each purchaser signs a subscription agreement
- B. Sales to accredited investors only, with a cap of 35 in any 12-month period and no information requirements
- C. Sales to any number of accredited investors and up to 35 sophisticated non-accredited purchasers, never using general solicitation
- D. Sales to any number of accredited and non-accredited purchasers, so long as each receives a registered prospectus
Show answer and explanation
Correct answer: C. Sales to any number of accredited investors and up to 35 sophisticated non-accredited purchasers, never using general solicitation
Rule 506(b) allows unlimited accredited investors plus up to 35 non-accredited investors who are sophisticated, but general solicitation is not permitted. Non-accredited purchasers must receive specified disclosure, and the issuer files a notice with the SEC.
- A. General solicitation is not permitted under 506(b).
- B. Accredited purchasers are not capped at 35 under 506(b).
- C. 506(b) permits unlimited accredited buyers and up to 35 sophisticated non-accredited buyers, with no general solicitation.
- D. A registered prospectus is not part of a private placement.
Question 2
Which fund may properly describe itself as "no-load" under FINRA rules?
- A. A fund with no front-end load and a 12b-1 fee of 0.75% that is used entirely for distribution costs
- B. A fund with no front-end load but a contingent deferred sales charge of 1% on shares sold in the first year
- C. A fund with no front-end load and a 0.50% 12b-1 fee that is used entirely to pay for shareholder services
- D. A fund with no front-end or deferred sales charge and an annual 12b-1 fee of 0.25% of average net assets
Show answer and explanation
Correct answer: D. A fund with no front-end or deferred sales charge and an annual 12b-1 fee of 0.25% of average net assets
A fund may not be called no-load if it has a front-end or deferred sales charge or an annual 12b-1 or service fee above 0.25% of average net assets. A fund with no sales charges and a 12b-1 fee of 0.25% still qualifies.
- A. A 0.75% fee exceeds the 0.25% cap on no-load funds.
- B. A deferred sales charge disqualifies the fund from the no-load label.
- C. A 0.50% fee exceeds 0.25% even when it is used for shareholder services.
- D. With no front or deferred load and a 12b-1 fee at the 0.25% limit, the no-load label is allowed.
Question 3
Which feature identifies a preliminary prospectus, often called a red herring?
- A. A final offering price and the signed underwriting agreement, which together show the issue has been priced for sale
- B. A red-ink legend stating the registration statement is not yet effective and the information is subject to change, with no final offering price
- C. A statement in blue ink that the SEC has approved the securities as suitable for retail investors
- D. A legend that the securities are offered to accredited investors in a private placement exempt from registration
Show answer and explanation
Correct answer: B. A red-ink legend stating the registration statement is not yet effective and the information is subject to change, with no final offering price
The preliminary prospectus carries a red legend stating the registration statement has been filed but is not yet effective, that the information may change, and that the securities cannot be sold until effectiveness. It omits the final price.
- A. A final price and signed agreement belong to the final prospectus stage after effectiveness.
- B. The red legend and missing final price define a preliminary prospectus.
- C. The SEC does not approve securities, and the legend does not say so.
- D. A private placement is a different offering type and is not the source of the red legend.
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Explore careers at ParsonexQuestion 4
Under the SEC's fund names rule, what must a fund named "Large-Cap Growth Fund" do?
- A. Hold 100% of its assets in large-capitalization growth stocks at every point in time, without exception
- B. Invest at least 80% of its assets in the type of investments suggested by its name, under normal circumstances
- C. Invest at least 50% of its assets in large-company stocks and may hold the remainder in any other category
- D. Disclose in its advertising that the name is a marketing label and does not bind the fund's actual holdings under any circumstances that arise
Show answer and explanation
Correct answer: B. Invest at least 80% of its assets in the type of investments suggested by its name, under normal circumstances
The names rule requires a fund whose name suggests a particular type of investment, industry, or geography to adopt a policy of investing at least 80% of its assets in those investments. A misleading name can make a communication misleading.
- A. The rule requires an 80% policy, not full investment at all times.
- B. The 80% policy requirement ties the fund's holdings to what its name tells investors.
- C. A 50% threshold is below the required 80% level.
- D. A name cannot be disclaimed as a mere label, because it must reflect the fund's investments.