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Series 26

Sales Activities - Investment Company Names


A materially deceptive and misleading name of a fund includes:

Names Suggesting Guarantee or Approval by the United States Government
A name suggesting that the fund or the securities issued by it are guaranteed, sponsored, recommended or approved by the United States government or any United States government agency or instrumentality, including any name that uses the words "guaranteed" or "insured" or similar terms in conjunction with the words "United States" or "U.S. government".

Names Suggesting Investment in Certain Investments or Industries
A name suggesting that the fund focuses its investments in a particular type of investment or investments, or in investments in a particular industry or group of industries, unless:
  • The fund has adopted a policy to invest, under normal circumstances, at least 80% of the value of its assets in the particular type of investments, or in investments in the particular industry or industries, suggested by the fund's name; and

  • The fund has adopted a policy to provide the fund's shareholders with at least 60 days prior notice of any change in the policy.
Names Suggesting Investment in Certain Countries or Geographic Regions
A name suggesting that the fund focuses its investments in a particular country or geographic region, unless:
  • The fund has adopted a policy to invest, under normal circumstances, at least 80% of the value of its assets in investments that are economically tied to the particular country or geographic region suggested by its name;

  • The fund discloses in its prospectus the specific criteria used by the fund to select these investments; and

  • The fund adopts a policy to provide the fund's shareholders with at least 60 days' prior notice of any change in the policy.
Tax-Exempt Funds: A name suggesting that the fund's distributions are exempt from federal income tax or from both federal and state income tax, unless the fund has adopted a fundamental policy under section 8(b)(3) of the act:
  • To invest, under normal circumstances, at least 80% of the value of its assets in investments the income from which is exempt, as applicable, from federal income tax or from both federal and state income tax; or

  • To invest, under normal circumstances, its assets so that at least 80% of the income that it distributes will be exempt, as applicable, from federal income tax or from both federal and state income tax.
The deceptive and misleading definitions apply at the time the fund invests the assets. If, subsequent to an investment, these requirements are no longer met, the fund's future investments must be made in a manner that will bring the fund into compliance with those paragraphs.

Exam Tips and Tricks
Watch for this timing issue in exam questions - if the fund does not meet the criteria due to investment performance after the time of investment, the name is not considered misleading.

Next: FINRA Conduct Rule 2420 »


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