Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

During the cooling-off period, may a preliminary prospectus be sent to potential purchasers?

1. No, only final prospectuses can be sent

2. Yes, but it must include final pricing

3. No, it is wholly prohibited

4. Yes, to provide indications of interest

The correct answer is: Yes, to provide indications of interest

During the cooling-off period, a preliminary prospectus, also known as a "red herring," can indeed be sent to potential purchasers. This document serves to provide prospective investors with information about the offering and allows them to review the issuer’s business, financial situation, and the details of the securities being offered. However, it's important to note that this preliminary prospectus does not include final pricing details. The primary purpose of sending this document during the cooling-off period is to generate interest and gather indications of interest from potential investors without committing them to a purchase. This activity is critical as it helps issuers gauge investor demand prior to finalizing the offering terms, and it sets the stage for pricing decisions based on the interest expressed. Thus, allowing the distribution of a preliminary prospectus is a customary practice in the regulatory framework surrounding new securities offerings.