FINRA Series 6 — All Questions

A bond fund's prospectus limits it to investment-grade bonds. Which bond would the fund be allowed to buy?

• a.A bond rated BB+ by S&P Global Ratings
• b.A bond rated BB- by Fitch Ratings
• c.A bond rated BBB- by S&P Global Ratings✓
• d.A bond rated Ba1 by Moody's Ratings

Investment grade runs down to BBB- at S&P and Fitch and Baa3 at Moody's. BB+, Ba1, and B- are all below that line, which makes them speculative (high-yield) grades.Bond credit ratings

Under FINRA rules, a mutual fund may call itself no-load only if it has no front-end or deferred sales charge and its 12b-1 fees do not exceed:

• a.1.00% of average net assets a year, the combined 12b-1 cap
• b.0.25% of average net assets a year, the service fee level✓
• c.0.50% of average net assets a year, half the combined cap
• d.0.75% of average net assets a year, the asset-based sales charge cap

A fund calling itself no-load can charge no sales charge and no more than 0.25% in 12b-1 fees. The 0.75% and 1.00% figures are the caps on the sales-charge portion and the total 12b-1 fee for funds that are not no-load.FINRA Rule 2341(d)

What does tracking error measure for an index fund?

• a.The share of the fund's trades executed away from the closing NAV
• b.The gap between the fund's return and its benchmark's return✓
• c.The spread of the fund's returns around its own average return
• d.The sensitivity of the fund's return to moves in the overall market

Tracking error shows how closely an index fund follows its benchmark, and costs, cash drag, and sampling cause it. The spread of returns is standard deviation, sensitivity to the market is beta, and trade execution is unrelated.Index funds

A client compares a target-date 2060 fund with a target-date 2030 fund. Which statement is accurate?

• a.The 2060 fund holds the same mix as the 2030 fund and never changes it
• b.The 2060 fund holds less stock now and moves toward stock as 2060 nears
• c.The 2060 fund holds only bonds now and adds stock as 2060 nears
• d.The 2060 fund holds more stock now and moves toward bonds as 2060 nears✓

Target-date funds follow a glide path: they start aggressive for investors far from the date and shift to a more conservative mix as the date approaches. The 2030 fund is already well along that path, so it holds less stock than the 2060 fund.Target-date funds

An investor signs a 13-month letter of intent to invest $100,000 to earn a breakpoint, but invests only $60,000 by the end of the period. What is the result?

• a.The investor pays a 1% penalty fee, but keeps the lower sales charge on the $60,000
• b.The letter is void, so the fund refunds all of the sales charges the investor has paid
• c.A higher sales charge applies to the amount invested, adjusted from escrowed shares✓
• d.The lower $100,000 sales charge still applies, because the investor signed the letter

A letter of intent is not binding on the investor, but it is on the sales charge: if the stated amount is not reached, the sales charge is recalculated at the rate for the amount actually invested, and the fund collects the difference, usually from shares held in escrow.Letter of intent

A 58-year-old owner of a variable annuity dies during the accumulation phase. Premiums paid were $100,000, no withdrawals were taken, and the account value has fallen to $90,000. The contract carries a standard return-of-premium death benefit. What does the named beneficiary receive?

• a.$0
• b.$90,000
• c.$110,000
• d.$100,000✓

A return-of-premium death benefit pays the greater of account value or premiums paid less withdrawals, so the beneficiary receives $100,000. Paying only $90,000 would ignore the guarantee. No age-based step-up is built into a return-of-premium benefit, and the contract does not simply end at death during accumulation; the death benefit is the reason the guarantee exists.

A variable annuity offers a guaranteed lifetime income rider. Which resource ultimately stands behind that guarantee?

• a.FDIC deposit insurance covering the contract value
• b.The separate account's subaccount portfolios and their returns
• c.The insurer's general account and its claims-paying ability✓
• d.SIPC coverage that protects the contract against market declines

Contractual guarantees such as income riders and death benefits are obligations of the insurer's general account, so they are only as strong as the insurer. Subaccount assets sit in the separate account, are held for owners and carry market risk, so they do not back a guarantee. FDIC insurance applies to bank deposits, not annuities. SIPC protects against a failed broker-dealer, never against investment loss.

A variable life policy has a $250,000 death benefit. The insured dies with a $30,000 policy loan outstanding and $2,000 of unpaid loan interest. What does the beneficiary receive?

• a.$250,000
• b.$282,000
• c.$218,000✓
• d.$220,000

Loans and accrued interest are deducted from the death benefit: $250,000 minus $30,000 minus $2,000 is $218,000. Paying the full face would let the loan vanish. Leaving out the interest gives $220,000, but the insurer subtracts every dollar owed. Adding the loan to the face amount reverses the arithmetic, since a loan is money already advanced to the owner.

A variable life insurance owner dies while a policy loan is outstanding. How is the death benefit paid?

• a.The loan is forgiven and the full face is paid
• b.The beneficiary must first repay the loan balance
• c.The policy lapses and nothing at all is paid out
• d.The death benefit is reduced by the loan✓

An outstanding policy loan, plus any accrued interest, is subtracted from the proceeds, so the beneficiary receives the death benefit net of the loan. Loans are not forgiven at death. The insurer deducts the balance itself, so the beneficiary does not repay it beforehand. Death ends the contract by claim, and a loan at death does not cause a lapse that cancels the benefit.Variable life insurance contract terms

After two years of poor subaccount performance, a variable universal life owner who pays only the minimum premium receives a lapse warning. What is the most likely cause?

• a.Cash value is too low to cover the monthly cost of insurance and charges✓
• b.The owner repaid a policy loan ahead of schedule
• c.The insurer's separate account became insolvent
• d.The policy has failed the seven-pay test and must be terminated

A universal-type policy lapses when cash value cannot cover monthly insurance and expense charges, and losses plus minimal premiums drain it. Failing the seven-pay test makes a policy a modified endowment contract but does not end coverage. Separate account assets are segregated from insurer creditors. Repaying a loan raises cash value, so it could never trigger a lapse.

A unit investment trust holds a portfolio of municipal bonds. One bond matures. What generally happens to the proceeds?

• a.The board of directors votes on how to reinvest them
• b.The portfolio manager buys a replacement bond to hold maturity constant
• c.The sponsor reinvests them in additional units
• d.Distributed to unit holders, not reinvested✓

A UIT holds a fixed portfolio with no active management, so maturing or called bonds are not replaced; principal is distributed to unit holders. A UIT has no portfolio manager who rebalances and no board of directors, so no one is voting on reinvestment. A sponsor cannot unilaterally buy more units with holders' money, since the trust is fixed at the outset.

A unit holder in a UIT wants to cash out two years before the trust terminates. Which statement is correct?

• a.They cannot be sold before the termination date
• b.They can be redeemed with the trustee at NAV✓
• c.They can be sold only to another unit holder at a negotiated price
• d.They can be sold only on a national securities exchange

UIT units are redeemable, and sponsors usually maintain a secondary market at a price based on net asset value. They do not trade on exchanges like closed-end fund shares. Early exit is allowed, though the proceeds depend on the NAV of the underlying securities. The buyer is the trustee or sponsor, not a negotiated deal between unit holders.

A closed-end fund has a NAV of $12.00 per share and trades at $10.80 on an exchange. At what discount is it trading?

• a.12.0%
• b.10.0%✓
• c.1.2%
• d.11.1%

The discount is measured against NAV: ($12.00 minus $10.80) divided by $12.00 is 10.0%. Dividing the $1.20 gap by the $10.80 market price gives 11.1%, which uses the wrong base. Quoting the dollar difference as a percentage mixes units. The 12.0% figure has no basis in the premium and discount formula.

An open-end fund has total assets of $52 million, liabilities of $2 million and 2.5 million shares outstanding. What is its NAV per share?

• a.$19.20
• b.$20.00✓
• c.$21.60
• d.$20.80

NAV equals assets minus liabilities, divided by shares: ($52 million minus $2 million) divided by 2.5 million is $20.00. Skipping liabilities gives $20.80. Subtracting the $2 million twice gives $19.20, and adding it gives $21.60. Each of these errors treats what the fund owes incorrectly.

A mutual fund has a NAV of $19.00 and a 5% sales charge stated as a percentage of the public offering price. What is the public offering price?

• a.$18.05
• b.$19.95
• c.$20.00✓
• d.$19.00

The charge is 5% of the offering price, so NAV is 95% of it: $19.00 divided by 0.95 is $20.00, and the $1.00 difference is the sales charge. Multiplying NAV by 1.05 takes 5% of the wrong base. Subtracting 5% moves the price the wrong direction. Load funds sell at the offering price, not NAV.

Which share class typically carries a back-end sales charge that declines the longer shares are held and then converts to a lower-cost class?

• a.Class I, offered mainly to institutional investors
• b.No-load shares, which have no sales charge at all
• c.Class A, which charges a front-end load at purchase
• d.Class B, which converts to Class A in later years✓

Class B shares charge a contingent deferred sales charge that steps down each year, and they typically convert to Class A after several years. Class A charges its load up front at purchase. Institutional Class I shares generally carry no sales charge and no conversion feature. No-load shares have no sales charge to decline at all.

A mutual fund wants to describe itself as no-load. What is the highest 12b-1 fee it may charge and still use that label?

• a.1.00% of average net assets per year
• b.Zero, because any 12b-1 fee bars the label
• c.0.75% of average net assets per year
• d.0.25% of average net assets per year✓

Under FINRA Rule 2341 a fund may call itself no-load only if its 12b-1 fees, which here would be only the service-fee component, stay at 0.25% of average net assets or less. The 0.75% figure is the cap on the asset-based sales charge alone, and 1.00% is the combined cap, so both are too high for the label. A small service fee is permitted, so zero is not required.FINRA Rule 2341(d)

An investor places an order to buy 100 shares of an equity ETF during the trading day. How is the order executed?

• a.Through the transfer agent at the day's closing NAV
• b.Directly from the fund at the NAV computed after the close
• c.On an exchange, at the prevailing market price✓
• d.From an authorized participant, who must sell a full creation unit

ETF shares trade on exchanges throughout the day at market prices, like stocks, with the counterparty being another investor or a market maker. Only authorized participants deal with the fund directly, and only in creation units. NAV-at-close pricing and transfer-agent execution describe how mutual fund shares are bought, which is the structural difference between the two.

An ETF's shares trade at a persistent premium to the value of its underlying holdings. How does the creation process tend to correct this?

• a.Authorized participants create new shares and sell them, lowering the price✓
• b.The fund's board lowers the NAV so it matches the market price
• c.Retail investors redeem directly with the fund at the premium price
• d.The sponsor suspends trading until the premium disappears

When the market price exceeds the value of the basket, authorized participants profit by delivering the securities, taking newly created ETF shares and selling them. The added supply moves the price back toward NAV. NAV is computed from holdings, so the board does not set it. Retail investors cannot redeem with the fund, and sponsors do not halt trading to fix premiums.

Why do broad-index ETFs typically distribute fewer capital gains than comparable index mutual funds?

• a.Redemptions are mostly in kind, so no holdings must be sold✓
• b.ETFs are exempt from distributing capital gains under Subchapter M
• c.ETFs never change their holdings once they have launched
• d.ETFs hold mostly tax-exempt securities, so no gains are realized

In-kind redemptions let an ETF hand low-basis shares to authorized participants instead of selling them, which limits realized gains. ETFs that are regulated investment companies still must pass through realized gains, so there is no exemption. ETFs hold ordinary taxable securities, and index ETFs do rebalance when the index changes.

An investor holds an exchange-traded note linked to a commodity index. The index rises, but the note falls sharply after its issuing bank's credit rating collapses. Which risk is this?

• a.Prepayment risk on the underlying commodity contracts
• b.Issuer credit risk, since the note is unsecured debt of the bank✓
• c.Tracking error from creation and redemption activity
• d.A closed-end fund discount to net asset value

An ETN is an unsecured debt obligation of its issuer, so its price reflects the issuer's creditworthiness as well as the index. Prepayment risk belongs to mortgage securities. ETNs hold no basket and have no creation-unit mechanism that produces tracking error. A closed-end discount belongs to a fund with a portfolio, and an ETN is not a fund.

A 2x leveraged ETF resets daily. An investor buys it at $100 when its index is flat. The index rises 10% on day one and falls 10% on day two. What is the ETF worth after day two?

• a.$98
• b.$100
• c.$96✓
• d.$99

Day one: $100 times 1.20 is $120. Day two: $120 times 0.80 is $96. The index itself finished at 0.99, down 1%, but daily compounding of leveraged returns produces a 4% loss. Assuming the moves cancel ignores the path. Doubling the 1% index loss ignores compounding, and $99 ignores the leverage.

A REIT reports a tax loss for the year. How does a shareholder treat that loss?

• a.It can offset only the shareholder's capital gains
• b.It passes through only to shareholders owning more than 5%
• c.It stays with the REIT and carries forward against its future income✓
• d.It passes through to offset the shareholder's ordinary income

A REIT is a pass-through for distributions, not for losses, so losses stay at the trust and are carried forward against its future income. Shareholders cannot use them against ordinary income or capital gains. No ownership threshold converts a REIT loss into a deduction, which is why REITs differ from limited partnerships.IRC Section 857(b)

A REIT has taxable income of $40 million for the year. What is the minimum it must distribute to keep its REIT status?

• a.$40 million
• b.$30 million
• c.$20 million
• d.$36 million✓

A REIT must distribute at least 90% of taxable income, which is $36 million here. The 75% figure comes from the REIT asset and income tests, not from the distribution requirement. Distributing 100% is not required, though the entity then pays corporate tax on what it retains. Fifty percent is far below the statutory floor.IRC Section 857(a)

A client is considering a non-traded REIT. Which feature should the representative stress as a key risk?

• a.Shares do not trade on an exchange, and repurchases may be capped✓
• b.Shares must be redeemed within seven days at NAV by law
• c.REITs are barred from owning commercial property
• d.The sponsor guarantees the monthly distributions

Non-traded REIT shares have no secondary market, and the sponsor's repurchase program can be capped or stopped, so investors can be locked in. The seven-day redemption requirement is a feature of open-end funds. Distributions are not guaranteed, and they can be paid partly from offering proceeds. REITs commonly own commercial property, such as offices and apartments.

Without changing the beneficiary, how often may a 529 plan account owner change the investment allocation of existing contributions?

• a.Only when the beneficiary turns 18
• b.Twice per calendar year✓
• c.Without limit, at any time
• d.Once every three years

Federal rules allow a 529 owner to redirect existing balances to different investment options twice per calendar year, and anytime the beneficiary changes. Once every three years is stricter than any rule. Unlimited changes could convert the account into a trading vehicle, which Congress prevented. The beneficiary's age does not gate the change.IRC Section 529(b)(4)

A 529 plan offers an age-based portfolio for a newborn. How will its allocation change over time?

• a.It converts to a fixed annuity at the age of 18
• b.It becomes more conservative as enrollment nears✓
• c.It stays fixed unless the owner reallocates
• d.It becomes more aggressive as enrollment nears

An age-based option follows a glide path, starting equity-heavy and shifting to bonds and cash as the enrollment date approaches, so there is less to lose when tuition bills arrive. A shift toward aggression would add risk exactly when the money is needed. The allocation changes automatically, and the plan holds no annuity conversion.

Which statement about a target-date fund is correct?

• a.Its allocation stays fixed for its entire life
• b.It must liquidate all holdings on the target date
• c.It guarantees full recovery of principal on the target date
• d.It shifts to bonds over time; no guarantee✓

Target-date funds rebalance along a glide path toward lower risk over time, yet nothing in the structure guarantees principal at the target date, and losses are possible even then. A fixed allocation would defeat the glide path. Many funds continue past the target date, with the allocation still adjusting, so liquidation on that date is not required.

A fund shareholder asks about a money market fund. Which statement is accurate?

• a.The Federal Reserve guarantees the $1.00 share price
• b.Shares are insured by the FDIC up to $250,000 per depositor
• c.Shares are uninsured, and the price can fall below $1.00✓
• d.SIPC coverage protects against any decline in share value

Money market funds are investment products that seek, but do not promise, a stable $1.00 share price. FDIC insurance covers bank deposits, not fund shares. SIPC protects against broker-dealer failure, not market loss. No federal agency stands behind the share price, and every prospectus carries a statement to that effect.

A registered index-linked annuity differs from a fixed indexed annuity in which way?

• a.It is a registered security with downside beyond a buffer✓
• b.It credits a fixed rate that is set once a year
• c.It is regulated only by state insurance departments
• d.It guarantees principal against all index losses

A RILA is a registered security, sold with a prospectus and subject to FINRA rules, with downside protection limited to a buffer or floor, so owners can lose money. A fixed indexed annuity typically guarantees principal. State-only regulation describes the fixed indexed annuity. A rate reset once a year describes a fixed annuity, not a RILA.

A variable annuity has a seven-year declining surrender schedule that charges 6% in year two. The account value is $100,000, and the contract allows a free withdrawal of 10% annually. The owner withdraws $20,000 in year two. What is the surrender charge?

• a.$1,200
• b.$2,000
• c.$0
• d.$600✓

The first $10,000 is free, so only the $10,000 excess carries the 6% charge, which is $600. Applying 6% to the whole $20,000 gives $1,200, ignoring the free amount. The withdrawal is double the free amount, so the charge is not zero. The 10% figure is the free-withdrawal allowance, not a surrender rate.

Under SEC Rule 2a-7, a money market fund's dollar-weighted average portfolio maturity may not exceed:

• a.90 days
• b.397 days
• c.60 days✓
• d.120 days

The weighted average maturity cap is 60 days. Ninety days was the limit before the 2010 amendments and no longer applies. The 120-day figure is the separate cap on weighted average life, which counts a floating-rate security's final maturity rather than its next reset. The 397-day figure limits the remaining maturity of any single portfolio security.17 CFR 270.2a-7

Under Rule 2a-7 as amended in 2023, what share of a money market fund's total assets must be weekly liquid assets?

• a.At least 50%✓
• b.At least 30%
• c.At least 25%
• d.At least 10%

The weekly liquid asset floor is 50% of total assets. The 30% and 10% figures were the old weekly and daily minimums that the 2023 amendments replaced. The 25% figure is the new daily liquid asset minimum for taxable funds, not the weekly one.17 CFR 270.2a-7

A fund wants to call itself a government money market fund. It must invest at least what portion of its assets in cash, government securities and repurchase agreements fully collateralized by them?

• a.80%
• b.90%
• c.99.5%✓
• d.95%

A government money market fund must hold 99.5% or more of total assets in cash, government securities and fully collateralized repurchase agreements. Eighty percent is the threshold from the fund names rule, which is a different test. Ninety and ninety-five percent are not thresholds in Rule 2a-7.17 CFR 270.2a-7

Which money market fund must price its shares at a floating net asset value instead of a stable $1.00?

• a.A retail municipal fund holding short-term tax-exempt notes
• b.A government fund holding Treasury bills and repurchase agreements
• c.A retail prime fund limited to natural persons
• d.An institutional prime fund open to corporations and trusts✓

Institutional prime funds, whose shareholders include corporations and trusts, must float their NAV. Retail funds, which limit ownership to natural persons, may keep a stable price whether they hold prime or municipal paper. Government funds may also keep a stable price because their holdings carry little credit or liquidity risk.17 CFR 270.2a-7

How does an interval fund's liquidity differ from that of an open-end mutual fund?

• a.It lists on an exchange where shares trade at a premium or discount
• b.It offers to repurchase 5% to 25% of its shares at net asset value on a set schedule✓
• c.It must redeem any shareholder request within seven days at the next close
• d.It repurchases shares only when its board finds that cash is available

An interval fund is a closed-end fund that makes periodic repurchase offers for between 5% and 25% of its shares at net asset value, so an investor can sell only at those scheduled windows. The seven-day redemption duty belongs to open-end funds under Section 22(e). Interval fund shares are not exchange-listed and so do not trade at a premium or discount. The offers are mandatory on the stated schedule, not at the board's discretion.17 CFR 270.23c-3 (interval funds)

How are new shares of an exchange-traded fund created?

• a.The fund's underwriter sells new shares at the public offering price in a continuous offering
• b.The fund issues its full share count once and lists it, with no later issuance
• c.A retail investor buys newly issued shares directly from the fund at the closing NAV
• d.An authorized participant delivers a basket of securities to the fund for a creation unit✓

ETF shares are created in large blocks called creation units when an authorized participant delivers a basket of the underlying securities to the fund. Retail investors do not buy from the fund; they trade on an exchange at market price. Open-end mutual funds, not ETFs, sell continuously at a public offering price through an underwriter. Issuing a fixed number of shares once describes a closed-end fund, which an ETF is not.Rule 6c-11 / ETF structure

An ETF's shares trade at $50.60 while the net asset value of its holdings is $50.00. What action by an authorized participant tends to pull the market price back toward NAV?

• a.Waiting for the fund's board to cut the offering price at the next close
• b.Buying shares on the exchange and redeeming them for the underlying basket
• c.Buying the basket of securities and delivering it for new shares to sell on the exchange✓
• d.Asking the fund to suspend creations until the premium narrows

A premium means the shares cost more than the holdings. An authorized participant profits by buying the basket, delivering it for new shares and selling those shares, and the added supply pushes the price down. Buying shares to redeem them for the basket is the move for a discount, not a premium. An ETF has no offering price that a board adjusts, and suspending creations would let the premium persist.Rule 6c-11 / ETF structure

A closed-end fund sells shares in its initial public offering at $20.00 per share. The only deduction is an underwriting sales load of 4.5% of the offering price. What is the fund's net asset value per share immediately after the offering?

• a.$19.10✓
• b.$20.00
• c.$19.55
• d.$19.14

The load is 4.5% of $20.00, or $0.90, so $19.10 goes to work for the fund. Dividing $20.00 by 1.045 gives $19.14, which treats the load as a markup on NAV instead of a percentage of the offering price. Taking only half the load, as if it were 2.25%, gives $19.55. The full $20.00 ignores the load, which is why closed-end funds often open below their offering price.Investment Company Act of 1940

A closed-end fund has net assets of $60 million and no debt. Keeping 300% asset coverage, how much can it borrow from a bank?

• a.$30 million✓
• b.$180 million
• c.$60 million
• d.$20 million

After borrowing B dollars the fund's assets are $60 million plus B, and coverage of 300% requires that total to be at least three times B. That gives B no greater than $30 million. Dividing the net assets by three gives $20 million, which forgets that the borrowed cash is itself an asset. Borrowing $60 million would leave coverage of only 200%. Three times net assets confuses the ratio with the loan amount.Investment Company Act of 1940 Section 18(a)(1)

A customer wants a fixed portfolio of municipal bonds that is held until a stated termination date, with no manager trading. Which product fits?

• a.A variable annuity with a bond subaccount
• b.An open-end bond fund with a professional adviser
• c.A closed-end fund that trades on an exchange
• d.A unit investment trust holding a set group of bonds✓

A unit investment trust buys a fixed portfolio, holds it with no active trading, and terminates on a stated date. An open-end fund is run by an adviser who changes holdings. A closed-end fund also has active management and its price swings with market supply and demand. A variable annuity adds insurance features and a managed subaccount that a customer seeking a fixed bond list does not need.Investment Company Act of 1940 Section 4

Under the general limit in the Investment Company Act of 1940, one investment company may not own more than what share of another investment company's outstanding voting stock?

• a.3%✓
• b.10%
• c.5%
• d.25%

The statute caps an acquiring fund at 3% of another fund's voting stock. The 5% limit applies to the share of the acquirer's own assets in any one other fund, and the 10% limit applies to its total holdings of other funds. Twenty-five percent is not a limit in this section.Investment Company Act of 1940 Section 12(d)(1)(A)

A variable annuity owner has annuitized and holds 50 annuity units. The annuity unit value was $30.00 for the first payment and is $33.00 for the next payment. What is the next payment?

• a.$1,350
• b.$1,800
• c.$1,650✓
• d.$1,500

The payment equals units times unit value, and 50 units at $33.00 is $1,650. A payment of $1,500 would be right only for a fixed annuity whose payment never changes. The number of units stays fixed after annuitization, so a rising unit value raises the payment instead of cutting it to $1,350. Adding 20% to reach $1,800 uses the wrong percentage; the unit value rose 10%.Variable annuity valuation

A variable life policyholder dies with an outstanding policy loan. What does the beneficiary receive?

• a.The full death benefit, since the loan is repaid separately from cash value
• b.The guaranteed minimum death benefit increased by the loan
• c.The cash value plus the unpaid loan balance
• d.The death benefit reduced by the loan balance and accrued interest✓

An unpaid policy loan, with its interest, is subtracted from the death benefit paid at death. The loan is a debt against the policy, so the full benefit is not paid out. The beneficiary does not receive cash value on top of the benefit, and a loan can never increase the amount paid.Variable life insurance

Which charge on a variable annuity is usually a flat annual dollar amount instead of a percentage of assets?

• a.The management fee of an underlying fund
• b.The contract maintenance fee✓
• c.The charge for a living benefit rider
• d.The mortality and expense risk charge

The contract maintenance fee covers administration and is typically a flat dollar amount each year. The mortality and expense charge is a percentage of separate account assets. Underlying fund management fees are a percentage of fund assets. Rider charges are a percentage of the benefit base or contract value.Variable annuity charges

A variable annuity's surrender charge starts at 7% in the first contract year and falls 1 percentage point each year. The owner surrenders $40,000 during the fourth contract year, and no free-withdrawal provision applies. What is the surrender charge?

• a.$1,200
• b.$2,800
• c.$1,600✓
• d.$2,000

The schedule is 7%, 6%, 5% and 4% for years one through four, so the fourth year charge is 4% of $40,000, or $1,600. Five percent would be the charge in the third year. Three percent would apply in year five. Seven percent is the first-year rate and would give $2,800.Variable annuity charges

How often may a 529 plan account owner change the investment options for contributions already in the account?

• a.Once per calendar year
• b.Up to two times per calendar year✓
• c.Only at the start of each school year
• d.Up to four times per calendar year

Federal law allows an owner to redirect the investments of existing contributions no more than twice in a calendar year. One change a year is stricter than the law requires. Four is more than it permits. The rule is not tied to the academic calendar.Internal Revenue Code Section 529(b)(4)

A parent takes $10,000 from a 529 plan for a purpose that is not a qualified expense. Thirty percent of the account is earnings. What is the additional federal tax on the withdrawal, apart from income tax?

• a.$1,000
• b.$3,000
• c.$30
• d.$300✓

The earnings share of the distribution is $3,000, which is added to income, and the additional 10% tax applies only to that earnings portion, giving $300. Ten percent of the entire $10,000 would be $1,000, but the contributions come back without the extra tax. Three dollars per hundred of earnings, or $30, miscalculates the rate. The $3,000 is the taxable earnings, not the extra tax.Internal Revenue Code Section 529

A beneficiary's 529 account has been open for 15 years. What is the lifetime limit on rollovers from the account to the beneficiary's Roth IRA?

• a.$50,000
• b.$7,500
• c.$35,000✓
• d.$10,000

A beneficiary may roll up to $35,000 over a lifetime from a long-held 529 account to a Roth IRA, subject to the annual IRA limit and other conditions. Ten thousand dollars is the lifetime cap on student loan repayment from a 529. Fifty thousand is not a limit under this provision. The $7,500 figure is the 2026 annual IRA contribution limit, which restricts each year's rollover but is not the lifetime cap.Internal Revenue Code Section 529(c)(3)(E)

A representative holds only the Investment Company and Variable Contracts Products registration. Which sale would require additional registration?

• a.A variable annuity contract
• b.Units of a unit investment trust
• c.Shares of a listed closed-end fund bought in the secondary market✓
• d.Shares of an open-end bond fund

This registration covers open-end funds, unit investment trusts, variable contracts, municipal fund securities and closed-end funds only during their initial offering. Once a closed-end fund trades on an exchange, selling it requires a broader registration such as the General Securities Representative. The other three products are within the scope of the Series 6.FINRA Rule 1220(b)(7)