FINRA Investment Companies and Variable Products 2

Question 1

An investor holding accumulation units in a variable annuity's separate account has:

Accepted Answer

A proportional interest in the separate account whose value fluctuates with investment performance

Answer

A guaranteed minimum return on their investment

Answer

A fixed monthly income that cannot change in amount

Answer

A direct claim against the insurance company's general account

Question 2

Withdrawals from a non-qualified variable annuity taken before age 59½ are generally subject to:

Accepted Answer

Ordinary income tax on earnings plus a 10% IRS early withdrawal penalty on the taxable portion

Answer

Only ordinary income tax on all amounts withdrawn

Answer

A flat 20% withholding tax on the entire withdrawal amount

Answer

No tax consequences if the contract has been held for more than five years

Question 3

Under SEC Rule 12b-1, a mutual fund is permitted to use fund assets to pay for:

Accepted Answer

Distribution and marketing expenses including sales commissions

Answer

Portfolio management and advisory fees

Answer

Custodian and safekeeping fees

Answer

Transfer agent recordkeeping costs

Question 4

How do exchange-traded funds (ETFs) primarily differ from traditional open-end mutual funds?

Accepted Answer

ETFs trade on stock exchanges throughout the day at market-determined prices

Answer

ETFs can only invest in domestic equity securities

Answer

ETFs have higher minimum initial investment requirements than mutual funds

Answer

ETFs are exempt from SEC registration and reporting requirements

Question 5

During the payout (annuitization) phase of a variable annuity, which of the following statements is correct?

Accepted Answer

The number of annuity units is fixed, but the dollar value of each payment fluctuates

Answer

The number of annuity units received increases each year to offset inflation

Answer

The annuitant receives a guaranteed fixed dollar payment for life

Answer

The insurance company's general account bears all investment risk during payout

Question 6

Which mutual fund share class typically carries the highest total annual expense ratio due to level ongoing 12b-1 fees that never convert to a lower-cost class?

Accepted Answer

Class C shares

Answer

Class A shares

Answer

Class B shares

Answer

Institutional shares

Question 7

Under FINRA Rule 2341, what is the maximum 12b-1 fee a fund may charge annually and still be marketed as a 'no-load' fund?

Accepted Answer

0.25% of average net assets

Answer

0.10% of average net assets

Answer

0.75% of average net assets

Answer

1.00% of average net assets