Series 7 Exam Question 256: Answer and Explanation

Question: 256

Which of the following are nonexempt securities?

I. Municipal unit investment trust shares

II. U.S. government bond fund shares

III. Variable annuity accumulation units

IV. Fixed annuities

• A. I and II
• B. III only
• C. III and IV
• D. I, II, and III

Correct Answer: D

Explanation:

D. You must distinguish a nonexempt security from an exempt security. A nonexempt security is one that is not exempt from SEC registration; in other words, it must be registered with the SEC. Variable annuities, which carry investment risk, are nonexempt securities under the Securities Act of 1933 and must be registered before public sale. Similarly, unit trusts and mutual funds are nonexempt even though the underlying securities may be exempt, such as municipals and U.S. government securities. However, a fixed annuity is an insurance product exempt from registration with the SEC. It's not considered a security because of the guaranteed payout.