You need to ensure that you can use Password Settings objects (PSOs) in the domain

Your network contains an Active Directory forest. The forest contains one domain named
contoso.com. The domain contains three domain controllers. The domain controllers are
configured as shown in the following table.

DC1 has all of the operations master roles installed.
You transfer all of the operations master roles to DC2, and then you uninstall Active
Directory from DC1.
You need to ensure that you can use Password Settings objects (PSOs) in the domain.
What should you do?

A.
Change the domain functional level.

B.
Upgrade DC2.

C.
Run the dcgpofix.exe command.

D.
Transfer the schema master role.

Explanation:
A)
The domain functional level must be Windows Server 2008 to use PSO’s

B)
DC1 needs to be upgraded
C)
Recreates the default Group Policy Objects (GPOs) for a domain
D)
Schema isn’t up to right level
http://technet.microsoft.com/en-us/library/cc770394(v=ws.10).aspx
http://technet.microsoft.com/en-us/library/hh875588(v=ws.10).aspx
http://technet.microsoft.com/en-us/library/cc753104.aspx