Investment Company and Variable Products
The Series 6 registration authorizes exactly two families of products: packaged investment company securities and variable insurance contracts. This chapter builds those products from the ground up, starting with how a mutual fund is priced and what an investor actually pays, then moving through share classes, variable annuities and variable life, unit investment trusts, closed-end funds, and 529 plans. Almost every calculation and comparison you will see on the exam lives here.
Open-End Funds: Pricing and Redemption
An open-end investment company continuously offers new, redeemable shares and stands ready to buy them back. Because there is no exchange market, the price is not set by supply and demand; it is computed from the portfolio itself. Net asset value per share equals total assets minus total liabilities, divided by shares outstanding, and it is calculated at least once each business day, normally at the close of the market. Investors buy at the public offering price, which is NAV plus any sales charge, and redeem at NAV. Every order, whether a purchase or a redemption, is filled at the next price computed after the fund receives it, which prevents anyone from trading on a stale price.
Sales Charges, Breakpoints, and Share Classes
FINRA caps the sales charge on open-end fund shares at 8.5% of the offering price, and a fund may only charge that maximum if it gives investors three things: breakpoint discounts for larger purchases, rights of accumulation, and the ability to reinvest distributions at NAV. Beyond the front-end load, funds may deduct an annual 12b-1 fee from assets to pay for distribution and shareholder servicing. Share classes package these charges differently. Class A shares carry a front-end load but the lowest ongoing expenses, making them the usual answer for large, long-horizon investments. Class B shares avoid the front-end charge but impose a contingent deferred sales charge that declines annually and pay higher 12b-1 fees until they convert to Class A. Class C shares charge a level annual fee with at most a short CDSC, which suits smaller amounts and shorter holding periods but costs the most over many years.
Variable Annuities
A variable annuity is an insurance contract whose investment results flow through a separate account rather than the insurer's general account, which means the contract owner bears the investment risk and the interest is a security. During the accumulation phase, each payment buys a varying number of accumulation units. At annuitization the account value converts into a fixed number of annuity units whose value moves with separate account performance measured against the assumed interest rate: beat the AIR and the payment rises, fall short and it falls. Payout options trade income size against guarantees, with straight life paying the most and joint and last survivor paying the least. Contracts typically have no front-end load but impose surrender charges that decline over the early years, and non-qualified contracts are taxed last in, first out.
Variable Life Insurance
Variable life insurance combines a death benefit with a separate account investment. The insurer guarantees a minimum face amount as long as scheduled premiums are paid, but the cash value depends entirely on investment results and carries no floor. Strong performance can lift the death benefit above the guaranteed minimum. Because the contract holder assumes investment risk, the policy is a security, so it is sold with a prospectus and requires both a state insurance license and securities registration. Scheduled premium policies fix the premium amount and timing; variable universal life allows flexible premiums but does not guarantee a minimum death benefit in the same way.
UITs, Closed-End Funds, and 529 Plans
The Investment Company Act of 1940 recognizes three classes of investment company: face-amount certificate companies, unit investment trusts, and management companies, with management companies split into open-end and closed-end. A UIT holds a fixed, unmanaged portfolio under a trust indenture, has no board of directors and no investment adviser, and terminates on a stated date; its units are redeemable. A closed-end fund issues a fixed number of shares in a one-time offering and those shares then trade in the secondary market at a price that may sit above or below NAV. A 529 college savings plan is neither: because a state establishes it, the interest is a municipal fund security governed by MSRB rules and sold with an official statement rather than a statutory prospectus.
Last updated: July 2026