Quick Answer
Open-end mutual funds and Unit Investment Trusts (UITs) redeem at forward Net Asset Value (NAV); closed-end funds and Exchange-Traded Funds (ETFs) trade on the secondary market. Sales charges cap at 8.5% of the Public Offering Price (POP), 12b-1 distribution fees at 1.00%. Variable annuities split into a separate account (customer bears risk) and a general account (insurer bears risk).
The single most heavily tested Series 6 unit on one sheet: fund structures, share classes, breakpoints, fees, variable contracts, municipal fund securities, and the pricing and redemption rules the exam loves.
Structure First: How Shares Are Issued and Priced
| Type | Redeemable? | Pricing | Where It Trades |
|---|---|---|---|
| Open-end (mutual fund) | Yes, with the fund | Forward NAV | Directly with the fund |
| Closed-end fund | No | Market price (premium or discount to NAV) | Secondary market (exchange) |
| UIT | Yes, with the sponsor | NAV-based | Redeem with sponsor; some secondary |
| ETF | Only in creation-unit blocks (authorized participants) | Market price, stays near NAV | Secondary market (exchange) |
- "Redeemable" is the legal distinguisher: open-end funds and UITs issue redeemable securities; closed-end funds and ETFs do not.
- UITs have no board, no investment adviser, and no portfolio manager: the portfolio is fixed and terminates on a set date.
- Interval funds are a closed-end structure with periodic (typically quarterly) repurchase, not daily redemption.
Share Classes at a Glance
| Class | Sales Charge | 12b-1 | Converts? | Best For |
|---|---|---|---|---|
| A | Front-end load; breakpoint-eligible | Low (about 0.25%) | n/a | Long-term, larger-dollar investors |
| B | Contingent Deferred Sales Charge (CDSC), declines to zero | Higher (up to 1.00%) | Yes, to Class A | Long-term, largely discontinued |
| C | Small CDSC first year only | Ongoing 1.00% indefinitely | No | Short-to-medium holding |
| No-load | None | 0.25% or less | n/a | Direct-sold funds |
The One-Liners That Win Points
- Forward pricing: an order before the fund's daily cutoff (typically 4:00 p.m. Eastern Time) gets that day's NAV; after, the next day's NAV. This is the rule that makes late trading illegal.
- Late trading is illegal; market timing is legal but restricted (redemption fees and frequent-trading policies).
- Class B converts to Class A; Class C does not. Class C is cheaper to enter but costs more long-term (the 1.00% 12b-1 never goes away).
- Letter of Intent runs 13 months, not 12, and can be backdated up to 90 days.
- Separate account = customer bears investment risk; general account = insurer bears it. The separate account is protected from the insurer's general creditors.
- Accumulation phase: units AND value fluctuate. Annuitization: units are fixed, only value (the payment) varies.
- The Assumed Interest Rate (AIR) comparison is always to the AIR, never to the prior payment. Beat the AIR, the check rises; miss it, the check falls.
- A 529 plan is a municipal fund security regulated by the Municipal Securities Rulemaking Board (MSRB), not a mutual fund.
Numbers to Lock In
| Item | Value |
|---|---|
| Maximum sales charge (with breakpoints, Rights of Accumulation, reinvestment at NAV) | 8.5% of POP |
| 12b-1 aggregate cap | 1.00% (0.75% distribution + 0.25% service) |
| "No-load" 12b-1 threshold | 0.25% or less |
| Redemption proceeds deadline | 7 days |
| Letter of Intent window | 13 months (backdate up to 90 days) |
| Open-end fund borrowing coverage | 300% (bank borrowings only) |
| Closed-end debt / preferred coverage | 300% debt / 200% preferred |
| Names Rule asset match | 80% of net assets |
| Independent directors | 40% minimum; majority with a 12b-1 plan |
| Deferred variable annuity principal review | 7 business days from OSJ receipt of a complete application |
| Pre-59½ annuity/529/ABLE withdrawal penalty | 10% federal on the earnings portion |
| 529 superfunding (2026) | $95,000 single / $190,000 married per beneficiary |
| ABLE annual contribution (2026) | $20,000; onset of disability before age 46 |
Products Beyond Mutual Funds
- Variable annuity fees stack: Mortality and Expense (M&E) plus admin plus sub-account expense ratios plus rider fees can top 2.5% per year. Surrender charges typically run 6 to 8 years.
- Annuity earnings come out Last-In-First-Out (earnings first, fully ordinary income), with no step-up in basis at death and no long-term capital-gain rate.
- Variable life guarantees a minimum death benefit but no minimum cash value.
- Municipal fund securities are three MSRB categories: 529 college savings plans, Local Government Investment Pools (LGIPs), and Achieving a Better Life Experience (ABLE) accounts. Reporting is semi-annual for 529 and ABLE, annual for LGIPs.
- Dollar-Cost Averaging (DCA) reduces timing risk, not market risk, and does not guarantee a profit; average cost is less than average price.
Top Gotchas
- Exchanges and conversions within a fund family are still taxable events even when no new sales charge applies.
- Reinvesting distributions does not defer tax: the shareholder owes tax in the year received, and basis rises by the amount reinvested.
- Return of capital is not a dividend: not taxable when received, but it lowers cost basis and creates a larger gain at sale.
- Long-term capital gains distribute only once per year (plus a narrow supplemental allowance): monthly "distributions" are almost always income, not capital gains.
- A breakpoint sale is a violation even if the customer never complains; the duty to inform sits with the rep, and Rights of Accumulation aggregate across spouse, children, different broker-dealers, and account types.
- Closed-end fund discounts are normal, a feature of the structure, not a sign of distress; closed-end holders exit through the secondary market, not redemption.
- The 7-business-day deferred variable annuity clock starts when the Office of Supervisory Jurisdiction (OSJ) receives a complete and correct application, not when the customer signs.
- A fund with 12b-1 fees above 0.25% cannot be called "no-load."
One-Breath Recap
Open-end funds and UITs redeem at forward NAV while closed-end funds and ETFs trade in the market, share classes just repackage the same sales charge under the 8.5% and 1.00% ceilings, and variable contracts split investment risk into the separate account and guarantees into the general account. Lock the pricing numbers, the redemption deadline, and the accumulation-versus-annuitization asymmetry, and this heaviest unit answers itself.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Investment Products and Features unit for the complete lesson.