FINRA Series 6 (Investment Company and Variable Contracts Products Representative) Glossary
30 essential terms and definitions for FINRA Series 6 (Investment Company and Variable Contracts Products Representative). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
1
- 12b-1 Fee
- An annual fee deducted from fund assets to pay for distribution and marketing costs, capped at 0.75% for distribution plus 0.25% for service under FINRA rules.
A
- Accumulation Unit
- A measure of an investor's proportionate ownership in the separate account of a variable annuity during the pay-in (accumulation) phase, before annuitization.
- Annuitization
- The process of converting an annuity's accumulated value into a stream of periodic income payments, at which point accumulation units are exchanged for annuity units.
- Annuity Unit
- A fixed measure established at annuitization used to calculate the varying dollar amount of each periodic payment during the payout phase of a variable annuity.
- Assumed Interest Rate (AIR)
- A projected performance benchmark used to set the initial variable annuity payment; actual separate account returns above the AIR raise the next payment and returns below it lower the payment.
B
- Breakpoint
- A dollar investment level in a mutual fund at which the sales charge percentage is reduced, giving larger investors a lower per-share cost.
C
- Closed-End Investment Company
- A management company that issues a fixed number of shares in an initial offering, after which shares trade on an exchange or over-the-counter at a market price that may be above or below net asset value.
- Contingent Deferred Sales Charge (CDSC)
- A back-end sales charge on Class B shares that is assessed when shares are redeemed and typically declines to zero the longer the shares are held.
- Conversion Privilege
- An exchange feature allowing an investor to move money between funds in the same family at NAV without a new sales charge, though the exchange is a taxable event.
- Current Yield
- A measure of a mutual fund's income return that divides the annual dividends distributed per share by the fund's current public offering price. It reflects only income distributions and excludes any capital gains distributions or changes in share value.
D
- Diversified Investment Company (75-5-10 Rule)
- A company that, with respect to 75% of its assets, invests no more than 5% in any single issuer and owns no more than 10% of any issuer's voting securities.
- Dollar Cost Averaging
- An investing method of contributing a fixed dollar amount at regular intervals, which buys more shares when prices are low and fewer when high, lowering the average cost per share over time.
E
- Ex-Dividend Date
- The date on or after which a buyer of fund shares is not entitled to the upcoming declared distribution; for open-end funds it is typically set by the fund's board, often the business day after the record date.
- Expense Ratio
- A measure of a fund's annual operating costs (management fees, 12b-1 fees, administrative costs) divided by average net assets; higher ratios reduce shareholder returns.
F
- Forward Pricing
- The rule requiring that purchase and redemption orders for open-end fund shares be executed at the next net asset value calculated after the order is received, not at a previously posted price.
- Free Look Provision
- A state-mandated period (commonly 10 to 45 days) after a variable annuity or variable life contract is delivered during which the purchaser may return it and receive a refund. For variable products the refund is typically the current account value, which may be more or less than the premiums paid.
L
- Letter of Intent (LOI)
- A nonbinding agreement allowing an investor to receive a breakpoint sales charge by promising to invest a set amount within 13 months, with shares held in escrow to cover the difference if not completed.
- Life-Only (Straight Life) Payout
- An annuity settlement option that pays the largest periodic amount for the life of the annuitant but stops entirely at death, leaving no benefit to beneficiaries.
M
- Mortality and Expense (M&E) Risk Charge
- A fee deducted from a variable annuity's separate account that compensates the insurer for guaranteeing lifetime income payments (mortality risk) and for capping administrative expenses (expense risk).
N
- The per-share value of a mutual fund, calculated once daily after the market closes by dividing the fund's total net assets by the number of shares outstanding.
O
- Open-End Investment Company
- A management company that continuously issues new redeemable shares and stands ready to redeem outstanding shares at net asset value; commonly known as a mutual fund.
P
- Prospectus
- The disclosure document that must be delivered to a mutual fund or variable contract purchaser no later than the time of sale confirmation, summarizing objectives, risks, fees, and management.
- Public Offering Price (POP)
- The price a customer pays for a mutual fund share, equal to the NAV plus any front-end sales charge for a fund sold with a load.
R
- Redeemable Security
- A security, such as an open-end fund share, that has no secondary market and is bought from and sold back to the issuer at NAV, which the fund must honor within seven days.
- Rights of Accumulation
- A feature that lets an investor qualify for a reduced sales charge by combining the current purchase with the existing value of prior fund holdings in the same fund family.
S
- Sales Charge (Load)
- The dollar amount and percentage added to the net asset value of a mutual fund share to arrive at the public offering price, expressed as a percentage of the offering price.
- Section 1035 Exchange
- A tax-free transfer of cash value from one annuity or life insurance contract into another qualifying contract, allowing the owner to change products without triggering current taxation on gains.
- Separate Account
- An insurance company account that holds variable product investments apart from the insurer's general account, giving the contract holder investment risk and registration under securities law.
- Subchapter M (Conduit Theory)
- A tax provision allowing a regulated investment company to avoid corporate taxation on income it passes through to shareholders, provided it distributes at least 90% of its net investment income.
U
- Unit Investment Trust (UIT)
- An investment company that holds a fixed, unmanaged portfolio of securities and sells redeemable units representing an undivided interest in that portfolio, with a set termination date.