SIE Exam Question 421: Answer and Explanation

Question: 421

Allowable ways to qualify for a breakpoint when purchasing front-end load mutual funds include:

I. Exchange or conversion privilege with a fund family

II. Reinvesting dividends and/or capital gains distributions under an LOI.

III. 13-month LOI

IV. ROA – rights of accumulation

• A. All of the above
• B. II, III, and IV
• C. III and IV
• D. III only

Correct Answer: C

Explanation:

C: III and IV are two of the ways to obtain a reduced sales charge (breakpoint). Switching from one fund to another under the same sponsorship (exchange privilege) carries no sales charge at all, so a reduction is irrelevant. Reinvesting distributions is a wonderful practice, and will help reach a breakpoint, but ONLY under the ROA (rights of accumulation) program, not the 13 months LOI approach.