What is Load?

B is correct. For a 2-year investment horizon, avoiding the immediate 5.75% front-end load ($4,312.50 on $75,000) is more advantageous than the higher ongoing expense ratio. With Class B shares, Marcus would pay the stated 4% year-2 CDSC when he redeems, plus up to 2 years of the 0.75% expense ratio difference (about $1,125 total). Total costs: $3,000 CDSC + about $1,125 in extra expenses = about $4,125, which is less than the $4,312.50 front-end load.

A is incorrect because front-end loads are one-time charges, not spread over time, and they immediately reduce the invested amount. While lower ongoing fees do benefit longer-term holders, the math doesn't work for a 2-year horizon. C incorrectly assumes Class C shares (which weren't presented as an option) are automatically best for short timeframes. D is too restrictive; load funds can be suitable depending on individual circumstances, breakpoints, and fee structures.

C is correct. FINRA Rule 2341 caps the aggregate front-end and deferred sales charges of a fund with no asset-based sales charge at 8.50% of the offering price (public offering price, or POP). This is calculated as a percentage of the gross investment amount, not the net amount invested.

A (5.00%) is below the regulatory maximum and represents a common load charge but not the limit. B (6.25%) is a real Rule 2341 figure, but it is not the overall ceiling for a fund without an asset-based sales charge: it caps a single purchase in a fund with an asset-based sales charge that pays a service fee, and, if a fund without one offers quantity discounts, it is the ceiling on purchases of $25,000 or more. D (10.00%) exceeds FINRA's maximum permissible load. While most funds charge less than 8.50%, understanding the regulatory ceiling is important for compliance and exam purposes.

C is correct. Calculate: $50,000 × 0.0475 (4.75%) = $2,375 sales charge. Subtract from gross investment: $50,000 - $2,375 = $47,625 net amount invested in fund shares. The front-end load is calculated as a percentage of the offering price (the total amount the investor pays), and this charge is deducted before purchasing shares.

A ($47,375) would result from incorrectly using a 5.25% load ($50,000 - $2,625). B ($47,500) would result from using a 5.00% load instead of 4.75% ($50,000 - $2,500). D ($48,812.50) incorrectly uses 2.375% (half the actual load percentage) for the calculation ($50,000 - $1,187.50).

C is correct (the exception). Under FINRA Rule 2341(d)(6), shares bought through reinvested dividends generally cannot carry a sales charge, and a CDSC must be figured as if the shares not subject to the load are redeemed first. Many funds also waive the CDSC on limited annual withdrawals, a feature each fund sets in its prospectus.

A is accurate: CDSC schedules typically start at 5-6% in year one and decline annually, often reaching 0% after a holding period of about 6 years. B is accurate: many funds calculate the CDSC on the lesser of the original purchase price or current net asset value (NAV), so the investor pays no sales charge on appreciation. It is a common fund practice rather than a universal rule: the federal rule permitting deferred loads lets the charge be a percentage of the NAV or offering price at the time of purchase, so the prospectus of each fund sets the method. D is accurate: Class B shares characteristically use CDSC as their sales charge structure instead of front-end loads, making them distinct from Class A shares.

B is correct. Only statements 2 and 3 would reduce the sales charge below the standard 4.50% load.

Statement 1 is false: Investing $95,000 now would apply the 4.50% load ($4,275 charge) since it falls in the $50,000-$99,999 tier. This doesn't reduce the charge; it's simply the standard rate for this investment amount.

Statement 2 is true: By signing a letter of intent to invest $100,000 within 13 months, the investor immediately qualifies for the 3.75% load ($95,000 × 3.75% = $3,562.50), saving $712.50 compared to the 4.50% load. The remaining $5,000 must be invested within the timeframe to avoid retroactive charges.

Statement 3 is true: Rights of accumulation allow the investor to combine the current $95,000 purchase with $15,000 in existing holdings ($110,000 total) to immediately qualify for the 3.75% load on the new purchase, reducing the sales charge from 4.50% to 3.75%.

Statement 4 is false: the investor has $95,000 to invest, so waiting does not reach the $250,000 breakpoint; it only delays the investment. Reaching that tier would take another $155,000.