alleryStart learning →What may happen to Class B shares held long enough?
AThey are redeemed automatically at the daily NAV
BThey convert into shares of a target date fund
CThey convert to a class with a lower 12b-1 fee
DThey earn a breakpoint discount on later buys
Answer & Solution
Correct answer: C. They convert to a class with a lower 12b-1 fee
1. Class B shares usually carry a contingent deferred sales load and a 12b-1 fee rather than a charge at purchase.
2. Held long enough, they might convert automatically to another class of the same fund.
3. That class carries a lower 12b-1 fee and no contingent deferred sales load.
4. Conversion is a feature the fund's prospectus states, and it is the main structural difference from Class C.
5. Nothing forces an automatic redemption, and no conversion crosses into a different fund.
6. Breakpoints are discounts on front-end sales loads for larger investments, a separate mechanism.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Classes of Mutual Funds_
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