Class B Mutual Fund Shares: CDSC and Conversion Mechanics
An investor purchases Class B mutual fund shares. What fee structure will the investor experience?
Class B shares have no front-end load, but impose a Contingent Deferred Sales Charge (CDSC) that declines to zero over 5 to 7 years. Once the CDSC expires, Class B shares automatically convert to Class A shares, lowering ongoing 12b-1 expenses.
Complete Analysis & Legal Rationale
Class B shares are unsuitable for large investments that could immediately qualify for Class A breakpoint discounts.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Accurately identifies CDSC schedule, higher 12b-1, and eventual conversion to Class A.
Class B has no front-end load.
CDSC declines to zero over time, never permanent.
Describes Class C shares, which never convert.
Official Standard: Governs CDSC disclosures and conversion provisions.