THE SHOPPING MALL OF INVESTMENTS
When an investor purchases Class B shares of a mutual fund, he or she does so at NAV, thus ensuring that the entire amount of money is invested. However, if the shares are redeemed within the first six years, the investor will pay a surrender charge. The shares will be redeemed at NAV, but then the applicable load will be subtracted. The surrender charge schedule for Class B shares is a declining one. After nine years, Class B shares revert to Class A shares, although no front-end sales load will be assessed at that time.
Table 5.1 shows a sample of the surrender charges for Class B mutual funds. Although this is the standard for surrender charges, some mutual fund companies may charge on a different scale. The time frame will remain the same, but the initial CDSC may be less, and the corresponding years and CDSC rates may be different than what is listed above.
While B shares don’t have any up-front sales load, they do tend to have higher 12-b-1 fees inside. These fees, named after the 1980 SEC rule that allowed them, are annual sales fees, which are taken against fund assets to compensate the fund for any sort of distribu- tion expenses, such as broker commissions or advertising costs. The 12-b-1 fees vary in percentage among the different fund families, and usually aren’t more than .50 percent per year. However, they may be as high as 1.25 percent.
Although investors are charged a surrender charge for redeeming their shares prior to holding the fund for seven years, if they exchange their shares for shares in a different fund within the same fund family, there is no surrender charge. For instance, you purchase $40,000 of Oppenheimer Global Growth and Income Fund Class B, and a few years later you decide that you want to move $20,000 from this fund to a different fund. As long as you keep that $20,000 with Oppenheimer Funds and in Class B shares, you won’t be charged any surrender charge or back-end load. However, if you wish to move that money to another fund family, you will be charged the applica- ble surrender charge.
C Shares For many years, Class A shares were the only type of share class that was available. Then fund families introduced the B class and,