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Share values may differ at conversion

Don Taylorq_v2.gifDear Dr. Don,
I'm writing to ask about holding Class B shares of mutual funds long term. All sources of information I've found claim that the Class B shares convert to Class A shares after six to eight years. In actuality the Class B shares are sold and then Class A shares are purchased. So, at conversion, my B shares become A shares.

Shouldn't the number of newly minted A shares be equal to the number of retired B shares held at conversion?
-- Konstantin Classification

a_v2.gifDear Konstantin,
For the number of shares to be the same at conversion, the value of a Class A share has to be equal to the value of a Class B share. Differing expense ratios on the different classes of mutual funds are sufficient to explain different share prices. That may or may not be the case.

Open-end mutual funds sell at their net asset value, or NAV. NAV is calculated as the value of the portfolio divided by the number of shares outstanding. In contrast, closed-end mutual funds limit the number of shares outstanding and closed-end funds can sell at a premium or discount to their NAV.

In contrast to no-load mutual funds that only charge a 12b-1 fee in addition to an investment management fee, a mutual fund that has a load may have some combination of a front-end load, a back-end load and a 12b-1 fee along with an investment management fee. The 12b-1 fee is a marketing and distribution fee that typically ranges from 0.25 percent to 1 percent. You as an investor get to choose which class of load fund you buy, managing when and how you pay the load fee.

The FINRA publication "Class B Mutual Fund Shares: Do They Make the Grade?"

discusses the differences between class A, B and C mutual fund shares and provides a link to FINRA's Fund Analyzer that will help you decide whether to buy Class A, B or C shares, or for that matter any other class of shares offered.

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