Q:

When an investor reads that a mutual fund charges 12(b)-1 fees, he/she should be aware that:
I. All investors in the fund pay these fees, based on their assets, on a quarterly basis.
II. New investors pay these fees as Class "A" share fees.
III. 12(b)-1 fees are asset-based distribution fees and may only be used to pay for costs of distributing mutual fund shares and are characterized as "level load."
IV. The money collected from 12(b)-1 fees may be used to pay for the fund's management expenses.
a) I, III
b) II, IV
c) II,III
d) I,IV

A:

The correct answer is a.
Statement III describes the nature of 12(b)-1 fees. They are named after the SEC regulation that created them in 1980. These fees must be reasonable and may only be used for distribution costs. They are not intended to pay management costs.


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