Higher portfolio turnover
I. results in greater tax liability for investors
II. results in greater trading costs for the fund, which investors have to pay for
III. is a characteristic of asset allocation funds
a.. II only
b.. I and II only
c. I, II and III

The correct answer is letter "C": I, II and III.

Explanation:

Portfolio Turnover estimates the fund's percentage of assets that its manager buys and sells for over one year. Portfolio turnover can affect the return of the portfolio, as transaction costs such as commissions and fees are drawn from the assets of the fund. Usually, fund managers who trade securities aggressively try to increase their commission.  

Higher portfolio turnover rates imply incurring in higher capital gains translated in higher returns overall but come along with higher taxes that must be paid equally among investors. Both benefits and liabilities are allocated evenly among entrepreneurs into the investment.