Mutual Fund Classes - Types of Shares etc. in the USA

By Prof. George S Mentz, JD, MBA, CWM

06 January, 2007

Mutual Fund Classes - Types of Shares etc.

Edited by: Prof. Mentz

Known as "multi-class funds," some mutual funds offer investors different types of shares, known as "classes." Each class will invest in the same "pool" (or investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results. A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the time that they expect to remain invested in the fund).

For example, you might find a multi-class fund with three classes of shares that are sold to the general public-Class A, Class B, and Class C-and a class that is sold only to institutional investors-Class I.

Class A shares might have a front-end sales load (a type of fee that investors pay when they purchase fund shares).

Class B shares might not have any front-end sales load, but might have a contingent deferred sales load (CDSL) (a type of fee that investors pay only when they redeem fund shares, and that typically decreases to zero if the investors hold their shares long enough) and a 12b-1 fee (an annual fee paid by the fund for distribution and/or shareholder services). Class B shares also might convert automatically to a class of shares with a lower 12b-1 fee if held by investors long enough.

Class C shares might have a 12b-1 fee and a CDSL or front-end sales load, but the CDSL or sales load would be lower than Class B's CDSL or Class A's front-end sales load, and the Class would not convert to another class.

Class I would be sold only to institutional investors and might have different fees and expenses.

If a fund offers multiple classes, it may describe them all in a single prospectus, or it may describe them separately in separate prospectuses. The decision as to which class best suits an investor's investment goals should be made after careful consideration of the information disclosed in the prospectus (or prospectuses). To figure out how the costs of a mutual fund add up over time and to compare the costs of different mutual funds, you should use the a mutual fund cost calculator.

Mutual fund classes are regulated primarily under the Investment Company Act of 1940 and the rules and registration forms adopted under that Act, in particular Rule 18f-3.

About the Authors
George Mentz is a licensed attorney and is trained in Internatinal Law and Business. Mentz has an earned MBA from an AACSB Accredited Business School and holds a Doctorate Degree or Juris Doctorate Degree from an ABA Accredited USA Law School. Prof. Mentz has faculty appointments and credentials in Silicon Valley, Miami, Chicago, Denver, Hong Kong, Singapore, and The Bahamas. . Prof. Mentz is a consultant providing expertise to Fortune 100 companies in several countries. The first person in the United States to achieve "Quad Designation" Status as a JD, MBA, licensed financial planner, and Certified Financial Consultant. Prof. Mentz has authored/published over 15 Books and has been featured or quoted in the Wall Street Journal, The Hindu National, El Norte Latin America, the Finanical Times, The China Daily, & The Arab Times. His research, publications, and speeches have been syndicated into over 100 countries. Prof. Mentz has recently been elected to the advisory board of the GFF Global Finance Forum in Switzerland and the World E-Commerce Forum in London, England. He also is on the Advisory Board of The ERISA Fiduciary Guild. Mentz was Editor and Chief for the Original Tax and Estate Planning Law Review at Loyola University (A Loyola University Chartered Organization). One of the First Lawyers in the USA to be credentialed and compliant to teach law in all 50 states in law school, graduate and undergraduate colleges and universities. Holds professor faculty appointment at Graduate LLM Law Program . Prof. Mentz has established Certification and Executive Training Accreditation Programs in over 50 Countries around the world including : UK, China, Mexico, Africa, Singapore, Taiwan, USA, Bahamas, India, Russia, EU, Philippines, Saudi Arabia, Canada, Vietnam, The Bahamas and more. General Counsel and Attorneyand Board of Standards Chair Prof. Mentz has recently been awarded a National Faculty Award, a Distinguished Faculty Award and a Meritorious Service Medal for Charitable Service. Prof Mentz has taught over 150 college and graduate courses in his faculty career.