MUTUAL FUND CLASSES

Some mutual funds offer investors different types of shares, known as “classes.” Each class invests in the same portfolio of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses. Because of the different fees and expenses, each class will likely have 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).

Here are some key characteristics of the most common mutual fund share classes offered to individual investors:

Class A shares typically charge a front-end sales load, but they tend to have a lower 12b-1 fee and lower annual expenses than other mutual fund share classes. Some mutual funds reduce the front-end load as the size of the investment increases. These discounts are called breakpoints

Class B shares typically do not have a front-end sales load. Instead, they may charge a back-end sales load and a 12b-1 fee (along with other annual expenses). The most common type of back-end sales load is the “contingent deferred sales load,” also referred to as a “CDSC” or “CDSL.” Typically the amount of the contingent deferred sale load decreases the longer an investor holds the shares.Class B shares also might convert automatically to a class with a lower 12b-1 fee and no contingent deferred sales load if the investor holds the shares long enough.

Class C shares might have a 12b-1 fee, other annual expenses, and either a front-end or back-end sales load. But the front-end or back-end load for Class C shares tends to be lower than for Class A or Class B shares, respectively. Unlike Class B shares, Class C shares generally do not convert to another class; as a result, the back-end load will not decrease over time. Class C shares tend to have higher annual expenses than either Class A or Class B shares.

Class I shares might have lower overall fees than Class A, B or C shares, but they would be sold only to institutional investors making large fund share purchases. However, these shares may be available to retail investors through their employers (e.g., through a retirement plan).

If a fund offers multiple classes, it may describe them all in a single prospectus, or it may describe them separately in separate prospectuses. In some cases, you may not be eligible to purchase all classes. To figure out how the costs of a mutual fund add up over time and to compare the costs of different mutual funds, you can use tools such as FINRA’s Fund Analyzer.

For more information on this topic, please read our publication, Investor Bulletin: Mutual Fund Classes.