Client Alert

Recent Regulatory Activities with Respect to Class B Shares of Mutual Funds

August 01, 2003

Gerald J. Fields & Richard C. Schoenstein

As we recently reported, there is currently widespread regulatory and congressional attention to broad reforms in the mutual fund industry. Over the past few months, the regulators have focused on the suitability of Class B shares of mutual funds through a series of disciplinary actions, administrative proceedings, investigations and public statements. Investors are not charged a front-end sales charge on B-share purchases, but instead pay a Contingent Deferred Sales Charge upon the sale of the shares, a charge that declines over time until it is eliminated. This is in contrast to A-shares, which charge a front-end sales charge (which is typically lowered by “breakpoints” as the amount invested increases) and no CDSC, and C-shares, which typically charge a modest CDSC in the first year, but not thereafter. In addition, B-shares and C-shares generally have higher annual expense charges – typically in the form of 12b-1 fees – for a period of years or for the life of the investment.

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