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Chapter 10. Conflicts of Interest > Some Thoughts on Share Classes

Some Thoughts on Share Classes

As already discussed, many funds offer three classes of shares: A, B, and C. Class A shares are the traditional type of share class, with a front-end sales charge. Class C shares, like Class B shares, do not impose a front-end sales charge at the time of purchase. The difference is that these shares charge the same higher distribution fee (one percent of assets) as do Class B shares, and these shares do not eventually convert to Class A shares. Therefore, the distribution fee is not subsequently reduced as it is with Class B shares, but continues on and on.

Class C shares have suddenly become popular with investors. From only eight percent of all load mutual shares sold in 1995, by year end 2000, Class C shares accounted for one third of all load shares sold. Given that kind of rapid growth, it is reasonable to ask what is going on here. Is this completely investor-driven demand for these shares, or are other forces at work?


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