Class A Shares

Class A mutual fund shares are generally best suited for:

1. A.Investors who want no feesClass A shares do carry the lowest ongoing 12b-1 expenses of the common share classes, so the instinct that they are cheap has something behind it. They are not free: the investor pays a front-end load at purchase, and a client who genuinely wants to pay nothing to buy belongs in a no-load fund.
2. B.Very short-term tradingPaying a front-end load and then exiting quickly is the worst possible use of Class A shares, because the entire charge is absorbed over a very short holding period. The load is justified only when it is spread across many years of lower annual expenses.
3. C.Day tradingMutual fund shares price once a day at the next computed NAV, so intraday trading is not even mechanically possible. Frequent in-and-out activity in a loaded fund also invites scrutiny as an abusive practice rather than a suitable strategy.
4. D.Large, long-term investments that qualify for breakpointsCorrect - front-load A shares reward size and time.

Why: Class A shares carry a front-end load but lower ongoing expenses, making them cost-effective for large, long-term investments that reach breakpoints.

Class B mutual fund shares often:

1. A.Convert to Class A shares after several yearsCorrect - B-to-A conversion lowers fees.
2. B.Trade on an exchangeShare classes are a pricing device within an open-end fund, and none of them has a secondary market. A Class B holder who wants out redeems with the fund at the next computed value; there is no listing on which the shares could change hands.
3. C.Have no fees everIf this were true there would be nothing for the conversion to accomplish. The whole reason B shares roll into A shares after a period of years is that their annual 12b-1 charge is higher, and dropping it is the benefit the holder waits for.
4. D.Charge a front-end loadA front-end load is what the investor gets after the conversion, not before it. Class B collects nothing at purchase and instead recovers the distribution cost over time, which is what the deferred in contingent deferred sales charge refers to.

Why: Class B shares typically convert to Class A shares after several years, lowering ongoing 12b-1 fees.

Class A mutual fund shares are typically characterized by:

1. A.A back-end declining loadThis describes Class B shares, whose contingent deferred sales charge declines the longer the investor stays. Class A collects its sales charge at purchase instead.
2. B.No fees at allEvery share class bears an expense ratio, and Class A adds a front-end load on top. A genuinely no-load fund is a different product, not a Class A designation.
3. C.A guaranteed returnShare class governs how the investor pays for distribution, not what the portfolio produces. No class of mutual fund shares carries a performance guarantee.
4. D.A front-end load and lower 12b-1 feesCorrect - front-load share class.

Why: Class A shares carry a front-end sales load and lower ongoing 12b-1 fees, with breakpoint discounts.

An investor places $40,000 into Class A shares of a fund whose first breakpoint is $50,000, and tells the rep she expects to invest more within the year. Signing a letter of intent (LOI) would:

1. A.Let her pay the breakpoint-discounted load now, with 13 months (backdatable 90 days) to invest the remaining amountCorrect. That is exactly the LOI mechanism - discount today, completion window ahead, escrowed shares if she falls short.
2. B.Legally obligate her to invest the additional $10,000 within 13 monthsAn LOI is not a binding contract; failure just means the higher load is recouped from escrowed shares.
3. C.Apply only to purchases of this single fund, not other funds in the same familyBreakpoint privileges, including LOIs, generally aggregate purchases across the fund family.
4. D.Provide the same benefit as rights of accumulation, which also look forward 13 monthsRights of accumulation look BACKWARD at existing holdings to price new purchases; only the LOI has a forward window.

Why: An LOI lets her pay the REDUCED sales charge immediately on the current purchase, with 13 months to complete the breakpoint amount - and it can be backdated up to 90 days to capture a recent purchase. It is not a binding obligation; if she falls short, the load is adjusted retroactively (shares held in escrow cover it). The clue is expects to invest more soon. Review: Pooled Investment Vehicles.