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Buyer Beware: Class B Shares Consistently Lag A an

By Staff Writer

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Oct. 16, 2003 — Class B share returns generally lag those of Class A and C shares, as adjusted for fees and expenses based on average results for domestic equity funds.

According to Standard & Poor’s data, Class B shares consistently underperformed Class A and C shares over the one- three-, and five-year periods through September. Some good reasons: B shares have an average 4.5% back-end load, as well as the highest expense ratio of the three share classes.

Class B shares frequently convert to A shares prior to being held for ten years, so they often aren’t the best option for investors with that time horizon given their higher expenses.

An investor’s time horizon can have a significant impact on A- and C-share returns. C shares show better results than A shares for the one-, three-, and five-year periods. A shares, however, outpaced C shares for the ten-year period. Over the shorter-term, C shares hold up better due to their minimal load, but over the longer term, C shares’ higher expenses reduce returns relative to less expensive A shares. The average expense ratio for A shares is about two-thirds that of the other two share classes.

“Investors buying funds through an intermediary should understand the cost structure of their funds since their choices will directly impact their fund performance,” said Rosanne Pane, mutual fund strategist for Standard & Poor’s.

Fees and expenses vary widely for fund share classes. On average, A shares have a front-end load of 5.44%, B shares carry a back-end load of 4.52%, and C shares have minimal loads. Average expense ratios are 1.35% for A shares, 2.05% for B shares, and 2.04% for C shares.