Investment Companies, 2019

Chapter 5 Complex Capital Structures

5.01 Many investment companies adopt complex capital structures to increase flexibility in pricing and access to alternative distribution channels for their shares. Such structures are principally of two kinds: multiple-class funds and master-feeder funds. In addition, many organizations are offering funds of funds. Funds of funds either permit a fund complex to provide asset allocation products using funds in the complex or allow an investment adviser to allocate assets among many unaffiliated investment advisers. Master-feeder and multiple-class structures permit a common investment vehicle to be distributed through different channels or with different distribution charges to the shareholder, or both.

Operational and Accounting Issues

Multiple-Class Funds

5.02 As stated in FASB Accounting Standards Codification (ASC) 946-20-05-1D, multiple-class funds issue more than one class of shares. Each class of shares may have different types of sales charges, such as a front-end load, contingent deferred sales load, 12b-1 fee, or combinations thereof. Multiple-class funds may charge different classes of shares for specific or incremental expenses, such as transfer-agent, registration, and printing expenses related to each class.

5.03 An example of a (commonly used) multiple-class structure for registered investment companies includes (but is not limited to) the following classes of shares:

•     Class A. Class A shares are primarily charged a front-end ...