BankAmerica Corp. has cooked up three mutual fund share classes, aimed at the cash sweep and retirement plan markets, that carry rather hefty fees.
The San Francisco banking giant described the new share classes for two money market funds and two long-term funds in revised prospectuses dated July 1. But the strategy behind the pricey new shares classes and whether they are currently being marketed are something of a mystery.
The company declined to make executives available to discuss the changes. "In a competitive environment, development of various classes of mutual fund shares becomes a necessity," a bank spokesman said. "When, if, or even how we market such share classes is considered proprietary information."
The three new share classes - K for retirement plans and X and S for money market sweeps - would include distribution and administrative fees ranging from 30 to 100 basis points. These fees would be used to support sales and marketing and shareholder servicing, according to the prospectuses.
Currently, BankAmerica's fees on these money market funds are below industry average; the new share classes would be substantially above the average. The average total fees for bank-managed money market funds are 0.65% of assets for retail shares and 0.438% for institutional shares, according to Lipper Analytical Services in Summit, N.J.
Depending on sales volume, the fees could build a tidy marketing war chest. In the case of the retirement plan shares, they could be used to shift plan administration costs from the sponsor to participant.
Here's how the fees work:
*Fees for the S-class shares of the prime and treasury money market funds, which would be available only through cash management agreements, would be as much as 1.25% of assets. That's 100 basis points higher than fees on some existing classes of the same funds.
*The X-class shares of the prime and treasury money market funds - designed for retail sweep accounts - would carry fees as high as 0.8% of assets, thanks to the addition of a 30 basis point 12b-1 fee, which covers marketing expenses.
The sweep shares would be offered through the bank's broker-dealer or affiliates to "qualified retail customers" only. However, the prospectus did not define this term.
*The K-class shares were designed for an asset allocation fund and a capital income fund, and are offered for qualified retirement plans and rollovers. The traditional "A" shares of this fund carry total operating expenses of 1.23% of assets; the K shares would add a 50 basis point 12b-1 fee and a 50 basis point shareholder service fee. After fee waivers, however, total expenses on the K shares would be 1.73% of assets. However, the A shares also carry an up-front sales charge of 4.5%, which the K shares lack.
