Mutual Funds

Characteristics

We offer a wide range of mutual funds from many different mutual fund companies. Mutual funds are registered investment companies that issue redeemable securities. Mutual funds issue shares on a continual basis, and there is no secondary trading market for mutual fund shares. Mutual funds are required to sell their shares at the fund’s net asset value (NAV) per share plus any applicable sales charge or load, which is described below. The fund’s NAV is calculated by dividing the total value of all the fund’s assets, minus any liabilities such as ongoing fees and expenses (described below), by the number of shares outstanding.

An important step to take prior to investing in mutual funds is to read the respective mutual fund’s prospectus carefully. Each mutual fund prospectus contains important information that will help you make an informed decision about an investment in a mutual fund. In deciding whether to invest in a mutual fund, you should consider several different factors, including the mutual fund’s past performance, investment objective, investment strategies and risks, the investment adviser responsible for the management of the mutual fund’s assets, and the fees and expenses associated with the investment in a particular mutual fund. While past performance of a mutual fund is not indicative of future results, a mutual fund’s long-term performance record and portfolio manager’s experience and qualifications may be important factors in deciding to invest in a mutual fund. Your financial advisor can assist in obtaining a mutual fund prospectus upon your request.

General Fees and Costs

You will typically pay a sales charge or load when you buy shares in a mutual fund. We receive a portion of this sales charge for our efforts and the efforts of our financial advisors in selling shares of the mutual fund.

Most mutual funds utilize multiple share classes, with differing fees and expenses for distribution and shareholder services. Common share classes available to you in a brokerage account are Class A and Class C. Each class typically has different fees and costs, and therefore fund performance results will differ as those fees and expenses reduce performance across share classes. You should also note that the amount of time you expect to hold your investment in a mutual fund plays an important role in determining which share class is most appropriate for you, and you should discuss this consideration with your financial advisor.

Fees and Costs Associated with Different Share Classes

Each mutual fund company defines its own share class features, fees and costs in its prospectus. While there is no standard for defining share classes, set forth below are some common descriptions of share classes that are commonly used in our brokerage accounts.

Class A This share class usually carries a front-end sales charge, which is typically assessed as a percentage of your investment. This means that a sales charge is deducted from your investment each time you purchase shares in the mutual fund. Class A shares also typically have ongoing fees and expenses, which sometimes include fees commonly referred to as 12b-1 fees, and these 12b-1 fees are intended to finance distribution activities intended primarily to promote and market the mutual fund. Despite these ongoing fees and expenses, Class A shares typically have lower operating expenses compared to the other share classes of the same mutual fund that may be available to you. This means that ongoing costs will typically be lower than ongoing costs associated with other share classes of the same mutual fund that may be available to you. Many mutual funds offer “breakpoint” discounts for large investments in Class A shares, which means that the front-end sales charge decreases as the investment increases. These breakpoints are described in the mutual fund’s prospectus and explained further below.

• • For example, if you purchase $1,000 of Class A shares of a mutual fund that assesses a 5% front-end sales charge on your investment, you will pay a $50 front-end sales charge and the remaining $950 of your investment will be used to purchase Class A shares of the mutual fund. An ongoing annual operating expense fee of 0.60% on a value of $950 would equate to $5.70 that would be paid out of your holdings of the fund.

Class C This share class is characterized by a level asset-based sales charge that you pay annually as a percentage of your assets. It does not have a front-end sales charge like Class A shares, but it does have a contingent deferred sales charge (also known as a “CDSC”) and higher ongoing operating expenses. The CDSC means that you pay a sales charge when you sell your mutual fund shares. The amount of the CDSC is typically assessed as a percentage of your investment, and it declines over time and eventually is eliminated the longer you hold your shares. Most Class C shares generally eliminate the CDSC after one year.

• • For example, if you purchase $1,000 of Class C shares of a mutual fund with a 1% asset-based sales charge, you will not pay a front-end sales charge, so the entire $1,000 investment will be used to purchase Class C shares of the mutual fund at the time of purchase. An ongoing annual operating expense fee of 1.35% on a value of $1,000 would equate to $13.50 that would be paid out of your holdings of the fund. Additionally, if you needed to sell the fund while the 1% CDSC was still in place, a sale of $1,000 worth of the fund would result in you receiving $990.

When considering an investment in Class A shares versus Class C shares, the length of time you expect to stay invested in the fund is the most important factor. For example, if you plan to hold a fund for 15 years, it will be cheaper to pay the upfront load and the lower ongoing expense fees over time. Whereas if the investment is only for two years, it would be less expensive to avoid the upfront load of the A share and purchase the C share with the higher annual fee.

A specific share class, known as Class R, is available to retirement investors purchasing shares in a mutual fund through employer-sponsored retirement plans, such as 401(k) plans.

Class R This share class does not have a front-end sales charge or CDSC like Class A or Class C shares, but Class R shares do have ongoing fees and expenses such as 12b-1 fees intended to finance the distribution activities related to sales of the fund shares. These fees and expenses are deducted from your assets on an ongoing basis.

• • For example, if you purchase $1,000 of Class R shares of a mutual fund through your employer-sponsored retirement plan, you will not pay a front-end sales charge, so the entire $1,000 investment will be used to purchase Class R shares of the mutual fund at the time of purchase. However, certain ongoing fees and expenses, such as 12b-1 fees, will be deducted from your investment. If the ongoing fees and expenses are 0.25%, your $1,000 investment will be reduced to $997.50 after the first year as a result of the ongoing fees and expenses.

Fees and Costs Associated with Breakpoints

While it may make sense to own mutual funds from different mutual fund companies, it also may increase the total sales charges that you pay to purchase those mutual funds. Mutual fund companies often offer discounts or reduced sales charges based on the total amount you choose to invest with the mutual fund company. The investment levels needed to receive these discounts are known as “breakpoints.” Mutual fund companies typically allow you to combine holdings with those of immediate family members to reach these breakpoints.

Set forth below are some common ways you can receive the benefits of breakpoints.

Rights of Accumulation: “Rights of accumulation” allow you to combine your mutual fund purchase with your existing investment in the mutual fund company to reach a breakpoint.

Letter of Intent: You can take advantage of breakpoints by agreeing to purchase a certain dollar amount in a mutual fund over a specified period of time. In most instances, this requires signing a “Letter of Intent” (LOI).

The prospectus of every mutual fund describes its breakpoint policies, including how you can reach breakpoints. You can request a copy of a mutual fund’s prospectus from your financial advisor.

Ongoing Fees, Costs and Expenses

In addition to the 12b-1 fees mentioned above, mutual funds typically also deduct other ongoing fees and expenses, such as management fees or servicing fees, from fund assets. These ongoing fees and expenses are typically used to pay for the mutual fund’s continued annual operating expenses (these ongoing fees are sometimes referred to as the mutual fund’s “expense ratio”), such as paying the mutual fund’s investment manager, accounting and auditing expenses, legal expenses, and recordkeeping expenses. In addition, as noted above, the ongoing fees and expenses include fees commonly referred to as 12b-1 fees, and these 12b-1 fees are intended to finance distribution activities intended primarily to result in the sale of additional shares of the mutual fund and include marketing and advertising expenses.

These ongoing fees and expenses are typically charged daily as a percentage of your assets. You pay these fees and expenses indirectly because they are deducted from your assets on an ongoing basis. These payments, as well as the conflicts of interest associated with them, are described more fully below in this Reg BI Disclosure document.

More Information

More information on a mutual fund’s sales charges, ongoing fees and expenses, and overall expense ratio is available in the mutual fund’s prospectus. You can request a copy of a mutual fund’s prospectus from your financial advisor. Additionally, you can find information about mutual funds on FINRA’s Mutual Funds Resource Page.