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Your Rights and Responsibilities as a Raymond James ClientMutual FundsRaymond James1 offers clients a wide range of investment alternatives and services, including a variety of mutual funds. Deciding which mutual funds to invest in can be complex. It is important for you to work with your financial advisor to evaluate how a fund’s investment objectives, risks and associated costs fit your individual needs and objectives. An important aspect of this fund screening and selection process is to read the fund’s prospectus carefully before investing. Each prospectus contains important information that will help you make informed decisions. Your financial advisor will provide you with a prospectus for the funds you are considering. He or she will also answer your questions on how the fund’s shares are priced and the compensation the financial advisor and Raymond James will receive from your investment. The popularity of mutual funds results from features including professional management, diversification, daily pricing and redemption, and ease of purchase, among other investor benefits. Because many funds have minimum investments as low as $1,000, mutual funds have become the investment of choice for many large and small investors. Their popularity has grown significantly in recent years, and almost half of all U.S. households now own mutual funds (Source: Investment Company Institute 2004 Mutual Fund Fact Book). It is generally advisable to select a mutual fund whose manager has extensive experience and qualifications, along with a well-defined discipline and consistent performance record. While past performance is not indicative of future results, a fund’s long-term performance record and manager tenure are also likely to be factored into the selection criteria. Your financial advisor will help you review a fund in light of your investment objectives to help you make a decision that may help you achieve your specific investment goals, as this selection may pertain to that portion of your portfolio. Costs All mutual funds charge management fees, which are used to pay for the fund’s continuing operation, including paying the fund’s portfolio manager, accounting expenses, and recordkeeping costs. Many funds also have sales charges, which are partially used to compensate financial advisors for providing financial advice and client service. These sales charges may be charged when you make your investment (known as a “front-end sales charge”), when you redeem your investment (known as a “back-end sales charge” or redemption fee) or annually, in the form of “12b-1” fees or service fees. Please note that 12b-1 fees are used for overall marketing expenses and also to compensate the securities firm for activities or expenses related to distribution and/or retention of fund shares, such as compensation paid to your financial advisor and to participating dealers who have entered into sales agreements with Raymond James; advertising, salaries and other expenses of Raymond James relating to sales or servicing efforts; expenses of organizing and conducting educational and sales seminars, printing of prospectuses, statements of additional information and reports for other than existing shareholders; preparation and distribution of advertising material and sales literature and other sales promotion expenses; or for providing ongoing services to shareholders. Depending on share class and the type of account, the initial sales charge can range from 0 to 8 ½%, based on the fund and size of the transaction. For a further explanation of mutual fund share classes and their related fees, please visit the National Association of Securities Dealers’ Website at finra.org. The fund industry has developed share classes to give investors more choices for how they pay sales charges. The most common share classes are Class A, Class B and Class C. Each class has different fees and expenses applied, and therefore results in different performance outcome when fees and expenses are included. While there are no standard, industry-wide definitions of these classes (each fund defines its share classes in its prospectus), some of the typical differences are discussed below. Class A – This class usually carries a front-end sales charge. This means a percentage of your investment is deducted from your initial investment. Typically, Class A shares have a lower expense ratio (total annual fund operating expenses as a percentage of the fund’s assets) compared to the other share classes of the same fund. Most funds offer “breakpoint” discounts for large investments. These breakpoints are described in the fund’s prospectus. Please see “Reducing Sales Charges” section for more information. Class B – This class is characterized by a back-end sales charge, meaning that a sales charge may be paid when you redeem (sell) the fund. Class B shares do not usually have a front-end sales charge at the time of purchase. They impose a contingent deferred sales charge (CDSC), which you pay if you sell your shares prior to the end of the CDSC holding period. The CDSC normally declines and eventually is eliminated the longer you hold your shares. Once the CDSC is eliminated, Class B shares usually convert to Class A shares. Class B shares will generally have higher management expense ratios when compared to front-end shares (usually Class A) within the same family. Class C – This class has a constant sales fee that is charged to the fund each year throughout the life of the investment in the fund. Class C shares frequently impose a contingent deferred sales charge (CDSC) if you sell your shares within a short time of purchase, usually one year (see the fund’s prospectus for more information). Class C shares typically have higher management expense ratios than Class A shares. In most cases the expense ratio would be higher than Class A shares and even Class B if you hold the shares for a long time. Because your expected holding period for each mutual fund plays a role in determining which share class is best for you, you should provide your financial advisor with information about how long you plan to hold your mutual fund shares. Fee-Based Accounts – Mutual funds may also be owned in fee-based accounts. In fee-based investment advisory accounts, an annual fee – paid quarterly – is based on a percentage of assets in the account. The fee varies with respect to account size, type of securities managed, style of management and/or other services provided. Since it is an asset-based fee, costs are usually independent of transaction activity. Additionally, the financial advisor and the securities firm share the client’s interest in seeing the value of the assets increase. When considering your alternatives, you should carefully analyze the projected expense of a fee-based account versus commission-based accounts, including such factors as transaction size and volume, level and types of service expected from the financial advisor, as well as your own convictions as to how you are most comfortable paying for these services. Reducing Sales Charges While it may sometimes be judicious to own mutual funds from different fund families, it may also increase your total costs. Fund families often offer discounts on Class A share sales charges based on the investor’s total dollars invested with the fund group. The holdings levels necessary to receive these discounts are known as “breakpoints.” Often, fund groups will allow you to combine your holdings with those of your immediate family members to reach breakpoints. Each mutual fund describes its breakpoint policies, including how investors can reach breakpoints, how the fund group defines which family members qualify as “related,” and which funds and account types qualify for breakpoints, in its prospectus. When your financial advisor executes trades in mutual funds on your behalf, he or she calculates any Class A share breakpoints to which you may be entitled based on accounts you have with Raymond James, as well as other account information you have shared. However, if your financial advisor does not have the most complete information concerning your investments, particularly any held directly with a fund company rather than through the securities firm, he or she may not be able to best help you take advantage of sales charge breakpoints – either through recouping charges you may have overpaid or by taking advantage of breakpoints in the future. Therefore, you should take a few minutes to review your records to determine what other mutual fund investments you have made either at other securities firms or directly with fund companies, and regularly provide that information to your financial advisor. Although mutual fund breakpoint policies can differ, here are some common ways they can be achieved: Rights of Accumulation: “Rights of accumulation” allow you to combine your mutual fund purchase with your existing investment in the fund family to reach a breakpoint on new purchases. Rules for rights of accumulation and precise breakpoints will vary from one fund family to the next. Consult the prospectus and/or your financial advisor for information on how rights of accumulation may be applied to their specific investments. Letter of Intent: Investors can take advantage of rights of accumulation from the time they purchase initial shares by agreeing to invest a certain dollar amount over a specified period of time. In most instances, this requires signing a Letter of Intent (LOI). In addition, many mutual fund companies also permit investors to include purchases completed before the letter of intent is signed, by instating a retroactive letter of intent. However, if the amount stated for investment in the letter of intent is not invested, the fund can retroactively collect the higher sales commission. Net Asset Value (NAV) Transfers and Buybacks: After an investor redeems fund shares, some fund families will allow him or her to buy back into certain funds within a certain time frame without a Class A share sales charge. They may even allow the investor to apply past redemptions of funds from other fund families toward purchases into their fund family at no sales charge. Please see a fund’s prospectus or the statement of additional information (SAI) or specific policies. Finally, it is important to note that while Class A share breakpoints are beneficial, you should not forsake prudent asset allocation among mutual funds simply to take advantage of them. It is wise, however, to select a mutual fund that is part of a family of funds if you choose to purchase Class A shares in a commission-based account. As your objectives change, you can switch among the funds in the family whose objectives most closely meet your needs without incurring an additional sales charge. Staying within the same fund family may be preferable, since switching from one fund family to another often involves additional costs or fees. At the same time, there can be legitimate reasons to switch to a fund in another family of funds when the existing fund family does not have the type of fund required or that fund family’s alternatives don’t appear to be as well managed based on long-term historical results. If you do choose to switch to a fund in a different family or to another type of investment, and your account with Raymond James is commission-based, you will most likely incur a sales charge on the new investment. In those instances when a mutual fund switch to a different fund or to a variable annuity will result in a new commission being charged, the financial advisor and you will be required to execute a Mutual Fund/Annuity Switch Disclosure Form. The additional sales charges, if any, will be disclosed on this form and you will be asked to acknowledge that you may have been able to switch within your existing open-end mutual fund family. How Raymond James and Your Financial Advisor are Compensated Raymond James and your financial advisor receive compensation for selling, recordkeeping and monitoring mutual funds that varies by share class. Raymond James is paid by the fund family from the total fees and expenses paid by investors and a portion of that payment to Raymond James then goes to your financial advisor. The compensation formula to determine the amount of payment to your financial advisor is the same for all funds, including any funds managed by Raymond James’ affiliates as investment manager. Some fund classes carry higher sales charges or asset-based fees than others (e.g., Class A shares may have higher front-end sales charges and therefore higher compensation to Raymond James than Class B shares). As a result, your financial advisor may receive more or less compensation depending on the fund or share class you purchase if purchased on a commission basis. In addition, while the absolute amount of your financial advisor’s initial compensation is lower for Class C shares, the percentage of the initial payment, in some instances, may be greater than the percentage that the financial advisor receives for the sale of Class A or Class B shares. Raymond James does not participate in programs that provide preferential treatment to financial advisors based upon the sale of certain mutual funds. Raymond James financial advisors are compensated at the same level and compete on a level playing field in terms of transaction charges for sales within all fund families. Our financial advisors currently have available approximately 9,000 mutual funds from more than 230 fund families. Education and Communication. Consistent with FINRA rules, fund distributors and/or their affiliates may compensate Raymond James for training and education seminars for Raymond James’ associates, financial advisors, clients and potential clients. This may include due diligence meetings regarding their funds, recreational activities or other non-cash items. The representatives of fund companies attend meetings, provide speakers for educational presentations and attend events where they can interact with our financial advisors. Other Raymond James Services and Compensation Mutual fund companies may also compensate Raymond James and its affiliates for services in addition to sales charges and asset-based fees in connection with clients’ purchasing and holding mutual funds. This compensation may not be disclosed in detail in a fund’s prospectus. Raymond James’ clients can purchase shares of those mutual funds whose affiliates have entered into contractual arrangements with Raymond James. This contractual arrangement provides for the payment of one or more of the fees described below. These fees do not purchase placement on any preferred product lists or any special positioning or research coverage of funds by Raymond James. Instead, these fees are used to cover the types of services outlined below and are not shared with Raymond James financial advisors or their branch managers as compensation. Administrative and other. Fund companies with funds electronically linked or “networked” with a broker/dealer’s account system or with funds available through a broker/dealer’s fee-based account programs often reimburse broker/dealers for a portion of their account administrative costs, which can include accounting, reporting and other services to shareholders. Networking is a service that enables the sharing of data between Raymond James and mutual fund companies. For networked accounts, Raymond James – rather than the mutual fund company – produces statements, trade confirmations and IRS form1099s, in addition to providing client service. Fee-based account eligible funds may reimburse Raymond James up to $15,000 annually for the costs associated with setting-up the funds for availability in these accounts, performance reporting software, enhanced statements, and marketing- and sales-related costs, among others. Marketing Service and Support. Raymond James provides a variety of marketing services and other support to sponsors of mutual funds regarding their funds. These services include, but are not limited to, the provision of: detailed mutual fund information to financial advisors, strategic planning support to assist fund sponsors by making financial advisors available for educational information regarding their funds, and branch office support, including phones, computers, conference rooms, as well as facilities and distribution support for prospectuses and promotional materials relating to their funds. Certain Retirement Program Administration Fees. Raymond James receives an annual fee of up to $5,000 for providing administrative services to the mutual fund companies that offer corporate retirement plans. Affiliated Funds. Raymond James makes available to its clients a variety of mutual funds advised by its affiliate, Heritage Asset Management. Raymond James may receive more revenue from selling these funds because it receives compensation for providing these affiliated funds with investment advisory, administrative, transfer agency, distribution and/or other services that Raymond James may not provide to unaffiliated funds. However, it is important to note that Raymond James financial advisors receive the same compensation and compete on a level playing field for sales of funds from all available fund families. Other Services. Raymond James Financial, Inc. (NYSE-RJF) is a Florida-based diversified holding company whose subsidiary companies provide financial services to individuals, corporations and municipalities. For these services, Raymond James receives compensation. As a result, Raymond James can be expected to pursue additional business opportunities with companies whose mutual funds Raymond James makes available to its clients. Consistent with industry regulations, these services could include (but are not limited to) banking and lending services, sponsorship of deferred compensation and retirement plans, investment banking, securities research, institutional trading services, investment advisory services, and effecting portfolio securities transactions for funds and other clients. Raymond James professionals who offer mutual funds to individual investor clients may introduce mutual fund company officials to other services that Raymond James provides. Mutual funds’ business policies can be found in a fund’s statement of additional information, which is available on request from the fund company. For additional information on mutual funds in general, contact your financial advisor or visit educational Websites of the Securities and Exchange Commission at sec.gov, the National Association of Securities Dealers at finra.org, the Securities Industry Association at sia.com, and the Investment Company Institute at ici.org Disclosure Mutual fund companies are required to outline revenue sharing arrangements, along with a fund’s fees and risks in their prospectus and/or statement of additional information. In addition to the disclosure information posted in this brochure, Raymond James provides disclosure through:
1Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. The information in this section also appears in the brochure entitled: “Your rights and responsibilities as a Raymond James client.” Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds before investing. The prospectus contains this and other information about mutual funds. The prospectus is available from your financial advisor and should be read carefully before investing. |
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