Important Packaged Product Disclosures

Mutual Fund Investing at Raymond James


Raymond James[1] 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 particular mutual fund fits your individual needs and objectives. An important aspect of the mutual fund screening and selection process is to read the mutual 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 mutual funds you are considering. Your financial advisor will also answer your questions on how the mutual fund's shares are priced and the compensation the financial advisor and Raymond James will receive from your investment.

This educational disclosure document is designed to provide you with a general overview of factors you should evaluate when considering an investment in a mutual fund. Generally, this educational disclosure document is divided into two parts. In the first part, you will find general information about investing in mutual funds, including information that is designed to help you understand the differences in share classes of mutual funds and how you can possibly reduce some of the transaction costs associated with investing in mutual funds. In the second part, you will find general information about how your financial advisor and Raymond James are each compensated. Each of these parts are important to you as an investor in a mutual fund - the first part gives you an idea of the costs that you will incur as a result of your investment, while the second part helps you to understand some of the factors that could conceivably affect the guidance of your financial advisor and the investment alternatives that are available to you at Raymond James.

Part I: Mutual fund investing - generally

The popularity of mutual funds results from features such as professional management, diversification, daily pricing and redemption, and ease of purchase, among other investor benefits. Because many mutual funds have minimum investments as low as $1,000, mutual funds have become the investment of choice for many 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 mutual fund's long-term performance record and manager tenure should be factored into your selection. Your financial advisor will help you review potential mutual funds in light of your investment objectives and risk tolerance.

As a client of Raymond James, you are able to invest in a wide range of investment products, including many different mutual funds that are managed or distributed by companies that are unaffiliated with Raymond James, as well as mutual funds that are managed and distributed by Raymond James affiliates. Raymond James financial advisors currently have access to approximately 9,000 mutual funds from more than 200 mutual fund companies. In deciding which mutual fund is right for you, you should consider many different factors, including a mutual fund's investment objective, investment strategies and risks, the background of the investment adviser who is responsible for the management of the mutual fund's assets and the fees and expense associated with an investment in a particular mutual fund. The remaining information in Part I of this educational disclosure document is intended to provide you with a general overview of the costs associated with an investment in a mutual fund.

Selecting a class of shares

On-Going Costs. All mutual funds charge management and other on-going operational fees. These on-going fees are used to pay for the mutual fund's continuing operations which include paying the mutual fund's portfolio manager, accounting and auditing expenses, legal expenses, marketing and advertising, and recordkeeping costs. To get an idea of the type of expenses that a particular mutual fund may incur on an on-going basis, you should refer to the "Fee Table" of the mutual fund which is found in the prospectus. Many mutual funds also assess fees commonly referred to as "12b-1 fees" or "shareholder services fees." These fees, which are also reflected in the fee table of a mutual fund, are generally used to finance activities intended primarily to result in the sale of additional shares of the mutual fund or to provide continuing shareholder services to existing shareholders.

Funds incur other on-going costs that are not reflected in the fee table of the prospectus, but which you should consider. For instance, a fund will incur costs associated with the mutual fund's on-going investment activities. The impact of these costs is difficult to appreciate fully because they are often difficult to quantify and they can vary immensely depending on the type of underlying investments in which a particular mutual fund may invest. To get a feel for the impact of these costs on a particular mutual fund, you should consider such factors as the size of the mutual fund (in terms of assets), previous years' portfolio turnover rates (a ratio that measures the extent to which a mutual fund's manager buys and sells securities in a particular period), and with respect to equity mutual funds the level of brokerage commissions that a particular mutual fund has incurred historically. Much of this information can be found in the financial statements of a mutual fund or in the mutual fund's prospectus or Statement of Additional Information (you may request a copy of a mutual fund's Statement of Additional Information from your financial advisor or the mutual fund company directly).

Sales Charges ("Loads") and Class Distinctions. Many mutual funds also have sales charges, a portion of which are used to compensate broker/dealers and their financial advisors for providing financial advice and client service. Sales charges may apply when you make your investment (known as a "front-end sales charge"), or when you redeem your investment (known as a "back-end sales charge"), or in the form of an on-going charge that is assessed against assets (these on-going charges are the 12b-1 fees described above).

The mutual fund industry has developed a multiple share class structure for mutual funds which is intended to provide investors more choices for paying sales charges and service fees. Among the most common share classes that assess sales charges are Class A, Class B and Class C. While there are no standard, industry-wide definitions of these classes (each mutual fund defines its share classes in its prospectus), some of the typical differences are discussed below. You should note that each class generally has different fees and expenses, and therefore performance results will differ when those fees and expenses are included in a performance presentation. You should also note that the length of time you expect to hold your investment in a mutual fund may play an important role in determining which share class is most appropriate for you and you should discuss your expectations in this regard with your financial advisor.

  • Class A - This class usually carries a front-end sales charge. This means a sales charge is deducted from your investment each time you purchase additional shares. Typically, Class A shares have a lower expense ratio (total annual fund operating expenses as a percentage of the mutual fund's assets) compared to the other share classes of the same mutual fund, which means that your on-going costs may be lower than the costs associated with other share classes. Many mutual funds offer "breakpoint" discounts for large investments. These breakpoints are described in the mutual fund's prospectus.
  • Class B - Rather than imposing a sales charge at the time of initial investment as with Class A shares, Class B shares are characterized by a back-end or contingent deferred sales charges (also know as a "CDSC"), which means that you may pay a sales charge when you redeem (sell) mutual fund shares. The amount of the CDSC as a percentage of your investment normally declines over time and eventually is eliminated the longer you hold your shares (the period of decline may last anywhere from 5 to 8 years depending on the particular mutual fund). Once the CDSC is eliminated, Class B shares usually convert to Class A shares. Until this conversion takes place, Class B shares will generally have higher 12b-1 fees than Class A shares and, as a result, the overall expense ratio for Class B shares will be generally higher than that of Class A shares.
  • Class C - Similar to Class B shares, Class C shares are generally characterized by a CDSC. However, unlike Class B shares, the possibility of incurring a CDSC if you sell your shares generally goes away after a short period of time (usually 1 year). Class C shares also generally have higher 12b-1 fees than Class A shares, but typically have the same or comparable 12b-1 fees as Class B shares. As a result, Class C shares will almost always have a higher total operating expense ratio than Class A shares, while Class C shares have total operating expense ratios that are generally comparable to Class B shares during the B share CDSC period. However, Class C shares generally do not convert to Class A shares.

For a further explanation of mutual fund share classes and their related fees, please visit the Financial Industry Regulatory Authority's website at and click on the "Investors" tab.

How to reduce sales charges

While it may make sense to own mutual funds from different mutual fund companies, it may increase your total ownership costs. Fund companies often offer discounts on Class A share sales charges based on an investor's total dollars invested with the mutual fund group. The investment levels necessary to receive these discounts are known as "breakpoints." Often, mutual fund companies will allow you to combine your holdings with those of your immediate family members to reach these breakpoints. The prospectus of every mutual fund describes its breakpoint policies, including how investors can reach breakpoints, how the mutual fund group defines which family members qualify as "related," and which mutual funds and account types qualify for breakpoints.

When your financial advisor executes mutual fund purchases 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 mutual fund company or another broker dealer rather than through Raymond James, your financial advisor may not be able to identify the appropriate sales charge breakpoint on existing or future investments. 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 mutual fund companies, and regularly provide that information to your financial advisor.

Although mutual fund breakpoint policies can differ, here 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 family to reach a breakpoint on new purchases. Rules for rights of accumulation and precise breakpoints will vary from one mutual fund company to the next. Consult the prospectus and/or your financial advisor for information on how and if rights of accumulation may be applied to 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 mutual fund can retroactively collect the higher sales charge amount.
  • Net Asset Value (NAV) Transfers and Buybacks: After an investor redeems mutual fund shares, some mutual fund companies will allow investors to buy back into certain mutual funds within a certain time frame without incurring a Class A share sales charge. They may even allow investors to apply past redemptions of mutual funds from other mutual fund families toward purchases into their mutual fund company without a sales charge. Please see a mutual fund's prospectus or the statement of additional information (SAI) or specific policies.

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 the breakpoints. As described above, however, it may be beneficial to select mutual funds issued by the same company if you choose to purchase Class A shares in a commission-based account. As your objectives change, you can switch among the mutual funds in the mutual fund group whose objectives most closely meet your needs without incurring an additional sales charge. Staying within the same mutual fund group may be preferable, since switching from one mutual fund group to another may involve additional costs or fees. At the same time, there can be legitimate reasons to switch to a mutual fund in another mutual fund group when the one mutual fund group does not offer the type of mutual fund that you interested in or that mutual fund group's alternatives do not appear to be as well managed.

If you do choose to switch to a mutual fund in a different mutual fund group 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 mutual fund or to a variable annuity will result in a new commission being charged, you and your financial advisor 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. You should also be aware that there may be tax consequences related to your sale, redemption or exchange of mutual fund shares. If you have questions about the possible tax consequences of a sale, redemption or exchange of your mutual fund shares, you should consult your tax advisor prior to making any such investment decision.