UNDERSTANDING THE A’s, B’s and C’s OF MUTUAL FUNDS

When purchasing mutual funds, choosing a share class is an important investment decision. The information below may help you decide which mutual fund share class is the most appropriate given your individual financial situation and investment time horizon. Generally, mutual funds are purchased in A, B and C share classes, although other classes may be appropriate.

Class A Shares

Class A shares are typically characterized by a “front-end” sales load. The sales load is a charge paid by the investor. This amount is expressed as a percentage of a fund’s public offering price. Sales charges are typically 4.50% for fixed-income funds and 5.75% for equity funds. For larger investments, discounts known as breakpoints may reduce the sales charge. Once the sales charge has been deducted, the remaining amount is invested in the fund. In addition to front-end sales loads, investors in mutual fund Class A shares will pay ongoing expenses levied by the funds, including 12b-1 fees.

Class B Shares

Class B shares carry higher internal expenses than Class A shares. These expenses will reduce your returns by the amount they exceed the internal expenses of A shares. Class B share expenses range 0.50% to 0.75% per annum higher than those of Class A shares. Class B shares are also characterized by “back-end” sales loads. Class B shares are not assessed an initial sales charge, allowing the entire purchase to be invested in the fund. However, if you redeem your investment within a prescribed time period, you will be assessed a charge called a “Contingent Deferred Sales Charge” or CDSC. CDSC periods usually expire in 4 to7 years. The maximum amount of the CDSC is usually between 3.50% and 5.00% and declines the longer you hold your shares. Often when the CDSC period expires, your shares “convert” from Class B to Class A. This conversion allows you to pay a lower ongoing internal expense.

Class C Shares

Class C shares charge higher internal expenses than Class A shares. Class C shares usually are not assessed a front-end sales charge. Class C shares charge a CDSC if you decide to redeem your investment within a short time period, typically the first 12 to 18 months of ownership. CDSCs for Class C shares are usually 1.00%. Class C shares do not “convert” to Class A shares. Typically, among Class A, B and C shares, Class C shares have the highest internal expenses. These higher expenses will reduce your returns.

12b-1 Fees

A 12b-1 fee is an expense charged by some mutual funds to cover promotion, distributions, marketing expenses and sometimes commissions to financial consultants. A 12b-1 fee is in addition to the internal expenses of operating the fund.

Making An Appropriate Choice

Understanding the basic principles of mutual fund share classes is the first step in making an appropriate share class choice. Not all funds have the same policies; therefore, it is essential to always read the fund’s prospectus which outlines the specific information concerning fees and expenses before investing.

Class A shares may be appropriate for:  

Class B shares may be appropriate for:  

 Class C shares may be appropriate for:  

If you have additional questions concerning mutual fund share classes, please contact your Janney Financial Consultant. You may also find the links below helpful.

Click on the link below for more information on Share Classes.

http://www.sec.gov/answers/mfclass.htm

Click on the link below for the NASD Mutual Fund expense analyzer.

http://www.nasd.com/Investor/Tools/Calculators/FundCalc/expense_analyzers.asp