Common use of Share Classes Clause in Contracts

Share Classes. 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, and is paid at the time of your investment. Typically, Class A shares have a lower expense ratio (total annual fund operating expenses as a percentage of the mutual fund’s assets and referred to as 12b-1s) 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 if you make a large investment, already own shares of mutual funds in the same fund family, sign a Letter of Intent committing to purchasing additional shares in order to reach a breakpoint within 13 months, or you, with other eligible family members own funds within the same fund families. These breakpoints are described in the mutual fund’s prospectus. If you are eligible for a breakpoint, the mutual fund company must be notified when the investment is made. Class A shares typically have lower annual expenses than other share classes and may be less expensive over the long term for investors investing $100,000 or more. Class B – Rather than imposing a sales charge at the time of initial investment, Class B shares are characterized by a back-end or contingent deferred sales charges (also known 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 period has ended, 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 generally be higher than that of Class A shares. Depending on your time horizon and the amount invested, the higher annual expenses may result in a lower return on investment as compared to an investment in 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 is generally eliminated after a short period of time (usually 1 year). Class C shares also generally have higher 12b-1 fees than Class A shares, but may 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. Depending on the fund company, Class C shares may convert to Class A shares after a long period of time (usually 10 years). Depending on your time horizon, the higher annual expense may result in a lower return on investment as compared to an investment in Class A shares. Other Share Classes – In addition to A, B, and C shares, there may be other share classes available through the mutual fund family in which you are investing. These share classes may have no sales charge, low expenses, or varying combinations of charges. These shares are generally restricted to certain account types, such as retirement or advisory, or have high minimum investment requirements. For more information on these share classes, refer to the fund’s prospectus and speak with your investment professional. Sales Charge