Important Information About Your Mutual Fund Investment
This document contains important information about your mutual fund investment, including an explanation of the costs associated with investing in mutual funds, suggestions on how to reduce those costs, and other valuable information. We hope you will take the time to read it carefully. Each mutual fund is different from the next, and the investment features, opportunities and expenses vary from fund to fund. We strongly encourage you to read the prospectus and to discuss your investment goals and objectives with your PFS Investments (“PFSI”) representative. An informed investor has a much greater chance of success and we are committed to your success. PFSI is the registered broker-dealer within the Primerica group of companies through which securities are offered.
The Costs Associated with Investing in Mutual Funds
Before investing in mutual funds, it is important that you understand the fees and expenses that you will be charged. All mutual funds have fees and expenses. These costs are important because they affect the return on your investment. Generally, for the mutual funds offered by PFSI the fees fall into two categories: sales charges and annual expenses. Annual expenses include management fees, distribution and service (12b-1) fees, the cost of shareholder mailings, and other fund operating expenses. These fees are disclosed in the fee table found in the front of a fund’s prospectus.
Most mutual funds offer different pricing arrangements, or different “classes” of shares, to meet the needs of different investors. Share classes represent ownership in the same mutual fund but offer investors a choice in how to pay for the fund. For example, many funds offer Class A, Class B and Class C shares. The different pricing arrangements for these shares are explained below.
Class A Shares
Class A shares generally have a front-end sales charge and lower annual expenses. If, for example, you have $10,000 to invest in a fund and the front-end sales charge is 5%, you would be charged $500, and the remaining $9,500 would be invested in the fund.
Typically, Class A shares allow discounts to the sales charge for larger investments. These discounts, known as “breakpoints,” help to reduce the overall cost of investing. Each prospectus contains a “breakpoint” schedule that indicates the sales charge based on the amount invested. For example, a fund might charge a sales charge of 5.75% for purchases under $50,000, reduce the charge to 4.75% for purchases of $50,000 or more but less than $100,000, and further reduce the charge at still larger amounts. You may be able to qualify for a breakpoint on the basis of a single purchase, or by aggregating multiple purchases by using “Rights of Accumulation” or a “Letter of Intent”, which are explained below.
Rights of Accumulation – Most mutual funds allow investors to add the value of previous purchases of Class A shares within the same fund family, to the value of the current A share purchase, to qualify for breakpoint discounts. Also, many mutual funds allow investors to add the value of previous purchases of Class B shares to a current purchase of Class A shares, to achieve a breakpoint. In either case, previous purchases may include purchases in accounts you hold or in accounts held by certain of your relatives, such as spouses or children. Each mutual fund family is different; you should consult with your PFSI representative and review the mutual fund’s prospectus or Statement of Additional Information to determine what the rules are. Finally, if you wish to rely upon investments in accounts of related persons to qualify for a breakpoint discount, you must advise your representative of those accounts.
Letters of Intent – Many mutual funds allow investors to qualify for breakpoint discounts by electing or signing a Letter of Intent, which commits the investor to purchasing a specified amount of Class A shares within the next 13 months. For example, if an investor plans to purchase $50,000 of Class A shares over the next 13 months in multiple transactions, electing a Letter of Intent would allow the investor to receive the $50,000 breakpoint on all of the individual purchases made in that period. Additionally, some funds offer retroactive Letters of Intent that allow recent purchases to count towards achieving a breakpoint. If an investor fails to invest the amount required by a Letter of Intent, at the end of the 13 months the fund is entitled to collect sales charges based upon the amount actually invested, which may be done by selling shares in the account. If you intend to make multiple purchases within a 13-month period, you should consult your PFSI Representative and the mutual fund prospectus to determine if it would be beneficial for you to elect a Letter of Intent.
As you can see, understanding the availability of breakpoint discounts is important because it may allow you to purchase Class A shares at a lower price, which may affect your decision on which share class to buy. If you wish to learn more about mutual fund breakpoints, you should review the investor alert “Mutual Fund Breakpoints: A Break Worth Taking” on FINRA's website (www.finra.org).
Class B Shares
Investments in Class B shares are not subject to a front-end sales charge. Instead, purchasers of Class B shares are normally required to pay a back-end sales charge or contingent-deferred sales charge (CDSC) if they sell shares during a specified time period (typically five or six years). Generally, the CDSC is assessed on the lesser of the market value of the shares sold or the historical cost of the shares. For example, suppose you invest $10,000 in Class B shares of a fund. Because there is no front-end sales charge, all of your money is invested. Assume your account grows to $11,000 in the second year and you redeem the entire account. If the fund charges a 4% CDSC against withdrawals in the second year, you would be charged a CDSC of $400 (4% x $10,000) and receive proceeds of $10,600. In addition to the CDSC, Class B shares are generally subject to higher annual expenses than Class A shares. For these reasons, Class B shares are not, and should not be viewed as “no-load” shares.
The CDSC associated with an investment in Class B shares declines over time, and is eliminated entirely at the end of the designated holding period (typically five or six years). At some point after the expiration of the holding period, Class B shares typically “convert” into Class A shares to obtain the lower annual fees associated with Class A shares. Before buying a Class B share, make sure you check the prospectus to determine how long you will have to hold the shares before they convert to A shares.
Although investments in Class B shares usually do not require payment of a front-end sales charge, it is important to bear in mind that Class B shares can cost you more over time than Class A shares, due to the CDSC and the higher annual fees. This is especially true for larger investments that are eligible for greater breakpoint discounts allowed by Class A shares. If you intend to invest in Class B shares, you should discuss with your PFSI representative whether an investment in Class A shares might be more beneficial to you, considering the availability of breakpoints, Rights of Accumulation, Letters of Intent and the lower annual fees. Also, if you have an existing B share investment, at some point it may be beneficial for you to place your additional contributions into A shares, if your mutual fund family allows Class B share holdings to count towards Class A share breakpoints.
While there can be benefits to owning Class B shares, Class A shares tend to be more appropriate for large, longer-term investments due to their lower annual expenses and breakpoint discounts. PFSI does not accept purchases of Class B shares in amounts of $100,000 or more. In addition, the firm has set lower purchase limits on certain funds. For more information, please consult your PFSI representative.
Class C Shares
Class C Shares, like Class B shares, have no front end sales charge and have higher annual expenses than Class A shares. Generally, there is no CDSC unless the shares are sold within the first twelve months. Unlike Class B shares, Class C shares never convert to Class A shares and therefore are more appropriate for shorter-term investors. PFSI offers Class C shares only in certain accounts where Class A shares are unavailable.
Some of the information herein has been adapted from FINRA’s Investor Alert titled “Class B Mutual Fund Shares: Do They Make the Grade.” We invite our clients to review this Alert and to examine other important information on FINRA’s web site (www.finra.org). In particular, FINRA provides a mutual fund expense calculator to assist investors in determining which share class offers the least expensive fee structure.
Opportunities To Reduce The Cost of Your Mutual Fund Investment
Here are several steps that you can take to make sure you are paying the lowest possible sales charge for a mutual-fund investment:
Understand how breakpoints work.
Read the fund’s prospectus and Statement of Additional Information. Check the fund’s website for information about sales charges and other costs of owning the fund.
Review your mutual-fund holdings.
Before purchasing a mutual fund, review your account statements and those of your family members to identify opportunities to achieve sales charge discounts through LOI and ROA. Remember, most mutual funds allow you to aggregate holdings in different accounts, different share classes and holdings by certain family members to achieve sales charge discounts.
Keep your PFSI representative informed.
Be sure to tell your PFSI representative about all of your mutual fund investments and those of your family. Discuss with your representative your expected time horizons and any plans you may have for making additional purchases, such as rolling-over an IRA or starting a college fund. With this information, your PFSI representative can help you select a share class that minimizes the fees that you will pay over the life of your investment.
Investing In Multiple Fund Families
Some investors choose to invest in multiple fund families to obtain additional diversification or to access the higher rated funds offered by the different fund families. Note that this investment strategy may increase the cost of investing in mutual funds by reducing the opportunities to achieve breakpoint discounts. Also, there is no guarantee that a multi-family investment strategy will provide significant additional diversification or outperform a single-family strategy.
Past Performance of a Mutual Fund is No Guarantee of Future Results
Keep in mind, investing in mutual funds involves certain risks. Investment returns and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Generally, investments offering the potential of high returns are accompanied by a higher degree of risk. Investments in small-cap and mid-cap companies involve greater risks and volatility than investments in large-cap companies. Investing in mutual funds that purchase foreign securities is subject to risks not associated with domestic investing, such as currency fluctuations and changes in political and economic conditions. In addition to the normal risks associated with equity investing, more narrowly focused investments typically exhibit higher volatility than investments that diversify across many sectors and companies. High-yield bonds are rated below investment-grade and involve more risk than higher-rated securities. These and other risks associated with investing in mutual funds are described in the fund’s prospectus, which should be read carefully before investing.
With the large number of mutual funds available in the marketplace today, PFSI believes that it can better service its clients by focusing the firm and our representatives on a smaller group of fund families that offer a wide selection of top-quality funds. We call this group of fund families our Select Group and we allow them greater access to our representatives to provide training, marketing support and educational presentations. Likewise, Select Group funds are the only fund families PFSI promotes to its representatives. Fund families may be chosen to be in the Select Group for any number of reasons including popularity among our representatives and clients, strength of fund offerings in a particular category, marketing support made available to our representatives, revenue sharing payments to the firm, or an agreement to obtain transfer agent or other services from Primerica Shareholder Services (“PSS”), an affiliate of PFSI. While our representatives are free to sell funds from other fund families offered by the firm, the relationship PFSI maintains with the Select Group funds will influence our representatives to sell these funds. Currently, PFSI’s Select Group includes the following fund families:
- American Funds
- Franklin Templeton Investments
- Legg Mason Funds
- Amundi Pioneer
- American Century Investments.
The fund families in the Select Group are subject to change at any time. From time-to-time, the firm has promotional opportunities which cannot accommodate participation by all of members of the Select Group. The firm offers these opportunities to members of the Select Group based on total assets under management, year-to-date fund sales, or other criteria.
How PFSI and Your Representative are Compensated When You Buy a Mutual Fund
PFSI and your representative receive compensation when you invest in a mutual fund. The amount of the compensation depends upon the fund purchased, the amount invested, and the share class selected. Generally, Class A shares charge an up-front sales charge and part of this amount is paid to PFSI and your representative as compensation. Class B and C shares do not charge an up-front sales charge, but PFSI and your representative earn compensation at the time of the sale. This charge is passed on to you through the higher annual fees and/or CDSC associated with these shares. In addition, with your purchase of Class A, Class B or Class C shares, PFSI and your representative receive smaller periodic commission payments called “trails” as long as you retain the shares you purchased. PFSI representatives participate in award and incentive programs in which they may receive trips or other non-cash compensation based on their securities sales. As of December 1, 2007, PFSI pays the commission to its representatives on the sale of Legg Mason B shares and, in turn, PFSI recieves (i) any contingent deferred sales charges incurred by PFSI customers on the redemption of B shares in Legg Mason funds, and (ii) the services and distribution fee assessed by Legg Mason on B shares held by PFSI customers. This arrangement may result in PFSI earning more compensation on the sale of B shares in Legg Mason funds than on the sale of B shares in any other fund company. Neither your representative nor his or her supervisor, however, receive any portion of this additional compensation. Also, PFSI receives other compensation for providing custodial services to certain retirement plan customers that invest in Invesco, Legg Mason, Amundi Pioneer, or American Century funds. PFSI receives additional payments as explained below.
Revenue Sharing from Mutual Fund Families
PFS Investments Inc. (“PFSI”) endeavors to collect a mutual fund support fee, or what has come to be called a revenue sharing payment, from the fund families we offer to the public. These revenue sharing payments are paid out of the investment adviser’s or other fund affiliate’s assets and not from the fund’s assets. The assets of the investment adviser or other fund affiliate, however, may be in part derived from services provided to the fund and paid for out of the fund’s assets. It is important to note that neither our representatives, nor their supervisors, receive any additional compensation as a result of these payments. We expect the revenue sharing arrangements resulting in the largest payments to PFSI to require the following: (i) a one-time payment of up to .25 percent (25 basis points) of an investor’s purchase amount, and (ii) a quarterly payment of up to .0175 percent (1.75 basis points) for as long as the fund family retains the investor’s assets. For example, on an investment of $10,000 (none of which is invested in the money market fund discussed below), the maximum revenue sharing payment any fund family affiliate would pay to PFSI would be a one-time payment of $25 and $1.75 for each calendar quarter that the fund retains the assets. These revenue sharing arrangements vary and some fund family affiliates may pay less.
Separately, PFSI may receive additional revenue sharing on investments in the following Legg Mason funds: Western Asset Liquid Reserves and Western Asset Tax-Free Reserves. PFSI may receive a maximum quarterly revenue sharing payment of .0435 percent (4.35 basis points). Accordingly on an investment of $10,000, PFSI could receive a maximum payment of $4.35 for each quarter that the fund retains the assets. PFSI may receive less depending on which fund holds the assets and other factors determined by the investment advisor to the fund.
For a list of participating fund families and other important information, please go to www.shareholder.primerica.com and click on “Revenue Sharing.” All revenue sharing arrangements are subject to change at any time. For more information, please refer to a fund’s description of its revenue sharing practices, usually included in its prospectus or Statement of Additional Information.
Other Payments From Mutual Fund Families
PFSI may be reimbursed by any of the fund families we offer (or their affiliates) for expenses incurred for various meetings, seminars, and conferences held in the normal course of business or other promotional activities. An affiliate of PFSI, PSS, provides transfer agent or other shareholder services, to Invesco, Legg Mason, American Century Investments, and Amundi Pioneer, for the benefit of PFSI’s customers and is compensated for these services. At any time, PSS may provide similar services to other fund families offered by PFSI.
Brokerage Services Provided By PFSI
PFSI is a registered broker-dealer that offers mutual funds, variable annuities and college savings plans. PFSI and its registered representatives may utilize financial tools in providing advice in connection with these brokerage services. PFSI and its representatives do not offer “financial planning services,” hold themselves out as “financial planners,” create or deliver “financial plans," or provide tax or legal advice.
To obtain a Statement of Additional Information for any mutual fund, please contact the fund company or go to its website.
FINRA BrokerCheck is a free tool to help investors check the background of FINRA-registered securities firms and representatives. For questions regarding BrokerCheck, or to obtain a free investor brochure, please call toll-free (800) 289-999 or go to FINRA's website at www.finra.org.
Investments in mutual funds are not FDIC insured or bank-guaranteed and may lose value.
Revised February 2020