Protect Yourself

Net Asset Value Transfers: Look Before You Leap Into Another Mutual Fund

Certain load mutual funds allow you to buy class A shares without paying the front-end sales load if you buy that fund using proceeds from the sale of shares in a different mutual fund family for which you paid a front-end or back-end sales charge. These transactions are called NAV transfers because you can purchase class A shares of a new fund at net asset value (NAV) without paying a front-end sales load. Although NAV transfers may only be offered by a limited number of funds, they can eliminate the sales charges you’ll pay when switching between load funds in different fund families.

We are issuing this alert because investors may not be fully aware of NAV transfer opportunities. This Alert will explain how NAV transfers work and what you need to know to make sure you don’t pay any unnecessary sales charges when selling one load fund to buy another load fund.

What is an NAV transfer?

Through an NAV transfer, you can purchase class A shares of a mutual fund without paying a front-end sales charge if you invest some or all of the proceeds from the sale of a mutual fund in another mutual fund family for which you paid a front-end or contingent deferred sales charge (CDSC) within a specified period of time.

Do all mutual funds that charge a sales load offer NAV transfers?

No. Only a limited number of mutual funds offer NAV transfers. You can find out if a mutual fund you’re purchasing offers NAV transfers by reading the prospectus and Statement of Additional Information (SAI). However, you’ll need to read carefully because most mutual funds don’t use the term NAV transfer. You can typically find information about NAV transfers in the section of these documents that discuss sales charge reductions and waivers. Look for a sentence similar to the following:

XYZ Fund may waive the front-end sales charge for investors who purchase class A shares with the proceeds from shares redeemed from another mutual fund within the last 90 days on which a sales charge was paid.

You also may be able to find information on NAV transfers by checking a mutual fund company’s website or talking to your financial professional. Each mutual fund sets its own eligibility requirements for NAV transfers. These terms and conditions differ from one fund to another, and can change.

How to Obtain a Prospectus or Statement of Additional Information (SAI)

You can obtain these documents by:

• Calling your broker or financial advisor.
• Calling or writing the mutual fund company.
• Accessing the mutual fund company’s website.
• Accessing the U.S. Securities and Exchange Commission’s EDGAR database .

Which mutual fund sales are eligible for an NAV transfer?

Generally, you must sell shares of a fund from a different fund family for which you paid an initial sales charge or CDSC. The most common share classes that charge either a front-end load or CDSC are class A, B or C shares. No load mutual funds and other mutual funds for which you did not pay a sales charge usually are not eligible for NAV transfers.

When must the proceeds from the sale of a load mutual fund be invested to be eligible for an NAV transfer?

Most funds that allow NAV transfers require you to invest the proceeds from the sale of a fund for which you paid a sales charge within 30 to 90 days. A few funds allow a longer time period for an NAV transfer.

Which mutual fund share class can be purchased through an NAV transfer?

Usually, only class A shares of a fund can be purchased through an NAV transfer.

Does an NAV transfer eliminate all fund expenses and charges?

No. While you will not pay a front-end sales charge if you buy class A shares through an NAV transfer, some funds may impose a 1 percent CDSC if you sell your shares within a year or 18 months after completing an NAV transfer. Class A shares also charge ongoing operating expenses, which may include 12b-1 fees. However, the 12b-1 fees on class A shares are generally lower than the 12b-1 fees of class B and C shares. Because of the lower 12b-1 fees, the total annual fund operating expenses on class A shares is generally lower too. As a result, if you qualify for an NAV transfer, class A shares may be less expensive than class B or C shares because you will pay no front-end sales charge and your annual expenses could be lower.

What Are 12b-1 Fees?

FINRA regularly reviews mutual fund sales practices. One investigation found that the firm, AXA Advisors, LLC, failed to provide its customers with opportunities to purchase shares of certain mutual funds without paying sales charges. These opportunities were available through NAV transfers. The firm also did not have an adequate supervisory system. As a result of these failures, from February 2000 through July 2003, AXA earned more than $700,000 in revenue on more than $18 million invested by the firm’s customers, where customers were not provided NAV transfer opportunities. As part of the settlement, AXA will provide restitution to all customers who did not receive sales charge waivers through NAV transfer programs of mutual funds sold by AXA from February 2000 through February 2004. AXA will also retain an independent consultant to review and revise its supervisory and compliance procedures and systems. See NASD Fines AXA Advisors $250,000 For Failure to Waive Sales Charges On Customers’ Mutual Fund Transfers .

Protecting Yourself

If you are considering selling one load fund to purchase another, take these steps to avoid paying any unnecessary sales charges:

Check for ways to reduce or eliminate sales charges.

There may be several ways you can reduce or eliminate sales charges. Some of the most common ways that sales charges may be waived or reduced are described below.

• NAV Transfers. Not all mutual funds that charge a sales load offer NAV transfers. Talk to your financial professional or read the prospectus or Statement of Additional Information of the mutual fund you’re considering purchasing or check a mutual fund company’s website to learn about the availability and terms and conditions of NAV transfers.

Typically, there are several breakpoints, and as you invest more and reach each of these thresholds, there is a greater reduction in the sales load. Breakpoints and the savings they can provide are explained in our Investor Alert Mutual Fund Breakpoints: A Break Worth Taking .

• Reinstatement Privileges or Buy Backs. A fund may allow you to redeem or sell shares in the fund and reinvest some or all of the proceeds, without paying a sales load, within a specified period of time (for example, 90 days), in the same share class of that fund or another fund within the same fund family subject to certain terms and conditions. The terms and conditions vary among funds.

Talk to your broker or financial advisor.

Your broker should never recommend that you switch your investment if the only basis for the recommendation is simply to earn a commission from the sale or purchase. Before you purchase a new fund, ask your broker or financial advisor the following questions:

• Will the purchase result in additional sales charges, higher expenses or tax consequences for me?

If you purchase a new mutual fund, your broker must ensure that you receive any sales charge reduction or waiver to which you are entitled.

When You Think You Missed a Sales Charge Waiver or Discount Opportunity

If you’ve already switched between two different load funds, you may want to check with your broker to see if you purchased class A shares and received any sales charge waivers or discounts that were available to you. If you have any reason to believe that you were overcharged, request that the appropriate waiver or discount be applied. In most instances, your account will be quickly corrected. If your broker does not correct your account or provide you with an explanation that you understand, follow up by writing to the firm’s compliance department. If you’re not satisfied with the firm’s response, you can file a complaint online at the FINRA Complaint Center .