Understanding Mutual Fund and Variable Insurance Contract Fees
A Guide to How Key Investment Services LLC and Your Financial Adviser are Paid.
Key Investment Services LLC (“KIS”) receives several types of compensation for selling mutual funds, unit investment trusts (known as UITs) and variable insurance contracts. Most of these amounts are disclosed in the prospectus you receive, but some may not be listed because a distributor, investment adviser, insurance company or other fund-related party pays them from their own assets. How KIS and Your Financial Adviser Get Paid. KIS may receive Sales Charges, Commissions, contingent deferred sales charges (known as CDSCs), Service Fees, 12b-1 Fees and Finders’ Fees. You should read the prospectus carefully to make sure you understand the fees you pay and talk to your Financial Adviser if you have any questions. Class A shares have Sales Charges that are typically about 5.75% (which would be $575 if you invest $10,000). KIS typically would receive 5.00% ($500) and the mutual fund or variable annuity fund distributor would receive 0.75% ($75). The Sales Charge is deducted from the amount you invest. On Class B shares and Class C shares, KIS receives a Commission from the distributor. A typical Commission would be 4% ($400 on a $10,000 investment) on Class B shares and 1% ($100 on a $10,000 investment) on Class C shares. The distributor usually pays Commissions from any CDSC that an investor pays and from 12b-1 Fees that the distributor receives. Some funds offer Class R shares that are designed for use in retirement plans. Class R shares typically have no Sales Charge and pay no Commission, but some companies may pay a Finder’s Fee for sales of Class R shares. While you own your shares, KIS will receive Service Fees and/or 12b-1 Fees each year. For Class A shares and Class B shares, these fees typically would be 0.25% or less, which would be $25 each year on shares with a value of $10,000. For Class C shares, these fees typically would be 1.00% (which would be $100 each year on shares valued at $10,000). On Class R shares, these fees will usually range between 0.25% and 0.75% with the average fund paying 0.50%. On a balance of $10,000, then, KIS would receive $50 each year if the fund paid the average fee of 0.50% on Class R shares. Service Fees and 12b-1 Fees are paid by the fund and are part of the fund’s Operating Expenses Some companies may also pay KIS a Finder’s Fee for newly purchased shares. Finder’s Fees are typically 1.00% of new purchases and decrease as the size of the purchase increases. If a fund pays Finder’s Fees, it will typically not pay Service Fees or 12b-1 Fees until your money has been invested for 12 months. For example, on a purchase of $10,000 with a 1.00% Finder’s Fee and a Service Fee of 0.25%, KIS would receive a one-time payment of $100 for the initial investment in year 1 but not receive any portion of the $25 Service Fee until year 2. Your Financial Adviser receives a portion of these fees as compensation for advising you and helping you select mutual
funds to meet your investment goals. Financial Advisers receive the same percentage of these fees regardless of the fund you buy. Some funds may have higher rates of fees and charges than other funds and that fact may create an incentive for your Financial Adviser to recommend that fund. You have the right to ask your Financial Adviser about the compensation he or she will be receiving. Additional Compensation to KIS. KIS also asks mutual funds and insurance companies whose products KIS sells to make additional payments. KIS typically receives additional payments in the form of a percentage-based fee of up to 0.25% of your total purchase amount (which would be $25 on a $10,000 investment) on sales of equity fund shares or insurance contracts and up to 0.15% (which would be $15 on a $10,000 investment) on sales of fixed income fund shares. After the first year, these payments typically would be up to 0.05% (which would be $5 on a $10,000 investment) every year while you own your shares. Some mutual funds may compensate KIS by paying a fixed dollar amount (typically $6 or less per account) for administrative and recordkeeping services. Some funds pay both a percentage based fee and a fixed dollar amount fee. These amounts would be in addition to any Service Fees or 12b-1 Fees that KIS receives. The payments typically come from the distributor, investment adviser, insurance company or another entity related to the fund and, in that case, they would not increase your cost as an investor. However, some mutual funds may consider part or all of these payments to be part of the fund’s normal Operating Expenses and pay them from the fund’s assets. The fund’s prospectus may not specifically describe these additional fees as ‘Service’ fees or identify them separately from other expenses of the fund. The Victory Funds, advised by an affiliate of KIS, also pays additional compensation for mutual fund sales. Victory may pay up to 0.25% on equity sales and up to 0.15% for all fixed income fund shares sold by KIS. If you invested $10,000, KIS would receive (0.25%) on equity fund sales and $15 (0.15%) on fixed income fund sales sold by KIS. These payments come from the distributor and investment adviser to the Victory Funds. They are not paid out of fund assets. Most UIT sponsors make additional payments to the firms that sell their UIT’s, including KIS. These payments typically are calculated as a percentage of the total volume of sales of the sponsor’s UIT's made by the firm during the UIT’s initial offering period. That percentage typically increases as higher sales volume levels are achieved. Detailed descriptions of the terms of these additional payment programs are provided in a UIT’s prospectus. Payment rates and total payment amounts vary from sponsor to sponsor. These payments are made by the UIT sponsor and not out of UIT assets Many mutual funds, money managers, UIT sponsors and insurance companies also pay sums to KIS in connection with Financial Adviser training and client sales events. KIS may
Investments in mutual funds, unit investment trusts, and variable insurance contracts involve risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks and charges and expenses of a fund carefully before investing. The prospectus contains this and other information about the fund. Call your Financial Adviser to obtain a prospectus. You should read the prospectus carefully before investing. Securities products are offered through Key Investment Services LLC, member NASD; insurance products are offered through KeyCorp Insurance Agency USA Inc. (KeyCorp Insurance Agency Inc., in CA, MA and NY) and other affiliated agencies. Key Investment Services LLC. and KeyBank are separate entities, and when you buy or sell securities you are doing business with Key Investment Services LLC and not KeyBank. Investments and insurance products made available through Key Investment Services LLC are: NOT FDIC INSURED * NOT BANK GUARANTEED * MAY LOSE VALUE* NOT A DEPOSIT * NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY
{00195223.DOC v1}
allow mutual fund companies and insurance companies for a fee to participate in training and educational meetings and seminars held by KIS for its Financial Advisers. Mutual fund companies and insurance companies also may reimburse KIS for travel, lodging and related expenses incurred by Financial Advisers to attend educational and training seminars sponsored by the fund. Many funds will also sponsor, or reimburse KIS for the cost of meetings and seminars for clients and prospective clients that may be interested in investing in mutual funds. KIS retains all of the additional compensation described in this section and none of these additional amounts are paid to your Financial Adviser. KIS’ Relationships with Mutual Funds, UIT Sponsors, Insurance Companies and Retirement Plan Providers.. With thousands of investment funds available, KIS believes it is important to offer you many different choices among mutual fund families and insurance companies. We also believe it is important that our Financial Advisers evaluate these funds and assist you in selecting mutual funds that meet your investment objectives. To help achieve these goals, KIS focuses on a smaller number of fund families and insurance companies. These are well known companies that have breadth of product and provide seasoned professionals who provide ongoing training, educational presentations, and product and portfolio manager updates to our Financial Advisers. These fund companies generally have greater access to our Financial Advisers. KIS also advises many individual clients with respect to their retirement programs. In that regard, we have developed strong, informal relationships with many service providers in the industry. These Retirement Plan Providers include mutual fund companies, insurance companies, third-party record keeping firms, and others. Some of these fund families and insurance companies pay KIS additional compensation, as described above, for access to our Financial Advisers, for the marketing benefits associated with being included in training of our Financial Advisers and to offset expenses incurred by KIS. These companies are more well known within KIS and have greater access Financial Advisers than some companies that do not pay KIS additional compensation. Consequently, our Financial Advisers may be more likely to recommend products offered by these companies. Companies participating in our Retirement Plan Provider program do not pay additional compensation to KIS, but they may provide financial sponsorship or reimburse KIS’ cost for Financial Adviser retirement training, meetings, seminars, and/or client events. All of the companies participating in any of our programs are listed at the end of this brochure. Financial Advisers do not
receive extra compensation for selling investment products from companies that are listed in this brochure. Need More Information? Your Financial Adviser is available to answer your questions and help you learn more about mutual fund investments. For information about a specific fund, you can read the fund’s prospectus and its Statement of Additional Information, which is available from the fund company upon request. GLOSSARY CDSC (contingent deferred sales charge) - a fee you might pay when you redeem Class B or Class C shares. The CDSC typically decreases each year the longer you hold the shares. Commission - a payment made by the distributor to KIS for a sale of Class B or Class C shares. Finder’s Fee - a payment made by the distributor or from 12b-1 or Service fees for new sales. These fees are based on the amount of the investment and the size of the plan. Operating Expenses - the amounts paid by a fund to operate as an investment company, such as the cost of investment management, custody and recordkeeping. Service Fees and 12b1 Fees are also operating expenses. Sales Charge - a fee paid by you to invest in Class A shares to compensate your broker. A Sales Charge reduces the amount used to purchase shares. Service Fees/12b-1 Fees - fees paid by a fund to brokers for performing various services or to help cover the costs of marketing and distributing the fund to investors. Variable Insurance Contract - an insurance policy that allows you to invest a portion of the premiums you pay in a separate account that invests in stocks, bonds or cash equivalents.
Participating Companies (As of January 1, 2006) Mutual Fund Companies: Aim American Funds Federated Franklin/Templeton Lord Abbett Oppenheimer Pioneer Scudder Van Kampen WM Funds Unit Investment Trust Sponsors: First Trust
Alliance Eaton Vance Fidelity Adviser ING Munder PIMCO Putnam Thornburg Victory
Van Kampen
Insurance Companies: AXA (Equitable) Distributors Genworth The Hartford ING Jackson National Manulife/John Hancock Nationwide Pacific Life AIG Additional Retirement Plan Providers: American United Life BISYS Retirement Services Ceridian Diversified Investment Adv Great West Life Lincoln National Mass Mutual MFS Nationwide New York Life Principal Financial Group Prudential J. W. Seligman Securian Life Standard Insurance Transamerica of Oregon Most of the mutual fund and insurance companies named above also have Retirement Plan Provider relationships with KIS.
{00195223.DOC v1}
2