July 12, 2002
OPTIONAL LOADS FAQs: Frequently asked questions for investors
Ethical Funds Inc. is making changes to the way that the family of Ethical Funds®
and Credential® Funds are offered for sale.
Effective October 1, 2002, we are moving to an industry-standard "optional load
structure." We hope that the following questions and answers help you
understand this change, so that you feel comfortable investing in mutual fund
units in the future. You can also view or download a copy of the latest Ethical
Funds prospectus from our Web site at www.ethicalfunds.com. View or
download a copy of the latest Credential Funds prospectus from our Web
site at www.credential.com.
If you have further questions, we invite you to call our Client Relations team
toll free at 1.877.384.4225.
The following questions are answered in this document:
1. What are optional loads?
2. What are the loads?
3. Who is the load commission paid to?
4. Why make the change now?
5. What happens to the mutual fund units I already
own?
6. What if I switch my existing units into a fund
that I don't currently own?
7. What happens when I make a new purchase?
8. Will the commissions affect the performance of
the mutual funds or the MERs?
1. What are optional loads?
"Loads" are simply commissions charged when mutual fund units are purchased or
redeemed. A front-end load is levied on the purchase of mutual fund units. A
back-end load (or "deferred sales charge") is levied on the sale of mutual fund
units. Back-end loads generally are in
| Load type |
Commission charged |
| Front-end loads |
At time of purchase |
| Back-end loads |
At time of redemption |
| Low loads |
At time of redemption |
|
effect for six years. A low-load (or "short scheduled deferred sales charge")
is like a back-end load, except that the deferred sales charge generally is in
effect for two years. Starting October 1, 2002,
Ethical Funds will be
sold with optional loads, meaning that they can be sold with either a
front-end, back-end, or a low-load.
2. What are the loads?
As a general rule of thumb when purchasing mutual funds with a front-end load
from any mutual fund dealer, the larger the amount you are investing, the lower
the commission you will be able to negotiate. Again, depending on your
situation, your dealer may offer to sell mutual fund units with the low-load
option. The back-end load and low-load commissions are not negotiable; for
example, if you purchase mutual fund units with the back-end load, the
declining commission schedule is fixed for the six-year period..
Load structure
for Ethical Funds® and
Credential® Funds:
|
Front-end load
|
Low load
|
Back-end load
|
| Investor pays at time of purchase
|
up to 5% |
0%
|
0%
|
| Investors pays on redemption
|
0%
|
Year 1: 2%
Year 2: 2%
Year 3: 0%
|
0%
|
| Investors pays on redemption
|
0%
|
0%
|
Year 1: 6%
Year 2: 5.5%
Year 3: 5%
Year 4: 4.5%
Year 5: 4%
Year 6: 3%
Year 7: 0%
|
|
3. Who is the load commission paid to?
The commission is paid to the dealer, that is, the organization that sold you
the mutual fund units. Dealers act as agents on behalf of mutual fund
companies, and they are compensated for that activity.
In addition, mutual fund companies also provide dealers with an annual "trailer
fee" that is a small percentage of the value of the mutual fund units they have
sold. The trailer fee compensates dealers for the ongoing advice and monitoring
of your account as long as you own the mutual fund units.
4. Why make the change now?
Our goal is to introduce as many Canadians as possible to socially responsible
investing. Like any business, Ethical Funds Inc. continually evaluates the most
effective way to motivate consumers to buy its products and to encourage
dealers to sell its products. Optional loads are one of the fairest ways to
compensate dealers without impacting the investment returns of long-term mutual
fund investors. That's why option loads have become industry standard. In the
mutual fund industry, 90% of equity-based mutual funds are sold with optional
loads. Ethical Funds Inc. has introduced the optional load commission structure
because we believe it offers maximum flexibility to both investors and dealers:
· The load option is at the discretion of investors and their financial
advisors, so investors get a say in the cost of financial advice and financial
product selection
· Mutual fund dealers and sales representatives can tailor their preferred
compensation structure
5. What happens to the mutual fund units I already own?
There will be no impact on your existing mutual fund units. And, if you have a
monthly Pre-Authorized Contribution Plan that was set up before October 1,
2002, your automatic purchases will not be affected. However, the optional load
commission structure will apply to PAC plans that are changed after October 1,
2002.
6. What if I switch my existing units into a fund that I don't
currently own?
If you switch mutual fund units purchased before October 1, 2002 with "no-load"
into another Fund, the transferred units of the new Fund will still be treated
as no-load units.
7. What happens when I make a new purchase?
Effective October 1, 2002, new purchases of
Ethical Funds or
Credential
Funds will be made with the optional load structure. As you discuss the
commission structure with your dealer or broker, one of the key factors to
consider will be your time horizon. Mutual funds are meant to be long-term
investments, and optional loads will have no impact on investors with a
long-term outlook. So if you are designating those invested assets for
retirement many years down the road, then the back-end load option may be most
appropriate. However, if you think you might need the mutual fund assets within
the next few years, or you are unsure of your time horizon, the front-end load
or low-load option may be most appropriate.
8. Will the commissions affect the performance of the mutual
funds or the MERs?
There is no increase to MERs or expenses for the existing funds as a result of
the introduction of optional loads. There is no relationship between loads and
Fund performance.
We want you to know:
be associated with mutual fund investments. Please read the prospectus before
investing. Unless otherwise stated, mutual fund securities and cash balances
are not insured or guaranteed, their values change frequently, and past
performance may not be repeated. ®
Ethical Funds and Design and
Credential
are registered trademarks owned by Ethical Funds Inc.
®Credential, Ethical Funds, Ethical, Credential Securities,
Credential Group & Design and
Credential Direct are
registered marks owned by Ethical Funds Inc.
