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| Breakpoint |
A mutual fund breakpoint is the level of dollar investment at
which the investor becomes eligible for a reduced sales charge. Investors can
attain the breakpoint either through a single purchase or through a sequence of
smaller purchases or reinvestments. Investment in multiple mutual funds within
the same fund family can also create breakpoint eligibility.
Breakpoints apply only to load mutual funds, and are not
applicable to no-load funds.
Prior to investing in mutual funds that charge a load,
investors should examine the fund's breakpoint schedule in the fund's
prospectus. Although every mutual fund investor must receive a prospectus on or
before the date that confirmation of purchase is received, you may also request
a prospectus directly from the fund company, or from the financial institution
through which the fund is to be purchased. Most mutual fund companies also have
the fund’s prospectus available on their corporate websites.
|
Examples of a Mutual Fund Breakpoint
Schedule |
|
Amount of Investment |
Sales
Charge (Load) |
| Less than $25,000 |
4.00% |
| $25,000 or more,
but less than $50,000 |
4.25% |
| $50,000 or more, but less than
$100,000 |
3.75% |
| $100,000 or
more, but less than $250,000 |
3.25% |
| $250,000 or more, but less than
$500,000 |
3.00% |
| $500,000 or
more, but less than $1,000,000 |
2.00% |
| $1 Million or more |
No Load |
The right of accumulation (ROA) allows individual investors or
related investors to qualify for a breakpoint by combining their account
balances and purchases within the same family of funds. Qualification guidelines
for ROA differ among the various mutual funds.
For example:
Last week Ms. A invested $25,000 in the Growth and Income Fund, which has a
4.25% front-end sales charge. Today she invests $76,000 in the Aggressive Growth
Fund, which is part of the same family of funds. Using her ROA privilege, her
new $76,000 investment can be combined with her existing Growth and Income Fund
account balance to create of total of $101,000. Consequently, she will now pay a
lower sales charge of 3.25% applicable to purchases of at least $100,000 on her
new $76,000 investment.
Letters of Intent (LOI)
A letter of intent will also allow investors to qualify for a breakpoint without
having to immediately invest the amount at which the reduced sales charge
becomes available.
By signing a LOI, an investor who intends to purchase an
amount greater than a load fund's breakpoint (such as $100,000) within a
specific period of time (such as 12 months) would be allowed to receive the
breakpoint discount on the load as if he or she had purchased the mutual fund in
one lump sum.
For example: ABC Funds charges a 4.00% front-end sales load
for purchases under $25,000, and that fee declines to 3.25% for purchases of
$100,000 or more. So, let's say an investor buys shares of the ABC Growth Fund
with a $10,000 investment and signs a letter of intent indicating that she
intends to purchase a total of $100,000 in one or more of the ABC's funds within
the next 12 months. This investor can now receive the breakpoint discount on her
initial $10,000 purchase and will pay a sales charge of just 3.25%.
For additional information about mutual fund breakpoint
discounts, visit the following websites:
1. U.S.
Securities and Exchange Commission
2. National
Association of Securities Dealers (NASD)
3. Securities
Industry Association (SIA)
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