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Mutual Funds offer a wide array of valuable investment opportunities. When considering investing in mutual funds, it is important to carefully consider the investment objectives, risks, and expenses of any fund before investing. The prospectus contains this and other important information and should be read fully before investing. You may obtain a prospectus directly from the fund, or by contacting us at 800-225-6196.
Among other considerations, understanding sales charges and breakpoint discounts will assist you in identifying the best investment for your particular needs and may help you reduce the costs of your investment.
Sales Charges: When you purchase mutual funds, you must make choices, including which funds to purchase and which class share is most advantageous. Each mutual fund has a specified investment strategy. You need to evaluate whether a fund’s investment strategy is compatible with your investment objectives. Also, most mutual funds offer different share classes. Each share class represents a similar interest in the mutual fund’s portfolio, but the mutual fund will charge you different fees and expenses depending on your choice of share class. Generallly, Class A shares carry a “front-end” sales charge or “load” that is deducted from your investment at the time you buy. This sales charge is a percentage of your total purchase. Many mutual funds offer volume discounts to the front-end sales charge assessed on Class A shares at predetermined levels of investment, called “breakpoint discounts.” In contrast, Class B and C shares usually do not carry any front-end sales charges, but investors who purchase Class B or C shares pay asset-based sales charges, which may be higher than the charges associated with Class A shares. Investors who purchase Class B and C shares may also be required to pay a sales charge known as a “contingent deferred sales charge” when they sell their shares, depending upon the rules of the particular mutual fund.
Breakpoint Discounts: Most mutual funds offer investors a variety of ways to qualify for breakpoint discounts on the sales charge associated with the purchase of Class A shares, commonly to investors who make large purchases at one time. The extent of the discount depends upon the size of the purchase. Generally, as the amount of the purchase increases, the percentage used to determine the sales load decreases. The entire sales charge may be waived for investors making very large purchases of Class A shares. Mutual fund prospectuses contain tables that illustrate the available breakpoint discounts and the investment levels at which breakpoint discounts apply. Also, most mutual funds allow investors to qualify for breakpoint discounts based upon current holdings from prior purchases through “Rights of Accumulation,” and future purchases, based upon “Letters of Intent.” Mutual funds each have different rules regarding the availability of Rights of Accumulation and Letters of Intent. Talk with us and review the mutual fund prospectus to determine the specific terms on which a mutual fund offers Rights of Accumulation or Letters of Intent.
1. Rights of Accumulation – Many mutual funds allow you to count the value of previous purchases of the same fund, or another fund within the same fund family, along with the value of your current purchase, to qualify for breakpoint discounts. Mutual funds allow you to count existing holdings in multiple accounts, such as IRAs or accounts at other broker-dealers, to qualify for breakpoint discounts. If you have accounts at other broker-dealers and wish to take advantage of the balances in these accounts to qualify for a breakpoint discount, you must advise your StockCross representative about those positions. You may need to provide documentation establishing the holdings in those other accounts if you wish to rely upon balances in accounts at another firm. Further, many mutual funds allow you to count the value of holdings in accounts of certain related parties, such as your spouse or children, to qualify for breakpoint discounts. Each mutual fund has different rules that govern which relationships allow you to qualify for breakpoint discounts. You’ll wish to discuss this with your StockCross representative or review the mutual fund’s prospectus and statement of additional information to determine what these rules are for the fund family in which you are investing. If you wish to rely upon the holdings of related parties to qualify for a breakpoint discount, be sure to tell your representative about these accounts. Mutual funds also follow different rules to determine the value of existing holdings. Most funds use the current net asset value (NAV) of existing investments in determining whether you qualify for a breakpoint discount. A small number of funds use the historical cost, which is the cost of the initial purchase, to determine eligibility for breakpoint discounts. If the mutual fund uses historical costs, you may need to provide account records, such as confirmations or statements, to qualify for a breakpoint discount based upon previous purchases. Talk with your representative and review the fund’s prospectus to determine whether the mutual fund uses NAV or historical costs to determine breakpoint eligibility.
2. Letters of Intent – Most mutual funds allow you to qualify for breakpoint discounts by signing a Letter of Intent, which commits you to purchasing a specified amount of Class A shares within a defined period of time, usually 13 months. For example, when you plan to purchase a total of $50,000 worth of Class A shares over a period of 13 months, but each individual purchase would not qualify for a breakpoint discount, you could sign an LOI at the time of the first purchase and receive the breakpoint discount associated with $50,000 investments on your first and all subsequent purchases. Some funds offer retroactive Letters of Intent that allow you to rely upon purchases in the recent past to qualify for a breakpoint discount. If an investor fails to invest the amount required by the Letter of Intent, the fund is entitled to retroactively deduct the correct sales charges based upon the amount that the investor actually invested. If you intend to make several purchases within a 13 month period, you should consult your StockCross representative and the mutual fund prospectus to determine if it would be beneficial for you to sign 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 cost. The availability of breakpoint discounts may save you money and may also affect your decision regarding the appropriate share class in which to invest. Discuss the availability of breakpoint discounts with your StockCross Financial Services representative, along with your other considerations in selecting a fund.
To learn more about mutual fund share classes or mutual fund breakpoints, you may wish to review the investor alerts available on the NASD Web site. See Understanding Mutual Fund Classes at http://www.nasd.com/mfclasses, and Mutual Fund Breakpoints: A Break Worth Taking at http://www.nasd.com/breakpoints or visit the many mutual fund Web sites available to the public.
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