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.
In general, most mutual funds provide breakpoint discounts 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.
Mutual fund prospectuses contain tables that illustrate the available breakpoint discounts and the investment levels at which breakpoint discounts apply. 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 have different rules regarding the availability of Rights of Accumulation and Letters of Intent. You should review the mutual fund prospectus to determine the specific terms upon which a mutual fund offers Rights of Accumulation or Letters of Intent.
Rights of Accumulation
Many mutual funds allow investors to count the value of previous purchases of the same fund, or another fund within the same fund family, with the value of the current purchase, to qualify for breakpoint discounts. Mutual funds allow investors 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 local Scottrade branch office. 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.
Many mutual funds allow investors to count the value of holdings in accounts of certain related parties, such as spouses or children, to qualify for breakpoint discounts. Each mutual fund has different rules that govern when relatives may rely upon each other's holdings to qualify for breakpoint discounts. You should review the mutual fund's prospectus or 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, you should advise your local Scottrade branch office about these accounts.
Mutual funds also follow different rules to determine the value of existing holdings. Some funds use the current net asset value (NAV) of existing investments in determining whether an investor qualifies for a breakpoint discount. A small number of funds use the historical cost. You should review the prospectus to determine whether the mutual fund uses either NAV or historical costs to determine breakpoint eligibility.
Letters of Intent
Most mutual funds allow investors to qualify for breakpoint discounts by signing a Letter of Intent, which commits the investor to purchasing a specified amount of Class A shares within a defined period of time, usually 13 months.
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 the mutual fund prospectus to determine if it would be beneficial for you to sign a Letter of Intent.
Understanding the availability of breakpoint discounts is important because it may allow you to purchase Class A shares at a lower price. The availability of breakpoint discounts may save you money and may also affect your decision regarding the appropriate share class in which to invest. You should carefully review the mutual fund prospectus and its statement of additional information when choosing among the share classes offered by a mutual fund.
To receive a reduction in your Class A initial sales charge, you must let your Scottrade broker know at the time you purchase shares if you qualify for such a reduction. If you, your spouse or your children under the age of 21 hold a position in the same fund, the fund may allow a reduced sales charge on your current purchase with the combined value of eligible accounts holding the same fund.
If you do not let your Scottrade broker know you are eligible for a reduction, you may not receive a sales charge discount to which you may be entitled. If your single initial purchase qualifies for a breakpoint due to the amount being purchased, you do not need to inform your Scottrade broker.
Investors should consider the investment objectives, risks, charges, and expenses of mutual fund carefully before investing. A prospectus contains this and other information about the fund and is available through www.scottrade.com or through a Scottrade branch office. The prospectus should be read carefully before investing.