John Hancock Strategic Income Fund

Break Points Can Save You Money

There are two things every investor needs to know about a fund's break points. First, what they are, and second, that they don't apply to every mutual fund investor. Let's look at that second point first.

"No-load funds don't have break points, " says Chris Doyle, vice president of public relations at American Century Investments. "Break points are typically applicable to those funds that are sold load."

A "load" fund is one that carries a sales charge--- a fee that's similar to a commission. No-load funds, on the other hand don't have sales charges which is why they're referred to as "no-load". And although all mutual funds ---load as well as no-load--charge their shareholders on-going annual fees, loads are a one time charge.

As for what break points are, simple put, they are a way to save money on the sales charges---or loads---that you pay when making a fund investment. The term refers to the dollar-investment level in a mutual fund at which an investor becomes eligible for a discounted sales fee. The class of shares you choose to invest in impacts a fund's break points---Class A shares carry the highest loads. Keep in mind that break points vary from fund to fund; dollar amounts invested; and fund family to fund family.

For example, at the American Century fund group, 10 of the 70 mutual funds this family offers carry a load. In their New Opportunity Fund 11, the maximum sales charge, or load, on its A shares is 5.75 percent for investments of less than $50,000. Decide to invest between $50,000 and $99,999. and the load drops to 4.75 percent. Have $500,000 to plop down and your sales charge will be 2 percent. And, over a million, you won't pay a penny in sales charges.

The PIMCO Total Return fund has a little different break point structure. The maximum sales charge on its Class A shares is 5.5 percent for investments of less than $50,000. That load drops to 4 percent on investments under $100,000. On AIMs Aggressive Growth Fund, the break points are a little cheaper: While the maximum sales charge is also 5.5 percent, it's for investments of less than $25,000. If you have more than $25,000 to invest and less than $50,000, the front-end load is 5.25 percent.

Two similarities among funds (regarding their break points) are that those investing over $500,000 typically pay a 2 percent sales charge on Class A shares and investors putting $1 million or more into a fund aren't hit with a load of any size. For them, the sales charge is $0.

While there's a break point table for all funds that carry sales charges, finding it may take a little digging. Years back that information seemed easier to spot in a fund's prospectus as it was often located near the front of that document. Today, a fund's break point chart is often found in the middle of the fund's prospectus; near the back; or in another publication. For example, the PIMCO Total Return fund's break point table isn't in its prospectus, it's in the PIMCO Funds Shareholder's Guide.

Bottom line: Break points are all about saving money for those who have a sizable amount of money to invest in one-lump sum. To learn more about them, along with other ways to save money on break points, the Investment Company Institute has an on-line guide that's worth reading. You'll find it at www.ici.org/funds/inv/bro_brkpts.html.

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.