SEC Chairman Donaldson Commends NASD/Industry Task Force for "Breakpoint" Report and Recommendations; Announces SEC Review of Mutual Fund Disclosure


Washington, D.C., July 22, 2003 -- SEC Chairman William H. Donaldson today commended members of the Joint NASD/Industry Task Force on Breakpoints, which issued a report today recommending industry-wide reforms to facilitate the processing of mutual fund purchases with the correct "breakpoint" sales load discounts. The task force's recommendations include improvements to disclosure regarding breakpoints, improvements in the processing of mutual fund purchase orders, and increased investor education on the opportunity to obtain breakpoints.

"I welcome the recommendations contained in the breakpoint report, and fully expect that the industry will continue to work to implement these recommendations," Chairman Donaldson said. "Mutual fund investors are saving for education, retirement, and other long-term goals. To meet those goals, they must maximize the returns on their investments. So it is essential that they receive the correct sales loads on their mutual fund transactions. The SEC staff will monitor the progress of the industry's implementation of these important initiatives.

"In conjunction with this industry effort," Donaldson said, "I have asked the SEC staff to move ahead with the prospectus disclosure recommendations of the Task Force on Breakpoints and to develop additional investor protection initiatives concerning the costs and conflicts of interest in mutual fund investments. In addition, the Commission is focusing its examination resources on such conflicts issues. I anticipate that the Commission will consider additional regulation in this critical area of our markets in the near future. I also encourage the NASD to continue to pursue its measures aimed at highlighting conflicts of interest in this area as well."

The task force report follows a joint examination sweep of 43 broker-dealers conducted from November 2002 through January 2003 by the SEC, NASD and NYSE. Staff examiners found that nearly one in three transactions in front-end load mutual funds that appeared eligible for a breakpoint discount did not receive one. The examination sweep found that most breakpoint problems did not appear to be intentional failures to apply sales load discounts. The most frequent causes were not linking a customer's ownership of different funds in the same mutual fund family, and not linking a customer's purchase of fund shares with shares owned by related persons, such as family members.

Typically, breakpoint discounts are applied to front-end load funds to reduce sales loads at investment levels of $50,000, $100,000, $250,000, $500,000 and $1 million. Breakpoint discounts can apply to single large purchase or to purchases made over a specified period of time. Often, investors are allowed to aggregate shares owned across a family of funds, and to aggregate fund shares owned by family members or other related persons, to reach investment levels at which breakpoint discounts are applied. Industry figures show that less than seven percent of all mutual fund sales in 2002 were of front-end load funds.

In January, the SEC asked the NASD, joined by the Securities Industry Association and the Investment Company Institute, to convene a task force to address industry-wide failures to deliver breakpoint discounts. At the same time, both the SEC and NASD alerted investors to this issue and posted additional information to assist investors on their Web sites.

Investors can learn more about reduced sales loads by going to and Investors can access fund expense calculators at and A list of the task force members can be found at

Investors who believe they have not received breakpoint discounts to which they were entitled should first contact their brokers and ask that the discount be applied. If a broker does not correct the account or provide a satisfactory explanation, the investor should write a letter to the firm's compliance department and ask for a written response. If that response is not satisfactory, the investor can file a complaint with the SEC online at or with NASD at

The examination sweep report "Joint SEC/NASD/NYSE Report of Examinations of Broker-Dealers Regarding Discounts on Front-End Sales Charges on Mutual Funds" is available at

A copy of the Joint NASD/Industry Task Force on Breakpoints report can be found at:

Last modified: 7/22/2003