SEC rules require funds to
disclose both shareholder fees and operating expenses in a "fee table" near the front of a fund's prospectus. The
lists below will help you decode the fee table and understand the various fees a fund may
Sales Charge (Load) on
Purchases— the amount you pay
when you buy shares in a mutual fund. Also known as a "front-end load," this fee typically goes to the brokers
that sell the fund's shares. Front-end loads reduce the amount of your investment. For example, let's say you
have $1,000 and want to invest it in a mutual fund with a 5% front-end load. The $50 sales load you must pay
comes off the top, and the remaining $950 will be invested in the fund. According to NASD rules, a front-end
load cannot be higher than 8.5% of your investment.
Fee— another type of fee
that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase
fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund's costs
associated with the purchase.
Deferred Sales Charge
(Load)— a fee you pay when you
sell your shares. Also known as a "back-end load," this fee typically goes to the brokers that sell the fund's
shares. The most common type of back-end sales load is the "contingent deferred sales load" (also known as a
"CDSC" or "CDSL"). The amount of this type of load will depend on how long the investor holds his or her shares
and typically decreases to zero if the investor holds his or her shares long enough.
Fee— another type of fee
that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load,
a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs
associated with a shareholder's redemption.
Fee— a fee that some
funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or
"family of funds."
Account fee — a fee that some funds separately impose on investors in connection with
the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose
value is less than a certain dollar amount.
Fees— fees that are paid
out of fund assets to the fund's investment adviser for investment portfolio management, any other
management fees payable to the fund's investment adviser or its affiliates, and administrative fees
payable to the investment adviser that are not included in the "Other Expenses" category (discussed
Distribution [and/or Service] Fees ("12b-1"
Fees)— fees paid by the fund
out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of
providing shareholder services. "Distribution fees" include fees to compensate brokers and others who sell fund
shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing
and mailing of sales literature. "Shareholder Service Fees" are fees paid to persons to respond to investor
inquiries and provide investors with information about their investments.
Expenses— expenses not
included under "Management Fees" or "Distribution or Service (12b-1) Fees," such as any shareholder
service expenses that are not already included in the 12b-1 fees, custodial expenses, legal and
accounting expenses, transfer agent expenses, and other administrative expenses.
Total Annual Fund Operating Expenses
("Expense Ratio") — the line of the fee table that
represents the total of all of a fund's annual fund operating expenses, expressed as a percentage of the fund's
average net assets. Looking at the expense ratio can help you make comparisons among funds.