| If you think mutual fund performance is the | | | | team that makes all the investment decisions. Out |
| whole story, watch out! You could make a very | | | | of this fee, the fund management pays for |
| expensive mistake by not considering the costs | | | | trading costs so you won't see commissions |
| of a mutual fund! The lower a fund's costs, the | | | | detailed in the expense section of the prospectus. |
| higher percentage of your fund's real return you | | | | 12b-1 Distribution Fee -- This fee covers the costs |
| receive. You can control what you pay to invest | | | | of advertising and selling the fund. These fees are |
| by selecting low cost mutual funds. | | | | "ongoing", meaning they never go away for as |
| Mutual fund costs come in two flavors: | | | | long as you own the fund. They can have a |
| 1) Shareholder Fees | | | | significant negative impact on the cost of a fund. |
| You pay these fees directly out of your own | | | | Other Expenses -- This includes the cost of daily |
| pocket to purchase, redeem, or exchange shares. | | | | administration of the fund such as issuing annual |
| The following shareholder fees will appear in the | | | | reports, maintaining office space, etc. |
| "Fee and Expenses" section of a mutual fund's | | | | How much you should expect to pay depends |
| prospectus: | | | | upon the mutual fund category. Each category |
| Sales Charge on Purchases -- Also called a "Load", | | | | has it's own average annual expense ratio. For |
| this fee is expressed as a percentage of the | | | | instance , it costs more to run an international |
| dollars invested | | | | fund than a domestic. Bond funds cost less to run |
| Purchase Fee -- Usually replaces the sales charge | | | | than equity funds. To find out the category's |
| load. This fee appears as a flat dollar charge for | | | | average expense ratio, go to Morningstar and |
| making a purchase regardless of the investment | | | | view the report for the fund you're considering |
| amount | | | | purchasing (simply input the fund's symbol in the |
| Sales Charge on Reinvested Dividends -- Similar to | | | | "Quote" box and hit "enter") once the report |
| the "Load" on purchases, this fee is expressed as | | | | appears, go to the "Fees and Expenses". The |
| a percentage of dollars reinvested | | | | category average expense ratio appears in the |
| Redemption Fee -- Charged at the time of selling | | | | "Actual Fees" section on the right. |
| shares of the fund. Expressed as a percentage of | | | | All things being equal (i.e., risk, performance, etc.), |
| the dollars invested or a flat dollar amount | | | | you want to select mutual funds that have low |
| Account Maintenance Fee -- A flat dollar amount | | | | expense ratios relative to other funds in the |
| charged if your account value falls under a | | | | same category. You can compare the cost of |
| specified minimum balance | | | | various funds for free by using Vanguard's Cost |
| 2) Annual Operating Expenses | | | | Comparison tool or the Morningstar Fund |
| These expenses get deducted from the Fund's | | | | Compare. If you have a membership at |
| assets before the management firm calculates | | | | Morningstar, check out the Cost Analyzer found in |
| return numbers. | | | | the Morningstar Tools section (right side of the |
| Management Fee -- This fee gets paid to the | | | | page). |