Frequently Asked Questions About Mutual Fund Fee Disclosure

How can investors find out about a mutual fund’s fees?

Mutual funds are subject to more exacting regulatory standards and disclosure requirements than other financial products. Every mutual fund is required to disclose all of its fees in a standardized fee table at the front of the fund prospectus.

The fee table is particularly important for investors because the information it provides is comprehensive, clearly presented, and strictly regulated by federal law. The fee table also allows investors to easily compare the costs of owning different mutual funds. All fund prospectuses must be filed with the U.S. Securities and Exchange Commission before they can be distributed to investors. All fees must be included, an "expense ratio" (which is described below) must be calculated, and all of the information must be clearly and simply presented. Written descriptions accompanying the fee table must be concise and in plain English.

Investors can also turn to many other useful resources about mutual fund fees:

• Daily mutual fund tables published by newspapers often list fund expense ratios. Many magazines publish lists of funds that include fee information. These lists are often accompanied by articles that describe fees and their importance in making sound investment decisions.
• Mutual fund company websites often make the fee tables for all their funds, along with other key information from the prospectus, available online.
• Toll-free investor information centers, which many fund companies make available 24 hours a day, provide trained experts who can discuss a fund’s fees with both current and prospective investors.
• Educational brochures that explain and describe the key elements of fund investing, including fees, are widely available. The Investment Company Institute distributes several brochures that explain and highlight the importance of fees, and distributes a brochure devoted solely to understanding mutual fund costs.
• Financial professionals are an important resource for information about fees, especially since a significant majority of fund investors rely on such professionals. They are familiar with differences between funds, can address fee levels, and can help investors understand the costs of investing in mutual funds compared to other investment products.

How are fees disclosed in the fee table?

The fee table provides information to investors in three ways. First, any applicable sales commission is identified. Second, all annual fees are listed individually and then added together. Finally, an example is presented that focuses an investor’s attention on the total cost of the sales commission (if any) and annual fees over various time periods. More detailed descriptions of each element of the fee table follows:

• Sales Commissions (also known as "loads"). Loads are "transactional" fees that are collected by some--but not all--funds. The fee table identifies whether loads are charged when shares are purchased. If so, the amount of the load is listed in percentage terms. Loads may not exceed 8.5 percent of the amount invested, and most funds that have loads charge considerably less than this amount. Loads are most often charged when a financial professional assisted in the sale, and are used to compensate the professional. Many mutual funds that are sold with sales loads offer discounts to investors who invest certain amounts of money.
• Annual Fees. Annual fees pay for virtually all of the fund’s operations. The fee table lists the rate the fund pays for each of the fund’s key services, such as managing the portfolio, maintaining account records, etc. The fee table also provides an overall expense ratio for the fund. The expense ratio is especially useful for investors because it combines into a single figure all of the fees collected to operate the fund in the preceding year.
• Illustrative Example. The bottom of every fee table presents a simple example that illustrates how much the fund could cost in actual dollars based on a five percent annual return and a $10,000 investment. (See next question for more detail.) Sales commissions and annual fees must be included as costs.

Currently, how can investors find out how much it would cost to own a fund in dollar terms?

Every fee table includes a hypothetical example showing how much an investor would pay in fees over periods of one, three, five, and ten years, assuming an investment of $10,000 and an annual return of five percent.

Do all mutual funds have the same disclosure requirements?

Yes. The Securities and Exchange Commission requires all mutual funds to disclose the same information in the fee table. After extensive testing with investor focus groups, the SEC revised the rules governing the fee table in 1998. The changes were designed to make the fee table easier to use and the impact of fees on fund investments easier to understand.

Are there costs that are not included in the fee table?

All of the fees charged by a mutual fund are included in the fee table. Some investors may pay fees to a financial intermediary, such as a brokerage firm for maintaining an account, or to an investment adviser. Since these fees are not collected by the fund, they are not included in the fee table.

Where can investors get a mutual fund’s prospectus?

The law requires that every mutual fund investor must receive a mutual fund prospectus no later than the time he or she receives confirmation of a purchase. Individuals can also request a prospectus from the fund company, or from the broker or financial professional through whom the fund is offered for sale. Many fund companies offer downloadable versions of the prospectus on their websites. People who invest in a fund through an employer-sponsored retirement plan may request the prospectus from their plan administrator.

Where can I get additional information on fee disclosure?

More information about fund fee disclosure can be obtained in the Investor Awareness brochure Frequently Asked Questions About Mutual Fund Fees (HTML or PDF). Additionally, the Securities and Exchange Commission’s  Introduction to Mutual Funds contains information about comparing mutual fund costs. The SEC also offers a fee calculator on its website.

July 2003