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these refer to fees that cover marketing and selling fund shares, as well any other services provided to a shareholder.

*Other Expenses
This is a catch-all group for any fees not covered under management fees or 12b-1 fees. Included in this group may be legal and accounting services, custodial expenses, transfer agent costs, and other administrative expenses.

Investors should look for the Total Annual Operating Expenses (or "Expense Ratio") when examining a prospectus. This figure represents the total of all these fees and expenses (listed above) as a percentage of the net assets of a mutual fund. By studying the expense ratio, investors can make comparisons across funds.

It is important to review fee tables carefully. Even negligible differences in fees can translate into huge differences in the amount of money you will make over the long term. It is also important to understand breakpoints: These are the investment levels required to achieve a reduced sales load (usually reserved for bigger investments). Always ask when purchasing a fund how a fund establishes eligibility for breakpoints.

Valuable SEC Tool
The SEC offers investors a valuable interactive tool, the mutual fund cost calculator, which can help you understand the impact that fees and expenses have over time. It will also help you to compare funds. See

www. SEC.gov/investor/tools.shtml

Cl asses of Funds
Many mutual funds have more than one class of shares (you may have seen Class A or Class B shares mentioned, for example). Each class invests in the same portfolio of funds and has the same goals and policies. However, each may differ in the shareholder services and distribution policies in place; this also means that each class will have different fees and expenses-and different performance results.

Tax Consequences
Investors should keep in mind that when they buy mutual funds, they owe income taxes on any ordinary dividends earned or reinvested that year. These taxes are in addition to the capital gains taxes that occur when you sell your shares. The SEC rules require mutual fund companies to spell out in their prospectuses the after-tax returns. To locate this information, look for the "Risk/Return Summary." Figuring in the additional cost of taxes is important to calculating the overall money you can anticipate.

In the end, investors need to have their eyes wide open when selecting a mutual fund. It is important to match the fund with your needs and financial strategy, as well as to consider all of the money that will be deducted as a result of fees, expenses, and taxes. Although investors may not be able to control (or even predict) what the economy will do, they can be informed about the costs extracted by the fund company (through expenses and fees) and Federal government (through taxes). This is important information you need to know before you buy mutual funds!

Learn more about this author, Christine Zibas.
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