The cost calculator's estimate of mutual fund ownership costs includes sales charges (loads) and annual operating expenses paid by investors, as well as `foregone earnings' - money that could have been earned had those fees been invested instead. "Each and every investor should know what he or she is paying for a mutual fund - plainly, simply, and in dollars and cents," says SEC chairman Arthur Levitt. "Only when investors know what they're paying can they shop for a fund that best matches their investmentobjectives."

SEC research suggests that most of the 77 million mutual fund investors in the US don't know how much they're paying for their funds - or that higher fund costs can reduce eventual returns by thousands of dollars. Even a one percent annual fee will reduce an ending account balance by 18 percent on an investment held 20 years. "A one per cent difference in mutual fund costs may seem insignificant at first, but over time it can really add up," said Nancy M Smith, director, SEC office of investor education and assistance. "You can save tens of thousands of dollars by using the cost calculator to comparison shop before you invest in a mutual fund."

For example, an investor who uses the cost calculator will find that $10,000 invested in a no-load mutual fund that returns 8 per cent a year with a one per cent annual fee will be worth $38,122 after 20 years. By comparison, the same amount invested in a similar fund that provides the same annual return over the same period but charges two per centannual fees will be worth $31,117. The $7,005 difference represents more than 2/3rds of the original investment.

"Simply put, if two funds have equal performance, the one that charges lower fees will provide increasingly higher returns the longer you own it," said Erik Sirri, director of the SEC office that designed the on-line calculator, the office of economic analysis. A 1996 survey conducted by the SEC and the Comptroller of the Currency found that fewer than one in five fund investors could give any estimate of expenses for their largest mutual fund, and that fewer than one in six fund investors understood that higher expenses can lead to lower returns.

The SEC reminds investors, however, that fees are not the only consideration when choosing a fund. After reading the fund's prospectus and annual report, investors should also assess: + the number of years needed to reach an investment goal

+ the types of stocks, bonds, or other securities that the fund buys

+ the risk of the fund

+ thefit between the fund and other investments held by the investor (diversification)

+ the fund company or portfolio manager who runs the fund

+ the fund's track record or performance over time

+ the types of services offered by the fund company

According to the Investment Company Institute, the average ownership cost of a stock load fund was 2.11 per cent of an individual's investment in 1997, compared with an 0.89 per cent average ownership cost for a no-load fund. For more information about mutual funds and costs, investors can visit the financial facts tool kit at www.sec.gov/consumer/ toolkit.htm.

--Downloaded from the SEC website