Lower fees, higher returns: increase your portfolio performance by choosing among these 80 top-performing funds with the lowest expense ratios

Lower fees, higher returns: increase your portfolio performance by choosing among these 80 top-performing funds with the lowest expense ratios – Mutual Fund Overview

Donald Jay Korn

FINALLY, IT’S SAFE TO OPEN YOUR MAIL AGAIN. EVER SINCE THE BEGINNING OF 2000, INVESTORS’ MUTUAL FUND statements have gone from bad to worse. From the second quarter of 2000 through the first quarter of 2003, the Standard & Poor’s 500 Index, the benchmark used by stock market professionals, was in the red eight times out of 12. And four of those quarterly losses were in double digit figures. As the market tanked, so did virtually all stock funds.

In the second quarter of 2003, however, the S&P 500 gained more than 15%, its best performance since the fourth quarter of 1998 when it went up 21% and the bull market was still in stampede mode. A strong second quarter more than offset a weak first quarter, bringing the index’s total return to a satisfying plus 11.8% for the first half of 2003. “A broad rally lifted all boats,” says Brian Portnoy, a senior analyst at Morningstar Inc. in Chicago. “For the past five years, financial markets have been divided. If either stocks or bonds went up, the other group was down. In the second quarter of 2003 though, there was nothing but winners.”

These highlights emerged from the first half of 2003:

* Virtually every fund category had positive returns, bond funds as well as stock funds. (A few bear market funds that bet against stocks were pounded.)

* Stock funds beat the stock market. According to Morningstar, U.S. equity funds gained 12.9% in the first half, with 53% of all diversified domestic stock funds topping the 11.8% gains of the S&P 500.

* International equity funds also had a solid first half, up just over 10%.

* Bond funds continued to show positive returns, as they have since 1999. For the past three years, through June 3, bond funds have returned over 7% per year while stocks have gone in the other direction.

* Stocks still look like winners for long-term investors. For the past 10 years, through the first half of 2003, domestic stock funds have returned almost 8% a year, while bond funds have returned less than 6%.

* Growth funds generally beat value funds in the first half, while specialized technology funds led all categories, up nearly 24%. Nevertheless, this year’s leaders were clawed the most severely during the long bear market, so they’re still way off their peak values.

Will the gains continue the rest of the year? Or will the second-quarter spurt prove to be a bear trap, as it’s been in the past? In the last quarter of 2001, for example, stocks gained over 10%. But 2002 turned out to be the market’s worst year since 1974.

No one can predict the future, but there are steps mutual fund investors can take to improve long-term returns:

* Lower your costs, raise your returns. “Rule No. 1 for mutual fund investors is to buy inexpensive funds,” says Portnoy. “Most investors are very cost conscious when it comes to buying a dishwasher or a stereo but not when buying funds. The information is readily available, online or from a fund, and it’s worth finding out.”

Portnoy says that a few years ago, when funds were returning 20% a year, paying 2% in fund expenses might not have seemed worrisome: “However, if we’re entering into a time when investment returns will be around 6% a year, as some people have suggested, paying 2% to a fund means giving up one-third of your gains.” You’ll be much better off with a fund that charges you 1%, or even less.

How much can you expect to pay when you invest in funds? According to Morningstar, diversified stock funds have average expense ratios around 1.5%. A mutual fund’s expense ratio expresses the percentage of assets deducted yearly for costs such as marketing, management, and administration, it doesn’t include transaction fees or commissions paid. For example, a fund with $100 million in assets that spends $1.25 million on the aforementioned costs would have an expense ratio of 1.25%. International and specialty stock funds have slightly higher expenses, while most bond funds charge investors approximately 1% per year. To help guide you, this year’s 80 top-performing mutual funds are ranked by their average annual three-year return as well as their expense ratio. (See table in this story.)

Many funds have been able to keep expenses low. Ariel (ARGFX), for example, is a value fund specializing in small companies. The average small-cap value fund has an expense ratio of 1.53%. Ariel’s expense ratio is 1.19%, or 0.34 percentage points (34 basis points) below the norm. And low costs have given the Ariel fund an excellent track record. “We’re very focused on trying to hold down expenses,” says John W. Rogers Jr., CEO of Ariel Capital Inc. and portfolio manager of the Ariel fund and the Ariel Appreciation fund. “Our directors hold us accountable for the money we spend. At the end of the day, low expenses make a difference. We’ve been running Ariel fund for 17 years. An extra 25 or 50 basis points a year, for 17 years, can increase an investor’s return substantially.”

How does Ariel keep its overhead low? “We’re buy-and-hold investors,” says Rogers, “so we don’t do a lot of trading. When you reduce your trading costs, that helps to lower a fund’s overall costs.” Rogers advises investors to look closely at a fund’s turnover–how often shares are bought and sold–before investing. Morningstar puts the average turnover rate for a domestic stock fund at about 100% (the average fund’s annual trades are about equal to the assets it holds), so funds with much lower turnover rates may have relatively low costs.

* Rein in retirement fund expenses. If you invest in mutual funds through your company’s retirement plan, low expenses should be among the reasons you pick your funds. Darryl E. Kelson, 39, a FedEx dispatcher in Charlotte, North Carolina, does all of his mutual fund investing inside the company’s 401(k) plan. “I’ve been aggressive because I expect to have many years before I retire,” he says. “And I know that stocks have been best over the long term.”

Therefore, Kelson has been focusing on stock funds: “Over the past few years, I’ve sometimes felt like I was the only employee around here still contributing to stock funds but I kept with it, despite all the ups and downs. You’re better off buying when prices drop and stocks go on sale.” What’s more, Kelson has concentrated his investments in the Vanguard family of funds, which has a reputation for offering funds with low expense ratios “I know you’re better off if you can avoid incurring up front costs,” he says, “and that’s the case with these funds. In addition, I like the fact that Vanguard funds generally have low expenses.”

Up to now, Kelson’s investment choices have included the Vanguard Windsor fund (VWNDX), which follows a value style, and the Vanguard Primecap fund (VPMCX), which holds both growth and value stocks. He also invests in the Vanguard Wellington fund (VWELX), which mixes high-grade bonds with blue-chip stocks. “As I turn 40 this year and come closer to retirement, I plan to become a bit more conservative and start investing in a Vanguard bond fund, too,” he says.

* Retirees need to pinch pennies, too. Low cost funds work for those already tapping their portfolios, as well as for investors in the buildup stage. L. Dwight Johnson recently retired after a 25-year career with a local phone company. “Back in the early 1980s, all the stock I owned was AT&T,” says Johnson, 55, who lives in Creve Coeur, Missouri. In the early 1990s, he was still totally invested in telecom stocks, including the so-called Baby Bells. “I looked at the trends in the industry,” says Johnson. who is currently working on a start up company of his own. “There was all this talk about bandwidth, but I was convinced at the time that it wasn’t going to take off.

I thought other industries were more attractive, such as pharmaceuticals, because of the aging of the Baby Boomers.” So Johnson decided to diversify: “I shifted money into mutual funds right before telecom stocks tanked.” Telecom stocks have been hard hit because of the inundation of the industry in recent years, so Johnson’s move into funds helped him escape the worst of the market collapse.

According to Johnson’s investment advisor, fees aren’t the driving force in their selection of mutual funds, but they am a guide. Johnson and his advisor look for consistency of returns to see how a fund ranks within its sector. They find out if the management team that deserves credit for the returns is still in place. If a fund just has one person at a computer picking stocks, they may think twice about that particular fund.

Johnson invests in Dodge & Cox (DODGX), a large-cap fund (one that invests mainly in large companies); Hartford MidCap (HFMCX) and Olstein Financial Alert (OFAFX), both mid-caps; and Liberty Acorn (LACAX), a small-cap fund. At the suggestion of his advisor, he also increased his exposure to international stock funds earlier this year because the U.S. dollar was expected to weaken, which it did, and because further weakening is expected. If you buy a foreign stock fund and the dollar weakens, the value of foreign companies’ earnings will increase for U.S. investors. Johnson’s investment advisor includes the following funds on her list: First Eagle Overseas (SGOVX) and Longleaf Partners International (LLINX).

Morningstar’s Portnoy “also advocates holding international funds in your portfolio: “Foreign stocks do not perform exactly the same as U.S. stocks, so adding a foreign fund can reduce your overall risk. Foreign funds that buy mid-sized and small companies are more likely to hold stocks you won’t find in your domestic equity funds.”

Among fixed-income funds, Johnson and his advisor like PIMCO Real Return (PRTNX) and Columbia High-Yield (CHGAX). The PIMCO fund holds inflation-indexed Treasury bonds to protect bond holders against inflation. Columbia High-Yield invests in junk bonds but there are no C-rated bonds in the portfolio, so the quality is relatively strong. All of these funds have low expense ratios for their category.

* Stay the course. A low-cost mutual fund may or may not post a good return in any given year. The real advantage of lower expenses will become apparent over the long term, so iL pays to keep investing, no matter what’s happening with your life or with the market. Pat and Marc Marshall, both 38, of Mitchellville, Maryland, are building a family and a dream house, yet they still manage to invest in mutual funds. “We’re in for the long term.” says Marc, a business development executive at a high-tech company. “We practice dollar-cost averaging, putting money into funds each month. When prices go down, we can buy more shares, which probably will pay off over the years.”

The Marshalls invest in funds through a discount broker and they buy no load funds (funds with no sales charge) to hold their costs down. “We own Janus (JANSX) and Janus Worldwide (JAWWX),” says Pat, a mortgage banker, “so we have domestic and foreign funds.” Both funds are well below their category averages in expenses and they have excellent long-term records, although recent results have lagged in the 2000-2003 bear market. “We also own Invesco Telecommunications (ITLAX) and Red Oak Technology Select (ROGSX),” says Marc. “These are specialized funds and they can be volatile. but I like to invest in what I know.”

LeCount R. Davis, a certified financial planner and registered investment advisor in Bethesda, Maryland, who has advised the Marshalls, says he is always mindful of the cost of the funds he recommends: “We have several criteria when we pick funds, and a low expense ratio is one of them. We want the funds on our ‘buy’ list. to be below average for their category when it comes to expenses. The more a fund spends, the less profitable it is and the less clients will have.” Other criteria Davis uses in his fund picking include consistency of returns (in relation to a fund’s category), continuity of management, and adherence to a specific investment style.

You can also cut your costs by avoiding sales charges, or loads, in the mutual fund business. (See sidebar.) Generally. you’ll have Lo pay some kind of a load if you want a professional’s advice. But some advisors, such as Davis, do without sales corn missions and rely upon asset, management or hourly fees instead. Thus. instead of paying a $575 load when you invest $10,000 in a fund, you might pay $100-$200 a year for ongoing guidance, or an established fee for every hour you talk with your advisor.

Davis says the market may be up moderately the rest of this year: “I think the best opportunities may be in large-cap funds. They invest in big companies and many of those companies have retrenched, laying off people. Those companies may find that the economy isn’t as bad as they thought, so their profits might increase, raising the stock prices.” Among the funds Davis would recommend to an investor with a similar investment profile to the Marshalls’ are the Vanguard 500 Index (VFINX) and the Vanguard Total Stock Market Index (VTSMX). Like many index funds, they do little trading and no stock picking so expenses are extraordinarily low, around 0.20% per year, or $20 for every $10,000 invested, He also likes Oakmark Equity & Income (OAKBX), Dodge & Cox (DODBX). T, Rowe Price Equity-Income (PRFDX), Clipper (CFIMX), and Ameristock Focused Value (AMFVX).

Even if you think stocks are ready fur a repeat performance of the late 1990s, you shouldn’t overload on any one type of fund. On the other hand, the sorry performance of stocks in 2000, 2001, and 2002 shouldn’t scare you away. “Timing the market is a fool’s game,” says Portnoy. “If you are investing for a period of five years or longer, there are good reasons to stick with equities.” A mix of stock funds and bond funds will likely serve you best, and the payoff may be great, or if you seek funds that will spend your money carefully.

B.E.’s Top Mutual Fund Performers

So that you can identify vehicles that will give maximum returns over

the long haul, we have identified 80 top-performing, low-cost funds by

their three-year average annualized return. The ranking of each

no-loader was also based on having ther lowest expense ratios for its

category.

AVG. ANNUALIZED

TOTAL RETURN *

Fund Name SYMBOL 3-YEAR 5-YEAR

Large

Growth

Atalanta/Sosnoff Value ASVFX 2.64 N/A

Jensen JENSX 0.90 7.15

Strong Large Company Growth SLGIX -5.58 7.44

[dagger] Papp Focus N/A -5.90 1.74

Fidelity Capital Appreciation FDCAX -6.45 3.10

Mid-cap

Growth

Meridian Growth MERDX 8.32 11.94

RBC Mid Cap Equity A CMEAX 0.84 7.80

Papp Small & Mid-Cap Growth PAPPX 0.33 N/A

T. Rowe Price Mid-Cap Growth RPMGX -0.48 6.81

Wright Selected Blue Chip Equities WSBEX -3.54 0.12

Small

Growth

Buffalo Small Cap BUFSX 12.47 20.44

William Blair Small Cap Growth N WBSNX 7.21 N/A

1st Source Monogram Special Equity FMSPX 6.18 10.19

Baron Growth BGRFX 5.97 11.84

Dreyfus Premier Future Leader R DFLRX 5.28 N/A

Large

Blend

Thompson Plumb Growth THPGX 10.97 10.06

Mairs & Power Growth MPGFX 8.47 9.59

Matrix Advisors Value MAVFX 4.74 10.01

Parnassus Equity Income PRBLX 3.86 11.17

Fidelity Fifty FFTYX 1.47 7.15

Mid-cap

Blend

FAM Value FAMVX 13.83 6.25

Fairholme Fund FAIRX 13.41 N/A

Icon Leisure & Consumer Staples ICLEX 12.39 9.41

Ariel Appreciation CAAPX 11.65 9.24

FMI Common Stock FMIMX 11.41 10.70

Small

Blend

CGM Focus CGMFX 29.58 20.86

Fidelity Low-Priced Stock FLPSX 16.89 11.61

Homestead Small Company Stock HSCSX 13.29 6.42

Pennysylvania Mutual Inv PENNX 11.49 9.95

Royce Micro-Cap Inv RYOTX 10.94 11.88

Large

Value

Oakmark I OAKMX 9.73 2.62

Dodge & Cox Stock DODGX 9.28 9.90

Auxier Focus AUXFX 7.83 N/A

American Century Large Co Val Inv ALVIX 5.84 N/A

Summit Everest Fund SAEVX 4.89 N/A

Mid-cap

Value

Yacktman Focused YAFFX 21.55 4.36

Yacktman YACKX 20.88 6.99

Marshall Mid-Cap Value Inv MRVEX 14.05 9.90

T. Rowe Price Mid-Cap Value TRMCZ 13.09 9.83

Janus Mid Cap Value Inv JMCVX 12.69 N/A

Small

Value

Royce Special Equity RYSEX 21.98 11.57

American AAdvantage Sm Cp Value Plan AVPAX 21.06 N/A

Heartland Value HRTVX 19.48 12.66

Delafield DEFIX 18.18 11.66

Berwyn BERWX 16.76 3.89

Foreign

Stock

Oakmark International I OAKIX 1.86 7.31

Fidelity Canada FICDX -0.66 8.51

Tweedy, Browne Global Value TBGVX -2.09 4.23

Preferred International Value PFIFX -2.25 1.65

Exeter World Opportunities A EXWAX -2.72 7.15

World

Stock

Oakmark Global I OAKGX 18.02 N/A

Polaris Global Value PGVFX 9.00 5.09

Vanguard Global Equity VHGEX 2.95 6.28

Pearl Total Return PFTRX 2.92 5.34

Fidelity Worldwide FWWFX -5.77 0.01

Long

Government

American Century Target Mat 2020 Adv ACTEX 18.69 N/A

American Century Target Mat 2010 Adv ACTRX 14.99 N/A

American Century Target Mat 2015 Adv ACTTX 13.40 N/A

American Century Target Mat 2010 Inv BTTNX 12.84 8.50

[dagger] American Century Target Mat

2025 Adv N/A 11.65 9.91

Intermediate

Government

American Century Target Mat 2005 Adv ATRGX 12.57 8.38

American Century Target Mat 2005 Inv BTFIX 10.66 7.62

Vanguard Inflation-Protected Secs VIPSX 10.18 N/A

Vanguard Interm-Term U.S. Treas VFITX 9.79 7.39

American Century Inflat-Adj Bd Inv ACITX 9.16 7.55

Short

Government

Managers Intermediate Duration Govt MGIDX 7.88 6.07

Northern U.S. Government NOUGX 7.65 6.12

Vanguard Short-Term Federal VSGBX 7.39 6.30

Vanguard Short-Term Treasury VFISX 7.28 6.24

Payden U.S. Government R PYUSX 7.23 6.08

Corporate

Bonds

TCW Galileo Total Return Bond I TGLMX 10.14 7.48

Sextant Bond Income SBIFX 10.08 6.54

TCW Galileo Total Return Bond N TGMNX 9.89 N/A

Vanguard Interm-Term Corp Index VBIIX 9.80 7.19

Vanguard Interm-Term Corp Bd VFICX 9.65 6.96

Muni

National

Harris Insight Tax-Exempt Bond N HXBAX 8.02 5.89

Schwab Long-Term Tax-Free Bond SWNTX 7.58 5.01

SAFECO Westbury Municipal Bond Inv SFCOX 7.12 5.08

Old Westbury Municipal Bond OWMBX 7.07 5.46

USAA Tax Exempt Long-Term USTEX 7.02 4.79

MINIMUM

EXPENSE INITIAL

Fund Name RATIO INVESTMENT

Large

Growth

Atalanta/Sosnoff Value 1.50 $5,000

Jensen 1.00 2,500

Strong Large Company Growth 1.30 2,500

[dagger] Papp Focus 1.25 5,000

Fidelity Capital Appreciation 1.03 2,500

Mid-cap

Growth

Meridian Growth 1.06 1,000

RBC Mid Cap Equity A 1.37 1,000

Papp Small & Mid-Cap Growth 1.25 5,000

T. Rowe Price Mid-Cap Growth 0.88 2,500

Wright Selected Blue Chip Equities 1.25 1,000

Small

Growth

Buffalo Small Cap 1.02 2,500

William Blair Small Cap Growth N 1.62 5,000

1st Source Monogram Special Equity 1.24 1,000

Baron Growth 1.35 2,000

Dreyfus Premier Future Leader R 1.10 1,000

Large

Blend

Thompson Plumb Growth 1.11 2,500

Mairs & Power Growth 0.78 2,500

Matrix Advisors Value 0.99 1,000

Parnassus Equity Income 0.96 2,000

Fidelity Fifty 1.09 2,500

Mid-cap

Blend

FAM Value 1.21 500

Fairholme Fund 1.00 2,500

Icon Leisure & Consumer Staples 1.34 1,000

Ariel Appreciation 1.26 1,000

FMI Common Stock 1.10 1,000

Small

Blend

CGM Focus 1.20 2,500

Fidelity Low-Priced Stock 0.97 2,500

Homestead Small Company Stock 1.50 500

Pennysylvania Mutual Inv 0.94 2,000

Royce Micro-Cap Inv 1.49 2,000

Large

Value

Oakmark I 1.17 1,000

Dodge & Cox Stock 0.54 2,500

Auxier Focus 1.35 2,000

American Century Large Co Val Inv 0.90 2,500

Summit Everest Fund 0.96 5,000

Mid-cap

Value

Yacktman Focused 1.25 2,500

Yacktman 0.99 2,500

Marshall Mid-Cap Value Inv 1.26 1,000

T. Rowe Price Mid-Cap Value 0.96 2,500

Janus Mid Cap Value Inv 1.15 2,500

Small

Value

Royce Special Equity 1.20 $2,000

American AAdvantage Sm Cp Value Plan 1.11 2,500

Heartland Value 1.29 5,000

Delafield 1.20 5,000

Berwyn 1.29 3,000

Foreign

Stock

Oakmark International I 1.31 1,000

Fidelity Canada 1.46 2,500

Tweedy, Browne Global Value 1.37 2,500

Preferred International Value 1.22 1,000

Exeter World Opportunities A 1.30 2,000

World

Stock

Oakmark Global I 1.55 1,000

Polaris Global Value 1.75 2,500

Vanguard Global Equity 1.11 3,000

Pearl Total Return 0.97 1,000

Fidelity Worldwide 1.20 2,500

Long

Government

American Century Target Mat 2020 Adv 0.84 2,500

American Century Target Mat 2010 Adv 0.84 2,500

American Century Target Mat 2015 Adv 0.84 2,500

American Century Target Mat 2010 Inv 0.59 2,500

[dagger] American Century Target Mat

2025 Adv 0.84 2,500

Intermediate

Government

American Century Target Mat 2005 Adv 0.84 2,500

American Century Target Mat 2005 Inv 0.59 2,500

Vanguard Inflation-Protected Secs 0.22 3,000

Vanguard Interm-Term U.S. Treas 0.28 3,000

American Century Inflat-Adj Bd Inv 0.59 2,500

Short

Government

Managers Intermediate Duration Govt 0.88 1,000

Northern U.S. Government 0.90 2,500

Vanguard Short-Term Federal 0.26 3,000

Vanguard Short-Term Treasury 0.28 3,000

Payden U.S. Government R 0.40 5,000

Corporate

Bonds

TCW Galileo Total Return Bond I 0.70 2,000

Sextant Bond Income 0.72 1,000

TCW Galileo Total Return Bond N 1.00 2,000

Vanguard Interm-Term Corp Index 0.21 3,000

Vanguard Interm-Term Corp Bd 0.20 3,000

Muni

National

Harris Insight Tax-Exempt Bond N 0.50 1,000

Schwab Long-Term Tax-Free Bond 0.49 2,500

SAFECO Westbury Municipal Bond Inv 0.61 5,000

Old Westbury Municipal Bond 1.05 1,000

USAA Tax Exempt Long-Term 0.45 3,000

Fund Name PHONE

Large

Growth

Atalanta/Sosnoff Value 877-767-6633

Jensen 800-992-4144

Strong Large Company Growth 800-368-1683

[dagger] Papp Focus 800-421-4004

Fidelity Capital Appreciation 800-544-8888

Mid-cap

Growth

Meridian Growth 800-446-6662

RBC Mid Cap Equity A 800-442-3688

Papp Small & Mid-Cap Growth 800-421-4004

T. Rowe Price Mid-Cap Growth 800-638-5660

Wright Selected Blue Chip Equities 800-555-0644

Small

Growth

Buffalo Small Cap 800-492-8332

William Blair Small Cap Growth N 800-742-7272

1st Source Monogram Special Equity 800-766-8938

Baron Growth 800-992-2766

Dreyfus Premier Future Leader R 800-334-6899

Large

Blend

Thompson Plumb Growth 800-999-0887

Mairs & Power Growth 651-222-8478

Matrix Advisors Value 800-366-6223

Parnassus Equity Income 800-999-3505

Fidelity Fifty 800-544-8888

Mid-cap

Blend

FAM Value 800-932-3271

Fairholme Fund 866-202-2263

Icon Leisure & Consumer Staples 800-764-0442

Ariel Appreciation 800-292-7435

FMI Common Stock 800-811-5311

Small

Blend

CGM Focus 800-345-4048

Fidelity Low-Priced Stock 800-544-8888

Homestead Small Company Stock 800-258-3030

Pennysylvania Mutual Inv 800-221-4268

Royce Micro-Cap Inv 800-221-4268

Large

Value

Oakmark I 800-625-6275

Dodge & Cox Stock 800-621-3979

Auxier Focus 877-328-9437

American Century Large Co Val Inv 800-345-2021

Summit Everest Fund 888-259-7565

Mid-cap

Value

Yacktman Focused 800-525-8258

Yacktman 800-525-8558

Marshall Mid-Cap Value Inv 800-236-8560

T. Rowe Price Mid-Cap Value 800-638-5660

Janus Mid Cap Value Inv 800-525-3713

Small

Value

Royce Special Equity 800-221-4268

American AAdvantage Sm Cp Value Plan 800-388-3344

Heartland Value 800-432-7856

Delafield 800-221-3079

Berwyn 800-992-6757

Foreign

Stock

Oakmark International I 800-625-6275

Fidelity Canada 800-544-8888

Tweedy, Browne Global Value 800-432-4789

Preferred International Value 800-662-4769

Exeter World Opportunities A 800-466-3863

World

Stock

Oakmark Global I 800-625-6275

Polaris Global Value 888-263-5594

Vanguard Global Equity 800-662-7447

Pearl Total Return 866-747-9030

Fidelity Worldwide 800-544-8888

Long

Government

American Century Target Mat 2020 Adv 800-345-2021

American Century Target Mat 2010 Adv 800-345-2021

American Century Target Mat 2015 Adv 800-345-2021

American Century Target Mat 2010 Inv 800-345-2021

[dagger] American Century Target Mat

2025 Adv 800-345-2021

Intermediate

Government

American Century Target Mat 2005 Adv 800-345-2021

American Century Target Mat 2005 Inv 800-345-2021

Vanguard Inflation-Protected Secs 800-662-7447

Vanguard Interm-Term U.S. Treas 800-662-7447

American Century Inflat-Adj Bd Inv 800-345-2021

Short

Government

Managers Intermediate Duration Govt 800-835-3879

Northern U.S. Government 800-595-9111

Vanguard Short-Term Federal 800-662-7447

Vanguard Short-Term Treasury 800-662-7447

Payden U.S. Government R 800-572-9336

Corporate

Bonds

TCW Galileo Total Return Bond I 800-386-3829

Sextant Bond Income 800-728-8762

TCW Galileo Total Return Bond N 800-386-3829

Vanguard Interm-Term Corp Index 800-662-7447

Vanguard Interm-Term Corp Bd 800-662-7447

Muni

National

Harris Insight Tax-Exempt Bond N 800-982-8782

Schwab Long-Term Tax-Free Bond 800-435-4000

SAFECO Westbury Municipal Bond Inv 800-624-5711

Old Westbury Municipal Bond 800-607-2200

USAA Tax Exempt Long-Term 800-382-8722

RELATED ARTICLE: The ABCs of selecting mutual funds.

if you want professional assistance in selecting mutual funds, you’ll most likely have to pay an advisor or a load (sales charge). Traditionally, a load was paid up front. With an 8.5% load, for example, you might invest $10,000 but only see $9,150 on your initial statement. The other $850 would be the broker’s commission. Up-front loads still exist but they’re not your only option. Most toad funds now offer several share classes, common y A, B. and C share classes.

* A shares are the ones with up-front loads. A 5.75% load is common for stock funds. Some initial loads are slightly lower.

* B shares have back-end loads. Each dollar you invest goes into mutual funds, but you pay the load over time via higher annual fees. If you redeem B snares early, you may pay a redemption fee, which declines the longer you hold the fund and usually disappears after about six years. The higher annual fees (known as 12b-1 fees) are in place for a number of years.

* C shares generally don’t charge an up-front fee and they don’t charge a redemption fee after the first year. However, C shares charge an even higher annual fee than B shares, which you have to pay until you no longer invest in the fund.

* Which shore class should you choose? For many investors, A shares usually make the most sense. “A shares generally are easy to understand,” says Brian Portnoy, a senior analyst at Morningstar Inc. in Chicago. “B shares might lead you to believe there is no sales charge, but you may pay on the back end depending on how tong you hold onto a fund. C shares are inappropriate for everyone because the sales charges just go on, year after year.”

Some fund loads can be deceptive, according to LeCount Davis, CFP, Ella in Bethesda. Maryland. “There’s no load up front, but you have to pay a redemption fee if you sell that fund within a certain number of years,” he says. “In practice, most investors want to get out before the back-end lead disappears so they wind up paying it.” Davis also says he never recommends C shares (level-load funds) because the ongoing expenses remain high.

Some runes have various other share classes too. You can buy funds with D, Y, N, F, R, X, M, T, or Z shares. No matter what the label. you should know all the terms and conditions of a share class before choosing it. Your advisor should be able to explain them to you. After all, you’re paying those fees in order to receive sound advice, Be confident you’re getting what you pay for. –D.J.K

COPYRIGHT 2003 Earl G. Graves Publishing Co., Inc.

COPYRIGHT 2003 Gale Group