FEES AND COMMISSIONS

ENTRY FEES

Many fund managers charge entry fees when you initially purchase an investment. The main purpose of entry fees is to pay commission to advisers. As Investment Warehouse will return all initial commissions back to you by way of additional units in your new investments your entry fees will be negligible.

Nil Entry Fee Funds
Some funds do not have entry fees, but still pay commission to advisers. Such funds will usually have higher ongoing manager's fees to compensate for the lack of an entry fee. You should therefore not regard these funds as cheaper or free as you will still be paying a higher level of costs if your adviser acceptsan initial commission.

EXIT FEES

Many funds that do not have entry fees have exit fees instead. Exit fees are implemented to discourage early cashing in of investments or to ensure that an investor does not take advantage of the lack of an entry fee.

ONGOING MANAGEMENT, TRUSTEE FEES AND OTHER EXPENSES

At present nearly all managed funds impose ongoing management and trustee fees. The implementation of the recent Managed Investments Act will result in a single responsible entity (most likely the manager) replacing separate managers and trustees. This will mean that trustee fees will no longer be applicable, however some managers will continue to use a separate external custodian to hold fund assets, in which case a fee will need to be paid to the custodian.

Managers charge fees for the management and administration services that they provide to investors and of course to make a profit for their businesses. Manager's fees vary according to the complexity of the investment management role. For example, managing a sharemarket fund is more complex than managing a cash management trust and as a result the sharemarket fund will have a higher ongoing management fee.

Managers are also entitled to recover certain costs from investors such as promotion expenses, brokerage and government charges. The total recovered costs, management and custodian fees, is expressed as a percentage known as the Management Expense Ratio (MER). By comparing the Management Expense Ratios of different funds it is possible to determine whether a particular fund is more or less expensive than the average. We would regard Management Expense Ratios of 2% for retail funds and 2.5% for master funds as normal. However some funds may have slightly higher or lower Management Expense Ratios.

The costs represented by the Management Expense Ratio are recovered from the income produced by the underlying investments held by a fund, prior to income distributions being paid to investors. In the event of a fund having insufficient income, then some of the underlying investments may be sold to enable the expenses to be paid.

ONGOING COMMISSIONS

Ongoing commissions are also known as trailing or servicing commissions. These commissions are paid to advisers out of the manager's fee and are therefore incorporated into the Management Expense Ratio (MER). Ongoing commissions are usually in the range of 0.25% to 0.4% per annum and are usually paid on a monthly or quarterly basis. Investment Warehouse retains these ongoing commissions as they are its only source of revenue.