Which statement about MER is accurate?

• A. MER stands for Management Expense Ratio; it includes trading costs.
• B. MER stands for Management Expense Ratio; it only covers the fund's management fee.
• C. MER stands for Management Expense Ratio; it covers the fund's management fee and operating costs but not trading costs or sales charges.
• D. MER stands for Market Efficiency Ratio; it covers broker commissions.

Answer: (C)

The main idea here is what the MER measures. The Management Expense Ratio is the annual fee charged to cover the fund’s ongoing operating costs and the management fee, all expressed as a percentage of assets. It includes costs like administration, custodial services, legal, and compliance, and is intended to reflect the ongoing cost of owning the fund.

Importantly, the MER does not include trading costs incurred from buying and selling securities within the fund, nor does it include sales charges or loads paid by investors. Those are separate items. So the statement that MER covers the fund’s management fee and operating costs, but not trading costs or sales charges, is the correct description. For intuition, a 0.75% MER on a $100,000 investment costs about $750 per year, independent of any front- or back-end sales charges or the fund’s portfolio trading costs.