In calculating fund expense ratios, funds may only reduce total expenses by contractual fee waivers or reimbursements, the SEC is reminding fund advisers in its annual, "Dear CFO" letter.

A review by the SEC of funds' financial highlights and fee tables revealed that some funds were miscalculating their expense ratios by reducing total expenses by brokerage offsets, custodial credits and other expense reductions, according to the letter. Some funds were also neglecting to include interest and dividend expenses attributable to securities sold short from a fund's total expense figure, the letter said.

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