Fund expense ratios continued their downward trek in 2005, according to a study by investment research firm Morningstar. The decline marked the second year in a row of falling fees.

According to Morningstar, the asset-weighted expense ratio in most asset classes dropped four or five basis points last year. The average retail investor in a domestic stock fund paid 0.93 percent in expenses, down from 0.99 percent in 2004. The average investor in an international-stock fund, meanwhile, paid 1.10 percent, down from 1.17 percent.

Taxable bond funds were no exception. Expenses slid to 0.85 percent from 0.90 percent, Morningstar said. Expenses for municipal-bond funds, however, didn't budge from 2004's figure of 0.74 percent.

Even with the fee cuts, the fund industry still managed to post record revenues in 2005, due to the fact that most funds witnessed an increase in assets, the research firm said.

Because some of the fee reductions stemmed from market-timing settlements between New York Attorney General Eliot Spitzer and fund companies, it remains to be seen if the downward trend will continue. "[I]t would be interesting to see if fund companies and boards will continue the momentum of the past two years in driving better deals for investors or if the cuts will run out of gas," wrote Russel Kinnel, director of mutual fund research at Morningstar. 

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