MAY 2003

Lesson 103

Fund Documents

The Prospectus

The Shareholder Report

Mutual Fund Reports

Fund Documents

If you're already a mutual fund investor, you know that mutual fund companies generate lots of paperwork. Fund mailings include the prospectus, regular shareholder statements, statement of additional information and the shareholder report.

While you probably still have your statements and reports somewhere, chances are you haven't done much beyond skim through these papers.

Fund statements contain records of your fund investments, including the dates shares were purchased, how many shares were purchased, and at what price. You should hang on to your statements so that you know how your fund investment performed over time and so that you have the right figures for tax purposes.

Some fund investors use a manual record keeping system, where they file their statements in notebooks or file folders. Others transfer the information from their statements into computer programs to help them keep track of their investments.

Whether you use a manual or computerized system, keep your records up-to-date and in a location that is easy to find.

The Prospectus

The Securities and Exchange Commission (SEC) requires that mutual fund companies provide investors with honest and comprehensive information about a particular fund and its risks. This is done through a fund's prospectus.

Before investing in a fund, you should thoroughly read and understand the prospectus. Many fund companies invite investors to download a fund's prospectus and other fund documents from their Web sites. You can also call a fund company to have a prospectus sent to you.

By law, the prospectus must be provided free of charge to an investor either on demand before an investment is made or upon sending a statement confirming the initial investment into that fund.

The prospectus describes the fund's objectives, strategies, risks, fees and expenses. It also tells you everything you need to know about buying, redeeming and reinvesting or exchanging shares.

In addition to the Prospectus, fund companies are required to provide the Statement of Additional Information, which offers details on corporate aspects of the fund and its advisers, biographies of the fund's directors and other important information.

The Shareholder Report

Once you are a shareholder in a particular fund, you can expect to receive shareholder reports quarterly, semi-annually or annually. If you know what to look for, the shareholder report is full of valuable information that you can review fairly quickly.

The report contains not only the latest financial information on the fund but also will list the fund's holdings. The fund manager's letter is included which discusses the fund's investing strategy and recent results.

To help you judge how the fund is performing, the shareholder report includes a line graph which compares the fund's performance over the past 10 years to an industry benchmark such as the S&P 500 index. The graph tracks the value of a hypothetical $10,000 investment after the deductions of fund expenses.

Along with the graph you'll find a table showing the fund's average annual total return for a given period, again in comparison to one or more accepted benchmarks.

Mutual Fund Reports

Outside of what you can find out from the fund company, a number of investment information services offer regular reports on mutual funds that will help keep you informed. Companies that provide these reports include Morningstar, Value Line, Lipper and Standard & Poor's.

The NAIC Mutual Fund Education Program uses Morningstar reports. Because Morningstar is widely available in public libraries, it is the best source if you are filling out the Check List, Comparison Guide and Trend Report manually.