1. Mutual Funds and Other Investment Companies
Chapter 4
Mutual Funds and
Other Investment Companies

2. Services of Investment Companies
Administration & record keeping
Diversification & divisibility
Professional management
Reduced transaction costs

3. Used as a basis for valuation of investment company shares.
Net Asset Value
Used as a basis for valuation of investment company shares.
Selling new shares
Redeeming existing shares
Calculation
Market Value of Assets - Liabilities
Shares Outstanding

4. Types of Investment Organizations
Unit Trusts
Managed Investment Companies
Open-End
Closed-End
Other investment organizations
Commingled funds
REITs

5. Open-End and Closed- End Funds: Key Differences
Shares Outstanding
Closed-end: no change unless new stock is offered.
Open-end: changes when new shares are sold or old shares are redeemed.
Pricing
Open-end: Net Asset Value(NAV)
Closed-end: Premium or discount to NAV

6. Investment Policies
Money Market
Fixed Income
Equity
Balance & Income
Asset Allocation
Indexed
Specialized Sector

7. Costs of Investing in Mutual Funds
Fee Structure
Front-end load
Back-end load
Operating expenses
12 b-1 charges
distribution costs paid by the fund
Alternative to a load
Fees and performance

8. Allow investors to trade funds based on indexes like stock. Examples
Exchange Traded Funds
Allow investors to trade funds based on indexes like stock.
Examples
SPDRS
WEBS
HOLDERS
Allow sector specialization

9. A First Look at Fund Performance
Benchmark: Wilshire 5000
Results
Most funds underperform
Not fair comparison because of costs
Adjusted Benchmark: Wilshire 5000 with passive management costs considered.
The majority of funds still under-perform.

10. Consistency of Fund Performance
Do some mutual funds consistently outperform?
Evidence suggests that some funds show consistent stronger performance.
Depends on measurement interval
Depends on time period
Evidence shows consistent poor performance.

11. Sources of Information on Mutual Funds
Wiesenberger’s Investment Companies
Morningstar
Investment Company Institute
Popular press
Investment services