1. Investment Companies  What are they?  Financial intermediaries that invest the funds of individual investors in securities or other assets.

2. What is Net Asset Value?  Shares in a fund are purchased at the NAV  NAV = Market Value of Assets – Liabilities Shares Outstanding

3. Three main types of Investment Companies 1. Open-end Investment company 2. Closed-end Investment company 3. Unit Investment Trust

4. Open-end Investment Company  Sell shares to investors. When the investors want to sell their shares, the Mutual Fund will repurchases the shares at the NAV. (Funds Grow and Shrink)

5. Closed-end Investment Company  Shares more closely resemble stocks in the way that they are traded. They raise money only once. The shares are traded on an exchange (like NYSE). Price of the shares are influenced by supply and demand AND changes in the value of the holdings (Stocks and Bonds). Shares prices may be different than the NAV.

6. Unit Investment Trust  Money invested in a portfolio that is fixed for the life of the fund.  Typically a broker buys a portfolio of securities which are deposited into the trust. It then sells shares or units in the trust called, redeemable trust certificates.  Most unit trusts hold fixed-income securities and their unit expires at maturity  Shares or “units” of redeemable trust certificates are sold by the trust  Investors can sell their shares back to the trustee

7. What are Mutual Funds?  Approximately 6,000 funds (book says that there were about 7,300 funds in 1998 – there are about 6,000 funds today according to the Wall Street Journal)  Over 400 fund families

8. Each fund has the following: 1. Investment objective (What do we want to accomplish). 2. Investment plan (How are we going to get there). 3. Fund Manager (Who is going to manage the fund).

9. How do funds make Money? 1. Dividends (stock) 2. Interest (bonds) 3. Selling stocks or bonds at an increased price.

10. Real Estate Investment Trusts (REITS)  Similar to a closed-end fund  Raise equity through sale of shares to the public  Also borrow money from banks and other financial institutions (leverage)  Invest in real estate or loans secured by real estate  REITS are Like a mutual fund that invests in real estate  Get diversification and liquidity

11. Hedge Funds  A private investment pool, open to wealthy investors, that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

12. 1,000s of funds broken into Three main Categories  Stock Funds - also called equity funds (riskier - higher returns)  Bond Funds - corporate and government bonds (lower risk – lower returns)  Money Market Funds - short-term investments (Lowest risk – lowest return)

13. Funds will Primarily Invest in…  Stocks  Bonds  Balance (Stocks & Bonds)  Sector  Index  Money market  Green and other conscience funds  Precious Metals  Gold Fund  International Funds

14. Fees or Sales Charges  Front-end Load: Pay a fee when you purchase funds. If 5% front-end load, have $100, invest 95  Back-end Load: (also called Contingent deferred sales charge) Get charged when you sell shares  Level Load: No front-end or back-end charge - but imposes annual fees.  Redemption charge: type of back-end load to discourage frequent in-and out trading.  12b-1 fees: Marketing and advertising fees.

15. Fund Share Classes  Read the following Link about Fund Share Classes: http://news.morningstar.com/article/article.asp?id=142323&t1=1176994022  Summary  Class A shares – Front Load Fees  Class B shares – Back-end Load  Class C shares – Level load  Class D shares – No Load with a transaction fee  With Class A, B, and C shares you pay for advice  No Load – Usually doesn’t have a letter after its name  The investment strategy is the same with all classes. The class distinction is set up so that the broker will get paid.

16. Taxation of Mutual Funds  Taxes are paid by the investor not the fund itself  Taxed on … Short-term capital gains (taxed as ordinary income) Long-term capital gains (less than short-term) Dividends (taxed as ordinary income)

17. Other Issues  High Asset Turnover  Loss (tax break up to $3,000 per year)  Issue: It is possible to lose money in a fund and still pay taxes—WHY????

18. Exchange Traded Funds  Exchange-traded funds (ETFs) SPY QQQ DIA  Tax advantage over Mutual Funds  Prices may depart from NAV by a small amount  Like stock – pay brokerage fee and bid / ask spread  No front-load fee

19.  www.Morningstar.com www.Morningstar.com