1. Mutual Funds

2. Objectives WHAT IS A MUTUAL FUND? HOW DO MUTUAL FUNDS OPERATE? HOW MUCH DOES MUTUAL FUND INVESTING COST? HOW SHOULD MUTUAL FUND PERFORMANCE BE EVALUATED? WHAT ARE OTHER TYPES OF INVESTMENT COMPANIES? WHAT IS A MUTUAL FUND? HOW DO MUTUAL FUNDS OPERATE? HOW MUCH DOES MUTUAL FUND INVESTING COST? HOW SHOULD MUTUAL FUND PERFORMANCE BE EVALUATED? WHAT ARE OTHER TYPES OF INVESTMENT COMPANIES?

3. What is a Mutual Fund? A MUTUAL FUND IS AN INVESTMENT COMPANY THAT SELLS SHARES REPRESENTING AN INTEREST IN A PORTFOLIO OF SECURITIES.

4. Advantages of Mutual Funds DIVERSIFICATION SMALLER MINIMUM INVESTMENTS PROFESSIONAL MANAGEMENT DIVERSIFICATION SMALLER MINIMUM INVESTMENTS PROFESSIONAL MANAGEMENT

5. How Do Mutual Funds Operate? Net Asset Value (NAV) (Total portfolio value - liabilities) / # of shares Management is usually contracted to an outside firm with fees ranging from 1/4% to 1/2% a year. Often management companies will start many funds and will provide advisory services, etc. for them. Net Asset Value (NAV) (Total portfolio value - liabilities) / # of shares Management is usually contracted to an outside firm with fees ranging from 1/4% to 1/2% a year. Often management companies will start many funds and will provide advisory services, etc. for them.

6. Services Offered by Mutual Funds AUTOMATIC REINVESTMENT OF DISTRIBUTIONS AUTOMATIC INVESTMENT PLANS CHECK WRITING EXCHANGE PRIVILEGES PERIODIC STATEMENTS AUTOMATIC REINVESTMENT OF DISTRIBUTIONS AUTOMATIC INVESTMENT PLANS CHECK WRITING EXCHANGE PRIVILEGES PERIODIC STATEMENTS

7. Taxation of Mutual Funds Mutual fund taxes are passed through to investors. Mutual funds are generally considered to be unfriendly from a tax standpoint. Why? Mutual fund taxes are passed through to investors. Mutual funds are generally considered to be unfriendly from a tax standpoint. Why?

8. Mutual Fund Fees and Expenses LOAD CHARGES FRONT-END LOAD BACK-END LOAD EXPENSES MANAGEMENT OR ADVISORY FEES OPERATING EXPENSES 12B-1 FEE LOAD CHARGES FRONT-END LOAD BACK-END LOAD EXPENSES MANAGEMENT OR ADVISORY FEES OPERATING EXPENSES 12B-1 FEE

9. EVALUATING FEES AND EXPENSES DIFFERENCES IN ANNUAL OPERATING EXPENSES EVALUATING FEES AND EXPENSES DIFFERENCES IN ANNUAL OPERATING EXPENSES $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $22,000 $24,000 $26,000 012345678910 End of Year Investment Value Fund A: Annual operating expenses equal.75%. Fund B: Annual operating expenses equal 2%.

10. Other Types of Investment Companies UNIT INVESTMENT TRUSTS UNMANAGED PORTFOLIO OF A SPECIFIC TYPE OF SECURITY; INVESTORS PURCHASE UNITS. CLOSED-END INVESTMENT COMPANIES MANAGED PORTFOLIO OF SECURITIES WITH A FIXED NUMBER OF SHARES OUTSTANDING. UNIT INVESTMENT TRUSTS UNMANAGED PORTFOLIO OF A SPECIFIC TYPE OF SECURITY; INVESTORS PURCHASE UNITS. CLOSED-END INVESTMENT COMPANIES MANAGED PORTFOLIO OF SECURITIES WITH A FIXED NUMBER OF SHARES OUTSTANDING.

11. Open-end Fund (Mutual Fund) new shares sold as demanded. company will buy back the shares at any time. new shares sold as demanded. company will buy back the shares at any time.

12. Closed-end Investment Company set number of shares / bought & sold on exchange market price usually < NAV, but... emerging markets funds changes in the discount affect total return dividend yield usually above average because of discount must pay commission to buy or sell set number of shares / bought & sold on exchange market price usually < NAV, but... emerging markets funds changes in the discount affect total return dividend yield usually above average because of discount must pay commission to buy or sell

13. Load vs. No-load most all funds obtained through brokers will have a load load = sales fee price = NAV + sales fee of 7 1/2% to 8% usually no redemption fee no-load funds are sold at NAV low-load funds have a fee of only about 3% most all funds obtained through brokers will have a load load = sales fee price = NAV + sales fee of 7 1/2% to 8% usually no redemption fee no-load funds are sold at NAV low-load funds have a fee of only about 3%

14. Tradeoffs Between Loads and Fees many no-load funds charge up to 1 1/2% per year for management some low-loads do this also. all funds charge management fees of from 1/2% to 1 1/2%. *** Read Prospectus *** many no-load funds charge up to 1 1/2% per year for management some low-loads do this also. all funds charge management fees of from 1/2% to 1 1/2%. *** Read Prospectus ***

15. Types of Investment Companies Common stock funds growth income index mixed industry specific (health care, airlines, etc.) ecology minded regional funds Common stock funds growth income index mixed industry specific (health care, airlines, etc.) ecology minded regional funds

16. Types of Funds, con’t. Balanced funds stocks and bonds percentages vary greatly See prospectus for strategy Bond funds corporate, government, junk, capital gains plays mixed, municipals (state specific), income Money market funds Balanced funds stocks and bonds percentages vary greatly See prospectus for strategy Bond funds corporate, government, junk, capital gains plays mixed, municipals (state specific), income Money market funds

17. Performance After expenses, most funds do not consistently beat the market Performance figures do not take taxes into account The funds that tend to be the best in a given year do not tend to continue to perform at the top. Why? After expenses, most funds do not consistently beat the market Performance figures do not take taxes into account The funds that tend to be the best in a given year do not tend to continue to perform at the top. Why?

18. Implications of Performance Studies For investors with little money? For investors with more money? Advisability of diversification among funds? For investors with little money? For investors with more money? Advisability of diversification among funds?