Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
Understanding Mutual Funds
By investing in mutual funds, expert money managers work to help you achieve your financial
goals. Alhough mutual funds make sense for most investors, it is important the you understand
the basics of mutual funds.
What are Mutual Funds?
A mutual fund company is one that makes investments on behalf of its shareholders. A mutual
fund pools your money with money from many other investors who have similar investment
objectives. Professional money managers for the mutual fund company then take the pool of
money and invests it in securities such as stocks, bonds and money-market instruments.
Mutual funds can make money for you in two ways. One, they can pay dividends earned from
the funds' investments. And two, if a security held by a fund is sold at a profit, the fund can pay
capital gains.
As a shareholder, you own a proportionate share of the fund. Each share represents ownership in
all the fund's underlying securities. Funds pay dividends and capital gains in proportion to the
number of fund shares owned. Thus, if you invest $1,000, you'll get the rate of return as if you
invest $10,000.
Mutual Funds Provide the Basics for Smart Investing
Diversification
Your best protection against risk is diversification—spreading your investment across dozens of
securities instead of just one.
Mutual funds provide an assortment of investment options. They offer growth, income, or both,
and the opportunity to invest in international markets, as well as the U.S. A fund's portfolio
managers typically invest in as many as 50 to 200 or more different securities. In effect, they put
your money in many baskets instead of just one. Only the most affluent investors can attain the
diversification on their own that mutual funds can for their shareholders.
Professional Management
With mutual funds, you have built-in professional money managers who base their buying and
selling decisions on extensive, ongoing economic research. After analyzing stock market
conditions, interest rates, inflation and the financial performances of individual companies, these
managers select investments that best match the fund's objectives.
Professional money management has long been available to large institutions and wealthy
investors. Mutual funds make this type of financial expertise accessible to everyone.
Growth Potential
Mutual funds create possibility of higher long-term returns than conventional savings. Today,
mutual funds manage more than 171.3 million shareholder accounts valued at about $4.5 trillion.
They have become the nation's third largest financial intermediary—behind commercial banks
and life insurance companies.
Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
One reason for mutual fund growth is their performance record in relation to what individuals
might expect by investing on their own.
Of course, performance varies from fund to fund, but on average and over the long run, the
growth of stock funds has paralleled the growth in the U.S. economy. Past performance cannot
guarantee comparable future results. In addition, bond and money market funds have reflected
the long-term movements in their respective markets.
Source: Investment Company Institute. Data as of 12/31/97.
Investing Can Be Easy
Convenience
Mutual funds are easy to buy. As your professional investment representative, we can analyze
your financial needs and objectives and recommend appropriate funds for you to purchase.
You also have easy access to your money, making your investment a liquid asset. You can
redeem all or part of your shares any day the New York Stock Exchange is open and receive the
current value of the investment, which may be more or less than the original cost. Payment for
redeemed shares will generally be made within seven days.
Flexibility
Mutual funds offer various features that allow you to stay in control of your investments.
Automatic Reinvestment of Dividends and/or Capital Gains
Most mutual funds allow you to automatically reinvest your dividends and capital gains to
purchase additional fund shares at no extra cost. Over time, the power of compounding may
significantly increase the value of your assets.
Exchange Privilege
Within a fund family, you can generally exchange portions of your investment into other funds
with different objectives as your financial situation changes.
What are the Different Types of Securities Owned in a Mutual Fund?
Stocks
A stock is an equity security that represents part ownership in a corporation. Stocks are sold in
shares and their prices will fluctuate. The Standard & Poor's Composite Index of 500 Stocks
(S&P 500) measures the general price movement of a group of unmanaged securities. It is widely
regarded by investors to be representative of the stock market in general.
Bonds
A bond is essentially a security or IOU, usually issued by a corporation, government or
government agency. Most bonds pay interest, which is distributed to the bondholder at specific
intervals. Bond prices vary, and their price movements are strongly affected by changes in
interest rates.
Money Market Instruments
In many ways, most money-market securities are just short-term versions of bonds. They're
considered short-term investments because the debt that they represent must be paid back within
a relatively brief period of time, no more than one year. With such short maturity periods, the
prices of money-market instruments are generally more stable than prices of longer-term debt
securities. However, money-market securities usually pay less interest than long-term bonds.
Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
Treasury bills and certificates of deposit (CDs) are two examples of commonly issued money-
market instruments. In addition, CDs are insured by the FDIC for up to $100,000, and Treasury
bills offer a government guarantee of repayment of principal and interest if held to maturity.
What are the Different Types of Mutual Funds?
There are funds that fit just about any investment need:
Growth Funds typically invest in stocks and seek capital growth through price appreciation of
the securities held in their portfolios. Their primary aim is to produce an increase in the value of
their investments rather than a flow of dividends. Growth funds with a more aggressive focus
seek maximum capital gains as their investment objective. These funds may invest in stocks that
are somewhat out of mainstream—such as smaller, lesser-known companies that managers
believe possess dynamic potential.
Growth and Income Funds invest primarily in the common stocks of companies with longer
track records. These funds seek equities with a higher share value that also maintain a solid
record of paying dividends.
International Funds seek growth in their investments and invest primarily in stocks of
companies located outside the U.S.
Global Funds typically seek growth in the value of their investments and generally invest in
stocks and/or bonds traded worldwide, including the U.S.
Sector or Theme Funds seek to capitalize on the return potential provided by investing primarily
in a particular industry or sector of the economy.
Balanced Funds invest in both stocks and bonds. They emphasize the growth potential of stocks
as well as the relative stability of income from bonds.
Income Funds seek a high level of current income, is often achieved by investing in common
stocks of companies with good dividend-paying records. They may invest in such fixed-income
securities as corporate and government bonds. Some income funds maintain more aggressive
objectives than others.
International investing presents certain risks not associated with investing solely in the U.S.
These include, for instance, risks related to fluctuations in the value of the U.S. dollar relative to
the value of other currencies, the custody arrangements made for the Fund's foreign holdings,
political risks, differences in accounting procedures, and the lesser degree of public information
required to be provided by non-U.S. companies.
Investing in a single-sector mutual fund may involve greater risk potential reward than investing
in a more diversified fund.
High Yield Funds seek a very high yield, but carry a greater degree of risk than corporate bond
funds. In turn, high-yield corporate bonds have the potential to produce greater income than
government bonds. The majority of their portfolios is invested in lower-rated corporate bonds.
Municipal Bond Funds invest in bonds issued by local governments, such as cities and states,
which use the money to build such public entities as schools, highways, public hospitals, bridges
and other municipal works. Income earned from these securities is usually federally tax-exempt
for most shareholders.
Money Market Funds participate in short-term investment instruments that are considered the
safest, most stable types of securities available. By investing in such funds, shareholders can earn
Ann Wolfson Associates - White House, 7030 E. Genesee St. - Fayetteville, NY 13066 - 315-449-4730
current money-market interest rates and maintain asset liquidity. In addition, these may
specialize by investing in tax-exempt money-market securities.
Investing in higher-yielding, lower-rated corporate bonds, commonly known as "junk bonds,"
has a greater risk of price fluctuation and loss of principal and income than U.S. government
securities, such as U.S.Treasury bonds and bills. Treasuries are guaranteed by the government
for repayment of principal and interest if held to maturity. Investors should carefully assess the
risk associated with an investment in this type of fund.
Ann Wolfson Associates
White House, 7030 E. Genesee St
Fayetteville, NY 13066
315-449-4730
Securities offered through Cadaret Grant & Co. Inc. Member NASD/SIPC
4769 Buckley Road Liverpool, NY (315) 451-5885