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Archive-name: investment-faq/mutual-funds
Compiler: William Rini,
Posting-Frequency: monthly
Last-modified: 17-Nov-1998

See reader questions & answers on this topic! - Help others by sharing your knowledge
        V2.37 Frequently Asked Questions (FAQ) for

Frequently Asked Questions (FAQ) for is 
copyright (c) 1997 by Bill Rini, and is protected by copyright as 
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This question and answer list is given in the hope
that it is useful, but with no express or implied warranty for
accuracy, usefulness, up-to-date-ness, or anything else.  Use the
information contained in this list at your own risk.  Before investing in
any mutual fund, be sure to read the latest prospectus for the fund
in its entirety.  This FAQ should NOT be used in place of competent
advice from investment, accounting and legal professionals.  This FAQ
applies to mutual funds in the USA - most things are likely to differ

1:  What is a mutual fund?
2:  Why do people use mutual funds?
3:  Are there any disadvantages to using a mutual fund?
4:  What is a "closed-end fund" vs. an "open-end fund"?
5:  What is "net asset value"?
6:  A fund is "closed".  Is that the same as a closed-end fund?
7:  What expenses are there for a mutual fund?
8:  What are typical expenses of a mutual fund?
9:  Can mutual fund performance be guaranteed?
10: What is a "prospectus"?
11: What is a "statement of additional information"?
12: What is a "signature guarantee"?
13: What are "dividend distributions"?
14: What are "capital gain distributions"?
15: What else is there to know about distributions?
16: What is the difference between yield and return?
17: What do mutual funds invest in?
18: What is a "socially responsible" fund?
19: Where can I get comparative information on mutual funds?
20: How does buying funds directly compare with buying through a broker?
21: What does family of funds do compared to a single fund?
22: What are the tax implications of mutual funds for individuals?
23: What dates are important when investing in mutual funds?
24: How do I put mutual funds in an IRA?
25: What are the various forms of mutual fund account registration?
26: What resources are available on the Internet?
27: Are there any mutual funds that don't require a large purchase?
28: How accurate are the mutual fund prices in the newspaper?
29: Can mutual funds trade on margin?
30: Who is the typical fund owner?
31: How are mutual funds structured?
32: When should I sell a mutual fund?

1:  What is a mutual fund?

A mutual fund, otherwise known as an investment company, is a corporation 
which pools together investor's money generally to purchase stocks and bonds.
Investors participate in the mutual fund by purchasing shares of the entire pool
of assets, thus diversifying their investment.  The pooled assets are invested by
professional managers who buy and sell securities on behalf of the investors.

Because mutual funds pass all gains, losses and tax obligations/benefits through
to investors, mutual funds receive preferential tax treatment under the U.S.  Internal
Revenue Code.

2:  Why do people use mutual funds?

Many people purchase mutual funds because they are a convenient and cost 
effective method of obtaining diversification and professional management.  
Because mutual funds hold anywhere from a few securities to several 
thousand, risk is spread out over a number of investments.  Additionally, 
mutual funds generally buy and sell securities in volume, which allows 
investors to benefit from lower trading, management and research costs.

Another advantage that mutual funds offer is that fund performance is subject 
to frequent reviews by various publications and rating agencies, making it possible 
for investors to conduct direct comparisons between funds.  

3:  Are there any disadvantages to using a mutual fund?

Although what one person may view as a disadvantage another may see as a desirable quality, below are some factors which may be disadvantages depending on your point of view:

(a) All mutual funds charge expenses.  Whether they be marketing, management or brokerage fees fund expenses are generally passed back to the investors.

(b) Investors exercise no control over what securities the fund buys or sells.

(c)  The buying and selling of securities within the mutual fund portfolio   
     generates capital gains and losses which are passed back to investors even 
     if they have not sold any of their mutual fund shares.   

4:  What is a "closed-end fund" vs. an "open-end fund"?

  A closed-end fund has a fixed number of shares outstanding and is
    traded just like other stocks on an exchange or over the counter.
    The more common open-end funds sell and redeem shares at any time
    directly to shareholders.  Sales and redemption prices of open-end
    funds are fixed by the sponsor based on the fund's net asset value;
    closed-end funds may trade a discount (usually) or premium to
    net asset value.

5:  What is "net asset value"?

   The net asset value (NAV) is the value of the fund's underlying
    securities.  It is calculated at the end of the trading day.
    Any open-end fund buy or sell order received on that day is traded
    based on the net asset value calculated at the end of the day.
    A few funds calculate net asset value at more frequent intervals
    and process trades at those values.

6:  A fund is "closed".  Is that the same as a closed-end fund?

    No.  Some open-end funds are closed to new investors because the
    fund manager feels that it cannot be as effective with a very
    large amount of money.  This typically happens with funds that
    invest in small companies.  The open-end format remains the same,
    but investments are not accepted from those who do not already
    have accounts.

7:  What expenses are there for a mutual fund?

    (1) Closed-end funds charge annual expenses for research and
        trading expenses.  To buy and sell closed-end fund shares,
        the investor must usually pay additional brokerage fees, unless
        the investor finds someone to buy from or sell to directly.
    (2) Open-end funds charge annual expenses for research and trading
        expenses.  In addition, they sometimes charge the following:
        (a) A front end load or sales charge.  These vary from 1% to
            8.5% subtracted from the amount paid and are usually used
            to pay commissions to brokers and financial advisors who
            sell the funds.  Very large investors can sometimes get
            discounts on the front end loads.  Currently, fund sponsors
            determine loads, but the SEC is proposing a rule to allow
            brokers and other salespeople to discount loads.
        (b) A redemption fee, deferred sales charge, or back end load.
            These work the same way as front end loads, but are charged
            when you redeem shares.  In many cases, they decline or
            disappear after a long enough holding period.
        (c) A Rule 12b-1 fee.  Used to pay marketing expenses, which
            means either commissions or advertising expenses.  This is
            a fee that adds to the annual expenses; it may be as large
            as 1.25% per year.  Declining back end loads are common
            in funds with large 12b-1 fees.
        A mutual fund that has neither (a) nor (b) is generally referred
        to as a no-load fund.  No-load funds are generally not sold
        through brokers or financial advisors, but are sold directly to
        investors.  Many advertise in business and financial periodicals.
        All of the above expenses for open-end funds are described on
        the first or second page of the prospectus in a standardized
        form.  Brokerage fees paid by the fund in its trading activity
        are _not_ normally included in such expense tables as they are
        usually accounted for in the cost of securities bought.

8:  What are typical expenses of a mutual fund?

    Stock funds tend to be the most expensive, with annual expenses
    ranging from 0.2% to 3.0% with most between 1.0% and 1.5%.  Small
    company and international funds tend to be more expensive.  Bond
    fund expenses range from 0.2% to 2.0%, with most around 1.0%.  Money
    market funds tend to be the least expensive, ranging from about
    0.2% to 1.0%.  See a later answer for a more detailed description
    of these funds.  Note that some funds, particularly money market
    funds, waive expenses for a limited time to boost yield (and make
    good ad copy).  About one half of stock and bond funds have loads
    (front or back end), but money market funds do not normally have
    loads, though some have 12b-1 fees.

9:  Can mutual fund performance be guaranteed?

    No.  As many funds state, past performance is no guarantee of
    future results, and the fund shares are not backed or guaranteed
    by the FDIC or other government agency.  Note that while some
    funds buy government backed securities, that is not the same as
    backing the market value of the fund shares.

10: What is a "prospectus"?

    It is a document which an open-end fund, or newly issued closed-end
    fund, is required to provide to investors.  Funds say that investors
    should read it carefully before investing or sending money.  A
    prospectus contains descriptions of:
    (1)  fees, in a standardized format
    (2)  investment objective
    (3)  some financial data
    (4)  investment methods, risk description
    (5)  investment manager and compensation
    (6)  how to buy shares
    (7)  how to sell shares, including signature guarantee requirements
    (8)  dividend and capital gain distributions
    (9)  other services

11: What is a "statement of additional information"?

    It is a document that is designed to be read along with the
    prospectus; however, it is not required to be given to investors
    before or after they invest (i.e. investors have to ask for it).
    It contains information such as brokerage selection, description
    of the fund's investment adviser, etc.

12: What is a "signature guarantee"?

    It is a guarantee by a financial institution that your signature
    is genuine and the financial institution accepts liability for any
    forgery.  It is typically required for large or unusual redemptions
    of open-end mutual funds, though some funds require it for all
    redemptions.  At many funds, the guarantor must be a commercial
    bank or NYSE member brokerage firm; some funds accept savings and
    loan associations or credit unions (be careful, some savings and
    loan associations have bank-like names).

13: What are "dividend distributions"?

    A mutual fund may receive dividend or interest income from the
    securities it owns; it is required to pay out this income to its
    investors.  Most open-end funds offer an option to purchase
    additional shares with the distributions.  Dividend distributions
    are often made monthly or quarterly, though many funds make
    distributions only yearly.

14: What are "capital gain distributions"?

    A mutual fund may, in the process of trading, realize capital
    gains.  These must be distributed to investors.  As with dividends,
    there is usually the option to reinvest in additional fund shares.
    Capital gain distributions generally occur late in the year, but
    some funds make additional distributions at other times.  Funds
    with high turnover of securities often make significant capital
    gain distributions every year, while funds with low turnover of
    securities may accumulate unrealized gains for several years before
    making a large capital gain distribution.  Also, funds that are
    increasing in size tend to make smaller capital gain distributions
    because they buy more than they sell, while funds decreasing in size
    tend to make larger capital gain distributions because they sell
    more than they buy.

15: What else is there to know about distributions?

    A distribution lowers the net asset value of the fund by the
    amount of the distribution.  The shareholder does not actually
    lose money because of the distribution, since s/he gets cash or
    additional shares to compensate for the lower net asset value.
    Distributions have important tax consequences as detailed later.

16: What is the difference between yield and return?

    Do not confuse the two terms.
    Return is sometimes called total return.  The formula for total return
    (ignoring any taxes paid on gains and income during the holding period) is:
        TR=((Ending Market Value)/(Beginning Market Value))-1

    Yield is a very different number --- it is prospective
    not retrospective.  It is a measure of income not
    capital gains.  It is usually associated with debt not
    equity.  For instance, the yield quoted on a bond will almost never
    be the same as the total return realized after the bond
    matures or is sold.

17: What do mutual funds invest in?

    Almost anything.  There are funds that invest in almost anything
    an investor could want to invest in.  The most common types are
    described below.
    (1) Money market funds:  these try to maintain a constant (usually
        $1) NAV per share (though they cannot guarantee that), while
        yielding dividends from their investments in short term debt
        securities.  They offer very low risk, but usually low long
        term return.  Most restrict investments to the top two (out
        of four) Moody's and Standard and Poor ratings for short term
        debt; some (including national government only funds) restrict
        themselves to only the top rating, providing a bit of extra
        credit safety, usually at a slightly lower yield.  Most also
        invest in repurchase agreements (repos) collateralized by short
        term debt securities; these are subject to credit or fraud risk
        of the other party in the repo (regardless of the credit risk
        of the securities being repoed).  Their market value is NOT
        insured by the FDIC or other government agency.  Enough defaults
        in the fund's securities can cause it to be unable to maintain
        its constant NAV.
        (a) Regular funds:  invest in short term debt of all types.
        (b) Government funds:  invest only in national government or
            government agency debt or repos involving such debt.
            Slightly lower credit risk than regular funds.
        (c) Treasury funds:  invest only in direct obligations of the
            national government or repos involving these securities.
            Lowest credit risk and dividend distributions are exempt
            from state income taxes in most states.
        (d) Municipal funds:  invest only in debt of state or local
            governments.  For most individuals, dividend distributions
            are exempt from national income taxes.
        (e) Single state municipal funds:  invest only in debt of
            one state or its political subdivisions.  For most individuals,
            dividend distributions are exempt from national income
            taxes and that state's income taxes.  Note that a single
            state fund is usually less diversified than a regular municipal
            fund and might be considered riskier for this reason.
    (2) Bond funds.  These invest in longer term debt securities.
        Thus the short term risk is greater than the infinitesimal
        risk of the money market.  But returns are usually higher.
        Their NAVs may fluctuate due to both interest rate risk and
        defaults.  Unlike individual bonds, most bond funds do not
        mature; they trade to maintain their stated future maturity.
        The types of debt are similar to those of money funds (but
        longer term); however, futures and options are sometimes used
        for hedging purposes.  The other classifications are described
        Time to maturity, interest rate risk:
        (a) Short term:  usually less than 5 years maturity.  Interest
            rate risk is low.
        (b) Long term:  up to 30 year average maturity.  Interest rate
            risk is high.
        (c) Mortgage backed securities:  have some unusual interest rate risks.
            When interest rates rise, they lose value like other bonds.
            When interest rates fall, homebuyers refinance, causing them
            to prepay old mortgages, which in turn causes bonds backed
            by these mortgages to be called.  In addition, when rates rise,
            the MBSs extend due to slower prepayments --- thus
            their duration goes up with interest rates and the bonds lose
            money at an accelerating rate.  When rates fall the prepayments
            speed up and the bond gains money at an ever slower rate.  This
            property is called Negative Convexity.  It is also a gross
            over-simplification.  There are MBSs with positive convexity.
            A 14 year old 13% MBS's prepayments are functionally independent
            of rate moves for example, also prepayment risk is shuffled all
            over the place in CMOs.

            The compensation paid to MBS holders for the negative convexity
            is in higher yield.  Basically the buyer of a mainstream MBS is
            betting that rates will not change too much (that interest rate
            volatility will be lower than the volatility implicit in the
            price).  Over time this is true.  MBS indices have outperformed
            Treasuries in all but a couple of the last 12 years.
        (d) Adjustable rate:  this type of fund is like other mortgage
            backed funds, but it invests in adjustable rate mortgages.
            Therefore, the two sided interest rate risk faced by fixed
            rate mortgage backed bonds in considerably reduced.  However,
            the interest income will fluctuate widely, even though the
            principal value is more stable.  Since most adjustable rate
            mortgages have caps on how high the rate can go (typical
            limits are a 2% increase during a year and 6% increase during
            the life of the loan), risk increases if interest rates
            increase quickly or by a large amount.
        (e) Target maturity:  the few funds in this category buy only
            bonds of the given maturity date.  Thus one can actually
            hold these to maturity.
        Credit risk:
        (a) Investment grade:  restricted only to bonds with low to
            medium-low credit risk (national government bonds are
            usually considered lowest risk).  This generally means the
            fourth highest Standard and Poor's or Moody's rating
            (S&P BBB or Moody's Baa).  Some funds have higher standards.
        (b) High yield or junk:  buys bonds of any credit rating,
            seeking maximum interest yield at a greater risk of default.
    (3) Stock funds.  These invest in common and/or preferred stocks.
        Stocks usually have higher short term risk than bonds, but
        have historically produced the best long term returns.
        Stock funds often hold small amounts of money market investments
        to meet redemptions; some hold larger amounts of money market
        investments when they cannot find any stock worth investing in
        or if they believe the market is about to head downward.
        Some of the possible investment goals are described below.
        They are not necessarily mutually exclusive.
        (a) Growth.  These funds seek maximum growth of earnings and
            share price, with little regard for dividends.  Usually
            tend to be volatile.
        (b) Aggressive growth.  Similar to growth funds, but even more
            aggressive; tend to be the most volatile.
        (c) Equity income.  These funds are more conservative and seek
            maximum dividends.
        (d) Growth and income.  In between growth funds and income funds,
            they seek both growth and a reasonable amount of income.
        (e) Small company.  Focuses on smaller companies.  Usually of the
            growth or aggressive growth variety, since smaller companies
            usually don't pay much dividends.
        (f) International.  Focuses on stocks outside the USA, generally
            investing in many nations' companies.
        (g) Country or regional funds.  These funds buy stocks primarily
            in the designated country or region.
        (h) Index funds.  These funds do no management, but just buy some
            index, like the Standard and Poor 500.  Some index funds,
            particularly those emulating indices with large numbers of
            stocks such as the Wilshire 4500 or Russell 2000, emulate
            the index by buying a subset with similar industry mix,
            capitalization, price/earnings ratio, etc.  Expenses are
            usually very low.
        (i) Sector funds.  These funds buy stocks only in one industry.
            Usually considered among the riskiest stock funds, though
            different sectors tend to have different levels and types
            of risk.
    (4) Balanced funds.  By mixing stocks and bonds (and sometimes other
        types of assets) a balanced fund is likely to give a return
        between the return of stocks and bonds, usually at a lower
        risk than investing in either alone, since different types of
        assets rise and fall at different times.  An investor can create
        his/her own balanced fund by buying shares of his/her favorite
        stock fund(s) and his/her favorite bond fund(s) (and other funds,
        if desired) in the desired allocation.
        (a) Regular balanced funds:  These funds usually hold a fixed
            or rarely changed allocation between stocks and bonds.
        (b) Asset allocation funds:  These funds may switch to any
            allocation, usually based on market timing to some degree.
    (5) Multifunds.  These funds buy primarily other mutual funds.
        They choose other funds based on one or more of the investment
        goals outlined above.
        (a) No-management funds:  These funds hold fixed proportions
            of other funds.  They are offered by fund companies as
            cheap balanced funds -- the underlying funds are other
            funds managed by the same company.  There are generally
            little or no expenses other than those of the underlying
        (b) Managed funds:  In these funds, a manager picks which other
            funds s/he believes are managed well.  Sometimes these
            funds are market timing funds which prefer to leave the
            stock picking to other managers.  These funds have
            expenses above and beyond those of the underlying funds.

18: What is a "socially responsible" fund?

    In addition to the usual investment goals, these funds restrict
    their investments to whatever they define as socially responsible.
    Such criteria can include:  avoiding military, alcohol, tobacco,
    and gambling industries, preferring companies
    that treat their employees and the environment well.  Different
    funds have different social and investment criteria.

19: Where can I get comparative information on mutual funds?

    Brokers and financial advisors offer information, but they
    usually give information only on load funds.  However, many
    periodicals have regular mutual fund review issues:
        Barron's (quarterly)
        Money Magazine (Nov.)
        Business Week (Feb.)
        Forbes (Sept.)
        Fortune (fall)
        Consumer Reports
        Wall Street Journal
        Investors Business Daily
        Morningstar Mutual Fund Report
        Value Line Mutual Fund Survey

    In addition, there are many books available on
    mutual fund investing.  Different periodicals and books use
    different criteria to rate funds.  These periodicals and books
    usually have phone numbers which you can call to get the fund's
    prospectus and other information.  Note that some ratings account
    for loads, while others do not.  Past performance is no guarantee
    of future results of either the fund or the securities markets
    in general.

20: How does buying funds directly compare with buying through a broker?

    A load fund usually costs the same whether bought directly or
    through a broker.  A no-load fund can be bought directly at no
    charge; most brokers will charge a commission to buy a no-load
    fund.  Some discount brokers now offer some no-load funds at no
    transaction fees; normally, they receive a portion of the funds'
    annual expenses instead.  Holding funds in a broker may make it
    easier to trade from one fund to another, however.  Closed-end
    funds usually need to be traded through a broker, like regular
    stocks, though some have dividend reinvestment plans.

21: What does family of funds do compared to a single fund?

    Families of funds sometimes offer additional services, such as
    telephone switching from one fund to another within the family.
    With load fund families, switching from one load fund to another
    is sometimes allowed without paying a second load.  Some families
    may make bookkeeping easier by listing all of an investor's
    different funds on one statement.  Others reduce expenses by
    sharing services which realize economies of scale.  Note, however,
    that the good advertised performance of one fund in a family
    may or may not be shared by others.

22: What are the tax implications of mutual funds for individuals?

    Like shares of any stock, selling mutual fund shares may cause you to
    realize a capital gain or loss.  Mutual funds also distribute dividends
    received and their own realized capital gains, usually at the end
    of the year; these distributions, whether taken in cash or reinvested,
    are taxable (note that the nontaxability of municipal bond funds
    applies only to dividend distributions; capital gain distributions
    are always taxable).  Thus it is often a bad idea to buy a mutual
    fund just before the distribution date, since part of your investment
    will be immediately returned to you as a taxable distribution, resulting
    in you paying taxes much earlier than if you bought just after the
    distribution.  Although the distribution lowers the net asset value
    of your shares, allowing you to "deduct" it when you sell the shares,
    paying taxes sooner rather than later prevents you from gaining
    investment income on the amount that is taxed.  Note that reinvesting
    is considered identical to taking the distribution in cash and
    sending the same amount into the fund as a new investment, so don't
    forget about it when calculating the basis in your account.  When
    selling, it is best to know the different methods of calculating
    the basis of shares sold ahead of time, since some methods require
    that you designate which shares are to be sold.  For more information,
    call 1-800-TAX-FORM and ask for publications 544, 550, and 564, and
    schedules B and D, but note that tax rules can change since the last
    tax year.

23: What dates are important when investing in mutual funds?

    There are several important distribution related dates to be aware of
    when buying and selling mutual fund shares.
    * Declaration date:
        This is the date on which the distribution is declared, followed by...
    * Ex-dividend date:
        This is the date the shares trade without the dividend.
    * Record date:
        Shareholders who own shares on this date will receive the
        distribution on the ....
    * Payment date:
        This is the date on which the dividend is actually paid out.

24: How do I put mutual funds in an IRA?

    Most funds have a bank or trust company arranged to be an IRA custodian
    for any IRA shareholders.  If you buy the fund directly, using this
    custodian, you must use a different application available from the fund
    company.  The custodian usually charges $10 to $15 per fund account
    per year.  This is a significant expense for small accounts, not too
    significant for larger accounts.  Alternatively, you can open a
    brokerage account IRA and purchase mutual funds within that.  This
    would be similar to using a broker to buy funds normally, but incurs
    a single IRA custodian fee (usually $25 to $50).  Custodian fees,
    but not loads or commissions, may be paid separately from the
    contribution, and may be separately tax deductible.  Call 1-800-TAX-FORM
    and ask for publication 590 and form 8606 for general IRS information
    about IRAs (but note that tax rules can change since the last tax year).
    Note that the tax issues of distributions as detailed previously don't
    affect IRA accounts.

25: What are the various forms of mutual fund account registration?

   The way in which your mutual fund account is registered is an important
   factor in estate planning.  The disposition of property or assets after
   the death of an individual is often governed by the way that
   property or account is titled.  Listed below are descriptions
   for three common forms of mutual fund account registration.

   Sole Ownership:
   Individual registration is the simplest form of ownership because
   one person has absolute control of the property.  Owner must plan for
   transfer of the account when he/she dies; commonly done with a will.
   Otherwise state rules of succession and state inheritance laws dictate
   disposition of account upon death.

   Joint Tenant:
   Most common form of ownership involving 2 or more individuals.  Each person
   owns an individual interest in the entire account.  Consequently, income
   generated from the account is owned equally by all of the parties involved in
   the joint tenancy.  Right of survivorship dictates that upon the death of a
   joint tenant, the account immediately and automatically passes to the
   surviving owner(s).  Joint tenants do not have to be related individuals.

   Tenants In Common:
   Differs from joint tenancy in several ways.  Tenants in common each own a
   specific portion of the account.  If no specific allocation is made
   (e.g. two-thirds/one-third or one-half/one-half), the account is said to be
   equally divided among all of the tenants.  Income earned on the account
   is divided based upon the specific allocation of ownership.  As in joint
   tenancy, tenants in common do not have to be related individuals.

   There are no survivorship rights for assets held in tenancy in common.  Upon
   the death of one of the tenants, the assets will pass to whomever the
   decedent names in a will.

   Community property is a specific form of registration that is only
   available in certain states.  The following states are community
   property states:
        Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
        Washington and Wisconsin

   According to Joseph Morlan:

   "In property held jointly, the portion transferred on death (usually an
   undivided half interest) is entitled to stepped up cost basis
   regardless of how the title is held and regardless of community
   property.  The advantage of community property is that under code sec.
   1014 (b)(6) the surviving spouse is ALSO entitled to a stepped-up
   basis for his or her half interest if at least half of the community
   property in question is includible in the decedent's gross estate for
   estate tax purposes."

   Get the final word on tax and estate implications regarding specific 
   forms of registration from a competent tax or legal professional. 

26: What resources are available on the Internet?

   Following is a list of some Internet resources available which relate
   to mutual fund investing.  If you are aware of resources which are not
   listed, feel free to E-mail a description of them to the FAQ Compiler
   identified at the beginning of this file.

100% No-Load Mutual Fund Council

A I M Management Group

A Mutual Fund Directory

Advisor Software, Inc.

Alger Funds

Alliance Capital

Altamira Investment Services, Inc.

American Funds

Ameristock Mutual Fund

Annual Reports Library

Atlantic Financial of Massachusetts

Benham Group

Cambrex Group

Cedar Group Director's Chair

Colonial Mutual Funds

Columbia Funds

Compass Capital Funds


Dynamic Mutual Funds

EagleWing Research

Federated Investors

Fidelity Investments


First American Strategy Fund



Fortitude Funds

Fountain Square Mutual Funds

Fund Counsel




Gabelli Funds

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27: Are there any mutual funds that don't require a large purchase?

Contributed by David Snowball (

No-Load Equity or Balanced Funds with low purchase or low AIP,
based on Morningstar No-Load Funds through 6/96, updated as of


(Thanks to Barb Jensen, Tracy Monaghan and Ed Bernstein for passing
along corrections, leads and additions.)

Telephone numbers for fund companies are generally available in
Barron's, the Sunday New York Times and (I believe) the Wall Street
Journal.  In addition, the on-line fund profiles through
Networth include addresses and phone numbers.

How to read it: 

Fund Category
     Fund Name, Signal of Morningstar 4- or 5-star Funds, Minimum
     Investment and/or Min. w/Automatic Investment ($100A),
     Miscellaneous Info

     So, Bridgeway's minimum is $100 if you agree to invest a set amount 
     each month; that's the $100A.    Its one-time investment minimum 
     ($1000) is too high for this list, so it's not mentioned.  If you go 
     down to the Growth Fund category, you'll see Berger 101: you can 
     start with a $500 one-time investment or a $50 investment if you're 
     willing to contribute monthly: $500/$50A.

Aggressive Growth Funds
     Bridgeway Aggressive Gro., $100A - in less than 15 states
     Dreyfus Aggressive Gro., $100A
     Founders Special, $50A
     Invesco Dynamics, ****, $50A
     Strong Discovery, ****, $50A
     Twentieth Century Ultra, ****, $50A
     USAA Aggressive Growth, $50A   
     Value Line Growth Investors, $40A

Growth Funds
     Amana Trust Growth, $100 (invests on Islamic principles)
     Babson Growth, $500
     Bayfunds Equity, $500
     Beacon Hill Mutual Growth, $100
     Berger One Hundred, ****, $500/$50A
     Bramwell Growth, $50A
     Capstone Growth, $200
     Charter Cap Blue Chip, $50
     Fairport Midwest Growth, ****, $250
     Fidelity Retirement Growth, ****, $500
     First Mutual Fund, $250
     Founders Growth, *****, $50A
     Key Funds SBSF Capital Growth, $500
     Legg Mason Value, ****, $50A
     Lindner Growth, ****, $100A
     Marshall Mid-Cap Stock, $50A  
     Montag & Caldwell Growth, $50
     Neuberger & Berman Focus, ****, $50A
     Neuberger & Berman Partners, ****, $50A
     Nicholas, ****, $500/$50A
     Rockwood Growth, $100A  
     Safeco Growth, $100A
     Safeco Northwest, $100A
     Schroder U.S. Equity, $500
     Scudder Value, ****, $50A
     Seafirst Retirement Blue Chip, ****,  $500
     Stein Roe Young Investor, $100A
     Strong Growth, $50A
     Strong Opportunity, *****, $50A
     Strong Schafer Value, ****,  $50A
     T. Rowe Price Blue Growth, $50A
     T. Rowe Price Growth Stock, ****, $50A
     T. Rowe Price Mid-Cap Growth, *****, $50A
     T. Rowe Price New America Growth, ****, $50A
     T. Rowe Price Spectrum Growth, ****, $50A
     USAA Growth, ****, $50A
     Value Line, ****, $40A
     Westcore Midco Growth, $50A  

Growth & Income or Equity Income Funds
     Aetna Growth & Inc. Sel., $50A 
     Amana Income Fund, $100 (invests on Islamic precepts)
     Berger Growth & Income, $500 (formerly Berger 101)
     Chicago Trust Growth and Income, $50
     Fairport Funds Growth & Income, $250
     Key Funds SBSF, $500
     Safeco Equity, $100A
     Safeco Income, $100A
     Strong Total Return, $250     

Small Cap Funds
     Berger Small Company Growth, $500/$50A
     Bridgeway Ultra-Small Co., $100A - in 15 states
     Fasciano, ****, $50A
     Founders Discovery, ****, $50A
     Founders Frontier, ****, $50A
     Fremont U.S. Micro-cap, $50A
     Heartland Small Cap Contrarian, $50A
     Invesco Small Company, $50A
     Neuberger & Berman Genesis, ****, $50A
     Pathfinder Fund, no minimum/$25A - in about 40 states
     20th Century Giftrust, *****, $500/$50A
     T. Rowe Price New Horizons, ****, $50A - closed exc 401k/403b

Asset Allocation and Balanced Funds
     Chicago Trust Asset Allocation, $50
     Montag & Caldwell Balanced, $50
     Pax World Fund, $250
     Strong Asset Allocation, $250

International and Worldwide Funds
     AARP Global Growth, $500
     Artisan International, $50A
     Babson-Stewart Ivory International, $100A
     Capstone New Zealand, $200
     Capstone Nikko Japan, $200
     Founders Passport, $50A
     Founders Worldwide, $50A
     Invesco International Growth, $50A
     Preferred International, $50A
     Scudder Global, $50A
     Scudder Global Discovery, $50A
     Scudder International, $50A
     Strong International, $50A
     20th Century Int'l Equity, $50A

Specialty Funds
     Capstone Medical Research, $200/$25A
     Midas Fund, $500

Special Notes About Fund Families

     GE and State Farm both sponsor low-minimum funds which are
     restricted to their employees and retirees

Special Notes About Automatic Investing Plans

     All T. Rowe Price funds have a $50/month AIP minimum

Special Notes About Individual Retirement Accounts

     Hundreds of funds are available to IRA investors at low
     minimums.  Most IRAs charge a custodial fee: a flat amount
     paid each year.  That charge is either per investor or for
     each fund you own.  Most funds stop charging that fee when
     your account reaches a certain threshold.  

     The list below gives you: family name, minimum to open an
     IRA/minimum with an automatic investment plan if it's
     different, charge per fund or per investor (SSN stands for
     Social Security Number), maximum charge you can pay in a year,
     and the point at which the charge is waived.

     A few funds have exceptions to the rules.  For example,
     Fidelity does not waive fees for Magellan or Select Funds and
     Twentieth Century has a $10,000 minimum for International
     Emerging Growth.  

     AARP (through Scudder), $250 - no fee
     Benham, $1000 - no fee
     Fremont, $1000/0A - no fee
     Harbor, $500 - no fee
     Scudder, $500 - no fee
     Stein Roe, $500 - no fee
     USAA, $250 - no fee

     Acorn, $200 - $5 one time fee plus $10/fund, no cap, no waiver
     Babson, $250 - $10/SSN, no waiver
     Dreyfus, $750/100A - $10/fund, $25 cap, $5000
     Fidelity, $500 - $12/fund (waived for AIP), $60 cap, $2500
     Founders, $500/50A - $10/SSN, $5000 
     Invesco, $250/50A - $10/SSN, no waiver
     Janus, $500 - $12/fund, $24 cap, no waiver
     Kaufmann Fund, $500 - $12/year, 0.2% redemption fee, $20,000
     Lindner, $250 - $10/fund, no cap, no waiver
     Loomis-Sayles, $250 - $10/fund, $30 cap, $25,000
     Neuberger & Berman, $250/100A - $12/SSN, $10,000
     Oakmark, $1000 - $5 one-time, $10/fund, no cap, no waiver
     T. Rowe Price, $1000/50A - $10/fund, no cap, $5000
     Royce, $500 - $12/SSN, no waiver
     Safeco, $250/100A - $5/fund, no cap, waiver under discussion
     Schwab, $500-1000 - $29/SSN, $10,000
     Strong, $250/0A - $10/fund, $30 cap, $25,000
     20th Century, no minimum - $10/fund, $30 cap, $10,000
     Van Wagoner, $500 - $15/fund, no cap, no waiver
     Vanguard, $1000 - $10/fund, no cap, $25,000
     Warburg-Pincus, $500 - $10/SSN, no waiver

28:  How accurate are the mutual fund prices in the newspaper?

According to the Investment Company Institute (ICI) fund pricing is almost 
99.5% accurate.  Lipper Analytical Services estimates the number to be closer 
to 98.95%.  

Mutual funds are required to submit to the NASD a daily pricing of the fund's NAV.  
The NASD then distributes this information to the press and news/quote services.  
Occasionally a fund may err in pricing the securities in the portfolio which results in 
an inaccurate NAV being distributed to the press.  Fortunately, even the rare mispricing 
is usually detected and corrected prior to any processing of mutual fund buy and sell orders.

29:  Can mutual funds trade on margin?

While some brokerage firm margin policies may allow for an investor to 
borrow against their mutual fund positions, mutual funds themselves are 
prohibited from trading on margin.  Additionally, mutual funds are also 
prohibited from selling short to participating in joint trading ventures.

Because funds are prohibited from thee more speculative trading practices, 
investors often form limited partnerships and other legal entities to bypass 
these rules.

30:  Who is the typical fund owner?

According to several surveys by the Investment Company Institute (ICI) conducted over the last several years:

63% of investors own at least two mutual funds.
43% of investors own four or more funds.
The average mutual fund investor holds $18,000 in mutual funds.
The average median age is 44 with a median household income of $60,000.

Other interesting facts from the ICI surveys include:

73% of mutual fund investors own stock funds.
49% of mutual fund investors own bond funds.
52% of mutual fund investors own money market funds.
60% of mutual fund investors purchased their funds through a broker, 
insurance agent, financial planner or bank rep.

31:  How are mutual funds structured?

Mutual funds are in their most basic form corporations.  Investors 
are the shareholders in the company and the assets of the company are 
the pooled investments of all the shareholders (investors).  The board of 
directors of a mutual fund act just as a board of directors for any company.  
They are elected representatives of the investors, who owe shareholders 
a fiduciary responsibility.  The most important function of the board is 
to select the fund's manager.  The fund manager is in a way, the president 
of the company/fund.  The manager traditionally makes all the investment 
decisions for the fund and supervises the day to day operations.

Managers are paid a management fee which is usually a percentage of 
the assets under management.  Managers may also have incentive clauses 
in their contracts that reward superior performance.  Because the manager 
is paid a percentage of the assets s/he is responsible for, there is an incentive 
to do well for investors in the hopes of attracting more investors and in 
turn, more money to manage.

Typically, open ended  funds retain the services of a underwriter to distribute 
shares.  The underwriter is a NASD licensed broker/dealer.  This starts to get 
a little complicated, but generally it works like this;

ABC Growth Fund's board of directors hires ABC Management to run the fund.  
ABC Growth Fund's board also hires ABC Investments to act as the distributor.  
ABC Management and ABC Investments are wholly owned by another company 
(for this example ABC Inc.).  While ABC Management, ABC Investments and 
ABC Inc. may not own ABC Growth Fund, they would likely control many of 
the seats of the board of directors.  For instance, in the Janus Fund's prospectus 
it states:

"Janus Investment Fund (the "Fund") is an open-ended management investment 
company whose shares are currently offered to the public in eleven series 
(individually a "Fund" and collectively "Funds").  Eaxh fyund is managed separately 
by Janus Capital Corp. ("Janus Capital") and has its own objective and policies 
designed to meet different goals. "

Now overlooking the fact that Janus has decided to aggregate each of the individual 
funds into one investment company trust, you can see that Janus Investment Fund 
has hired Janus Capital Corp. to manage each of the funds.  Additionally, the 
prospectus later states that the Janus Service Corp, a wholly owned subsidiary 
of Janus Capital, is the subagent for the transfer agent and Janus Distributors Inc., 
another wholly owned subsidiary of Janus Capital, is the underwriter/distributor.  

32:  When should I sell a mutual fund?

While one could never hope to cover every circumstance that would warrant
the sell of a mutual fund investment (or any investment for that matter),
here are some sound reasons for considering parting with a particular
mutual fund holding.

The fund's style has changed.  If you have invested in a large-cap growth
fund and fund has begun investing in smaller, riskier investments it might
be time to shed this fund.  This can also operate conversely.  If your
fund's objective is to invest in emerging growth and begins becoming heavy
with large and medium cap stocks, you might want to shift your money into a
fund that more closely fits your investment objective.

The fund consistently lags behind.  A single quarter or year does not a bad
fund make but if your fund has consistently lagged its peers, you may want
to cut this one loose.  Also, it's important to keep in mind that you have
to make a fair comparison.  Do not compare your utility fund against the
S&P500.  Compare it against similar funds with similar objectives.  If you
find that your fund has underperformed its peer group over 1, 3 and 5 years
it's probably time to move on.

Management has changed hands.  While this factor alone is not truely
justification for moving your assets, it should send up a red flag for you
to scrutinize performance more closely.  Most funds have plenty of able
managers ready to take the helm but you should be diligent in making sure
that your new manager stays competitive with his/her peers.

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Last Update March 27 2014 @ 02:11 PM