Once
an investor makes a decision to purchase shares of a mutual fund, all aspects
of the fund must be fully understood. Under the Securities Act of 1933, new issues
of a security must be registered with the Securities and Exchange Commission and
a prospectus must be provided to all purchasers of the new issue. Mutual funds
are always considered a new issue, therefore; the requirement to provide a prospectus
is continuous. A prospectus must be delivered to the purchaser prior to or at
the time of the sale. The different
sections of a prospectus are listed and described below:
Cover
This section names the mutual fund and provides the purchaser with the address
and the phone number of the fund. In addition, it gives an overview of what the
fund objective and investment policies are and contains the SEC's no-approval
clause (or disclaimer).
Inside Front Cover
This section gives a hypothetical expense statement
of the fund, showing the cost of ownership over one, three, five, and 10-year
periods of time.
The
next page gives a more detailed analysis of the objectives and investment policies
and a list of investment restrictions.
Disclosures
of Management and Advisory Contract
This section discloses the investment
advisor , their location, principal duties and responsibilities, as well as the
term of the contract. The management fee is usually found in this section as well.
Listing of Executive Officers and Directors
This section lists the executive
officers and directors of the fund. Regulations state that the Board of Directors
of a mutual fund shall not have more than 60% of affiliated persons on the board.
This means that 40% of the board members consist of people who do not have a position
or affiliation with the fund.
How to Purchase Shares of the Fund
This section describes how to go about
purchasing shares of the fund. Orders received prior to the close of the exchange
(4:00 p.m. eastern time) are executed, at the public offering price, as of 4:00
p.m. that same day. Orders received after the close of the exchange will be executed
at the public offering price as of the close of exchange the next day.
How a Mutual Fund is Valued
This section describes how a share of a mutual
fund is valued, when it is valued, and what the purchaser must pay for a share.
(Calculated at net asset value per share (NAV), or the worth of the portfolio
at the end of each trading day, on a per share basis).
Sales Charges
This section describes exactly how sales charges are determined
and what comprises the various percentages of the sales charges.
Redemption of Shares
This section describes the fact that a mutual fund
shareholder has the ability to redeem shares of the fund. By law, mutual funds
must be ready and willing to redeem shares that they issue, should the shareholder
order a redemption. Redemptions take place at the NAV and payment must be made
to the shareholder within 7 days.
Reinvestment Privileges
This section describes the various reinvestment
options available in regard to dividends and capital gains: reinvest in additional
shares of the fund, or, dividends paid in cash and capital gains reinvested in
additional shares of the fund, or, dividends and capital gains paid in cash.
Systematic Withdrawal Plan
This section describes a system that can be
established so that the shareholder can receive a fixed payment, at a stated interval,
from shares of the fund. This system primarily benefits those individuals who
wish to withdraw a specific amount, in order to meet financial needs, while leaving
the balance of the principle invested in the fund.
Dividends, Capital Gains Distributions, and Tax Status
This section describes
how a fund will provide a statement each year describing the tax status of the
funds' dividends and capital gains distributions. The investor is not responsible
for figuring this information.
Financial Statements
The financial statements of the fund can be located
in the final section. These statements usually consist of, but are not limited
to: a listing of every security in the portfolio, statements of investment income
and capital gains, the statements of assets and liabilities, and statements of
any changes to the net assets of the fund over the last 12 months.
A
prospectus contains the answers to most questions that an investor might have
about a particular mutual fund. After having read a prospectus thoroughly and
carefully, a potential buyer should have a detailed understanding of what makes
up a mutual fund and how that mutual fund works. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.
All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. |
