INVESTING
Mining the Nuggets in Your Mutual Fund Statement
Decision Center
..........................................
WEB LINK
Ask the Experts
..........................................
SIDEBAR
Reading the Annual Report
..........................................
GLOSSARY
Proxy Statement
A mutual fund is not required to hold an annual meeting each year. But it must do so if it wants to make changes in investment policy or in the investment advisory contract or sometimes if it needs to elect new directors. If the fund plans to do any of these things, it must issue a proxy statement to announce the meeting and the agenda. If you receive a proxy statement in the mail, look carefully for changes in investment policy and changes in investment management fees. You can vote against them if you are opposed.
..........................................
GLOSSARY
PROSPECTUS
A prospectus is a formal, written offer to sell a security, which must disclose certain important information about the security. A mutual fund prospectus discusses the fund's history, investment objectives, performance and management. Every mutual fund is required to publish a prospectus, which is offered free to anyone who requests it.
f you're like most investors, you probably glance at the statements you receive in the mail from your mutual fund company to check your balance and then toss them in a drawer - or in the trash.
Wait! There's some good information here.
"There's been a big change in statements over the past couple of years," says Steven E. Norwitz, vice president at T. Rowe Price, the Baltimore-based fund company. "They include a great deal of information that is helpful in investment and tax planning."
Here's what you can expect to receive from fund companies on a regular basis:
n
A confirmation statement each time you make an additional purchase
n
An annual and semi-annual report and a proxy statement if the fund plans to hold an annual meeting
n
A copy of the prospectus each year.
Each of these documents has information that will help you become a better investor. Here's what to look for:
Compare your funds to a "benchmark"
A change in the value of your account over the period is an obvious one. But it doesn't tell you much in isolation. You want to compare your funds to a benchmark, such as one of the commonly followed indexes. For instance, if you hold funds that buy large-company stocks in the United States, compare them with the Standard & Poor's 500 stock index. Small-company funds can be compared with the Russell 2000.
An even simpler alternative is to use the Vanguard index fund that follows that index as your benchmark. So for a large-company fund, you would compare performance to the Vanguard Index 500 Trust. Your small company funds can be compared with the Vanguard Index Small Cap Stock. It's easier because these numbers are listed in the newspaper each business day.
Morgan Stanley, the investment banking firm, compiles a number of specific indexes - one for Europe, one for emerging markets and so forth that you can use as benchmarks for your international funds. Vanguard has funds that follow these indexes, too. So you might compare a fund that invests in Europe with the Vanguard International Equity Index European and one that invests in emerging markets with the Emerging Markets Index.
By utilizing Microsoft Investor's Research Central and other services, you can see how your fund stacks up against various indices. Don't sell your fund just because it lags behind a particular index over one reporting period. That is simply a signal for you to look more carefully at what the fund is doing by reading the annual report.
For tax purposes, note any shares sold
The easiest way to do this is to keep the statement. It provides a type of receipt of how the fund manager is changing and revising his or her holdings. It also allows you to see if the fund manager waffles with the wind.
Check your asset allocation
Most statements provide a little box in the corner that looks like this:
Portfolio Allocation
Money market - 10 percent
Fixed income - 15 percent
Balanced - 10 percent
Equity - 65 percent
Fixed income - 15 percent
Balanced - 10 percent
Equity - 65 percent
Check your current statement against the last one to see how the allocation might have changed.
You should not make impulsive decisions based on one statement that you receive. But you should be developing a strategy for when you will sell a fund and for when you will "rebalance."
Rebalancing simply means bringing your asset allocation back in line with your goals.
The financial statements that fund companies provide don't tell you everything, but they do provide valuable insights into how your money is being managed and whether it is time to buy more - or get out. 
How do I track the performance of my investments?
Articles
|
Next Steps
|
Copyright 1998 Microsoft Corporation