The Individual Investor's Guide to Low-Load Mutual Funds
(c) 1996 by the American Association of Individual Investors
(312) 280-0170
Ticker: The ticker symbol for each fund is given for those investors who
may want to access on-line data with their computer or touch-tone phone.
The ticker is four letters and is usually followed by an "X," indicating that
this is a mutual fund. For example, the Acorn fund ticker symbol is
ACRNX.
Fund: Fund name.
Category:
00-IDX Index. Major indexes and category averages are provided as
performance benchmarks.
01-AG AGGRESSIVE GROWTH FUNDS - The investment objective of
aggressive growth funds is maximum capital gains. They invest aggressively
in common stocks and tend to stay fully invested over the market cycle.
Sometimes, these funds will borrow money to purchase securities, and some
may engage in trading stock options or take positions in stock index futures.
Aggressive growth funds typically provide low income distributions. This i s
because they tend to be fully invested in common stocks and do not earn a
significant amount of interest income. In addition, the common stocks they
invest in are generally growth-oriented stocks that pay little or no cash
dividends. Many aggressive growth funds concentrate their assets in
particular industries or segments of the market, and their degree of
diversification may not be as great as other types of funds. These investment
strategies result in increased risk. Thus, they tend to perform better than the
overall market during bull markets but fare worse during bear markets. In
general, long-term investors who need not be concerned with monthly or
yearly variation in investment return will find investment in this class of
funds rewarding. Because of the extreme volatility of return, however, risk-
averse investors with a short-term investment horizon may find that these
mutual funds lie well outside their comfort zones. During prolonged market
declines, aggressive growth funds can sustain severe declines in net asset
value.
02-Grth GROWTH FUNDS - The investment objective of growth funds is
to obtain long-term growth of invested capital. They generally do not
engage in speculative tactics such as using financial leverage. On occasion,
these funds will use stock or index options or futures to reduce risk by
hedging their portfolio positions. Growth funds typically are more stable
than aggressive growth funds. Generally, they invest in growth-oriented
firms that are more mature and that pay cash dividends. You are likely to
find companies such as Disney, PepsiCo, and McDonald's in the portfolios
of growth funds. The degree of concentration of assets is not as severe as
with aggressive growth funds. Additionally, these funds tend to move from
fully invested to partially invested positions over the market cycle. They
build up cash positions during uncertain market environments. In general,
growth fund performance tends to mirror the market during bull and bear
markets. Some growth funds have been able to perform relatively well
during recent bear markets because their managers were able to change
portfolio composition by a much greater degree or to maintain much higher
cash positions than aggressive growth fund managers. However, higher cash
positions can also cause the funds to underperform aggressive growth funds
during bull markets.
03-GI GROWTH AND INCOME FUNDS - Growth and income funds
generally invest in the common stocks and convertible securities of
seasoned, well-established, cash-dividend-paying companies. The funds
attempt to provide shareholders with significant income along with long-
term growth. They generally attempt to avoid excessive fluctuations in
return. One tends to find a high concentration of public utility common
stocks and sometimes convertible securities in the portfolios of growth and
income funds. The funds also provide higher income distributions, less
variability in return, and greater diversification than growth and aggressive
growth funds. Names such as equity-income, income, and total return have
been attached to funds that have characteristics of growth and income funds.
Because of the high current income offered by these kinds of funds,
potential investors should keep the tax consequences in mind.
04-Bal BALANCED FUNDS - The balanced fund category has become
less distinct in recent years, and a significant overlap in fund objectives
exists between growth and income funds and balanced funds. In general, the
portfolios of balanced funds consist of investments in common stocks and
substantial investments in bonds and convertible securities. The proportion
of stocks and bonds that will be held is usually stated in the investment
objective, but usually the portfolio manager has the option of allocating the
proportions between some stated range. Some asset allocation fundsófunds
that have a wide latitude of portfolio composition changeócan also be
found in the balanced category. Balanced funds are generally less volatile
than aggressive growth, growth, and growth and income funds. As with
growth and income funds, balanced funds provide a high dividend yield.
BOND FUNDS - Bond mutual funds are attractive to investors because they
provide diversification and liquidity, which may not be as readily attainable
in direct bond investments.
Bond funds have portfolios with a wide range of average maturities. Many
funds use their names to characterize their maturity structure. Generally,
short term means that the portfolio has a weighted average maturity of less
than three years. Intermediate implies an average maturity of three to 10
years, and long term is over 10 years. The longer the maturity, the greater
the change in fund value when interest rates change. Longer-term bond
funds are riskier than shorter-term funds, and they tend to offer higher
yields. Bond funds are principally categorized by the types of bonds they
hold.
05-B-Cor Corporate bond funds invest generally at least 70% of assets in
investment-grade corporate bonds of various maturities.
06-B-CHY Corporate high-yield bond funds provide high income and
invest generally at least 70% of assets in corporate bonds rated below
investment-grade.
07-B-Gov Government bond funds invest generally at least 70% of assets in
the bonds of the U.S. government and its agencies.
08-B-MB Mortgage-backed bond funds invest generally at least 70% of
assets in mortgage-backed securities.
09-B-Gen General bond funds invest in a mix of government and agency
bonds, corporate bonds, and mortgage-backed securities.
10-B-TE Tax-exempt bond funds invest in bonds whose income is exempt
from federal income tax. Some tax-exempt funds may invest in bonds whose
income is also exempt from the income tax of a specific state.
INTERNATIONAL BOND (12-IntlB) AND STOCK (11-IntlS) FUNDS -
International funds invest in bonds and stocks of foreign firms and
governments. Some funds specialize in regions, such as the Pacific or
Europe, and others invest worldwide. In addition, some funds usually
termed "global funds" invest in both foreign and U.S. securities. We have
two classifications of international funds international stock funds and
international bond funds and we provide a portfolio breakdown by
country. International funds provide investors with added diversification.
The most important factor when diversifying a portfolio is selecting assets
that do not behave similarly to each other under similar economic scenarios.
Within the U.S., investors can diversify by selecting securities of firms in
different industries. In the international realm, investors take the
diversification process one step further by holding securities of firms in
different countries. The more independently these foreign markets move in
relation to the U.S. stock market, the greater will be the diversification
benefit, and the lower the risk. In addition, international funds overcome
some of the difficulties investors face in making foreign investments
directly. For instance, individuals have to thoroughly understand the foreign
brokerage process, be familiar with the various foreign marketplaces and
their economies, be aware of currency fluctuation trends, and have access to
reliable financial information. This can be a monumental task for the
individual investor. There are some risks to investing internationally. In
addition to the risk inherent in investing in any security, there is an
additional exchange rate risk. The return to a U.S. investor from a foreign
security depends on both the security's return in its own currency and the
rate at which that currency can be exchanged for U.S. dollars. Another
uncertainty is political risk, which includes government restriction, axation,
or even total prohibition of the exchange of one currency into another. Of
course, the more the mutual fund is diversified among various countries, the
less the risk involved.
13-Gld GOLD FUNDS - Gold mutual funds specialize in investments in
both foreign and domestic companies that mine gold and other precious
metals. Some funds also hold gold directly through investments in gold
coins or bullion. Gold options are another method used to invest in the
industry. Mutual fund investments in precious metals range from the
conservative to the highly speculative. Gold and other precious metals
mutual funds allow investors interested in this area to invest in a more liquid and diversified vehicle than would be available through a direct purchase.
The appeal of gold and precious metals is that they have performed well
during extreme inflationary periods. Over the short term, the price of gold
moves in response to a variety of political, economic, and psychological
forces. As world tension and anxiety rise, so may the price of gold. In
periods of peace and stability, the price of gold may decline. Because gold
may perform in an inverse relationship to stocks, bonds, and cash, it may be
a stabilizing component in one's portfolio. Silver and platinum react in a
similar fashion to gold. Precious metals funds, like the metals themselves,
are very volatile, often shooting from the bottom to the top and back to the
bottom in fund rankings over the years. Investors should understand,
however, that because most gold funds invest in the stock of gold mining
companies, they are still subject to some stock market risk.
Family: Manages the investments, provides research advice, provides
various administrative services and manages the day to day business affairs.
In most cases, the advisor is a firm that is affiliated with or operated by the
officers of the fund.
Phone: The telephone number where investors can call to have specific
questions answered or to obtain a copy of the prospectus.
Fund Inception Date: The day the fund was made available to the public for
purchase.
Closed To New Investors: Fund shares were not available for sale to new
investors at the end of 1995.
Performance
Return (%): Return percentages for the periods below.
3yr Annual: Assuming an investment on January 1, 1993, the annual total
return if held through December 31, 1995.
5yr Annual: Assuming an investment on January 1, 1991, the annual total
return if held through December 31, 1995.
10yr Annual: Assuming an investment on January 1, 1986, the annual total
return if held through December 31, 1995.
Bull: This return reflects the fund's performance in the most recent bull
market, starting July 1, 1994, and continuing through December 31, 1995.
Bear: This return reflects the fund's performance in the most recent bear
market, from February 1, 1994, through June 30, 1994.
Differ from category (+/-): The difference between the return for the fund
and average return for all funds in the same investment category for the 3yr
Annual, 5yr Annual, 10yr Annual, Bull, and Bear periods. When the
difference from category is negative, the fund underperformed the average
fund in its investment category for the period by the percent indicated.
Category Percentage Rank: The percentage rank relative to all other funds
within the same investment category for the 3yr Annual, 5yr Annual, 10yr
Annual, Bull, and Bear periods. A rank of 80%, for example, would indicate
that the return is higher than 79% of all funds in the investment category for
that time period.
3 Year Annual Standard Deviation (%): A measure of total risk, expressed
as an annual return, that indicates the degree of variation in return
experienced relative to the average return for a fund as measured over the
last three years. The higher the standard deviation, the greater the total risk
of the fund. Standard deviation of any fund can be compared to any other
fund.
Total Risk Percent Rank (0% = Low Risk): The percentage rank of the total
risk of a fund relative to the total risk of all funds in the Guide as measured
over the last three years. A high total risk indicates that the fund was in the
group that had the greatest volatility of return for all funds, and a low total
risk puts it into the group with the lowest volatility of return. The range of
values is from 0% to 100% with a rank of 0% is low volatility, while 100%
is high volatility.
Category Percentage Risk Rank (0% = Low Risk): The percentage rank of
the category risk of a fund relative to the total risk of funds within the same
investment category as measured over the last three years. A high category
risk rank indicates that the fund was in the group that had the greatest
volatility of return within the investment category, and a low category risk
rank puts it into the group with the lowest volatility of return. The range of
values is from 0% to 100% with a rank of 0% is low volatility, while 100%
is high volatility.
Risk Index: A numerical measure of relative category risk, the risk index is
a ratio of the total risk of the fund to the average total risk of funds in the
category as measured over the last three years. Ratios above 1.0 indicate
higher than average risk and ratios below 1.0 indicate lower than average
risk for the category.
Beta: A risk measure that relates the fund's volatility of returns to the
market. The higher the beta of a fund, the higher the market risk of the fund.
The figure is based on monthly returns for 36 months. A beta of 1.0
indicates that the fund's returns will on average be as volatile as the market
and move in the same direction; a beta higher than 1.0 indicates that if the
market rises or falls, the fund will rise or fall respectively but to a greater
degree; a beta of less than 1.0 indicates that if the market rises or falls, the
fund will rise or fall to a lesser degree. The S&P 500 index always has a
beta of 1.0 because it is the measure we selected to represent the overall
stock market. Beta is a meaningful figure of risk only for well-diversified
common stock portfolios. For sector funds and other concentrated
portfolios, beta is less useful than total risk as a measure of risk. Beta was
not calculated for bond funds since they do not react in the same way to the
factors that affect the stock market. For bond funds, the average maturity of
the bond portfolio is more indicative of market risk than beta and is used in
place of beta.
Average Maturity (Years): For bond funds, average maturity in years is an
indication of market risk. When interest rates rise, bond prices fall and when
interest rates fall, bond prices rise. The longer the average maturity of the
bonds held in the portfolio, the greater will be the sensitivity of the fund to
interest rate changes and thus the greater the risk. The refinancing of
mortgages and the calling of outstanding bonds can affect average maturity
when interest rates decline.
Return (%), Years 1986 through 1995: This is a total return figure,
expressed as a percentage and was computed using monthly net asset values
per share and shareholder distributions during the year. All distributions
were assumed to have been reinvested on the reinvestment date (ex-dividend
date or payable date). Rate of return is calculated on the basis of the
calendar year. Return figures do not take into account front-end and back-
end loads, redemption fees, or one-time or annual account charges, if any.
The 12b-1 charge is reflected in the return figure.
Differ from category (+/-), Years 1986 through 1995: The difference
between the return for the fund and average return for all funds in the same
investment category. When the difference from category is negative, the
fund underperformed the average fund in its investment category for the
period by the percent indicated.
Dividends, Net Income ($),Years 1986 through 1995: Per share income
distributions for the calendar year.
Distrib'ns, Capital Gains ($),Years 1986 through 1995: Per share
distributions for the year from realized capital gains after netting out
realized losses. These distributions vary each year with both the investment
success of the fund and the amount of securities sold.
Net Asset Value ($),Years 1986 through 1995: Net asset value is the sum of
all securities held, based on their market value, divided by the number of
mutual fund shares outstanding.
Expense Ratio (%),Years 1986 through 1995: The sum of administrative
fees plus adviser management fees and 12b-1 fees divided by the average
net asset value of the fund, stated as a percentage. Brokerage costs incurred
by the fund are not included in the expense ratio but are instead reflected
directly in net asset value. Front-end loads, back-end loads, redemption fees,
and account activity charges are not included in this ratio.
Net Income to Assets (%),Years 1986 through 1995: The income of the fund
from dividends and interest after expenses, divided by the average net asset
value of the fund. This ratio is similar to a dividend yield and would be
higher for income-oriented funds and lower for growth-oriented funds. The
figure only reflects income and does not reflect capital gains or losses. It is
not total return.
Portfolio Turnover (%),Years 1986 through 1995: A measure of the trading
activity of the fund, which is computed by dividing the lesser of purchases
or sales for the year by the monthly average value of the securities owned by
the fund during the year. Securities with maturities of less than one year are
excluded from the calculation. The result is expressed as a percentage, with
100% implying a complete portfolio turnover within one year.
Total Assets (Millions $), Years 1986 through 1995: Aggregate fund value
in millions of dollars.
Portfolio Manager: The name of the portfolio manager(s) and the year when
the manager(s) began managing the fund are noted, providing additional
information useful in evaluating past performance. Funds managed by a
committee are so noted. For some funds, a recent change in the portfolio
manager(s) may indicate that the long-term annual performance figures and
other performance classifications are less meaningful.
Asset Allocation: Objective is to provide capital gains. Invest in a variable
mix of common stocks, convertible securities, bonds, and cash. While not
part of the objective, income may be a by-product of the investment
strategy.
Special Emphasis
Asset Allocation
Fund in Funds
Index
Sector
Small Cap
Socially Conscious
State Specific
Portfolio Information: Date of Portfolio Information, Stock (%), Bond (%),
Convertibles (%), Other (%), Cash (%): This information was obtained
directly from the fund's annual and quarterly reports. The portfolio
composition gives the percentage of the total portfolio invested in each.
Some funds employ leverage (borrowing) to buy securities, and this may
result in the portfolio total percent invested exceeding 100%.
Largest Holdings: This may indicate industries, types of securities,
government versus corporate bonds, for example, or in the case of
international funds, the percentages held by country. For municipal bond
funds the percentage held in general obligation bonds is indicated.
Unrealized Net Capital Gains/Losses (%):Indicates percentage of current
portfolio that represents net unrealized capital gains (or losses) and potential
capital gains distributions.
Minimum Initial Investment ($), Minimum Subsequent Investment ($): The
minimum initial and subsequent investments, by mail, in the fund are
detailed. Minimum investment by telephone or by wire may be different.
Often, funds will have a lower minimum IRA investment.
Maximum Load (%), Load Type: The maximum load is given, if any, and
whether the load is front-end or back-end is indicated.
12b-1 Fee (%): If a fund has a 12b-1 plan, the maximum amount that can be
charged is given; service charges, if any, are included in the 12b-1 charge
figure.
Other Fees: Charges, such as an annual account fee or an account start-up
fee, are noted. Redemption fees are given along with the time period, if
