10/1/2008 9:00 AM ET|
Mutual fund documents, Part 2
FUNDS 109: A good shareholder report is like a biography in that it sets out what happened to the fund over the past quarter, 6 months or year, and why.
A mutual fund's shareholder report is part biography, part blueprint and part ledger book.
A good shareholder report is like a biography in that it sets out what happened to the fund over the past quarter, six months or year, and why. It's like a blueprint because it sets before you all the investments -- stocks, bonds and other securities -- that the fund has made. And it's like a ledger book because it discloses a fund's costs, profits and many other financial facts.
Mutual funds are required by the Securities and Exchange Commission to release a shareholder report at least twice a year, though some fund families publish them quarterly.
Not all of the following items are required by law to appear in a mutual fund's shareholder report. The SEC allows some of the information to be included in other documents, such as a fund's prospectus or Statement of Additional Information. However, a good report will contain all of the elements discussed below.
Letter from the president
Typically, the first item you'll find in a shareholder report is a letter from the president of the company that advises or manages your fund. The best letters will contain straightforward, useful discussions of the economic trends that have affected the markets during the past six or 12 months and provide some context for evaluating your fund. Poor letters, in contrast, will discuss anything but the current financial climate and the performance of the fund family's offerings.
Letter from the portfolio manager
This is a fund-specific examination of the recent performance -- and therefore much more important to you as a fund shareholder. Well-written shareholder letters discuss individual stocks that the fund owns and the industries in which the fund invested. A good manager letter will also explain what broad market trends might have fueled or hindered your fund's performance. Finally, most managers will give you an indication of what you can expect from the fund in the future, given an unchanged strategy.
Investors should demand a lot from shareholder letters, particularly in times of declining performance. If shareholder reports leave your questions unanswered, let your mutual fund company know.
Recent fund performance
The portfolio manager's report is generally followed by a discussion of recent performance. The report should compare your fund's performance to both a benchmark, such as the Standard & Poor's 500 Index ($INX) (the standard benchmark for large-company stock funds) or the Russell 2000 Index ($RUT.X) (for small-company funds) as well as to the average performance of funds with similar investment strategies.
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