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Mutual fund prospectus

Every mutual fund purchased should come with a detailed report that is called a prospectus. This report is important to understand the goals and objectives of the fund in question. The prospectus is the key selling point of the fund; as investors are looking for sound investments strategies to make sure their investment in the fund will bring about capital gain. Investors should not only look for investment strategies, they should be looking at the amount of risk taking that is being done in the funds investments. Investors will want to know the fees and expenses as well as the past performance of the mutual to gauge its current and future performance potential.

The mutual funds prospectus will also provide the names of the current managers and advisors as well as a description of the company and its activities. Instructions will be given on how to purchase and redeem shares. Once the mutual funds are purchased, the prospectus then becomes a powerful instrument likened to an owner's manual, or reference guide.

The prospectus will be sectioned off into different categories to make reading and understanding simpler.

The first piece of information that will be recorded is the date of issue, which is found on the front cover. Since updates are done annually, it is important to that the investor make sure to read the current copy.

The Risk/Return Bar Chart and Table is a handy quick outline of the mutual fund's total annual returns for the past 10 years of operation, or the total operation of the fund if is younger than that. In the case of a multiple class fund, the bar and table usually shows the performance of one of the classes within the entire group.

It is also important to read the footnotes at the bottom put forth to help add clarification and understanding to the information put forth in the bar graph and table.

Following that table, there will be a fee table. This table is designed to provide the expected annual fees and expenses, including: shareholder fees, and the fund's annual operation costs.

The financial information section will include the official audited information for the past 5 years including net assets, total returns, the ration of expenses to average net assets, ratio of net income to average net asses, the turnover rate for the portfolio and more.

The shareholder section stipulates how to purchase and redeem shares. This section is extremely important because the terms and conditions may vary from fund to fund. For example, shareholders will need to know if they must maintain a minimum account balance. This section will stipulate the first as well future purchasing requirements, and tax requirements for buying, selling or exchanging the funds shares.

The file number on the back page is important for retrieving other documents that have been filed with the Security Exchange Commission.

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