Prospectus Tips

• Mutual fund companies are required to provide a legal document, called a prospectus, to investors who have purchased shares in their mutual funds. The U.S. Securities and Exchange Commission (SEC) encourages investors to request and read the fund's prospectus prior to making a decision to invest in the fund. A prospectus may appear to be long, tedious reading, but it contains important information and should not be skimmed over lightly. It helps if you know what information you should look for.

Types

• There are two primary types of prospectuses that may be provided by a mutual fund company. The statutory prospectus is the traditional prospectus that investors who have purchased mutual funds in the past may be familiar with. It is typically a paper document that includes all of the information required by the SEC, and is usually written in legal language which may be challenging for lay persons to understand. The summary prospectus is a short form document that may only be a few pages long. It is required to be in plain language. The summary prospectus provides investors with a thumbnail sketch of important information such as the fund's investment objectives, management fees, fund expenses, sales charges, risks, investment strategies and details regarding the fund's past performance. If you don't have the time or expertise to wade through the statutory prospectus, you should at least request and read through the fund's summary prospectus prior to making an investment.

Goals

• There are as many purposes for investing in a mutual fund as there are investors. It is important to determine what your investment goals are prior to considering investing in any fund. Goals, or investment objectives, may include capital preservation, current income, growth or a combination of these. Mutual fund companies are required by SEC regulation to clearly state in plain language the investment objective of each mutual fund at the beginning of the summary section of the fund's prospectus. You can save time by first comparing your goals with the fund's investment objective. If they don't match, you can move on to the next mutual fund on your list without having to read the rest of the prospectus.

Fees and Expenses

• Purchasing shares of a mutual fund involves more than the cost of the individual shares. One of the advantages of owning mutual fund shares is the professional management that comes with them. Professional management does not come free, and it usually doesn't come cheap. There are management fees that are paid by the fund to the fund's managers. There also are typically certain expenses associated with operating a mutual fund such as distribution fees, trading commissions, service charges and others. These expenses are also paid by the fund. Fees and expenses can have a significant impact on the fund's overall return, so once you have narrowed your choices down to a few funds, you should compare fees and expenses to determine which fund operates most efficiently. SEC regulations require mutual fund companies to include a table of fees right after the investment objectives section.