BUFN722-ch05.ppt

BUFN722- Financial Institutions ch5 - 1

BUFN 722

ch-5Mutual Funds


Overview

• In this segment ... Mutual Funds:Activities of mutual fundsSize, structure and compositionBalance sheets and recent trendsRegulation of mutual fundsGlobal issuesHedge funds*


Mutual Funds

• Open-ended• Closed-end• End of 2000:

More than 7,100 stock and bonds mutual companies.

Total assets of $5.12 trillion.8,200 firms and $6.97 trillion if money market

mutual funds included


Size, structure and composition

First mutual fund: Boston, 1924.Slow growth, initially.Advent of money market mutual funds, 1972.

• Regulation Q.Total assets in stock and bond mutual funds:

• 1940: $0.4 billion.• 1990: $568.5 billion• 2000: $5,120.0 billion.


Size, Structure and Composition

By asset size, mutual fund industry second most important FI group.

Recent inroads by commercial banks and insurance companies

• Mellon purchase of Dreyfus• State Farm (9,000 agents)


Types of Mutual Funds

• Long-term funds (71.0% of assets, 2000)Bond and income funds.Equity funds.Hybrid

• Short-term funds (29.0% of assets, 2000)Taxable and tax-exempt MMMFsGenerally higher returns than bank deposits but

uninsured.


Number of Mutual Funds

Year Equity Hybrid BondTaxable

MM

Tax-exempt

MM80 288 N/A 170 96 10

90 1,116 203 1,024 508 235

00 4,395 525 2,210 704 337


Overview of Mutual Funds

Objectives (and adherence to stated objectives), rates of return and risk characteristics vary.

• Examples:Aggressive growth fundsGrowth fundsPrecious metalsWorld


Returns to Mutual Funds

Income and dividends of underlying portfolio.Capital gains on trades by mutual fund

management.Capital appreciation in values of assets held in

the portfolio.• Marked-to-market.• Net-asset value (NAV).


Types of Funds

Open-ended funds: contrast with most corporate securities traded on stock exchanges.

Closed-end investment companies:Fixed number of shares

• Example: REITs.• May trade at premium or discount.

Load versus no-load funds.


Mutual Fund Costs

• Two types of fees:Sales loads

• Generally, negative effect on performance outweighs benefits

Fund operating expenses• Management fee• 12b-1 fees


Mutual Fund Share Quotes

• Quotes include:Fund name, Objective, Minimum investment

required, Asset size, Maximum initial and exit sales charges, Annual expenses, NAV, Dividends , Quarterly earnings,

One-through five-year rating (A through E).


Balance Sheet and Trends

• Money Market FundsKey assets are short-term securities (consistent with

deposit-like nature)• 2000: $1,303.9 billion (71.9% of total assets)

Many have share values fixed at $1 and adjust number of shares owned by the investor.


Balance Sheet and Trends

• Long-term FundsStocks comprise over 72.8 % of asset portfolios

in 2000. Shift to U.S. Treasuries, municipal bonds etc.

when equity markets not performing as well.


Regulation

One of the most closely regulated among non-depository FIs.

Primary regulator: SEC• Emphasis on full disclosure and anti-fraud

measures to protect small investors.• NASD supervises mutual fund share

distributions.


LegislationSecurities Act 1933, 1934Investment Advisers Act, 1940.Insider Trading and Securities Fraud Enforcement

Act of 1988.Market Reform Act of 1990

• Allows SEC to halt trading and introduce circuit breakers.

National Securities Markets Improvement Act of 1996.

• Exempts mutual fund sellers from state securities regulatory oversight.


Mutual Funds Overview

• Mutual funds are financial intermediaries that pool the financial resources of investors and invest those resources in diversified portfolios of assets

• Enjoy economies of scale by incurring lower transaction costs and commissions

• Shareholder services offered include free exchanges of investments between a company’s funds, automatic investing, check-writing, automatic reinvestment of dividends, and automatic withdrawals

• As of January 2000, more than 7,800 mutual funds held total assets of $6.8 trillion


Investment company - economic motivation

• Investment company is financial intermediary that pools funds of market participants & uses funds to buy a portfolio of securities

• perform 5 economic functionsmaturity intermediationrisk reduction via diversificationdenomination intermediationlower costs of contracting & information processingpayments mechanism


Background on Mutual Funds

• Mutual funds offer a way for small investors to diversify when they could not do so on their own with the purchases of individual stocks

• Comparison to depository institutionsLike depository institutions, mutual funds

repackage proceeds from individuals to make investments

Bank deposits are a form of credit but a mutual fund represents partial ownership


Investment Co - Mutual Fund• continuously stand ready to sell new shares to

public & redeem outstanding shares on demand at a price equal to the net asset value (NAV), which is computed daily at close of market. NAV = total asset value minus liabilitiesprice quoted on bid-offer basis. Offer price =

NAV per share + any sales commission (sales commission called “load”)

no-load - not charge commission - Vanguardback-end load - fee to sell (redeem) shares12b-1 fund charge < 1.25% of avg.. daily fund assets

each year to cover costs of selling shares


Historical Trends

• First mutual fund established in 1924• Advent of money market mutual funds in 1972

as investors looked for ways to earn market rates on short-term funds

• Tax-exempt money market mutual funds introduced in 1979

• Special-purpose equity, bond, emerging market, and derivative funds exploded on the scene during the 1990’s bull market


Growth of the Mutual Fund Market

02,0004,0006,0008,000

10,00012,00014,00016,000

1950 1960 1970 1980 1990 1998

Shareholders (10 thou.'s) No. of CompaniesAssets ($ Bn.)


Types of Mutual Funds

• Long TermEquity funds - funds consisting of common and

preferred stock securitiesBond funds - funds consisting of fixed-income

capital market debt securitiesHybrid funds - funds consisting of stock and

bond securities• Short Term

Money market mutual funds - funds consisting of various mixtures of money market securities


Mutual Fund Prospectuses and Objectives

• Regulations require mutual fund managers to specify the investment objectives of their funds in a prospectus available to potential investors

• The prospectus includes a list of the securities that the fund holds and the investment objectives (i.e., aggressive growth funds, high-growth and high-risk securities)

• The SEC is proposing an initiative to require mutual funds to disclose more information about their return risk as well as the returns themselves to better enable investors to compare


Background on Mutual Funds• Information contained in a prospectus

The minimum amount of investment requiredThe investment objective of the fundThe return on the fund over the past year, the

past three years and the past five yearsThe exposure of the fund to various types of riskServices the fund offers (e.g., check writing,

telephone transfer, etc.)The fees incurred and passed on to investors

ch5 - 26

Investor Returns from Mutual Fund Ownership• The return for the investor reflects three aspects of the

underlying portfolio of mutual fund assetsportfolio earns income and dividends on those assetsexperiences capital gains sells an asset at a higher pricecapital appreciation in the underlying values of its existing

assets adds to the value of mutual fund shares• Marked to market - asset and balance sheet values

adjusted to reflect current market prices• NAV - the net asset value of a mutual fund -- equal to

the market value of the assets in the mutual fund portfolio divided by number of shares outstandingEstimated daily

• Determine the market value of all the securities in the fund• Add interest or dividends; subtracted expenses• Divide by the number of shares


Calculation of NAV

Calculation of NAV on an Open-End Mutual Fund

NAV = Total market value of assets under management Number of mutual fund shares outstanding

Open-end mutual fund - a fund for which the supply of shares is not fixed but can increase or decrease daily with purchases and redemptions of sharesClosed-end investment companies - specialized investment

companies that have a fixed supply of outstanding shares but invest in the securities and assets of other firms

REIT - a closed-end investment company that specializes ininvesting in mortgages, property, or real estate shares


Open-End versus Closed-End Funds

• Closed-end fundsDo not repurchase the shares they sellInvestors must sell shares on an exchangeNumber of outstanding shares is constant

• Open-end fundsWilling to repurchase investor shares at any

timeNumber of shares outstanding does not remain

constant


Mutual Fund Costs

• Mutual funds charge shareholders a price or fee• Two types of fees are incurred by investors

Load versus No-load Funds• Load fund - a mutual fund with an up-front sales or commission

charge that the investor must pay• No-load fund - a mutual fund that does not charge up-front sales

or commission charges on the sale of mutual fund shares to investors

Fund Operating Costs• annual fees charged to cover all fund level expenses experienced

as a percent of fund assets


Assets in MMMFs, 1999 Q2 (in $B)

Total financial assets $1,398.1Foreign deposits 45.1Checkable deposits andcurrency

- 1.8

Time and savings deposits 137.5Security RPs 139.3Credit and Market instruments 1,002.1 Open-market paper 468.9 U.S. government securities 240.9 Treasury 84.0 Agency 156.9 Municipal securities 196.4 Corporate and foreign bonds 95.9Miscellaneous assets 75.9


Regulation• This industry is heavily regulated to protect investors• SEC is the primary regulator

Securities Act of 1933 requires a mutual fund to file a registration statement with the SEC

Securities Exchange Act of 1934 makes the purchase and sale of mutual fund shares subject to various antifraud provisions and appointed the National Association of Securities Dealers (NASD) to supervise

Investment Advisers Act and Investment Company Act of 1940 established rules to prevent conflicts of interest, fraud, and excessive fees or charges

Insider Trading and Securities Fraud Enforcement Act of 1988 requires mutual funds to develop mechanisms and procedures to avoid insider trading abuses

Market Reform Act of 1990 allowed the SEC to introduce circuit breakers NSMIA of 1996 also applies to mutual funds


• III. Investment Companies• Investment firms offer investment expertise and

portfolio • diversification.

A. Face-Amount Certificate Companies• These companies issue certificates which promise a specific

amount on the maturity date.• The investor makes periodic payments. • These firms are not subject to depository regulatory structure and

are not insured.B. Unit Investment Trusts

• This is an investment vehicle which issues redeemable units of securities.


C. Investment Management Companies• Investment management companies are none of the above. These firms

are also called mutual funds.• Closed-end funds have a fixed number of shares. Shares are traded at

prices above or below asset value.• The number of shares of an open-end company varies as new shares are

sold and other shares are redeemed. Shares are redeemed at net asset value.

• Open-end funds have total assets 20 times greater than closed-end funds.• They are mutual firms that rely on a sponsor or promoter to be established

and have a complex organizational structure.

• The board of directors is responsible for overseeing contractors as:- investment advisor- fund administrator- transfer agent- custodian

•


D. Regulations Applicable to All Investment Companies

• The SEC is responsible for the investment company industry.

• Customers are protected by the Security Investor Protection Corporation (SIPC).

• Under Subchapter M of the Internal Revenue Code, if a fund distributes capital gains and dividend income, it is not taxed, but owners are subject to taxation.


Investment Company

E. The Size of Investment Company Business

• At the end of 1998, there were 7,314 different mutual funds in the U.S. Fund families have become increasingly important.

• The past two decades saw massive growth in the mutual fund sector. From 1980 to 1993 the number of accounts grew from 12 million to 200 million, while assets rose from $135 billion to over $5.5 trillion.


F. Money Market Funds• Money market funds made their appearance in 1972 to exploit interest rate

ceilings on deposits.• Money market funds invest in high quality, short-term money market

instruments.• Money market funds are not backed by federal deposit insurance.

G. Performance of Mutual Funds• Mutual funds offer the investor ease of diversification.• Most studies have shown that mutual funds on average perform no better than

portfolios based upon random selection.• Expenses associated with funds vary substantially. In addition, expense

categories differ: front-end loads, 12b1, fees, and annual expenses charged by subcontractors.

H. Exchange Traded Funds• Mimics the price performance and dividend yield of a basket of

stocks.• Trades like a regular stock on a listed exchange; trades in the

secondary securities market at negotiated prices.• Examples: S&P 500 SPDR (SPY), Nasdaq-100 Trust (QQQ),


Benefit of ETF (exchange traded funds)• Convenience – desired market exposure in a single trade

• Liquidity – underlying institutional market provides arbitrage

• Diversification and variety - broad based market indexes - market capitalization strata - sector and industry - style (value / growth) - international

• Trading Advantages – trade intraday, marginable, shortable

• Tax Efficiency – generally minimize taxable events to shareholders

• Generally lower management fees compared to active mutual funds or index mutual funds means better net returns to shareholders


Tax efficiency of ETF• Structural - “In-kind” distribution of low cost

basis stock to institutional creation / redemption units - this tax efficiency is just like other RICs today (index mutual funds and UITs) - greatly affected by structure of underlying stock index

• Strategic - Tax Loss Harvesting• There are two broad reasons why ETFs offer tax efficiency: structural

and strategic.The first is that they share an “in-kind” redemption process similar to index mutual funds today.This feature enables the fund manager to distribute low cost basis stock to institutional shareholders in the fund.Secondly, they can offer the ability to tax loss harvest.This means that an investor can collect tax losses in individual stocks and replace them with a similar performing ETF.


Potential Costs & Constraints of ETF• There are several potential constraints and costs of ETFs.• When you own ETFs, you must pay management fees. They

are not free to own.• There are brokerage costs associated with transacting in

ETFs.• They can still pay capital gains distributions, although these

tend to be lower than mutual funds.• Liquidity is a concern in thinly-traded ETFs.• The most popular ETFs are the most liquid equity

investments in the world.• Some funds have restrictions that do not permit them to hold

other funds. ETFs will likely not exactly meet the performance of their benchmark – the degree of error is called “phantom tracking error”.


Structure of ETFs• Unit Investment Trust (UIT) • - Examples: S&P 500 SPDR (SPY), Nasdaq-100

Trust (QQQ), S&P 400 Midcap SPDR (MDY), Select Sector SPDRs

• Open-Ended Mutual Fund (1940 Investment Company Act Fund) - Examples: iShares, VIPERs

• Grantor Trusts - Examples: Merrill Lynch HOLDRs - Not technically ETFs

There are three broad classes of ETF structure. UITs are the older, more established funds, like the various SPDRs. Almost all newer versions of ETFs will come to market in an open-

ended mutual fund form, like the iShares and Vanguard’s VIPERs. Grantor Trusts like Merrill’s HOLDRs are not technically ETFs, but

they do share many features in common.


Large EFT (1/25/02)• assets ($)• SPY SPDR (S&P depository receipts) 29,243,887,050• QQQ Nasdaq 100 trust 21,183,511,000• MDY Midcap SPDRs 5,116,628,480• IW iShares S&P 500 3,672,825,000• DIA Diamond Trust DJIA 3,154,245,600• IWM iShares Russell 2000 2,215,580,000• VTI Vanguard total index VIPERS 1,443,932,000• XLK Technology select SPDR 1,415,931,000• IW iShares Russell 3000 1,297,088,000• EFA iShares MSCI EAFE 992,440,000


Registered Investment Company (RIC) Rules

• 1.No security greater than 25% of the Fund, measured quarterly• 2.The 5/50 Rule: All securities greater than 5% cannot sum to

be greater than 50% of the Fund. • Penalties are onerous• Examples of rebalancing problems: iShares Sweden (EWD) –

Ericsson iShares Canada (EWC) – Nortel• What are the RIC rules?• There are two.• The first rule is that no security can be greater than 25% of the fund.• Also, if you sum the securities that represent more than 5% of the fund, they cannot

sum to more than 50%.• The penalties are onerous. Fund companies can violate 33% of their net income to

the IRS.• Here are two examples of large cap stocks that disrupted RIC rules in several

international funds. iShares Sweden (EWD) – Ericsson iShares Canada (EWC) – Nortel


What’s new in ETFs?• Fixed income ETFs – applications have been filed

with the SEC - problems related to liquidity and credit risk of underlying issues

• Actively Managed ETFs – SEC has floated a Concept paper - problems related to transparency

• What’s new in ETFs? Fixed income ETFs are due “in short order”, according to the SEC.

• There are some serious issues to get resolved related to liquidity and the credit risk of the underlying securities in the fund.

• The SEC is now considering proposals for actively managed ETFs.• There are tremendous problems here related to transparency.• How can the institutional market know how to deal with the NAV?

ch5 - 44

Exchange traded fund glossary• Closed end fund: A type of mutual fund. Like ETFs, closed-end funds differ from open-end

mutual funds in that they trade throughout the day over an exchange. Unlike ETFs, however, they have no mechanism to prevent them from trading at substantial premiums or discounts to their net asset values.

• Commission The fee you pay a broker to buy or sell a security, such as a stock or an ETF, for your account. The charge is typically assessed on a per-trade basis. You do not need to pay a commission to buy or sell no-load, open-end mutual funds, giving them a cost-advantage over ETFs for investors who plan to invest regular sums of money or who trade frequently.

• Creation Unit The smallest block of ETF shares that can be bought or sold from the fund company at net asset value, usually 50,000. These are only bought and sold "in-kind." For example, when you sell one, you receive a portfolio of securities that approximates the ETF's holdings, not cash. Creation units' size means that only market makers and institutions can afford to buy or sell them. All other investors can buy or sell ETF shares in any size lot at the market price, rather than at NAV, over an exchange.

• DIAMONDs Shares in an ETF, Diamonds Trust Series I, that track the Dow Jones Industrial Average. The fund is structured as a unit investment trust. Discount to NAV Unlike regular open-end mutual funds, which are bought and sold directly from the fund company at the net asset value (NAV) of their portfolio securities, ETFs and closed-end funds trade at prices determined by the market forces of supply and demand. A fund that trades at a price less than its NAV is said to trade at a discount to its NAV.

• Exchange-traded fund (ETF) The broad class of funds, excluding closed-end funds, which trade throughout the day over an exchange. ETFs have low annual expenses, but you must pay commissions to trade them. ETFs do not redeem shares for cash, and thus do not need to sell securities (possibly realizing capital gains) to pay investors who redeem their shares. They are typically more tax-efficient than mutual funds. Unlike closed-end funds, ETFs market prices usually closely track their NAVs. Most ETFs are index funds.

• Expense ratio The annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of the fund's average daily net assets. This ratio includes such items as the management fee, trustee's fee, license fee, and 12b-1 fee, among others. It does not include the commissions you must pay to buy and sell ETF shares, or the costs incurred by the fund in trading its securities. HOLDRs do not express their fees as expense ratios, but instead charge a flat quarterly fee per 100 shares.


ETF glossary, cont.• HOLDRsHolding company depository receipts, a type of ETF marketed by Merrill Lynch.

Unlike other ETFs, HOLDRs can only be bought and sold in 100-share increments. HOLDRs do not have creation units like other ETFs, but investors may exchange 100 shares of a HOLDR for its underlying stocks at any time. Existing HOLDRs focus on narrow industry groups. Each initially owns 20 stocks, but they are unmanaged, and so can become more concentrated due to mergers, or the disparate performance of their holdings.

• iSharesA group of ETFs advised and marketed by Barclays Global Investors. iShares are structured as open-end mutual funds.

• Market return The total return of an ETF based on its market price at the beginning and end of the holding period. This may be different from the ETF's NAV return. The market return is the return actually earned by ETF investors, except for those who hold creation units.

• Market price The price of an ETF as determined by the market forces of supply and demand. Unlike regular open-end mutual funds, which are always bought and sold at NAV, the market price may differ from NAV. Most ETFs typically trade at market prices near their NAVs.

• Net asset value (NAV) The value of each share of a fund as determined by the value of its underlying holdings, including any cash in the portfolio. NAV is calculated by dividing a fund's total net assets by its number of shares outstanding. Shares in regular open-end mutual funds are bought and sold at NAV, but shares in ETFs (with the exception of creation units) are bought and sold at the market price, which can differ from NAV. NAV returnThe total return of an ETF, based on its NAV at the beginning and end of the holding period. This may be different from the ETF's market return. The market return, not the NAV return, is the return actually earned by ETF investors, except for creation units.

• Open-end fundThe typical mutual-fund structure, and one used by several groups of ETFs, including iShares and Select Sector Spiders. This structure allows the funds to reinvest their dividends immediately, which could permit them to hold slightly less cash than ETFs that are structured as unit investment trusts.

ch5 - 46

ETF glossary, cont.• Premium to NAV Unlike regular open-end mutual funds, which are bought and sold

directly from the fund company at the net asset value (NAV) of their portfolio securities, ETFs and closed-end funds trade at prices determined by the market forces of supply and demand. A fund that trades at a price higher than its NAV is said to trade at a premium to its NAV.

• Qubes (QQQ)The Nasdaq-100 tracking stock, an ETF that tracks the technology-laden Nasdaq-100 index. The popular name, Qubes, derives from the ETF's ticker symbol, QQQ. Qubes are structured as unit investment trusts. Qubes are by far the most heavily traded ETF.

• Spiders SPDRs, or Standard & Poors' Depository Receipts. A group of ETFs that track a variety of Standard & Poors' indexes. SPDR Trust, Series 1, usually referred to as "Spiders," tracks the S&P 500 index. Select Sector SPDRs track various sector indices that carve up the S&P 500 index into separate industry groups. SPDR Trust, Series 1 is structured as a unit investment trust, but Select Sector SPDRs are open-end funds.

• StreetTracks A group of ETFs managed by State Street Global Advisors. These ETFs track various indexes, including Dow Jones style-specific and global indexes, technology indexes from Morgan Stanley Dean Witter, and the Wilshire REIT index. StreetTracks are open-end funds, not unit investment trusts, and trade on the American Stock Exchange.

• Unit investment trust A structure used by some ETFs. One important difference between this format and the open-end fund format is that the latter allows ETFs to reinvest dividends immediately, while the former does not. This could result in ETFs that use the unit investment trust structure having a slight cash drag on their performance.

• VIPERs Vanguard Index Participation Receipts ETF versions of several Vanguard index funds. VIPERs are structured as share classes of existing open-end funds. The only VIPER currently available is the Vanguard Total Stock Market VIPER, but Vanguard plans to launch others.


Stock Mutual Fund Categories• Growth funds for investors who want high returns with moderate risk

Invest in companies that expect to grow at a higher than average rateGenerate an increase in investment value rather than steady income

• Capital appreciation or aggressive growth fundsHigh but unproven growth potential stocksHigher risk

• Growth and income funds try to offer growth but with some stability of income (dividends)

• International and global funds allow investment in foreign securities without the costs involved in purchasing and monitoring individual stocksReturns affected by stock pricesReturns also affected by foreign exchange rates

• A global mutual fund invests in some U.S. stocks as well as foreign


Stock Mutual Fund Categories• Internet funds focus on investments in

Internet companies• Specialty funds focus on a group of

companies sharing a particular characteristic• Index funds are designed to simply match

the performance of an existing stock index• Multifund funds invest in a portfolio of

different mutual fundsMore diversified Involves higher expenses


Bond Fund Investment Objectives

• Risks in bond fundsInterest rate riskCredit risk

• Tax implications of bond fund investments• Income funds vary in terms their exposure to

credit risk and focus on periodic coupon payments and attract investors who areInterested in periodic income since prices are

volatilePlan to hold the fund long term


Bond Fund Investment Objectives

• Tax-free funds for high tax bracket investors (can be structured to be state income tax-free as well as federal)

• High-yield or junk bond funds invest in bonds with a high risk of default

• International and global bond funds International bond funds contain bonds issued by

governments or corporations from other countriesGlobal funds may contain both U.S. and foreign bonds


Bond Fund Investment Objectives• Maturity classificationsInterest rate sensitivity depends on the maturity of

bondsFunds are typically segmented based on maturity

• Intermediate-term funds invest in bonds with 5 to 10 years remaining to maturity

• Long-term funds invest in maturities of 15 to 30 years

• Asset allocation fundsFunds that contain a variety of investmentsComposition among stocks, bonds and money market

securities is based on manager’s expectations


Hedge Funds*

• Not technically mutual fundsNot subject to SEC regulationOrganized as limited partnershipCommon feature is use of leverage

• High returns in 1990s• Near collapse of Long-Term Capital

Management$3.6 billion bailout


Hedge Funds• Financial problems experienced by Long-Term Capital Management (LTCM)Hedge funds sell shares to wealthy investors and

financial institutionsHistorically unregulatedInvest in derivatives, sell stock short and combine

borrowing to magnify returns• LTCM experienced problems when risky

investments lost money - rescue 1998• financial leverage - in 1998, $5 bil. in equity & $150 bil. in

debt to support $150 bil.portfolio; overall leverage higher than 25:1 because of derivative positions.


Real Estate Investment Trusts

• A real estate investment trust or REIT is a closed-end mutual fund that invests in real estate or mortgages

• ClassificationsEquity REIT (real estate)Mortgage REITHybrid of the two

• Sometimes seen as an inflation hedge• Performance influenced by interest rates


Investment co - Unit trust

• # of unit certificates is fixed (~closed end)• differences unit trust vs. closed & open-end

fundsno active trading of bonds in portfoliofixed termination dateinvestor knows that the portfolio consists of

specific collection of bonds; trustee will NOT alter portfolio


Web Resources• For information on the performance of mutual

funds, visit:Morningstar www.morningstar.com

• Other information on mutual funds,Investment Company Institute www.ici.org Lipper analytical http://www.lipperweb.com/

http://www.vanguard.com/ http://www32.fidelity.com/

• For details of regulation of securities firms and investment banks, visit:SEC: www.sec.gov NASD: www.nasd.com

http://www.morningstar.com/

http://www.sec.gov/

http://www.nasd.com/


How can one start a mutual fund?

• You must file a registration document with the SEC that complies with the Investment Company Act of 1940. All open-ended mutual funds are considered ’40 Act Funds. The SEC site has some information. There are dozens of registration statements on file in the EDGAR system. These documents are almost always filed with considerable legal assistance. There is a list of filing statements and forms on the SEC website. SEC: www.sec.gov


Global Issues

• Worldwide growth in mutual fund investment not as great as in the U.S.$1,626 trillion in 1992 to $4,833 trillion in

2000• 200% growth compared to 340% in U.S.

Larger returns in U.S.stock marketsGreatest development in countries with most

developed marketsOpportunities from declining Japanese markets

Documents

BUFN722-ch05.ppt