The Securities and Exchange Commission (SEC)
requires all mutual funds to publish a plain English
prospectus
and issue a copy to all potential investors either before they
buy or along with the confirmation of their initial investment.
The prospectus must explain the programs
and policies the management follows to achieve the fund's
investment goals. The prospectus includes:
Statement of objective
Investor programs
Fund fees and expenses
Fund performance history
Results of $1,000 investment
How to purchase and redeem shares
Shareholder services
A fund's prospectus also identifies its major
holdings and the core area in which it invests — though funds
sometimes buy more widely to try to provide stronger returns.
And since funds trade frequently, the published list of holdings
is rarely up to date.
While a prospectus provides all the details
of a fund's operation, it also tries to portray the fund in the
best possible terms. Smart investors also use other resources,
such as the fund's statement of additional information (SAI), newspapers, and financial Web sites, to research funds
before they invest.
