INVEST WISELY

INVEST WISELY

An Introduction To Mutual Funds

Advice From The U.S. Securities and Exchange Commission

TABLE OF CONTENTS

I. A MUTUAL FUND CHECKLIST

II. WHY MUTUAL FUNDS?

III. HOW MUTUAL FUNDS WORK

HOW TO BUY AND SELL SHARES

TERMS TO KNOW

HOW FUNDS CAN EARN YOU MONEY

TAXES

IV. KINDS OF MUTUAL FUNDS

MONEY MARKET FUNDS

BOND (FIXED INCOME) FUNDS

STOCK (EQUITY) FUNDS

A WORD ABOUT DERIVATIVES

V. COMPARING DIFFERENT FUNDS

VIEWING PAST PERFORMANCE

TIPS FOR COMPARING PERFORMANCE

COMPARING COSTS

TERMS TO KNOW

TIPS FOR COMPARING COSTS

OTHER SOURCES OF INFORMATION

VI. IF YOU HAVE PROBLEMS OR QUESTIONS

SEC OFFICES

I. A MUTUAL FUND CHECKLIST

* Mutual funds are NOT guaranteed or insured by any bank or

government agency. Even if you buy through a bank and the

fund carries the bank's name, there is no guarantee. You

can lose money. (see Part IV "Kinds of Mutual Funds")

* Mutual funds ALWAYS carry investment risks. Some types

carry more risk than others. (see Part IV "Kinds of Mutual Funds")

* Understand that a higher rate of return typically involves

a higher risk of loss. (see Part IV "Kinds of Mutual Funds")

* Past performance is not a reliable indicator of future

performance. Beware of dazzling performance claims.

(see Part V "Comparing Different Funds")

* ALL mutual funds have costs that lower your investment

returns. (see Part V "Comparing Different Funds")

* You can buy some mutual funds by contacting them directly.

Others are sold mainly through brokers, banks, financial

planners, or insurance agents. If you buy through these

financial professionals, you generally will pay an extra

sales charge for the benefit of their advice.

* Shop around. Compare a mutual fund with others of the

same type before you buy.

October, 1994

II. WHY MUTUAL FUNDS?

Mutual funds can be a good way for people to invest in stocks,

bonds, and other securities. Why?

* Mutual funds are managed by professional money managers.

* By owning shares in a mutual fund instead of buying individual

stocks or bonds directly, your investment risk is spread out.

* Because your mutual fund buys and sells large amounts of

securities at a time, its costs are often lower than what you

would pay on your own.

This document explains the basics of mutual fund investing --

how a mutual fund works, what factors to consider before

investing, and how to avoid common pitfalls.

There are sources of information that you should consult before

you invest in mutual funds. The most important of these is the

prospectus of any fund you are considering. The prospectus is

the fund's selling document and contains information about costs,

risks, past performance, and the fund's investment goals.

Request a prospectus from a fund, or from a financial

professional if you are using one. Read the prospectus before

you invest.

Before you buy a mutual fund, make sure it is right for you.

III. HOW MUTUAL FUNDS WORK

A mutual fund is a company that brings together money from

many people and invests it in stocks, bonds, or other securities.

(The combined holdings of stocks, bonds, or other securities and

assets the fund owns are known as its portfolio.) Each investor

owns shares, which represent a part of these holdings.

HOW TO BUY AND SELL SHARES

You can buy some mutual funds by contacting them directly.

Others are sold mainly through brokers, banks, financial

planners, or insurance agents. All mutual funds will redeem (buy

back) your shares on any business day and must send you the

payment within seven days.

You can find out the value of your shares in the financial pages

of major newspapers; after the fund's name, look for the column

marked "NAV."

TERMS TO KNOW

Net Asset Value per share (NAV): NAV is the value of one share

in a fund.

When you buy shares, you pay the current NAV per share, plus

any sales charge (also called a sales load). When you sell your

shares, the fund will pay you NAV less any other sales load

(See Part V "Comparing Different Funds"). A fund's NAV goes

up or down daily as its holdings change in value.

Example: You invest $1,000 in a mutual fund with an NAV of

$10.00. You will therefore own 100 shares of the fund. If the

NAV drops to $9.00 (because the value of the fund's portfolio

has dropped), you will still own 100 shares, but your investment is

now worth $900. If the NAV goes up to $11.00, your investment

is worth $1,100. (This example assumes no sales charge.)

HOW FUNDS CAN EARN YOU MONEY

You can earn money from your investment in three ways.

First, a fund may receive income in the form of dividends and

interest on the securities it owns. A fund will pay its

shareholders nearly all of the income it has earned in the form

of dividends.

Second, the price of the securities a fund owns may increase.

When a fund sells a security that has increased in price, the

fund has a capital gain. At the end of the year, most funds

distribute these capital gains (minus any capital losses) to investors.

Third, if a fund does not sell but holds on to securities that

have increased in price, the value of its shares (NAV) increases.

The higher NAV reflects the higher value of your investment. If

you sell your shares, you make a profit (this also is a capital

gain).

Usually funds will give you a choice: the fund can send you

payment for distributions and dividends, or you can have them

reinvested in the fund to buy more shares, often without paying

an additional sales load.

TAXES

You will owe taxes on any distributions and dividends in the year

you receive them (or reinvest them). You will also owe taxes on

any capital gains you receive when you sell your shares. Keep

your account statements in order to figure out your taxes at the

end of the year.

If you invest in a tax-exempt fund (such as a municipal bond

fund), some or all of your dividends will be exempt from federal

(and sometimes state and local) income tax. You will, however,

owe taxes on any capital gains.

IV. KINDS OF MUTUAL FUNDS

You take risks when you invest in any mutual fund. You may lose

some or all of the money you invest (your principal), because the

securities held by a fund go up and down in value. What you

earn on your investment also may go up or down.

Each kind of mutual fund has different risks and rewards.

Generally, the higher the potential return, the higher the risk of loss.

Before you invest, decide whether the goals and risks of any fund

you are considering are a good fit for you. To make this

decision, you may need the help of a financial adviser. There

are also investment books and services to guide you.

The three main categories of mutual funds are money market

funds, bond funds, and stock funds. There are a variety of types

within each category.

1. MONEY MARKET FUNDS have relatively low risks,

compared to other mutual funds. They are limited by law to

certain high- quality, short-term investments. Money market

funds try to keep their value (NAV) at a stable $1.00 per share,

but NAV may fall below $1.00 if their investments perform poorly.

Investor losses have been rare, but they are possible.

A WORD ABOUT BANKS AND MUTUAL FUNDS

Banks now sell mutual funds, some of which carry the bank's

name. But mutual funds sold in banks, including money market

funds, are not bank deposits. Don't confuse a "money market

fund" with a "money market deposit account." The names are

similar, but they are completely different:

* A money market fund is a type of mutual fund. It is not

guaranteed, and comes with a prospectus.

* A money market deposit account is a bank deposit. It is

guaranteed, and comes with a Truth in Savings form.

2. BOND FUNDS (also called FIXED INCOME FUNDS) have

higher risks than money market funds, but seek to pay higher

yields. Unlike money market funds, bond funds are not restricted

to high-quality or short-term investments. Because there are

many different types of bonds, bond funds can vary dramatically

in their risks and rewards.

Most bond funds have credit risk, which is the risk that

companies or other issuers whose bonds are owned by the fund

may fail to pay their debts (including the debt owed to holders of

their bonds). Some funds have little credit risk, such as those

that invest in insured bonds or U.S. Treasury bonds. But be

careful: nearly all bond funds have interest rate risk, which

means that the market value of the bonds they hold will go down

when interest rates go up. Because of this, you can lose money

in any bond fund, including those that invest only in insured

bonds or Treasury bonds.

Long-term bond funds invest in bonds with longer maturities

(length of time until the final payout). The values (NAVs) of

long-term bond funds can go up or down more rapidly than those

of shorter-term bond funds.

3. STOCK FUNDS (also called EQUITY FUNDS) generally

involve more risk than money market or bond funds, but they also

can offer the highest returns. A stock fund's value (NAV) can rise

and fall quickly over the short term, but historically stocks have

performed better over the long term than other types of

investments.

Not all stock funds are the same. For example, growth funds

focus on stocks that may not pay a regular dividend but have the

potential for large capital gains. Others specialize in a

particular industry segment such as technology stocks.

A WORD ABOUT DERIVATIVES

Some funds may face special risks if they invest in derivatives.

Derivatives are financial instruments whose performance is

derived, at least in part, from the performance of an underlying

asset, security or index. Their value can be affected

dramatically by even small market movements, sometimes in

unpredictable ways.

There are many types of derivatives with many different uses.

They do not necessarily increase risk, and may in fact reduce

risk. A fund's prospectus will disclose how it may use

derivatives. You may also want to call a fund and ask how it

uses these instruments.

V. COMPARING DIFFERENT FUNDS

Once you identify the types of funds that interest you, it is

time to look at particular funds in those categories.

VIEWING PAST PERFORMANCE

A fund's past performance is not as important as you might think.

Advertisements, rankings, and ratings tell you how well a fund

has performed in the past. But studies show that the future is

often different. This year's "number one" fund can easily become

next year's below average fund. (NOTE: Although past

performance is not a reliable indicator of future performance,

volatility of past returns is a good indicator of a fund's future

volatility.)

TIPS FOR COMPARING PERFORMANCE

* Check the fund's total return. You will find it in the

Financial Highlights, near the front of the prospectus.

Total return measures increases and decreases in the value

of your investment over time, after subtracting costs.

* See how total return has varied over the years. The

Financial Highlights in the prospectus show yearly total

return for the most recent 10-year period. An impressive

10-year total return may be based on one spectacular year

followed by many average years. Looking at year-to-year

changes in total return is a good way to see how stable

the fund's returns have been.

COMPARING COSTS

Costs are important because they lower your returns. A fund that

has a sales load and high expenses will have to perform better

than a low-cost fund, just to stay even with the low-cost fund.

Find the fee table near the front of the fund's prospectus, where

the fund's costs are laid out. You can use the fee table to

compare the costs of different funds.

The fee table breaks costs into two main categories:

1. sales loads and transaction fees (paid when you buy, sell,

or exchange your shares), and

2. ongoing expenses (paid while you remain invested in the

fund).

Sales Loads

The first part of the fee table will tell you if the fund charges

any sales loads.

No-load funds do not charge sales loads. When you buy no-load

funds, you make your own choices, without the assistance of a

financial professional. There are no-load funds in every major

fund category. Even no-load funds have ongoing expenses,

however, such as management fees.

When a mutual fund charges a sales load, it usually pays for

commissions to people who sell the fund's shares to you, as well

as other marketing costs. Sales loads buy you a broker's

services and advice; they do not assure superior performance.

In fact, funds that charge sales loads have not performed better

on average (ignoring the loads) than those that do not charge

sales loads.

TERMS TO KNOW

Front-end load: A front-end load is a sales charge you pay when

you buy shares. This type of load, which by law cannot be higher

than 8.5% of your investment, reduces the amount of your

investment in the fund.

Example: If you have $1,000 to invest in a mutual fund with a 5%

front-end load, $50 will go to pay the sales charge, and $950

will be invested in the fund.

Back-end load: A back-end load (also called a deferred load) is

a sales charge you pay when you sell your shares. It usually

starts out at 5% or 6% for the first year and gets smaller each

year after that until it reaches zero (say, in year six or seven

of your investment).

Example: You invest $1,000 in a mutual fund with a 6% back-

end load that decreases to zero in the seventh year. Let's

assume for the purpose of this example that the value of your

investment remains at $1,000 for seven years. If you sell your

shares during the first year, you only will get back $940 (ignoring

any gains or losses). $60 will go to pay the sales charge. If you

sell your shares during the seventh year, you will get back

$1,000.

Ongoing Expenses

The second part of the fee table tells you the kinds of ongoing

expenses you will pay while you remain invested in the fund. The

table shows expenses as a percentage of the fund's assets,

generally for the most recent fiscal year. Here, the table will

tell you the management fee (which pays for managing the fund's

portfolio), along with any other fees and expenses.

High expenses do not assure superior performance. Higher

expense funds do not, on average, perform better than lower

expense funds. But there may be circumstances in which you

decide it is appropriate for you to pay higher expenses. For

example, you can expect to pay higher expenses for certain

types of funds that require extra work by its managers, such as

international stock funds, which require sophisticated research.

You may also pay higher expenses for funds that provide special

services, like toll-free telephone numbers, check-writing and

automatic investment programs.

A difference in expenses that may look small to you can make a

big difference in the value of your investment over time.

Example: Say you invest $1,000 in a fund. Let's assume for the

purpose of this example that you receive a flat rate of return of

5% before expenses. If the fund has expenses of 1.5%, after 20

years you would end up with roughly $1,990. If the fund has

expenses of 0.5%, you would end up with more than $2,410.

This is a 22% difference.

TERMS TO KNOW

Rule 12b-1 fee: One type of ongoing fee that is taken out of

fund assets has come to be known as a rule 12b-1 fee. It most

often is used to pay commissions to brokers and other

salespersons, and occasionally to pay for advertising and other

costs of promoting the fund to investors. It usually is between

0.25% and 1.00% of assets annually.

Funds with back-end loads usually have higher rule 12b-1 fees.

If you are considering whether to pay a front-end load or a back-

end load, think about how long you plan to stay in a fund. If

you plan to stay in for six years or more, a front-end load may

cost less than a back-end load. Even if your back-end load has

fallen to zero, over time you could pay more in rule 12b-1 fees

than if you paid a front-end load.

TIPS FOR COMPARING COSTS

* Beware of a salesperson who tells you, "This is just like

a no-load fund." Even if there is no front-end load,

check the fee table in the prospectus to see what other

loads or fees you may have to pay.

* Check the fee table to see if any part of a fund's fees or

expenses has been waived. If so, the fees and expenses

may increase suddenly when the waiver ends (the part of

the prospectus after the fee table will tell you by how much).

* Many funds allow you to exchange your shares for shares of

another fund managed by the same adviser. The first part

of the fee table will tell you if there is any exchange fee.

Shop wisely. Compare fees and expenses before you invest.

V. OTHER SOURCES OF INFORMATION

Read the sections of the prospectus that discuss the risks,

investment goals, and investment policies of any fund that you

are considering. Funds of the same type can have significantly

different risks, objectives and policies.

All mutual funds must prepare a Statement of Additional

Information (SAI, also called Part B of the prospectus). It

explains a fund's operations in greater detail than the

prospectus. If you ask, the fund must send you an SAI.

You can get a clearer picture of a fund's investment goals and

policies by reading its annual and semi-annual reports to

shareholders. If you ask, the fund will send you these reports.

You can also research funds at most libraries. Helpful resources

include fund investment books, investor magazines and newspapers.

The fund companies themselves can also provide information.

VI. IF YOU HAVE PROBLEMS OR QUESTIONS

If you encounter a problem or have a question concerning a

mutual fund that you believe can be addressed by the SEC,

contact an SEC consumer specialist at one of the offices listed

on the next page.

Remember: There are no guarantees in mutual fund investing.

Inform yourself and exercise your judgment carefully before you invest.

SEC OFFICES

U.S. Securities and Exchange Commission Headquarters

Office of Consumer Affairs

450 Fifth Street, N.W.

Washington, D.C. 20549.

(202) 942-7040.

Northeast Regional Office

7 World Trade Center, Suite 1300

New York, NY 10048

(212) 748-8000

Boston District Office

73 Tremont Street, Suite 600

Boston, MA 02108-3912

(617) 424-5900

Philadelphia District Office

601 Walnut Street, Suite 1005 E

Philadelphia, PA 19106-3322

(215) 597-3100

Southeast Regional Office

1401 Brickell Avenue, Suite 200

Miami, FL 33131

(305) 536-5765

Atlanta District Office

3475 Lenox Road, N.E., Suite 1000

Atlanta, GA 30326-1232

(404) 842-7600

Midwest Regional Office

500 West Madison Street, Suite 1400

Chicago, IL 60661-2511

(312) 353-7390

Central Regional Office

1801 California Street, Suite 4800

Denver, CO 80202-2648

(303) 391-6800

Fort Worth District Office

801 Cherry Street, 19th Floor

Fort Worth, TX 76102

(817) 334-3821

Pacific Regional Office

5670 Wilshire Boulevard, 11th Floor

Los Angeles, CA 90036-3648

(213) 965-3998

San Francisco District Office

44 Montgomery Street, Suite 1100

San Francisco, CA 94104

(415) 705-2500_

.