Twice a year,
mutual fund shareholders receive detailed information of how
their investment is doing. The report that covers a six-month
period is called a semiannual report. An annual report covers
a 12-month period. By reading these shareholder reports
carefully, a shareholder can learn a lot about the fund, as
well as the stock market and the economy. Here are some of the
key features in these reports that a shareholder won't want to
miss.
President's Letter. Many
reports often begin with a letter from the fund's president.
This letter often gives the big picture for the period covered
by the report - either six or 12 months. Sometimes the letter
will highlight news about the stock market or the economy.
Other times it will announce news about the fund itself.
Portfolio Managers' Report.
This section is the heart of the story. It begins with
information about how much money the fund made (or lost)
during the reporting period. This number is called the fund's
"total return."1 There
is a total return for a broad-based index,
which is also known as the fund's benchmark. Although an index
may track the performance of different stocks than those owned
by the fund, by comparing the total return for the index with
the return for the fund, you can see how the fund did compared
to a larger part of the stock market.
In their report,
the portfolio
managers may
also list some of the stocks in the fund that helped to
improve its return as well as investments that may have hurt
the return. They may also discuss stocks that were bought or
sold during the reporting period and why they made those
trades.
Average annual total return.
Want to know how the fund has performed over a longer period
of time? This section is for you. Here there are two types of
returns. There's the average annual total return, which is a
percentage that represents the average yearly return for the
following time periods: 1 year, 5 years and 10 years, if the
fund has been around that long. If the fund hasn't existed for
10 years, the chart will also give the average annual total
return for the fund since it began. This percentage may be
labeled as "since inception" or "life of fund." In a
semiannual report, this chart will also include a cumulative
return for the six-month period. A cumulative return is the
percentage by which the fund has grown or shrunk during that
time. Cumulative returns are only reported for periods less
than one year.
Performance of a $10,000
Investment. If you had invested $10,000 into the fund when
it first started or 10 years ago, whichever is shorter, this
graph shows what your investment might have been worth at the
end of the reporting period. It also shows the growth of a
$10,000 investment in the fund's benchmark over the same time
period. By comparing the two examples, shareholders can see
how the same investment did in the fund as well as in the
broader stock market. This is another way to measure the
fund's performance over the long term.
When you look at
these figures, it is important to remember two things. First,
a fund's past performance is not an indicator that the fund's
investment returns will follow the same path in the future.
Investment returns will go up and down. Second, it is not
possible to invest directly in an index. Finally, an index
does not have fees and expenses like a mutual fund. These
costs are deducted from the total value of the fund before
returns are calculated.
Top 10 Holdings. Some
stocks take up a larger part of a fund's portfolio.
This section of the report lists the 10 stocks that were the
fund's biggest investments. Pay attention, because price
changes in these stocks have a significant impact on the
portfolio's performance. Also, because portfolio managers
review a fund's portfolio on a daily basis and make decisions
to buy and sell stock based on their daily reviews, the top
holdings will change over time.
Investment Portfolio. Want
to know exactly what stocks are in the fund? This section
lists them all, along with the number of shares the fund owns
of each stock and the value of those shares on the last day of
the reporting period.
1 Our
article "Understanding
Total Return" provides more information on this
term. |