1. 1 1 Ch4 – MBA 567 Mutual Funds and Investment Companies Services of Investment Companies Types of Investment Companies Types of Mutual Funds Cost of Mutual funds Return of Mutual Funds Exchange Traded Funds

2. 2 2 Ch4 – MBA 567 Services of Investment Companies Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs

3. 3 3 Ch4 – MBA 567 Net Asset Value Used as a basis for valuation of investment company shares Selling new shares Redeeming existing shares NAV= Market Value of Assets - Liabilities Shares Outstanding

4. 4 4 Ch4 – MBA 567 Types of Investment Organizations Unit Trusts Managed Investment Companies Open-End Closed-End Other investment organizations Commingled funds REITs Hedge Funds

5. 5 5 Ch4 – MBA 567 Open-End and Closed-End Funds Shares Outstanding Closed-end: no change unless new stock is offered Open-end: changes when new shares are sold or old shares are redeemed Pricing Open-end: Net Asset Value(NAV) Closed-end: Premium or discount to NAV

6. 6 6 Ch4 – MBA 567 Investment Policies Money Market Equity Specialized Sector Bond Balance & Income Asset Allocation Indexed International

7. 7 7 Ch4 – MBA 567 Costs of Investing in Mutual Funds Fee Structure Front-end load Back-end load Operating expenses 12 b-1 charges distribution costs paid by the fund Alternative to a load Fees and performance

8. 8 8 Ch4 – MBA 567 Example An open-end fund has a total asset of $120 million and a liability of $10 million. It has 10 million shares outstanding. What is its NAV? It is sold with a front- end load of 5%. What is its offering price?

9. 9 9 Ch4 – MBA 567 Fund Returns Page 106 A sophisticated example: Problem 4.16 on page 121

10. 10 Ch4 – MBA 567 Table 4.2 Impacts of Costs on Investment Performance

11. 11 Ch4 – MBA 567 Exchange Traded Funds ETF allow investors to trade index portfolios like shares of stock Examples - SPDRs and Webs Potential advantages Trade continuously Lower taxes Lower costs Potential disadvantages

12. 12 Ch4 – MBA 567 First Look at Mutual Fund Performance Average mutual fund performance is generally less than broad market performance Over certain horizons there is persistence in positive performance Evidence is not conclusive Some inconsistencies

13. 13 Ch4 – MBA 567 Figure 4.3 Diversified Equity Funds versus Wilshire 5000 Index

14. 14 Ch4 – MBA 567 Sources of Information on Mutual Funds Wiesenberger’s Investment Companies Morningstar (www.morningstar.com) Yahoo (biz.yahoo.com / funds) Investment Company Institute (www.ici.org) Popular press Investment services