1. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 4 Mutual Funds and Other Investment Companies

2. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 2 Services of Investment Companies Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs

3. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 3 Net Asset Value Used as a basis for valuation of investment company shares –Selling new shares –Redeeming existing shares Calculation Market Value of Assets - Liabilities Shares Outstanding

4. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 4 Types of Investment Organizations Unit Trusts Managed Investment Companies –Open-End –Closed-End Other investment organizations –Commingled funds –REITs

5. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 5 Open-End and Closed-End Funds: Key Differences 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. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 6 Investment Policies Money Market Fixed Income Equity Balance & Income Asset Allocation Indexed Specialized Sector

7. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 7 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. Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 8 Sources of Information on Mutual Funds Wiesenberger’s Investment Companies Morningstar Investment Company Institute Popular press Investment services