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Unformatted text preview: Test 3 Study Guide—Chapter 12, 3 and 5 Mutual Fund Performance- (Pg 327)A mutual fund has 3 potential sources of return- Dividend income, capital gains distribution and unrealized capital gains(paper profits) Dividend Income- income derived from the dividends and interest earned on the security holdings of a mutual fund. Paid out on a prorated basis. Capital Gains Distribution- profits made by the mutual fund from the sale of its securities. Unrealized Capital Gains- capital gain made only “on paper”—that is, not realized until the fund’s holdings are sold. Also referred to as- change in NAV (net asset value) Mutual Fund Turnover- It is the gross proceeds from sales of the securities in the fund divided by the total assets in the fund (NAV). Basically what it means is how much of a fund’s holdings are changed over the course of a year through buying and selling. A high turnover indicates higher costs (and lower shareholder returns) for the fund. Types of Mutual Funds- ( Starting Pg 310) Growth Funds- Objective of a growth fund is simple- capital appreciation. It is a mutual fund whose primary goals are capital gains and long term growth. Offer little, if anything in dividends/current income. Aggressive-growth Funds- highly speculative mutual fund that seeks large profits from capital gains. So called performance funds that tend to increase in popularity when markets heat up. Portfolio of these funds mainly consist of “high flying” common stocks. Most volatile of all mutual funds. Value Funds- Mutual fund that seeks stocks that are undervalued in the market by investing in shares that low P/E multiples, high dividend yields, and promising futures. These funds invest in stocks considered ‘undervalued’ by the market; stocks that are sound but overlooked by most investors, undiscovered companies that have great potential. Equity Income Funds- Mutual fund that emphasizes current income and capital preservation and invests primarily in high-yielding common stocks. Gaining profit by capital appreciation is not primary motive of income in these funds. Lean heavily toward stocks of blue chips, public utilities and financial shares. Balanced Funds- mutual fund whose objective is to generate a balanced return of both current income and long-term capital gains. These funds usually put more investment into fixed income securities; 30%-40% in bonds usually. Bonds are use principally to provide current income, and stocks are selected mainly for long term growth potential....
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- Spring '10