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