Investing 101 — The Basics

Q. What is a mutual fund?
A. A mutual fund is an open-end management investment company that pools the money of its shareholders to invest in a portfolio of assets in accordance with the fund's investment objective. The fund is registered with the Securities and Exchange Commission as an investment company, and its shares are registered for sale; however, registration of the fund does not mean the fund has either been approved or disapproved by the SEC nor does it account for the adequacy of the securities.

Q. What is the difference between an open-end mutual fund and a closed-end investment company?
A. What makes an open-end mutual fund different from a closed-end fund is that an open-end mutual fund is continually issuing new shares. When an investor invests in an open-end mutual fund, shares are issued to the investor. When investors choose to sell their shares of an open-end fund, their shares are redeemed (i.e., "bought back") by the fund; they are not sold or traded on an exchange. Redemptions are at the fund's current NAV, which may result in a gain or loss. Closed-end funds, however, issue a limited number of shares and subsequently they are bought and sold ("traded") on an exchange.

Q. What is an annuity?
A. An annuity is a type of insurance contract in which the owner of the contract, sometimes known as the annuitant, is guaranteed a fixed or variable payment at some future time, usually retirement. A fixed annuity has payouts in regular installments and only varies in the payment method that is chosen by the annuitant. A variable annuity, however, has payments based upon the number of annuity units invested and the unit value and payment are based on the underlying investments.

Q. What is an individual retirement account? Are there different types?
A. An individual retirement account ("IRA") is a tax-deferred personal retirement account that an employed person can set up and deposit up to $5,000 per year ($10,000 for married couples filing jointly, whether or not both spouses work).Investors over 50 may make additional "catch up"contributions of $1,000 per year. Depending on your filing status and your household's adjusted gross income, contributions generally are deductible; withdrawals prior to age 59½ are generally subject to penalty taxes as well. See "IRAs" for additional information on the different types of IRAs available.

Q. How do I choose an investment?
A. Choosing an investment really depends on some key criteria: your investment objective, your current income, your age, and your risk tolerance level. Although there may be more factors specific to your investment needs, these are the starting points when investing. A financial advisor can best help you clearly define your investment objectives and help determine a mix of investments consistent with those objectives.

Q. What is a sales charge?
A. A sales charge is the fee paid for the purchase or sales of shares of a mutual fund. Sales charges can vary based upon when they are paid. For example, front-end sales charges are charged at the time of purchase while back-end sales charges (also known as a Contingent Deferred Sales Charge) are charged at the time of redemption. Sales charge levels can depend on the amount you invest and how long you have held those shares. You would need to consult the fund's prospectus for details on the sales charges related to a particular fund. Many mutual funds with front-end sales loads offer a discount on the maximum sales load for a large investment. The investment levels at which discounts are available are called the "breakpoints." You may be entitled to a lower front-end sales load based on a single transaction if the dollar amount of the transaction exceeds one or more breakpoints. In addition, some funds offer discounts based on purchases made over time, under a Right of Accumulation ("ROA") or Letter of Intent ("LOI").

Q. What does it mean when someone refers to a fund's investment style?
A. When someone refers to a fund's investment style, it can have a few meanings. It can refer to the way the fund determines what securities or industries to invest in, such as a top-down or bottom-up investment approach. Or it can refer to the types of securities that a fund invests in such as growth or value stocks, securities based on market capitalization, or maturity in the case of short-, intermediate- or long-term securities. The fund's investment style is described in more detail in the fund's goal and approach section of its prospectus.

Q. What is NAV?
A. The NAV or Net Asset Value is the share price (the "value") of a mutual fund share that is equal to the fund's assets minus all liabilities, divided by the number of fund shares outstanding, and is calculated each day the fund prices its shares.

Q. What does it mean when there is a change in NAV?
A. A change in NAV or net asset value can result from changes in the market values of any of the securities in which the fund is invested or other fund assets, or changes in the fund's liabilities. A change in the number of outstanding shares can also impact a fund's NAV.

Q. What does diversification refer to?
A. Diversification can have more than one meaning and it depends on what is being discussed. For example, diversification, when talking about an individual's portfolio, refers to the individual investing in different types of securities or mutual funds. Although the risks of investing cannot be eliminated, diversification of an investor's portfolio can help to reduce overall portfolio risk associated with investing in any one particular security. When discussing if a fund is a diversified fund, the fund must meet certain criteria which are sometimes referred to as the 75-5-10 diversification test. In order for a fund to say that it is a diversified fund, the fund must generally invest at least 75% of the fund's total assets in cash, cash equivalents or securities, no more than 5% of the fund's total assets can be invested in any one issuer and the fund cannot hold more than 10% of any issuer's voting stock.

Q. What does it mean when a fund uses a top-down approach to investing?
A. A top-down approach to investing refers to an investment strategy used by portfolio managers that puts an emphasis first on the general trends of the economy, then chooses specific industries, or countries in the case of global or international funds, and companies that can benefit from these trends.

Q. What does it mean when a fund uses a bottom-up approach to investing?
A. A bottom-up approach to investing refers to an investment strategy used by portfolio managers that puts an emphasis on finding outstanding companies based on fundamental analysis before portfolio management considers broad economic trends.

Q. Is there a good time to start investing in a mutual fund?
A. Whether you choose to invest in a mutual fund either today, tomorrow or next year, there will always be risks associated with investing — economic and market conditions, investing trends along with the additional risks regarding specific types of funds that you choose to invest in. You should discuss the potential risks and your investment objectives with your financial advisor.

Q. Is there such a thing as a risk-free investment?
A. In a simple answer, no. All investments have different risks associated with them. Some investments have more risks associated with them than others, but they all have risks.

Q. What type of investment carries the least amount of risk, and what type of investment carries the most amount of risk?
A. We should first start by saying that all investments have some sort of risk associated with them; however, risk varies with each type of security. For example, the higher the growth potential in an investment, the lower the stability and the more risk that is associated with it. To put it in investment-style terms, an aggressive growth fund has a high potential for growth and capital appreciation but the investments are volatile and unstable. On the other hand, money market funds and fixed-income funds seek to generate income as opposed to capital appreciation and are more stable because of the types of securities that they tend to invest in. You should consult a financial advisor to help determine the appropriate amount of risk for your investment objectives.

Q. When should I start planning for retirement? How do I get started? Where do I begin?
A. It is always a good time to start planning for retirement. Generally speaking, the more time you have to plan, the more adequately you can plan. To help get you started, you should first consult a financial advisor. A financial advisor can help you look at your current financial situation, determine your investment objectives, your tolerance for the risk of certain investments and can also help you choose the most appropriate investments for your future financial needs.

¹Asset allocation and diversification do not assure a profit or protect against a loss. The views expressed herein do not constitute investment advice or recommendations to purchase or sell a particular security. Investors should review their investment objectives, risk tolerance and liquidity needs before choosing a suitable investment style.

Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.

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