Before you spend your hard-earned money on a product or service, you would like to know what you will be getting. The same is true when you're investing in a mutual fund. You probably want to learn what you can about a particular fund before agreeing to write a check. That's where the prospectus comes in.
What is a Prospectus?
A prospectus, or statutory prospectus [PDF-932.7KB], is a formal document, filed with the Securities and Exchange Commission that has the information an investor needs to make a decision. A prospectus can be quite large, some are more than 100 pages! Each State Farm® fund has a summary prospectus that has important information specific to that fund.
This quick read is only a few pages long and gives you fund information, including:
- The fund's investment objective
- A fee table and example
- Risks and returns
- Information about the fund portfolio managers
Fund Investment Objective Statement
An objective statement is usually found near the beginning of the statutory prospectus. It's a summary of the mutual fund, detailing the fund goals and how it plans to reach the goals. Included in the objective statement are the risks involved in investing in a particular fund.
A statutory prospectus also includes a Fees and Expenses section which shows the fees associated with a fund. Fund companies offer professional management of the money and are paid for their services. The management fee is paid to the fund manager and is based on a percentage of the value of the fund's assets.
Another fee found in many funds is the 12b-1 fee that is collected by the broker/dealer to pay for marketing and distribution expenses. The amount of the fee can range from 0.25 to 0.75 % of the fund's assets. An additional 0.25 % of the average net assets may be paid as compensation to sales professionals for providing ongoing services to investors.
Risks and Returns
The statutory prospectus includes a section on Performance. This section has information about how well the fund has performed during the most recent 1-, 5-, and 10-year periods. The information shows how well a fund has done in the past. However, past performance is no indication of how well a fund will do in the future. All funds are subject to risks that may adversely affect returns. The Performance section may also include an example of how a $10,000 investment may perform over time. You can get a general idea of how well your investment may perform, but the numbers may not include taxes and inflation and, therefore, may not necessarily reflect your actual investment returns.
The prospectus also contains a Risks section. Investors who purchase shares of funds are subject to various risks, and it's possible to lose money by investing in the funds. An investment in a fund is not like a deposit in any bank or other depository institution and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or another government agency.
Portfolio Managers and Shareholders
Portfolio managers are those who manage the investments within a fund. A page containing the name(s) of all portfolio managers may be found in the statutory prospectus. Shareholders are those individual investors, like you, who purchase shares in the fund.
These sections detail who manages the fund and how individual investors may purchase shares and how to redeem them. In the Shareholder Information section you'll find out the minimum amount that may be invested. You'll also learn about different ways to make that investment, such as writing a check, automatic withdrawals, wire transfers or redeeming your shares by phone, wire transfer, or written request.
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Investing involves risk, including potential for loss.
Not FDIC Insured
- No Bank Guarantee
- May Lose Value