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Examining a Mutual Fund

To illustrate some of the definitions and terms discussed in the chapter, we can consider the Fidelity Equity-Income Fund, a mutual fund with approximately $21.8 billion in assets as of the end of 2001. Like many of Fidelity's funds, it is a no-load fund, and therefore investors do not pay a sales charge to purchase shares of the fund.[8]

[8] This information is available in the prospectus for this fund. A prospectus can be obtained from Fidelity by calling. It can also be found on the Fidelity Web site at www.fidelity.com.

  • Objective: “Seeks reasonable income. The fund will also consider the potential for capital appreciation. Seeks a yield that exceeds the yield on the securities comprising the Standard and Poor's 500 Index.”

    All mutual funds must state an objective, and are expected to follow the stated objective.

  • Strategy: “Normally invests at least 65% of total assets in income-producing equity securities, which tends to lead to investments in large cap value stocks. Potentially investing in other types of equity securities and debt securities, including lower quality debt securities. Invests in domestic and foreign issues.”

    This statement indicates that a majority of fund assets will be in large-cap value stocks. However, it leaves open the possibility of holding other, generally more risky, securities and foreign securities as well as domestic securities.

  • Top 10 Holdings: As of September 30, 2001, the top 10 holdings of the fund included large, well-known stocks such as Exxon, GE, Bristol-Myers Squibb, Citigroup, Fannie Mae, and Bell South.

    Most mutual funds holding stocks periodically disclose their top 10 holdings, and often the percentage of assets in various sectors. However, by the time shareholders and potential purchasers see this information, it may be several months old and the portfolio may have changed.

  • StyleMap: Large, Value

    If we were to look at the nine-cell matrix showing investment styles, we would find the intersection at these two points—large capitalization stocks and value stocks.

  • Morningstar Ratings: (as of November 30, 2001): Overall, four stars; 10 years, four stars; five years, four stars; three years, three stars.

    Morningstar provides a rating for most mutual funds reflecting their return and risk parameters for various historical periods. Obviously, these ratings change over time.

  • Minimum Initial Investment: $2,500

  • Minimum Additional Investment: $250

    These investment amounts are typical for many funds, give or take a little.

  • Check Writing: No

    Money market funds typically have check-writing privileges, as do many bond funds.

  • Direct Deposit: Yes

  • Expense Ratio as of July 31, 2001: 0.69 percent

  • Turnover Rate as of July 31, 2001: 20 percent

  • Distribution Schedule: Dividends: March, June, September, December; Capital Gains: March, December.

  • NAV (as of July 31, 2001): $52.07

    Calculation of NAV:

    Net assets of this fund on July 31, 2001 = $23,145,689,000

    Number of shares of this fund outstanding on July 31, 2001 = 444,487,000

    Therefore, NAV = $23,145,689,000 / 444,487,000 = $52.07

    Note that the net assets of this fund on July 31, 2001 consisted of the following:

    Paid in capital$16,725,280,000
    Net investment income not yet distributed35,013,000
    Accumulated net realized gains on investments not yet distributed540,243,000
    Net unrealized appreciation on investments5,845,153,000



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