The Importance of Performance

It is important to understand that mutual funds do not offer a fixed rate of return: your principal value will fluctuate, and the return on your investment is not guaranteed. Mutual fund rates of return fluctuate with market conditions, changes in the valuation of the securities a fund invests in, and other factors. For that reason, it is helpful to examine performance over various time periods and keep in mind that performance is based on historical results and is not intended to project future performance of a fund.

If you are comparing the performance of several funds, be sure that you are making accurate comparisons: compare funds with the same investment objectives and fund policies before you look at the numbers.

• Average Annual Total Return: The most widely used barometer of fund performance. Average annual total return is defined as the percentage change in a fund's net asset value, or share price, over a specified time and takes into account the impact of any distributions, dividends and interest payments and assumes reinvestment of all income dividends and capital gains distributions. Performance results typically show average annual total returns for specific time periods: one-year, three-year, five-year, and 10-year or since inception.
• Yield: Yield is a measure of a fund's dividend income or earnings paid out to you, usually expressed as a percentage of its current share price over a designated period. For a mutual fund, yield consists of dividend payments divided by the beginning value of the fund's shares (before any gain or loss in the price per share). A fund that paid $200 in dividends on a $2,000 investment at the beginning of a period provided a yield of 10%. Yield is probably most important to investors who are trying to generate current income.
• Total Return: The performance of an investment, including yield as well as changes in per share price, calculated over a designated period of time.
• After-Tax Return: The Securities and Exchange Commission (SEC) requires mutual funds to disclose standardized after-tax returns. This disclosure is intended to help investors understand the impact taxes have on the performance of their mutual funds. The after-tax return is not relevant if you invest through a tax-deferred account, such as an IRA or employer-sponsored retirement plan. After-tax returns are calculated using the maximum federal income tax rate, and most investors are in lower tax brackets. Since the mandatory after-tax returns are generic, consult your tax advisor for your individualized after-tax return.

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