Paul Ferraresi

• INCOME (EQUITY) FUNDS

Seek a high level of current income for shareholders by investing primarily in equity securities of companies with good dividend paying records. The objective is to provide an income that gradually increases each year.

• INCOME (MIXED) FUNDS

Seek a high level of current income for shareholders by investing in income producing securities, including both equity (stocks) and debt (bonds) instruments.

BOND FUNDS

The types of organizations that issue bonds fall into three broad categories:

• Publicly or closely traded for-profit corporations

• The federal government and its agencies

• State or local government agencies. (This also includes non-profit organizations.)

Each of these is subject to somewhat different tax treatment. This tax treatment has an effect on the price of the bonds and the bond interest (coupon) rate. Bonds issued directly by corporations are fully taxable to individuals at both state and federal level. For that reason, the rate must be higher. Bonds issued by the federal government are frequently exempt from state income tax, but are taxable by the federal government. Bonds issued by state or local agencies are exempt from federal tax and may also be exempt from taxation at the state level.

• CORPORATE BOND FUNDS

These funds seek to generate a high level of current income by investing primarily in the senior securities of profit corporations. Some funds concentrate primarily on high-grade bonds and thus are able to provide shareholders with a greater degree of safety, but usually with less income than bond funds that may have a mixture of high, medium and lower grade bonds. Some of the portfolio may be in U.S. Treasury bonds or bonds issued by a federal agency.

• HIGH YIELD BOND FUNDS

These funds specialize in selecting rated bonds to insure the highest yield possible with a reasonable degree of safety. This type of fund appeals to individuals who seek high current income or desire to reinvest dividends and capital gain distribution, thus
compounding income at a high rate of return. Usually, these funds maintain at least two-thirds of the portfolio in lower rated corporate bonds (Baa or lower by Moody’s rating service and BBB or lower by Standard and Poor’s rating service). In return for a higher yield, investors must bear a greater degree of risk than for higher rated bonds.

• MUNICIPAL BOND FUNDS

These funds invest in a broad range of tax-exempt bonds issued by states, cities and other local governments. Interest obtained from the bonds is passed through to shareowners free of federal tax.

• LONG TERM MUNICIPAL BOND FUNDS

Invest in bonds issued by states and municipalities to finance schools, highways, hospitals, airports, bridges, water and sewer works and other public projects. In most cases, income earned on these securities is not taxed under state and local laws. For some taxpayers, portions of income earned on these securities may be subject to the federal alternative minimum tax.

• SHORT TERM MUNICIPAL BOND FUNDS

Invest in municipal securities with relatively short maturities. They are also known as tax exempt money market funds. For some taxpayers, portions of income earned on these securities may be subject to the federal alternative minimum tax.

• STATE MUNICIPAL BOND FUNDS

Either short term or long term portfolios of bonds. These work just like other municipal bond funds (see above) except their portfolios contain the issues of only one state. A resident of that state has the advantage of receiving income free of both federal and state tax. For some taxpayers, portions of income earned on these securities may be subject to the federal alternative minimum tax.

• U.S. GOVERNMENT INCOME FUNDS

Invest in a variety of government securities. These include U.S. Treasury bonds, federally guaranteed mortgage backed securities, and other government notes.

• GNMA OR GINNIE MAE FUNDS

Invest in mortgage securities backed by the Government National Mortgage Association (GNMA). To qualify for this category, the majority of the portfolio must always be invested in mortgage backed securities. In some cases, these funds make distributions that are both principal and income.

• INTERNATIONAL FUNDS

Invest in equity securities of companies located outside the U.S. Two-thirds of the portfolios must be so invested at all times to be categorized here.

• GLOBAL BOND FUNDS

Invest in debt securities (bonds) of companies and countries worldwide. Some funds invest in U.S. Bonds, others do not.

• GLOBAL EQUITY FUNDS

Invest in securities traded worldwide, including the U.S. Compared to direct investments, global funds offer investors an easier avenue to investing abroad. The professional money managers of each fund handle the trading and record keeping details and deal with differences in currencies, languages, time zones, laws and regulations and business customs and practices. In addition to another layer of diversification, global funds add another layer of risk – exchange rate risk.

• GLOBAL COUNTRY OR REGION FUNDS

These invest in the securities of corporations or governments in a specific country or region. Thus, the owner has two areas of risk that also means two areas of opportunity:

• Growth in market value

• Currency changes

Thus, it is possible for a “Japan Fund” to increase in share value and at the same time increase in value to a U.S. owner if the yen/dollar rate change is also favorable.

• PRECIOUS METALS/GOLD FUNDS

Maintain two-thirds of the portfolios in securities associated with mining or processing of gold, silver and other precious metals.

Others types of mutual funds include:

• Special area funds, such as chemicals

• Special philosophy funds, social purpose, etc.

FAMILY OF FUNDS

These are a group of the above funds all managed by the same organization. Their structure permits investors to switch funds from one fund to the other for a nominal fee or none at all. These can be suitable for use with a Market Timing Service or within a qualified retirement plan where the owner may want to switch the underlying investment without incurring new acquisition costs.

Mutual Fund shares are not deposits or obligations of, or guaranteed by, any depository institution. The value of the shares will fluctuate so that when redeemed, shares or units may be worth more or less than the original cost. Past performance does not guarantee future results. Please read and understand the prospectus for a mutual fund before investing.