Discussion and Letters

• In most cases, the annual report begins with a discussion of the year's activity. Often taking the form of letters from the fund administrators and managers, the discussion centers around the fund's performance for the year. Managers provide a comparison of the fund's performance to prior years and to its peers or benchmarks. They discuss the economic and strategic factors that contributed to the fund's performance -- good or bad. Many companies outline their goals for the future -- for the next several months or for a few years down the road.
  
  

Performance

• Each annual report has charts and graphs illustrating the fund's performance, both over the last year and historically. Mutual funds compare their performance to a benchmark -- usually an index of assets similar in composition to those held by the fund. Mutual funds try to perform better than these benchmarks. The report also compares fund performance to the market as a whole, as well as to its own historical data. This allows you to view the current year returns in context with other information.
  
  

Expenses

• The annual report will lay out a detailed list of the fund expenses. Fund expenses become part of the price of each share, and too many expenses can eat into your profits. Mutual funds want their operating costs to be reasonable and transparent. Each item on the list should be clearly identifiable. Reports may also include a comparison of the fund's expenses to its return.
  
  

Holdings

• Each annual report includes a snapshot of the fund's holdings at the end of the fiscal year. This shows what individual stocks and bonds are held within the fund and in what quantities. Depending on fund investment goals, you may also see charts showing breakdowns of fund holdings into various industry sectors, bond maturity dates or other useful categories.