Bond Funds

Types of Mutual Funds

Bond Funds

Bond funds may be appropriate for investors who:

• Value income over growth
• Seek yields that are generally higher than money market rates
• Want to diversify their portfolio
• Have lower-risk tolerance

Main Types of Bond Funds

General corporate bond funds: Aim for a high level of income by investing two-thirds or more of their portfolios in corporate bonds and have no restrictions on average maturity.

Intermediate-term corporate bond funds: Seek a high level of income with two-thirds or more of their portfolios invested at all times in corporate bonds. Their average maturity is 5 to 10 years.

Short-term corporate bond funds: Strive for a high level of current income with two-thirds or more of their portfolios invested at all times in corporate bonds. Their average maturity is one to five years.

General global bond funds: Invest in worldwide debt securities with up to 25% of the portfolio (not including cash) invested in companies located in the U.S. These have either no stated average maturity date or an average maturity of more than five years.

Short-term global bond funds: Focus on worldwide debt securities and up to 25% of the securities (not including cash) may be invested in companies located in the U.S. They have an average maturity of one to five years

General government bond funds: Allocate at least two-thirds of their portfolios in U.S. government securities and have no stated average maturity.

Intermediate-term government bond funds: Select at least two-thirds of their portfolios in U.S. government securities with an average maturity of five to 10 years.

Short-term government bond funds: Devote at least two-thirds of their portfolios in U.S. government securities and have an average maturity of one to five years.

High-yield funds: Seek a high level of current income by investing at least two-thirds of their portfolios in lower-rated corporate bonds (Baa or lower by Moody's and BBB or lower by Standard and Poors rating services).

Mortgage-backed funds: Invest at least two-thirds of their portfolios in pooled mortgage-backed securities.

National general municipal bond funds: Focus predominantly in municipal bonds and are usually exempt from federal income tax but may be taxed under state and local laws. They have an average maturity of more than five years or no stated average maturity.

National short-term municipal bond funds: Concentrate on municipal bonds and are usually exempt from federal income tax but may be taxed under state and local laws. They have an average maturity of one to five years.

Other world bond funds: Allocate at least two-thirds of their portfolios in a combination of foreign government and corporate debt. Some funds in this category invest primarily in debt securities of emerging markets.

State municipal general bond funds: Invest primarily in municipal bonds of a single state and the residents of that state are exempt from federal and state income taxes. These funds have an average maturity of more than five years or no stated average maturity.

State municipal short-term bond funds: Focus predominantly on municipal bonds of a single state and the residents of that state are exempt from federal and state income taxes. These have an average maturity of one to five years.

Strategic income funds: Provide high current income by investing in a combination of domestic fixed-income securities.

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