More than 10 years on, due to legislative mandated contributions to the Bermuda National Pension Scheme, Bermuda resident investors have become more comfortable with the concept of mutual funds.

Locally, there are more choices in funds; globally, at third quarter of 2009, there are more than 66,110 (Investment Company Institute) funds routinely offered for sale.

More than 10 years ago, very, very few Bermudian financial institutions offered investor ease of access through the retail portals of an investment centre; today, this is an accepted product feature at every securities firm. Ten years ago, mutual fund fact sheets and related information (prospectuses, comparative benchmarks, Bloomberg tracking, investment websites, fund comparison software, etc) were skimpy, scarce, and difficult to decipher; today, reams of charts, fact sheets and everything mutual funds, including calculators to figure out fee-adjust rates of return (www.sec.gov), are a staple of understanding the investing process; conversely, a fund without professional verifiable supporting documentation is viewed with scepticism.

The retail investment industry is not perfect, perhaps it may never be.

The industry as a whole still grapples with lack of, and less than reader friendly, appropriate information, unsubstantiated claims of investment performance, less than full disclosure of all management fees, administration and underlying fees, commissions, placement fees, and post-sale trailer fees to salespeople, conflicts of interest among products recommended, inability to place the needs of the client before those the investment provider (salesperson), and outright fraudsters. It is the nature of such an incentive-driven business.

However, thoughtful public service-focused legislators and supporters brought the Bermuda Investment Business Act into regulation to promote fiduciary standards of client care, uniformity in reporting, accountability in marketing securities to the public, regulation of investment firms, and the mandate of suitably qualified financial representatives.

The local investment environment continues to make tremendous strides from the days when a copy of a newspaper ad was the only evidence available to prove a fund's existence. Local mutual fund managers, Bermuda Investment Advisory Services (BIAS), Lines Overseas Management (LOM), Butterfield Asset Management (Butterfield Bank) have received very good ratings from Morningstar Mutual Fund Rating Service (formerly Standard & Poors Micropal) for the performance of some of their mutual funds. These are terrific accomplishments for these managers in a tiny international finance jurisdiction, when one considers the intense competition within the global securities marketplace.

More mutual fund choices. Lots more complexity. There is no doubt that in order to understand how mutual funds work, you must possess a general understanding of the structure of stocks and bonds. Suggestions on websites for getting up to speed are : http://www.morningstar.com/ Investor Lessons www.investopedia.com which is all investment driven; www.investor.gov The United States Securities and Exchange Commission non-profit investor website and http://www.aaii.com/ The American Association of Individual Investors non-profit education website.

These are good places to start because we all know that ultimately, the responsibility of understanding and researching the investment products you wish to purchase, rests solely with you, the customer. This means taking your time and learning everything relevant to your financial situation before you make investment decisions.

What is a mutual fund?

There are hundreds of descriptions to this simple question. One of the best is from State Farm Insurance. A mutual fund brings together money from many people and invests it in stocks, bonds, or other assets. The combined holdings of stocks, bonds, or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings.

Fine words. What do they mean, really? Is a mutual fund another form of a fixed deposit with a guaranteed rate of interest? No, it is not. Many investors still think so, and become quite irate when market volatility does not meet their expectations. There are very distinct differences between a fixed deposit and a mutual fund. Look at the comparison chart.

How do I buy it?

l Public versus private. The better question here is, are the mutual funds you are interested in publicly available? And who is offering them for sale?

Publicly available for sale. Four words with enormous significance for every investor. Money does not discriminate. If you have the cash (and the wherewithal to open an investment account) you can purchase any publicly available investment you want. This does not mean that each investment is appropriate for you, but if you want it, you can have it, just by paying for it. Being in the public domain also means - more importantly - that all information regarding the structure, the management, the fees, the performance (good and bad), the leverage, the underlying assets, everything about that investment must be disclosed to the public. This investment mandate is wrapped up in an enormous missive called the prospectus. We shall explore this legal, financial, and regulatory requirement in another of the mutual fund series.

• Privately held - means just that. The information is not public; if it is your personal information, you certainly are not going to divulge it (unless you are enamored of Facebook). Private held companies are owned by a small group of investors, often just members of a family. They have not offered any company shares to the public for purchase. Thus, they do not have to disclose their private financial information.

• Private equity deals are constructed between a small number of sophisticated private investors. Under securities laws, they may be have to notify a Securities Exchange Commission, but they are not required to place that information into the public interchange.

Why? Because these offerings are not tendered for sale for the general public. For example, Butterfield Bank, a publicly traded company whose shares are sold and bought on the Bermuda Stock Exchange, entered into an agreement with a group of private equity investors. They did, in fact, disclose who the investor groups were for public knowledge. The Government of Bermuda borrowed more than $400 million in a private placement loan offering. They have not released that information and we, the public, do not know who or what foreign institutions hold our long-term debt.

Who is offering the mutual funds for sale? Is it a bank selling Who is offering the mutual funds for sale?

Is it a bank selling their own proprietary product, or is it a global mutual fund company who specialises in fund management.

Part 3 - coming soon.

Cross border caution: US citizens, Green Card holders, and dual citizens with the United States should always consult their tax advisor before purchasing offshore investment products.

Martha Myron does not sell, recommend, receive placement fees, referrals fees, or commissions from mutual fund companies investment firms. She owns one small mutual held under a US tax compliant pension plan.

Martha Harris Myron, CPA, CFP (US) TEP (UK) JP- Bermuda is an international Certified Financial Planner™ practitioner in private wealth management. She specialises in independent fee-only cross border planning in investment, tax, trust, estate, and strategic retirement strategies for Bermuda residents crossing borders and multi-jurisdictional assets, dual citizens with US connections, and US citizens living abroad.

sFor more information, contact martha.myron@gmail.com or 296 3528