| 401(k) Plan |
An employer-sponsored retirement plan that enables employees to
defer taxes on a portion of their salaries by earmarking that portion
for the retirement plan. Several investment options, including a
range of funds, are generally offered. Contributions grow tax-deferred
until withdrawn. |
| 403(b) Plan |
A retirement plan that permits employees of public
schools and 501(c)(3) tax-exempt organizations to have salary and/or
employer contributions made on a pre-tax basis. Contributions grow
tax-deferred until withdrawn. |
| 403(b)(7) Plan |
A type of individual retirement account (IRA) designed
specifically for employees of qualifying nonprofit organizations
(i.e., public schools, public hospitals, churches). A 403(b)(7) plan
enables these employees to defer taxes on a portion of their salaries
by earmarking that portion for the retirement plan. Several investment
options, including funds, are generally offered for investment. |
| Accelerator |
In macroeconomic theory, the accelerator (also: accelerator
coefficient) refers to the amount of investment induced by a change
in output. Investment and output are linked by the accelerator and
the multiplier together these effects are thought to produce a cyclical
pattern of economic growth. |
| Accreted Interest |
The difference between par value of a zero coupon security
and purchase price. Also called original issue discount. Yearly accreted
interest is the amount of accreted interest "earned" each
year that you hold a zero coupon investment. |
| Accrued Interest |
The amount of interest that the buyer owes the seller
on transactions involving fixed income securities, such as most bonds
and notes. |
| Accumulation Units |
Normally applied to unit trusts or unit-linked life
assurance funds where interest and dividends are rolled up or automatically
reinvested to increase the unit value. In the case of unit trusts,
income tax is still payable on the reinvested income. In the case
of some long-term unit linked life assurance policies, units may
be divided between initial units, from which the life assurance company
takes charges, and accumulation units, where only fund management
and not initial charges are taken. |
| Automated Clearing House (ACH) |
Automated Clearing House. A method of transferring
funds. Member banks wire instructions to the Automated Clearing House
which then wires to the appropriate receiving bank. |
| Active Management |
Ongoing supervision of a portfolio and its holdings
to achieve maximum results. Active management is one of the main
benefits of investing in a mutual fund.Activities of daily living
(ADLs) Activities that are necessary for independent living, including
dressing, bathing, eating, standing, sitting, walking and going to
the bathroom. Some long-term care insurance policies provide benefits
based on a person's inability to perform some or all of these activities. |
| Additional Voluntary Contributions |
Employees can choose to make individual additional
voluntary contributions out of their salaries to an employer-sponsored
scheme to secure additional pension benefits on retirement. Such
payments qualify for tax relief at the maximum level, although the
ultimate benefits must not exceed two-thirds of the final salary
and the contribution level should not exceed 15% of the employee's
total remuneration package (including taxable benefits) in any one
year. Employees have the right to select their own personal schemes
which can be quite separate from any existing arrangements, although
though such a scheme can only be used to enhance pension (rather
than cash) benefits on retirement. If an employee selects a plan
separate from the employer-sponsored scheme it is known as a free
standing additional voluntary contribution. |
| Adjustable Rate Mortgage Funds (ARMs) |
A fund that invests primarily in adjustable rate mortgage
securities. Funds in this category usually attempt to maintain a
relatively stable net asset value, but can still be volatile in times
of rising or falling interest rates. During periods of rising interest
rates, investors stand to make more money, but homeowners faced with
the prospect of paying more tend to prepay, prematurely canceling
the investor's expected income. During periods of falling interest
rates, the value of adjustable rate mortgages decreases relative
to other fixed income securities. |
| Adjusted Gross Income (AGI) |
A computation used in calculating income taxes, computed
by subtracting allowable deductions from gross income. |
| Administrative Expenses for Estate Planning |
Expenses incurred in settling an estate (in addition
to funeral expenses, debts and death taxes--including attorney fees,
executor fees, court filing fees, real estate transfer and registration
fees, brokerage and title transfer fees, etc.). These expenses vary
depending on the complexity of the estate. Estimates calculated as
a percentage of the gross estate commonly range from 1% up to 6%.
High percentage estimates may apply to small estates due to fixed
expenses. |
| Advanced Option |
Multiple option strategy. See Spread Order, Straddle,
Strangle, Buy/Write, Sell/Write, and Unwind. |
| Adviser |
The company that takes primary responsibility for managing
a mutual fund. The adviser receives an annual fee for this service,
usually ranging between 0.50% and 1% of a fund's total assets. |
| After-Tax Rate Of Return |
The earnings from an investment after subtracting the
income taxes attributable to those earnings and adding the tax credit,
if any, created by the investment. It is calculated by taking the
rate of return on an investment and, if the earnings are taxable,
multiplying this by 100% minus your marginal tax rate. For example,
a marginal tax rate of 15% produces a factor of 85% (100% 15% = 85%).
If the rate of return on a taxable investment is 8%, then the after-tax
rate is 6.8%. If the investment produces a tax credit, the credit
is added to the earnings. If the investment earnings are not taxable,
the actual rate of return is the same as the after-tax rate. Compare
Pre-tax rate of return. |
| Agency Security |
Any of the bills, notes, and bonds issued by agencies
of the federal government. |
| Aggressive Growth Fund |
A fund with an investment objective of rapid growth
of capital. Aggressive growth funds usually include funds that invest
in smaller companies, funds that invest heavily in a single industry,
and funds that employ riskier investment techniques such as leveraging
and short selling. |
| Aggressive Risk Tolerance |
The willingness to risk losing some or all of your
principal in exchange for the possibility of receiving a higher return.
See Risk tolerance. |
| All or None (AON) |
A type of order where the client wants the entire order
executed or none of it. |
| Allotment |
Where there is a new offer of shares, either by new
issue or otherwise, they are issued on the basis of a prospectus
so that shares can be allocated at a fixed price (see: flotation).
Where demand for shares exceeds the shares available, allotment is
either made on a random or proportional basis. Allocation of these
shares is made by means of a letter of allotment. This entitles the
recipient to a certain number of shares as stated in this letter
subject to payment. |
| Alternative minimum tax (AMT) |
A method of calculating income tax that disallows certain
tax preferences. The tax is intended to ensure that taxpayers who
benefit from tax preferences do not escape all income tax liability.
Taxes must be calculated using both the ordinary and alternative
methods, and the greater of the two results must be paid. |
| Ambac Indemnity Corporation |
One of the largest private insurers of municipal bonds.
This insurance provides that the bonds will be purchased from an
investor at par value should the bond issuer default. Municipal bond
funds featuring insured bonds tend to provide a higher degree of
safety than funds without such insurance, but they also tend to offer
a lower yield. |
| American Depository Receipt (ADR) |
Depository Receipt (ADR) A share of stock that is issued
by an American bank and is backed by foreign securities on deposit. |
| American Stock Exchange (AMEX) |
Located at 86 Trinity Place, New York, NY; a major
stock and option exchange. |
| Amortization |
An accounting term indicating the appointment of an
incurred expense over the life of an asset. For example, if a three-year
magazine subscription (an expense) is paid in year one, it should
be "amortized" (or "spread out") over the three-year
life of the subscription (the asset). |
| Annual And Semiannual Reports |
Reports issued twice a year to a fund's shareholders
detailing the fund's performance, portfolio holdings and current
investment strategy. |
| Annual Exclusion |
A tax rule that permits a person to give gifts valued
up to $10,000 to any number of people each year, free of federal
gift tax. |
| Annual Report |
A formal presentation of the corporation's financial
statements that is sent to its registered stockholders. If shares
are registered in the nominee name (in the care of the brokerage
firm), the proxy department has to obtain copies of the report and
mail them to the beneficial owners (clients). |
| Annuitize |
The act of changing a deferred annuity into an annuity
that provides regular payments. An occasional withdrawal may be made
from a deferred annuity without annuitizing it. See Annuity and Deferred
annuity. |
| Annuity |
A contract with an insurance company in which the individual
makes either lump-sum or periodic payments to the insurance company
and in return receives a lifetime income (usually guaranteed). |
| Appreciation |
An increase in a fund's value. |
| Arbitration |
A method of settling a dispute by utilizing an impartial
individual or individuals. All exchanges and securities associations
have adopted a Code of Arbitration through which all disputes between
firms, employees and firms, and firms and clearing corporations are
settled. |
| As-Of |
A term used to describe any trade processed not on
the actual trade date, but "as of" the actual trade date. |
| Asian Funds |
A fund that invests primarily in the stocks of companies
located in Asia. These funds appeal to investors who believe that
Asia potentially represents a growth area, and want to capitalize
on that growth. |
| Ask Price |
Also known as the offering price, the ask price is
the amount at which a mutual fund or other security's shares can
be purchased. To calculate the ask price of a fund, add a it's current
net asset value per share to its sales charge, if any. |
| Asset |
Anything owned that has monetary value. Goods available
to pay debts. Anything owned by an individual or corporation. |
| Asset Allocation |
The process of determining what proportions of your
portfolio holdings are to be invested in the various asset classes. |
| Asset Allocation Fund |
A fund that invests in a variety of asset classes,
including domestic and foreign stocks and bonds, money market instruments,
precious metals, and real estate. Some asset allocation funds maintain
a relatively fixed allocation between asset classes, while others
actively alter the mix as market conditions change. |
| Asset Class |
A standard term that broadly defines a category of
potential investments. |
| Asset-Backed Security |
A debt instrument collateralized by credit card receivables,
auto loans, or other assets and securitized by a bank or other financial
institution. |
| Assign |
Action of the option holder (buyer) requiring the option
seller (writer) to complete the terms of the option contract. The
writer would be required to either buy stock from the holder or deliver
stock to the holder. |
| Associated Operations |
One operation dependent on another, normally to effect
a transfer of value. A term commonly used in matters of taxation
to establish the relationship between two apparently unconnected
events used as a device to generate artificial profits or losses. |
| At-Risk Rule |
An income tax rule that limits a taxpayer's deductions
for business and investment losses to the amount of the taxpayer's
liability or exposure to possible loss. At-risk rules also apply
to deductions for limited partnerships and, generally, real estate. |
| At-The-Money |
Refers to options in which the underlying stock is
trading at the same price as the option strike price. |
| Auction |
The issuance of new Treasury bills, notes, and bonds
at stated intervals by the Federal Reserve. |
| Auction Market |
A market where buyers and sellers enter simultaneous
bids and offers such as the New York Stock Exchange. |
| Auditor |
The accountant or accounting firm that performs an
audit and provides an auditor's report. External auditors are usually
certified accountants or chartered accountants appointed to perform
an independent audit on a company. External auditors must have no
connection with, own no shares in and have no executive involvement
with the company, and are involved in preparing the statutory report
and accounts on an annual basis by visiting the company. Internal
auditors are appropriately trained employees of a company and perform
a range of functions, not all accounting-specific and cannot audit
a company's annual accounts. |
| Automatic Investment |
A shareholder service that allows the periodic withdrawal
of a specified amount from the shareholder's bank account to be invested
in his or her mutual fund account. Some mutual fund groups also offer
this service as a payroll deduction plan. (See also "dollar
cost averaging.") |
| Automatic Reinvestment |
A shareholder service that authorizes dividend and
capital gain distributions to automatically purchase more fund shares.
Taxes still must be paid on the amount reinvested even though no
funds are received directly by the investor. |
| Automatic Withdrawal |
A shareholder service that entitles an investor to
fixed payments, every month or quarter. The payment comes from the
dividends, income and/or realized capital gains on securities held
by the fund. This service is often chosen by retirees who want to
receive a regular income supplement. |
| Average |
Also known as an index, a mathematical computation
that indicates the value of a number of securities as a group. The
three most popular averages are the Dow Jones Industrial Average
(DJI), Standard & Poor's (S&P) 500, and the New York Stock
Exchange Composite. The average, which may be market-weighted, share-weighted,
or price-weighted, indicates performance. |
| Average Annual Total Return |
A standard measurement of fund performance that includes
dividends, gains, and changes in share price. |
| Average Life |
The weighted average maturity date of a portfolio of
bonds. The estimate of maturity for a pool of mortgage-backed securities. |
