| 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grow tax-deferred until withdrawn.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tax-deferred until withdrawn.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) |
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. |
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