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Contributions grow tax-deferred until withdrawn.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tax-deferred until withdrawn.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