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| A |
| Account |
| The record of a shareholder's share balance and transactions in one fund. A customer may have accounts in more than one fund or different accounts in the same fund. |
| Adviser |
| The company hired by a mutual fund to provide professional advice on the fund's Investments and practices (also called the "investment adviser"). |
| Advisory Fee |
| The fee paid to an investment adviser (portfolio manager) as compensation for managing a portfolio of securities. The fee is usually based on a percentage of assets under management or on an incentive schedule, providing compensation based on a comparison of fund performance to a particular index or average. |
| After-Tax Return |
| The return from an investment after all income taxes have been deducted. By comparing after-tax returns an investor can determine which investment makes the most sense based on his or her tax bracket. |
| Agency Securities |
| Government securities issued by entities other than the U.S. Treasury |
| American Depository Receipt (ADR) |
| A security issued by a U.S. bank in place of the foreign Shares held in trust by that bank, thereby facilitating the trading of foreign Shares in U.S. markets. |
| Annualized Rate Of Return |
| The average return over a period of years, taking into account the effect of compounding. Also called the compound growth rate. For example, a 100% return over five years is equivalent to an annualized rate of return of 18.2% per year. |
| Ask Price |
| The price at which a mutual fund's Shares can be purchased. The asked price is also referred to as the fund's net asset value (NAV) per share, and includes front-end sales charges, if any. For a no-load fund, the asked price is the same as the NAV. See offering price. |
| Asset Allocation |
| The process of deciding how your investment dollars will be apportioned among various classes of financial assets, such as stocks, bonds, and short-term reserves. According to financial experts, the investment mix that you choose has a greater impact on your long-term investment results than the performance of individual investment options that you select. |
| Average Maturity |
| A weighted average of the expiration dates for a portfolio of debt securities. An income fund's volatility can be managed by shortening or lengthening the average maturity of its portfolio. |
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| Balanced Fund |
| A fund that seeks both growth and income, with stability of principal, through a portfolio that includes both stocks and bonds( including convertible and preferred Shares). |
| Basis Point |
| One one-hundredth of one percentage point, or 0.01%. |
| Beneficiary |
| A recipient of proceeds from a qualified retirement plan or insurance policy upon the death of the registered owner. |
| Beta |
| A measure of the magnitude of a portfolio's past share-price fluctuations in relation to the fluctuations in the overall market (or appropriate market index). The market, or index, has a beta of 1.0, so the price of a portfolio with a beta of 1.20 would be expected to rise or fall by 12% when the overall market rose or fell by 10%. |
| Blue Chip |
| A high quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. |
| Blue-Sky Laws |
| A popular name for laws that various states have enacted to protect the public against securities frauds. The term is believed to have originated when a judge ruled that a particular stock had about the same value as a patch of blue sky. |
| Bond |
| An IOU (debt security) issued by a government or corporation that pays a stated rate of interest and returns the face value on the maturity date. |
| Book Value |
| The net worth, or liquidating value, of a business. Calculated by subtracting from total assets all liabilities, including debt and preferred stocks, and dividing by the number of Shares of common stock outstanding. |
| Broker/Dealer |
| Technically, a firm that brings buyers and sellers together in its function as broker and that also buys securities to sell while fulfilling its role as dealer. The terms broker, broker/dealer, and dealer are sometimes used interchangeably. |
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| Callable Bond |
| Refers to a bond whose issuer reserves the right to redeem it before it is due. This feature represents a risk to the investor in that bonds are generally called when interest rates fall, and thus usually can't be replaced with a similar yielding issue of the same quality. |
| Capital Appreciation |
| An increase in the value of an asset, such as mutual fund Shares. Capital appreciation is the investment objective of mutual funds that purchase securities whose value is expected to rise. |
| Capital Gain |
| Profit from the sale of stocks, bonds, options, real estate, and other property. |
| Capital Gain Distribution |
| A payment to fund shareholders of profits (long-term gains) realized on the sale of the fund's securities. The net asset value of the fund is reduced by the amount of the distribution. For equity funds, these amounts are usually paid out once a year, in December. Fixed-income funds may include capital gains in their monthly distributions. |
| Capital Loss |
| Loss from the sale of stocks, bonds, options, real estate, and other property. |
| Capitalization |
| The total amount of the various securities issued by a corporation. Capitalization includes bonds, debentures, preferred stock, common stock, and surplus, which represent the sources of long-term financing of the company. Bonds and debentures are usually carried on the books of the issuing company in terms of their par or face value. Preferred and common Shares may be carried in terms of par or stated value. |
| Cash Equivalent |
| A short-term money-market instrument, such as a Treasury bill or repurchase agreement, of such high liquidity and safety that it is virtually as good as cash. |
| Closed-End Fund |
| A regulated investment company that offers a fixed number of Shares, which are traded on a stock exchange just like stocks. |
| Collateralized Mortgage Obligation (CMO) |
| A type of security that attempts to lower the amount of reinvestment risk associated with investments in mortgage-backed securities. The CMO creates bonds collateralized by a pool of mortgages or agency pass-through securities. Each bond (called a tranche) has a different rate of interest, repayment schedule, and priority level for receiving principal payments. |
| Commercial Paper |
| Corporate promissory notes issued to provide short-term financing, sold at a discount and redeemed at face value. A principal component of money market fund portfolios because of its high yield. |
| Common Stock |
| A security that represents ownership in a public corporation. This is the first security a corporation issues to raise capital. |
| Convertible Securities |
| A bond, debenture or preferred stock which may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the terms of the issue. |
| Cost Basis |
| The cost of an investment, used as the basis for calculating and reporting capital gains or losses. It is adjusted for stock splits, distributions, and return of capital. |
| Coupon Rate |
| The interest rate on a bond. On a bearer bond, it refers to the collection of interest by presenting the coupons which are attached to the bond. |
| Credit Rating |
| An evaluation of the creditworthiness of a debt security by an independent rating service. |
| Credit Risk |
| The potential for default by an issuer on its obligation to pay interest or principal on debt securities. Most U.S. government securities are considered to have very little credit risk. |
| Currency Risk |
| The potential for price fluctuations in the dollar value of international stocks due to changing currency exchange rates. |
| Current Dividend Yield |
| The rate of payment for a fund that distributes only dividend and interest income, expressed in percentages. |
| Custodian |
| A bank, trust company, or other organization responsible for safe-guarding financial assets. |
| Custodian Under The Uniform Gifts/Transfers To Minors Act (UGMA/UTMA) |
| A form of account registration in which a custodian acts on behalf of a beneficial owner who is a minor. All income and capital gains are reportable under the minor's Social Security number. |
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| Debenture |
| A promissory note backed by the general credit of a company and not secured by a mortgage or lien on any specific property. |
| Debt Securities |
| General term for any security representing money loaned that must be repaid to the lender at a future date. Bonds, notes, bills, and money market instruments are all debt securities. |
| Defined Contribution Plan |
| A qualified retirement plan in which the level of contributions is based on a percentage of the employee's compensation. The money is invested by the employee according to the options available. The benefit at retirement is dependent upon the performance of the investment account. |
| Discount Rate |
| The interest rate charged by the Federal Reserve to member banks. Basically, the floor rate for interest rates in the economy. |
| Distribution |
| Payment of a dividend or capital gain. Shareholders may take their distributions in cash or reinvest them in additional Shares of the same fund or another fund. |
| Diversification |
| Spreading investments among many different securities or sectors to reduce the risk of owning any single investment. |
| Diversified |
| A mutual fund that meets certain legal requirements pertaining to the number of issuers represented in its portfolio, including a restriction that 75% of the portfolio be invested in at least 15 different issuers. |
| Dividend |
| A payment of cash from a company's profits to its stockholders. Dividends received by a mutual fund from its portfolio are distributed to its shareholders. |
| Dollar-Cost Averaging |
| An investment strategy based on making investments of equal amounts at regular intervals in the same fund or security. Because the shareholder buys more Shares at lower prices and fewer Shares at higher prices, the average cost of the Shares purchased will generally be lower than the average price over the investment period. However, dollar-cost averaging does not ensure a profit or protect against a loss in a declining market. |
| Dow Jones Industrial Average |
| ("the Dow") The most commonly used indicator of stock market performance, based on the prices of 30 major industrial companies. Often simply called "the Dow." |
| Duration |
| A mathematical measure of a bond's sensitivity to changes in interest rates. Duration is stated in years; the shorter the duration, the less volatility you can expect from the bond. |
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| Equity Security |
| A type of security representing ownership in a corporation. Common stock, preferred stock, and convertible securities are all equity securities. (Debt securities do not represent ownership.) |
| Exchange Privilege |
| The right to exchange from one mutual fund to another without an additional sales charge, subject to rules on minimum holding periods. |
| Ex-Dividend |
| Means "without the dividend." Used to refer to a security that no longer carries the right to the next dividend. An "x" will appear next to the name of the stock or fund to indicate that the share price has dropped by the amount of that dividend and thus purchasers will not receive the dividend. |
| Ex-Dividend Date |
| When used in reference to mutual funds, the date the share price drops by the amount of the dividend. (The fund's assets are reduced by the amount of the distribution before the NAV is calculated.) |
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| Face Value |
| The value of a bond stated on the bond certificate; thus, the redemption value at maturity. Most bonds have a face value, or par, of $1,000. |
| Fannie Mae (Federal National Mortgage Association) |
| A privately owned corporation which provides a secondary market for federally guaranteed or insured mortgages as well as conventional mortgages. Its stock trades on the NYSE. It issues a number of different mortgage-backed securities. |
| Fixed-Income Security |
| A security that pays an unchanging rate of interest or dividends. Fixed-income securities include bonds, money market instruments, and preferred stock. |
| 401(K) Plan |
| A type of qualified retirement plan in which employees make salary reduced, pretax contributions into an employee trust. In many cases, the employer will match employee contributions up to specified levels. |
| 403(B) Plan |
| A retirement plan for employees of nonprofit organizations such as universities, churches, or public schools. The employee can contribute a portion of salary into a mutual fund or an annuity, and the contributions and earnings grow tax-deferred until withdrawn. |
| Freddie Mac (Federal Home Loan Mortgage Corporation) |
| Provides a secondary market for conventional residential mortgages. It issues a number of mortgage-backed securities. |
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| General Obligation Bond (GO) |
| A municipal bond backed by the general credit of the issuing organization. General obligation bonds are more secure than revenue bonds and thus trade with a slightly lower yield. |
| Ginnie Mae (Government National Mortgage Association) |
| A wholly owned government corporation within the Department of Housing and Urban Development. It helps raise funds for the mortgage market by guaranteeing securities backed by pools of mortgages. |
| Government Security |
| Any debt obligation issued by the U.S. government or its agencies. Certain securities, such as Treasury bonds and Ginnie Maes, are backed by the government as to both principal and interest payments. Other securities, such as those issued by the Federal Home Loan Mortgage Corporation, or Freddie Mac, are backed by the issuing agency. |
| Growth Investing |
| Focuses on stocks of companies whose earnings are growing rapidly and are likely to continue growing. |
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| Hedge |
| A strategy used to offset investment risk. In investing, hedging involves the purchase of an offsetting position, such as a put option or futures contract, to guard against the risk of a market decline. Often used as a defensive strategy in portfolios investing in non-U.S. securities to reduce the negative effects of unfavorable moves in currency exchange rates. |
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| Index |
| A benchmark against which to measure performance, such as Standard & Poor's 500 Index. |
| Individual Retirement Account (IRA) |
| A retirement plan that allows individuals to contribute money on a tax-deferred basis to a retirement account each year. |
| Interest Rate Risk |
| The risk that should interest rates rise, an investment in a fixed income security will decrease in value. This will cause a decrease in the overall return which the investor receives as it relates to newly issued securities. |
| Investment Company |
| A "company" that invests in other "companies." Each open-end and closed-end fund is actually a separate investment company owned by its shareholders and governed by rules established in the Investment Company Act of 1940. An investment company combines the money from a number of investors and then invests the money in a large, diversified portfolio. |
| Investment Objective |
| The goal an investor or a mutual fund seeks to accomplish. Investment objectives include current income, capital appreciation, or a combination of the two. |
| Investment-Grade |
| Bonds suitable for purchase by prudent investors. Standard & Poor's and Moody's Investors Service designate bonds in their top four categories (AAA/Aaa, AA/Aa, A, and BBB/Baa) as investment grade. |
| Issue |
| A stock or bond offering sold by a corporate or government entity at a particular time. |
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| Joint Tenants With Right Of Survivorship (JTWROS) |
| An account with two or more people where upon the death of one account holder, the survivors receive total ownership. |
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| Large Cap |
| Generally described as a company whose total market capitalization is $1 billion or more. |
| Liquidity |
| The ability to easily turn assets into cash easily. An investor should be able to sell a liquid asset quickly with little effect on the price. Liquidity is a central objective of money market funds. |
| Long-Term Capital Gain |
| A profit on the sale of a security or mutual fund share that has been held for more than one year. |
| Lump-Sum Distribution |
| A single withdrawal of an account's entire value. Upon retirement, participants in an IRA or other qualified retirement plan can choose to have a lump-sum distribution of the proceeds in their account. Certain lump-sum distributions qualify for special tax treatment. |
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| Market Risk |
| The risk that the value of a security will decline. Relating to fixed income securities, it is closely related to interest rate risk since as interest rates rise, prices will decline. |
| Maturity Date |
| The date on which the principal of a bond must be repaid. |
| Mid Cap |
| Generally referes to a company whose total market capitalization is between $2 billion - $11 billion. |
| Municipal Bond |
| An IOU issued by a state, city, or other municipality to finance public works such as the construction of roads or schools. The interest is usually free from federal income tax and may be free from state and local taxes as well. |
| Mutual Fund |
| A diversified, professionally managed portfolio of securities that pools the assets of individuals and organizations to invest toward a common objective such as current income or long-term growth. Technically, a mutual fund is a regulated investment company registered under the Investment Company Act of 1940. |
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| Net Asset Value Per Share (NAV) |
| The market value of one share of a mutual fund. The fund's NAV is calculated daily by taking the fund's total assets (securities, cash, and accrued earnings), subtracting the fund's liabilities, and dividing by the number of Shares outstanding. The NAV does not include the sales charge. The process of calculating the NAV is called pricing. |
| New York Stock Exchange (NYSE) |
| The largest organized securities market in the United States, founded in 1792. The Exchange itself does not buy, sell, own, or set the prices of stocks traded there. The prices are determined by public supply and demand in an auction fashion. The Exchange is a not-for-profit corporation of 1,366 individual members, governed by a Board of Directors consisting of 10 public representatives, 10 Exchange members or allied members, and a full-time paid chairman and president. Also known as the Big Board. |
| Nominal Return |
| The return on an investment before adjustment for inflation. See real return. |
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| Offering Price |
| The purchase price per share of a mutual fund, determined by adding any applicable sales charge to the fund's net asset value (NAV) per share. Also known as ask price. |
| Open-End Investment Company |
| A mutual fund, so called because it continuously offers new Shares to the public. |
| Option |
| The right to buy or sell a given security within a particular time at a specified price. The right to buy is a call; the right to sell is a put. Unlike a futures contract, an option does not obligate the investor to perform the transaction; the obligation is only on the part of the seller. |
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| Par Value |
| The face value of a bond or stock as printed on the certificate. Bonds generally have a par value of $1,000. |
| Payable Date |
| The day on which a mutual fund pays its distributions to shareholders. |
| Portfolio |
| A combination of securities. A mutual fund's well-diversified portfolio lowers investment risk. |
| Portfolio Turnover |
| A measure of the trading activity in a fund's portfolio of investments -- that is, how often securities are bought and sold by the fund. |
| Preferred Stock |
| A class of stock with a fixed dividend that has preference over a company's common stock in the payment of dividends and the liquidation of assets. There are several kinds of preferred stock, among them adjustable-rate preferreds and convertible preferreds. |
| Prepayment Risk |
| The chance that homeowners will pay off their mortgage loans early, resulting in early retirement of mortgage-backed Ginnie Mae securities. Prepayment risk increases during periods of declining interest rates when many homeowners refinance their mortgages. |
| Price To Book Ratio |
| The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the ratio is the weighted average price/book ratio of the stocks it holds. |
| Price To Earnings Ratio (P/E Ratio) |
| A method of valuing stocks, calculated by dividing the closing price of a company's stock by its annual earnings per share. Growth stocks tend to have a high P/E ratios compared to income stocks. |
| Prime Rate |
| The interest rate a bank charges on loans to its most creditworthy customers. Frequently cited as a standard for general interest rate levels in the economy. |
| Prospectus |
| The official legal document that describes a fund and offers its Shares for sale. By law, a prospectus must be given to all investors before they invest. |
| Proxy |
| A written authorization that allows one person to act for another. For example, shareholders who are unable to attend a fund's annual meeting may mail in their ballots and vote by proxy. |
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| Qualified Retirement Plan |
| A retirement plan (or annuity) into which tax deductible contributions are made and invested. The investment's earnings are tax deferred. Taxes are paid only when money is withdrawn. Keogh Plans, IRAs, and most corporate pension plans are qualified. |
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| Real Rate Of Return |
| The return on an investment after it is adjusted for the effects of inflation. |
| Record Date |
| The date that determines which shareholders will be paid the dividend or capital gain declared by the fund. Only shareholders who are invested in the fund at the opening of business on the record date will receive the distribution. |
| Redemption |
| The process of converting Shares into cash. Any open-end mutual fund must redeem Shares at the current price from a registered shareholder upon request. |
| Reinvestment Date |
| Synonymous with Ex-Dividend Date. The date on which a share's dividend and/or capital gains are reinvested (if requested) in additional Fund Shares. |
| Repurchase Agreement (REPO) |
| A purchase of U.S. government securities from a bank or broker made under the stipulation that the seller agrees to buy back or "repurchase" the securities at a fixed price on a future date. "Repos" usually mature in a week or less. |
| Revenue Bond |
| A municipal bond that is backed by the revenue from the project being financed. Revenue bonds are less securely backed than general obligation bonds, and thus trade with a higher risk. |
| Rollover |
| The reinvestment of assets received as a lump-sum distribution from a qualified tax-deferred retirement plan. Reinvestment may be the entire lump sum or a portion of that sum. If the reinvestment is done within 60 days, there are no tax consequences. |
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| Sales Charge |
| A fee charged when Shares are purchased (front-end) or redeemed. Also called the load. Most of the sales charge is returned to the broker as commission; a smaller portion is retained by the mutual fund company. |
| Securities And Exchange Commission (SEC) |
| The federal agency created by the Securities and Exchange Act of 1934 that administers the laws governing the securities markets. The SEC regulates the registration and distribution of mutual fund Shares. |
| SEP (Simplified Employee Pension Plan) |
| A retirement plan that allows small businesses to contribute to IRAs for their employees. |
| Settlement Date |
| The date when payment for a wire order purchase or a wire order redemption is received. Funds purchased through a dealer firm are normally settled five business days after the trade date. Funds purchased directly by a shareholder settle on the day payment is received. |
| Short-Term Capital Gain |
| A profit on the sale of a security or mutual fund share held for one year or less. |
| Small Cap Stock |
| Generally refers to a company whose total market capitalization is less than $250 million. |
| Standard & Poor's 500 Index |
| A daily measure of stock market performance, based on the performance of 500 major companies. Though it does not include transaction or management costs, the S&P 500 is often used as a yardstick for equity fund performance. |
| Statement Of Additional Information (SAI) |
| An addendum to a mutual fund's prospectus that includes further disclosure about the fund's operations. |
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| Taxable Equivalent Yield |
| The comparable taxable yield of a tax-exempt investment, calculated by dividing the tax-exempt yield by 1 minus the investor's marginal tax rate. |
| Tax-Deferred |
| Income whose taxes can be postponed until a later date. Contributions to a 401(k) plan, for example, are not taxed until they are withdrawn from the account, but when withdrawn, they are fully taxed at the applicable tax rate. |
| Total Return |
| The return on your investment which takes into account the change in price plus dividends or interest you receive. The total return for a fund reflects changes in net asset value and reinvestment of all distributions in additional Shares of the fund. |
| Trade Date |
| The date used to determine the price of a transaction. |
| Transfer Agent |
| An institution, usually a bank, used by an issuer of Shares to maintain its shareholder records and perform all account transactions. |
| Treasury Bill (T-Bill) |
| Short-term obligations of the U.S. Government. They have 13-week, 26-week, and 52-week maturities. They are purchased at a discount and mature at face value. The difference between the purchase price and maturity value (the amount of the discount) is considered interest. |
| Treasury Bond |
| U.S. Government obligations with original maturities of more than 10 years. They are issued in $1,000 denominations and pay interest semiannually. |
| Treasury Note |
| U.S. Government obligations with original maturities of more than one year, up to ten years. They are issued in $1,000 denominations and pay interest semiannually. |
| Treasury Stock |
| Stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired. Treasury stock receives no dividends and has no vote while held by the company. |
| 126-1 Plan |
| A mutual fund distribution plan under which a certain percentage of mutual fund assets, usually 1% or less, is used to pay distributions and marketing expenses. |
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| Uniform Gift To Minors Act (UGMA) |
| The act which establishes rules governing the purchase of securities for a minor. Each state has adopted the UGMA with few changes. A gift to a minor is irrevocable and securities must be registered in the name of an adult as custodian for the minor. |
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| Value Investing |
| Investing in companies whose stocks appear to be undervalued by the market at large. |
| Volatility |
| Changes in the price of a security. Rapid, wide price swings indicate a high degree of volatility. |
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| Wash Sale |
| A sale of securities at a loss with the subsequent disallowance of the loss by the IRS. If an individual sells a security at a loss and, within 30 days, repurchases substantially the same security, the IRS will consider it a wash sale and will disallow the loss. |
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| Yield |
| The rate at which a security distributes income, expressed as a percentage of the current price. For example, if a fund distributes $1 per share over the year and at the end of the year the price is $20, its yield is $1/$20, or 5%. Yield is an important measure of performance for income funds and individual bonds. |
| Yield Curve |
| A graph depicting the relationship between yields and maturity dates for a set of similar securities. These curves are in constant flux, and one of the key activities in managing any income-oriented mutual fund is to study trends reflected by comparative yield curves. |
| Yield To Maturity |
| The annual return on a bond, assuming the bond is held until its maturity date. Unlike current yield, this takes into consideration the purchase price, redemption value, time to maturity, coupon yield, and time between interest payments. |
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| Zero Coupon Bond |
| A security that pays no interest but is instead sold at a deep discount from face value. The holder receives the rate of return through the gradual appreciation of the security, which is redeemed at maturity for the full face value. |