|
Advisor
The organization employed by a mutual fund to give professional advice on the fund's
investments and to supervise the management of
its assets.
Asked or Offering Price
The price at which a mutual fund's shares can be purchased.
The asked or offering price is based on the current net asset value (NAV) per
share plus any sales charge.
Asset Allocation Fund
A fund that spreads its portfolio among a wide variety of investments, including domestic
and foreign stocks and bonds, government securities, gold bullion and real
estate stocks. Some of these funds keep the proportions allocated between
different sectors relatively constant, while others alter the mix as market
conditions change.
Automatic Investment Plan
A plan offered by most mutual funds where as little as $50 a month is automatically deducted from
an investor’s bank account and invested in the mutual fund of their choice.
Automatic Reinvestment
A service that most mutual funds offer whereby a shareholder's income dividends
and capital gains distributions are automatically reinvested in additional
shares.
Balanced Fund
A mutual fund that maintains a balanced portfolio of bonds, preferred stocks and common stocks or money-market
instruments.
Benchmark
An unmanaged group of securities whose performance is used as a standard to measure investment performance.
Commonly known as a market index. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500.
Bid or Sell Price
The price at which a mutual fund's shares are redeemed (bought back) by
the fund. The bid or redemption price is the current net asset value
per share, less any redemption fee or back-end load.
Bond Fund
A mutual fund whose portfolio consists primarily of corporate, municipal
or U.S. Government bonds. These funds generally emphasize income rather
than growth.
Bond Rating
A system of evaluating the probability of whether a bond issuer will default.
Standard and Poor's Corp. and Moody's Investors Services, among other
firms, analyze the financial stability of both corporate and government
bond issuers. Ratings range from AAA or Aaa (extremely unlikely to default)
to D (currently in default). Bonds rated BBB or below by S&P or Baa or
below by Moody's are not considered to be of investment grade. Mutual
funds generally restrict their bond purchases to issues of certain quality
ratings, which are specified in their prospectuses.
Capital Appreciation Fund
A mutual fund that seeks maximum capital appreciation by investing in companies that do not pay dividends.
These funds may use techniques involving greater than ordinary risk, such as borrowing money in order
to provide leverager, short selling and high portfolio turnover.
Capital Gain
Profit that results when the price of a secuirty held by a mutual fund rises above its purchase price. If the security
is sold, then the capital gain is realized; if the security is still being held, the gain is unrealized. If the security has been
held for more than a year, the gain is long-term; otherwise it is shorter-term. A capital loss occurs when the price of
a security falls below its purchase price.
Capital Gains Distributions
Payments made usually at the end of the year to mutual fund shareholders of gains realized on the
sale of securities in the mutual fund portfolio.
Capital Growth
A rise in market value of a mutual fund's securities, reflected in its
net asset value per share. This is a specific long-term objective of many
mutual funds.
Certificate of Deposit
An interest-bearing, short-term debt instrument issued by banks and thrifts.
Closed-End Investment Company
An investment company that offers a limited number of shares. They are
traded in the securities markets, usually through brokers. Price is determined
by supply and demand. Unlike open-end investment companies (mutual funds),
closed-end funds do not redeem their shares.
College Savings Plan
State sponsored programs sometimes known as Section 529 Plans for the IRS Section
that permits the tax-exempt growth of savings earmarked for higher education. Established by
individual states, the programs are administered by mutual fund companies. In many states,
earnings are exempt from state tax as well. Some of the benefits include higher contribution
limits, no income restrictions and withdrawals can be used for any qualified higher education expense.
Commercial Paper
Short-term, unsecured promissory notes with maturities no longer than
270 days. They are issued by corporations, in denominations starting at
$10,000, to fund short-term credit needs.
Common Stock Fund
An open-end investment company whose holdings consist mainly of common
stocks and usually emphasize growth.
Confirm Date
The date the fund processed your transaction, typically the same day or
the day after your Trade Date.
Contingent Deferred Sales Charge (CDSC)
A fee (or back-end load) imposed by certain funds on shares redeemed within
a specific period following their purchase. These charges are usually
assessed on a sliding scale, such as four percent to one percent of the
amounts redeemed, with the fee reduced each year the shares are held.
Conversion Privilege
See Exchange Privilege
Custodian
The bank or trust company that maintains a mutual fund's assets, including
its portfolio of securities or some record of them. The custodian provides safekeeping
of securities but has no role in portfolio management.
Daily Dividend
Fund
This term applies to funds which declare their income dividends on a daily
basis and reinvest or distribute monthly.
Deferred Compensation Plan
A tax-sheltered investment plan to which employees of state and local
governments can defer a percentage of their salary.
Distributor
An individual or a corporation serving as principal underwriter of a mutual
fund's shares, buying shares directly from the fund, and reselling them
to other investors.
Distributions
Can be used to mean either withdrawals made by the owner from an individual
retirement account (IRA), or payments of dividends and/or capital gains by a mutual fund.
Diversification
A basic risk management tool in which an investor maintains a mix of common stocks, bonds
money markets and other investments to reduce potential risk.
Dollar-Cost Averaging
The technique of investing a fixed sum at regular intervals regardless
of stock market movements. This reduces average share costs to the investor,
who acquires more shares in periods of lower security prices and fewer
shares in periods of high prices. In this way, investment risk is spread
over time.
Education IRA
A tax-advantaged savings account designed to provide for a child's postsecondary education.
Equity Income Fund
A mutual fund that invests in a portfolio of bonds and dividend-paying stocks. While similar
to growth and income funds, they are more likely to hold bonds and focus on stocks that pay higher-than-average
dividends.
Exchange
Privilege (Or switching privilege)
The right to transfer investments from one fund into another, generally
within the same fund group, at nominal cost.
Ex-Dividend Date
The date on which a fund's Net Asset Value (NAV) will fall by an amount
equal to the dividend and/or capital gains distribution (although market
movements may alter the fund's closing NAV somewhat). Most publications
which list closing NAVs place an "X" after a fund's name on its Ex-Dividend
Date.
Expense Ratio
The ratio of total expenses to net assets of the fund. Expenses include
management fees, 12(b)1 charges, if any, the cost of shareholder mailings
and other administrative expenses. The ratio is listed in a fund's prospectus.
Expense ratios may be a function of a fund's size rather than of its success
in controlling expenses.
Fannie Mae (Federal Mortgage Association)
An agency established by the federal government, but owned by private stockholders,
which issues mortgage-backed certificates in $25,000 denominations. Timely
payment of both interest and principal are insured. A growing number of
mutual funds emphasize investments in these and other mortgage-backed securities.
Fiscal Year
An accounting period consisting of 12 consecutive months.
529 Plan See College Savings Plan
401(k) Plan
A tax-deferred retirement plan that can be offered by businesses of any
kind. A company's 401(k) plan can be a "cash election" profit-sharing or
stock bonus plan, or a salary reduction plan. A 401(k) plan carries many
unique advantages for both employer and employee.
403(b) Plan
Section 403(b) of the Internal Revenue Code allows employees of public school
systems and certain charitable and nonprofit organizations to establish
tax-deferred retirement plans which can be funded with mutual fund shares.
Freddie Mac (Federal Home Loan Mortgage Corporation)
A federally chartered agency that purchases residential mortgages from lending
institutions and packages them for sale as securities backed by the pooled
mortgages. Stock in the corporation is owned by thrifts around the country.
The Federal Home Loan Bank System serves as trustee. The corporation guarantees
timely interest payments and ultimate payment of principal on its securities,
which are issued in denominations of $25,000 and above.
Ginnie Mae (Government National Mortgage Association)
GNMA or "Ginnie Mae," is an agency within the U.S. Department of Housing
and Urban Development. A government-owned agency, it buys mortgages from
lending institutions and pools them to form securities, which it then sells
to investors. The agency guarantees timely payment of both interest and
principal.
Global Fund
A fund that invests in both U.S. and foreign securities. See
International Fund.
Growth Fund
A mutual fund whose primary investment objective is long-term growth of
capital. It invests principally in common stocks with significant growth
potential.
Growth and Income Fund
A mutual fund that seeks both long-term growth of capital and current dividend income from stocks.
Income Dividend
Payment of interest and dividends earned on the fund's portfolio securities
after operating expenses are deducted.
Income Fund
A mutual fund that primarily seeks current income rather than growth of
capital. It will tend to invest in stocks and bonds that normally pay high
dividends and interest.
Index Fund
A mutual fund that seeks to mirror general stock-market performance by matching
its portfolio to a broad-based index, most often the Standard & Poor's 500-stock
index.
Individual Retirement Account (IRA)
A personal, tax-sheltered retirement account available to individuals. Depending on individual
circumstances, IRA contributions may be fully or partially tax deductible. Withdrawals before the
investor reaches age 59 1/2 are generally subject to a penalty imposed by the federal government.
Types of IRAs include the traditional IRA and Roth IRA.
Individual Retirement Account (IRA) Rollover
A provision in the IRA law allowing individuals who receive lump-sum payments
from pension or profit-sharing plans to "roll-over" into, or invest that
sum in, an IRA. IRA funds can be "rolled-over" from one investment to another.
Intermediate Bond Fund
A mutual fund that invests in bonds with maturities within the 5 to 10-year range.
International Fund
A fund that invests in securities traded in markets outside the United States.
Investment Advisor See Advisor
Investment Company
A corporation, partnership or trust that invests the pooled monies of many
investors. It provides greater professional management and diversification
of investments than most investors can obtain independently. Mutual funds,
or "open-end" investment companies, are the most popular form of investment
company. See Mutual Fund.
Investment Objective
The financial goal (long-term growth, current income, etc.) that an investor
or a mutual fund pursues.
Junk Bond
A speculative bond rated BB or below by Standard & Poor's Corp. and Ba
or below by Moody's Investor Service. See Bond Rating.
"Junk bonds" are generally issued by corporations of questionable financial
strength or without proven track records. They tend to be more volatile
and higher yielding than bonds with superior quality ratings. "Junk bond
funds" emphasize diversified investments in these low-rated, high-yielding
debt issues.
Keogh Plan
A tax-deferred retirement account for self-employed individuals or employees
of unincorporated businesses. Keogh plans can be funded with mutual fund
shares. (Also know as H.R. 10 Plans.)
Large Cap Fund
A mutual fund that invests in the stocks of companies whose total outstanding shares
are generally valued at $10 billion or more. Large-capitalization stocks are generally stable,
well-established companies and likely to have minimal fluctuation in their value.
Load
A sales charge added to the purchase of a mutual fund ("load fund")
to cover their selling costs. The commission is generally stated as a
portion of the fund's offering price, and can range up to 8.5%.
Load Fund
A mutual fund that levies a sales charge up to 8.5%. There are various types of load funds
including a front-end load where the fee is levied when buying shares; and a back-end
load where the fee is charged when selling shares. See
Redemption Fee.
Long-Term Bond Fund
A mutual fund that invests in bonds that mature in more than 10 years.
Long-Term Capital Gain
A profit on the sale of a mutual fund share that has been held for more than one year.
Low-Load Fund
A mutual fund that charges a small sales commission, of 3.5% or less,
for the purchase of its shares.
Management Fee
The amount a mutual fund pays to its investment advisor for services rendered,
including management of the fund's portfolio. In general, this fee ranges
from .5% to 1% of the fund's asset value.
Mid-Cap Fund
A fund that invests in the stocks of companies whose total outstanding shares are generally
valued between $1.6 and $10 billion.
Money Market Fund
A mutual fund that aims to pay money market interest rates. This is accomplished
by investing in safe, highly liquid securities, including bank certificates
of deposit, commercial paper, U.S. government securities and repurchase
agreements. Money Market funds make these high interest securities available
to the average investor seeking immediate income and high investment safety.
Mortgage-Backed Securities
Certificates backed by pooled mortgages (e.g., Freddie Mac or Ginnie Mae).
Issuing agencies buy mortgages from lending institutions and repackage
them as securities which they sell to investors. They are generally issued
in denominations of $25,000 or above. Yields, which stem from interest
and principal on underlying mortgages, are generally higher than those
of Treasury bonds that provide comparable liquidity and safety. A growing
number of income mutual funds concentrate their holdings in these securities.
Municipal Bond Fund
A mutual fund that invests in a broad range of short, intermediate or
long-term tax-exempt bonds issued by states, cities and other local governments.
The interest obtained from these bonds is passed through to shareholders
free of tax. The objective of these funds is current tax-free income.
Mutual Fund
An open-end investment company that buys back or redeems its shares at
current net asset value. Most mutual funds continuously offer new shares
to investors. See also Investment Company.
Net Asset Value
Per Share
The current market worth of a mutual fund share. Calculated daily by taking
the funds total assets: securities, cash and any accrued earnings, deducting
liabilities, and dividing the remainder by the number of shares outstanding.
No-Load Fund
A commission-free mutual fund that sells its shares at net asset value,
either directly to the public or through an affiliated distributor, without
the addition of a sales charge.
Option Income Fund
A fund that invests primarily in dividend-paying common stocks on which
call options are traded on national securities exchanges. These funds
seek high current return consisting of dividends, premiums from selling
options, net short-term gains (including those from the exercising of
options) and any profits from closing purchase transactions.
Payable Date
The date on which distributions are paid to shareholders who do not want
to reinvest them. This date can be anywhere from one week to one month
after the Record Date.
Payroll Deduction Plan
An arrangement between an employer and a mutual fund, authorized by the
employee, through which a specified sum is deducted from an employee's
salary to buy shares in the fund.
Portfolio Manager
A professional hired by the mutual fund advisor to make investment decisions
concerning the purchse and sale of securities for the mutual fund portfolio
in accordance with the fund's objectives.
Portfolio Turnover Rate
The rate at which the fund's portfolio securities are changed each year.
If a fund's assets total $100 million and the fund bought and sold $100
million worth of securities that year, its portfolio turnover rate would
be 100%. Aggressively managed funds generally have higher portfolio turnover
rates than do conservative funds which invest for the long term. High
portfolio turnover rates generally add to the expenses of a fund.
Prospectus
An official document that each investment company must publish, describing
the mutual fund and offering its shares for sale. It contains information
required by the Securities and Exchange Commission including fees and expenses
of the fund, past performance and how to buy and redeem shares.
Qualified Retirement Plan
A retirement plan established by employers for their
employees that meets the requirements of Internal Revenue Code Section 401(a) or
403(a) and is eligible for special tax considerations. The plan may provide for
employer contributions, as in a pension or profit-sharing plan, as well as
employee contributions. Employers can deduct plan contributions made on behalf
of eligible employees on the business's tax return as business expenses. Contributions to such a plan are generally tax-deductible;
earnings on such contributions are always tax sheltered until withdrawal.
Record Date
The date the fund determines who its shareholders are; "shareholders of
record" who will receive the fund's income dividend and/or net capital
gains distribution. Frequently the business day immediately prior to the
Ex-Dividend Date.
Redemption Fee
A fee charged by a limited number of funds for redeeming, or buying back,
fund shares.
Redemption Price
The price at which a mutual fund's shares are redeemed (bought back) by
the fund. The redemption price is usually equal to the current net asset value per share.
Also called the bid, call or sell price.
Regional Fund
A mutual fund that concentrates its investments within a specific geographic
area, usually the fund's local region. The objective is to take advantage
of regional growth potential before the national investment community
does.
Reinvestment Date (Payable Date)
The date on which a share's dividend and/or capital gains will be reinvested
(if requested) in additional fund shares.
Reinvestment Privilege
A service that most mutual funds offer whereby a shareholder's income
dividends and capital gains distributions are automatically reinvested
in additional shares. See Automatic Reinvestment.
Risk
The measure of an investor's ability to withstand volatility in the markets.
Investors with a near-term focus are likely to be more conservative than those with
a long-term viewpoint who can benefit from the market's fluctuations by taking
advantage of compounding and historical growth of the markets.
Roth IRA
A nondeductible IRA introduced by the Taxpayer Relief Act of 1997. Distributions from a Roth
IRA are tax-free if they meet certain requirements (income, time since the Roth IRA was
established, age of the Roth IRA owner, etc.).
Sector Fund
A mutual fund that concentrates on a relatively narrow market segment. These funds can
experience higher volatility than some diversified funds because sector funds are subject to issues
specific to a given sector.
Series Fund
A mutual fund whose prospectus allows for more than one portfolio. Portfolios
may be specialized (Sector Fund) or broad (growth stock, along with a
money market portfolio). Management can create additional portfolios as
it sees fit.
Short Selling
The sale of a security which is not owned by the seller. The "short seller"
borrows stock for delivery to the buyer, and must eventually purchase
the security for return to the lender.
Short-Term Municipal Bond Fund
A fund that invests in municipal bonds with maturities not exceeding two
years. See Municipal Bond Fund.
Simplified Employee Pension
An alternative to a Keogh plan that allows employers who have not established
qualified retirement plans to contribute to their employee's Individual
Retirement Accounts.
Small-Cap Fund
A mutual fund specializing in the stocks of small-cap companies, having outstanding
shares usually valued at less than $1.6 billion. Small-capitalization companies are generally
more volatile than the stocks of mid-cap or large-cap companies, therefore small-cap funds
may not be suitable for investors with a short investment horizon.
Specialty Fund
A mutual fund specializing in the securities of a particular industry
or group of industries or special types of securities.
Spousal IRA
An IRA to which you can shelter up to an additional $2000 per year, for
a total deduction of $4000.
Systematic Withdrawal Plans
Many mutual funds offer withdrawal programs whereby shareholders receive
payments from their investments. These payments are usually drawn from
the fund's dividend income and capital gain distributions, if any, and
from principal only when necessary.
Total Return
The performance of an investment, including yield (dividends, interest,
capital gains) as well as changes in per share price, calculated over
a designated period of time. Assuming reinvestment of capital gains and
income distributions, multiply the number of shares owned by the net asset
value per share. Subtract the original investment from the result. Then
divide that figure by the original investment and multiply by 100. (Assuming
your shares are now worth $8,000 and the investment was $5,000, divide
$3,000 by $5,000 getting 0.6. Multiplied by 100 percentage increase the
total return was 60%.) See Yield.
Trade Date
The actual date on which your shares were purchased or sold. The transaction
price is determined by the closing Net Asset Value on that date.
Transfer Agent
The organization, usually a bank, that mutual funds employ to prepare
and maintain records relating to shareholder accounts. Some mutual fund
groups operate in-house transfer agencies.
Triple Tax-Exempt Fund
A mutual fund, usually a municipal bond fund, whose dividends and interest
are exempt from federal, state and local income taxes within a particular
state.
Turnover Rate See Portfolio Turnover Rate
12(b)1 Plan
An annual fee charged by some mutual funds to pay some or all of the costs
of distributing its shares to the public. Some of these plans provide for payment of specific
expenses, such as advertising, sales literature and dealer incentives.
Others are simply intended to protect the fund against possible claims
that certain operating expenses, such as administrative or advisory costs,
constitute indirect forms of distribution expenses.
Both load and no-load funds may adopt 12(b)1 plans. They are not hidden
charges, but are clearly explained in the fund's prospectus and in its
semi-annual and annual reports. Many funds have 12(b)1 plans that have
not been activated. The majority of such plans have maximum annual charges
of 0.25% (one quarter of 1%). 12(b)1 charges are included in the total
expense ratio figures which are provided in a fund's literature. Some
fund's expense ratios, including management fee and 12(b)1 charges, may
be lower than the ratios of funds that do not have 12(b)1 plans.
Underwriter
The organization that acts as the distributor of a mutual fund's shares
to broker/dealers and the public.
Uniform Gifts to Minors Act
Legislation, adopted by most states, establishing rules for the administration
and distribution of investment assets in a minor's name. Securities can
usually be transferred from the account of a parent or other custodian
into a Uniform Gifts to Minors Act account in the name of the child. (Note:
Under tax reform any earned interest over $1,000 in the account of a child
under 14 years of age will be taxed at the parents' higher tax rate. Consult
your tax adviser for more information.) Unless otherwise stipulated, the
child gains control of the assets upon reaching the legal age of majority
or adulthood.
U.S. Government Short-Term Fund
A mutual fund that invests only in U.S. Treasury and government-agency
issues (of a short term nature) such as Treasury bills with an original
maturity of up to one year.
Variable Annuity
A type of insurance contract that guarantees future payments to the holder,
or annuitant, usually at retirement. The annuity's value varies with that
of the underlying portfolio securities, which may include mutual fund
shares. All monies held in the annuity accumulate tax-deferred.
Voluntary Plan
A flexible plan for capital accumulation, involving no specified time
frame or total sum to be invested.
Yield
Income or return received from an investment, usually expressed as a percentage
of market price, over a designated period. For a mutual fund, yield is
interest or dividend before any gain or loss in the price per share. See
Total Return.
Zero Coupon Bond
Bond sold at a fraction of its face value. It appreciates gradually, but
no periodic interest payments are made. Earnings accumulate until maturity,
when the bond is redeemable at full face value. Nonetheless, interest
is taxable as it accrues. As a result, zero coupon bonds are often used
for IRAs, Keoghs and other tax-deferred retirement plans.
|
