| A |
| Alternative Minimum Tax (AMT) |
A federal tax meant to ensure that wealthy individuals, estates, trusts, and corporations pay a sufficient amount of income tax. |
| Annual Percentage Yield (APY) |
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. |
| Annualized |
The average rate of return produced by a mutual fund during a specified holding period (e.g. 3, 5, or 10 years). |
| Appreciation of Capital |
The rise in the share price of a security. In terms of a mutual fund, capital appreciation is measured by an increase in its net asset value (NAV). |
| Asset Allocation |
The process of strategically distributing one's money among various asset classes, such as stocks, bonds and money market securities. Asset allocation is used to seek maximum investment returns while minimizing investment risk. Prudent asset allocation has been found to be a key determinant of investment portfolio success. |
| Asset Class |
Categories of different types of assets, such as stocks or bonds. |
| Asset-Backed Securities (ABS) |
A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, rather than real estate. |
| Average Cost Per Share |
The average cost of mutual fund shares or stock purchased during different time periods. |
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| B |
| Back-End Load/CDSC |
A fee imposed by mutual funds to sell shares during a specified time period. For Class B shares the fee decreases the longer the investor holds the shares. Class C shares typically apply the fee to shares sold during the first year. The formal name for the back-end load is contingent deferred sales charge, or CDSC. |
| Balanced Fund |
A mutual fund that typically diversifies its assets among a variety of classes, such as stocks, bonds and money market securities. The allocation of assets may change based on the prevailing market conditions. |
| Bank and Bank Holding Company Obligations |
Short-term debt obligations sold by bank holding companies. |
| Basis Point |
One one-hundredth of one percentage point, or 0.01%. |
| Basket |
A basket applies to derivative instruments in the marketplace. A basket is a group of stocks that is formed with the intention of either being bought or sold all at once. |
| Bear Market |
Any market in which prices exhibit a declining trend. A market is often classified as a bear when it has fallen 20% or more. |
| Benchmark |
The performance of a predetermined set of securities, used for comparison purposes (e.g. the S&P 500 Index for the overall stock market). Mutual fund returns are compared to specific benchmarks to help investors evaluate their performance. |
| Bid and Ask Price |
The price a potential buyer is willing to pay for a security. The ask price is the lowest price a person or institution will accept to sell a security. The difference between the bid and ask price is referred to as the bid-ask spread. |
| Blue Chips |
A term used to describe large, established and creditworthy companies. These firms generally have widely accepted use of their products or services and many are household names. |
| Bond |
A debt security, or IOU, issued by a company, municipality or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date. In addition, the issuer usually provides the bondholder periodic interest payments. |
| Brady Bonds |
Bonds issued by emerging countries under a debt reduction plan. |
| Bull Market |
A market where prices are experiencing an upward trend. |
| Business Risk |
The risk that a company issuing a security may not be financially healthy due to any number of factors, such as poor management, low product demand, or exorbitant operating expenses. |
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| C |
| Capital Appreciation |
The rise in the share price of a security. In terms of mutual funds, capital appreciation is measured by an increase in its net asset value (NAV). |
| Capital Gain (Loss) |
An increase (decrease) in the value of your investment or an amount received (lost) by a mutual fund for selling securities above (below) their cost. If you sell or exchange your fund shares for more or less than your cost basis, you will realize a capital gain or loss. All capital gains, whether earned by the fund or from the sale of fund shares, must be reported on your tax return. Different tax rates may apply depending on how long assets were held, when they were sold, and other factors. Any capital losses from the sale of fund shares must be reported on your tax return and may be used to offset capital gains. |
| Capital Gains Distribution |
A distribution a mutual fund makes out of profits from selling stocks or bonds that is subject to capital gains taxes for the shareholders. |
| Capitalization |
A term used to describe a company's total value. Capitalization is calculated by multiplying a stock's share price by its number of outstanding shares. A small-cap company generally has a value of less than $500 million. Mid-cap companies are valued between $500 million and $5 billion and large cap's have values over $5 billion. |
| Cash Equivalents/Cash Investments |
The value of a mutual fund's assets that can be converted into cash immediately. These include bank accounts and marketable securities, such as government bonds and Banker's Acceptances. |
| Commercial Paper |
Short-term unsecured promissory notes issued by corporations. The maturity of commercial paper is typically less than 270 days. |
| Common Stock |
A type of equity security. Common stocks represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. |
| Compounding |
Earnings on an investment's gains which, over time, can produce significant growth in the value of an investment. For example, if your investments earn 10% a year for five years, you earn 61.1%, not 50%. That's because, as time goes on, you make money not only on your original investment, but also on your accumulated gains from previous years. |
| Concentrated Investment |
A mutual fund that concentrates its holdings on a limited number of securities, or that focus on a particular area of the market (e.g. technology stocks). Non-diversified funds are generally riskier than more diversified funds. |
| Consumer Price Index (CPI) |
A measurement that tracks how the general level of prices for goods and services is rising. |
| Contingent Deferred Sales Charge (CDSC) |
The formal name for the back-end load is contingent deferred sales charge, or CDSC. A CDSC applies when a mutual fund charges investors a fee to sell shares during a specified time period. For Class B shares the fee decreases the longer the investor holds the shares. Class C shares typically apply the fee to shares sold during the first year of ownership. |
| Convertible Security |
A security that can be converted into common stock at the option of the security holder. Convertible securities can include convertible bonds and convertible preferred stock. |
| Cost Basis |
The amount you pay for your mutual fund shares, including commissions and any reinvested dividends or capital gain distributions, less any non-taxable distributions or returns of capital. When you redeem shares, you subtract the cost basis of your shares from the redemption amount to determine any capital gains or losses. |
| Coverdell Education Savings Account |
Formerly known as Education IRA, it is a type of individual retirement account enabling the contribution of up to $500 per year in 2001 for each child up to the age of 18 by the parents in the family. This level will increase to $2,000 a year beginning in 2002. |
| Credit Risk |
The risk that a bond issuer will not be able to repay its debt at maturity. Bond ratings by agencies like Moody's and Standard & Poor's identify the quality and risk level of bonds. Highly rated bonds tend to carry the lowest risk, while bonds with low ratings, like junk bonds, are typically the riskiest. |
| Currencies |
Money issued by governments. Some of the most well known and traded currencies include the U.S. dollar and the Japanese yen. |
| Currency Risk |
The risk that fluctuations in the exchange rate between the U.S. dollar and a foreign currency may decrease the value of a security that is either invested in, or whose value is derived upon that currency. Global and international investments are most subject to this type of risk. |
| Current Income |
A mutual fund objective that seeks to provide shareholders with a regular stream of income, typically derived from dividends. |
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| D |
| Debt Securities |
IOUs created through loan-type transactions-commercial paper, bank CDs, bills, bonds, and other instruments. |
| Derivative Instruments |
A financial security such as an option or future whose value is derived, in part, from the value and characteristics of another security, the underlying asset. |
| Distributions |
Amounts paid to shareholders of a mutual fund. Income distributions represent income received by the fund and may be taxable or tax exempt. Capital gain distributions represent capital gains received by the fund and are taxable, even if the fund invests in tax-exempt securities. Non-taxable distributions represent the return of capital investors paid into the fund and are not subject to income tax. |
| Distributor |
The legal entity that distributes the shares of a mutual fund. |
| Diversification |
The process of dividing investment assets among a variety of securities or asset classes that have different risk and reward characteristics. Prudent diversification can help to lower overall investment risk. |
| Dividend |
Income paid by a company or mutual fund to its shareholders. Mutual funds may receive dividends on common and preferred stock, as well as from income investments. This income may be distributed to shareholders in income distributions, which may be taxable or tax-exempt, depending on the nature of the fund and its investments. (Also called "ordinary dividends.") |
| Dividend Distribution |
The distribution of a dividend to mutual fund shareholders as of a certain date. |
| Dividend Income |
A portion of a company's profit paid to its bondholders and common and preferred shareholders, often at regular intervals (e.g. quarterly or annually). |
| DJIA |
The Dow Jones Industrial Average. A price-weighted average of 30 actively traded blue-chip stocks that typically trade on the New York Stock Exchange. The Dow, as it is called, is often viewed as a barometer of how shares of the largest U.S. companies are performing. |
| Dollar Cost Averaging |
An investment strategy that calls for investing a fixed amount of money at set intervals (e.g. monthly or quarterly). With a dollar cost averaging (DCA) program the investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost paid over time. There can be no guarantee that a DCA program will lead to a gain or avoid a loss. |
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| E |
| EAFE Index |
Europe, Australasia, and Far East index (EAFE index). A stock index, computed by Morgan Stanley Capital International, often used as a benchmark for certain types of international equity funds. |
| Earned Income |
Income provided to a shareholder of a mutual fund, typically derived from dividends. |
| Education IRA |
Now named Coverdell Education Savings Account, it is a type of individual retirement account enabling the contribution of up to $500 per year in 2001 for each child up to the age of 18 by the parents in the family. This level will increase to $2,000 a year beginning in 2002. |
| Equity |
A term used to describe a stock. Stocks represent part ownership of a company's assets and earnings. There are two different types of stock: common and preferred. Common stocks provide voting rights, but no guarantee of dividend payments. Preferred stocks provide no voting rights, but offer a set, guaranteed dividend payment. Preferred stock also has prior claim to company assets over common stock in the case of a bankruptcy. |
| Equity Fund |
A mutual fund that invests the majority of its assets in stocks. |
| Equity Income Fund |
A type of mutual fund that invests in both stocks and fixed income securities. These funds typically seek to generate both growth of capital and regular income for their shareholders. |
| Estate |
A person's assets that are earmarked to be passed down to specified beneficiaries, typically specified in a last will and testament. |
| Exchange Privilege |
The ability to exchange shares of one mutual fund for another. An exchange is viewed as a sale of one fund to make a purchase of another, and can trigger a taxable event. |
| Exchange Rate |
The price of one country's currency expressed versus another country's currency. |
| Ex-Date |
The first day of trading when the seller, rather than the buyer, of a stock or mutual fund is entitled to the most recently announced dividend payment. This is typically two business days before the record date. A stock or mutual fund that has gone ex-dividend is denoted by an "x" in its newspaper listings on that date. |
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| F |
| FDIC |
Federal Deposit Insurance Corporation—A federal institution that insures bank deposits up to certain limits. Mutual funds, including money market funds, are not FDIC insured—even those funds that are sold through banks or other financial institutions. |
| Fee and Expenses |
Debits to a mutual fund's balance sheet. A fund's fees and expenses can take many forms, such as shareholder fees and annual operating expenses. A mutual fund's fees and expenses must be specified in its prospectus. |
| FIFO |
First-In, First-Out—an accounting method for valuing the cost of goods sold that uses the cost of the oldest item in inventory first. For mutual funds, this applies to the first shares purchased. |
| Financial Advisor |
A professional offering financial advice to clients for a fee and/or commission. Many investors turn to financial advisors to develop and monitor a financial plan that is geared toward meeting a specific goal/s, given their individual time horizon and risk tolerance. |
| Fiscal Year |
Accounting period covering 12 consecutive months over which a company derives its earnings and profits. A fiscal year does not necessarily correspond to the calendar year. All mutual funds have fiscal years. |
| 529 Plan |
A college savings plan sponsored by individual states. Like a Coverdell Education Savings Account (formerly known as Education IRA), contributions to a 529 are made with after-tax dollars and any earnings compound tax-deferred. In addition, beginning in 2002, when the money is withdrawn for qualified higher education expenses both the contributions and earnings are not subject to taxes. |
| Fixed-Income Security |
A term used to describe certain types of bonds. |
| Fixed Rate Investment |
An investment that pays a fixed, rather than variable, rate of return. |
| Floaters |
A debt instrument with a variable interest rate tied to another interest rate. |
| Floating Rate Loans |
Loans made by banks and other financial institutions to large corporations. The borrower agrees to pay a rate that is reset regularly according to a reference rate. The rate paid by a floating rate loan "floats" at a fixed spread over a reference rate, usually the U.S. Dollar London Interbank Offered Rate (LIBOR). The loan is backed by the assets of the borrower. The loans are rated non-investment grade, but considered senior secured debt in the borrower's capital structure—paid first in the event of default. |
| 401(K) |
An employer-sponsored retirement-savings plan that is funded by pre-tax employee contributions. Employers often add matching contributions up to a set limit. 401(k) pre-tax contributions and investment gains are not taxed until the money is withdrawn. |
| Front-End Load |
The fee applied to a mutual fund at the time of initial purchase, typically used to compensate a professional advisor for the service he or she provides to a client. |
| Futures |
An agreement to buy or sell a specific amount of a commodity or financial instrument at a specific price on a specified future date. |
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| G |
| Global Funds |
Mutual funds that invest their assets in both U.S. and foreign securities. These differ from international funds, which typically only invest in foreign securities. |
| Growth (Growth-Oriented) |
An investment style that focuses on companies with above-average current and projected-earnings growth. Growth stocks tend to have relatively high earnings-growth rates and very low dividend yields. These firms trade at high valuation levels, meaning they usually have high price-to-book (P/B) and price-to-earnings (P/E) and price-to-sales (P/S) ratios. Because of their high prices and low yields, growth stocks tend to have less downside protection and more volatility than less expensive stocks. |
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| H |
| High Quality/Investment Quality Bonds |
A bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or higher, and Moody's classifies investment grade bonds as Ba or higher. |
| High Yield Debt Security |
A bond with a credit rating of BB (Standard & Poor's) or Ba (Moody's) or lower. Junk or high-yield bonds typically offer investors higher yields than bonds issued by more financially sound companies. Two agencies, Standard and Poor's and Moody's Investor Services, provide the rating systems for companies' credit. |
| Hope Scholarship Credit |
An education tax credit that can be claimed only for qualified tuition and expenses that have been incurred at an eligible institution and are not covered by other assistance. Expenses not part of the degree program are excluded (room, board, books, insurance and activity fees). This credit is available only for the first two years of post-secondary education, during which the student is enrolled at least half time in a degree or certificate program. To receive the credit a taxpayer's adjusted gross income must not exceed a specified dollar amount. |
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| I |
| Income |
Dividends, interest and/or short-term capital gains paid to a mutual fund's shareholders. Income is earned on a fund's investment portfolio less operating expenses. |
| Income Fund |
A mutual fund that often seeks to provide current income as its primary objective. |
| Index Fund |
A mutual fund that seeks to match the returns of a particular stock or bond market index (e.g. the S&P 500 Index). |
| Individual Retirement Account (IRA) |
A way for individuals who have earned income to save for their retirement. There are a variety of Individual Retirement Accounts (IRAs), including Traditional IRAs, Roth IRAs, and Coverdell Education Savings Accounts (formerly known as Education IRAs), each with different features, deductibility provisions, and potential tax advantages. Certain withdrawals, including withdrawals from Traditional and Roth IRAs prior to age 59½, may incur a 10% early withdrawal penalty from the IRS. |
| Inflation Risk |
The risk that the return on your investments will not keep pace with rising consumer prices. |
| Interest Rate Risk |
The risk that the value of a fixed-income investment will drop as interest rates rise. That's because bond prices are inversely related to interest rates (if one goes up, the other goes down). |
| International Funds |
A mutual fund that primarily invests in securities issued from outside the U.S. |
| Investment Company |
A firm that invests the assets of its shareholders in securities appropriate for their stated investment objectives in return for a management fee. Also the formal name for a mutual fund. |
| Initial Public Offering (IPO) |
A company's first sale of stock to the public. Securities offered in an IPO are generally those of young, small companies seeking outside equity capital. Investors purchasing stock in IPOs must be prepared to accept significant risks in exchange for the possibility of large gains. |
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| J |
| JTIC |
An acronym meaning Joint Tenants in Common. Used to describe mutual fund accounts that are owned by more than one person with certain survivorship rights. JTIC may appear on fund statements for these types of accounts. |
| JTWROS |
An acronym meaning Joint Tenants with Rights of Survivorship. Used to describe mutual fund accounts that are owned by more than one person whereby, upon the death of one account holder, ownership passes to the remaining account holder(s). JTWROS may appear on fund statements for these types of accounts. |
| Junk Bonds |
A bond with a credit rating of BB (S&P) or Ba (Moody's) or lower. Junk or high-yield bonds typically offer investors higher yields than bonds of more financially sound companies. Two agencies, Standard & Poor's and Moody's Investors Service, provide the rating systems for companies' credit. |
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| K |
| There are no glossary words under this letter. |
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| L |
| Large-Cap Equity |
A stock with a large sized capitalization, or high total value. Capitalization is calculated by multiplying a stock's share price by the number of outstanding shares. A large-cap company generally has a market cap over $5 billion. |
| Letter of Intent |
A promise by a shareholder to invest a specific amount of money for a specified period of time. This is used to reduce sales charges. |
| Lifetime Learning Credit |
An education tax credit that could reduce a person's federal income taxes by up to 20 percent of the first $5,000 out-of-pocket qualified tuition and fees paid for all eligible students in their family. Students are not required to take more than one course, and both undergraduate and graduate level qualified tuition fees from eligible institutions can be included. To receive the credit a taxpayer's adjusted gross income must not exceed a specified dollar amount. |
| LIFO |
Last-In—First Out. An accounting method for valuing the cost of goods sold that uses the cost of the last item in inventory first. For mutual funds, this applies to the last shares purchased. |
| Lipper & Company |
An independent mutual fund tracking and ranking company. Lipper fund rankings and averages are widely used in the financial industry. |
| Liquidity |
A high level of trading activity, allowing buying and selling with minimum price disturbance. Also, a market characterized by the ability to buy and sell with relative ease. |
| Liquidity Risk |
The risk that a mutual fund's underlying securities cannot be sold at a fair price within a reasonable period of time. Shares in large blue-chip stocks are considered liquid because there are a large number of outstanding shares that are actively traded. Conversely, small-cap stocks with less outstanding shares are generally not considered liquid, since a few large buy or sell orders can greatly influence the share price. |
| London Interbank Offered Rate (LIBOR) |
A standard financial index used in the U.S capital markets to determine the rate of interest at which banks offer to lend money to one another. |
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