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 Contributions grow tax-deferred until withdrawn.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 Contributions grow tax-deferred until withdrawn.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