A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

12b-1 Asset Based Fees

Fees collected by a mutual fund for the promotion, sale or other activity connected with the distribution of its shares.

Advisor

The organization which is employed by a mutual fund to give professional advice on its investments and management of its assets.

Alpha

A measure of the difference between a fund's actual returns and its expected performance, given its level of risk as measured by beta.  A positive alpha figure indicates the fund has outperformed better than its beta would predict.  In contrast, a negative alpha indicates the fund's underperformance.

Annual Report

A formal statement issued yearly by a corporation to its shareholders.  It shows assets, liabilities, equity revenues, expenses, and so forth.  It is a reflection of the corporation's condition at the close of the business year (balance sheet) and earnings performance (income statement).

Annuity

A contract between an insurance company and an individual; it generally guarantees lifetime income to the individual on whose life the contract is based in return for either a lump sum or a periodic payment to the insurance company.

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Ask Price

(1) The price at which a mutual fund's shares can be purchased.  The ask or offering price means the net asset value per share plus sales charge.

(2) The offer side of a quote.

Asset Allocation

Apportioning of the investment portfolio among categories of assets, such as money market instruments, stocks, bonds and possibly among tangible assets like precious metals, real estate and collectibles.

Assets

Everything of value that a company owns: cash, investments, money due, materials, inventories–which are called current assets: buildings and machinery–fixed assets; and patents and good will–intangible assets.

Assignment

The form imprinted on a registered securities certificate which, when completed and signed by the registered owner, authorizes the transfer of the security into the name of a new owner (designated on the form as the "assignee").  The assignment also usually provides for the granting by the registered owner of power of attorney to another person (usually the new owner or someone acting on his or her behalf) to accomplish the transfer. Assignments are often executed by the registered owner "in blank," with the name of the assignee and the person granted power of attorney filled in subsequently.

Automatic Reinvestment

The option available to mutual fund shareholders whereby fund income dividends and capital gains distributions are automatically put back into the fund to buy new shares and thereby build up holdings.

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Back Dating

The predating of a letter of intent (by as much as ninety days) to allow an investor to incorporate recent large deposits for the purpose of qualifying for a load discount on a purchase of open-end investment company shares.

Balanced Fund

Investment companies that strive to minimize market risks while at the same time earning reasonable current income with varying percentages of bond, preferred, and common stocks.

Bear Market

A declining securities market in terms of prices.

Bearer Bonds

Bonds that do not have the owner's name registered on the books of the issuing corporation and that are payable to the bearer, frequently called coupon bonds.  None have been issued since 1984.

Bearish Approach

The strategy an investor employs when it is thought that a security's price will decline.

Beta

A measure of a fund's sensitivity to market movements.  The beta of the market is 1.00 by definition.   A beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets, and 10% worse in down markets, assuming all other factors remain constant.

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Bid or Redemption Price

The price at which a mutual fund's shares are redeemed (bought back) by the fund.  The bid or redemption price usually means the net asset value per share.

Bond

A debt instrument issued by an entity for the purpose of raising capital.  A bond might be issued by a corporation or other entities such as state or municipal governments.  Bonds normally have a set maturity (term) and interest (coupon) rate associated with them.  The issuer pays interest, usually semi-annually, plus principal when due.  (See "Bearer Bond," "Mortgage Bond," "Tax-Exempt Securities," "United States Government Securities.")

Breakpoint

The dollar level of investment necessary to qualify a purchaser for a discounted sales charge on a quantity purchase of open-end management company shares.  (See "Backdating," "Letter of Intent.")

Broker/Dealer

A general term for a securities firm that is engaged in both buying and selling securities on behalf of customers and also buying and selling on behalf of its own account.

Bull Market

A rising securities market in terms of prices.

Bullish Approach

The strategy an investor employs when it is thought that a security's price will increase.

Business Day

A day on which financial markets are open for trading.  Saturdays, Sundays and legal holidays are not considered business days.

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Capital Appreciation

A rise in the market price of an asset.

Capital Gain (or Loss)

Profit (or loss) from the sale of a capital asset.  Capital gains may be short term (12 months or less) or long term (more than 12 months).  Capital losses are used to offset capital gains to establish a net position for tax purposes.

Capital Gains Distributions

Payments to mutual fund shareholders of gains realized on the sale of the fund's portfolio securities.  These amounts, if any, are generally paid once a year.

CDSC and Asset Based Load

Referred to as D shares, these funds charge both an asset-based fee and a contingent deferred sales charge.

Class B Shares

A type of mutual fund with no front-end load, but has a declining sales charge on redemption.

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Closed-End Management Company

An investment company whose equity capitalization remains constant.  In other words, a fixed number of shares are outstanding.  The shares trade based on supply and demand in the secondary market and are not redeemable.  (See "Management Company.")

Confirmation

A printed document that states the trade, settlement date and money due from or owed to a customer; it is sent or given to the customer on or before the settlement date.

Contingent Deferred Sales Charge

A feature of Class B shares, a CDSC is a commission or sales fee based upon the redemption of mutual fund shares or variable annuity contracts.  It declines annually to zero over an extended holding period generally up to eight years, as described in the prospectus.

Commission

A broker's fee for handling transactions for a client in an agency capacity.

Contractual (Periodic Payment) Plan

An investment plan for a mutual fund by which an investor agrees to invest a fixed sum of money at specified intervals over an extended period.

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Conversion

(1) A bond feature by which the owner may exchange bonds for a specified number of shares of stock.  Interest paid on such bonds is lower than the usual interest rate for straight debt issues.

(2) A feature of some preferred stock by which the owner is entitled to exchange preferred stock for common stock of the same company in accordance with the terms of the issue.

(3) A feature of some mutual fund offerings allowing an investor to exchange shares at NAV for comparable value in another fund with different objectives handled by the same underwriter.  (See "Exchange Privilege.")

Cost Basis

The price paid for an asset, including any commissions or fees, used to calculate capital gains or losses when the asset is sold.

CRT

Charitable remainder trusts (CRTs) are trusts defined in Section 664 of the Internal Revenue Code.  These trusts provide for a specified distribution, at least annually, to one or more beneficiaries, at least one of which is not a charity.  The distribution is for life or for a term of years.  At the end of the term, the irrevocable remainder interest is to be held for the benefit of, or paid over directly to charity.

Current Yield

The annual rate of return on a security, dividing the interest or dividends paid by the security's current market price.  The SEC requires that current yield calculations be based only on income distributions for the past twelve months, divided by the current price of the share.

Custodian

A commercial bank or trust company with certain qualifications that holds in safekeeping monies and securities owned by an investment company.

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Dealer

An individual or firm in the securities business acting as a principal rather than as an agent.  Dealers earn their profits from mark-ups and mark-downs, never commissions.

Delivery Date

See "Settlement (Delivery) Date."

Discount

The percentage or dollar amount below net asset value at which shares of a closed-end company may sell (opposite of Premium).

Discount Bond

Any bond that sells in the marketplace at a price below its face amount, usually because interest rates have risen since its issuance.  Of course, a decline in the credit standing of the issuer will frequently cause the bond's price to drop as well.  Some bonds (zero-coupon, for example) are originally offered at a discount.  (See "Premium Bond.")

Discretionary Account

An account in which the customer authorizes in writing a registered representative to use his judgment (completely, or within certain limits) in buying and selling securities including selection, timing, amount, and price.  However, judgment as to time and/or price only is not considered discretion.

Discretionary Order

An order that empowers a registered representative with a discretionary account to use his own judgment on the customer's behalf with respect to choice of the security, quantity of the security and whether any such transaction should be a purchase or sale.  (See "Discretionary Account.")

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Diversification

Investment in a number of different security issues for the purpose of spreading and reducing the risks inherent in investing.

Diversified Common Stock Fund

A mutual fund that invests its assets in a wide range of common stocks.  The fund's objectives may be growth, income, or a combination of both.

Diversified Management Company

A management company that has at least 75 percent of its assets arranged so as not to own securities of one issuer having a value greater than 5 percent of the management company's total assets and do not own more than 10 percent of the voting securities of any corporation.  There are no restrictions placed upon the other 25 percent of the company's assets.  Therefore, as much as 30 percent of assets could be in one stock.  (See "Management Company.")

Dividend Yield

The annual rate of return on a common or preferred stock investment.  The yield is calculated by dividing the annual dividend by the purchase price of the stock.

Dollar Cost Averaging

Investing equal amounts of money at regular intervals regardless of whether the stock market is moving upward or downward.  This reduces average share costs by automatically acquiring more shares in periods of lower securities prices and fewer shares in periods of higher prices.  This does not assure a profit or protect against depreciation in declining markets.  An investor should consider his or her financial ability whenever making additional investments.

Duration

A time measure of a bond's interest rate sensitivity based on the weighted average of the time periods over which the bond's cash flows accrue to the bondholder.  Time periods are weighted by multiplying the present value of its cash flow divided by the bond's price (a bond's cash flows consist of coupon payments and repayment of principal).  A bond's duration will almost always be shorter than its maturity, with the exception of zero coupon bonds, for which the maturity and duration are equal.

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Earnings Per Share

A corporation's net income available for common stock divided by its number of shares of common stock outstanding.

Ex-Dividend Date

A date set on which a given stock will begin trading in the marketplace without the value of a pending dividend included in the contract price.  It is normally 2 business days before the record date, except on mutual funds where it is the date set by the issuer or principal underwriter.

Exchange Privilege

The right to exchange the shares of one open-end fund, or class of fund, for those of another under the same sponsorship at net asset value.  For tax purposes, such an exchange is considered a sale and new purchase.

Expense Ratio

A ratio for comparing the efficiency of a mutual fund by dividing the fund's expenses by its net assets.

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Fiduciary

A person who is vested with legal rights and powers to be exercised for the benefit of another person.

Forward Pricing

The means of determining a purchase or redemption price after receipt of a mutual fund or variable annuity order from a customer.  All bid and asked prices are based on the next computed net asset value after receipt of the order.

Front End Load

A feature of Class A shares, a front end load is a commission or sales fee at the time that shares are purchased.  The load is added to the net asset value of the shares when calculating the public offering price.

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General Obligation Bond or G.O. Bond

A bond which is secured by the full faith and credit of an issuer with taxing power.  General obligation bonds issued by local units of government are typically secured by a pledge of the issuer's ad valorem taxing power; general obligation bonds issued by states are generally based upon appropriations made by the state legislature for the purposes specified.  Ad valorem taxes necessary to pay debt service on general obligation bonds are often not subject to the constitutional property tax millage limits.  Such bonds constitute debts of the issuer and normally require approval by an election prior to issuance.  In the event of default, the holders of general obligation bonds have the right to compel a tax levy or legislative appropriation, by mandamus or injunction, in order to satisfy the issuer's obligation on the defaulted bonds. *

Growth and Income Fund

A mutual fund whose aim is to provide for a degree of both income and long-term growth.

Growth Investing

A process of identifying stocks that appear to offer above average, accelerating earnings or revenue growth.

Growth Fund

A mutual fund whose primary investment objective is long-term growth of capital.  It invests principally in common stocks with growth potential.

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Hedge Fund

A mutual fund or investment company which, as a regular policy, "hedges" its market commitments.  It does this by holding securities it believes are likely to increase in value and at the same time is "short" other securities it believes are likely to decrease in value.  The sole objective is capital appreciation.  This type of fund is highly aggressive.

High Yield Bonds

Sometimes called junk bonds, high yield bonds are corporate bonds with low-grade investment ratings.  They carry ratings below BBB by Standard & Poor's and Baa by Moody's Investor Service.  Because of their lower ratings, they can be considered relatively risky investments.

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Income Fund

A mutual fund that stresses higher than average current income distributions.

Individual Retirement Account (Traditional IRA)

Personal, tax deferred retirement account that an employed individual can contribute to annually.

IRA - ROTH

Effective January 1, 1998, the ROTH IRA became available.  Contributions are non-deductible and distributions taken for certain qualifying purposes are tax-free.

IRA - Education (Coverdell IRA)

Effective January 1, 1998, Education IRAs may be established for the purpose of paying qualified higher education expenses for the designated beneficiary of the Education IRA.  Although contributions to Education IRAs are not tax deductible, the distributions are tax-free as long as the distributions are taken to pay for qualified educational expenses.  As of 2002, the maximum contribution is $2,000 per beneficiary each year.

Inflation

A persistent upward movement in the general price level of goods and services that results in a decline in the purchasing power of money.

Intermediate Term Fund

A fund that invests in securities with an average duration of greater than or equal to 3.5 years, but less than or equal to 6 years, or an average effective maturity of 4 but less than 10 years.

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International Equities

Stocks of companies that are located outside of the United States.

Investment Advisor

A person in the business of rendering advice or analysis regarding securities for compensation.  Persons meeting this definition must register with the SEC and/or individual states depending upon the amount of assets under management and the states in which they are operating.  The term does NOT include attorneys and accountants giving advice as an incidental part of their professional practice.  (See "Advisor.")

Investment Banker

A broker/dealer organization that provides a service to an industry through counseling, and underwriting of securities.

Investment Company

An institution engaged primarily in the business of investing and trading in securities for others including face amount certificate companies, unit trust companies and management companies, both open- and closed-end.

Investment Grade

The broad credit designation given to bonds that have a high probability of being paid and minor, if any, speculative features.  Bonds rated BBB or higher by Standard and Poor's Corporation or Baa or higher by Moody's Investors Service, Inc., are deemed by those agencies to be "investment grade." *

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Investment Income

Gross - Total amount of dividends, interest, etc.  received from an investment company's investments before deduction of any expenses.

Net - Balance of gross income after payment of operating expenses, including management fees, legal and accounting costs, etc.  If at least 90% is distributed to shareholders, tax is paid on the undistributed income only.

Investment Manager

The organization which is responsible for the management of the investment company, under contract.  Its services usually include general administrative activities and advice and recommendations as to the purchase, holding, or sale of portfolio securities.  (See "Advisor.")

IPO

An Initial Public Offering (IPO) denotes the first time that a company's stock is issued for sale to the public.  The company converts from private ownership to public ownership.

IRA

Individual Retirement Accounts (IRAs) were created by Congress in 1974 as a way of encouraging people to save towards their retirement.  All employed individuals may open and contribute to an IRA.  Contributions to an IRA may be tax deductible, depending on your income level and your participation in an employer-sponsored plan.

Issue

Any of a company's class of securities, or the act of distributing them.

Issuer

A corporation, municipality, state, trust, or association engaged in the distribution of its securities.

Joint Tenants with Rights of Survivorship

A form of ownership held by two or more persons, usually, but not limited to, husband and wife.  This form of ownership provides that, upon the death of one of the owners, the entire account is now fully owned by the survivor(s).  (See "Tenants in Common.")

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Keogh Plan

The tax-saving retirement program for self-employed persons and their employees.

Large Capitalization Stocks

Equity securities of the largest U.S. companies, those with market capitalizations over $3 billion.

Letter of Intent

A pledge to purchase a sufficient amount of open-end investment company shares within a limited period (usually 13 months) to qualify for the reduced selling charge that would apply to a comparable lump-sum purchase.

Level Load

A feature of Class C Shares, a level load is an annual asset-based fee that is paid through the life of an investment in the Class C Shares.

Liabilities

All the outstanding claims for money against a corporation: accounts payable, wages and salaries, dividends declared or payable, accrued taxes, fixed or long-term liabilities such as mortgage bonds, debentures and bank loans.

Liquidity

(1) The ability of the market in a particular security to absorb a reasonable amount of trading at reasonable price changes.  Liquidity is one of the most important characteristics of a strong market.

(2) The easy ability of investors to convert their securities holdings into cash and vice versa.

Load

The portion of an offering price of shares in an open-end investment company that covers sales commissions and all other costs of distribution.  The load incurred on purchases is sometimes referred to as "front-end." It can also be called Sales Charge.  Some funds have a conditional deferred sales charge or redemption fee.

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Management Company

An investment company that conducts its business in a manner other than as a face-amount certificate company or unit investment company.  (See "Diversified Management Company," " Closed-End Management Company," "Open-End Management Company.")

Management Fee

Amount paid to the investment manager for its services in the supervision of the investment company's affairs.  This fee is set as a percent of the company's net assets.  It usually is between ½% and 1% of average annual net assets.

Manager (Investment Advisor)

An organization that serves an open-end investment company as an investment advisor, meaning the entity that manages the portfolio.

Maturity

The date that a loan, bond, or debenture comes due; both principal and any accrued interest due must be paid.

Mid Capitalization Stocks

Equity securities of medium-sized U.S. companies, typically identified as companies with market capitalizations of $2 billion to $3 billion.

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Money Market Fund¹

An investment vehicle whose primary objective is to generate a high level of current income as is consistent with preservation of capital and liquidity.  This is accomplished through the purchase of money market instruments, such as U.S. government securities, bank certificates of deposit, and commercial paper.

Mortgage Bond

The most prevalent type of secured corporate bond.  The bondholders are protected by the pledge of the corporation's real assets (real estate), evaluated at the time of issuance.

Municipal Bond Fund

A mutual fund which invests in a broad range of tax-exempt bonds issued by state, cities, and local governments.  The interest obtained from these bonds is passed through to shareowners free of federal tax.  The fund's primary objective is current income.

Mutual Fund

By common usage a mutual fund is the same as an open-end investment company.  A mutual fund (open-end company) is a financial institution whose primary objective is to invest other people's money.  By pooling their resources, investors obtain both supervision and diversification of their investments.  Mutual fund shares are ordinarily redeemable by the holder at any time at net asset value.  In most cases, new shares are offered for sale continuously at net asset value plus a fixed percentage as a sales charge.  The assets of a mutual fund are the actual securities it purchases, and its income consists of the dividends and interest on these securities.  The earnings of the business are paid out in the form of dividends and capital gains distributions to the shareholders.  Mutual funds do not issue bonds, debentures, or preferred stock.

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Net Asset Value Per Share (NAV)

The market worth of a mutual fund's total resources - securities, cash and any accrued earnings - after deduction of liabilities, divided by the number of shares outstanding.  It is normally the price at which shares are redeemed.

No-Load Mutual Funds

Mutual funds offered directly to the public at net asset value with no sales charge.

Nominal Yield

The annual interest rate payable on a bond, specified in the indenture and printed on the face of the certificate itself (if it is a bearer bond).  Also known as the coupon rate.

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Offer

The price at which a person is ready to sell.  (See "Bid" and "Ask.")

Open Account

A Mutual Fund account which allows a shareholder, by virtue of his initial investment in the fund, automatically has reinvestment privileges and the right to make additional purchases without a formal accumulation plan.

Open-End Management Company

The technical term for a mutual fund.  (See "Management Company.")

Over-The-Counter (OTC)

A market for securities made up of securities broker/dealers who may or may not be members of securities exchanges.  Over the counter is trading conducted anywhere other than on an exchange.

Over-The-Counter Security

A security that trades in the over-the-counter market rather than being listed on a stock exchange.  Many of the world’s largest and most prestigious corporations have elected to have their common stock trade in this market although, historically, OTC was reserved for the smaller, unseasoned issues that didn’t qualify for listing.  All new issues are initially offered OTC.  This is also the market place for government and municipal bonds.

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Payable Date

The date on which a dividend is paid.

Payment Date

The date on which interest, or principal and interest, is payable on a debt security.  Interest payment dates usually occur semi-annually for bonds. *

Periodic Payment Plan

A mutual fund sales contract in which the customer commits to buying shares in the fund on a periodic basis over a long time period in exchange for a lower minimum investment.

Portfolio

Holdings of securities by an individual or institution, which may include bonds, preferred and common stocks of various enterprises.

Premium Bond

Any bond that sells at a price above the face amount, usually because interest rates have fallen since its issuance.  (See "Discount Bond.")

Primary Distribution (Offering)

The original sale of a security; all further trades are in the secondary market.

Prospectus

A document stating material information for an offering of securities (containing most of the information included in the registration statement), that is used for solicitation purposes by the issuer and underwriters.

Qualified Retirement Plan

A private retirement plan that meets the rules and regulations of the Internal Revenue Service.  Contributions to a qualified retirement plan are, in most cases, tax deductible and earnings on such contributions are always tax sheltered until retirement.

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R-Squared

Reflects the percentage of a fund's movements that can be explained by movements in its benchmark index.  An R-squared of 100 indicates that all movements of a fund can be explained by movements in the index.

Red Herring

A preliminary prospectus for securities to be offered publicly by a corporation or underwriter.  It is the only form of written communication allowed between a broker/dealer and a potential purchaser before the effective date of the offering.  The Securities Act of 1933 requires a red-lettered caveat on the front page, hence the derivation of the name.

Redemption

A transaction in which the issuer repays to the holder of an outstanding security the principal amount thereof (plus, in certain cases, an additional amount representing a redemption premium).  Redemption can be made under several different circumstances: at maturity of the security, as a result of the issuer exercising a right under the bond contract to repay the security prior to its scheduled maturity date (often referred to as a “call”), or as a result of the security holder's election to exercise a put or tender option privilege.  Redemption provisions in the bond contract for a security may provide the issuer the right to retire the debt fully or partially before the scheduled maturity date. *

Redemption Price

The amount per share that the mutual fund shareholder receives when cashing in his/her shares (also known as "bid price").  The value of the shares depends upon the market value of the fund's portfolio securities at the time.  This is usually the net asset value next calculated after receipt of the redemption request.

Reinvestment Privilege

A service provided by most mutual funds for the automatic reinvestment of a shareholder's income dividends and capital gains distributions in additional shares.

Reinvestment Risk

The risk that a purchaser of a fixed income security incurs that interest rates will be lower when the purchaser seeks to reinvest income received from the security. *

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Repurchase Agreement

A transaction between a securities dealer and an investor in which the dealer sells the security to the investor with an agreement to repurchase the security back from the investor at a specified time and at a price that will result in a predetermined yield to the investor.  The investor is providing the dealer with short-term funds, while the dealer is providing the investor with short-term securities.

Revenue Bond

A bond which is payable from a specific source of revenue and to which the full faith and credit of an issuer with taxing power is not pledged.  Revenue bonds are payable from identified sources of revenue, and do not permit the bondholders to compel taxation or legislative appropriation of funds not pledged for payment of debt service.  Pledged revenues may be derived from operation of the financed project, grants, and excise or other specified non-ad valorem taxes.  Generally, no voter approval is required prior to issuance of such obligations.  Compare: General Obligation Bond. *

Rights of Accumulation

A privilege offered by some investment companies that allows the investor to include the total market value of shares already owned in calculating sales charges when a new investment is made in additional shares.

Risk

The simplest definition of risk is uncertainty.  Here are the most important types of risk:

Roth IRA

Named for Senate Finance Committee Chairman William Roth, the Roth IRA offers investors the opportunity for tax-free income in retirement.  While contributions to a Roth IRA are not tax deductible, all earnings are tax free, provided that you hold your account at least five years and are age 59 ½ or older when withdrawals begin.

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Sales Charge

An amount charged to purchase shares in many mutual funds.  The maximum charge is 8.5 percent of the initial investment.  The charge is added to the net asset value per share in the determination of the offering price.  This charge must always be stated as a percentage of the offering price.

Secondary Market

The aftermarket; the resale of outstanding securities.  This is what occurs every day on the exchanges and in the OTC market.  (See "Primary Distribution.")

Section 403(b) Plan

Section 403(b) of the Internal Revenue Code permits employees of certain charitable organizations and public school systems to establish tax-sheltered retirement programs that may be funded with annuities and mutual fund shares.

Securities

Any note, stock, bond, evidence of debt, interest or participation in a profit-sharing agreement, investment contract, voting trust certificate, fractional undivided interest in oil, gas, or other mineral rights, or any warrant, pre-emptive right or option to subscribe to, or purchase, any of the foregoing.  Also includes variable annuities and various other products.

Securities Investor Protection Corporation (SIPC)

A nonprofit membership corporation created by an act of Congress to protect clients of a brokerage firms that are forced into bankruptcy.  Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges and most NASD members.  SIPC provides customers of these firms up to $500,000 coverage for cash and securities held by firms (although cash is limited to $100,000).

Series EE Savings Bond

Non-marketable federal savings bonds of various denominations offered at a price below face value and redeemed at face value.

Series HH Savings Bonds

Non-marketable federal savings bonds of various denominations offered and redeemed at face value, bearing interest every six months during its lifetime.

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Settlement (Delivery) Date

The day on which certificates involved in a transaction are due at the purchaser's office.  At that time, the purchaser is obligated to make payment.  Regular Way delivery requires that members settle their trades on the third business day after the trade.

Shareholder Servicing Fee

Annualized fee paid by a mutual fund to institutions that provide shareholder support services to their customers.

Sharpe Ratio

A risk adjusted measure developed by Nobel Laureate William Sharpe.  It is calculated by using standard deviation and excess return to determine the reward per unit of risk.  The higher the Sharpe Ratio, the better the fund's historical risk-adjusted performance.

Small Capitalization Stocks

Equity securities of the smallest U.S. companies, typically identified as companies with market capitalizations under $2 billion.

Special Cash Account

Years ago, the term "special" was removed from Regulation T, but many in the industry still use it.  It refers to an account in which the customer is required to make full payment no later than two business days after the settlement date.

Spread

(1) The difference in value between the bid and offering prices.

(2) The difference between the public offering price and the amount received by the issuer.

(3) Spread can also denote the difference in price or yield between two securities.

Standard Deviation

A statistical measurement of the dispersion about an average, which, for a mutual fund, depicts how widely the returns varied over a certain period of time.  Investors use the standard deviation of historical performance to try to predict the range of returns that are most likely for a given fund.  When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility.

Statement of Additional Information (SAI)

A document that contains more detailed disclosure on features and policies of mutual funds and is filed with the Securities Exchange Commission.

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Tax-Exempt Securities

Obligations issued by a state or municipality whose interest payments (but not profits from purchase and sale) are exempted from federal taxation.  The interest payment may be exempted from local taxation, too, if purchased by a state resident.  (See "General Obligation (GO) Bond," "Revenue Bond.")

Taxable Equivalent Yield or Taxable Yield Equivalent

The interest rate that must be received on a taxable security to provide the holder the same after-tax return as that earned on a tax-exempt security.  Because interest earned on municipal securities is not subject to federal income taxation, a tax-exempt security does not have to yield to a holder as much as a taxable security to produce an equivalent after-tax yield.  This differential is attributable to the effect of the tax liability incurred by the holder if it held a taxable security.  The taxable equivalent yield varies according to the holder's marginal federal income tax bracket, and, where applicable, any state or local tax liability as well.  The formula for determining the taxable equivalent yield is:

Taxable Equivalent Yield = [tax-free yield/ (100-tax rate)] x 100. *

Tenants in Common

A form of ownership held by at least two persons.  Each owner has a specific percentage interest in the account and, upon death of one of the owners, the share becomes part of the estate.  (See "Joint Tenants with Right of Survivorship.")

Transfer Agent

An agent of a corporation responsible for the registration of shareowners' names on the company records and the proper re-registration of new owners when a transfer of stock occurs.

Treasury Bill

A marketable U.S. government debt security with a maturity of less than one year.  Treasury bills are issued at a discount from par; there is no fixed interest rate.

Treasury Bond

A marketable U.S. government fixed-interest debt security with a maturity of more than ten years.

Treasury Note

A marketable U.S. government fixed-interest debt security with a maturity of between one and ten years.

Treasury Stock

Shares of stock reacquired by the corporation through purchase or donation, which are not used for dividend, voting, or earnings calculation purposes.

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Underwriter

Also known as an "investment banker," an underwriter is a middleman between an issuer and the public.  The investment banker usually forms an underwriting syndicate to limit risk and commit capital.  He or she may also contract with selling groups to help distribute the issue for a concession.  In the case of mutual funds, he/she may also be known as a sponsor or distributor.  Investment bankers also offer other services, such as advice and counsel on the raising and investment of capital.

Uniform Gift (Transfer) To Minors Act (UGMA or UTMA)

The procedure followed when giving securities or cash gifts to minors.  A custodian is appointed by the donor and the securities are registered in the name of the custodian (an adult) as custodian for the named minor.  There is one custodian and one minor per account.  There is no such thing as co-custodians (although their may be co-donors).  The account carries the social security number of the minor and the tax liability, if any, is the responsibility of the minor.  If the child is under 14 years of age and has more than $1,400 of unearned income, the excess over $1,400 is taxed to the child, but at the parent's highest rate.  The custodian is obligated to act in the best interests of the minor.

Unit Investment Trust

An investment company directed by a body of trustees rather than a board of directors and able to issue only redeemable securities, each of which represents an undivided participation in a unit of specified securities.

United States Government Securities

Bonds, notes and bills offered by the Treasury Department, backed by the U.S. Government and U.S. Government Agencies.

Unrealized Depreciation or Depreciation

The amount by which the market value of portfolio holdings on a given date exceeds or falls short of their cost.

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Value Investing

A process of identifying stocks that are undervalued in terms of price or other financial measurements with above average growth potential.

Voluntary Accumulation Plan

An informal mutual fund investment program allowing a customer to arrange purchases in frequency and numbers of dollars at his own choosing, yet providing him with benefits normally available only to larger investors.  Sales charge percentage requirements are constant throughout the life of the plan, therefore the plan is sometimes called a Level Charge Plan.

Weighted Average Maturity

This figure is indicative of interest rate risk.  Generally speaking, the longer the weighted average maturity, the greater the interest rate risk.  It is calculated by weighting the maturity of each security in a fund by the market value of each security and then averaging these weighted numbers.

Withdrawal Plan

Arrangement provided by many open-end companies by which investors can receive monthly or quarterly payments in a designated amount, which may be more or less than actual investment income.

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Yield (Rate of Return)

The dividends or interest paid by a company on its securities, expressed as a percentage of the current price or of the price of the original acquisition.

Yield-To-Maturity

The calculation of the rate of return on a bond if held to its maturity date.

Zero Coupon Bond (Zeros)

A debt security without a stated or nominal interest rate.  All zeros are issued and traded at a discount from par value.  Since the security pays the par value at maturity, the discount is earned in lieu of periodic interest payments.  Zeros are highly volatile.

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*Items in the Glossary followed by an asterisk (*) are taken from the MSRB's Glossary of Municipal Securities Terms.  The copyright for those items is owned by the State of Florida Department of State, for the Department of General Services.  These definitions are used with permission of the MSRB and the Florida Department of State.