Glossary for Informed Investors

A

Analyst-Employee of a brokerage firm or fund management company who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

Annual Report-Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, balance sheet, and income statement. SEC rules require that it be distributed to all shareholders. Also a summary that a mutual fund sends to its shareholders that discusses the fund's performance and identifies the securities in the fund's portfolio as of a specific date. Mutual funds also provide this information in a semiannual report.

Annuity-A contract between an individual and an insurance company that provides for periodic payments to the individual or designated beneficiary in return for an investment. Typically, an annuity agrees to provide payments to the annuitant beginning at some future date. The payments may continue for the lifetime of the annuitant, or for an agreed-upon term of years.

Appreciation-An increase in an investment's value.

Asset-Any property that has monetary value. Personal assets include securities, real estate, jewelry, and bank accounts.

Automatic Reinvestment-A service giving investors the option to purchase additional shares using dividends and capital gain distributions.

B

Basis Points-Units of measure. Each percentage point equals 100 basis points. For example, a quarter of a percentage point equals 25 basis points.

Bear Market-A period during which security prices in a particular market (such as the stock market) are generally falling.

Benchmark-An unmanaged group of securities whose overall performance is used as a standard to measure investment performance.

Beneficiary-The person or entity designated to receive the proceeds of an account in the event of the owner's death.

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; the issuer usually pays the bondholder periodic interest payments over the life of the loan.

Bond Fund-A mutual fund with holdings consisting mainly of bonds.

Broker-Dealer-A firm that buys and sells mutual fund shares and other securities from and to investors.

Bull Market-A period during which security prices in a particular market (such as the stock market) are generally rising.

Buy-and-Hold-A strategy in which the investor ignores short-term market fluctuations and holds on to an investment for long periods of time.

C

Capital Gain-When a stock, bond, or mutual fund is sold for a profit, the difference between the net sales price of the security and its net cost, or original basis. If a stock, bond, or mutual fund is sold below cost, the difference is a capital loss.

Capital Gain Distributions-Profits distributed to shareholders resulting from the sale of securities held in a mutual fund's portfolio.

Cash Dividend-A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.

Certified Financial Planner® (CFP®)-An investment professional who has passed exams administered by the CFP Board of Standards on subjects such as taxes, securities, insurance, and estate planning.

Closed-End Fund-A type of investment company with a fixed number of shares that are publicly traded. The price of a closed-end fund share fluctuates based on investor supply and demand. Closed-end funds are professionally managed, but are not required to redeem shares.

Commission-A fee paid by an investor to a broker or other sales agent for investment advice and assistance, and for buying and selling securities.

Compounding-Earnings on an investment's earnings. Over time, compounding can produce significant growth in the value of an investment.

Coverdell Education Savings Account (ESA)-This type of account, formerly known as an Education IRA, is a tax-advantaged trust or custodial account set up to pay for qualified education expenses.

Credit Rating-A published ranking, based on a careful financial analysis, of a creditor's ability to pay interest or principal owed on a debt.

Credit Risk-The possibility that a bond issuer may not be able to repay its debt or keep up with interest payments.

Currency Risk-The risk that an investment transacted in a foreign currency will lose value due to fluctuations in the rate of exchange between the foreign currency and the U.S. dollar.

Custodian-An organization, usually a bank, that holds the securities and other assets of a mutual fund.

D

Daily Valuation-The determination of the value of an investment share each business day.

Day Order-An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.

Debenture-An unsecured debt obligation backed only by the general credit of the borrower.

Debt-A liability required to be paid by a specific date.

Debt/Equity Ratio-An indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholders' equity.

Deductible Contribution-Money paid to a retirement and/or education savings account for a particular tax year that is not taxed at the time the contribution is made, and may be deducted on federal income tax returns.

Default-Failure to pay principal or interest when due.

Defined Benefit Plan-A retirement plan that promises to pay a certain amount, usually based on the number of years of service and the average salary in the period before retirement. Employers generally bear all investment risk associated with these plans.

Defined Contribution Plan-A retirement plan offering a benefit that depends on the total contributions made by the employer and the employee, and on the investment returns earned by those contributions. Employees generally bear the investment risk.

Depreciation-A decline in an investment's value.

Derivative-A financial security, such as options and futures, whose value is derived partly from the value of another, underlying security.

Discount rate-The interest rate charged by the Federal Reserve Board to member banks for loans.

Distributions-Payments from fund or corporate cash flow.

Diversification-The practice of investing broadly across a number of different types of securities to reduce risk.

Dividend-A portion of a company's or fund's earnings, cash flow, or capital distributed to shareholders in the form of cash or additional shares in the company or fund.

Dividend Reinvestment Plans (DRPs)-Plans offered by many corporations and investment companies for the reinvestment of dividends, sometimes at a discount from market price, on the dividend payment date. Many DRPs also allow the investment of additional cash from the shareholder. The DRP is usually administered by the company without charges to the holder.

Dollar-Cost Averaging-The practice of investing a fixed amount of money at regular intervals, regardless of whether the securities markets are declining or rising.

Dow Jones® Industrial Average (DJIA)-The oldest and most widely quoted of all market indicators, the "Dow" represents the average of 30 actively traded blue-chip stocks on the New York Stock Exchange (NYSE).

E

Early Withdrawal Penalty-A penalty on money withdrawn early from a fixed-term or tax-deferred investment. For example, withdrawing from a tax-advantaged retirement plan before age 59½ or cashing in a certificate of deposit (CD) before its maturity may incur an early withdrawal penalty.

Earned Income-Compensation earned from employment.

Earnings-Net income for the company during the period.

Earnings Per Share-Also referred to as Primary Earnings Per Share. Net income for the past 12 months divided by the number of common shares outstanding, as reported by a company.

Education IRA-A tax-advantaged savings account designed to provide for a child's postsecondary education.

Emerging Markets Fund-A mutual fund that invests primarily in countries with developing economies (that is, those that are becoming industrialized).

Employee Retirement Income Security Act of 1974 (ERISA)-The primary federal law governing private pension plans. ERISA sets standards for funding and administering pension plans and governs investment practices of those plans.

Employee Stock Ownership Plan (ESOP)-A qualified retirement plan that invests in the employer's company stock on behalf of employees.

Employer Matching Contribution-The amount, if any, a company contributes on an employee's behalf to the employee's retirement account, usually tied to the employee's own contribution.

Equity-The value of the common stockholders' ownership interests in a company as listed on the balance sheet.

Exchange-The marketplace in which stocks, bonds, and options and futures on stocks, bonds, commodities, and indices are traded. Principal U.S. stock exchanges include the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and the National Association of Securities Dealers (NASDAQ).

Expense Ratio-A mutual fund's cost of doing business - disclosed in the prospectus - expressed as a percent of its assets.

F

Face Value-The amount that a bond's issuer must repay at the maturity date.

Family of Funds-A group of mutual funds, each typically with its own investment objective, managed and distributed by the same company.

Federal Funds Rate-The interest rate charged by banks to lend to other banks needing overnight loans; this figure is the best indicator of the direction of interest rates.

Federal Reserve-The central bank that regulates the supply of money and credit throughout the United States. The Fed's seven-member board of governors, appointed by the President, has significant influence on U.S. monetary and economic policy.

Fee Table-A table, found in a mutual fund's prospectus, that discloses and illustrates the expenses and fees a shareholder will incur.

Fiduciary-An individual, corporation, or association entrusted with the management, investment, or disposition of another's property.

Financial Planner-An investment professional who assists individuals with long- and short-term financial goals.

Fiscal Year-A 12-month accounting period; may or may not coincide with a calendar year.

401(k) Plan-An employer-sponsored retirement plan that enables employees to make pretax contributions from their salaries to the plan.

403(b) Plan-An employer-sponsored retirement plan that enables employees of universities, public schools, and nonprofit organizations to make pretax contributions from their salaries to the plan.

457 Plan-An employer-sponsored retirement plan that enables employees of state and local governments and other tax-exempt employers to make pretax contributions from their salaries to the plan.

Futures Contract-Agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction.

G

Guaranteed Investment Contract (GIC)-An agreement between an insurance company and a corporate profit-sharing or pension plan that guarantees a specific rate of return over the time span of the agreement.

H

Hedge Fund-A private investment pool for wealthy investors that, unlike a mutual fund, is exempt from SEC regulation.

Hedging-A strategy designed to reduce investment risk using "call" options, "put" options, "short" selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the potential volatility of a portfolio, by reducing the risk of loss. However, many hedging strategies also surrender the chance for further gain.

I

Income (from investments)-Dividends, interest, and/or short-term capital gains paid to a shareholder.

Index-An unmanaged group of securities whose overall performance is used as a standard to measure investment performance.

Individual Retirement Account (IRA)-An investor-established, tax-deferred account set up to hold and invest funds until retirement.

Inflation-A general rise in the prices of goods and services.

Inflation Risk-The risk that a portion of an investment's return may be offset by inflation.

Initial Public Offering (IPO)-A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains.

Interest-The amount charged for borrowing money.

Interest Rate Risk-The possibility that a bond's or bond mutual fund's value will decrease due to rising interest rates.

International Fund-A mutual fund that invests in securities traded in markets outside the United States. Foreign markets present additional risks, including currency fluctuation and political instability, but may also offer opportunities for gain not available in the U.S.

Investment-An item of value purchased for its potential income or capital appreciation.

Investment Adviser-In the context of mutual funds, a person or organization employed by a mutual fund to give professional advice on the fund's investments and asset management practices. Individuals may also hire an investment adviser to provide investment advice.

Investment Company-A corporation, trust, or partnership that invests pooled shareholder dollars in securities appropriate to the organization's objective. Mutual funds, closed-end funds, and unit investment trusts are the three main types of investment companies.

Investment Company Act of 1940-The federal law, enforced by the Securities and Exchange Commission (SEC), that regulates the activities of investment companies.

Investment Objective-The financial goal pursued by an investor or a mutual fund.

Issuer-The company, municipality, or government agency that issues a security, such as stocks, bonds, or money market instruments.

J

Junk Bond-A bond with a low credit rating. Also known as a high-yield bond because of the reward offered to those who are willing to take on the additional risks of a lower-quality bond.

K

Keogh Plan-A tax-deferred retirement plan for self-employed persons that can be set up as either a profit-sharing plan or a money purchase plan.

L

Large-Cap Stocks-Stocks of large-capitalization companies, which are generally considered to be companies whose total outstanding shares are valued at $2 billion or more.

Liabilities-Outstanding debts.

Limit Order-An order to buy a security at or below a specific price or to sell it at or above a specific price.

Liquidity-The ability to quickly and readily access invested money.

Liquidity Risk-The risk that an investor will not be able to buy or sell an investment quickly because buying and selling opportunities are limited.

Load-See sales charge.

Long-Term Funds-A mutual fund industry designation for all funds other than money market funds. Long-term funds are broadly divided into equity (stock), bond, and hybrid funds.

Lump-Sum Distribution-A single payment that represents an employee's interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attaining age 59½, and must be made within a single tax year to avoid the federal government's 10 percent penalty tax.

M

Margin Account-An account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either provide more cash, or sell a portion of the stock.

Market Capitalization-The total dollar value of all outstanding shares. Computed as number of shares multiplied by current market price. It is a measure of corporate size.

Market Order-An order to buy or sell a stock at the going price.

Market Timing-An investment strategy based on predicting market trends. The goal is to anticipate trends, buying before the market goes up and selling before the market goes down.

Maturity-The date by which an issuer promises to repay the bond's face value.

Money Market Fund-A mutual fund that invests only in short-term securities, such as bankers' acceptances, commercial paper, repurchase agreements, and government bills. The fund is managed with the goal of maintaining a net asset value per share of $1. Such funds are not federally insured, although the portfolio may consist of guaranteed securities and/or the fund may have private insurance protection.

Mortgage-Backed Security-Securities in which mortgage pools are used as backing.

Municipal Bond-A debt obligation issued by a state or local government. Interest income from municipal bonds is generally free from federal (and sometimes state and local) income taxes.

Mutual Fund-An investment company that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal. Mutual fund investors buy shares in the fund that represent ownership in all the fund's securities. A mutual fund stands ready to buy back its shares at their current net asset value, which is the total market value of the fund's investment portfolio, minus its liabilities, divided by the number of shares outstanding. Most mutual funds continuously offer new shares to investors.

N

NASDAQ (National Association of Securities Dealers Automated Quotations)-A computerized system that provides up-to-the-minute price quotations for securities traded over-the-counter as well as for many securities listed on the New York Stock Exchange.

National Association of Securities Dealers, Inc. (NASD)-A self-regulatory organization responsible for the NASDAQ stock market and over-the-counter markets.

National Association of Securities Dealers Regulation, Inc. (NASDR)-An independent subsidiary of the NASD with authority over broker-dealer firms that distribute mutual fund shares as well as other securities.

Net Asset Value (NAV)-The per-share value of a mutual fund, found by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once daily.

Net Income-The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes, and other expenses.

Net Profit-Investment gains after the deduction of all expenses.

Net Worth-The total value of an individual's assets, minus the value of any outstanding debts.

No-Load Fund-A mutual fund whose shares are sold without a sales commission and without a 12b-1 fee of more than 0.25 percent per year.

Nondeductible Contribution-A contribution (for example, to an IRA) that cannot be deducted from income tax in the year for which it's made.

Nonqualified Plan-A retirement plan that does not meet the IRS requirements for favorable tax treatment.

O

Open-End Investment Company-The legal name for a mutual fund, indicating that it stands ready to redeem (buy back) its shares from investors on any business day.

Operating Expenses-Costs of doing business; these are paid from a mutual fund's assets before earnings are distributed to shareholders.

Option-Gives the buyer the right, but not the obligation, to buy or sell stock at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options believe the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options believe the stock's price will drop below the price set by the option.

Over the Counter (OTC)-Geographically decentralized market in which securities transactions are conducted through a telephone and computer network regulated by the National Association of Securities Dealers (NASD).

P

Penny Stock-An inexpensive, speculative stock, typically selling for under $1 a share. Also known as a micro-cap stock.

Pension Plan-An arrangement under which an employer - and sometimes the employee - makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.

Political Risk-The risk that a foreign investment will lose value due to unfavorable political or regulatory changes in that country.

Portfolio-A collection of securities owned by an individual or an institution (such as a mutual fund) that may include stocks, bonds, and money market securities.

Portfolio Manager-A specialist employed by a mutual fund's adviser to invest the fund's assets in accordance with predetermined investment objectives.

Preferred Stock-A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation.

Prepayment Risk-The risk that a bond owner will receive his or her principal investment back from the issuer prior to the bond's maturity date.

Price/Earnings Ratio-Shows the "multiple" of earnings at which a stock sells. Determined by dividing current price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for the past 12 months by the number of common shares outstanding. A higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price.

Principal-The amount of money originally put into an investment.

Profit Margin-An indicator of profitability. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.

Profit-Sharing Plan-A flexible arrangement between a corporation and its employees that lets staff share in company profits. Usually a defined contribution plan based on each participant's compensation and on other factors such as corporate results, the plan payout can vary annually and no minimum contribution to participant accounts is required.

Prospectus-The official document that describes a mutual fund or other investment to prospective investors. For mutual funds, the prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.

Proxy Statement-Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting.

Purchasing Power-The value of money, as measured by the quantity and quality of products and services it can buy. Also called buying power.

Q

Quality-The creditworthiness of a bond issuer, which indicates the likelihood that it will be able to repay its debt.

R

Redemption-The return of an investor's principal. For example, mutual fund shares may be redeemed on any business day by selling them back to the fund for the current share price, called net asset value, minus any deferred sales charge or redemption fee.

Return-The percentage gain or loss for an investment in a specific time period.

Risk/Reward Tradeoff-The investment principle that an investment must offer higher potential returns as compensation for the likelihood of increased volatility.

Rollover-The shifting of an investor's assets from one qualified retirement plan to another - due to changing jobs, for instance - without a tax penalty.

Rollover IRA-A traditional individual retirement account holding money from a qualified plan. These assets, as long as they are not mixed with other contributions, can later be rolled over to another qualified plan.

Roth IRA-A nondeductible IRA introduced by the Taxpayer Relief Act of 1997. Distributions from a Roth IRA are tax-free provided they meet certain requirements.

S

Sales Charge or Load-An amount charged for the sale of some fund shares, usually those sold by brokers or other sales professionals. By regulation, a mutual fund sales charge may not exceed 8.5 percent of an investment purchase. The charge may vary depending on the amount invested and the fund chosen. A sales charge or load is reflected in the asked or offering price.

S&P® 500 Index (Standard & Poor's® 500 Index)-An index of the 500 largest capitalized companies in the United States that is widely recognized as a guide to the overall health of the U.S. stock market.

Savings Incentive Match Plan for Employees (SIMPLE)-A tax-deferred retirement savings plan similar to a conventional 401(k) plan, but redesigned with specific rules to meet the needs of small-scale employers.

Securities-Stocks, bonds, money market instruments, and other investment vehicles.

Securities and Exchange Commission (SEC)-The primary U.S. government agency responsible for the regulation of the day-to-day operations and disclosure obligations of mutual funds, investment advisers, broker-dealers, and the securities markets.

Securities Investor Protection Corporation (SIPC)-A nonprofit membership corporation created under the Securities Investor Protection Act of 1970 to protect client accounts of brokerage firms that are forced into bankruptcy. SIPC does not protect investors from market risk.

Settlement Date-The date on which payment is made to settle a securities transaction.

Share Classes (e.g., Class A, Class B, Class C)-Represent ownership in the same fund, but charge different fees and/or provide different shareholder services, enabling shareholders to choose the type of structure that best suits their particular needs.

Shareholder-An investor who owns shares of a mutual fund or other company.

Shares-Certificates or book entries representing ownership in a corporation or similar entity.

Short-Term Capital Gain-A profit on the sale of a security or mutual fund share that has been held for one year or less. A short-term capital gain is taxed as ordinary income.

Short-Term Funds-A mutual fund industry designation for money market funds.

Simplified Employee Pension Plan (SEP) - A retirement program consisting of individual retirement accounts for all eligible employees, to which the employer can contribute according to certain rules. A fairly simple, inexpensive plan to establish and administer, a SEP can be attractive to small businesses and self-employed individuals.

Small-Cap Stocks-Stock of small-capitalization companies, which are generally considered to be companies whose total outstanding shares are valued at less than $1 billion.

Social Security Benefits-Monthly government payments to retired workers or their families who have paid Social Security taxes for at least a total of 40 quarters or 10 years.

Spread-The difference between what you pay for a stock or bond and what the security dealer pays for it.

Stock-A share of ownership or equity in a corporation.

Stockbroker-A licensed individual who executes orders to buy or sell securities and who usually gets a commission for doing so.

Stock Dividend-Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders.

Stock Exchange-A market facility for the trading of securities by members (usually brokers, dealers, and traders). An example is the New York Stock Exchange (NYSE), which is the oldest and largest exchange in the United States.

Stock Fund-A mutual fund having holdings consisting mainly of stocks.

Stock Split-A company-initiated increase in the number of shares of the company's stock, accompanied by a decrease in share price, so that shareholder equity remains the same. For example, in a "2 for 1" stock split, a shareholder who had 100 shares of the stock when its price was $60 a share will have 200 shares valued at $30 a share after the split. Also called a split.

Stop-Loss Order-An order to sell a stock when the price falls to a specified level.

Systematic Withdrawal Plan (SWP)-An automatic withdrawal program in which a shareholder receives regular payments, usually monthly, quarterly, semiannually, or annually, from a mutual fund account or retirement plan.

T

Tax-Deferred Income-Dividends, interest, and unrealized capital gains on investments in an account such as a qualified retirement plan, where income is not subject to taxation until a withdrawal is made.

Tax-Deferred Retirement Plan-Any retirement plan in which earnings are not currently taxable.

Tax-Sheltered-An investment exempt from federal and, in some cases, state or local income taxes.

Ticker Symbol-An abbreviation assigned to a security for trading purposes. A security's ticker symbol is often used in newspapers and price-quotation services. Also called a trading symbol or stock symbol.

Time Horizon-The amount of time, usually expressed in years, that an investor expects to hold an investment.

Total Return-The change in value of an investment over a given period, assuming reinvestment of any dividends and capital gain distributions, expressed as a percentage of the initial investment.

Trading Price-The price at which a security is currently selling.

Trading Range-The upper and lower selling price of a security over a given period of time, such as the previous 52 weeks.

Traditional IRA-A tax-deferred individual retirement account. For individuals within certain income ranges, or who are not active participants in employer-sponsored plans, contributions, or portions thereof, may be deductible for federal income tax purposes.

Transaction-The execution of a trading order. Once a buyer and seller agree on a price, they are obligated to complete the transaction.

Transfer Agent-The organization employed by an issuer of securities to prepare and maintain records relating to shareholder accounts.

Treasury Bill (T-bill)-A short-term discounted security issued by the U.S. government, with a maturity of 1 year or less.

Treasury Bond (T-bond)-A long-term security issued by the U.S. government, with a maturity of 10 years or more.

Treasury Note (T-note)-An intermediate-term security issued by the U.S. government, having a maturity of 1 to 10 years.

12b-1 Fee-A mutual fund fee, named for the SEC rule that permits it, used to pay for distribution costs, such as advertising and commissions paid to dealers. If a fund pays a 12b-1 fee, it will be disclosed in the fee table of a fund's prospectus.

U

Underwriter-The organization that sells securities to broker-dealers and investors.

Uniform Gifts to Minors Act (UGMA)-A law adopted by many states to provide a simple method for giving irrevocable gifts to children via a custodial account without having to establish a formal trust.

Uniform Transfers to Minors Act (UTMA)-A law adopted by all states and similar to the Uniform Gifts to Minors Act, allowing irrevocable transfer of gifts besides money (ranging from real estate and fine art to patents and royalties) to a minor via a simple custodial account. The UTMA either supplements or replaces the UGMA, depending on the state.

Unit Investment Trusts (UITs)-An investment company that buys and holds a fixed number of shares until the trust's termination date. When the trust is dissolved, proceeds are paid to shareholders. A UIT has an unmanaged portfolio. Like a mutual fund, shares of most UITs can be redeemed on any business day.

V

Valuation-The estimated worth of an asset such as a security. A valuation makes it easier to decide if an asset would make a good investment at a given purchase price. The price/earnings ratio is an example of a stock valuation.

Variable Annuity-A type of insurance contract having a value that changes based on an underlying investment portfolio or on another performance index. Funds held in the annuity accumulate on a tax-deferred basis.

Vesting-Nonforfeitable ownership (or partial ownership) by an employee of the retirement account balances or benefits contributed on his/her behalf by an employer. The Tax Reform Act of 1986 established minimum vesting rights for employees based on their years of service - full vesting in five years or 20 percent vesting per year starting by the end of the third year.

Volatility-The degree of fluctuation in the value of a security, mutual fund, or index. The greater an investment's volatility, the wider the fluctuations between its high and low prices.

Volume-The amount (expressed in shares or dollars) of a security that trades hands during a specific period.

W

Wall Street-The financial district in New York City where the New York Stock Exchange, American Stock Exchange, and many brokerage firms are located. Also a reference to the investment community in general.

Withholding-Federal income tax that must be deducted from distributions unless the recipient elects otherwise under IRS rules.

World Bond Fund-A mutual fund that invests in debt securities offered by foreign companies and/or governments.

World Equity Fund-A mutual fund that invests primarily in stocks of foreign companies.

Y

Yield-A measure of net income (dividends and interest) earned by the securities in a mutual fund's portfolio less fund expenses during a specified period. Also, the percentage rate of return paid on a stock in the form of dividends, or the rate of interest paid on a bond or note.

Z

Zero Coupon Bond-A bond sold at a deep discount from its face value that makes no periodic payments of interest.

Copyright © 2004 by the Investment Company Institute Education Foundation