Alpha – The amount of return expected from an investment from its inherent value.
Alternative Minimum Tax (AMT) – Federal tax, revamped by the Tax Reform Act of 1986, aimed at ensuring that wealthy individuals, trusts, estates and corporations pay at least some tax.
Annual report – The yearly audited record of a corporation or a mutual fund’s condition and performance that is distributed to shareholders.
Annualized – A procedure where figures covering a period of less than one year are extended to cover a 12-month period.
Annualized rate of return – The average annual return over a period of years, taking into account the effect of compounding. Annualized rate of return also can be called compound growth rate.
Appreciation – The increase in value of a financial asset.
Asset allocation – The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs.
Asset class – Securities with similar features. The most common asset classes are stocks, bonds and cash equivalents.
Average maturity – For a bond fund, the average of the stated maturity dates of the debt securities in the portfolio. Also called average weighted maturity. In general, the longer the average maturity, the greater the fund’s sensitivity to interest-rate changes, which means greater price fluctuation. A shorter average maturity usually means a less sensitive – and consequently, less volatile – portfolio.
Balanced fund – Mutual funds that seek both growth and income in a portfolio with a mix of common stock, preferred stock or bonds. The companies selected typically are in different industries and different geographic regions.
Bear market – A bear market is a prolonged period of falling stock prices, usually marked by a decline of 20% or more. A market in which prices decline sharply against a background of widespread pessimism, growing unemployment or business recession. The opposite of a bull market.
Benchmark – A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or mutual fund.
Beta – A measurement of volatility where 1 is neutral; above 1 is more volatile; and less than 1 is less volatile.
Blue chip – A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. The term Blue Chip is borrowed from poker, where the blue chips are the most valuable.
Board of Trustees – A governing board elected or appointed to direct the policies of an institution.
Bond – A bond acts like a loan or an IOU that is issued by a corporation, municipality or the U.S. government. The issuer promises to repay the full amount of the loan on a specific date and pay a specified rate of return for the use of the money to the investor at specific time intervals.
Bond fund – A mutual fund that invests exclusively in bonds.
Breakpoint – The level of dollar investment in a mutual fund at which an investor becomes eligible for a discounted sales fee. This level may be achieved through a single purchase or a series of smaller purchases.
Bull market – Any market in which prices are advancing in an upward trend. In general, someone is bullish if they believe the value of a security or market will rise. The opposite of a bear market.
Capital – The funds invested in a company on a long-term basis and obtained by issuing preferred or common stock, by retaining a portion of the company’s earnings from date of incorporation and by long-term borrowing.
Capital gain – The difference between a security’s purchase price and its selling price, when the difference is positive.
Capital gains ex-date – The date that a shareholder is no longer eligible for a capital gain distribution that has been declared by a security or mutual fund.
Capital gains long term – The difference between an asset’s purchase price and selling price (when the difference is positive) that was earned in more than one year.
Capital gains reinvest NAV – The difference between an asset’s purchase price and selling price (when the difference is positive) that was automatically in vested in more shares of the security or mutual fund invested at the security’s net asset value.
Capital gains short term – The difference between an asset’s purchase price and selling price (when the difference is positive) that was earned in under one year.
Capital loss – The amount by which the proceeds from a sale of a security are less than its purchase price.
Capitalization – The market value of a company, calculated by multiplying the number of shares outstanding by the price per share.
Cash equivalent – A short-term money-market instrument, such as a Treasury bill or repurchase agreement, of such high liquidity and safety that it is easily converted into cash.
Common stock – Securities that represent ownership in a corporation; must be issued by a corporation.
Contingent deferred sales charge (CDSC) – A back-end sales charge imposed when shares are redeemed from a fund. This fee usually declines over time.
Corporate bond – A long-term bond issued by a corporation to raise outside capital.
Country breakdown – Breakdown of securities in a portfolio by country.
Custodian – A bank that holds a mutual fund’s assets, settles all portfolio trades and collects most of the valuation data required to calculate a fund’s net asset value (NAV).
Cut-off time – The time of day when a transaction can no longer be accepted for that trading day.
Daily dividend factor (date) – Daily dividend distributed by a money market mutual fund.
Default – Failure of a debtor to make timely payments of interest and principal as they come due or to meet some other provision of a bond indenture.
Distribution schedule – A tentative distribution schedule of a mutual fund’s dividends and capital gains.
Diversification – The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns.
Dividend – A dividend is a portion of a company’s profit paid to common and preferred shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.
Dividend paid – Amount paid to the shareholder of record a security or mutual fund.
Dividend reinvest NAV – Dividends paid to the shareholder of record that are automatically invested in more shares of the security or mutual fund that are purchased at the security’s net asset value.
Dividend yield – Annual percentage of return earned by a mutual fund. The yield is determined by dividing the amount of the annual dividends per share by the current net asset value or public offering price.
Dollar cost averaging – Investing the same amount of money at regular intervals over an extended period of time, regardless of the share price. By investing a fixed amount, you purchase more shares when prices are low, and fewer shares when prices are high. This may reduce your overall average cost of investing.
Dow Jones Industrial Average (Dow) – The most commonly used indicator of stock market performance, based on prices of 30 actively traded blue chip stocks, primarily major industrial companies. The Average is the sum of the current market price of 30 major industrial companies’ stocks divided by a number that has been adjusted to take into account stocks splits and changes in stock composition.
EPS – The portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability.
Equities – Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from fixed-income securities such as bonds or mortgages. Stock funds may vary depending on the fund’s investment objective.
Equity fund – A mutual fund/collective fund in which the money is invested primarily in common and/or preferred stock. Stock funds may vary, depending on the fund’s investment objective.
Ex-Dividend – The interval between the announcement and the payment of the next dividend for a stock.
Ex-Dividend date – The date on which a stock goes ex-dividend. Typically about three weeks before the dividend is paid to shareholders of record.
Exchange privilege – The ability to transfer money from one mutual fund to another within the same fund family.
Expense ratio – The ratio between a mutual fund’s operating expenses for the year and the average value of its net assets.
Expense ratio (date) – Amount, expressed as a percentage of total investment that shareholders pay annually for mutual fund operating expenses and management fees.
Federal Funds Rate (Fed Funds Rate) – The interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board.
Federal Reserve Board (The Fed) – The governing board of the Federal Reserve System, it regulates the nation’s money supply by setting the discount rate, tightening or easing the availability of credit in the economy.
Fixed income fund – A fund or portfolio where bonds are primarily purchased as investments. There is no fixed maturity date and no repayment guarantee.
Fixed income security – A security that pays a set rate of interest on a regular basis.
Fund – A pool of money from a group of investors in order to buy securities. The two major ways funds may be offered are (1) by companies in the securities business (these funds are called mutual funds); and (2) by bank trust departments (these are called collective funds).
Growth investing – Investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing.
Growth stock – Typically a well-known, successful company that is experiencing rapid growth in earnings and revenue, and usually pays little or no dividend.
Growth-style funds – Growth funds focus on future gains. A growth fund manager will typically invest in stocks with earnings that outperform the current market. The manager attempts to achieve success by focusing on rapidly growing sectors of the economy and investing in leading companies with consistent earnings growth. The fund grows primarily as individual share prices climb.
Index – An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The S&P 500 is widely considered the benchmark for large-stock investors. It tracks the performance of 500 large U.S. company stocks.
Individual Retirement Account (IRA) – A tax-deferred account to which an eligible individual can make annual contributions up to $3,000 ($6,000 for a single-income married couple filing a joint income tax return).
Inflation – A rise in the prices of goods and services, often equated with loss of purchasing power.
Interest rate – The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.
Interest-rate risk – The possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates.
Investment advisor – An organization employed by a mutual fund to give professional advice on the fund’s investments and asset management practices.
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 types of investment companies.
Investment grade bonds – A bond generally considered suitable for purchase by prudent investors.
Investment objective – The goal of a mutual fund and its shareholders, e.g. growth, growth and income, income and tax-free income.
Junk bond – A lower-rated, usually higher-yielding bond, with a credit rating of BB or lower.
Large-cap – The market capitalization of the stocks of companies with market values greater than $10 billion.
Letter of intent – A letter of intent may also be issued by a mutual fund shareholder to indicate that he/she would like to invest certain amounts of money at certain specified times. In exchange for signing a letter of intent, the shareholder would often qualify for reduced sales charges. A letter of intent is not a contract and cannot be enforced, it is just a document stating serious intent to carry out certain business activities.
Lipper ratings – The Lipper Mutual Fund Industry Average is the performance level of all mutual funds, as reported by Lipper Analytical Services of New York. The performance of all mutual funds is ranked quarterly and annually, by type of fund such as aggressive growth fund or income fund. Mutual fund managers try to beat the industry average as well as the other funds in their category.
Liquidity – The ability to have ready access to invested money. Mutual funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day.
Loads (back-end, front-end and no-load) – Sales charges on mutual funds. A back-end load is assessed at redemption (see contingent deferred sales charge), while a front-end load is paid at the time of purchase. No-load funds are free of sales charges.
Long-term investment strategy – A strategy that looks past the day-to-day fluctuations of the stock and bond markets and responds to fundamental changes in the financial markets or the economy.
Management fee – The amount paid by a mutual fund to the investment advisor for its services.
Market price – The current price of an asset.
Market risk – The possibility that an investment will not achieve its target.
Market timing – A risky investment strategy that calls for buying and selling securities in anticipation of market conditions.
Maturity – The date specified in a note or bond on which the debt is due and payable.
Maturity distribution – The breakdown of a portfolio’s assets based on the time frame when the investments will mature.
Median Market Cap – The midpoint of market capitalization (market price multiplied by the number of shares outstanding) of the stocks in a portfolio, where half the stocks have higher market capitalization and half have lower.
Mid-cap – The market capitalization of the stocks of companies with market values between $3 to $10 billion.
Money market mutual fund – A short-term investment that seeks to protect principal and generate income by investing in Treasury bills, CDs with maturities less than one year and other conservative investments.
Morningstar ratings – System for rating open- and closed-end mutual funds and annuities by Morningstar Inc. of Chicago. The system rates funds from one to five stars, using a risk-adjusted performance rating in which performance equals total return of the fund.
Mutual fund – Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities.
NASDAQ – National Association of Securities Dealers Automated Quotations system, which is owned and operated by the National Association of Securities Dealers. NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities.
Net Asset Value per share (NAV) – The current dollar value of a single mutual fund share; also known as share price. The fund’s NAV is calculated daily by taking the fund’s total assets, subtracting the fund’s liabilities, and dividing by the number of shares outstanding. The NAV does not include the sales charge. The process of calculating the NAV is called pricing.
Number of Holdings – Total number of individual securities in a fund or portfolio.
P/B Ratio – The price per share of a stock divided by its book value (net worth) per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds.
Par value – Par value is the amount originally paid for a bond and the amount that will be repaid at maturity. Bonds are typically sold in multiples of $1,000.
Portfolio – A collection of investments owned by one organization or individual, and managed as a collective whole with specific investment goals in mind.
Portfolio allocation – Amount of assets in a portfolio specifically designated for a certain type of investment.
Portfolio holdings – Investments included in a portfolio.
Portfolio manager – The person or entity responsible for making investment decisions of the portfolio to meet the specific investment objective or goal of the portfolio.
Preferred stock – A class of stock with a fixed dividend that has preference over a company’s common stock in the payment of dividends and the liquidation of assets. There are several kinds of preferred stock, among them adjustable-rate and convertible.
Premium – The amount by which a bond or stock sells above its par value.
Price-to-book – The price per share of a stock divided by its book value (net worth) per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds.
Price-to-earnings (P/E) Ratio – A stock’s price divided by its earnings per share, which indicates how much investors are paying for a company’s earning power.
P/E Ratio (1 yr trailing) (long position) – Price of a stock divided by its earnings from the latest year.
P/E Ratio (1 yr forecast) – Price of a stock divided by its projected earnings for the coming year.
Prospectus – Formal written offer to sell securities that sets forth the plan for proposed business enterprise or the facts concerning an existing one that an investor needs to make an informed decision. Prospectuses are also issued by mutual funds, containing information required by the SEC, such as history, background of managers, fund objectives and policies, financial statement, risks, services and fees.
Proxy – A shareholder vote on matters that require shareholders’ approval.
Public offering price (POP) – A mutual fund share’s purchase price, including sales charges.
Quality distribution – The breakdown of a portfolio’s assets based on quality rating of the investments.
R2 – The percentage of a fund’s movements that result from movements in the index ranging from 0 to 100. A fund with an R2 of 100 means that 100 percent of the fund’s movement can completely be explained by movements in the fund’s external index benchmark.
Ratings – Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities.
Recession – A downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country’s gross domestic product.
Redemption – Sale of mutual fund shares by a shareholder.
Reinvestment option – Refers to an arrangement under which a mutual fund will apply dividends or capital gains distributions for its shareholders toward the purchase of additional shares.
Relative risk and potential return – The amount of potential return from an investment as related to the amount of risk you are willing to accept.
Rights of accumulation – The right to buy over a period of time. For example, this might be done by an institutional investor to avoid making a single substantial purchase that might drive up the market price, or by a retail investor who wants to reduce risk by dollar cos
Risk tolerance – The degree to which you can tolerate volatility in your investment values.
Sales charge – 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. See loads.
Sector – A group of similar securities, such as equities in a specific industry.
Sector breakdown – Breakdown of securities in a portfolio by industry categories.
Securities – Another name for investments such as stocks or bonds. The name ‘securities’ comes from the documents that certify an investor’s ownership of particular stocks or bonds.
Securities and Exchange Commission (SEC) – The federal agency created by the Securities and Exchange Act of 1934 that administers the laws governing the securities industry, including the registration and distribution of mutual fund shares.
Share – A unit of ownership in an investment, such as a share of a stock or a mutual fund.
Share class net assets (date) – Fund assets included in a specific share class.
Share classes – Classes represent ownership in the same fund but charge different fees. This can enable shareholders to choose the type of fee structure that best suits their particular needs.
Sharpe Ratio – A risk-adjusted measure that measures reward per unit of risk. The higher the sharpe ratio, the better. The numerator is the difference between the Fund’s annualized return and the annualized return of the risk-free instrument (T-Bills).
Short-term investment – Asset purchased with an investment life of less than a year.
Small-cap – The market capitalization of the stocks of companies with market values less than $3 billion.
Standard & Poor’s Index – Broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks commonly known as the Standard & Poor’s 500 or S&P 500.
Standard Deviation – A statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.
Statement of additional information (SAI) – The supplementary document to a prospectus that contains more detailed information about a mutual fund; also known as ‘Part B’ of the prospectus.
Stock – A long-term, growth-oriented investment representing ownership in a company; also known as ‘equity.’
Stockholder – The owner of common or preferred stock of a corporation. Also called ‘shareholder.’
Systematic investment plan – A service option that allows investors to buy mutual fund shares on a regular schedule, usually through bank account deductions.
Tax-exempt income – Tax-exempt income is income that is exempt from income taxes. A purchaser of state municipal bonds is exempt from federal taxation on the income earned from the bonds.
Time horizon – The amount of time that you expect to stay invested in an asset or security.
Top 10 holdings – Ten largest holdings in a portfolio based on asset value.
Top 10 long and short positions – The top 10 holdings ranked by market value in each position category (long and short). A long position is one in which an investor buys shares of stock and as an equity holder will profit if the price of the stock rises. With a short position an investor will sell shares of stock that they do not own but have borrowed. The investor in a short position will profit if the price of the stock falls.
Top five contributors – Five assets in a portfolio that generated largest negative returns (losses).
Top five detractors – Top five industries in a portfolio based on amount of invested assets.
Top five holdings – Top five securities in a portfolio based on amount of invested assets.
Top five industries – Top five industries in a portfolio based on amount of invested assets.
Total return – Accounts for all of the dividends and interest earned before deductions for fees and expenses, in addition to any changes in the value of the principal, including share price, assuming the funds’ dividends and capital gains are reinvested. Often, this percentage is presented in a specified period of time (one, five, ten years and/or life of fund). Also, a method of calculating an investment’s return that takes share price changes and dividends into account.
Tracking Error – The active risk of the portfolio. It determines the annualized standard deviation of the excess returns between the portfolio and the benchmark.
Transfer agent – An agent, usually a commercial bank, appointed to monitor records of stocks, bonds and shareholders. A transfer agent keeps a record of the name of each registered shareholder, his or her address, the number of shares owned, and sees that certificates presented for the transfer are properly canceled and new certificates are issued in the name of the new owner.
Treasury bill – Negotiable short-term (one year or less) debt obligations issued by the U.S. government and backed by its full faith and credit.
Treasury bond – Negotiable long-term (10 years or longer) debt obligations issued by the U.S. government and backed by its full faith and credit.
Treasury note – Negotiable medium-term (one year to 10 years) debt obligations issued by the U.S. government and backed by its full faith and credit.
Treasury security – Securities issued by the U.S. Treasury Department and backed by the U.S. government.
Trustee – 1. An organization or individual who has responsibility for one or more accounts. 2. An individual who, as part of a fund’s board of trustees, has ultimate responsibility for a fund’s activities.
Turnover Ratio – Percentage of holdings in a mutual fund that are sold in a specified period.
Valuation – An estimate of the value or worth of a company; the price investors assign to an individual stock.
Value investing – A strategy whereby investors purchase equity securities that they believe are selling below estimated true value. The investor can profit by buying these securities then selling them once they appreciate to their real value.
Value stock – Typically an overlooked or underpriced company that is growing at slower rates.
Value-style funds – Value-style funds typically hold company stocks that are undervalued in the market. Fundamentally strong companies whose stocks are inexpensive but trending upward may also be selected for value funds.
Volatility – The amount and frequency with which an investment fluctuates in value.
Wtd. Avg. Market Cap – Most indexes are constructed by weighting the market capitalization of each stock on the index. In such an index, larger companies account for a greater portion of the index. An example is the S&P 500 Index.
Weighted average maturity – A Fund’s WAM calculates an average time to maturity of all the securities held in the portfolio, weighted by each security’s percentage of net assets. The calculation takes into account the final maturity for a fixed income security and the interest rate reset date for floating rate securities held in the portfolio. This is a way to measure a fund’s sensitivity to potential interest rate changes.
YTD total return – Year-to-date return on an investment including appreciation and dividends or interest.
YTD – Year-to-date return on an investment including appreciation and dividends or interest.
YTD Return (w load) – Year-to-date return on an investment including appreciation and dividends or interest, minus any applicable expenses or charges.
Yield – Annual percentage rate of return on capital. The dividend or interest paid by a company expressed as a percentage of the current price.
Yield to maturity – Concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date.
Yield to maturity distribution – The average rate of return that will be earned on a bond if held to maturity.
12b-1 fee – A mutual fund fee, named for the SEC rule that permits it, used to pay for broker-dealer compensation and other distribution costs. If a fund has a 12b-1 fee, it will be disclosed in the fee table of the fund’s prospectus.
30-day SEC yield (date) – Represents net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the fund’s share price at the end of the 30-day period. The 30-day yield should be regarded as an estimate of investment income and may not equal the fund’s actual income distribution rate.
52 Week High – A security’s trading high point over the last 52-week period.
52 Week Low – A security’s trading low point over the last 52-week period