Education: Financial Glossary

Definitions for common investment terms are at your fingertips. For a detailed explanation of certain terms, please see your financial advisor.

  • A-B
  • C-D
  • E-G
  • H-K
  • L-M
  • N-R
  • S-T
  • U-Z

A

  • Alternative Minimum Tax (AMT) - A federal tax meant to ensure that wealthy individuals, estates, trusts,and corporations pay a sufficient amount of income tax.
  • Annual Percentage Yield (APY) - The effective or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding.
  • Annualized - The average rate of return produced by a mutual fund during a specified holding period (e.g. 3, 5, or 10 years).
  • Appreciation of Capital - The rise in the share price of a security. In terms of a mutual fund, capital appreciation is measured by an increase in its net asset value (NAV).
  • Asset Allocation - The process of strategically distributing one's money among various asset classes, such as stocks, bonds, and money market securities. Asset allocation is used to seek maximum investment returns while minimizing investment risk. Prudent asset allocation has been found to be a key determinant of investment portfolio success.
  • Asset Class - Categories of different types of assets, such as stocks or bonds.
  • Asset-Backed Securities (ABS) - A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, rather than real estate.
  • Average Cost Per Share - The average cost of mutual fund shares or stock purchased during different time periods.

B

  • Back-End Load/CDSC - A fee imposed by mutual funds to sell shares during a specified time period. For Class B shares the fee decreases the longer the investor holds the shares. Class C shares typically apply the fee to shares sold during the first year. The formal name for the back-end load is contingent deferred sales charge, or CDSC.
  • Balanced Fund - A mutual fund that typically diversifies its assets among a variety of classes, such as stocks, bonds and money market securities. The allocation of assets may change based on the prevailing market conditions.
  • Bank and Bank Holding Company Obligations - Short-term debt obligations sold by bank holding companies
  • Basis Point - One one-hundredth of one percentage point, or 0.01%.
  • Basket - A basket applies to derivative instruments in the marketplace. A basket is a group of stocks that is formed with the intention of either being bought or sold all at once.
  • Bear Market - Any market in which prices exhibit a declining trend. A market is often classified as a bear when it has fallen 20% or more.
  • Benchmark - The performance of a predetermined set of securities, used for comparison purposes (e.g. the S&P 500 Index for the overall stock market). Mutual fund returns are compared to specific benchmarks to help investors evaluate their performance.
  • Bid and Ask Price - The price a potential buyer is willing to pay for a security. The ask price is the lowest price a person or institution will accept to sell a security. The difference between the bid and ask price is referred to as the bid-ask spread.
  • Blue Chips - A term used to describe large, established and creditworthy companies. These firms generally have widely accepted use of their products or services and many are household names.
  • Bond - A debt security, or IOU, issued by a company, municipality or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date. In addition, the issuer usually provides the bondholder periodic interest payments.
  • Brady Bonds - Bonds issued by emerging countries under a debt reduction plan.
  • Bull Market - A market where prices are experiencing an upward trend.

C

  • Capital Appreciation - The rise in the share price of a security. In terms of mutual funds, capital appreciation is measured by an increase in its net asset value (NAV).
  • Capital Gain (Loss) - An increase (decrease) in the value of your investment or an amount received (lost) by a mutual fund for selling securities above (below) their cost. If you sell or exchange your fund shares for more or less than your cost basis, you will realize a capital gain or loss. All capital gains, whether earned by the fund or from the sale of fund shares, must be reported on your tax return. Different tax rates may apply depending on how long assets were held, when they were sold, and other factors. Any capital losses from the sale of fund shares must be reported on your tax return and may be used to offset capital gains.
  • Capital Gains Distribution - A distribution a mutual fund makes out of profits from selling stocks or bonds that is subject to capital gains taxes for the shareholders.
  • Capitalization - A term used to describe a company's total value. Capitalization is calculated by multiplying a stock's share price by its number of outstanding shares. A small-cap company generally has a value of less than $500 million. Mid-cap companies are valued between $500 million and $5 billion and large cap's have values over $5 billion.
  • Cash Equivalents/Cash Investments - The value of a mutual fund's assets that can be converted into cash immediately. These include bank accounts and marketable securities, such as government bonds and Banker's Acceptances.
  • Commercial Paper - Short-term unsecured promissory notes issued by corporations. The maturity of commercial paper is typically less than 270 days.
  • Common Stock - A type of equity security. Common stocks represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security
  • Compounding - Earnings on an investment's gains which, over time, can produce significant growth in the value of an investment. For example, if your investments earn 10% a year for five years, you earn 61.1%, not 50%. That's because, as time goes on, you make money not only on your original investment, but also on your accumulated gains from previous years.
  • Concentrated Investment - A mutual fund that concentrates its holdings on a limited number of securities, or that focus on a particular area of the market (e.g. technology stocks). Non-diversified funds are generally riskier than more diversified funds.
  • Consumer Price Index (CPI) - A measurement that tracks how the general level of prices for goods and services is rising.
  • Contingent Deferred Sales Charge (CDSC) - The formal name for the back-end load is contingent deferred sales charge, or CDSC. A CDSC applies when a mutual fund charges investors a fee to sell shares during a specified time period. For Class B shares the fee decreases the longer the investor holds the shares. Class C shares typically apply the fee to shares sold during the first year of ownership.
  • Convertible Security - A security that can be converted into common stock at the option of the security holder. Convertible securities can include convertible bonds and convertible preferred stock.
  • Cost Basis - The amount you pay for your mutual fund shares, including commissions and any reinvested dividends or capital gain distributions, less any non-taxable distributions or returns of capital. When you redeem shares, you subtract the cost basis of your shares from the redemption amount to determine any capital gains or losses.
  • Coverdell Education Savings Account - Formerly known as an Education IRA, this type of Individual Retirement Account lets parents contribute a certain amount of money each year for children up to 18 years old.
  • Credit Risk - The risk that a bond issuer will not be able to repay its debt at maturity. Bond ratings by agencies like Moody's and Standard & Poor's identify the quality and risk level of bonds. Highly rated bonds tend to carry the lowest risk, while bonds with low ratings, like junk bonds, are typically the riskiest.
  • Currencies - Money issued by governments. Some of the most well known and traded currencies include the U.S. dollar and the Japanese yen.
  • Currency Risk - The risk that fluctuations in the exchange rate between the U.S. dollar and a foreign currency may decrease the value of a security that is either invested in, or whose value is derived upon that currency. Global and international investments are most subject to this type of risk.
  • Current Income - A mutual fund objective that seeks to provide shareholders with a regular stream of income, typically derived from dividends.

D

  • Debt Securities - IOUs created through loan-type transactions-commercial paper, bank CDs, bills, bonds, and other instruments.
  • Derivative Instruments - A financial security such as an option or future whose value is derived, in part, from the value and characteristics of another security, the underlying asset.
  • Distributions - Amounts paid to shareholders of a mutual fund. Income distributions represent income received by the fund and may be taxable or tax exempt. Capital gain distributions represent capital gains received by the fund and are taxable, even if the fund invests in tax-exempt securities. Non-taxable distributions represent the return of capital investors paid into the fund and are not subject to income tax.
  • Distributor - The legal entity that distributes the shares of a mutual fund.
  • Diversification - The process of dividing investment assets among a variety of securities or asset classes that have different risk and reward characteristics. Prudent diversification can help to lower overall investment risk.
  • Dividend - Income paid by a company or mutual fund to its shareholders. Mutual funds may receive dividends on common and preferred stock, as well as from income investments. This income may be distributed to shareholders in income distributions, which may be taxable or tax-exempt, depending on the nature of the fund and its investments. (Also called "ordinary dividends.")
  • Dividend Distribution - The distribution of a dividend to mutual fund shareholders as of a certain date.
  • Dividend Income - A portion of a company's profit paid to its bondholders and common and preferred shareholders, often at regular intervals (e.g. quarterly or annually).
  • DJIA - The Dow Jones Industrial Average. A price-weighted average of 30 actively traded blue-chip stocks that typically trade on the New York Stock Exchange. The Dow, as it is called, is often viewed as a barometer of how shares of the largest U.S. companies are performing.
  • Dollar Cost Averaging - An investment strategy that calls for investing a fixed amount of money at set intervals (e.g. monthly or quarterly). With a dollar cost averaging (DCA) program the investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost paid over time. There can be no guarantee that a DCA program will lead to a gain or avoid a loss.

E

  • EAFE Index - Europe, Australasia, and Far East index (EAFE index). A stock index, computed by Morgan Stanley Capital International, often used as a benchmark for certain types of international equity funds.
  • Earned Income - Income provided to a shareholder of a mutual fund, typically derived from dividends.
  • Education IRA - Now known as a Coverdell Education Savings Account, this type of Individual Retirement Account lets parents contribute a certain amount of money each year for children up to 18 years old.
  • Equity - A term used to describe a stock. Stocks represent part ownership of a company's assets and earnings. There are two different types of stock: common and preferred. Common stocks provide voting rights, but no guarantee of dividend payments. Preferred stocks provide no voting rights, but offer a set, guaranteed dividend payment. Preferred stock also has prior claim to company assets over common stock in the case of a bankruptcy.
  • Equity Fund - A mutual fund that invests the majority of its assets in stocks.
  • Equity Income Fund - A type of mutual fund that invests in both stocks and fixed-income securities. These funds typically seek to generate both growth of capital and regular income for their shareholders.
  • Estate - A person's assets that are earmarked to be passed down to specified beneficiaries, typically specified in a last will and testament.
  • Exchange Privilege - The ability to exchange shares of one mutual fund for another. An exchange is viewed as a sale of one fund to make a purchase of another, and can trigger a taxable event.
  • Exchange Rate - The price of one country's currency expressed versus another country's currency.

F

  • FDIC - Federal Deposit Insurance Corporation—A federal institution that insures bank deposits up to certain limits. Mutual funds, including money market funds, are not FDIC insured—even those funds that are sold through banks or other financial institutions.
  • Fee and Expenses - Debits to a mutual fund's balance sheet. A fund's fees and expenses can take many forms, such as shareholder fees and annual operating expenses. A mutual fund's fees and expenses must be specified in its prospectus.
  • FIFO - First-In, First-Out—an accounting method for valuing the cost of goods sold that uses the cost of the oldest item in inventory first. For mutual funds, this applies to the first shares purchased.
  • Financial Advisor - A professional offering financial advice to clients for a fee and/or commission. Many investors turn to financial advisors to develop and monitor a financial plan that is geared toward meeting a specific goal/s, given their individual time horizon and risk tolerance.
  • Fiscal Year - Accounting period covering 12 consecutive months over which a company derives its earnings and profits. A fiscal year does not necessarily correspond to the calendar year. All mutual funds have fiscal years.
  • 529 Plan - A college savings plan sponsored by individual states. Like a Coverdell Education Savings Account (formerly known as Education IRA), contributions to a 529 are made with after-tax dollars and any earnings compound tax-deferred. In addition, beginning in 2002, when the money is withdrawn for qualified higher education expenses both the contributions and earnings are not subject to taxes.
  • Fixed Rate Investment - An investment that pays a fixed, rather than variable, rate of return.
  • Floaters - A debt instrument with a variable interest rate tied to another interest rate.
  • Floating Rate Loans - Loans made by banks and other financial institutions to large corporations. The borrower agrees to pay a rate that is reset regularly according to a reference rate. The rate paid by a floating rate loan "floats" at a fixed spread over a reference rate, usually the U.S. Dollar London Interbank Offered Rate (LIBOR). The loan is backed by the assets of the borrower. The loans are rated non-investment grade, but considered senior secured debt in the borrower's capital structure—paid first in the event of default.

G

  • Global Funds - Mutual funds that invest their assets in both U.S. and foreign securities. These differ from international funds, which typically only invest in foreign securities.
  • Growth (Growth-Oriented) - An investment style that focuses on companies with above-average current and projected-earnings growth. Growth stocks tend to have relatively high earnings-growth rates and very low dividend yields. These firms trade at high valuation levels, meaning they usually have high price-to-book (P/B) and price-to-earnings (P/E) and price-to-sales (P/S) ratios. Because of their high prices and low yields, growth stocks tend to have less downside protection and more volatility than less expensive stocks.

H

  • High-Quality/Investment-Quality Bonds - A bond that is assigned a rating in the top four categories by commercial credit rating companies. S&P classifies investment-grade bonds as BBB or higher, and Moody's classifies investment grade bonds as Ba or higher.
  • High Yield Debt Security - A bond with a credit rating of BB (Standard & Poor's) or Ba (Moody's) or lower. Junk or high-yield bonds typically offer investors higher yields than bonds issued by more financially sound companies. Two agencies, Standard and Poor's and Moody's Investor Services, provide the rating systems for companies' credit.
  • Hope Scholarship Credit - An education tax credit that can be claimed only for qualified tuition and expenses that have been incurred at an eligible institution and are not covered by other assistance. Expenses not part of the degree program are excluded (room, board, books, insurance and activity fees). This credit is available only for the first two years of post-secondary education, during which the student is enrolled at least half time in a degree or certificate program. To receive the credit a taxpayer's adjusted gross income must not exceed a specified dollar amount.

I

  • Income - Dividends, interest, and/or short-term capital gains paid to a mutual fund's shareholders. Income is earned on a fund's investment portfolio less operating expenses.
  • Income Fund - A mutual fund that often seeks to provide current income as its primary objective.
  • Index Fund - A mutual fund that seeks to match the returns of a particular stock or bond market index (e.g. the S&P 500 Index).
  • Individual Retirement Account (IRA) - A way for individuals who have earned income to save for their retirement. There are a variety of Individual Retirement Accounts (IRAs), including Traditional IRAs, Roth IRAs, and Coverdell Education Savings Accounts (formerly known as Education IRAs), each with different features, deductibility provisions, and potential tax advantages. Certain withdrawals, including withdrawals from Traditional and Roth IRAs prior to age 59½, may incur a 10% early withdrawal penalty from the IRS.
  • Inflation Risk - The risk that the return on your investments will not keep pace with rising consumer prices.
  • Interest Rate Risk - The risk that the value of a fixed-income investment will drop as interest rates rise. That's because bond prices are inversely related to interest rates (if one goes up, the other goes down).
  • International Funds - A mutual fund that primarily invests in securities issued from outside the U.S.
  • Investment Company - A firm that invests the assets of its shareholders in securities appropriate for their stated investment objectives in return for a management fee. Also the formal name for a mutual fund.
  • Initial Public Offering (IPO) - A company's first sale of stock to the public. Securities offered in an IPO are generally those of young, small companies seeking outside equity capital. Investors purchasing stock in IPOs must be prepared to accept significant risks in exchange for the possibility of large gains.

J

  • JTIC - An acronym meaning Joint Tenants in Common. Used to describe mutual fund accounts that are owned by more than one person with certain survivorship rights. JTIC may appear on fund statements for these types of accounts.
  • JTWROS - An acronym meaning Joint Tenants with Rights of Survivorship. Used to describe mutual fund accounts that are owned by more than one person whereby, upon the death of one account holder, ownership passes to the remaining account holder(s). JTWROS may appear on fund statements for these types of accounts.
  • Junk Bonds - A bond with a credit rating of BB (S&P) or Ba (Moody's) or lower. Junk or high-yield bonds typically offer investors higher yields than bonds of more financially sound companies. Two agencies, Standard & Poor's and Moody's Investors Service, provide the rating systems for companies' credit.

K

  • There are no glossary words under this letter.

L

  • Large-Cap Equity - A stock with a large sized capitalization, or high total value. Capitalization is calculated by multiplying a stock's share price by the number of outstanding shares. A large-cap company generally has a market cap over $5 billion.
  • Letter of Intent - A promise by a shareholder to invest a specific amount of money for a specified period of time. This is used to reduce sales charges.
  • Lifetime Learning Credit - An education tax credit that could reduce a person's federal income taxes by up to 20% of the first $5,000 out-of-pocket qualified tuition and fees paid for all eligible students in their family. Students are not required to take more than one course, and both undergraduate and graduate level qualified tuition fees from eligible institutions can be included. To receive the credit a taxpayer's adjusted gross income must not exceed a specified dollar amount.
  • LIFO - Last-In—First Out. An accounting method for valuing the cost of goods sold that uses the cost of the last item in inventory first. For mutual funds, this applies to the last shares purchased.
  • Lipper - An independent mutual fund tracking and ranking company. Lipper fund rankings and averages are widely used in the financial industry.
  • Liquidity - A high level of trading activity, allowing buying and selling with minimum price disturbance. Also, a market characterized by the ability to buy and sell with relative ease.
  • Liquidity Risk - The risk that a mutual fund's underlying securities cannot be sold at a fair price within a reasonable period of time. Shares in large blue-chip stocks are considered liquid because there are a large number of outstanding shares that are actively traded. Conversely, small-cap stocks with less outstanding shares are generally not considered liquid, since a few large buy or sell orders can greatly influence the share price.
  • London Interbank Offered Rate (LIBOR) - A standard financial index used in the U.S capital markets to determine the rate of interest at which banks offer to lend money to one another.

M

  • Market Risk - The risk that movement in the financial markets will adversely affect your investment.
  • Market Timing - Attempting to only invest when the market has bottomed out (or selling when the market has peaked) in order to achieve the maximum investment gain.
  • Market Value - For a mutual fund, its market value is equal to its net asset value per share (NAV).
  • Maturity - The date by which an issuer promises to repay the bond's face value.
  • Mid-Cap Equity - A stock with a middle-sized capitalization, or total value. Capitalization is calculated by multiplying a stock's share price by the number of outstanding shares. A mid-cap company generally may have a market cap between $500 million and $5 billion.
  • Money Market Fund - A mutual fund that invests only in short-term securities, such as banker's acceptances, commercial paper, repurchase agreements, and government bills. Money market funds strive to maintain a $1.00 per share net asset value (NAV), although this is not guaranteed. These funds are not federally insured, even if purchased through a bank or other financial institution.
  • Moody's Investors Service - An independent security and bond rating agency.
  • Morningstar, Inc. - An independent tracking and rating service for mutual fund and other investments. Among its products, Morningstar ranks funds and annuities, and issues star ratings (one to five stars) that are commonly used as a snapshot overview of an investment based on its risk-adjusted performance returns and other factors.
  • Mortgage-Related Securities - Investment instruments backed by a pool of mortgage loans.
  • Municipal Bonds (Securities) - Represents borrowing by state or local governments to pay for special projects such as highways or sewers. The interest that investors receive from municipal bonds is exempt from certain income taxes. Also known as muni bonds.
  • Mutual Fund - A registered investment company that pools the money of many individuals and institutions and invests it on their behalf. Mutual funds can invest in a wide variety of investments, including stocks, bonds and money market instruments.

N

  • Net Asset Value (NAV) - For a mutual fund, the net asset value per share usually represents its market price.
  • New York Stock Exchange (NYSE) - Founded in 1792, the NYSE is the oldest exchange in the U.S., and the largest. More than 2,000 common and preferred stocks are traded on the exchange. Also referred to as the Big Board or the Exchange.
  • No-Load Fund - A type of mutual fund that does not levy an initial or back-end sales charge.
  • Non-Diversified Fund - A mutual fund that concentrates its holdings on a limited number of securities, or that focus on a particular sector of the market (e.g. technology stocks). Non-diversified funds are generally riskier than more diversified funds.
  • Non-Fundamental Policy - Non-fundamental policies are policies related to a mutual fund that may be changed by its Trustees without shareholder approval. In contrast, fundamental policies can only be changed by a shareholder vote.
  • Non-U.S. Debt Securities - Debt instruments that are issued from countries outside of the United States.
  • Non-U.S. Equity Securities - Equities that are issued from countries outside of the United States.

O

  • Options - A feature that gives a security owner the right, but not the obligation, to buy or sell an asset at a set price, on or before a given date. Buyers of call options anticipate that a stock will be worth more than the price set by the option, plus the price they pay for the option itself. On the other hand, buyers of put options bet that the stock's price will drop below the price set by the option.
  • Outstanding Shares (Liquidity) - The number of shares a security has in the marketplace. In terms of stocks, the number of outstanding shares can help to determine its liquidity. A stock with a large number of outstanding shares may be deemed to be highly liquid, whereas a stock with a relatively few number of outstanding shares may be viewed as being illiquid.
  • Over-the-Counter (OTC) Market - The market for securities that are not listed on a stock or bond exchange. The OTC market is a decentralized market, as opposed to an exchange market, such as the New York Stock Exchange.

P

  • Political Risk - The risk that political and/or governmental actions or events may unfavorably influence the value of an investment.
  • Preferred Stock - A type of stock that has characteristics of both common stock and fixed income securities. Preferred stock gives the holder ownership in a corporation and a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stocks provide a fixed dividend that is paid prior to the common stock. Preferred stock does not usually carry voting rights.
  • Preservation of Capital - A mutual fund objective that calls for the manager to invest in such a way to seek to maintain a constant or fairly constant share price. While a mutual fund may seek preservation of capital, there can be no guarantee that this will occur, even with money market funds.
  • Prospectus - The official document that describes a mutual fund to investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees. A fund's prospectus should always be read carefully before investing.
  • Public Offering Price (POP) - The price of a new issue of security at the time that the issue is offered to the public. For a mutual fund, the POP is its net asset value, plus any initial sales charge (if applicable).

Q

  • Qualified Plans - Retirement plans that conform to the rules of IRC Section 401, including defined benefit and defined contribution plans, such as 401(k), profit sharing, and money purchase plans.

R

  • Rating Services - Independent organizations, such as Morningstar, Lipper & Company and Value Line, which rate mutual funds and other securities, based on certain criteria (such as risk and reward measures).
  • Real Estate Investment Trusts (REITs) - REITs invest in real estate or loans secured by real estate and issue shares in those investments. Real estate mutual funds generally invest the majority of their assets in REITs and other related securities.
  • Record Date - The date a shareholder must officially own shares in order to be entitled to a dividend. For example, a mutual fund might declare a dividend on April 1, payable May 1 to holders of record April 15.
  • Redemption - The sale of mutual fund shares, either for cash or as part of an exchange for shares of another fund. Redemptions may generate capital gains or losses.
  • Reinvestment of Dividends/Capital Gains - A feature offered by mutual fund companies that allow shareholders to take the dividends and/or capital gain distributions paid by their fund and to reinvestment them in the same (or a different fund) to purchase additional shares. These subsequent purchases are generally made at net asset value. Even though a shareholder may reinvest their distributions, they will still incur taxes on the distribution they received.
  • Rights of Accumulation (ROA) - A way for a mutual fund shareholder to qualify for a reduced sales charge. With ROA, the shareholder adds the value of shares already owned in his or her accounts, and uses that amount to receive a discount on purchases of new shares.
  • Risk Tolerance - The amount of risk an investor is willing to assume in order to meet a specific goal.
  • Rollover - The transfer of funds from one qualified retirement plan to another. If done within a specified time frame, taxation can be avoided. However, Traditional IRA balances rolled over into Roth IRAs are subject to income tax on untaxed earnings.
  • Roth IRA - An Individual Retirement Account that allows contributors to invest up to a certain amount each year, and to withdraw principal and earnings tax-free under certain conditions.

S

  • S&P 500 Composite Index - An unmanaged index of 500 widely held common stocks, which is used as a gauge to measure the general performance of the stock market. Typically referred to as the S&P 500.
  • Sector - Used to characterize a group of securities that are similar with respect to a particular industry (e.g. technology) maturity, type, or rating.
  • Securities and Exchange Commission - The primary U.S. government agency responsible for the regulation of the day-to-day operations and disclosure obligations of mutual funds.
  • SEP, SARSEP, and SIMPLE - A Simplified Employee Pension (SEP) plan allows a company to make deductible contributions to IRA accounts set up for its employees. A Salary Reduction SEP (or SARSEP) allows the employee to contribute, and combination plans allow both company and employee contributions. With the introduction of the Savings Incentive Match Plan for Employees (SIMPLE) in 1997, new SARSEPs were disallowed, but contributions can still be made to SARSEPs established prior to December 31, 1996. SIMPLE IRAs are salary reduction plans that small employers may offer to their employees. Self-employed individuals can also establish SIMPLE IRAs.
  • Share Class - These 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. Common share classes are Class A, Class B, and Class C shares.
  • Signature Guarantee - A verification of a signature that is typically provided by a bank, brokerage company firm or other types of financial intermediaries. A signature guarantee cannot be obtained by a notary public.
  • Small-Cap - A stock with a small capitalization, or total equity value. Capitalization is calculated by multiplying a stock's share price by the number of outstanding shares. A small-cap company generally has a market cap of less than $500 million. Investing in small-cap stocks generally entails greater risks than investing in stocks with larger capitalization.
  • Small-Cap Equity Fund - A mutual fund that invests its assets primarily in small-cap stocks.
  • Standard & Poor's Ratings - Standard & Poor's rating service that indicates the amount of risk involved with specific securities.
  • 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 - An investment that represents part ownership of a company's assets and earnings. There are two different types of stock: common and preferred. Common stocks provide voting rights, but no guarantee of dividend payments. Preferred stocks provide no voting rights, but offer a set, guaranteed dividend payment. Preferred stock also has prior claim to company assets over common stock in the case of a bankruptcy.
  • Sub-advisor - A term used to describe an investment manager hired by an Investment Advisor to oversee the day-to-day portfolio management of a mutual fund. The sub-advisor may or may not be affiliated with the Investment Advisor.
  • Systematic Withdrawal Plan - A program offered by a mutual fund company that allows the shareholder to automatically withdraw a set amount of money (or shares) at regular time intervals (e.g. monthly or quarterly).

T

  • Tax-Deferred - An investment in which accumulated earnings (interest, dividends or capital gains) are not taxed until the investor withdraws them
  • Tax-Exempt Funds - A mutual fund that invests primarily in municipal securities to provide income free from federal income taxes. State taxes may still be assessed on such funds.
  • Tax-Exempt Securities - A security, sometimes called a municipal bond, that is generally exempt from federal income taxes. Tax-exempt mutual funds invest their assets in these securities.
  • Taxpayer ID Number - Your Social Security Number or other Tax Identification Number, which must be provided to a mutual fund company to avoid back-up withholding.
  • Time Horizon - The amount of time a person has until he or she needs to access their investments.
  • Timing the Market/Market Timing - Attempting to only invest when the market has bottomed out (or selling when the market has peaked) in order to achieve the maximum investment gain.
  • Total Return - A measure of a fund's performance that encompasses all elements of return dividends, capital gain distributions and changes in net asset value. Total return is 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.
  • Traditional IRA - A term used to describe a regular Individual Retirement Account (IRA), as opposed to a Roth or Education IRA (now known as the Coverdell Education Savings Account).
  • Transfer Agent - An individual or institution that a company appoints to oversee the transfer of securities. In the mutual fund industry, a transfer agent may also oversees the record keeping of shareholder accounts and distribute account statements.
  • Turnover - For mutual funds, a measure of trading activity during the previous year, expressed as a percentage of the average total assets of the fund. For example, a turnover rate of 50% means that the value of trades represented one-half of the assets of the fund. Actively managed mutual funds typically have higher turnover rates that passively managed funds (sometimes referred to as index funds).
  • 12b-1 Fees - The percent of a mutual fund's assets used to defray marketing and distribution expenses. The amount of the fee (if applicable) can be found in a fund's prospectus.

U

  • U.S. Government Securities - Debt instruments issued by the U.S. government. These issues are guaranteed by the government in terms of returning the principal amount and making dividend payments. On the other hand, mutual funds that invest in government securities are not insured, and may lose money.
  • Undervalued - A stock price perceived to be too low or inexpensive, as indicated by a particular valuation method (e.g. its price-to-earnings ratio).
  • Unrealized Gain/Loss - The amount of a gain or loss on a particular security that would occur (or be realized) if the security was sold.

V

  • Value (Value-Oriented) - A term used to describe stocks that are perceived to be priced too low, or as being inexpensive, as indicated by a particular valuation method (e.g. its price-to-earnings ratio). Value funds primarily invest in stocks the portfolio manager deems to be undervalued in the marketplace, with the anticipation that the price will rise when the market acknowledges their true worth.
  • Value Line - An independent firm that tracks and provides ratings for securities, including mutual funds.
  • Variable Rate Note - A note that is payable on demand and bears interest tied to a money market rate.

W

  • Warrants - A security that allows the holder to purchase a proportionate amount of stock at a specified future date at a specified price, usually higher than the current market price. Warrants are traded as securities, whose price reflects the value of the underlying stock. Corporations often group together warrants with another class of security to enhance the marketability of the other class.
  • Wash Sale - The purchase and sale of a security, such as a mutual fund, which occur simultaneously or within a short period of time of each other. Wash sales occurring within 30 days of the original purchase do not qualify as a capital loss according to IRS rules.
  • Withholding - Amounts automatically set aside by a fund's custodian and sent to the IRS. You must provide a certified Tax Identification Number when you open an account to avoid withholding on your MainStay Funds. (Also called "back-up withholding.")

X

  • There are no glossary words under this letter.

Y

  • Yankee Debt Securities - Foreign bonds denominated in U.S. dollars and issued in the United States by foreign banks and corporations.
  • Yield - A measure of net income (dividends and interest) earned by the securities in the fund's portfolio, less fund expenses, during a specified period. A fund's yield is expressed as a percentage of the maximum offering price per share on a specific date.

Z

  • There are no glossary words under this letter.