1-9

12b-1 Fee

A fee collected by a mutual fund that is periodically deducted from the fund's assets each year to cover marketing and distribution costs.

10-Year U.S. Treasury Bond

A long-term U.S. government bond; its performance is often looked to as the benchmark for long-term government bond investments.

401(k) Plan

An employer-sponsored investment plan for retirement. Employees contribute to the plan and all contributions and any earnings grow tax deferred until withdrawal. Employers may match a portion of employees' contributions.

A

Aggressive Growth Funds

Mutual funds that invest in companies with the potential for rapid growth, such as companies in developing industries, small but fast-moving companies, or companies that have fallen on hard times but appear due for a turnaround.

Active Management

A mutual fund management style in which the fund manager uses analytic or forecasting tools to buy and sell individual securities for the fund portfolio.

Annuity

A contract between an individual and an insurance company in which the individual pays money into an account in exchange for a guaranteed payment at or during retirement. Annuities offer tax-deferred growth. There are two types: fixed and variable.

Asset Allocation

The way in which you weight investments in your portfolio to try to meet a specific objective.

B

Back-End Load

A sales fee charged when you sell or redeem shares of a mutual fund.

Balanced Funds

Mutual funds that combine stocks and bonds in a single portfolio.

Benchmark

A market index used by individual investors, portfolio managers, and market researchers to determine how a particular market or market sector performs.

Beneficiary

One who receives the proceeds of a trust, retirement plan, or life insurance policy.

Bond Funds

Mutual funds that invest in bonds issued by municipalities, corporations, and the U.S. government and its agencies. Bond mutual funds do not mature and are not guaranteed, although some of the individual bonds they invest in may be.

Bond

An investment vehicle representing a loan to a corporation, government, or municipality. Generally, bonds pay a fixed interest rate and return the principal investment at maturity. Bonds issued by the U.S. government are guaranteed; other bonds are not guaranteed and carry varying degrees of credit risk.

C

Capital Appreciation

The difference between what you paid for shares purchased and what you may realize when you sell them.

Charitable Remainder Trust

A trust that allows you to leave assets to a charity and receive income and tax benefits at the same time. You can receive income from the trust for a specified period of time, after which all remaining assets are transferred to the charity.

Consumer Price Index

The most commonly used measure of inflation, the CPI tracks the average change in the prices of a fixed "market basket" of goods and services, including energy, food, health care, clothing, and entertainment. It is published by the U.S. Bureau of Labor Statistics.

Correction

Generally, a drop of at least 10% in major market indexes.

Credit Risk

1. A measure of a bond issuer's ability to repay its principal and interest as promised; 2. An individual consumer's creditworthiness, as reported on a credit rating.

Currency Risk

A factor in international investments, this is the possibility that changing currency rates will affect the dollar value of overseas investments.

D

Diversification

The process of helping reduce risk by investing in several different types of individual funds or securities.

Dividends

A percentage of a company’s profits paid to its shareholders.

Dollar-Cost-Averaging (DCA)

An investment strategy in which predetermined amounts are invested on a regular basis, so more shares are purchased when prices are low, and fewer are purchased when prices are high. Though it cannot assure a profit or prevent loss in declining markets, and you should be prepared to continue to purchase shares through market ups and downs. Over time DCA may result in an average cost per share that is lower than the average price per share.

Dow Jones Industrial Average

An index that follows the returns of 30 well-established American companies, the Dow is the most often quoted measure of U.S. stock market performance.

Duration

A measurement of the price volatility of a bond, representing the approximate change in price per 1% change in yield. Thus a bond with a duration of 4 would change in price by 4% for each 1% change in yield. A higher duration indicates a higher risk of price fluctuations. Long-term bonds tend to have the greatest durations.

E

Emerging Markets

Lesser-developed countries that may be experiencing rapid economic growth and liberalization of government restrictions on free commerce. Examples of emerging market countries include Argentina, Malaysia, and Thailand.

F

Flexible Spending Account (FSA)

An account provided by an employer that lets you set aside a certain amount of pretax dollars for medical care and other special circumstances.

Front-End Load

A sales fee paid when you purchase shares of a mutual fund.

G

Grantor

The owner of an estate who sets up a trust.

Global Funds

Mutual funds that invest in securities issued in the United States and foreign nations. Global funds may be susceptible to risks such as currency fluctuation and political or economic changes.

Growth Funds

Mutual funds that strive for capital appreciation by investing in companies that are positioned for strong earnings growth.

Growth and Income Funds

Mutual funds that strive for both dividend income and capital appreciation by investing in companies with solid records of dividend payments and capital gains. Most growth and income funds strive for yields equal to or better than the money market average and to provide capital appreciation that at least beats inflation.

I

Index Funds

Mutual funds that attempt to mirror the day-to-day fluctuations of a market index.

International Funds

Mutual funds that invest exclusively in securities issued outside the United States. International funds may be susceptible to risks such as currency fluctuation and political or economic changes.

Individual Retirement Account (IRA)

A retirement account to which you can contribute up to $4,000 (or 100% of your compensation, whichever is less) annually. IRAs allow your money to grow tax deferred and, depending on your personal circumstances, contributions may be tax deductible and withdrawals prior to age 59 1/2 may be assessed a 10% IRS penalty. Withdrawals from IRAs are taxed at then-current rates.

Inflation

An increase in the price of any good or service.

Inflation Risk

The risk that the purchasing power of savings will decrease due to rising prices.

Interest Rate Risk

Most often associated with fixed-income investments, this is the risk that a security's or fund's price will fall with rising interest rates.

Intestate

Without a will. If you die intestate, the courts will decide how your estate is divided (according to laws that vary from state to state) and appoint guardians for any minor children.

L

Large-Cap Stock

Shares issued by companies with market capitalizations greater than $6 billion.

Living Trust

A trust that allows you to remain both the trustee and the beneficiary of the trust while you're alive. You maintain control of the assets and receive all income and benefits. Upon your death, a designated executor distributes the remaining assets according to the terms set in the trust.

Long-Term Capital Gains

Net gains on assets sold 12 months or more after purchase; taxed at a maximum rate of 15%. This tax rate applies to gains realized after May 5, 2003, and is scheduled to expire after December 31, 2008. Gains realized prior to May 5, 2003, are taxed at a maximum rate of 20%.

M

Market Capitalization

A measure of a company's value calculated by multiplying the number of shares outstanding by the current price per share.

Market Risk

The likelihood that the value of a security will move in tandem with its overall market.

Medigap

An individual insurance policy that can help pay medical expenses of the elderly not covered by the Medicare system.

Mid-Cap Stock

Shares issued by companies with market capitalizations from $500 million to $8 billion.

Money Market Funds

Mutual funds that invest in short-term money market instruments, such as U.S. Treasury bills, commercial paper, certificates of deposit, and repurchase agreements. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Morgan Stanley Capital International Europe, Australasia, Far East Index

The most prominent of the indexes that track international stock markets, the EAFE is comprised of companies considered representative of 21 European, Asian, and Pacific Basin countries.

Mortgage-Backed Securities

Fixed-income securities backed by pools of mortgage loans.

N

Nasdaq Composite Index

An index of over 3,500 issues that was created in 1971 to measure all domestic common stocks that are traded "over the counter" in the Nasdaq market; that is, they are not listed on the major stock exchanges.

Net Asset Value (NAV)

Computed on a regular basis by a fund company, the price at which no-load (no sales fee) shares may be purchased or sold at that time.

No-Load Fund

A mutual fund that does not charge a sales fee. Such funds may charge a 12b-1 fee to cover marketing expenses.

P

Passive Management

A mutual fund management style in which the fund manager simply buys whatever stocks are represented by a well-known market index, and trades only when the composition of the index changes.

Q

Qualified Personal Residence Trust (QPRT)

A trust that allows you to remove a residence from your estate while retaining use of it for a designated period of time, after which the home belongs to the trust or its beneficiaries.

R

Roth IRA

An individual retirement account to which you may be able to contribute up to $4,000 per year. Contributions are not tax deductible, but qualified withdrawals may be tax free. Certain income restrictions apply.

Rule of 72

A formula that answers the question, "How many years will it take my money to double?" based on a particular constant rate of return. Use the following formula: 72 / Annual Rate of Return = Number of Years It Will Take for Your Money to Double.

S

Short-Term Capital Gains

Net gains on assets sold less than 12 months after their purchase, taxed at your income tax rate.

Small-Cap Stock

Shares issued by companies with capitalizations between $20 million and $3 billion.

Standard & Poor's Composite Index of 500 stocks (S&P 500)

A broad-based measurement of the average performance of 500 widely held industrial, transportation, financial, and utility stocks that includes the stocks of companies that are or have been leaders in their respective industries and are listed on the New York Stock Exchange, the American Stock Exchange, and the Nasdaq Market System.

Sector Funds

Mutual funds that invest in specific industries and economic niches to seek above-average returns. Their narrow focus may make them more volatile than broadly diversified funds and more vulnerable to single economic, political, or regulatory developments.

Stock

A share of ownership in a publicly held company. Owners of stock receive voting rights on issues affecting the company and may receive dividends.

T

Total Return

A measure of a fund's performance that encompasses all elements of return: dividends, capital gains distributions, and changes in net asset value. Total return is the change in the value of an investment over a given period, assuming any reinvestment of dividends or capital gains distributions, expressed as a percentage of the initial investment.

Trust

An agreement in which a grantor transfers assets to a trustee for the purpose of benefiting one or more beneficiaries.

Trustee

The administrator of a trust.

U

U.S. Savings Bonds

Represent loans to the federal government, to be repaid in full, with interest, at a specified future date known as the maturity date. Series EE bonds issued today are sold at a 50% discount to face value (the amount paid at maturity).

V

Value Funds

Mutual funds that invest in stocks that generally have fallen out of favor in the marketplace and are often priced much lower than stocks of similar companies in the same industry.

W

Will

A written legal declaration that enables you to direct the disposition of your assets upon your death.

Y

Yield

(1) The income generated by a fund as a percentage of its NAV; (2) The return on a bond investment; (3) The percentage rate of return paid on a stock in the form of dividends.