View all terms starting with the letter: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Skip to term:



Accumulation Plan---An arrangement through which investors make regular purchases of mutual fund shares, often with automatic reinvestment of dividends and distributions provided.

Annuity---An agreement that provides for regular payments to an individual over a period of time. Annuities are financial products, usually offered by insurance companies to provide income during retirement, that combine insurance with an underlying financial asset, often a mutual fund or a group of mutual funds. Assets in such products usually grow on a tax-advantaged basis, although payments are taxable as income. However, annuities differ with respect to whether payments are made for a set period of time or for the remainder of the individual’s life; whether payments are for a fixed or variable amount; and whether or not any balance in the account is paid to a beneficiary upon individual’s death.

Ask Price---Price at which an asset is offered for sale.
Asset Class---A group of securities with similar performance and risk characteristics; e.g., large capitalization stocks, emerging-market bonds, etc.

Asset Value Per Share---The market value of a fund’s net resources divided by the number of shares outstanding.


Balanced Fund---An investment company that at all times holds bonds and/or preferred stocks, in varying ratios to its common stock holdings, in order to maintain relatively greater stability of capital and income. Such funds keep at least 25% of their assets in bonds at all times.

Bank Draft Plan---For regular share accumulation, a periodic cash investment made through a shareholder's checking account via bank drafts.

Basis Point---One one-hundredth of 1%, the smallest unit of measure used in quoting yields.

Bid Price---In the case of shares of an open-end mutual fund, the price at which the holder may redeem shares. Usually, it is the current net asset value per share.

Blue Chip---The common stock of a large, well-known corporation with a stable record of earnings and dividend payments over a long period.

Blue Sky Laws---Laws of the various states governing the sale of securities, including mutual fund shares, and the activities of brokers and dealers within the particular states.

Bond---A security representing debt; a loan from the bondholder to the issuing entity.

Breakpoint---Dollar-value level of a purchase of mutual fund shares at which the percentage of the sales charge becomes lower. Typically, a sales-charge schedule contains five or six breakpoints.

Broker---A person who effects transactions in securities for the accounts of others and receives a commission for his or her services.


Call---An option contract giving the holder the right to purchase the underlying security from another person at a specific price during the term of the option. The duration may be any period of time but is rarely longer than six months and 10 days. Calls may be used either for speculative or hedging purposes.

Call Price---A term most often used in reference to preferred stocks and debt securities having a fixed claim. It is the price an issuer must pay in order to retire such securities. The call price often exceeds par or liquidating price.

Capital Gains Distribution---Distribution to investment company shareholders of net capital gains realized by an investment company on the sale of portfolio securities.

Capital Gains Tax Rates---Under the provisions of the Taxpayer Relief Act of 1997, which took effect in May and July of 1997, capital gains are taxed according to the following criteria:
- Assets held 12 months or less:
- Taxed as ordinary income, at a maximum rate of 39.6%
- Assets held more than 12 months: Taxed at a maximum rate of 20%.

Capital Growth---Increase in the market value of an asset, an objective of many investors and investment companies.

Cash Equivalents---Securities whose value is easily redeemable into cash, which includes receivables and short-term U.S. government, municipal, and corporate securities, and commercial paper.

Cash Position---Cash plus cash equivalents, less current liabilities.

Check-Writing Privilege---A service that allows a shareholder to write checks against a mutual fund account.

Closed-End Fund---An investment company with a fixed number of shares of common and sometimes preferred stock, which are traded in the securities market.

Closed Fund---A mutual fund that no longer offers shares for sale to the public, usually because management believes that it cannot effectively manage additional money. Some closed funds will continue to accept additional investments from existing shareholders.

Collateralized Mortgage Obligation---A mortgage-backed security paying a fixed portion of interest or principal at regular intervals. Pools of mortgages are divided into tranches based on maturity.

Common Stock---A security representing ownership in a corporation. The right of common stockholders to dividends, assets, and other distributions is secondary to that of holders of bonds, debentures, and preferred stocks. Common shares usually carry voting rights.

Common Stock Fund---A mutual fund whose portfolio consists mainly of common stocks. Such funds may, from time to time, take temporary defensive positions in bonds or cash.

Contingent Deferred Sales Charge---A fee charged on the redemption of mutual fund shares. Such fees are highest during the first year and subsequently decline. Total fees, including 12b-1 charges, may not exceed 7.25 percent over the investment's life.

Contractual Plan---A type of accumulation plan under which investors agree to follow a specific investment schedule. Those who fail to meet their obligation are subject to high fees.

Contrarian---An investor whose strategy is based on doing the opposite of what the majority of investors are doing at any particular time.

Convertible Securities---Securities that carry the right to be exchanged for a different security of the issuer (usually applies to preferred stocks or bonds that may be exchanged for common stock).

Custodian---An entity, usually a bank, that holds all securities and cash owned by a mutual fund. The custodian has no supervisory function with regard to management policies.

Cyclical Stock---The stock of a company whose performance is tied to that of the overall economy.


Debenture---A debt security backed by the general credit of the issuing corporation.

Defensive Stock---The stock of a company that is expected to do well in adverse market environments because of the nature of its industry.

Direct Purchase Fund---(see definition for No-Load Fund).

Discount---For a closed-end fund, the percentage below asset value at which the fund's stock sells. For convertible preferred stock, the percentage below conversion value at which the stock sells.

Distributions---Payments of a mutual fund's net investment income and capital gains to shareholders.

Distributor---The company that sells a mutual fund's shares to the public.

Diversification---The investment in a number of different securities in such a manner as to reduce the impact of a decline in any one security.

Diversified Investment Company---Under the Investment Company Act, a fund in which 75 percent of total assets is limited to beeing invested no more than five percent of total assets in any single company, and that owns no more than 10 percent of the outstanding voting shares of any issuer.

Dividend---For a mutual fund, a distribution of dividends and interest earned on the fund's underlying securities.

Dollar-Cost Averaging---A systematic investment method under which investors make regular purchases of a fixed dollar amount. This usually results in an average cost per share lower than the average price at which purchases were made.


Education IRA---Actually an educational savings account created by the Taxpayer Relief act of 1997, available in 1998. Individuals within certain income limitations may contribute up to $500 per year on behalf of a child who is still under age 18. Contributions are not tax deductible, but earnings grow tax free, and withdrawals are tax free if made before age 30 and applied to educational expenses such tuition or room and board. Other types of withdrawals, or any balance in the account upon the beneficiary reaching age 30, is subject to taxes and penalties.

Equity Security---Securities whose interest in the issuer is ownership, rather than debt. The most common equity security is common stock.

Exchange Privilege---The right to exchange shares of one fund for those of another offered by the same sponsor. For load funds such an exchange incurs no additional sales charges.

Expense Ratio---The proportion of a fund's total annual operating expenses (excluding brokerage costs) to average net assets.


Fair Value---Under the Investment Company Act, the value determined in good faith by a fund's directors for securities for which no market quotation is readily available.

Fixed-Income Security---A debt security or preferred stock with a fixed percentage or dollar income return.

Forward Pricing---The pricing of mutual fund shares for purchase or redemption at the price next computed after a transaction. Most funds price daily.

Front-End Load---A sales commission charged on the initial purchase of fund shares. By law a front-end load may not exceed 8.5 percent of the total investment.

Fund Supermarket---A brokerage firm offering a large number of mutual funds for purchase from a variety of individual fund families.


General Obligation Bond---A municipal bond issued and backed by a municipality. The debt is serviced from general revenue.

Growth Stock---Stock of a company whose earnings are expected to continue to grow at an above average rate.


Hedging---The use of securities to offset changes in the value of other securities.


Incentive Compensation---A fee paid to an investment adviser that is based, wholly or in part, on performance.

Income---Gross income is the total amount of dividends and interest (excluding capital gains) received from a mutual fund's investments before deduction of any expenses. Net income is gross income less expenses, fixed charges, and taxes.

Inflation---A rising trend in the general price level of goods and services, resulting in a reduction in purchasing power.

Investment Advisor---A company whose principal business is to provide portfolio management, and sometimes administrative services, to mutual funds.

Investment Company---A corporation or trust whose sole business is the investment of its shareholders' money in pursuit of specific investment objectives.

Investment Company Act of 1940---A federal statute enacted by Congress in 1940 providing for the registration and regulation of investment companies, including mutual funds.

Investment Company Amendments Act of 1970---This Act amended the Investment Company Act of 1940, establishing revised standards for management fees, sales commissions, and contractual plan sales charges.


Junior Securities---Common stocks and other securities whose claims to assets and earnings are secondary to other, senior obligations.

Junk Bond---A lower-rated, and usually higher-yielding, debt security. These issues are usually considered to be those rated BB or below by Standard & Poor's Corporation or Ba or below by Moody's Investor Services. These issues can be highly speculative and volatile.


Keogh Plan---A tax-qualified retirement plan for self-employed persons and their employees.


Letter of Intent---An agreement to buy a sufficient number of mutual fund shares, over a set period of time, to qualify for the reduced selling charge that would apply had the investment been made in a lump sum.

Leverage---The use of borrowed money to increase an investment position. A fund employing leverage will see its share-price fluctuations magnified.

Liquid---Easily redeemed or converted into cash.

Load---A commission on the price of a mutual fund's shares generally used to compensate the selling broker. See also "Front-End Load" and "Contingent Deferred Sales Charge."


Management Fee---The charge paid by a mutual fund for advisory services and portfolio management.

Management Style---Describes the characteristics of the underlying stocks held by a manager as they relate to market capitalization (large-cap versus small-cap) and to growth versus value.

Money Market Fund---A mutual fund whose investments are exclusively in highly liquid, short-term debt securities, designed to provide current income, liquidity, and preservation of capital. Money market funds fix their net asset value, usually at $1.00 per share.

Mutual Fund---An investment company whose shares can be redeemed at any time at net asset value. Synonymous with open-end fund. See also "Open-End Investment Company."


Net Assets---Total assets at market value less liabilities.

No Transaction Fee (NTF)---(see definition for Transaction Fee).

No-Load Fund---A mutual fund whose shares are purchased directly from the fund at no sales charge.

Non-Diversified Investment Company---A fund whose investment portfolio is not anticipated to be sufficiently diversified to meet the requirement of the Investment Company Act for qualification as a diversified investment company. Specialized funds usually must be registered as nondiversified companies so as to allow them to own predominately shares of companies in a single industry.


Objective---The goal of a mutual fund or investor. Common objectives include growth of capital, growth of income, current income, preservation of capital, or some combination of these aims.

Offering Price---The price at which the buyer may purchase shares from a mutual fund, including any sales charge.

Open-End Investment Company---An investment company whose shares can be redeemed at any time at net asset value. The term "open-end" refers to the fund's open, as opposed to fixed, capital structure.

Option---A contract to buy or sell a specific security for a predetermined price during the term of the contract. (See definitions for Call and Put).


Par Value---The amount determined by the issuer of a security to be the capital represented by that security. A company that issues a $20 par stock and receives $25 per share allocates $20 to capital and the remaining $5 to unearned surplus.

Payroll Deduction Plan---An arrangement between an employer and a mutual fund whereby money is deducted from an employee's salary, at his election, and invested in the fund.

Performance History---The value of an investment, usually including all of its income and capital-gains distributions, over time. A security performance history is often compared to that of similar securities, such as those in the same asset class (see definitions of Asset Class and Total Return).

Portfolio---The securities owned by a mutual fund.

Portfolio Turnover---(see definition for Turnover Ratio).

Preferred Stock---An equity security (usually with a fixed dividend) whose claim to earnings and assets takes precedence over common stock.

Premium---For a closed-end fund, the percentage above asset value at which the fund's stock sells. For convertible preferred stock, the percentage above conversion value at which the stock sells.

Price/Book Ratio (P/B)--- A ratio that compares the average market price of a fund's stocks with the fund's average book value. Companies that are older, slower-growing, and/or whose stocks are depressed in price due to poor current earnings performance, generally sell at low price/book ratios. The figure on each mutual fund page is an average of all the P/Bs in the fund.

Price/Earnings Ratio (P/E)--- The price of a stock divided by its earnings per share. This figure may use either the reported earnings from the latest year (trailing P/E) or an analyst's forecast of next year's earnings (forward P/E). The P/E gives mutual fund investors an idea how much, on average, the manager of a particular fund is paying for a company's earnings power. The higher the P/E, the more the manager, and subsequently investors, are paying for that potential. Young, fast-growing companies are typically high-P/E stocks with multiples over 20, while less risky, older, and more established companies usually sell at lower P/Es.

Prospectus---The document describing the shares and policies of a mutual fund or new security issue which, under the Securities Act of 1933, must be supplied to each purchaser.

Proxy Statement---A written power of attorney that allows stockholders to vote their stock if they are not present at a stockholders meeting.

Prudent Man Rule---The law governing the investment of trust funds in states that provide the trustee with broad discretion over investment decisions.

Put---An option contract that gives the holder the right to sell a particular security to another person at a specified price during the term of the option, which may be any period of time but is rarely longer than six months and 10 days. May be used either for speculative or hedging purposes.



Record Date---The date on which a shareholder must be registered on the books of a mutual fund in order to receive an income or capital-gains distribution.

Redemption in Kind---Redemption of mutual fund shares for which payment is made in securities instead of cash. This is a right retained by many funds but infrequently used.

Redemption Price---The net asset value or "bid" price of a mutual fund. This is the price that a seller of shares will receive.

Reinvestment Privilege---A service offered by mutual funds whereby income and capital-gains distributions may be used to purchase additional full and fractional shares of the fund.

Repurchase Agreement---An agreement under which the buyer acquires ownership of a debt security and the seller agrees to repurchase the obligation at a mutually agreed upon time and price, thus setting the yield that will be received during the purchaser's holding period.

Right of Accumulation---A reduction in sales charges effected by counting the aggregate value of all of an investor's holdings in a particular sponsor's funds for the purpose of granting the quantity discounts afforded to larger investments.

Rollover---The transfer of assets from one investment to another, usually to avoid a tax liability.

Roth IRA --- A new individual retirement account created by the Taxpayer Relief Act of 1997, and available in 1998. Unlike a traditional IRA, contributions (also limited to $2,000 per year) are never tax-deducible. However, earnings are not taxed, and withdrawals are also tax-free if the account has been in existence for more than five years. Income limitations are also higher than with traditional IRAs. Withdrawals made prior to age 59 1/2 are restricted to specific circumstances; otherwise penalties may apply.


Sales Load---A commission on the price of a mutual fund's shares generally used to compensate the selling broker. See also "Front-End Load" and "Contingent Deferred Sales Charge."

Senior Securities---Corporate bonds, debentures, notes, or preferred stocks that have the first, or senior, claim to assets and earnings. Short Sale-The sale of a borrowed security in the hope that the price will subsequently fall, so that the security can be repurchased later at a lower price and returned to the owner.

Short Sale---The sale of a borrowed security in the hope that the price will subsequently fall, so that the security can be repurchased later at a lower price and returned to the owner.

Special Situation---An investment opportunity where unique circumstances are believed to provide a profit opportunity.

Specialty Equity Fund---A fund that concentrates on a specific industry group.

Sponsor---Usually refers to the Principal Underwriter (see definition for Underwriter).

Standard Deviation--- Shows the degree of variation in a fund's returns. For example, a fund with a standard deviation of 10 can be expected to produce an annual return that is within 10 percentage points (plus or minus) of its average annual return two-thirds of the time. It is a useful measure of a fund's risk. Value Line measures standard deviation using monthly observations, but expresses the result on an annualized basis.


Total Return---A statistical measure a security's performance for a specific period of time (e.g., six months, one year, 10 years, etc.). Total return is expressed as a percentage gain relative to the initial value of the investment, and includes both the price appreciation of the security-or for a fund, of the underlying securities-as well as the reinvestment of all capital-gains and dividend distributions. For periods of greater than one year, total return is often expressed on an annualized basis.

Transaction Fee---A fee charged by a broker for purchasing or selling shares of a mutual fund for a customer. Such fees are separate from and in addition to any fees and expenses charged by the mutual fund itself. Some brokers, particularly those that operate fund supermarkets (see definition for Fund Supermarket), maintain a list of funds for which they will not charge transaction fees, known as "NTF" funds.

Treasury Bill---Non-interest-bearing security issued at a discount by the U.S. Treasury to finance the national debt. Most bills are issued with maturities of three months, six months, or one year.

Turnover Ratio---The degree to which a fund's portfolio is turned over during the course of a year. For mutual funds, an approximation can be made by dividing the lesser of portfolio purchases or sales by average fund assets.

12b-1 Fee---Fee charged by some funds to pay for distribution costs such as marketing or commissions to brokers.


Underwriter--- a firm, specifically an investment bank, that brings a new issue to the securities market. Underwriters buy the new security from the issuing entity, and then resell it to the market. Sometimes many firms will underwrite an issue, forming a syndicate to place a bid to sell the new security to the issuer, and then, if successful, reselling the issue to the market (see definition for Syndicate). In the case of a syndicate, one or a few underwriters usually take(s) a leadership role, finding other banks to join the syndicate, and purchasing more of the security than other underwriters-and hence accepting more risk if the entire issue cannot be sold.

Unrealized Appreciation or Depreciation---The paper gain or loss on a fund's investments. Once sold, these gains are realized and must be distributed to shareholders.

U.S. Government Securities---Marketable debt securities issued by the U.S. Treasury, which consist of bills, notes, and bonds, or by U.S. Government Agencies. Treasury securities are direct obligations of the U.S. Government and differ mainly in the length of their maturity. Both direct and Agency obligations are backed by the full faith and credit of the United States Government.


Volatility---The rate at which a security moves up or down in price.


Warrant---An option to buy a specified number of shares of stock at a specified price. The warrant may be valid for a set period of time or indefinitely.

Withdrawal Plan---Arrangement whereby mutual fund investors can receive automatic monthly or quarterly redemption payments of a predesignated amount.



Yield---Income received from investments, expressed as a percentage of the price of the security. Value Line calculates yield by dividing the total dividends paid over the past 12 months by the sum of the fund's offer price plus any capital gains paid during the 12-month period.

Yield to Maturity---Rate of return on a debt security held to maturity, including the effect of interest payments and capital gain or loss.


Zero-Coupon Bond---A debt security that is sold at a deep discount from face value and that does not pay interest. At maturity, the bond is redeemed at face value. Investors are taxed each year as if the rise in value were income.

©2006, Advanced Advisor Group, LLC, All-Rights Reserved