GLOSSARY OF TERMS


accrued interest Interest which accumulates on a fund's investments, but has not yet been paid to the shareholder. This interest is paid throughout the life of the fund as part of any interest and principal distributions.
active management An investment process that attempts to outperform the average or benchmark return in an asset class at a specific level of risk through the use of superior information and judgment in portfolio construction. Active management may be based on some combination of traditional security analysis and research, technical analysis, macroeconomic forecasts and application of various fundamental quantitative tools.
active manager A portfolio manager who takes an active role in any aspect of the investment process, including asset allocation, style exposures, security selection, and risk management in an attempt to improve a portfolio's risk-adjusted return.
adjustable-rate instrument Any of a wide variety of fixed principal obligations whose periodic payout is set relative to a reference index rate (such as LIBOR) to create a longer-term fixed principal obligation with a floating-rate interim cost.
advisor (1) An organization employed by a mutual fund's board to give professional advice on the fund's investments and asset management practices. (2) An individual or organization that provides advice and information to investors.
advisory fee The amount a mutual fund pays to its investment advisor for the investment management associated with overseeing the fund's portfolio. Also referred to as Management Fee.
after-tax return The return from an investment after all income taxes have been deducted. By comparing after-tax returns an investor can determine which investment makes the most sense based on his or her tax bracket.
aftermarket The market for a security after an initial public offering. The after-market or secondary market may be over-the-counter or on an exchange after-tax contribution Investment in a retirement plan from the taxed portion of an employee's pay. These contributions are treated differently from the more common pre-tax contribution when they are distributed. All contributions to Roth IRAs are aftertax contributions.
agency debt Obligations issued by an agency of the U.S. government and benefiting from government credit. In the U.S., debt of certain former agencies such as Fannie Mae and Freddie Mac is still referred to as agency debt because it retains implied government support.
agency transaction A transaction in which the executing brokerage firm acts as an agent and usually charges a commission for its services.
aggressive growth fund A mutual fund that seeks maximum long-term capital gains. Such funds often invest in stocks of small and mid-sized companies, though company size is not always a selection criterion.
alpha A measure of the incremental return generated from active portfolio management.
American Stock Exchange (AMEX) A stock exchange located in downtown Manhattan. Companies that trade on the AMEX are generally smaller than those traded on the New York Stock Exchange. The AMEX is the principal listing exchange for ETFs.
annual report A legally required document that every fund sends to its shareholders within 60 days after the end of the fund's fiscal year. The annual report describes the fund's financial condition and performance and includes a list of portfolio securities and an audited financial statement.
annual yield The percentage of return that an investment yields each year, usually expressed in terms of dividends or interest.
annualized rate of return The average return over a stated number of years, taking into account the effect of compounding. For example, a 100% return over five years is equivalent to an annualized rate of return of 18.2% per year.
asset allocation (1) Dividing investment funds among markets to achieve diversification and/or a combination of expected return and risk consistent with the investor's objectives. (2) A value-oriented investment strategy that attempts to take long positions in markets or market sectors where prices appear to be low and to reduce positions, or take short positions in markets or market sectors where prices appear to be high. Tactical (TAA) or strategic (SAA) asset allocation advocates and value-seeking portfolio managers often use similar techniques and policies. In contrast to momentum investors who accentuate market trends, most asset allocators' trades tend to offset destabilizing market movements and counteract price and rate fluctuations. The asset allocator tends to buy when prices decline and sell when prices rise.
asset allocation fund A fund that invests its assets in a wide variety of investments that may include domestic and foreign stocks and bonds, government securities, gold or other precious metals, and real estate. Some asset allocation funds keep the proportions allocated between different investments relatively constant, while others alter the mix as market conditions change.
average weight/median market capitalization The market capitalization of a company is equal to the number of the company’s common shares outstanding multiplied by the current price of the company’s stock. The average market capitalization and the median capitalization of a mutual fund’s portfolio give a measure of the size of the companies in which the fund invests.

accrued interest

Interest which accumulates on a fund's investments, but has not yet been paid to the shareholder. This interest is paid throughout the life of the fund as part of any interest and principal distributions.

active management

An investment process that attempts to outperform the average or benchmark return in an asset class at a specific level of risk through the use of superior information and judgment in portfolio construction. Active management may be based on some combination of traditional security analysis and research, technical analysis, macroeconomic forecasts and application of various fundamental quantitative tools.

active manager

A portfolio manager who takes an active role in any aspect of the investment process, including asset allocation, style exposures, security selection, and risk management in an attempt to improve a portfolio's risk-adjusted return.

adjustable-rate instrument

Any of a wide variety of fixed principal obligations whose periodic payout is set relative to a reference index rate (such as LIBOR) to create a longer-term fixed principal obligation with a floating-rate interim cost.

advisor

(1) An organization employed by a mutual fund's board to give professional advice on the fund's investments and asset management practices. (2) An individual or organization that provides advice and information to investors.

advisory fee

The amount a mutual fund pays to its investment advisor for the investment management associated with overseeing the fund's portfolio. Also referred to as Management Fee.

after-tax return

The return from an investment after all income taxes have been deducted. By comparing after-tax returns an investor can determine which investment makes the most sense based on his or her tax bracket.

aftermarket

The market for a security after an initial public offering. The after-market or secondary market may be over-the-counter or on an exchange after-tax contribution
Investment in a retirement plan from the taxed portion of an employee's pay. These contributions are treated differently from the more common pre-tax contribution when they are distributed. All contributions to Roth IRAs are aftertax contributions.

agency debt

Obligations issued by an agency of the U.S. government and benefiting from government credit. In the U.S., debt of certain former agencies such as Fannie Mae and Freddie Mac is still referred to as agency debt because it retains implied government support.

agency transaction

A transaction in which the executing brokerage firm acts as an agent and usually charges a commission for its services.

aggressive growth fund

A mutual fund that seeks maximum long-term capital gains. Such funds often invest in stocks of small and mid-sized companies, though company size is not always a selection criterion.

alpha

A measure of the incremental return generated from active portfolio management.

American Stock Exchange (AMEX)

A stock exchange located in downtown Manhattan. Companies that trade on the AMEX are generally smaller than those traded on the New York Stock Exchange. The AMEX is the principal listing exchange for ETFs.

annual report

A legally required document that every fund sends to its shareholders within 60 days after the end of the fund's fiscal year. The annual report describes the fund's financial condition and performance and includes a list of portfolio securities and an audited financial statement.

annual yield

The percentage of return that an investment yields each year, usually expressed in terms of dividends or interest.

annualized rate of return

The average return over a stated number of years, taking into account the effect of compounding. For example, a 100% return over five years is equivalent to an annualized rate of return of 18.2% per year.

asset allocation

(1) Dividing investment funds among markets to achieve diversification and/or a combination of expected return and risk consistent with the investor's objectives. (2) A value-oriented investment strategy that attempts to take long positions in markets or market sectors where prices appear to be low and to reduce positions, or take short positions in markets or market sectors where prices appear to be high. Tactical (TAA) or strategic (SAA) asset allocation advocates and value-seeking portfolio managers often use similar techniques and policies. In contrast to momentum investors who accentuate market trends, most asset allocators' trades tend to offset destabilizing market movements and counteract price and rate fluctuations. The asset allocator tends to buy when prices decline and sell when prices rise.

asset allocation fund

A fund that invests its assets in a wide variety of investments that may include domestic and foreign stocks and bonds, government securities, gold or other precious metals, and real estate. Some asset allocation funds keep the proportions allocated between different investments relatively constant, while others alter the mix as market conditions change.

average weight/median market capitalization

The market capitalization of a company is equal to the number of the company’s common shares outstanding multiplied by the current price of the company’s stock. The average market capitalization and the median capitalization of a mutual fund’s portfolio give a measure of the size of the companies in which the fund invests.