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Mutual Fund Glossary J through P
Keogh
Plan Tax-saving retirement program for self-employed persons and their employees. Also
known as H.R. 10 Plans or Self-Employed Retirement Plan. Large Cap Fund that holds stocks with an average market capitalization greater than five billion dollars. Many of these stocks are considered blue chips. Leverage Borrowing money to invest in hopes of achieving greater returns on the new securities. This simultaneously adds debt and builds assets. Leverage Stock Junior security of a multiple-capital-structure company; generally a common stock, but it may also apply to a warrant, or to a preferred stock established with loans. Life Annuity Monthly payments made for the life of the annuitant, regardless of how long he or she lives. Liquid Easily convertible into cash or exchangeable for other values. Living Trust Trust instrument made effective during the lifetime of the creator, in contrast to a Testamentary Trust, which is created under a will. Load Fee Sales charge. Front-End Load - Sales charge imposed at time of purchase. Back-End Load - Sales charge imposed at time of redemption. Level-Load - Single front or back-end sales charges without breakpoints, or a 12b-1 fee greater than 1.25% imposed annually. No-Load - No front, back or level sales charges. M&E(mortality and expense fee) Fee, expressed as an annual percentage of assets, that pays the insurance company for the mortality risk it incurs in guaranteeing to pay either a guaranteed death benefit or guaranteed lifetime income to annuitants. Management Company See Investment Management Company. Management Fee Fee paid by an investment company to a management company for portfolio supervision and advisory services. See also Incentive Compensation. Management Record Statistical measure of the performance of investment company. See Chapter IX for explanation of methods of computation, significance of results and limitations on use for comparative purposes. Market Capitalization Market value of a fund or stock, calculated by multiplying the market value of each share and the number of shares. Market Price Price at which an investor is willing to buy/sell a security on the open market. This is the offer (bid/ask) price for closed-end funds. Maturity Date when debt obligation will pay its face value. Average Maturity Average time until maturity for all the securities held by a fund. Micro Cap Fund that holds stocks with an average market capitalization less than five hundred million dollars. Considered a high risk investment. Mid Cap Fund that holds stocks with an average market capitalization between one and five billion dollars. Modern Portfolio Theory - MPT Statistical method of analyzing investments by comparing their return and risk characteristics to each other and to established benchmarks. Elements of MPT include Alpha, Beta, R2 and Standard Deviation. Money Market Fund Mutual fund that exclusively invests in short-term debt securities with the intent of maximizing liquidity, capital preservation and current income. These funds typically maintain a stable NAV of $1. Multi-Sector Bond Fund that invests in a vast array of bonds, foreign or domestic, government or corporate, investment grade or high yield. Municipal Bond Bonds offered by state, county or municipal governments whose income is exempt from federal, state and/or local taxes. Municipal Bond Fund Unit investment trust or open-end company that holds securities whose income is exempt from federal, state and/or local taxes. Mutual Fund See Open-End Investment Company. National Association of Securities Dealers (NASD) Organization of brokers and dealers that regulates over-the-counter security markets to prevent fraud and to protect investors. Net Assets Dollar amount of all resources at market value less current liabilities. Net Asset Value (NAV) Market price of an open-end mutual fund; the value of all assets divided by the number of outstanding shares. For open-end funds, this is the daily price at which an investor can buy or sell shares. Net Cash Inflow/Outflow Change in the amount of money entering or leaving a fund during a specific time period. If a fund has new investments totaling $1,000,000 (inflow) in March, and investors withdraw $300,000 (outflow) during the same period, the net cash inflow would be $700,000. No-Load Fund Fund that does not have sales charges. See Load Fee. Non-Diversified Investment Company See Diversified Investment Company. Non-Qualified Plans Retirement plans which do not meet the requirements of the Self-Employed Individuals Tax Retirement Act or the Internal Revenue Code Sections 401(a), 403(a) or 403(b). Non-Taxable Dividend Dividend paid by a tax-exempt bond, such as a Municipal Bond. Objective Goal of an investor or investment company, such as growth of capital, current income, stability of capital, or any combination of these. Odd Lot Number of shares that is not a Round Lot, normally a bundle of 100 shares, and therefore may involve higher exchange costs than round lots. Not applicable to open-end investment companies. Open Account Account where a shareholder has reinvestment privileges and the right to make additional purchases without a formal accumulation plan. Open-End Investment Company Investment company whose shares are redeemable at any time at approximate asset value. In most cases, new shares are offered for sale continuously. Option See Warrant; also Put; also Call. Optional Distribution Choice of a shareholder to receive distributions (capital gains or dividends) in cash or to have them reinvested to purchase more shares. Par Value Amount an issuer promises to pay upon maturity of a bond issue. Also know as the face value or maturity value. Payroll Deduction Plan Arrangement between a fund, employer and employee to deduct a specified amount of money from the employee's salary to purchase shares in a fund. Pension Plan Program established by an employer, union or other member-based organization to pay benefits to an employee/member upon retirement. Pension Portability Ability of an employee to move accumulated assets from a pension plan to an Individual Retirement Account or other qualified retirement plan. Pension Rollover Opportunity to take distributions from a qualified pension or profit-sharing plan, and within 60 days of the distribution, reinvest them in an Individual Retirement Account. Under current law, investors who do not transfer within 60 days to a qualified ac count will be assessed a 20% withholding tax plus a 10% fee for early withdrawal. Performance Fund Generally, open-end investment companies which emphasize short-term results and have rapid turnover of portfolio holdings. May also refer to funds with outstanding records of capital growth, regardless of the policies which achieved those results. Preferred Stock Equity security that generally carries a fixed dividend, and whose claim to earnings and assets ranks ahead of common stock but behind bonds. Premium Percentage above asset value at which shares of a stock or closed-end fund sells, or the percentage above conversion value at which a preferred stock sells. Regarding closed-end funds, it is the difference between the market price and the portfolio value. Price/Book Ratio Market price divided by stock equity. The ratio shows how much investors are willing to pay for each dollar of the company. Price/Earning Ratio Market price divided by profit. The ratio shows how much investors are willing to pay for each dollar of that company's earnings. Profit-Sharing Retirement Plan Retirement program in which a company contributes a percentage of its annual gross profit to participating employees. In a Keogh plan, the earnings of the self-employed individual is substituted for gross profit. Prospectus Official document which describes investment policy, fees, risks, management and other pertinent fund information as directed by the Securities and Exchange Commission. A prospectus must accompany any new offer to sell securities. Proxy Statement Agreement allowing a stockholder to transfer voting rights to another person if the stockholder will not attend the stockholders' meeting. Prudent Man Rule Law limiting the investments in a fiduciary account to those which a "prudent" investor would make, thus checking the power of the trustee. Continue on to Q through Z
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