12B-1 Fees

A provision that allows a mutual fund to collect a small fee from investors. This fee is designated for promotions, sales, or any other activity connected with the distribution of the fund's shares. The fee must be reasonable: 0.5% to 1% of the fund's net assets, and up to a maximum of 8.5% of the offering price per share.

401(k) Plan

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post and/or pre-tax basis. Employers may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit sharing feature to the plan. Earnings accrue on a tax-deferred basis.

403(b) Plan

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations such as churches or non-profit organizations. Individual accounts in a 403(b) plan can be any of the following types: an annuity contract, which is provided through an insurance company; a custodial account, which is invested in mutual funds; or, a retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.

457 Plan

A non-qualified, deferred compensation plan established by state and local governments and tax-exempt governments and tax-exempt employers. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.

529 Plan

A plan that allows for the prepayment of qualified higher education expenses at eligible educational institutions. Also known as a "qualified tuition program."

A-Share

In a family of multi-class mutual funds, this is the class that is characterized by a front load structure. Not all fund companies follow this class structure, however it is the prominent method of distinction.

Accredited Investor

A term used by the SEC under Regulation D to define investors that are financially sophisticated and have no need for the protection provided by certain government filings. Also known as a qualified purchaser.

Active Management

An investing strategy that seeks returns in excess of a specified benchmark.

Active Participant Status

Active participant status is a reference to an individual's participation in an employer sponsored retirement plan. The plans which qualify must include: 1. Qualified plans, such as profit sharing plans, defined benefit plans, money purchase pension or target benefit plans and 401(k) plans 2. SEP IRAs 3. SIMPLE IRAs 4. 403(b) plans 5. Qualified annuity plans 6. Employee Funded Pension Trusts (created before June 25, 1959) 7. A plan established for its employees by the United States, by a State or political subdivision of the United States, or by an agency or instrumentality of the United States or any of its subdivisions

Aggressive Growth Fund

Amutual fund that attempts to achieve thehighest capital gains. Investments held in these funds are companies that demonstrate high growth potentialwith usually a lot of share price volatility. Thesefunds are only for non risk-adverseinvestors willing to accept a high risk-return trade-off.

All Weather Fund

A mutual fund that tends to perform well during all economic conditions.

alpha

A measure of an instrument's return relative to the market return. If n = number of observations (e.g., 36 months), b = beta of the instrument, x = rate of return for the market, and y = rate of return for the instrument, then the formula for alpha is:[ (sum of y) - ((b)(sum of x)) ] / n. Thus an alpha of 5 means that the instrument did 5% better than the market during the period under review. Under the Capital Asset Pricing Model (CAPM), alpha is defined somewhat differently. It is the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the CAPM. Here, if the CAPM predicts that an instrument's return should be 5% less than it actually was during a given period, the 5% excess return is the alpha.

Annuity

Annuities are contracts sold by life insurance companies that guarantee a fixed or variable schedule of disbursements to the annuitant at some future time, usually in retirement.

Arbitrage

The simultaneous purchase and selling of a security in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces.

Arbitrage Pricing Theory

An alternative to the Capital Asset Pricing Model (CAPM), Arbitrage Pricing Theory (APT) differs in its assumptions and explanation of risk factors associated with the risk of an asset.

Arithmetic Mean

The arithmetic mean of a series is the simple average of the elements in the series. It is expressed in the same terms as the underlying data frequency.

Asset Allocation

The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio.

Asset Allocation Fund

A mutual fund that splits its investment assets among stocks, bonds, and other investment vehicles in an attempt to provide a consistent return for the investor.

Asset Class

An Asset Class is a grouping of securities with similar characteristics and properties. As a group, these securities will tend to react in a specific way to economic factors (e.g., stocks, bonds, and real estate are all asset classes).

Asset/Liability Management

A technique companies employ in coordinating the management of assets and liabilities so that an adequate return may be earned. Also known as ""surplus management.""

Assets Under Management

In general, the market value of assets an investment company manages on behalf of investors.

Automatic Investment Plan

An investment program that allows you to contribute small amounts of money (as little as $20 a month) in regular intervals. Funds are automatically deducted from your checking/savings account or your paycheck, and invested in a retirement account or mutual fund.

Average Annual Return

A figure used when reporting the historical return of a mutual fund. The AAR is stated after expenses have been tallied, including administration fees, 12b-1 fees, and others.

Average Price

1. Sometimes used in determining a bond's yield to maturity. A bond's average price is calculated by adding its face value to the price paid for it and dividing the sum by two. 2. Average price is also sometimes known as Net Asset Value (NAV) for mutual funds.

B-Share

A class in a family of multi-class mutual funds. This class is characterized by a rear-end load structure that is paid only when selling the fund.

Back-End Load

A fee an investor pays when selling a mutual fund within a certain number of years, usually seven.

Balanced Fund

A mutual fund that invests its assets into the money market, bonds, preferred stock, and common stock with the intention to provide both growth and income. Also known as an asset allocation fund.

Behavioral Finance

A field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.

Beneficiary

A person or entity named in a will or financial contract as the inheritor of property when the property owner dies.

beta

Also known as "beta coefficient," beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to that of the market as a whole.

Black Box Model

A computer program into which users enter information and the system utilizes pre-programmed logic to return output to the user.

Black Scholes Model

A model used to calculate the value of a European call option. Developed in 1973 by Fisher Black and Myron Scholes, it utilizes the stock price, strike price, expiration date, risk-free return, and the standard deviation (volatility) of the stock's return.

Blackout Period

1. A period of around 60 days where employees ofa company with a retirement or investment plan cannot modify it. 2. In terms of insurance, it is the time period between which a surviving spouse of a deceased partner has become ineligible for survivorship benefitsand before they receive retirement benefits.

Blend Fund

A mutual fundcomposed of various asset classes (such as stocks, bonds and money market securities),allowing investors to diversify their holdings by owning just a single fund.Also called ""hybrid funds"".

Bogey

This is the benchmark return to which the performance of a portfolio manager or mutual fund manager is compared.

Bond Fund

A mutual fund whose investment objective is to provide stable income while taking on minimal risk.

Bootstrap

Bootstrapping is a statistical method for testing the reliability of a dataset by adding to that set data points extracted from it at random. This process may be reiterated many thousands of times, vastly increasing the size of the dataset, and thus emphasizing its characteristics. Any bias of the dataset away from the true state of affairs it is intended to sample, and thus represent, is thereby generally revealed. For example, a dataset which for logical reasons would be expected to conform to a normal distribution, but in fact did not (for reasons of inaccuracy, randomness, or sampling error, etc.), would when bootstrapped tend to describe a curve noticeably different from the bell curve. This could lead to suspicion either of the dataset, or of the experimenter's presuppositions about the object of study. The presupposition about the datasets assembled from historical return series on asset classes is that they are neither particularly noisy, nor biased, however limited they may be as sample populations; and, therefore, that bootstrapping will tend to clarify the true behavior of the asset class in recent years, rather damping than emphasizing the effect on the analysis of any inadvertent data mining arising from the vagaries of economic history over the sampling periods.

Breakpoint

A predetermined contribution amount, that if met by a mutual fund holder, gives him or her eligibility for a reduction in sales charges. Mutual Funds are required to give a description of these breakpoints and the eligibility requirements in their fund prospectus. It is in the best interest of fund investors to be aware of Breakpoints and other charges as thisensures they meetthe breakpointso thatlower sales charges are applied.

Breakpoint Sale

The sale of a mutual fund at a dollar amount that allows for thefund holdertomove into a lower sales charge bracket. If an investor is unable at the time of investment to come up with the money to move in to the lower sales charge bracket they can sign a letter of intent with the fund company. This letter of intent allows the investor to facea lower sales charge given that they invest the amount required to move in to the lower bracket in a set amount of time. Any sales just below the breakpoint, willincrease the applicable sales charges and the profit to the provider of the fund.Mutual fundsales that happen justbelowabreakpointare considered unethical and isa violation of NASD rules.

Broad Based Index

An index designed to reflect the movement of the entire market.

Buy and Hold

A passive investment strategy with which an investor buys stocks and holds them for a long period regardless of fluctuations in the market

C-Share

In a family of multi-class mutual funds, the class that has a constant load structure throughout the life of the fund.

Cafeteria Plan

An employee benefit plan that allows employees to choose from a variety of benefits to formulate a plan that best suits their needs. Also known as 'cafeteria employee benefit plan' or 'flexible benefit plan'

Capital Appreciation Bonds

A bond's capital appreciation is defined as the total return minus the income return; that is, the return in excess of yield. This definition omits the capital appreciation or depreciation that comes from the movement of a bond's price toward par (in the absence of interest rate change) as it matures. Capital appreciation, as defined here, captures changes in bond prices caused by changes in the interest rate.

Capital Appreciation Return

Capital appreciation return is the portion of total return that results from asset class price changes. See also Capital Appreciation-Bonds.

Capital Flight

The action of investors moving their securities out of a particular country because of a fear of country-specific risks or political instability, or because of the lure of higher returns in a different country.

Capital Gain

A capital gain occurs when the selling price of an asset exceeds the purchase price.

Capital Gains Distribution

Distributions that are paid to an investment company's shareholders out of the capital gains of the company's investment portfolio.

Capital Gains Tax Rate

The capital gains tax rate is the tax on profits received from the sale of an asset. Portfolio Strategist does not recognize capital losses.

Capital Gains Treatment

Describes lump-sum distributions of qualified plan balances that accrued before 1974 may be eligible for capital gains treatment.

Capital Guaratee Fund

An investment vehicle, offered by certain institutions, that guarantees the investor's initial capital investment from any losses.

Capital Market Line

The line used in the Capital Asset Pricing Model to illustrate the rates of return for efficient portfolios depending on the risk free rate of return and the level of risk (beta) for a particular portfolio.

Captive Fund

A fund that provides investment services solely to the one firm holding ownership.

Cash Balance Pension Plan

An employee pension plan whereby an employer will credit the participant's account with a set percentage of their yearly compensation plus interest charges.

Charitable Lead Trust

A trust designed to reduce beneficiaries' taxable income by first donating a portion of the trust's income to charities and then, after a specified period of time, transferring the remainder of the trust to the beneficiaries.

Charitable Remainder Trust

A tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity.

Cliff Vesting

A type of vesting that occurs entirely at a specified timerather than gradually.

Clone Fund

A mutual fund that replicates the performance or strategy of an existing mutual fund or index through the use of derivatives.

Closed End Investment

When an investment company issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like common stock.

Collective Fund

An investment vehicle that combines tax exempt assets of various individuals and organizations in order to create a well diversified portfolio.

Commingled Fund

A type of mutual fund consisting of assets from several accounts that are blended together. Sometimes called a ""pooled fund.""

Commingling

1. In the context of securities: the mixing of customer-owned securities with brokerage-owned securities. 2. In the context of trust banking: the pooling of individual customer accounts into a fund, a share of which each contributing customer owns. This works similarly to a mutual fund. 3. In the context of real estate: the illegal act of a broker combining clients' funds with personal funds since, by law, a broker is required to use aseparate trust or escrow fund to temporarily hold a client's funds.

Commodity Pool

A fund that collects investor contributions for use in future and commodity option trading.

Compounding

The ability of an asset to generate earnings that are then reinvested and generate their own earnings

Conduit IRA

A traditional IRA that holds only assets that were distributed from a qualified plan.

Conservatorship

A circumstance in which the court declares an individual unable to take care of legal matters and appoints another individual, known as a conservator, to do so.

Contingent Deferred Sales Charge

In the context of mutual funds, it is a back-end load charged only when a special circumstance occurs.

Conveyance

A written instrument, such as a deed or lease, that transfers some ownership interest in real property from one person to another.

Correlation

In the world of finance,a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.

Correlation Coefficient

A measure that determines the degree to which two variable's movements are associated.

Cost Basis

Original price of an asset used in determining capital gains. It most likely is the purchase price.

Cost of Capital

The required return necessary to make a capital budgeting project worthwhile. Cost of capital would include the cost of debt and the cost of equity.

Cost of Equity

The return that stockholders require for a company. The traditional formula is the dividend capitalization model: (equation)

Covariance

A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together. A negative covariance means returns vary inversely. One method of calculating covariance is by looking at return surprises (deviations from expected return) in each scenario. Another method is to multiply correlation between the two variables by the standard deviation of each variable

Cross-Correlation

A statistical measure timing the movements and proximity of alignment between two different information sets of a series of information.

Crossover Fund

An investment fund that invests in both public and private equity.

Current Annual Pre-Tax Income

Current Annual Pre-Tax Income, or gross earnings, is an individual's salary prior to deductions, such as taxes, Social Security and employee benefit contributions.

Current Cost

The current cost of college is today's first year cost of (tuition + expenses) for the institution a child plans to attend.

Custodial Account

1. An account created at a bank, brokerage firm or mutual fund company that is managed by an adult for a minor that is under the age of 18 to 21 (depending on state legislation). 2. A retirement account managed for eligible employees by a custodian.

Dedicated Portfolio

A passive form of portfolio management that involves the matching of future cashflows with future liabilities.

Deferred Annuity

An annuity contract that delays payments of income, installments, or a lump sum until the investor elects to receive them.

Defined Benefit Plan

An employer-sponsored retirement plan for which retirement benefits are based on a formula indicating the exact benefit that one can expect upon retiring. Investment risk and portfolio management are entirely under the control of the company. There are restrictions on when and how you can withdraw these funds without penalties.

Defined Contribution Plan

A retirement plan wherein a certain amount or percentage of money is set aside each year for the benefit of the employee. There are restrictions as to when and how you can withdraw these funds without penalties.

Deflation

A general decline in prices, often caused by a reduction in the supply of money or credit.Deflation canbe caused also by a decrease in government, personalor investment spending.The opposite of inflation, deflation has theside. effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression

Demutualization

The process of changing corporate structure from a mutual fund company to some other form, such as a limited liability or corporation.

Department of Labor

A U.S Government cabinet body responsible for standards in occupational safety, wages and number of hours worked, unemployment insurance benefits, re-employment services and a portion of the country's economic statistics.

Diamonds

1. An extremely hard gemstone used mainly for jewelry and tools. 2. An exchange traded security, issued by the American Stock Exchange, that replicates the movements in the Dow Jones Industrial Average.

Direct Rollover

A distribution of eligible rollover assets from a qualified plan, 403(b) plan, or a governmental 457 plan to a Traditional IRA, qualified plan, 403(b) plan, or a governmental 457 plan; or a distribution from an IRA to a qualified plan, 403(b) plan or a governmental 457 plan.

Distribution

1. An occurrence where trading volume is, without any price appreciation, higher than that of the previous day. 2. A removal of assets from a retirement account that is paid to the retirement account owner or beneficiary. 3. A company's payment of cash, stock, or physical products to their shareholders.

Diversification

A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.

Diversified Common Stock Fund

A mutual fund that invests its assets in a wide range of common stocks. The fund's objectives can be growth, income, or a combination of both.

Donor Advised Fund

A private fund administered by a third party and created for the purpose ofmanaging charitable donationson behalf ofan organization, family, or individual.

Dow Theory

A theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other.

Drawdown

The peak to trough decline during a specific record period of an investment or fund. It is usually quoted as the percentage between the peak to the trough.

Duration

The measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

Earnings Growth Rate

The earnings growth rate is the percentage growth in salary expected each year. This rate takes into consideration the inflation rate for the projected investment horizon and the incremental premium you enter in the Expected Real Wage Premium field. The expected earnings growth rate equals the geometric sum of the Expected Real Wage Premium and the Inflation Rate selected in the Plan Horizon sub-tab.

Education IRA

A savings plan for higher education. Parentsand guardians are allowed to make nondeductible contributions to an education IRA for a child under the age of 18.

Efficient Frontier

A line created from the risk-reward graph, comprised of optimal portfolios.

Elective Deferral Contribution

A cash or deferred contribution arrangement of an employer-sponsored retirement plan under which participants can choose to set aside part of their pre-tax compensation as a contribution to the plan.

Eligible Rollover Distribution

A distribution from an IRA, qualified plan, 403(b) plan or 457 plan that is eligible to be rolled over to another eligible retirement plan.

Emerging Market Fund

A mutual fund investing a majority of its assets in the financial markets of a developing country, typically a small market with a short operating history.

Employee Retirement Income Security Act

The Employee Retirement Income Security Act of 1974 (ERISA) protects the retirement assets of Americans, by implementing rules that qualified plans must follow to ensure that plan fiduciaries do not misuse plan assets.

Equity Fund

A mutual fund that invests in a broad, well-diversified group of stocks.

Escheat

When property and/or an estate is transferred to the government because a person has died without a will or an heir to his or her estate.

Estate

All of the valuable things an individual owns, such as real estate, art collections, collectibles, antiques, jewelry, investments, and life insurance.

Estate Planning

The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death.

Excess Accumulation Penalty

The penalty a retirement account owner or the beneficiary of a retirement account must pay when he or she fails to distribute a minimum amount due for a year from the retirement account.

Exchange Privilege

Theopportunity given toa mutual-fund shareholderto exchange a fund for another within the same fund family at no additional cost.

Expectations Theory

A theory proposing that long-term interest rates can act as a predictor of future short-term interest rates.

Expected Real Wage Premium

The real wage premium is the incremental rate an individual's wages grow in excess (or at a deficit) relative to inflation.

Expense Ratio

The percentage of fund assets paid for operating expenses and management fees, including 12b-1 fees, administrative fees, and other asset-based costs incurred by the fund, except brokerage costs. All else equal, the lower the expense ratio, the more of the gross return the investor keeps.

Extended IRA

An IRA that allows a second-generation beneficiary to continue to distribute the assets over the life expectancy used by the first-generation beneficiary, thereby extending the IRA.

Fair Weather Fund

A mutual fund that tends to perform well during favorable economic conditions.

Fama and French Three Factor Model

An asset pricing model (actually a modification of the Capital Asset Pricing Model (CAPM)) designed by Gene Fama and Ken French. This model considers the fact that two particular types of stocks outperform markets on a regular basis: value and small-caps.

Family of Funds

A group of mutual funds offered by one investment or fund company. Each mutual fund has different characteristics and can range depending on investment objective.

Feeder Fund

A fund that conducts virtually all of its investing through another fund (called the master fund).

Fiduciary

A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person rather than for his or her own profits.

Fiduciary duty

The legal duty of a fiduciary to act in the best interests of the beneficiary.

Finance

The science that describes the management of money, banking, credit, investments, and assets.

FINRA

FINRA, the Financial Industry Regulatory Authority, is a private, not-for-profit self-regulatory organization for registered securities brokers and dealers, registers member firms, writes rules to govern their behavior, examines them for compliance and disciplines those that fail to comply. Visit the FINRA website.

First Time Homebuyer

An IRA owner who is exempt from the early-distribution penalty (which applies to IRA distributions that occur before the IRA owner reaches age 59 _) for distributing funds from his or her IRA to buy, build, or rebuild a home when having had no interest in a main home during the two-year period ending on the date of acquisition of the home for which the distribution is being made.

Fiscal Policy

Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates, and government spending, in an effort to control the economy.

Five Year Rule

If a retirement account owner dies before the required beginning date for receiving distributions, the beneficiary may distribute the inherited assets over his/her (the beneficiary's) life expectancy or distribute the assets under the five-year rule. Under the five-year rule, the assets must be distributed by December 31 of the fifth year since the retirement account owner's death.

Flat Benefit Formula

A method of calculating an employer's contribution to an employee's defined benefit plan whereby the employer multiplies an employee's months of service by a predetermined flat monthly rate.

Focused Fund

Funds that contain a large holding of a small amount of stocks.

Forecasting

The process of analyzing current and historical data to determine future trends.

Form 1099-R

The formused to report designated distributions of $10 or more from pensions, annuities, profit sharing and retiement plans, IRAs and insurance contracts.Copies of this form are provided to the recipient of the distributionreported on the form, the Internal Revenue Service (IRS) and the appropriate state, city or local tax department.Form 1099-R is usually mailed to the retirement account owner by Jan 31 of the year following the year in which the distribution occurred. When U.S. residents file their federal or state tax returns, they may, under certain circumstances, need to attach a copy of this form with their returns. Information contained in the form includes gross distributions for the calendar year and the amount that is taxable; federal income tax withheld; employee contributions or insurance premiums; and a distribution code that categorizes the type of distribution made.

Forward Averaging

Treatinglump-sum retirement-plan distributionsas if they occurred over a five- or ten-year period. Forward averaging is available only to qualified plan participants who were born before 1936 and meet certain requirements.

Forward Pricing

A Security and Exchange Commission (SEC)regulation that fund companies or investment companies price all of their buy and sell ordersaccording to the nextnet asset value calculation. Thisvaluation process is typical for conventional mutual fund transactions.

Foul Weather Fund

A mutual fund that tends to perform well during poor economic conditions.

Front-End Load

A mutual fund commission or sales fee that is charged at the time shares are purchased.

Fund of Funds

A mutual fundthat invests in other mutual funds.

Future Value

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. There are two ways to calculate FV: 1) For an asset with simple annual interest: = Original Investment x (1+(interest rate*number of years)) 2) For an asset with interest compounded annually: = Original Investment x ((1+interest rate)^number of years)

Geometric Mean Return

A measure of the compound rate of growth of the initial portfolio market value during the evaluation period, assuming that all cash distributions are reinvested in the portfolio. It is computed by taking the geometric average of the portfolio subperiod returns. Also called the time-weighted rate of return.

Global Fund

A mutual fund that can invest in companies located anywhere in the world, including your own country.

Growth Fund

A diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests in companies that reinvest their earningsinto expansion, acquisitions, and/or research and development.

Growth Industry

A sector of the economy experiencing a higher-than-average growth rate.

Guardian IRA

An IRA held in the name of a legal guardian or parent on behalf of either a child under the age of 18-21 (depending on state legislation) or an individual who is incapable of handling finances due to physical or mental disability.

GUST Restatement

As a result of changes to tax lawin the United States, employers and retirement plan sponsors are required to complete new Adoption Agreements and restate their prototype qualified plans. In order for plans to maintain their qualified status, they must meet different statutory regulations.

Harmonic Average

The mean of a set of positive variables. Calculated by dividing the number of observations by the reciprocal of each number in the series.

Heir

A person who inherits some or all of the estate of a recently deceased person. The legal successor is usually selected because they are related to the deceased by a direct bloodline or have been designated in a will or by a legal authority.

Horizontal Integration

When a company expands its business into different products that are similar to current lines.

ILIT

Irrevocable Life Insurance Trust: An irrevocable trust that is funded with a life insurance policy usually up to an amount equal to the value of the assets transferred to your Family Foundation trust.

In-Service Withdrawal

A withdrawal made from a plan account before the holder experiences a triggering event.

Income Fund

A mutual fund that seeks to provide stable current income by investing in securities that pay interest or dividends.

Income Return

Income return is the portion of total return that results from a periodic cash flow such as dividends. See also Income Return-Bonds.

Income Return Bonds

Income return, in this case, is calculated as the change in flat price from one period to the next, holding the yield constant over the period. The exact number of days from the beginning of one period to the end of the next is used.

Index Fund

A mutual fund invested so that its proportional allocation tracks the weightings of securities found in a published index, in order to mimic its performance. This method of investing is referred to as indexing.

Index Hugger

A mutual fund that tends to perform similarly to a benchmark index, such as the S&P 500.

Individual Retirement Account

An IRA is a retirement investing tool that can be either an Individual Retirement Account or an Individual Retirement Annuity. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs. Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100%% of compensation (Self-employment income for Sole proprietors and partners) up to a specified maximum dollar amount. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible. SEPs and SIMPLEs are retirement plans established by employers. Individual participant's contributions are made to SEP IRAs and SIMPLE IRAs.

Information Ratio

Monthly Excess Return divided by Monthly Tracking Error. A measure of how well the fund’s management tracks the risks and returns of the benchmark. Index Fund investors generally expect negative information ratios because the fund bears operational costs not borne by the benchmark index. Negative information ratios, however, are never directly comparable.

Inheritance

All or part of a person's estate/assets that is given to an heir once the person is deceased.

Institutional Fund

A mutual fund targeting high value investors with low fees, but high minimum requirements.

Interest Rate Ceiling

The absolute maximum rate of interest that a financial institution can charge for an adjustable rate mortgage or loan.

Interest Rate Parity

A theory that the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

Internal Rate of Return

Often used in capital budgeting, it's the interest rate that makes net present value of all cash flow equal zero.

International Fund

A mutual fund that can invest in companies located anywhere outside of your own country.

Interpolation

A method of estimating an unknown price or yield of a security. This is achieved by using other related known values that are located in sequence with the unknown value.

Intestacy

The act of dying without a legal will.

Investment Company Act of 1940

Created in 1940 through an act of Congress, this piece of legislation clearly defines the responsibilities and limitations placed upon fund companies that offer investment products to the public.

Investment Counsel

According to the 1940 Investment Advisers Act, “it shall be unlawful for any [registered investment adviser] to represent that [it] is an investment counsel unless ... a substantial part of [its] business consists of rendering investment supervisory services.” (15 U.S.C. § 208(c))

Investment Supervisory Services

Under the 1940 Investment Advisers Act, “the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client.” (15 U.S.C. § 202(a)(13)) SCLC designs and supervises client accounts individually, according to the particular requirements of each client’s situation, objectives, and predilection for the assumption of investment risk.

Invisible Hand

A term coined by Adam Smith in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations. In his book he states: Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. Thus, the ""invisible hand"" is essentially a natural phenomenon that guides free markets and capitalism through competition for scarce resources.

Irrational Exuberance

An infamous phrase uttered by Alan Greenspan in 1996 to describe the overvalued market at the time.

Irrevocable Trust

A trust that, once its setup, cannot be changed at all.

Jensen's Measure

A risk-adjusted performance measure thatrepresents the average return on a portfolio over and above that predicted by the the Capital Asset Pricing Model (CAPM) given the portfolio's beta and the average market return.

Keogh Plan

A defined-benefit plan or defined-contribution plan established by a self-employed individual for him/herself and his/her employees.

Kurtosis

A measure of the “peakedness” of a distribution. The greater the kurtosis of a distribution, the more peaked is its curve, as compared with that of the normal distribution shown above. Low kurtoses are generally undesirable, unless the distribution is also positively skewed. A distribution of returns with a positive excess kurtosis (i.e., over and above the kurtosis for a normal distribution, which is 3.00) has both more returns clustered towards the average; and more returns clustered in the tails of the distribution (“fat” tails). Although a distribution with a negative excess kurtosis has fewer returns at or near the average, nevertheless such a distribution is characterized by “skinny” tails. Fat tails signify a high probability of achieving extreme results; skinny tails signify a low probability of achieving extreme results. Generally, investors prefer more certainty and, therefore, prefer skinny tailed distributions exhibiting negative excess kurtosis [although a negative kurtosis, approaching the limit of –2 for a normal distribution, may signify a bimodal distribution with results symmetric about the point of one standard deviation above and below the mean. In this case, the “tails” as usually described, do not exist].

Laissez Faire

An economic theory from the 18th century that is strongly opposed to any government intervention in business affairs. Sometimes referred to as ""Let it be economics.""

Late Day Trading

An unethical (if not illegal) practice where a hedge fund purchases and sells securities (usually mutual fund shares) after the close of a trading day, but makes the transactions appear as though they occurred before the market close.

Legal List

A selection of eligible companies and investments, determined by local state governments, for institutions such as insurance companies and pension plans.

Level Load

An annual load that decreases in proportion to the amount invested the longer the money is kept in a mutual fund.

Life Expectancy

1. The age until which a person is expected to live. 2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables. The life expectancy, for Required Minimum Distribution calculation purposes, is determined by the current age of the individual.

Lifestyle Fund

A fund whose asset mix is determined according to the level of risk and return that is appropriate for an investor's current life situation.

Load Fund

A mutual fund with shares sold at a price including a large sales charge. This sales fee may range from 3% to as high as 8% of the full purchase.

Lump-Sum Distribution

A one time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment.

Managed Account

An investment account that is owned separately by an individual investor and looked after bya hired professional money manager.In contrast to mutual funds (which are professionally managed on behalf ofmany mutual-fund holders), managed accountsare personalized investment portfolios that are tailored tothe specific needs of the account holder. See ""managed money"".

Management Fee

A fixed fee that a mutual fund manager charges investors for his services and work with the fund.

Manager Universe (Benchmark)

The comparison of an account's performance to that of arepresentative peer group of money managers.

Marginal Tax Rate

The Marginal Tax Rate is the amount of tax levied on an additional dollar of income. Due to the U.S. progressive income tax system, the Marginal Tax Rate increases as income rises.

Market Efficiency

The degree to which stock prices reflect all available, relevant information.

Market Neutral

A strategy undertaken by a person or fund attempting to profit from the current direction of the market. A person using the strategy will take both long and short positions at the same time.

Market timing

Attempting to predict future market directions, usually by examining recent price and volume data or economic data, and investing based on those predictions. also called timing the market.

Master Fund

In general, an investment vehicle that enables individual investors to invest money into one or more underlying investments that are operated by professional managers.

Master Trust

A collection of funds from individual investors that are pooled together in order to obtain wholesale prices and rates unavailable for regular investors.

Matching Contribution

A type of contribution an employer chooses to make to his or her employee's employer-sponsored retirement plan. The contribution is based on elective deferral contributions made by the employee.

Matching Strategy

A strategy of creating investment portfolios that meet the individual needs of investors through tiered investment durations.

Mean-Variance Optimization

This financial theory uses expected return, standard deviation and correlation (based on historical returns) to create an Efficient Frontier upon which every point is considered optimal. Therefore, every point on the Efficient Frontier is considered to have the maximum return for a given level of risk, or standard deviation.

Median

The midpoint ofthe rangenumbers that are arranged in order ofvalue.

Mirror Fund

A type of mutual fund, typically run by a life insurance company, that enables an investor to access another company's mutual fund throughhis or herlife insurance policies.

Modern Portfolio Theory

A theory on how risk-averse investors can construct portfolios in order to optimize market risk for expected returns, emphasizing that risk is an inherent part of higher reward. Also called portfolio theory or portfolio management theory.

Modified Dietz Method

A method of evaluating a portfolio's return based upon a time weighted analysis.

Momentum Fund

When money managers look for stocks with earnings releases or price momentum in the short term, attempting to ride the wave and sell once it has peaked.

Money Market Fund

A mutual fund that invests in short-term debt instruments. The fund's objective is to earn interest for shareholders while maintaining a net asset value of $1.00 per share.

Money Purchase Pension Plan

A defined contribution plan to which employer contributions are fixed.

Monte Carlo Simulation

A problem solving technique used to approximate the probability of certain outcomes by running multiple trial runs, called simulations, using random variables.

Morningstar Risk Rating

A rating system that measures how often a fund loses money compared to the risk-free rate of return (T-bill return).

Multi-Discipline Account

A type ofmutual fundaccount offering access to the services of multiple institutional-quality investment managers in one, convenient account that is customized around an individual investor's specific goals and objectives.Like other managed accounts, the investor pays periodic (i.e. monthly/quarterly/yearly) fees basedon the average balance of assets in the account.

Municipal Bond Fund

A mutual fund that invests in municipal bonds, operating either as an investment trust or as an open-end fund.

Mutual Fund

A security that gives small investors access to a well diversified portfolio of equities, bonds, and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed. The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus.

Mutual Fund Liquidity Ratio

A ratio published monthly by the Investment Company Institute that compares the amount of cash to assets held by mutual fund portfolios.

Mutual Fund Timing

A legal but frowned-upon practice whereby traders attempt to profit from the short-term differences between the daily closing prices of a mutual fund. Timing occurs when investors attempt to gain short-term profits from buying and selling mutual funds. This has a negative effect on the fund's long-term holders, as they will be subjugated to higher fees due to the short-term trading. In order to prevent this, many mutual funds will impose a short term trading penalty upon the sale of funds that are not held for a minimum period of time. This transfers the short-term costs of buying and selling new shares within the fund's portfolio to those investors not planning to stay with the fund for the long-term. Don't confuse market timing with mutual fund timing. Market timing is a practice of trying to predict the best time to buy and sell stocks for the purpose of a short-term gain. Mutual fund timing is an practice publicly frowned upon by many mutual fund companies in their prospectuses.

Mutual-Fund Advisory Program

A portfolio of mutual funds that are selected to match a pre-set asset allocation model based on the investor's objectives and offered in a singe investment account together with the services of a professional investment advisor. Typically, investors won't be charged separate transaction fees, but periodic (i.e. monthly/quarterly/yearly) asset-management fees based on the average value of assets held within the account.Also known as a""mutual fund wrap account"".

Nest Egg

A special sum of money saved or invested for one specific future purpose.

Net Asset Value

1. In the context of mutual funds, the total value of the fund's portfolio less liabilities. The NAV is usually calculated on a daily basis. 2. In terms of corporate valuations, the book value of assets less liabilities.

Net Asset Value Per Share - NAVPS

1. In mutual funds, the value of a mutual fund share. Calculated by dividing the total net asset value of the fund by the number of shares outstanding. 2. In corporate valuations, the net asset value divided by the number of shares outstanding.

No-Load Fund

A mutual fund whose shares are sold without a commission or sales charge as the shares are distributed directly by the investment company.

Non-Elective Contribution

A type of contribution an employer chooses to make to each of his or her eligible employee's employer-sponsored retirement plan. The contribution is not based on salary reduction contributions made by the employee.

Nontaxable Dividends

Dividends from a mutual fund or some other regulated investment company that are not taxed. Taxes are not paid out because the fund invests in municipal and other tax exempt investments.

Open End Fund

A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell.

Optimal Portfolio

An optimal portfolio is a mean-variance efficient mix located along the Efficient Frontier.

Overweight

Refers to an investment position that is larger than the generally accepted benchmark.

Passive Management

An investing strategy that mirrors a market index and does not attempt to beat the market. Also known as ""passive strategy"" or ""passive investing.""

Pension Benefit Guaranty Corporation

A non-profit, federally-created corporation that, guarantees payment of certain pension benefits under defined benefit plans which are terminated with insufficient money to pay benefits.

Pension Plan

A retirement plan, usually tax exempt, wherein the employer makes contributions for the employee. Many pension plans are being replaced by the 401K.

Pension Shortfall

A situation in which a company offering employees a defined benefit plan does not have enough money set aside to meet the pension obligations to employees who will be retired in the future.

Portfolio

The group of assets - such as stocks, bonds and mutuals - held by an investor.

Portfolio Income

Income from investments, including dividends, interest, royalties, and capital gains.

Portfolio Insurance

1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures. 2.Brokerage insurance such as the SIPC.

Portfolio Management

The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation, and balancing risk vs. performance. In the parlance of Wall Street, "Portfolio Management" is the management of portfolios in which many clients invest – e.g., a mutual fund portfolio.

Portfolio Manager

The person responsible for investing a mutual fund's assets, implementing its investment strategy, and managing the day-to-day portfolio trading.

Portfolio Supervision

The management of portfolios designed and supervised according to the unique requirements of each client’s situation, objectives, and predilection for the assumption of investment risk.

Present Value

The amount that a future sum of money is worth today, given a specified rate of return.

Price Risk

The risk that the value of a security or portfolio of securities will decline in the future.

Price Taker

1. An investor whose buying or selling transactions are assumed to have no effect on the market. 2. A firm that can alter its rate of production and sales without significantly affecting the market price of its product.

Prospectus

1. A formal legal document describing details of a corporation. The prospectus is generally created for a proposed offering (usually an IPO), but they can still be obtained from existing businesses as well. The prospectus includes company facts that are vitally important to potential investors. 2. In this case of mutual funds, a prospectus describes the fund's objectives, history, manager background, and financial statements.

Purchase Price

A price which reflects the true cost of purchasing mutual fund shares or units.

Q Ratio

A ratio devised by James Tobin of Yale University, Nobel Laureate in Economics, who hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The Q ratio is calculated as the market value of a firm's assets divided by the replacement value of the firm's assets.

Qualified Retirement Plan

A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.

Qualified Trust

A trust whose underlying beneficiary may use his or her life expectancy to determine RMD (required minimum distribution) amounts, including those for the beneficiary of a retirement account.

Quartile

A statistical term describing a division of observations into four defined intervals based upon the values of the data and how they compare to the entire set of observations.

R-Squared

A measure of how much of a fund’s behavior can be explained by the performance of a given independent variable, in this case its corresponding benchmark index. If a fund matches its benchmark perfectly, the R2 value is 100.00. If a fund’s returns bear no relationship to those of its benchmark, the R2 value is 0.00. Index fund investors should expect R2 values close to 100.

Rabbi Trust

A trust created for the purpose of supporting the non-qualified benefit obligations of employers to their employees.

Random Walk

Thetheory thatstock price changes have the same distribution and are independent of each other,sothepast movement or trendof a stock price or market cannot be used to predict its future movement.

Rate of Return

The rate of return is a measure of the reward an investor earns for holding an asset class for a period of time. Returns can be measured as total return or in terms of income return or capital appreciation return components. The method for computing a return varies with the nature of the payment and the time period of measure.

Real Estate

Land plus anything permanently fixed to it, including buildings, sheds, and other items attached to the structure.

Real Option

An alternativeor choice that becomes availablewith a business investment opportunity.

Rebalancing

The process of realigning theweightings of one's portfolio of assets.

Recharacterization

The treatment of a contribution as being made to another type of IRA instead of the IRA that the contribution was initially made.

Reclassification

The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event.

Redemption

The return of an investor's principal in a security, such as a stock, bond, or mutual fund.

Regression

Linear regression is used to explain and/or predict. The general form is: Y = a + bX + u, Where Y is the variable that we are trying to predict, X is the variable that we are using to predict Y, a is the intercept, b is the slope, and u is the regression residual.

Regulated Investment Company

A mutual fund or real estate investment trust that is eligible to pass the taxes on capital gains, dividends, or interest payments onto the clients or individual investors.

Remainder Man

A person who receives the principal remaining in a trust account after expense payments and required payments to the beneficiary have been made.

Required Beginning Date

The date by which a qualified plan participant or IRA owner must begin receiving required minimum distributions from his or her retirement account.

Required Minimum Distribution

Theamount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begindistributing from their retirement accounts by April 1 following the year they reach age 70 _. RMD amounts must then be distributed each subsequent year.

Retirement Income Needs

The amount of income a retired individual needs to receive per year. Typically, this amount is pegged at 70% to 80% of pre-retirement income for individuals intending to maintain their pre-retirement standard of living.

Retirement Period

The amount of time a person expects to live in retirement. Generally, it is expected that an individual who retires at age 65 will live 20 or more years in retirement.

Return

Returns and indices are used to measure the rewards investors earn for holding an asset class. Returns represent changes in levels of wealth. See also Rate of Return.

Reverse Mortgage

A special type of loan used to convert the equity in a home into cash. The money obtained through a reverse mortgage is usually used to provide seniors with financial security in their retirement years.

Revocable Trust

A trust whereby provisions can be altered or cancelled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.

Revoked IRA

An IRA holder may revoke an IRA within the 7 days after the IRA is established. When an IRA holder elects to revoke the IRA, the full amount contributed to the IRA must be returned to the IRA holder.

Rights of Accumulation

A right that allows a shareholder to receive reduced sales charges whenthe amount of mutual funds purchased, plus the amount already held, equals an ROA breakpoint. In addition, there is no time limit on how long the mutual fund needs to be held to qualify for a ROA.

Risk Adjusted Return

A measure of how much risk a fund or portfoliotook onto earn its returns, usually expressed as a number or a rating.

Risk/Return Trade-off

A balance that an investor must establish between the desire for low risk and and the lure high returns. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns.

Rollover

1. The process of reinvesting funds from a mature security into a new issue of the same or a similar security. 2. The process of transferring the holdings of one retirement plan to another without suffering tax consequences.

Roth IRA

An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are never deductible, and qualified distributions are tax-free. A qualified distribution is one that is taken at least five years after the taxpayer established his/her first Roth IRA and when he/she is age 59_, disabled, or using the withdrawal to purchase a first home (limit $10,000), or deceased (in which case the beneficiary collects).

Roth IRA Conversion

A reportable movement of assets from a Traditional, SEP or SIMPLE IRA to a Roth IRA. The movement of assets may be taxable.

Salary Reduction Contribution

A cash or deferred contribution arrangement of an employer-sponsored retirement plan, under which participants can choose to set aside part of their pre-tax compensation as a contribution to the plan.

SCLC

Schultz Collins Lawson Chambers, Inc.

Sector Fund

A mutual fund whose objective is to invest in a particular industry or sector of the economy to capitalize on returns.

Sector Rotation

The action of a mutual fund or portfolio manager shifting investment assets from one sector of the economy to another.

Semi-Strong Form Efficiency

A class of EMH (Efficient Market Hypothesis) that implies all public information is calculated into a stock's current share price. Meaning that neither fundamental nor technical analysis can be used to achieve superior gains.

Series 6

A securities license entitling the holder to sell mutual funds and variable annuities.

Sharpe Ratio

A ratio developed by Nobel Laureate William Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.

SIMPLE IRA

A retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee's SIMPLE IRA and employees may make salary deferral contributions.

Simplified Employee Pension

A type of retirement plan that an employer can establish, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SEP Plan. The employer makes contributions to each eligible employee's SEP IRA on a discretionary basis.

Sinking Fund

A means of repaying funds advanced through a bond issue. The issuer makes periodic payments to a trustee, who retires part of the issue by purchasing the bonds in the open market.

Skewness

If a distribution of returns is perfectly symmetrical around its average return (is, i.e., a ‘bell-curve’ distribution) it does not tilt either to the left or right. Thus, a normal distribution has a skew of 0.00. If skew is positive, the average magnitude of returns above the mean is greater than the average magnitude of returns below the mean, and vice versa if skew is negative. Investors generally prefer positive skew, because the distribution has a long right-side tail, indicating a greater than normal expectation of achieving very large, albeit somewhat infrequent, positive returns.

Social Security

A U.S. federal benefits program developed in 1935. The program includes retirement benefits, disability income, veteran's pension, public housing, and even the food stamp program.

Soft Dollars

A means of paying brokerage firms for their services through commission revenue, as opposed to normal payments.

Spiders

Shares in a trust that owns stocks in the same proportionas that represented bythe S&P 500 stock index. Spiders are also known as Standard & Poor's depository receipts (SPDRs), and their ticker symbol is SPY. Containing one-tenth of the S&P 500 index portfolio, the Spider portfolio sells fora dollar amount equal to about one-tenth of the S&P 500 index level.

Spousal IRA

A traditional or Roth IRA established and funded by an individual for his/her spouse.

Standard Deviation

Standard deviation measures the dispersion of returns of an asset, or the extent to which possible returns can vary from the arithmetic mean. It is a measure of the volatility or risk of an asset.

Standard Deviation

A measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk).

Stock-picking

Attempting to beat the market by picking individual stocks. I'd compare stockpickers to astrologers . . . but I don't want to bad-mouth the astrologers. (Eugene Fama)

Strategic Asset Allocation

A portfolio strategy that involves periodically re-balancing the portfolio in order to maintain a long-term goal for asset allocation.

Stress Testing

A simulation technique used on asset and liability portfolios to determine their reactions to different financial situations.

Strong Form Efficiency

The strongest version of market efficiency. It states all information in a market, whether public or private, is accounted for in a stock price. Not even insider information could give an investor the advantage.

Style

The investment approach an investment manager takes to reach his/her objectives.

Style Drift

The tendency of a broker or investment manager to alter his or her investment style over time.

Survivorship Bias

Specifically in the context of mutual funds, the tendency for poor performers to drop out while strong performers continue to exist. This results in an overestimation of past returns.

Synthetic

A financial instrument that iscreated artificially by simulating another instrument withthe combined features ofa collection of other assets.

Systematic Withdrawal Plan

A service offered by a mutual fund that provides a payout to the shareholder at predetermined intervals.

Tactical Asset Allocation

A portfolio strategy that involves taking advantage of market pricing anomalies or strong market sectors and following this, re-balancing the portfolio in order to maintain a long-term goal for asset allocation.

Terminal Value

The value of an investment at the end of a period, taking into account a specified rate of interest.

Testamentary Trust

A trust created as a result of explicit instructions from a deceased's will.

Third-Party Distributor

The name given to institutions that sell or distribute mutual funds to investors for fund management companies without direct relation to the fund itself.

Time Value of Money

The basic principle that money can earn interest, sosomething that is worth $1 today will be worth more in the future if invested. This is also referred to as future value.

Total Return

Total return is a measure of performance of an asset class over a designated time period. It is comprised of income return, reinvestment of income return and capital appreciation return components.

Tracker Fund

A type of mutual fund that provides the same returns as an index. The fund invests in all the companies within the index according to a market value weighting.

Traditional IRA

An IRA that is not a Roth IRA or a SIMPLE IRA. Individual taxpayers are allowed to contribute 100% of compensation (Self-employment income for Sole proprietors and partners) up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and coverage by an employer-sponsored retirement plan.

Trailer Fee

A fee that a mutual fund manager pays to a salesperson who sells the fund to investors.

Transfer

A tax-free, non-reportable movement of assets between retirement plans.

Treynor Ratio

A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk.The Treynor ratio is calculated as: (Average Return ofthe Portfolio -Average Return of theRisk Free Rate)/ Beta of the Portfolio

Trickle Down Theory

An economic theory which states that investing money in companies and giving them tax breaks is the best way to stimulate the economy.

Triggering Event

A certain milestone or event that a participant in a qualified plan must experience in order to be eligible to receive a distribution from a qualified plan.

Tuition Premium

The tuition premium is an incremental rate that reflects the anticipated annual increase of college expenses in excess of inflation.

Turnover Rate

For tax purposes, capital gains are ""realized"" when an asset is sold for an amount above the purchase price. In Portfolio Strategist, the Turnover rate is the percentage of the capital gains ""realized"" each year. For example, a realization percentage of 20% indicates that one fifth of the portfolio is turned over in a year resulting in the realization of capital gains. Therefore, there is a 100% turnover every five years.

Underweight

An situation where a portfolio does not hold a sufficient amount of securities to satisfy the accepted benchmark of the portfolio's asset allocation strategy.

Unit Benefit Formula

A method of calculating an employer's contribution to an employee's defined benefit plan. The employer calculates the contribution by multiplying an employee's years of service by a percentage ofhis or hersalary.

Unit Investment Trust

A registered trust in which a fixed portfolio of income-producing securities are purchased and held to maturity. Commonly used with municipal bonds, investors receive an undivided interest of the portfolio's principal as well as income proportionate to the amount they invested.

Unsystematic Risk

Risk that affects a very small number of assets. Sometimes referred to as specific risk.

Value at Risk

A technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatilities.

Value Chain

A high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers.

Value Fund

A mutual fund that primarily holds value stocks, stocks deemed to be undervalued in price.

Variability

The possible range of outcomes for any given event.

Variable Annuity

An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio.

Variance

A measure of the dispersion of a set of data points around their mean value. It is a mathematical expectation of the average squared deviations from the mean.

Venture Capital Fund

An investment fund that manages money from investors seeking private equity stakes in small and medium-size enterprises with strong growth potential.

Volatility

The volatility of an investment is given by the statistical measure known as the standard deviation of the return rate.

Weak Form Efficiency

One of the different degrees of efficient market hypothesis (EMH) that claims all past prices of a stock are reflected in today's stock price. Therefore, technical analysis cannot be used to predict and beat a market.

Window Dressing

A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders.

Winner's Curse

A financial theory that the winning participants within an auction will typically pay an overvalued price for the winning item.

Wrap Account

An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. Sometimes this also includes funds of funds.

Yield

The yield on a bond series is defined as the internal rate of return that equates the bond's price (the average of bid and ask, without adding the accrued coupon) with a stream of cash flows (coupons and principal) promised to the bondholder. The yield on an equity is the percentage rate of return paid on a common or preferred stock in dividends.