An annual audited financial report filed with the U.S. Securities and Exchange Commission by all registered and/or exchange-listed issuers and by all companies with more than 500 shareholders or $1 million in gross assets.
An employer-sponsored qualified retirement plan that allows employees to contribute pretax dollars that are often matched by employer contributions. Contributions and earnings grow tax deferred until withdrawn, when they are taxed as ordinary income.
A qualified retirement plan, similar to a 401(k) plan, for employees of public schools, certain non-profit groups and churches. Contributions and earnings grow tax deferred until withdrawn, when they are taxed as ordinary income.
A financial report filed with the U.S. Securities and Exchange Commission used to disclose any material events or developments likely to affect a company’s stock price. It provides more current information than a 10-Q or 10-K.
A measurement of the number of stocks that have advanced (risen in value) and the number of stocks that have declined (lost value) over a particular period. If advances outnumber the declines, it is considered a "bullish" trading day.
1. An individual or firm that effects securities transactions for the accounts of others. 2. A securities salesperson who represents a broker-dealer when selling securities to the general public.
A coefficient measuring the projected rate of change in a security's price separate from the market return. It represents the amount of return expected from fundamental causes such as earnings and expected level of sales.
A minimum tax imposed on taxpayers who itemize deductions, such as interest, medical expenses, state taxes, miscellaneous deductions and passive activity losses, or who earn certain types of income. These deductions are added back into your income and the result is taxed at a flat rate of either 26% or 28%. You would pay the higher of either your regular tax or this alternative minimum tax. If you think you may be subject to AMT, you should consult your tax advisor.
Receipt for shares of stock of a non-U.S. corporation held by U.S. banks and sold in the U.S. market. ADRs allow U.S. investors to buy or sell shares of foreign companies without having to conduct the transaction in foreign markets. They also entitle owners to all dividends and capital gains.
Expressed as a percentage, annualized return calculates the return of a mutual fund or other investment over the period of an average year within a given duration. For example, an annualized ten year-return calculates the average annual return required to result in the 10-year cumulative return.
An annuity is an investment that offers annual payments at some future date. Such payments may be either fixed or variable, depending on the structure of the annuity. The investment may be in stocks, bonds, or other vehicles. Retirement annuities offered through insurance companies typically offer tax-shelter benefits.
Profiting by simultaneously buying a security in one market and selling it in another because the prices are different in both markets. By taking advantage of momentary disparities in price, the arbitrageur performs the economic function of making the markets more efficient.
The price at which a mutual fund's shares can be purchased. The asked or offering price means the current net asset value (NAV) per share plus sales charge, if any. For a no-load fund, the asked price is the same as the NAV.
Short-term obligations, issued by banks and corporations, and backed by the issuers’ assets, such as receivables. Asset backed commercial paper is frequently used for short-term financing needs.
The electronic funds transfer network that enables you to make a direct transfer of money from your bank account to your mutual fund, provided your bank participates in the ACH.
A service offered by most mutual funds whereby income dividends and capital gain distributions are automatically invested into the fund by buying additional shares and thus building up holdings through the effects of compounding.
The average annual gain or loss by an investment at the end of a specified period. It is a hypothetical rate of return that reflects a fund's actual cumulative total return if performance had been constant over the entire period.
The length of time until the average security in a fund will mature or be redeemed by its issuer. It indicates a fixed income fund's sensitivity to interest rate changes: longer average weighted maturity implies greater volatility in response to interest rate changes.
Time draft drawn on and accepted by a bank, the customary means of effecting payment for merchandise sold in import-export transactions and a source of financing used extensively in international trade. With the credit strength of a bank behind it, the banker's acceptance usually qualifies as a money market instrument. The liability assumed by the bank is called its acceptance liability.
The smallest measure used for quoting yields on bonds and notes. One basis point is 0.01% of yield. So, if the Federal Reserve increases rates 50 basis points, or a bond's yield changes 50 basis points, that equates to 0.5% or 1/2 of 1%.
Period of falling stock prices. A bear stock market usually indicates the anticipation of a declining economy. A bear bond market indicates rising interest rates.
1. A person to whom an inheritance passes as the result of being named in a will. 2. A recipient of the proceeds from an IRA, UGMA/UTMA, life insurance policy, or other investment account. 3. A party in whose favor a letter of credit is issued. 4. One to whom the amount of an annuity is payable. 5. A party for whose benefit a trust exists.
A coefficient measure of the volatility of a security (stock, bond, mutual fund, etc.) relative to the overall market or its comparative index. If a security has a beta above 1, it is more volatile than the market/index; if the security has a beta below 1, then it is less volatile.
The price at which shares of a mutual fund are redeemed by the fund, usually the fund's net asset value per share. This amount may be reduced by a contingent deferred sales charge. Also called the redemption price.
Laws passed by the states to aid
in protecting investors against securities fraud. The laws require sellers of new stock or mutual funds to register the offerings and provide financial data on the issues.
A debt security. It is usually issued by government agencies, municipalities, and corporations. The purchaser actually lends the entity money and so is considered the creditor. The entity is the seller and is considered the debtor or issuer. The issuer agrees to repay the principal amount of the loan at a specified time (maturity). Interest bearing bonds pay interest periodically at a predetermined time. A discounted bond such as a Zero Coupon bond pays no interest. It is sold at a discount from face value and the investor receives a rate of return through price appreciation and the bond is redeemed at face value.
System of evaluating the probability of whether a bond issuer will default. Standard and Poor's Corp. and Moody's Investors Services, among other firms, analyze the financial stability of both corporate and government bond issuers. Ratings range from AAA or Aaa (extremely unlikely to default) to D (currently in default). Bonds rated BBB or below by S&P or Baa or below by Moody's are not considered to be of investment grade. Mutual funds generally restrict their bond purchases to issues of certain quality ratings, which are specified in their prospectuses.
The value at which an asset is carried on a balance sheet. Normally, the asset is calculated as actual cost less allowances for depreciation. Book value may be more or less than market value.
A firm or individual acting as both a principal and an agent. A Broker acts on behalf of the client searching for the best deal in the market place. A Dealer acts on behalf of itself in making the market. The Dealer actually buys and sells and maintains inventories of securities. A Broker carries out the transaction but does not take possession of the security or maintain inventories.
The right of the issuer to call back or redeem a bond at a specified amount at a predetermined time prior to maturity. This is usually done in periods of interest rate declines. The issuer calls the higher interest paying bond and sells a new issue at the lower rates.
A rise in market value of a mutual fund's securities, reflected in its net asset value per share. This is a specific long-term objective of many mutual funds.
Person who has passed examinations accredited by the Denver-based Institute of Certified Financial Planners, testing the ability to coordinate a client's banking, estate, insurance, investment, and tax affairs.
A court approved reorganization of an entity. The debtor continues to operate the business and allows for negotiation in restructuring and repayment of outstanding debts.
Shares issued by the same company having different rights or powers. For example, Class A shares may be voting shares, while Class B shares are not. In the case of mutual funds, different classes provide multiple purchasing options for investors. For example, Class A shares typically require payment of a sales charge at the time of purchase (front end), Class B shares typically require payment of a contingent deferred sales charge (CDSC) at time of redemption (back end) and Class C shares typically impose 12b-1 and service fees in lieu of either front-end or back-end sales charges. Many AIM funds offer both Class A, Class B and Class C shares.
A management company that operates a mutual fund. A specified number of shares is initially offered, and the shares trade through the public markets. Supply and demand determine the price as with any listed security. These funds are freely tradable. They are sold, not redeemed, and quoted at current market price, not at net asset value(NAV).
Short term debt obligations with normal maturities ranging from several days to nine months. The debt is usually discounted, issued by banks and corporations, and normally unsecured although often backed by a bank line of credit.
The contribution of after-tax money to a rollover account consisting of pre-tax contributions from a qualified retirement plan. 2. Mixing customer owned securities with those owned by a firm in its proprietary accounts.
A security representing ownership in a company. Stock holders actually own part of the corporate assets and so share in the profits and losses. Voting shareholders have the right to attend annual meetings and voice opinions on the general operations. Many shareholders have the right to elect the board of directors, and vote on important changes within the organization. Many companies pay annual dividends. Bond holders on the other hand are simply creditors with no ownership privileges.
Interest on principal plus previous interest. For example, if you invest $1,000 at 10% for five years, you will have $1,100 at the end of the first year, and that $1,100 is now the basis for the 10% interest for the second year and so on. At the end of five years, you have accumulated $1,610.51. If compounding monthly, the total would be $1,645.28. The shorter the compounding period, the greater ending value.
Describes the risk level of an investment. A conservative investment mix would include a concentration in less risky investment options. Lower risk investments provide more stable account values, but historically have produced lower long-term returns.
A plan designed for periodic fixed dollar investments over a specified period of time such as 10-15 years. A substantial portion of the total sales charge is often deducted in the early periods.
The risk that the other party within a transaction will not fulfill its contractual obligation to complete the transaction with a fund. This risk is associated primarily with repurchase agreements and some derivative transactions.
Accounts established by Congress that allow for tax-sheltered saving for educational expenses. These accounts may be invested in mutual funds or other investment vehicles.
The risk that an issuer may not be able to meet interest payments or repay principal. Changes in the financial strength of an issuer are reflected in the credit rating of its debt obligations and may affect their value. A fund that invests in debt obligations of an issuer with a low credit rating will experience more credit risk than a fund that invests in debt obligations of an issuer with a higher credit rating.
The risk that a change in the exchange rate between the U.S. dollar and a foreign currency may reduce the value of a fund's investment in a security in the foreign currency, or based on the value of that currency.
Identification numbers and codes assigned to securities for trading purposes. CUSIP stands for the Committee on Uniform Securities Identification Procedures.
Total liabilities divided by total shareholder equity. This ratio gives an indication of how much equity would be available to pay off creditors in a liquidation situation. The higher the ratio, the higher the debt level. For example, a ratio of 3:1 indicates that the debt level is three times the value of the equity in the firm.
A retirement plan that promises to pay a predetermined amount to an employee who retires after a specified number of years. Some plans permit additional employee contributions, some only permit employer contributions. Separate accounts are not set up for each individual.
A retirement plan in which the employer and/or employee contribute specified amounts. A separate account is established for each individual. The ending retirement benefits are determined by the amount of assets accumulated at the time of retirement. The account may be controlled by the firm-appointed trustee or self directed by the employee. Examples: Profit Sharing Plans, Money Purchase Plans.
The loss in value of an asset. In economic terms it may be due to adverse market conditions. In general business, it may be due to physical damages, obsolescence or other outside factors.
A type of security whose value is derived from an underlying asset. Derivatives range from simple option contracts, to forward and future contracts, to extremely complex and volatile products such as interest rate or currency swaps. Except for the plain vanilla derivatives such as options, these products are better left to the sophisticated institutional traders.
A derivative is a financial instrument whose value is "derived," in some manner, from the price of another security, index, asset or rate. Derivatives include options and futures contracts, among a wide range of other instruments. The principal risk of holding positions in derivatives used as a hedging device is that the fluctuations in their values may not behave as anticipated with respect to the overall securities markets. The fund may also use derivatives in an attempt to improve performance, although there is no guarantee that it will be successful in that effort. Some derivatives are more sensitive to interest rate changes and market price fluctuations than others, and thus may increase market risk. Also, derivatives are subject to counterparty risk.
The risk that a change in diplomatic relations between the U.S. and a foreign country could affect the value or liquidity of a security held by a fund.
The direct payment of an eligible rollover distribution from a qualified plan (for example, a lump-sum distribution from a 401(k) or 403(b) plan) to the participant's IRA or another qualified plan that accepts rollovers. By taking a direct rollover rather than a conventional rollover, the participant can avoid mandatory 20% withholding on the distribution from the qualified plan, since the participant did not take custody of the assets.
The difference between a bond's current price and its face value. Some debt instruments such as Treasury bills and Zero Coupon bonds are sold at prices far below the actual maturity value. With deep discount instruments there is no interest. With regular debt securities, your total return is comprised of the face value at maturity and annual interest. However, if a bond or bill is deep discounted you only get one payment and that is at time of sale or redemption. The yield is determined by the price appreciation not the interest.
The interest rate charged by the Federal Reserve for loans to member banks. The Fed changes rates in an attempt to control monetary policy. When the Fed increases rates, or tightens the money supply, entities borrow less, and consequently there is less money available for all uses. The effect is to slow down the economy. The alternative is that the Fed lowers rates, or eases the money supply. Money is more readily available, encouraging economic growth.
1. The removal of assets from a retirement account and paid to the retirement account owner or beneficiary. 2. A company’s payment of cash or stock or physical products to its shareholders.
An individual or a corporation serving as principal underwriter of a mutual fund's shares, buying shares directly from the fund, and reselling them to other investors.
Investment strategy of spreading investments among a wide variety of securities, thus reducing the impact of any one security on overall portfolio performance.
The percentage of earnings paid to shareholders. As a generalization, the higher the ratio the more mature and established the company. Start up and companies in fast growing industries usually reinvest all earnings and do not pay dividends.
The technique of investing a fixed sum at regular intervals regardless of stock market movements. This reduces average share costs to the investor, who acquires more shares in periods of lower securities prices and fewer shares in periods of high prices. In this way, investment risk is spread over time.
An unmanaged index of 30 common stocks of companies that are major factors in their industries and widely-held by individuals and institutional investors. These stocks represent about one-fifth of the $8 trillion-plus market value of all U.S. stocks, and approximately one-fourth of the value of stocks listed on the New York Stock Exchange.
A power of attorney gives another person the legal authority to act on your behalf while you are living. A "durable" power of attorney stays valid even if you become unable to handle your own affairs due to mental or physical incapacity. The person holding the durable power of attorney can take care of your day-to-day financial tasks such as paying your bills and mortgage, as well as act on your behalf in more complex matters that may arise.
Time weighted life of a bond with the weights being the cash flows. It denotes the years necessary to recover the investment; for example, if the duration is 7.2, that means it will take 7.2 years to recoup the investment.
Duration is the measure of a debt security's sensitivity to interest rate changes, expressed in terms of years. Longer durations usually are more sensitive to interest rate movements. The value of a fund that invests in securities with longer durations will decrease more than the value of a fund that invests in securities with shorter durations, and vice versa.
That portion of a company's profits allocated to the shareholders. Primary earnings per share are net income less preferred dividends divided by the weighted average common stock outstanding. For example, if a company earned a profit of $1 million and had 1 million shares outstanding, the reported EPS would be $1 per share.
The increase in real value of the economy's production of goods and services. Most often expressed as Gross National Product, (GNP) or Gross Domestic Product, (GDP).
Enacted after the terrorist attacks of Sept. 11, 2001, legislation intended to help stimulate the U.S. economy. The temporary, 10-year measure reduced income taxes for most Americans, repealed estate and gift taxes and increased the amount of tax-deductible contributions individuals can make to their IRAs.
The risk associated with investing in emerging market securities. Emerging markets tend to have a greater degree of social, political, and economic instability; therefore, the value or liquidity of an emerging market security held by a fund may vary more than a developed market security.
The 1974 law that created the Pension Benefit Guaranty Corporation. ERISA laws established specific guidelines for managing pension funds and eased eligibility regulations.
U.S. dollar denominated currency deposited with a European commercial bank or foreign branch of an American bank. Eurodollars are most commonly used to settle international transactions outside the U.S.
The date on which a fund's net asset value (NAV) will fall by an amount equal to the dividend and/or capital gain distributions (although market movements may alter the fund's closing NAV somewhat). Most publications that list closing NAVs place an "X" after a fund's name on its Ex-Dividend Date. See also Record Date.
1. An unethical practice in which a broker makes frequent trades in a customer’s account for the purpose of increasing his or her commissions, rather than to further the customer's investment goals. 2. Frequent trading by mutual fund investors in response to short-term changes in market conditions. Because mutual funds are intended to be long-term investments, mutual fund companies may monitor accounts of customers suspected of engaging in excessive trading, may impose short-term trading fees or may take other actions to protect the interest of long-term investors.
The person designated to carry out the wishes expressed in a will as to the administration of the estate and distribution of the assets in it. An executor may be a bank trust officer, family member, or trusted friend.
The ratio of total expenses to net assets of the fund. Expenses include management fees, 12(b)1 charges, if any, the cost of shareholder mailings and other administrative expenses. The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather than of its success in controlling expenses.
The value of your account as of the last business day of the year as shown on your year-end statement and Form 5498 (if applicable). The fair market value is calculated by multiplying the number of shares in your fund(s) by the net asset value(s).
Debt security issued by an agency of the federal government. An example is the Federal National Mortgage Association or more commonly known as "Fannie Mae." These securities are not direct obligation of the U.S. Treasury, and as such are not fully guaranteed by the government. However, they are sponsored by federal agencies and usually have high credit ratings.
Shortfall created when the federal government spends more in a fiscal year than it receives in revenues. To cover the continual shortfall, the governments sells long-and short-term debt to the public.
An independent agency created by Congress in 1933 that maintains the stability and public confidence in the U.S. financial system by insuring deposits, examining and supervising financial institutions and managing receiverships. www.fdic.gov
Interest rate charged by banks with excess reserves at a Federal Reserve district bank to other banks who need overnight loans. The Fed Fund rate is the most sensitive gauge as to the direction of interest rates.
A person, company or association who is charged with the responsibility of investing the assets of the beneficiary in a prudent manner. An example is a trustee of a pension fund, or an executor of a will.
The largest non-governmental regulator of securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. www.finra.org
A debt security with a variable interest rate tied to another interest rate. It provides incremental interest if the pertinent interest rate rises. However if the consensus is that rates are declining, it is better to buy fixed rate instruments.
The risk that a fund will experience special risks, including currency, political, regulatory, and diplomatic risk, associated with investing in international securities.
Many funds invest in securities of foreign companies and pay taxes in those countries. If a fund has more than 50% of its assets invested in foreign securities at fiscal year-end, it may pass a foreign tax credit through to shareholders. This credit may be used to offset the amount of tax due on a shareholder's federal income tax return. Shareholders have the option of taking the foreign tax credit or deduction. However, holding-period rules may apply to receive this benefit. If you have any questions about claiming a foreign tax credit or deduction, please consult a tax advisor.
Illiquid insurance contracts, often held by mutual fund companies, that provide guaranteed payment of principal and interest for a specified period of time.
Standardized forms of forward contracts which are secured and traded on an exchange. It obligates the buyer to purchase the underlying asset at a predetermined time and price. Futures are used for: speculation, hedging, and arbitrage.
Also known as "Ginnie Mae." It is a government owned agency of HUD which assists in housing financing. It guarantees the full and timely payment of monthly principal and interest on mortgage backed securities.
Also known as GNP (Gross National Product). It is the total value of goods and services produced in the national economy in a given year. It is the primary indicator of economic growth.
Invest primarily in common stocks of companies with long track records and have both the potential for higher share value and a solid record of paying dividends. Degree of investment risk: moderate.
A contract between an insurance company and a corporate profit-sharing or pension plan that guarantees a specific rate of return on the invested capital over the life of the contract.
This document empowers another person to make medical decisions on your behalf should you become unable to make or communicate these decisions yourself.
Funds that invest in international securities may incur higher commissions since the securities within these funds are traded in markets around the world.
Although they have higher return potential, high yield bonds are also subject to greater risks, including the risk of default, compared to higher-rated securities.
A hypothetical investment portfolio, the returns of which are used as a benchmark to measure relative market performance. An investment cannot be made directly in an index.
A mutual fund that seeks to mirror general stock market performance by matching its portfolio to a broad-based index, most often the Standard & Poor's 500 stock index.
A personal, tax-deferred savings account an employed person can establish to help fund retirement. Eligibility requirements, contribution limits, investment options, tax treatment and withdrawal regulations are subject to change; a financial advisor can provide more complete information. Two broad categories of IRAs exist: traditional and Roth. Traditional IRAs are funded with pretax dollars; they grow tax-deferred; and withdrawals are taxed as ordinary income. Roth IRAs are funded with after-tax dollars; they grow tax-deferred; and withdrawals are not subject to taxes.
A provision in the IRA law allowing individuals who receive lump-sum payments from pension or profit-sharing plans to "roll over" into, or invest that sum in, an IRA.
Rise in the price of goods and services that results from spending increases relative to the supply of goods. The Consumer Price Index (CPI) is commonly used as a measure of inflation.
Directors, Officers, and others who know of or have access to confidential information about a firm, which has not been released to the general public. Under the SEC rules, an insider is not permitted to trade the stock on the basis of such information.
The risk that changes in interest rates will affect the resale value of debt securities held in a fund's portfolio. Generally, interest rates and debt security value are inversely related; as interest rates rise, the resale value of a debt security falls, and vice versa. Generally, bonds and certain common stocks are more vulnerable to this risk than other types of investments.
A discount rate at which the present value of future cash flows equal the cost of the investment. When the IRR is greater than the required return, the investment presents a good opportunity.
International funds offered in the United States typically invest in non-U.S. securities. Diversified international funds usually have holdings in Europe, Asia, and they may invest in smaller markets as well. International Funds may also be focused on one area or country, such as Europe or Japan.
The value of tangible assets or materials. Financial analysts use specific data models on stocks to ascertain whether the "real" current value is consistent with the current market price. If the intrinsic value is greater than the current market price, the stock would be considered undervalued and a buy recommendation.
Legislation passed by Congress in 1940 that requires all investment advisers to register with the SEC and abide by SEC regulations. It was designed to protect the public against misrepresentation and fraud.
Term used in bond rating. It indicates that the bond is suitable for prudent investors. Fiduciaries often need to maintain credit quality levels and tend to buy mostly investment grade level debt.
A speculative bond rated BB or below by Standard & Poor's Corp. and Ba or below by Moody's Investor Service. See Bond Rating. "Junk bonds" are generally issued by corporations of questionable financial strength or without proven track records. They tend to be more volatile and higher yielding than bonds with superior quality ratings. "Junk bond funds" emphasize diversified investments in these low-rated, high-yield debt issues.
The risk that information about a security or its issuer may be unavailable, incomplete, or inaccurate. This risk is more common to securities issued by foreign companies and companies in emerging markets than it is to the securities of U.S.-based companies.
A signed agreement allowing an investor to buy front-load mutual fund shares at a lower overall sales charge, based on the total dollar amount of the intended investment.
The use of borrowed funds to increase profitability and buying power. In accounting and finance, it is the amount of long term debt relative to equity. The higher the ratio the greater the leverage.
When a fund borrows money to buy securities, it is engaging in a practice known as "leveraging." Leveraging may result from ordinary borrowings, or may be inherent in the structure of certain fund investments. If the prices of those securities decrease, or if the cost of borrowing exceeds any increases in the prices of those securities, the net asset value of the fund's shares will decrease faster than if the fund has not used leverage. To repay borrowings, the fund may have to sell securities at a time and at a price that is unfavorable. Interest on borrowings is an expense the fund would not otherwise incur.
A claim on the assets of an individual or a corporation, excluding ownership equity. A liability represents a transfer of assets or services at a specified date. The corporation or individual has little or no discretion to avoid the transfer because the event causing the obligation has already occurred.
Lipper Analytical Services, Inc. is a nationally-recognized organization that reports mutual fund total return performance and calculates fund rankings. These averages include the following: Balanced Funds, Capital Appreciation Funds, Corporate Debt BBB Funds, Emerging Markets Funds, Equity-Income Funds, and General U.S. Government Funds.
The risk that the securities in a fund's portfolio cannot be sold at a fair price within a reasonable time (the securities are not liquid). Liquidity is generally related to the market trading volume for a particular security; if the trading volume for a security is high, the liquidity of the security is high, and vice versa.
A living will, also known as a "Directive to Physicians" or "Health Care Directive," states your wishes about the medical treatment you want to receive should you become unable to communicate. Living wills can communicate a person's instructions to withhold lifesaving treatments, as well as instruct doctors to provide all the lifesaving medical treatment and technology available.
A mutual fund that levies a sales charge up to 8.5%, which is included in the offering price of its shares, and is sold by a broker or salesman. A front-end load is the fee charged when buying into a fund; a back-end load is the fee charged when getting out of a fund.
Net profit from the sale of securities realized in the fund. A long-term capital gain (or loss) occurs when securities held for more than one year are sold.
The entire amount in an employer's retirement plan that is paid out within one tax year due to termination of employment, retirement or disability. See also Rollover.
The weighted-average term to maturity of a bond's cash flows. The weighting is based on the present value of each cash flow divided by the price. This is one of two ways to calculate duration, the other being modified duration.
The difference between the current market value of the collateral and the amount of the loan. Brokerage margin accounts are governed by Federal Reserve Board Regulation T, which is currently at 50%. Brokerage houses charge interest on the borrowed funds. However, it is often less than the cost of bank loans.
The total value of a company's outstanding stock. Market capitalization is used to measure corporate size and is calculated by multiplying the number of outstanding shares by the current market price of the stock.
The risk that the price of equity stocks held by the fund may vary and fall, thus reducing the value of a fund's investments. Certain stocks selected for a fund's portfolio may decline in value more than the overall stock market.
An often perilous investment practice based on predicting market cycles. The aim is to anticipate the market trend by buying before share prices go up and selling before prices go down.
Maturity is the time remaining before a debtor must repay the principal amount to the bondholder. Long-term issues (debt obligations maturing in 10 to 30 years) normally offer higher yields, but they are more affected by interest rate changes than short-term issues. The value of a fund that invests in debt obligations with longer maturities will decrease more than the value of a fund that invests in debt obligations with shorter maturities, and vice versa.
A type of corporate debt security with varying maturities (usually ranging from nine months to 30 years) that is continuously offered to investors. Usually issued by investment-grade firms, MTNs provide companies with constant cash flow at a relatively low price, since a company must register with the U.S. Securities and Exchange only once, rather than each time it issues debt securities. MTNs generally offer higher coupon rates than comparable short-term notes.
Companies that are included in the Russell Mid-Cap Growth Index at the time of purchase, or if not included in that index, have market capitalizations of between $2.5 billion and $15 billion at the time of purchase.
A measure of the price sensitivity of a bond to interest rate movements. Equal to the Macaulay Duration divided by (1 + (bond yield/k)) where k is the number of compounding periods per year. It is therefore inversely proportional to the approximate percentage change in price for a given change in yield. This is one of two ways to calculate duration, the other being Macaulay duration.
Controlled by the Federal Reserve Board, monetary policy expands and contracts the economy's money supply through a variety of mechanisms, the primary of which is the Federal Reserve Board's power to guide short-term interest rates. Typically, the Federal Reserve Board attempts to strike a balance in monetary policy between stimulating the economy and igniting inflation.
A mutual fund that aims to pay money market interest rates. This is accomplished by investing in safe, highly-liquid securities, including bank certificates of deposit, commercial paper, U.S. government securities and repurchase agreements. Money market funds make these high-interest securities available to the average investor seeking immediate income and high investment safety.
A tool used by technical analysts to track stock or commodity price movements. It plots average daily prices for specific periods searching for trends. The actual period continually adjusts as time goes by. That is, as each day passes, the chart drops the earliest day's figures and adds the most recent day's prices.
A debt instrument issued by a state or local government. The interest is exempt from federal income taxation, and also exempt from federal and local tax in the issuing state. There are generally two types: General Obligations (GO), and revenue bonds. GOs are backed by the full faith and credit of the taxing power of the issuer and revenue bonds are backed by the particular revenues or incomes from the project.
Invest in bonds issued by local governments—such as cities, counties and states—that use the money for public projects like building schools, highways or libraries. Degree of investment risk: moderate to low.
A professionally managed, diversified investment that enables you to pool your money with other investors. A diversified investment such as a mutual fund may make you less vulnerable to a major decline in any one market or sector than ownership of a single security.
The largest stock exchange in the U.S. It is a corporation operated by a board of directors, and responsible for setting policy, supervising Exchange and member activities, listing securities, and overseeing the transfer of members' seats on the Exchange.
A commission-free mutual fund that sells its shares at net asset value, either directly to the public or through an affiliated distributor, without the addition of a sales charge.
The person in whose name securities are registered if that person is other than the beneficial owner. This is the role of a brokerage firm when securities are registered in street name in an client's account.
A non-diversified fund is allowed to invest a significant portion of its assets in the securities of any one issuer and may invest a significant portion of its assets in securities doing business in a comparatively small number of economic sectors. If a fund is non-diversified, it is invested in fewer issuers than if it were a diversified fund. Because of these potential investment concentrations, the value of the fund's shares may vary more widely, and the fund may be subject to greater market risk than if the fund invested more broadly.
An investment company that makes mutual fund shares continually available to the public. The mutual fund is the buyer and seller unlike closed-end companies where the securities trade on an exchange and the public is considered to be both buyer and seller.
The right but not the obligation to purchase or sell the underlying asset at a stated price (the strike price) for a predetermined period of time. Call options are the right to buy the asset, and put options are the right to sell the asset. Both calls and puts may be bought and sold. If the right is not exercised, the option expires. In-the-money options are contracts whose current market price is above the strike price for calls and below the strike price for puts. Out-of-the-money options are contracts whose strike price is above the market price for calls and below the market price for puts. Option sellers are also known as writers. A covered call is secured by a position in the underlying asset. A naked or uncovered call is not backed by a security position. One contract is equal to 100 shares of stock.
Options and futures are common types of derivatives that a fund uses as an investment strategy, as well as to hedge other positions in the fund. An option is the right to buy or sell a security or other instrument, index, or commodity at a specified price on or before a specific date. A future is an agreement to buy or sell a security or other instrument, index, or commodity at a specific price on a specific date. The use of options and futures may increase the performance of a fund, but may also increase market risk.
An arrangement between an employer and a mutual fund, authorized by the employee, through which a specified sum is deducted from an employee's salary to buy shares in the fund.
The person or, more typically, the company an employer selects to manage its employee retirement plan. The administrator works with the plan provider to ensure that the plan meets government regulations and that employees have the information needed to enroll, select and change investments within the plan and request distributions.
A group of securities held by an individual or institution which may contain various types of assets such as stocks and bonds. The purpose of a portfolio is to diversify risk. Portfolio managers are professionals responsible for the securities portfolio.
The rate at which the fund's portfolio securities are changed each year. If a fund's assets total $100 million and the fund bought and sold $100 million worth of securities that year, its portfolio turnover rate would be 100%. Aggressively managed funds generally have higher portfolio turnover rates than do conservative funds that invest for the long term. High portfolio turnover rates generally add to the expenses of a fund.
Legal document where one person grants the right to act on his/her behalf of a second person. There are two types used in the brokerage industry: 1) Full P.O.A. grants the second person the right to buy, sell, transfer or remove assets. The second person has total discretion over the account. 2) Limited P.O.A. only permits the second party to buy or sell assets and may not remove any assets from the account.
Stock price divided by last year's earnings. The P/E indicates how much the stock owner pays per dollar of earnings that is generated by the firm on each share. As a generality, the higher the P/E ratio, the more risky and volatile a stock.
The interest rate banks charge their most creditworthy customers. The rate is determined by the market forces that affect a bank's cost of funds and the rates that borrowers will accept. The prime rate is a key interest rate for commercial lending.
1. One who owns property. 2. The initial investment or the face amount of a bond. 3. A person who trades for his own account or on behalf of the broker-dealer firm in the primary or secondary market.
Judicial process whereby the will of a deceased person is presented to a court and an executor or administrator is appointed to carry out the will's instructions.
A legal document that provides full disclosure of all information investors need to make a sound decision about an investment. Financial institutions file prospectuses with the Securities and Exchange Commission (SEC).
A judicial order or court decree that divides ownership of an individual’s qualified (i.e. tax-advantaged) retirement account or pension with a spouse, ex-spouse, child or other dependent as part of the equitable distribution of marital assets following a divorce or legal separation. The QDRO may be a separate document or it may be a part of the divorce decree.
A tax-deferred plan set up by an employer for employees and qualifies for federal tax preferences. Such plans usually provide for employer contributions, i.e. profit sharing or pension plans, and may also allow employee contributions. Because these plans are designed to build retirement savings, employees pay taxes only when they withdraw the money. Participants may receive certain deductions and other tax benefits when they make contributions.
A historical measurement, calculated over 36 months, which indicates how closely a fund's fluctuations correlate with the fluctuations of its appropriate benchmark index. An R2 of 1.00 indicates perfect correlation, meaning all the fund's fluctuations were explained by fluctuations in the benchmark index, while an R2 of 0.00 indicates no correlation. A fund with an R2 of 0.78 indicates that 78% of the fund's past fluctuations were explained by changes in the benchmark index.
The price at which a mutual fund's shares are redeemed (bought back) by the fund. The redemption price is usually equal to the current net asset value per share. Also called the bid, call or sell price. Some funds do not charge a redemption fee.
A corporation or individual, registered with the U.S. Securities and Exchange Commission (SEC), who manages the investments of others. An RIA may offer direct financial advice to individuals or businesses, or may provide asset management advice to a mutual fund or hedge fund. The RIA designation does not represent an endorsement by the SEC. Their compensation may be based on a percentage of assets under management — or on an annual, hourly or “flat fee” basis.
The risk that government regulations may affect the value of a security held by a fund. In foreign countries, securities markets that are less regulated than those in the U.S. may permit trading practices that are not allowed in the U.S.
A policy of many mutual fund firms that allows an investor to avoid paying additional sales charges for a specified period of time after he redeems shares. The length of time may vary from company to company. Reinvestment privilege allows a former shareholder to avoid additional sales charges by buying the same class of shares in his former fund, or another fund within the same fund family, subject to certain terms and conditions.
A service that most mutual funds offer whereby a shareholder's income dividends and capital gain distributions are automatically reinvested in additional shares.
The date by which a qualified plan participant (such as a traditional IRA owner) must begin taking required minimum distributions from his or her retirement account. This date generally occurs on April 1 of the year after the calendar year in which the participant reaches age 70½.
For a given level of risk, the return required by investors. If the investor needs an annual return of 10%, but the asset only pays 7%, the investment would not be a wise choice.
A ratio comparing the profits of a company relative to its common equity, or book value. Expressed as a percentage, ROE is an indicator of how effectively a company is deploying its shareholders' invested capital.
A right that allows a shareholder to receive reduced sales charges when the amount of mutual funds purchased, plus the amount already owned, equals an ROA breakpoint.
The possibility that an investment will not perform as anticipated. An acceptable degree of risk must be determined by the individual with the understanding that the higher the expected return, the greater the risk factor. There are many different kinds of risk, such as exchange, inflation, interest rate, liquidity, political, et cetera. Most investors are considered to be risk adverse. That is, they seek security over risk.
Retirement plan proceeds that are delivered directly to the participant. The proceeds are eligible to be rolled over into another or the same qualified retirement plan or IRA within 60 days of the distribution.
Also known as Sales Load. It is the fee charged on an investment, and varies according to the fund and investment. The charge is added to the net asset value when determining the offering price.
A government agency created in 1933 to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation. The SEC oversees securities exchanges, securities brokers and dealers, investment advisors and mutual funds. The SEC promotes the disclosure of important market-related information, maintaining fair dealing and protecting against fraud. www.sec.gov
Selling assets not actually owned. The seller hopes the price will decline and thus makes a profit by buying the securities at a lower price. The risk level is considered to be much higher than buying long and selling when the stock goes up.
A report on the funds operations and holdings covering six months, or half of the fiscal year. Because they follow a fiscal year schedule and not a calendar year schedule, semiannual reports may be issued at any time of year.
Different types of mutual fund shares, each representing a similar interest in a fund’s portfolio but each of which has its own unique sales charge and expenses.
Class A - Mutual fund shares typically sold with an up-front sales charge, or load, but with generally lower annual expenses than other share classes. Discounted sales charges may be available to individuals making large purchases; persons already owning shares of the fund family's other mutual funds; or investors who commit in writing to purchase additional shares on a regular basis.
Class B - Mutual fund shares typically sold with no up-front sales charge but with a contingent deferred sales charge (CDSC), which an investor pays if he or she sells shares within a specified time period, often six years. In addition to a CDSC, which declines over time, Class B shares often have higher annual expenses than Class A shares. After a number of years, Class B shares may convert to Class A shares.
Class C - Mutual fund shares typically sold with no up-front sales charge but with a contingent deferred sales charge of 1% which an investor pays if he or she sells shares within the first year. Typically, Class C shares never convert to Class A shares, regardless of the length of time they are owned.
A risk-adjusted measure developed by Nobel Laureate William Sharpe. It is calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the fund's historical risk-adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund's annualized excess returns by the standard deviation of a fund's annualized excess returns.
When a fund sells a security short, it borrows the security in order to enter into the short sale transaction, and the proceeds of the sale may be used by the fund as collateral for the borrowing to the extent necessary to meet margin requirements. The fund may also be required to pay a premium to borrow the security.
Moreover, the fund is required to maintain a segregated account with a broker or a custodian consisting of cash or highly liquid securities. Until the borrowed security is replaced, the fund will maintain this account at a level so that the amount deposited in the account, plus the collateral deposited with the broker, will equal the current market value of the securities sold short.
One of the two foremost financial rating agency. It rates most of the publicly held corporate and municipal bonds and many of the government issues. The company is also noted for its S&P indexes which measure the change in performance of various groups of stocks.
A statistical measure of a probability distribution. It measures the degree to which a specific value in a probability distribution varies from the expected return or value. The term is often used in Portfolio Theory where past performance is used in an estimation of possible future performance. The greater the dispersion or deviation, the more risk is involved.
Term for creating two or more shares out of one, a common technique used by companies when the price of individual shares has become too high for convenient trading by investors. Following a 2-1 stock split, shareholders end up with twice as much stock at half its previous value; their total investment therefore remains unchanged.
Separate Trading of Registered Interest and Principal of Securities; the practice of separating the principal and interest on a bond creating two tradable products. It was started by the brokerage industry, but is now also performed by others such as the U.S. government.
A joint venture formed to undertake a project that individuals would be unable to or unwilling to pursue. Syndication is the method of selling interests to investors. Most new issues are distributed by a syndicate comprised of investment banking firms and/or broker-dealers.
The process of one company buying out another company, often through accumulating a majority of the stock in the acquiring company. If a company's management does not want to be purchased, they will fight the take over. It is then referred to as a hostile take over.
An obligation whose interest is exempt from taxation by federal, state, and/or local authorities. It is frequently called a municipal bond, even though it may have been issued by a state government or agency or by a county, town, or other political district or subdivision. The security is backed by the full faith and credit or by anticipated revenues of the issuing authority.
An entity created to hold assets for the benefit of certain persons or entities, with a trustee managing the trust (and often holding title on behalf of the trust).
Adopted by most states and similar to the Uniform Gifts to Minors Act, UTMA expands the types of property you can transfer to a minor, and provides that you can make other types of transfers besides gifts. The UTMA either supplements or replaces the UGMA, depending on the state. Unless otherwise stipulated, the child gains control of the assets upon reaching the legal age of majority.
A registered investment company that purchases a fixed portfolio of income producing securities, such as corporate, municipal, or government bonds. Units in the trust are sold to investors through brokers.
A debt instrument that represents borrowed funds. As a demand note, the lender can request repayment at any time — and interest accrues at prevailing market rates, which vary over time.
The weighted average of the remaining terms to maturity of the securities underlying the collateral pool at the date of issue, using the balances of the securities as of the issue date as the weighting factor.
Traces yields on securities with varying maturities. The normally upward sloping curve is called the positive yield curve. Interest rates for long-term rates are higher then short-term rates. An inverted yield curve occurs in a situation where short-term interest rates are higher than long-term rates. This occurs when the demand for short-term credit drives up the rates on instruments such as Treasury bills. It can be an indicator of an unhealthy economy with high inflation and little consumer confidence.
The calculated yield on a bond from the current date until maturity. It is expressed as the rate of return on a bond which includes the total annual interest payments, purchase price, redemption value and time to maturity. The YTM is only effective if the bond is held to maturity.
A debt security that pays no interest. It is sold at a deep discount to its face value, and the buyer receives a rate of return in the form of price appreciation. Examples include STRIPs, CATs, TIGERs.
Invesco AimSM is a service mark of Invesco Aim Management Group, Inc. Invesco Aim Advisors, Inc., Invesco Aim Capital Management, Inc., Invesco Aim Private Asset Management, Inc. and Invesco PowerShares Capital Management LLC are the investment advisors for the products and services represented by Invesco Aim; they each provide investment advisory services to individual and institutional clients and do not sell securities. Please refer to each fund’s prospectus for information on the fund’s subadvisors. Invesco Aim Distributors, Inc. is the U.S. distributor for the retail mutual funds, exchange-traded funds and institutional money market funds and the subdistributor for the STIC Global Funds represented by Invesco Aim. All entities are indirect, wholly owned subsidiaries of Invesco Ltd.
Consider the investment objectives, risks, and charges and expenses carefully before investing. For this and other information about AIM funds, please obtain a prospectus from your financial advisor and read it carefully before investing.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Invesco Aim Management Group, Inc. data unless otherwise noted.
