GLOSSARY

Mutual Fund Terms

This glossary is an excerpt from Macmillan Publishing's book for mutual fund newbies: The Complete Idiot's Guide to Making Money with Mutual Funds, by Alan Lavine and Gail Liberman, two veteran mutual fund writers. Copyright 1995. Reprinted with permission. To order a copy of The Complete Idiot's Guide..., call (800) 428-5331.

Accredited Personal Financial Planning Specialist (APFS) -- Financial planning designation indicating that a Certified Public Accountant (CPA) has passed a tough financial planning exam administered by the American Institute of Certified Public Accountants.

Administrative operational expense -- Charge for maintaining your mutual fund account.

ADV form -- Form on file with the Securities and Exchange Commission that contains important financial information about a registered investment advisor.

Advisor (Adviser) -- 1. Person or company responsible for making mutual fund investments. 2. Organization employed by a mutual fund to give profes- sional advice on the fund's investments and asset management practices. Also known as investment advisor.

Aggressive growth funds -- Mutual funds that strive for maximum growth as the primary objective.

Annual report -- Updates that detail performance for the year.

Annual return -- The percentage of change in a mutual fund's net asset value over a year's time, factoring in income dividend payments, capital gains, and reinvestment of these distributions.

Asset-allocation fund -- Balanced fund in which changes are made in the stock and bond percentage mix, based on the outlook for each market.

Automatic investment plan -- Program that allows you to have as little as $50 a month electronically deducted from your checking account and invested in the mutual fund of your choice.

Average price per share -- Most popular method of paying taxes on mutual fund sales, in which you calculate gains or losses by first figuring an average cost per share. You calculate the total cost of all the fund shares you own and divide that by the number of shares you own.

Balanced funds -- Mutual funds that invest in both stocks and bonds, typically in relatively equal proportions.

Bankers Acceptance (BA) -- Short-term loan to companies that export worldwide. It is secured by goods that are to be sold.

Bear market -- Period during which the stock market loses more than 10 percent of its value.

Beta value -- Measure of a fund's volatility. The lower the beta value, the less risky the fund.

Blue-chip stocks -- Stocks issued by well-established companies that pay dividends.

Bond -- A debt instrument issued by a company, city, or state, or the U.S. government or its agencies, with a promise to pay regular interest and return the principal on a specified date.

Bull market -- Period during which the stock market moves higher for a couple of years straight.

Callable -- Debt that may be redeemed before it matures.

Capital appreciation funds -- Mutual funds that strive for maximum growth. Although these funds can earn the greatest gains, they also can rack up the heaviest losses. Also known as aggressive growth funds.

Capital gains -- Profits on the sale of securities.

Certificates of Deposit (CDs) -- Debt instruments issued by banks and thrifts.

Certified Financial Planner (CFP) -- Financial planner that obtains a license issued by the College of Financial Planning. The designation shows that the financial planner has had training in budgeting, taxes, savings, and insurance.

Charitable lead trust -- Legal document used to avoid estate taxes, in which the charity receives the investment income and the principal goes to the trust beneficiaries when you die.

Charitable remainder trust -- Legal document set up with a charity, in which the charity pays you income for life. When you die, the money goes to the charity, tax-free.

Chartered Financial Consultant (ChFC) -- Designation issued indicating completion of a program in financial, estate, and tax planning, in addition to investment management.

Chartered Life Underwriter (CLU) -- Designation issued indicating training in life insurance and personal insurance planning.

Check-a-month plan -- Program through which money is automatically taken out of your checking account and invested in your mutual fund.

Closed-end funds -- Funds whose shares are traded on an exchange, similar to stocks. The price per share doesn't typically equal the net asset value of a share.

Commercial paper -- Short-term loans to corporations.

Common stock -- Unit of ownership in a public corporation with voting rights, but with lower priority than either preferred stock or bonds if the company is ever liquidated.

Constant dollar investing -- Investment strategy that preserves profits by periodic evaluation and adjustment of a portfolio. You maintain the same amount in your stock fund each year by channeling funds from and to a bond or money market fund.

Convertible bond funds -- Mutual funds that invest in bonds that can be converted into stocks.

Corporate bonds -- Debt instruments issued by corporations.

Custodian -- Bank or other financial institution that safeguards mutual fund securities and may respond to transactions only by designated fund officers.

Distributions -- Dividends income and capital gains generally paid by mutual fund companies to their shareholders.

Diversification -- Act of investing in different kinds of investments to Lessen risk.

Diversified -- Spread out, as among a variety of investments that perform differently.

Dividends -- Profits that a corporation or mutual fund distributes to shareholders.

Dollar cost averaging -- Strategy of making regular investments into a mutual fund and having earnings automatically reinvested. This way, when the share price drops, more shares are bought at lower prices.

Dow Jones Industrial Average -- Model for the overall stock market that tracks the performance of 30 U.S. blue-chip stocks.

Equities -- Investments in stocks and other assets.

Equity income funds -- Mutual funds that favor investments in stocks that generate income over growth. As a result, they can be less risky than other types of stock funds.

Eurodollar CDs -- CDs issued by U.S. banks that have branches in other countries. These tend to have higher yields than domestic CDs.

Ex-dividend date -- Date on which the value of the income or capital gains distribution is deducted from the price of a fund's shares.

Face value -- Value of a bond or note as given on the certificate. Corporate bonds are usually issued with $1,000 face values, municipal bonds with $5,000 face values, and government bonds, $1,000 to $10,000 face values. Also known as the principal.

Financial planner -- Individual who helps establish a financial game plan. Although a financial planner may have certain licenses or designations indicating the extent of his or her training, there is no requirement that a financial planner have a license. Financial planners carry professional designations, such as CFP and ChFC.

First In-First Out (FIFO) -- Basis for calculating the tax impact of mutual fund profits and losses that assumes shares sold are the oldest shares owned.

Fixed-income fund -- Another term for a mutual bond fund.

Front-end loads -- Sales commission paid to purchase shares of mutual funds.

General purpose money funds -- Mutual funds that invest largely in bank CDs and short-term corporation I.O.U.s called commercial paper.

Global funds -- Mutual funds that invest in both the U.S. and foreign countries. Also known as world funds.

Government-only money funds -- Mutual funds that invest in treasury bills and short-term loans to the U.S. government.'These are the least risky money funds because their investments are backed by Uncle Sam.

Growth funds -- Mutual funds that invest in the stocks of well-established firms that are expected to be profitable and grow for years to come.

Growth and income funds -- Mutual funds that own primarily blue-chip stocks of well-established companies that pay out a lot of dividends to their shareholders. These funds generally develop stock portfolios that balance the potential for appreciation with the potential for dividend income.

Hedging -- Strategy of investing in one or more securities to protect yourself from potential losses in other investments.

High-quality corporate bond funds -- Mutual funds that buy bonds issued by the nation's financially strongest companies.

High-yield bond funds -- Risky bond mutual funds that invest in high-yield bonds of companies with poor credit ratings. The bonds are rated below triple B by Standard ST Poor's and Moody's. Also known as junk bond funds.

Income -- Periodic interest or dividend distributions obtained from a fund.

Income funds -- Mutual funds that invest in higher-yielding stocks, but may own some bonds. You get income first along with some growth. These funds usually invest in utility, telephone, and blue-chip stocks.

Inflation -- Rise in prices of goods and services.

Inflation hedge -- Term describing an investment that performs well when inflation heats up.

Installment investment strategy -- Investment strategy in which you divide your investment among several mutual funds and make any new investments into the fund that performs the worst.

Insurance agent -- Individual licensed to sell insurance.

Insured municipal bond funds -- Mutual funds that invest in insured bonds issued by cities, towns, states, toll roads, schools, water projects, and hospitals. The interest income is tax-free, and the bonds are insured against default by large private insurance companies, such as American Municipal Pond Assurance Corp. (AMRAC) and Municipal Bond Insurance Association (MBIA).

Interest income -- Earnings received, often from bonds.

Intermediate-term bond funds -- Mutual funds that invest in bonds that mature in about 5 to 10 years. International bonds Debt instruments issued by foreign governments or corporations.

International funds -- Mutual funds that invest in stocks or bonds of worldwide companies.

Investment banker -- Firm that sells stocks or bonds to brokerages which, in turn, sell them to investors on a securities exchange.

Investment company -- Firm that, for a management fee, invests pooled funds of small investors in securities appropriate for its stated investment objectives.

Investment objective -- Description, included in a fund prospectus, of what a mutual fund hopes to accomplish.

Irrevocable trust -- Legal document that allows you to avoid probate and reduce the tax bite. You give up ownership of any asset you placed in this type of trust, and it can't be changed.

Junk bond funds -- Mutual funds that invest in bonds issued by companies or governments that are rated below BBB by Standard and Poor's or Moody's. Also know as high-yield bond funds.

Long-term bond funds -- Mutual funds that invest in bonds that mature in more than 10 years.

Management fee -- Charge for running the fund.

Market timing -- Strategy by which investors attempt to buy low and sell high by buying when the market is turning bearish and selling at the end of a bull market.

Maturity date -- Date that a bond is due for payoff.

Money market mutual fund -- Mutual fund that invests typically in short-term government and company loans and CDs. These tend to be lower-yielding, but less risky than most other types of funds. Also known as money market funds or money funds.

Municipal bond funds -- Mutual funds that invest in tax-exempt bonds is sued by states and local governments.

Net asset value -- Per-share value of your fund's investments. Also known as share price.

No-load mutual fund -- Mutual fund that is sold without sales commission.

Note -- Another word for short-term bond.

No-transaction fee account -- Brokerage firm account that allows customers to purchase a selection of mutual funds with no charge or a limited charge.

Open-end funds -- Funds that permit ongoing purchase and redemption of fund shares (mutual funds are open-end funds).

Over-the-counter market -- Market that uses a network of brokers to buy and sell securities rather than an exchange.

Portfolio manager -- Person responsible for making mutual fund investments.

Precious metals mutual fund -- Mutual funds that invest in precious metals and mining stocks.

Preferred stock -- Type of stock that takes priority over common stock in the payment of dividends or if the company is liquidated.

Principal -- Original investment.

Prospectus -- Legal disclosure document that spells out information you need to know to make an investment decision on a mutual fund or other security.

Rebalancing -- Investment strategy in which you adjust your mix of investments periodically to keep the proper percentages of money in each fund, based on your tolerance for risk.

Regional funds -- Mutual funds that invest in one specific region of the globe.

Registered representative -- Person licensed to sell stocks, bonds, mutual funds, and other types of securities.

Repurchase agreements -- Generally, overnight loans secured by U.S. Treasury securities.

Risk -- In relation to a mutual fund, chances of losing money.

Risk tolerance -- Amount of money you can stomach losing in a given year.

S&P 500 index -- Measure of the performance of a large group of blue-chip stocks in the U.S.

Salary reduction plan or 401(k) plan -- Retirement plan that allows employees to have a percentage of their salaries withheld and invested prior to the payment of federal taxes. Often, the employer might match the contribution, and earnings are tax-deferred until retirement.

Secondary market -- Market wherein bonds, stocks, or other securities are bought and sold after they're already issued.

Securities -- Stocks, bonds, or rights to ownership, such as options, typically sold by a broker.

Securities exchange -- Tightly regulated marketplace where stocks, bonds, and cash are traded.

Securities and Exchange Commission (SEC) -- U.S. government agency in charge of regulating mutual funds and other securities.

Share -- Unit of ownership.

Shareholder -- One who owns shares. In a mutual fund, this person has voting rights.

Short-term bond funds -- Mutual funds that generally invest in bonds that mature in less than three years.

Simplified Employee Pension Plan (SEP) -- Retirement plan that permits tax-deferred investments for self-employed individuals.

Single-country funds -- Mutual funds or closed-end funds that invest in one country.

Single-estate municipal bond funds -- Mutual funds that invest in the bonds of a single state so that investors avoid paying both state and federal taxes on their interest income.

Small company stock funds -- Volatile mutual funds that invest in younger companies whose stocks are frequently traded on the over-the-counter stock market.

Socially responsible funds -- Mutual funds that invest in companies that don't pollute the environment or sell arms. They will not own tobacco or alcohol stocks, nor invest in companies with poor employee relations.

Specialty funds -- Funds that invest in one specific industry or industry sector.

Speculation -- Gambling on a risky investment in hopes of a high payoff down the road.

Stock -- Investment that buys ownership in a corporation, in exchange for a portion of that company's earnings and assets.

Stockbroker -- Person licensed to sell stocks and other types of securities. Also known as a registered representative.

Stock fund builder -- Investment strategy in which you invest your bond fund's interest income into a stock fund to build your wealth.

Swap -- Switch, as in what bond fund managers do to obtain higher-yielding bonds that have credit ratings similar or equal to their existing bonds.

Taxable bond funds -- Bond mutual fund in which interest income is taxed by Uncle Sam.

Tax-deferred investment -- An investment that is not taxed until money is withdrawn, usually at retirement.

Tax-free bond funds -- Tax-free mutual funds that invest in municipal bonds issued by states, cities, and towns.

Testamentary trust -- Legal document set up by a will when a person dies that is used for special situations, such as to establish a fund to pay for a child's education.

Total return -- The rate of return on an investment, including reinvestment of distributions.

Transfer agent -- Entity that maintains shareholder records, including purchases, sales, and account balances.

Treasury bills -- Short-term I.O.U.s to the U.S. Treasury.

Trust -- Legal document that does not have to be approved by probate court before your loved ones can inherit your wealth.

12b-1 fee -- Fee deducted from the earning of your mutual fund to cover a fund's sales and marketing expenses.

Uniform Gift to Minors Act (UGMA) -- Law adopted in most states that sets rules for distribution of an investment to a child.

Uniform Transfer to Minors Act (UTMA) -- Law in some states that governs how a child takes custody of an asset.

Uninsured high-quality municipal bond funds -- Mutual funds that invest in the least risky municipal bonds. These bonds are rated single A to triple A, but they are not insured.

Uninsured high-yield municipal bond funds -- Mutual funds that pay the highest tax-free yields but invest in states or municipalities with lower credit ratings.

U.S. government agency bonds -- Debt instruments issued by federally sponsored agencies of the U.S. government.

U.S. Treasury bond funds -- Mutual funds that invest in U.S. Treasury bonds and notes.

U.S. Treasury bonds -- Debt instruments directly backed by the U.S. Treasury.

U.S. Treasury-only money funds -- Funds that invest in Treasury bills, or T-bills, which are short-term I.O.U.s to the U.S. Treasury. These funds typically pay the lowest yields but are considered the least risky money funds.

U.S. Treasury securities -- Generally, Treasury notes, bills, or bonds issued and guaranteed by the U.S. government.

Value averaging investing -- Investment strategy in which you always make sure that the value of your fund increases by a specific amount over a specific time period.

Variable annuities -- Insurance program that allows you to direct your investment in a choice of mutual funds. Meanwhile, you get tax deferment of your earnings and a death benefit guarantee, and you are able to obtain periodic checks for life.

Wash sale -- Strategy in which a security is bought back within 31 days after it is sold, "washing out" any capability of writing off losses on income taxes.

World funds -- Mutual funds that invest in both the U.S. and foreign countries. Also known as global funds.

Yankee dollar CDs -- Debt instruments issued by some of the largest foreign banks in the world that have offices in the United States. They often yield slightly more than U.S. bank CDs.

Yield -- Interest or market earnings on a bond or other investment.

Zero coupon Treasury bond funds -- Mutual funds that invest in a certain type of Treasury securities that provide no monthly income, but, instead, pay the investor accumulated income and principal at the bond's maturity.

Disclaimer: Brill Editorial Services, Inc. is not a financial advisor, and the material presented at MFI is for informational purposes only and does not imply an endorsement of the funds mentioned or opinions expressed by writers or posters at MFI. Investors should consult all available information, including fund prospectuses, before making any fund purchase, and must exercise their own independent judgment when making any investment decision. Any questions or comments regarding this policy or Mutual Funds Interactive should be directed to BES. Mutual Funds Interactive, The Mutual Funds Home Page, FundLink, and FundWorld are service marks and The World's Online Mutual Fund Community is a trademark of Brill Editorial Services, Inc. and the text herein is Copyright © 1995-99 Brill Editorial Services, Inc. All rights reserved.