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Glossary A through C A Active fund management style Fund manager actively analyzes and trades in securities that meet the overall objective of the fund. Generally, more aggressive than passive fund management style. After-tax The effective cost of, or return from, an investment, after the tax liability or credit has been taken into account. Aggressive growth fund A mutual fund whose primary investment objective is substantial capital gains, as opposed to current dividend income. Annuitize To begin a series of payments from an annuity. When someone who has been investing in an annuity retires, the built-up capital is annuitized and a payout schedule is selected according to need. The insurance company that sold the annuity then pays a fixed-dollar amount for an extended period of time, often the rest of the policyholder's life. Annuity Form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some time in the future, usually retirement. Annuities are either immediate or deferred. Immediate annuities are single-premium contracts which begin paying installments immediately. For example, an immediate monthly annuity would begin paying to the annuitant one month after the premium was paid and the contract issued. A deferred annuity is one in which payments to the annuitant are delayed to a specified future date usually called the annuity date. Prior to the annuity date, during the accumulation phase of the contract, the cash values of the annuity accumulate tax-deferred, with specific contractual guarantees and at competitive interest rates. During the payout phase, a fixed annuity will ultimately pay out the accumulated value in regular installments varying only with the payout method selected. In a variable annuity the cash accumulations reflect the performance of an underlying portfolio of investments such as stocks and bonds. While these investments can provide a hedge against inflation and an increased opportunity for growth, there is also the risk that investment performance will be poor and that an annuity's value will decrease or be lost. Unit values and variable annuity payments will depend on the value of the underlying investments. Appreciation An increase in the value of a property, such as the market value of a stock. For real estate, it is often expressed as a percentage increase per year. Asset Property that a person or business owns which has commercial or exchange value. Personal assets may be classified as financial (cash, gold, savings, stocks) or non-financial (real estate, automobiles, furniture). Business assets may be classified as current (convertible into cash within one year) or long-term (used in the production of income and not readily convertible into cash). Asset allocation A method of portfolio management which allows investors to determine an appropriate portfolio mix to produce the maximum reward given the level of risk they are willing to accept. It involves assigning a percentage weight to various asset classes -- in combination they are called a portfolio. Asset category A broad group of assets which corresponds to a traditional investment objective -- such as growth, income or stability. Stocks represent the asset category for growth, bonds for income, and cash equivalents for stability. Asset class A group of assets which are similar in type and investment objective, for example, large company stocks or international government bonds. Average annual return See "Historical mean return." Average recovery time How long it will take, on average, to recover from an average statistical loss. B Back-end load fund An open- or closed-end investment company that charges a fee upon the redemption or sale of its fund shares. Typically, loads are reduced based on the value of the shares and/or the passage of time. Balanced mutual fund A mutual fund that purchases common stock, preferred stock, and bonds. Such funds tend to be less volatile than all-equity funds, outperforming them in a declining market but underperforming them in a rising market. Basic medical insurance Insurance that provides coverage for normal hospital expenditures, surgical expenses, and other miscellaneous expenses. Only expenses that are incurred while the insured is in the hospital are covered. Beneficiary A person designated to receive the income or other benefits from a will, insurance policy, annuity contract, trust, etc. Beta coefficient Measure of a stock's relative volatility. The beta is the covariance of a stock in relation to the rest of the stock market. The Standard & Poor's 500 Stock Index has a beta coefficient of 1. Any stock with a higher beta is more volatile than the market, and any with a lower beta can be expected to rise and fall more slowly than the market. Blue chip stock The common or preferred stock of well-known, major corporations that is traded on a national stock exchange. Blue chip status is derived from long periods of earnings growth, dividend payments, and financial stability. Bond A certificate of debt or negotiable promissory note of a corporation or public body that promises to repay on a maturity date some years in the future and to pay periodic interest until then. Bond fund A fund that holds corporate, municipal, or U.S. Treasury bonds, or a combination of those in the attempt to earn as much income as possible while maintaining a high degree of security. Book value per share The value of a single share of stock, calculated by dividing a company's net assets (i.e., assets minus liabilities) by the total number of shares issued. Brokerage firm A company in the business of handling orders to buy and sell securities and commodities for a commission or fee. Budget A tool for planning short-term income and expenditures in order to achieve long-term financial goals. The budget shows income and expenses within a given period of time. Buy and hold strategy Contributions and assets are allocated to various types of investments and held for extended periods of time. This is the opposite of "market timing." C Capital Wealth in the form of money or property, which is usually available for investment. Capital appreciation An increase in the market value of an investment. Capital asset Any asset held and used for the production of goods and services, including fixed assets, such as land, plant, raw materials sources, and reserves; investments in owned and affiliated companies; and some long-term intangibles, such as patents. Capital value The worth of capital. Cash equivalent A short-term investment with a high degree of safety that can be converted to cash quickly (i.e., T-bills, and money market funds). Cash flow statement A listing of the sources and uses of the cash receipts and cash outlays of a person or business. Certificate of deposit (CD) A receipt issued by a bank for a cash deposit for a specified period of time at a fixed rate of interest (determined by the marketplace). Upon maturity, the bank pays the depositor the principal plus all accumulated interest. Negotiable CDs may be transferred before maturity; non-negotiable CDs are not readily transferable, and early withdrawals are subject to interest penalties. Charitable gifts Direct, outright or partial donations of cash, tangible or intangible property to eligible recipients, usually tax-exempt organizations. Closed-end fund An investment company that operates a fund with a limited number of shares outstanding. A closed-end fund starts with a set number of shares, often listed on an exchange, where they are traded like any other stock. Coinsurance For most major medical insurance policies, the portion of medical expense the covered person must bear once the deductible has been satisfied, commonly 20% to 25%. Collective trust An investment option which is established for the collective investment of institutional investors (i.e., qualified pension plans). Commercial paper Short-term obligations with maturities ranging from two to 270 days issued by banks, corporations, and other borrowers to investors with temporarily idle cash. Such instruments are unsecured and usually discounted, although some are interest-bearing. Commodity futures A contract providing for the delivery of a tangible asset at a specified future date and price. The commodities traded in futures markets include cocoa, copper, corn, eggs, frozen concentrated orange juice, lumber, oats, wheat and soybeans. Commodities futures are traded in order to profit from price changes, or provide cash flow to producers and shippers. Common stock A security representing ownership of a corporation's assets. The right of common stock to dividends and assets is subordinate to the rights of bonds, preferred stocks, and other creditors. Generally, shares of common stock carry voting rights. Common stock fund An investment company whose portfolio consists primarily of common stocks. Such a company may, at times, take a defensive position in cash, bonds and other senior securities. Commodities Generic term for goods such as grains, foodstuffs, livestock, oil and metals that are traded on national exchanges. Community property Property owned in common by a husband and wife as a kind of marital partnership. Defined by statute in the ten states in which community property is recognized. Comprehensive major medical insurance A medical insurance plan that combines basic hospital, surgical, and medical expense coverage with traditional major medical protection to form a single policy. Consequential losses Indirect losses; (i.e., those that occur in connection with or as a result of the direct or main loss). Some policies cover only direct losses, others cover both direct losses and indirect losses. Constraints See "Optimization constraints." Consumer Price Index (CPI) Measure of changes in the cost of consumer goods (housing, food, transportation, medical care, entertainment, etc.). The U.S. Department of Labor calculates the index each month from the cost of items in urban areas across the nation. Convertible securities Securities carrying the right (either unqualified or understated conditions) to exchange the security for other securities of the issuer. Most frequently applies to preferred stocks or bonds carrying the right to exchange for given amounts of common stock. Corporate bond A debt security issued by a corporation at a given rate of interest for a specified term, usually in units with a par value of $1,000. Correlation coefficient A number that expresses the amount of similarity or dissimilarity in behavior between two asset classes. Credit life insurance A type of life insurance sold in conjunction with installment loans that decreases at the same rate as the balance on the loan. This type of policy is often required by a lender to be taken out by a borrower to cover a substantial loan or large installment purchase. Current yield Annual return on a bond, computed by dividing the annual coupon rate by the market price. Current yield equals the coupon rate for bonds purchased at par and exceeds it for bonds purchased at discount. #40030