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Glossary S through U S Security Evidence of direct ownership (stock), creditorship (bond), or indirect ownership (rights, warrants, and options). Simplified Employee Pension (SEP) Pension plan in which the employer contributes to an Individual Retirement Account for each of its employees. The employee is vested immediately and pays no taxes on the employer's contributions. The contributions and all earnings on funds in the plan are tax-deferred until withdrawn. Single Premium Deferred Annuity (SPDA) Tax-deferred investment that is created to accept one lump-sum payment. The value of the sum appreciates over the years prior to distribution. Taxes are deferred on the interest and earnings until withdrawal or when annuity payouts begin, usually at retirement. Small capitalization In general, a public company with a total stock value (that is, market capitalization) of less than $1 billion. Small companies may have higher earnings growth rates than large companies because they may operate in new markets. Speculative risk Exposure that offers extreme opportunity for both gain and loss. Speculative stock Common or preferred stock that offers extreme degrees of unrealized appreciated valuation and depreciated valuation. Typically, speculative stocks are issued by start-up, emergent-technology firms, or firms experiencing a decline in their financial condition. Standard deviation A measure of the range of variation from an average of a group of measurements. 68% of all measurements fall within one standard deviation of the average. 95% of all measurements fall within two standard deviations of the average. Stock Ownership shares of a corporation. Stock call and put options Contracts to buy or sell securities within a specific period of time. A call option is an option to purchase a specified number of shares of stock at or before some future date for a stated "striking" price. A put option is an option to sell a specified number of shares of stock at or before a specified future date for a stated striking price. Stock dividend A dividend paid in securities rather than cash: either additional shares of the issuing company; or shares of another company (usually a subsidiary) held by the issuing company. These shares are not taxable until they are sold. Strategic asset allocation Historical data is used in an attempt to determine how an asset class has performed and is likely to perform over long periods of time. The goal is not to "beat" the market, but to establish a long-term investment strategy using a core mix of asset classes. Striking price The amount at which a call or put option can be exercised, normally a price set close to the market price of the stock at the time the option is issued. Systematic risk Also called market risk, or nondiversifiable risk. It is risk attributable to factors affecting all investments. T Tactical asset allocation Uses periodic assumptions about asset classes and the economy in general. The fund manager tries to improve portfolio performance by making "mid-course" changes in the long-term strategy based on near-term expectations. Target rate of return This return is the starting point for the optimization program to search for more efficient portfolios and may be based on the client's required return to meet an investment goal. Tax-deferred Description of an investment whose earnings are not taxed until they are distributed to an investor. For example, funds placed in an individual retirement account (IRA) or Keogh plan are not taxed until withdrawal or when annuity payments begin. Tax-Deferred Annuity (TDA) A tax-favored plan that permits an employee of a qualifying organization to enter into an agreement with his or her employer to have a portion of his or her earnings set aside for retirement. Income tax is deferred on the contributions, provided the amounts are used to purchase an annuity contract or regulated investment company's shares, as well as the interest and earnings. Contribution amounts are limited by tax law and taxes are due on all contributions and interest and earnings upon withdrawal or when annuity payments begin, usually at retirement. Tax-exempt securities Bonds offering income payments that are not subject to taxation. These securities are issued by various state and local governments and are often called "municipals" or "munis." Tax-Sheltered Annuity (TSA) See "Tax-Deferred Annuity." Taxable estate Gross estate reduced by allowable deductions; the amount subject to the estate tax. Tenancy by the entirety A form of property ownership similar to joint tenancy, but which carries no rights of survivorship, no exclusions from the probate process and no protection from lawsuits and creditors. Term life insurance Insurance that covers the insured for a specified period such as one, five, or 10 years, often with an option to renew. Premiums are paid throughout this time, but generally become higher during the course of the term, as the policyholder grows older. Testamentary trust A type of trust created in the decedent's will. It technically comes into existence at the time of death. Thrift plan A defined contribution plan that requires employee contributions. These contributions are matched by employer contributions. Earnings on contributions accumulate on a tax-deferred basis until withdrawal or when annuity payments begin, usually at retirement. Time horizon The amount of time remaining until the money will be needed by the investor. Ticker symbols A system of letters used to uniquely identify a stock or mutual fund. Symbols with up to three letters are used for stocks which are listed and traded on an exchange. Symbols with four letters are used for NASDAQ stocks. Symbols with five letters are used for NASDAQ stocks other than single issues of common stock. Symbols with five letters ending in X are used for mutual funds. Total return The rate of return on an investment, including all dividends and interest, plus or minus any change in the value of the asset. Also, an investment strategy that seeks a combination of growth and income. Trading symbol The symbol used by a securities exchange to identify and trade a security. Treasuries General term for all negotiable securities of the U.S. government. Treasury bills (T-bills) are short-term obligations (three-month and six-month maturities) that do not pay interest but are sold at a discount from their face value. Treasury bonds are issued in $1,000 units with maturities of 10 years or longer and are traded on the market like other bonds. Treasury notes are medium-term obligations (one to 10 years) sold by subscription. Trust A right of property, real or personal, held by one person for the benefit of another. U Umbrella policy An insurance policy that provides excess liability coverage for both homeowners and automobile insurance, as well as coverage in some areas not provided for in either of these policies. Unit investment trust Investment vehicle that purchases a fixed portfolio of income-producing securities, such as corporate, municipal, or government bonds, mortgage-backed securities, or preferred stock. Unit holders receive an undivided interest in both the principal and the income portion of the portfolio in proportion to the amount of capital they invest. The portfolio of securities remains fixed until all the securities mature and unit holders have recovered their principal. Universal life insurance A hybrid insurance product that combines the protection of a conventional term insurance policy with cash values and investment yields. Unlike traditional whole life policies, universal life divides death protection and cash value accumulations into separate components. Unsystematic risk Also called nonmarket or diversifiable risk. It is risk attributable to factors unique to the security. U.S. government securities Securities issued by the U.S. government (i.e., Treasury bills, notes and bonds). #40030