Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.

A
Term
Explanation
Adjustable Rate Mortgages (ARMS)
A mortgage agreement between a financial institution and a real estate buyer stipulating predetermined adjustments of the interest rate at specified periods. The payments are tied to some index outside the control of the lender. Rate adjustments are usually made at one, three or five-year intervals.
Advance/Decline Line
A measure of the number of stocks advancing (rising in value) versus the number of stocks declining (losing value) over a particular period. The ratio of advancers to decliners illustrates the general direction of the market. If advancers outnumber decliners, it is considered "bullish"; if decliners outnumber advancers, it is considered "bearish".
After-Tax Contribution
Money deducted from an individual's paycheck and invested after taxes are withheld.
Agency Securities
Securities issued by agencies of the U. S. Government, such as the Government National Mortgage Association, Federal Home Loan Mortgage Corporation or Federal National Mortgage Association.
Agent
1. An individual or firm that buys or sells securities for others. 2. A securities salesperson that represents a broker-dealer when selling securities to the general public.
Aggressive Investments
One end of the risk spectrum. Aggressive investments generally seek maximum capital gains. Aggressive growth funds may invest in shares of companies with histories of, and the potential for, rapid earnings and profit growth. Such funds seek only capital appreciation and typically produce no dividend income. Because such funds tend to be more volatile than the stock market as a whole, particularly over short periods, they may not suitable for investors who are risk-averse, who have short-term investment horizons or who need current income.
Alpha (cash adjusted)
A risk-adjusted measure of excess return generated by a fund versus its benchmark index. Alpha subtracts the risk-free rate from the returns of both the fund and its benchmark. A positive alpha means a fund beat expectations while a negative alpha means a manager failed to match performance with risk.
Alternative Minimum Tax (AMT)
A minimum tax imposed on taxpayers who itemize deductions - such as interest payments, medical expenses, state taxes, miscellaneous deductions and passive activity losses - or who earn certain types of income. These deductions are added back into the taxpayers' income and the result is taxed at a flat rate. The taxpayer pays the higher of either his regular tax or this AMT. Taxpayers who may be subject to the AMT should consult their tax adviser.
American Depositary Receipts (ADR)
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 dividends and capital gains.
Annual Report

A report on a mutual fund's operations and holdings over a 12-month period. Mutual funds operate on a fiscal year; as a result, individual mutual funds may issue their annual reports at different times during the calendar year.

Annuity
An investment that offers guaranteed annual payments at some future date, usually in retirement. 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, and grows tax-deferred. Investors should consider the financial soundness of the insurance company offering the annuity (since the company, not any government agency, "guarantees" the annual payments) and the level of fees and commissions paid to salespersons.
Appreciation
An increase in an asset's value.
Arbitrage
Profiting by simultaneously buying a security, currency or commodity in one market and selling it in another because the prices are different in the two markets. By taking advantage of momentary disparities in price, the arbitrageur performs the economic function of making the markets more efficient.
Asset
Anything having value that is owned by an individual, institution or business.
Asset Allocation
Investing in different types of assets (such as stocks, bonds, precious metals, real estate, cash, etc.) in an effort to diversify and reduce risk. Asset allocation cannot guarantee a profit or protect against loss. See Diversification.
Asset Class
Types of investments — such as stocks, bonds, real estate and cash.
Asset-Backed Commercial Paper
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.
Asset-Backed Securities (ABS)
Bonds or notes backed by loans or accounts receivable originated by banks, credit card companies or other providers of credit and often enhanced through structure, over collateralization, or by a bank letter of credit or insurance coverage provided by an institution other than the issuer.
Automated Clearinghouse (ACH)
The electronic funds transfer network that enables investors to make direct transfers of money from their bank accounts to their mutual funds, provided their bank participates in the ACH.
Automatic Reinvestment
A service offered by most mutual fund companies whereby dividends and capital gain distributions can be used to buy additional shares. Over time, this can build up holdings through the effects of compounding.
Average Quality
A measure of the financial soundness of an institution, indicating its ability to honor financial obligation in a timely manner. Ratings agencies, such as Moody's, S&P, A. M. Best, and Duff & Phelps, assign quality ratings on banks, insurance companies and other corporate entities based on their financial health, industry outlook, balance sheet, management quality, etc.
Average Weighted Maturity (WAM)
The length of time until the average security in a fund matures or will 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, while shorter average weighted maturity implies less volatility.