Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
Back-End Load
A sales charge levied at the time an investor redeems his mutual fund shares. It declines annually to zero over an extended holding period, as described in a fund's prospectus. See contingent deferred sales charge.
Backup Withholding
Withholding on certain payments made to you, including payments from distributions and redemption proceeds. Certain payments you received will be subject to backup withholding if: (1) you did not furnish your taxpayer identification number (TIN); (2) the IRS notified Invesco that you furnished an incorrect TIN; (3) the IRS notified you that you are subject to backup withholding because you failed to report income on your tax return; or (4) you did not certify that you are not subject to backup withholding. Backup withholding is claimed when filing your tax return and will either increase the amount of your tax refund or decrease the amount of additional tax you may owe.
Balanced Fund
A mutual fund that invests in common stocks, preferred stocks, bonds and short-term fixed income securities. Such a fund seeks to provide shareholders with capital appreciation from its stock holdings and income from its bond holdings.
Bank Notes
Currency or money. The U.S. Federal Reserve Bank regulates the amount of currency or bank notes in circulation in the United States.
Bank of Record
A bank designated by a shareholder to which proceeds from redemptions can be wired or Automated Clearing House (ACH) transferred.
Banker's Acceptance
An order created by a buyer and provided to a seller, promising to pay an amount of money at a certain date. When accepted by a bank, it guarantees payment to the seller. Banker's acceptances are often used in international trade when parties to a transaction are unwilling to offer credit. As bank-guaranteed obligations, banker's acceptances are frequently traded at a discount to face value in the secondary market.
Barra Risk Factor
Measures a stock's predicted risk relative to the overall market, to its sector and to its industry. Barra bases its Risk Factor analysis on 40 different data items, including market information (things such as dividend yield, market capitalization), fundamental measures (earnings, sales, assets) and technical indicators (relative strength, standard deviation, share turnover). The resulting number indicates the percentage of stocks that are less risky than the stock being assessed. The lower the number, in other words, the less risk. For example, a company with a Risk Factor of 14, a sector Risk Factor of 10 and an industry Risk Factor of 7 would be riskier than just 14% of Barra's universe of more than 6,200 stocks, riskier than 10% of stocks in its sector and riskier than 7% of stocks in its industry. Beta is often used as a gauge of risk, but it has limitations. It looks only at price performance, not at things like financial stability, and thus is more a measure of volatility than risk. Plus, it's based on past volatility, so it often unduly punishes fast-growing companies that have recently become profitable, and more stable. Barra Risk Analysis, then, may be considered a more comprehensive measure of actual risk than beta.
Basis Point
The smallest measure used for quoting yields on bonds and notes. One basis point is one one-hundredth of a percentage point, or 0.01%. If the U.S. Federal Reserve increases its short-term interest rate target by 50 basis points, or a bond's yield rises by 50 basis points, the change would be 0.50% or one-half of one percent.
A set of related instruments whose prices or rates are used to create a synthetic composite instrument that trades as a unit or serves as the underlying for a derivative instrument.
Bear Market
A period of generally falling stock prices.
Before-Tax Contribution
Money invested in a retirement plan, such as a 401(k) or traditional IRA, before taxes are withheld. While before-tax (or pre-tax) contributions may reduce current taxable income, distributions from retirement accounts funded with such contributions are taxable when withdrawn.
The person or firm that will benefit from owning an asset even though they may not be registered as a shareholder.
Beneficial Owner
A standard, often an unmanaged index, used for comparative purposes in assessing an investment's performance.
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 measure of the volatility of a security (stock, bond, mutual fund, etc.) relative to the overall market or an index. If a security has a beta greater than 1, it is more volatile than the market or index; if a security has a beta below 1, it is less volatile. Generally, conservative investors favor low-beta investments, while more aggressive investors favor higher beta investments.
Blue Chips
Financially stable, well-established companies that historically have demonstrated an ability to pay dividends and grow profits regardless of economic conditions.
Blue-Sky Laws
Laws passed by states to protect investors against securities fraud. These laws require sellers of new stock or mutual funds to register the offerings and provide financial data on the issues.
A debt security issued by corporations, government agencies, municipalities and states, requiring the issuer to pay the bondholder the principal amount at maturity. Bonds come in many different forms and may be sold at a discount or be interest-bearing. Bondholders essentially have an "IOU" from the issuer. Unlike stockholders, bondholders have no ownership stake in a corporation — although convertible bonds allow bondholders, under certain conditions, to exchange a corporation's bonds for stock.
Bond Equivalent Yield
On the date of issue of a security or investment contract, the yield refers to the coupon or interest rate on the contract. Any date after issuance, the yield is based on the value of the cash flows of the security. Yield can be calculated in several ways.
Bond Funds
Mutual funds that invest in bonds — debt securities issued by corporations, governments or government entities. These fixed-income funds typically seek to provide monthly income as well as relative stability of principal.
Bond Rating
A system of evaluating the chance a bond issuer may default. Fitch, Moody's and Standard and Poor's, among other firms, analyze the financial stability of both corporate and government bond issuers. S&P ratings, for example, range from AAA or Aaa (extremely unlikely to default) to D (currently in default). Bonds rated BB or below by S&P or Baa or below by Moody's are not considered to be investment grade. Mutual funds generally restrict their bond holdings to issues of certain quality ratings, which are specified in their prospectuses. See Credit Rating.
Book Value
For a stable value investment, the value of deposits, plus accumulated interest, minus withdrawals. Unlike market value, book value is not subject to market fluctuations.
Bottom-Up Approach
An investment strategy that emphasizes finding outstanding individual companies before considering broad economic trends.
For mutual funds that are sold with a sales charge, the dollar amount an investor must purchase (either in one transaction or in multiple transactions within a specified period) to qualify for a discounted sales charge. Information about breakpoints appears in a fund's prospectus.
A broker acts on behalf of his/her client by seeking the best price at which buy or sell a security in the market place. A broker carries out the transaction but neither takes possession of the security nor maintains an inventory of securities. A dealer acts on behalf of itself by buying and selling securities and maintaining an inventory of securities in its own account. Since many brokerage firms operate both as brokers and as dealers, the term broker-dealer is commonly used.
Budget Deficit
The difference between the federal government's income and its spending in a given fiscal year, when spending exceeds income. (The opposite of a budget deficit is a budget surplus — when the amount of money the government takes in exceeds the amount it spends.)
Bull Market
A period of generally rising stock prices.
Business Cycle
The regular ebb and flow of economic conditions over time, characterized by fluctuating employment levels, industrial productivity, and interest rates.