Asset Management



all cap stocks
Includes stocks of companies of all market capitalizations. The Russell 3000 Index is one commonly used all cap benchmark.

Alerian MLP Index
The Alerian MLP Index is a leading gauge of energy Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index, whose constituents represent approximately 85% of total float-adjusted market capitalization, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX).

A measure of the incremental return generated from active portfolio management.

American depositary receipt (ADR)
A method of investing in foreign stocks by trading negotiable receipts issued by a U.S. bank representing shares of a foreign corporation.

basis point
One one-hundredth of one percentage point, or 0.01%. For example, 25 basis points equals 0.25%.

A measure of the variability of the change in the share price for a fund in relation to a change in the value of the fund’s market benchmark. Securities with betas higher than 1.0 have been, and are expected to be, more volatile than the benchmark; securities with betas lower than 1.0 have been, and are expected to be, less volatile than the benchmark.

A type of IOU issued by corporations, governments or government agencies. The issuer typically makes regular interest payments on the bond and promises to pay back, or redeem, the face value of the bond at a specified point in the future, called the maturity date. Bonds may be issued for terms of up to 30 years or more.

book value
The net worth of a business based on accounting values. Calculated by subtracting all liabilities, including debt and preferred stocks, from total assets, and dividing by the number of shares of common stock outstanding.

bottom-up approach
An investment strategy that emphasizes evaluating individual companies’ businesses before considering broad economic trends.

capital appreciation
An increase in the value of a fund’s securities, reflected by the appreciation of its net asset value per share. Capital growth is a specific long-term objective of many stock mutual funds.

A company’s long-term debt plus its equity plus its retained earnings.

closed-end fund
A closed end fund is a type of investment company that, like a mutual fund, uses a professional manager to invest the fund’s assets in a diversified selection of securities. The fund is closed end, which means a limited number of shares are issued during an IPO. Fund shares are then bought and sold on an exchange and may be purchased in regular brokerage accounts, retirement plan accounts, and trust or custodial accounts.

common stock
A security that represents ownership in a public corporation.

credit rating
An evaluation of the creditworthiness of a debt security by an independent rating service such as Moody’s, Fitch or Standard & Poors.

current yield
The rate of return on a bond based on the ratio of the bond’s coupon income to its market price assuming the investor holds the bond to maturity. The calculation assumes that coupon payments can be reinvested at the same rate as the current yield.

CUSIP number
A nine-digit identifier used to uniquely identify every security publicly traded in the United States. The numbering system was developed by the Committee on Uniform Securities Identification Procedures.

defined benefit plan
A retirement plan that guarantees a certain benefit, usually based on average salary in the period before retirement and on the number of years of service. Employers bear the investment risk with defined benefit plans. Benefits in most cases are guaranteed up to a certain monthly limit by the Pension Benefit Guaranty Corporation, a federal agency.

defined contribution plan
A retirement plan offering a benefit that is dependent on total contributions made by the employer and the employee and on the investment returns earned by those contributions. Employees bear the investment risk with defined contribution plans.

A strategy of spreading investments among many different securities or sectors to reduce the risk of owning any single investment.

dividend yield
For a company’s stock, the ratio of the dividends paid out by the company each year per share to the share’s current market price.

downside protection
The effort to limit the potential loss that would result from a decline in a security or market.

emerging markets
Countries with developing economies, such as Brazil or Thailand, as distinguished from economically developed countries such as Japan or the U.S. Emerging market economies often tend to be more volatile than developed economies due to political or financial instability.

expense ratio
The percentage of a fund’s average net assets used to pay fund expenses. The expense ratio takes into account various fees, including management fees, administrative fees and any 12b-1 fees.

Federal Reserve System
The central bank of the United States, which has regulated credit in the economy since its inception in 1913. It includes the Federal Reserve Bank, 14 district banks and the member banks of the Federal Reserve.

fixed-income security
A security that pays a specific rate of interest or dividends. Fixed-income securities include bonds, CDs and most preferred stock.

fundamental analysis
The study of a company’s business and financial condition to help forecast future movements in its stock price. Analysts consider the company’s past record of earnings and sales as well as company assets, management and markets to predict trends that could affect a company’s stock. Also known as bottom-up analysis.

A benchmark against which to measure performance, such as the Standard & Poor’s 500 Index or the Lehman Brothers Aggregate Bond Index.

A rise in the prices of goods and services, often equated with loss of purchasing power.

investment company
A company that is primarily engaged in the business of investing, reinvesting or trading in securities such as mutual funds, closed-end funds and unit investment trusts. Investment companies are governed by rules established in the Investment Company Act of 1940.

investment grade
Securities whose issuers are judged by an independent rating service such as Standard & Poor’s or Moody’s Investors Service to have adequate to exceptional ability to pay interest and repay principal. Standard & Poor’s and Moody’s Investors Service designate bonds in their top four categories (AAA/Aaa, AA/Aa, A/A, and BBB/Baa) as investment grade.

large-capitalization stocks
Generally the stocks of companies whose market value is more than $5-10 billion. Large-cap companies are usually well-established corporations. The S&P 500 Index and the Russell 1000 Index are commonly used large-cap benchmarks.

The ability to easily turn assets into cash. An investor should be able to sell a liquid asset quickly with little effect on the price. Liquidity is a central objective of money market funds.

long-term investment strategy
A strategy that looks past the day-to-day fluctuations of the stock and bond markets.

management fee
The amount a fund pays to its investment advisor for the investment management associated with overseeing the fund’s portfolio.

master limited partnerships
A master limited partnership (MLP) is a publicly traded entity that is listed on the major U.S. stock exchanges and is subject to the same accounting, reporting and regulations as a publicly traded corporation. MLPs are significant owners of America’s energy infrastructure, controlling substantial assets involved in the transportation, processing, refining, marketing and storage of the nation’s energy resources. These assets include major pipeline systems that deliver products such as natural gas, crude oil and refined fuels to end markets.

Merrill Lynch U.S. Preferred Stock Fixed Rate Index
The Index consists of fixed-rate, U.S.-dollar-denominated preferred securities and fixed-to-floating rate securities that are callable prior to the floating rate period and are at least one year from the start of the floating rate period. Securities must be rated investment grade, including the country of risk and must be issued as public securities or 144a filing and a minimum outstanding of $100 million. The index includes perpetual preferred securities, American Depository Shares/Receipts (ADS/R), domestic and Yankee trust preferred securities having a minimum remaining term of at least one year, both DRD-eligible and non-DRD-eligible preferred stock and senior debt.

mid-cap stocks
Often stocks with market capitalizations between $1-2 billion and $5 billion. The Russell Small/Mid Cap Index and the Russell Midcap Index are commonly used mid-cap benchmarks.

micro cap stocks
Usually stocks with a market value of $250 million or less.

minimum investment
The smallest investment permitted when opening a new fund account or making an additional purchase.

MSCI EAFE Index (Europe, Australasia, Far East)
A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.

MSCI Emerging Markets Index
A free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

net asset value (NAV)
The net market value of all securities held in a portfolio.

open-end mutual fund
A fund that continues to sell shares in its portfolio and that will redeem those shares at the funds Net Asset Value at any time.

portfolio turnover
A measure of the trading activity in a fund’s portfolio of investments that is, how often securities are bought and sold by the fund.

The official legal document that describes a fund and offers its units or shares for sale. By law, a prospectus must be given to all investors before they invest, or in connection with their purchase confirmation.

risk-adjusted returns
A concept that refines an investment’s return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities and investment funds and portfolios.

Russell 2000® Value Index
Measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000® companies with lower price-to-book ratios and lower forecasted growth values.

Russell 3000 Value Index
Measures the performance of the broad value segment of the U.S. equity universe. It includes those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values. It is not possible to invest in an index.

Russell Microcap® Value Index
Measures the performance of the microcap value segment of the U.S. equity market. It includes those Russell Microcap Index companies with lower price-to-book ratios and lower forecasted growth values.

SEC yield
A standardized measure of the current net market yields on a fund’s investment portfolio. It is based on the net investment income for the 30-day period ending on the last day of the previous month divided by the highest offering price on that last day.

short position
A security the fund does not own but has sold short through the delivery of a borrowed security.

small capitalization stocks
The range of values varies, but stocks of companies whose market value is between $250 million and $2 billion generally fall into this group. The Russell 2000 Index, which includes the smallest companies of the Russell 3000 Index, is a commonly used index for small cap companies.

standard deviation
A measure of the degree to which a fund’s actual returns varied from its average return over a certain period. The smaller the variation, the lower the standard deviation will be. The standard deviation is a common measure of volatility and risk.

statement of additional information (SAI)
An addendum to a mutual fund’s prospectus that includes further disclosures about the fund’s operations.

tax deferred
Income whose taxes can be postponed until a later date. Contributions to a 401(k) plan and earnings on those contributions, for example, are not taxed until they are withdrawn from the account, but when withdrawn, they are fully taxed at the tax rate applicable at the time of withdrawal.

top-down approach
An approach to investing in which the investor first looks at general trends in the economy and then chooses specific industries and particular companies that will benefit from these broad trends.

total return
The return on your investment which takes into account the change in price of a fund’s shares-capital appreciation-plus net investment income. The total return for a fund assumes the reinvestment of all distributions in additional shares of the fund.

upside potential
The possibility for an investment to increase in value.

value investing
A strategy for equity investing that emphasizes stocks with below-average price-to-book or price-to-earnings ratios, and sometimes above-average dividend yields.

value stocks
Stocks that sell at relatively low prices in relation to their earnings or book value.

The fluctuations in market value of a mutual fund or other security. The greater a fund’s volatility, the wider the fluctuations between its high and low prices.

The rate of return on an investment expressed as a percentage. See dividend yield and SEC yield.

yield curve
A graph or “curve” that depicts the yields of bonds of varying maturities, from short term to long term. The graph shows the relationship between short- and long-term interest rates. Long-term rates are typically higher than short term rates. When short-term rates are higher than long-term rates, this is called an “inverted” yield curve.

yield spread
The variation between yields on different types of debt securities; generally a function of supply and demand, differences in maturities, or credit quality. Treasury bonds, for example, because they are perceived to be safe, will normally yield less than corporate bonds of the same maturity. Corporate bonds, then, are said to trade at a “spread” above Treasury rates.