A
Accrued Interest
Interest that has accumulated between the last interest payment and the purchase date of a bond. When you purchase a bond, you pay the interest accrued from the last payment date up to, but not including, the settlement date. You are reimbursed when you receive your first scheduled interest payment.

Alternative Minimum Tax
The alternative minimum tax prevents a taxpayer with substantial income from avoiding significant tax liability by using exclusions, deductions, and credits. It equals the excess (if any) of the tentative minimum tax verses the regular tax.

Annual Exclusion
An amount up to $10,000 per year (amount adjusted for inflation in future years) that every person is allowed to give another person without incurring Federal gift tax. There is no limit on the number of these gifts you can make to different people in a year. To qualify for this exclusion, a gift must be of a "present interest," meaning that the recipient can enjoy the gift immediately, and the donor must not have any control over the asset. This can present problems when making gifts to trusts.

Asset Allocation
The mix of assets (stocks, bonds, cash) in an investment program.

B
Balanced Investments
Balanced investments blend one or more investment categories. For example, you may have a balanced fund, which invest in stocks, bonds and money-market instruments.
These blended choices will have different levels of risk depending on their asset allocation.

Basis Point
One one-hundredth of 1 percent. Yield differences among fixed-income securities are stated in basis points.

Bearer Bonds
Bearer bonds (being replaced by registered bonds) contain detachable coupons, with each one representing a scheduled interest payment. Interest is claimed by clipping off the coupons and presenting them for payment to an agent of the bond issues.

Beneficiary of a Trust
A person or organization that has any present or future interest, vested or contingent, in the assets of a trust.

Bequest
Personal property transferred under a will.

Beta
A volatility (risk) measure that compares a stock's past price fluctuations to the general markets. A stock with a beta above 1.00 (for example 1.25) will be more volatile than the market.

Bid
The price at which a buyer offers to purchase a security.

Blue-Chip Stocks
Blue chip stocks refer to high-quality stocks of major companies which generally have long and unbroken records of earnings and dividend payments.

Bonds
Bonds are interest bearing securities that oblige issuers to pay interest payments to bond holders at a specific interest and repay the principle payment on maturity date.

Buy-Sell Agreements
Buy-sell agreements provide for the sale and purchase of a deceased business owner's interest at a predetermined price or at a price according to a predetermined formula.

C
Call Feature
A one-way option of the issuer, (not the investor) that allows the issuer to retire bonds by paying investors a stated price, usually a premium above the par value. Bonds can be called for many reasons, but a call typically occurs when interest rates drop and issuers are able to lower interest rates, (finance their debt.) Some bonds are issued as non-callable and remain in the marketplace until they mature. Knowing all of the possible call or redemption features associated with your bond can help guard against an unexpected return of principal.

Call Risk
When interest rates fall, many home owners refinance their mortgages to take advantage of the new lower rates. Generally, when interest rates decline, prepayments accelerate beyond the initial pricing assumptions, which cause the average life and maturity of the security to shorten. In most instances, prepayment risk causes reinvestment risk, which occurs when the funds returned to you must be reinvested at new, lower interest rates. Call risk is also known as prepayment risk.

Capital Gain
Capital gain is the realized and unrealized appreciation in the price of an investment.

Capital Loss
Capital loss is the realized depreciation in the price of an investment.

Cash Equivalents
Cash equivalents are short-term, highly liquid securities. These instruments include:
short-term certificates of deposit, which allow investors to lock in interest rates for a fixed period of time and are insured by the FDIC up to $100,000 per institution; Money-market funds, which offer a floating interest rate and unlimited access to funds; and Treasury bills, which are sold by the U.S. Government to finance its short-term cash needs.

Certificates of Deposit
Certificates of Deposit (CDs) offer a fixed rate of return and are generally FDIC (Federal Deposit Insurance Corporation) insured up to $100,000. CDs can be issued by various depository institutions consisting of commercial and savings banks and Federal savings and loans.

Certificates of Participation (COPs)
Much like lease-backed revenue bonds, COPs represent a share in a lease agreement made by a municipal or governmental entity. COPs are usually used to finance capital improvement projects or to purchase essential equipment. The security on a COP is provided by the lease payments made by the municipality or governmental entity. These payments are subject to annual legislative appropriation.

Charitable Remainder Trust
The donation of property or money to a charity where the donor reserves the right to use the property or receive income from it for a specified number of years (or for life, or for the duration of the life of a second person such as a spouse). When the agreed period ends, the property belongs to the charitable organization. The trust can be an annuity trust (which pays a fixed amount each year) or a unitrust (which pays an amount based on a percentage of asset values held by the charity).

Collateralized Mortgage Obligations (CMOs)
CMOs, or Real Estate Mortgage Investment Conduits (REMICs), are multi-class bonds backed by a pool of mortgage pass-throughs or mortgage loans.

Commercial Paper
Commercial paper are certificates for very short-term loans. The loan period ranges from one day to 270 days. Such notes are issued by financial and industrial corporations. Round lots for commercial paper are usually $1 million or more, though smaller units called odd lots are available.

Common Stocks
Common stocks represent ownership in corporations.

Conservator
A guardian or protector appointed by a court to manage the affairs of an incapacitated or incompetent person. A conservator's authority ceases immediately upon the death of the incapacitated person.

Corporate Bond
Debt issued by corporations as a means of raising capital.

Corporate Fiduciary
A trust institution serving in a fiduciary capacity, such as executor, administrator, trustee or guardian.

Coupon
The rate of interest on a bond, expressed as a percentage of par. The coupon is established at the time of issue and denotes the amount of interest due, and on what date and where the payment is to be made. Coupons are generally payable semiannually.

Credit Ratings
A formal evaluation of a company's financial health and ability to repay debt obligations, conducted by a rating agency such as Standard & Poors, Moody's, Fitch ICBA. Ratings are assigned to a bond issue based on the issuer's ability to make the scheduled interest and principal payments. These ratings are reviewed periodically and may be revised at any time.

Description

Standard & Poor's attaches a plus or minus sign to ratings to indicate that a credit is considered to be in the upper or lower segment of the rating category. Moody's breaks down its ratings by using numerical modifiers 1, 2 and 3. Note that both rating services may not respond in a timely manner to information with respect to an issuer, which could result in a change of rating.

Currency Risk
By investing internationally, you face the risk of currency fluctuations. Even in the short term such as one month, one week or even one day, these shifts can add or detract from the total return of your international securities.

Current Income
The annual amount of money that is regularly received from investments, such as dividends and interest.

Current Yield
The ratio of annual interest income earned on a bond or stock dividend to its current price, stated as a percentage. Mathematically, it is the coupon payment amount divided by the market value of the bond.

CUSIP
The Committee on Uniform Security Identification Procedures, established under the auspices of the American Bankers Association to develop a uniform method of identifying securities. CUSIP numbers are unique nine-digit numbers assigned to each series of securities.

Custodian
A custodian is an agent that keeps custody of a client's securities.

Custody Account
An account for which the main duties of the agent are to safekeep, preserve and administer the property as directed by the principal. The agent has no investment or managerial responsibilities. (Not to be confused with UGMA custodial accounts.)

Cyclical Stocks
Cyclical stocks are those of companies whose earnings are tied to the business cycle. The companies' profitability & stock price performance closely mirror the peeks and rallies in the business cycle. Steel, cement, machine tools and automobile stocks are considered cyclical stocks.

D
Dated Date
The date a bond is issued and the day from which interest begins to accrue.

Default
The failure of a borrower to pay interest or repay principal in a timely manner. For bond issuers, conditions for default are defined in a legal document called a "bond indenture."

Defensive Stocks
These are stocks of companies which provide necessary services (such as electric and gas), essentials (such as food), or staples (such as soft drinks). Because of the nature of these products, the companies' earnings tend to be steady even when the economy deteriorates.

Direct Rollover
Your employer must provide you with the option to directly transfer eligible rollover distributions from a qualified pension plan, 401(k) or 403(b) plan, to an IRA or another qualified plan. The employer mails the distribution check directly to the IRA custodian on your behalf or gives you the check for delivery to the recipient plan or IRA. In either case, the check must be made payable to the trustee or custodian of the new IRA or plan. This approach avoids the 20% withholding requirement.

Discount Bond
If a bond is selling at less than par or face value, it is said to be selling at a discount.

Diversification
Spreading your assets among different types of investments to reduce risk.

Dividend
A portion of a company's earnings paid to investors on a per-share basis.

Dollar-Cost Averaging
Purchasing the same dollar amount of an investment at fixed intervals. More shares are bought when prices are down and fewer when prices are up. Dollar-cost averaging does not assure a profit or protect against loss in declining markets.

Donee
A person who receives a gift. (Gifts can be made to trusts as well as to individuals.)

Donor
A person who makes a gift. (Gifts can be made to trusts as well as to individuals.)

Durable Power of Attorney
A document in which you grant another person (the attorney-in-fact) the authority to act on your behalf, which will remain valid even if you become disabled. A plain (not durable) power of attorney will not be valid in the event of disability. A general power of attorney authorizes the attorney-in-fact to act for the principal in all matters, while a special power of attorney is limited to certain specified matters.

E
Escrowed to Maturity (ETM)
A bond which is secured by government securities held in an escrow account from the proceeds of a new bond issue, to be used to pay off an existing bond issue at its maturity.

Estate
Assets owned by an individual at death.

Estate Tax
An excise tax that the Federal Government assesses on the transfer of assets above a certain level at death.

Exchange Traded Funds
ETFs are pooled investments that trade like a stock on the stock exchange.

Executive Indemnity Insurance
Insurance policies that protect deferred compensation payments in the event of a corporate bankruptcy.

Executor
An individual or institution nominated in a will and appointed by a court to settle the estate of an individual. In some states, such as individual or institution may be called a personal representative.

Expense Ratio
The percentage of a mutual fund's average net assets used to pay the annual administrative and advisory expenses of the fund. These expenses directly reduce the fund's return.

Extension Risk
When interest rates rise, mortgage prepayments slow down beyond the initial pricing assumptions and cause the average life and expected maturity of securities to extend, causing the market value to decline.

F
Federal Home Loan Mortgage Corporation (FHLMC)
Also referred to as "Freddie Mac," this government-sponsored enterprise is chartered by Congress and owned by stockholders. This agency buys qualified mortgage loans from the financial institutions that originate them, securitizes the loans, and distributes the securities through the dealer community.

Freddie Mac guarantees timely payment of both principal and interest on its Gold Participation Certificates (PCs). Some older series of Freddie Mac PCs guarantee timely payment of interest and eventual payment of principal. These securities are not backed by the full faith and credit of the U.S. Government. The market value of these securities prior to maturity is not guaranteed and will fluctuate.

Federal National Mortgage Association (FNMA)
Also referred to as "Fannie Mae," this government-sponsored enterprise is chartered by Congress and owned by stockholders. This agency buys qualified mortgage loans from the financial institutions that originate them, securitizes the loans, and distributes the securities through the dealer community.

Fannie Mae guarantees timely payment of both principal and interest on its mortgage securities, whether or not the payments have been collected from the borrower. These securities are not backed by the full faith and credit of the U.S. Government. The market value of these securities prior to maturity is not guaranteed and will fluctuate.

Fiduciary
A person keeps custody and/or manages assets for another's benefit. The person must exercise care in such management activity imposed by law or contract.

401(k) Plan
A 401(k) plan is a tax-qualified retirement plan funded all or in part by employees' pre-tax contributions. With this type of plan, contributions reduce employees' current taxable income, and the assets in the plan grow free from taxes. Withdrawals from 401(k) plans prior to age 59 1/2 are subject to a penalty tax of ten percent. Withdrawals are subject to income tax in the year they are made. A 401(k) plan can provide significant long-term benefits to employees, while helping the employer to control employee benefit costs and to reduce the fiduciary responsibility associated with retirement plans. Generally, employer contributions (e.g., matching or profit-sharing) are optional.

403(b) Plan
A 403(b) retirement program is a tax-saving opportunity available exclusively to employees of certain tax-exempt organizations or public educational institutions. It is a voluntary tax-deferred savings plan that enables you to save a portion of your salary on a pre-tax basis through payroll deduction. With the exception of death, disability or financial hardship, you cannot withdraw any money prior to age 59 1/2 or termination of employment without a tax penalty. The general rule is that you must start taking distributions by April 1 of the calendar year in which you reach 70 1/2.

G
General Obligation Bonds
General obligation bonds, or GOs as they are commonly called, are backed by a pledge of the issuer's full faith and credit with the timely payment of principal and interest secured by the taxing power of the issuer.

Generation-Skipping Transfer Tax (GST Tax)
A tax assessed on transfers in excess of $1,060,000 (in 2001) to grandchildren, great-grandchildren and anyone at least two generations below the donor. When a trust is used, this exemption must be allocated very carefully if the entire value of a trust is to remain exempt. The exemption amount is scheduled to increase in the future. Please consult your tax advisor.

Gift Tax
A tax assessed against a person who gives money or an asset to another person without receiving fair compensation.

Government National Mortgage Association - (GNMA)
Also referred to as "Ginnie Mae," this government agency guarantees the timely payment of principal and interest on all of its pass-through securities, and its guarantee is backed in turn by the full faith and credit of the U.S. Government.

This means that holders of bonds and certificates issued by Ginnie Mae will receive their payments promptly, whether or not mortgage payments are collected, and they will receive full repayment of principal even if the mortgages in the pool default.

Grantor
A person who establishes a trust, may also be called a settlor or trustor.

Gross Estate
The total value of a person's assets before any deductions for taxes, funeral expenses, attorney fees or administration costs.

Growth Stocks
Growth stock companies are those whose sales, earnings and market share are expanding faster than the industry average and the economy in general. These companies usually retain most of their earnings to finance expansion and pay little, if any, dividends to shareholders.

Guaranteed Investment Contract (GIC)
GICs are essentially loans to an insurance company, paid back with interest. Interest rates on a GIC are close to market rates or short term bonds.

Guardian
A person lawfully invested with the power and charged with the duty of taking care of another person and managing the property and rights of that individual.

Guardianship
The process of having a court appoint a person to be responsible for a disabled person or minor.

I
Income Stocks
Income stocks, such as public utilities, usually pay high dividends in relation to their market price, providing shareholders with greater quarterly income. These stocks are generally attractive to people who buy stocks for current income, particularly the elderly and retired.

Index
Statistical composite that measures changes in the economy or in financial markets, often expressed in percentage changes from a base year or from the previous month. Indexes also measure the ups and downs of stock, bond, and commodities markets, reflecting market prices and the number of shares outstanding for the companies in the index. Some well known indexes include the New York Stock Exchange Index, Standard & Poor's Index, and the American Stock Exchange Index.

Index Funds
Unmanaged mutual funds of stocks represented in an index.

Individual Retirement Account (IRA)
Active participants can make annual contributions into this tax-deferred account, from which withdrawals can be made to the owner without a penalty after age 59 ½ and no later than 70 1/2. Check with your CPA on contribution limits as the amount of the contributions changes periodically.

Inflation
Inflation simply refers to the increase in the cost of goods and services over time. One popular measure of inflation is the Consumer Price Index (CPI). This measurement of inflation is stated as a yearly percentage and, according to the Department of Labor, has averaged approximately 3.4% through the end of year 2000.

For example, a loaf of bread costing $1.00 today would cost $1.03 a year from now. In 20 years, that same loaf of bread would cost about $1.95, assuming that inflation continues to average 3.4%. In other words, inflation erodes the purchasing power of money over time.

Insurance Trust
(See Life Insurance Trust.)

Insured Municipal Bonds
Municipalities, when issuing municipal bonds, may at times purchase insurance from a recognized municipal-bond insurance company to enhance the safety of the principal and interest payments. However, such insurance does not protect against fluctuations in market value prior to maturity.

Interest Payment Dates
Dates, usually semiannually, on which interest is paid to the owner of the bond.

Inter Vivos Trust
Also called a living trust, this type of trust is created during the grantor's lifetime into which property is placed with instructions for its management and distribution upon disability or death.

Investment Grade
Bonds considered suitable for purchase by prudent investors. Bonds rated Baa3 and above by Moody's and BBB- and above by Standard & Poor's, Fitch ICBA and Duff & Phelps are considered investment grade.

Investment Objectives
The goals that an investor sets for his or her portfolio. These objectives should address asset allocation, risk parameters and time horizon.

Investment Return
The amount by which your investment gains or loses (capital appreciation/depreciation and dividend or coupon income) over a given period of time. Usually expressed as a percentage of the original amount invested.

IRA
(See Individual Retirement Account)

IRA Rollover
If you take a distribution from your employer's qualified pension plan, 401(k) or 403(b) plan and the check is made out directly to you, you have 60 days to deposit those assets in either an IRA or another qualified plan. However, your employer is generally required to withhold 20% of those assets for tax purposes. In order to defer taxes on the entire distribution, you must replace the 20% that was withheld from other personal resources and roll that amount into the IRA or other qualified plan within 60 days of the distribution. If you do not have the funds to replace the 20% withheld, you will have to pay ordinary income tax on the 20% not rolled over. If you are younger than age 59 1/2, a ten percent excise tax for early withdrawal also may be imposed. A Direct Roll-over can avoid the 20% withholding in most cases.

IRA-to-IRA Rollover
This type of rollover occurs when you are moving assets from an IRA held at one custodian to another custodian. You can take actual receipt of the IRA assets and have 60 days to complete the rollover to the new custodian. A direct rollover can be arranged whereby all assets are transferred directly between the custodians.

IRA-Roth
IRA contributions are not deductible in the year made, but all distributions are tax-free when distributed, usually at retirement. Contribution limits and eligibility vary in accordance with the individual's annual income.

Irrevocable Trust
A trust which cannot be changed (modified) or canceled (revoked) once it is set up.

J
Junk Bonds/ High Yield Bonds
Issued by corporations, junk bonds are of less than investment-grade ratings (i.e., below a Baa rating by Moody's or BBB by Standard & Poor's). Due to the higher credit risk, their yields are often higher.

L
Laddered Bond Portfolio
When building a laddered bond portfolio, the total dollar amount of investment is spread among securities with different maturities. Some of your money is invested in short-term maturities, while the rest is invested in intermediate- and long-term maturities.

Legacy
Personal property transferred by a will. The person receiving it is called the legatee.

Life Insurance Trust
A trust intended primarily to own life insurance. It is almost always an irrevocable trust formed to keep insurance proceeds out of the taxable estate of the insured.

Liquidity
The ability to trade bonds efficiently without causing any major changes in their prices.

Living Trust
(See Inter Vivos Trust.)

Living Will
A document in which you can specify which life-prolonging measures you do, and do not, want to be taken on your behalf in the event you are terminally ill. This instrument is often used in conjunction with a health-care power of attorney, which appoints someone to make health-care decisions on your behalf.

M
Market Risk
(Also known as Systematic risk,) it is that part of a security's risk that is common to all securities of the same general class (stocks and bonds) and thus cannot be eliminated by DIVERSIFICATION.

Maturity Date
The date on which the bond will be redeemed at face value by the issuer. The maturity date is an important factor in determining return and can be set to coincide with an expected financial need in the future.

Money-Market Instruments
Money-market instruments provide investors with maximum current income consistent with maintaining stability of capital and liquidity. These instruments include short-term U.S. Government and agency securities, certificates of deposit, guaranteed investment contracts and commercial paper.

Money Purchase Plans
Money purchase plans are qualified retirement plans requiring mandatory employer contributions suitable for a "C" corporation, "S" corporation, partnership or sole proprietorship.

Mortgage-Backed Securities
Mortgage-backed securities represent an ownership interest in mortgage loans made by financial institutions. The most basic mortgage securities, known as "pass-throughs," or participation certificates, represent a direct ownership interest in a trust composed of a pool of mortgage loans. The majority of mortgage securities are issued and/or guaranteed by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Municipal Bonds
Municipal bonds generally are tax-exempt debt obligations of state and local governmental entities. They are issued to build schools, tunnels and bridges or to finance infrastructure repairs or improvements. Like most debt obligations, they function like promissory notes. The issuer of these bonds agrees to make scheduled interest payments, at a specified rate, for a fixed period of time, and return the principal at maturity.

Investors buy municipal bonds because the interest earned is free of Federal income taxes and also may be free of state and/or local income taxes if purchased by residents of the issuing state.

Municipal Notes
Notes are short-term municipal bonds with a maturity of one year or less. Notes usually pay interest at maturity and are issued mostly for the purposes of meeting cash-flow requirements. Bond anticipation notes (BANs), revenue anticipation notes (RANs), and tax and revenue anticipation notes (TRANs) are the more common notes in today's marketplace.

Mutual Fund
A posted investment operated by an investment company that raises money from shareholders and invests in a group of stocks, bonds or other securities. It is professionally managed for the benefit of the shareholders. Each share in the fund represents part ownership of its underlying assets and investments.

O
Original-Issue Discount (OID)
If a long-term bond is originally issued at a price that is less than its maturity value, OID is equal to the amount of that difference. The holder of an OID bond must include a portion of the OID in interest income annually. You should add the amount of OID recognized for tax purposes to your basis in the bond. This will increase your basis and decrease the amount of any gain you may recognize when you dispose of the investment.

Over the Counter (OTC)
1: Security that is not listed and traded on an organized exchange. 2: A market in which the securities transactions are conducted through a telephone and computer networks connecting dealers in stocks and bonds, rather than on the floor of the exchange.

P
Par Bond
If a bond sells at an amount equal to its nominal or face value, it is said to be selling at par.

Par Value
The face amount of the bond or the amount the issuer promises to pay at maturity. With U.S. Treasures, Federal Agencies, & municipal bonds, the par value is $1,000.

Participation Certificates (PCs)
Participation certificates, also known as "pass-throughs," are a basic type of mortgage security. They represent a direct ownership interest in a trust composed of a pool of mortgage loans.

Pour-Over Will
A provision under a will stating that certain assets are to be transferred ("poured over") to a trust. The will is said to contain a pour-over clause, and the trust is said to be a pour-over trust. This technique is commonly used when a living trust is formed to hold all assets in an effort to avoid (or at least minimize) the impact of probate.

Preferred Stock
Class of CAPITAL STOCK that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock is cumulative and does not ordinarily carry voting rights.

Premium Bond
If a bond sells for more than its par or face value, it is said to be selling at a premium.

Prepayment Risk
When interest rates are falling, many debt issuers will refinance their mortgages to take advantage of the new lower rates. Generally, when interest rates decline, prepayments accelerate beyond the initial pricing assumptions, which causes the average life and maturity of the security to shorten. In many instances, prepayment risk can cause reinvestment risk, which occurs when the funds returned to you must be reinvested at new, lower interest rates. Prepayment risk is also known as call risk.

Pre-Refunded Bonds
Pre-refunded bonds are high-coupon bonds that have been refinanced by the proceeds of a second bond issue. The proceeds of this second bond issue are used to call the original issue out of the marketplace on the first possible call date. Until that time, the monies are held in escrow and are usually invested in U.S. Government securities.

Pre-Tax Savings
Saving in your company's retirement plan or through 401k plans, IRA's, and Roth IRA's means you are taking advantage of two powerful tax benefits. The first major tax benefit is that your contributions are conveniently deducted from your paycheck before you are taxed; since your reportable income is reduced, you end up paying less in current Federal income taxes. Second, your savings accumulate tax-deferred until you withdraw.

For example, Kelly earns $2,000 per month and contributes $200 a month to her employer's plan (ten percent). She would pay income tax on only $1,800 ($2,000 - $200), instead of the entire $2,000 that she earned. (Kelly's entire $2,000 monthly earnings will be taxed for Social Security tax purposes, so her future Social Security benefit will not be reduced.) At an assumed tax rate of 35%, that's a $70 monthly tax savings, or $840 per year. Your tax savings will vary according to your tax bracket and contribution rate.

Price/Book Ratio
The share price of a stock divided by its net worth, or book value, per share.

Price/Earnings Ratio
The current price of a stock divided by the per-share earnings over the past year. P/E is an indicator of the market expectations about the company. The higher the P/E, the higher the expectations.

Private-Label Mortgage Securities
Private-label mortgage securities, whether pass-throughs or collateralized mortgage obligations (CMOs), are the sole obligations of their issuer and are not guaranteed by any governmental entity. However, many private-label CMOs are backed by pass-through securities issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac. This collateral backing means that the securities carry the respective agency's or government-sponsored enterprise's guarantees.

Profit Sharing Plans
Profit sharing plans are qualified retirement plans that allow discretionary employer contributions.

Prospectus
A detailed brochure explaining the investment objectives, type of investments, management style, fees, risks and other essential data associated with the sale of a mutual fund or other investment.

Putable Bonds
Putable bonds are bonds that carry an added option that allows the investor to "put back" or return the bonds to the issuer on a predetermined date at a predetermined price, usually par.

R
Rabbi Trusts
Rabbi trusts secure deferred compensation benefits in the event of a hostile takeover, management change of heart or change of management. The corporation establishes a trust to hold the contributions. (The first rabbi trust was set up by a congregation to provide assurances to its rabbi; hence, the name.)

Real Estate Mortgage Investment Conduits - (REMICs)
Mortgage securities may be pooled to create collateral for a more complex type of mortgage security known as a Real Estate Mortgage Investment Conduit. These securities allow cash flows to be split so that different classes of securities with different maturities and coupons may be created.

Registered Bonds
Replacing bearer bonds, these bonds are registered in the holder's name and contain no physical coupons. The issuer of the bonds sends coupon payments directly to the holder of the bonds that is listed on its records. When the bond is sold, it must be sent to the issuer for a transfer of title.

Reinvestment Risk
The risk that interest income or principle repayments will have to be reinvested at lower rates in a declining rate environment.

Return on Investment
The measure of an investment's profitability, usually expressed as a percent.

Return on Equity
The rate of return generated by a company for each dollar of shareholder's equity (net income divided by shareholder's equity).

Revenue Bonds
Revenue bonds are bonds with interest that is payable from a specific source of revenue. They are generally issued to finance public projects such as bridges, tunnels and water treatment facilities. The interest payments on a revenue bond are typically derived from the revenues produced by the facility.

Revocable Trust
A trust in which the person establishing it retains the power to change (amend) or cancel (revoke) the trust during his/her lifetime.

Risk
Risk is the possibility that the actual outcome (or return) of an investment will be less than what's expected. The greater the uncertainty, the greater the risk. Types of risk include currency, liquidity, inflation, market, interest-rate, political and event risk.

Roth IRA (see IRA-Roth)

R-Squared
(Correlation coefficient:) Statistical measure of the degree to which the movements of two variables are related.

S
Salary Reduction Simplified Employee Pension Plan - "SARSEP"
A Salary Reduction Simplified Employee Pension Plan, or SARSEP, is a "simplified" alternative to a 401(k) plan, which gives employees the opportunity to make contributions to their SEP accounts with pre-tax dollars and reduce their current year's net income. The employer's business, and its employees, receive distinct benefits.

Secondary Market
Once securities have been issued to investors, they are free to be traded to other investors in the secondary market. Secondary markets can take the form of listed exchanges, such as the New York Stock Exchange, or the over-the-counter markets.

Securities Investor Protection Corporation (SIPC)
The SIPC is a private, government-sponsored agency whose purpose is to provide insurance to brokerage accounts. The SIPC protects each customer of its member firms up to a maximum of $500,000 of which $100,000 may be paid to satisfy claims for cash. However, it does not insure against market-value fluctuations.

Short Selling
The short seller borrows the shares from a securities firm with the anticipation that they will decline in value. If the investor is correct, the shares can be bought back at a lower price and the investor realizes a gain. However, if the shares are bought back at a higher price, a loss will be realized.

Short Squeeze
A short squeeze results when the price of the stock rises and investors who short-sold the stock rush to buy it to cover their short position. As the price of the stock increases, more short sellers feel driven to cover their positions.

Simplified Employee Pension Plan (SEP)
A SEP is a simplified alternative to a profit-sharing plan that allows an employer to establish a SEP-IRA account for each eligible employee and make contributions to his or her account.

Sinking Fund
Money set aside by an issuer of bonds on a regular basis, for the specific purpose of redeeming debt.

Standard and Poor's 500
An unmanaged index of 500 large and well established companies selected by S&P. The index is used as an indicator of stock market trends.

Stocks
Stocks represent part ownership in a company. When you own stock in a company, you are a shareholder and may be entitled to receive dividends. The value of a stock rises or falls according to how attractive it is to buyers and based on the general conditions of the broad stock market. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments.

T
Taxable Equivalent Yield
The yield needed on a taxable investment in order to match the tax-free return offered on a municipal bond. The taxable equivalent yield calculation can help you determine which investment offers the best return when all taxes -- Federal, state and local -- are taken into consideration.

For example, a six percent yield to maturity on a AAA-rated, 20-year municipal bond has a taxable equivalent yield of 9.375% for an investor in the 36% Federal tax bracket. This individual would need to earn a 9.375% yield on a taxable bond with a similar rating and maturity in order to match the tax-exempt return of six percent from the municipal bond. When state and local taxes are taken into consideration for bonds issued in your state, the taxable equivalent yield is higher, making the tax-exempt investment even more appealing.

Mathematically, the taxable equivalent yield is expressed as the yield on the municipal bond divided by one minus the Federal tax bracket.

Tax-Deferred Compounding
When you save in a regular savings account, interest you earn is taxable annually as ordinary income. Year after year, this taxation can take a huge bite out of your potential earnings. In a retirement savings plan or IRA, your earnings grow tax-deferred until you withdraw the money. Tax-deferred compounding means your account balance grows much faster because all of your earnings are reinvested without being reduced by current taxes.

Testamentary Trust
A trust created within a will that does not take effect until the death of the grantor.

Total Return
A measure of bond investment return that includes both interest and price change. The total return on investments is generally expressed as an annualized rate, and it assumes reinvestment of all interest back into the investment.

Treasury Bills
Treasury bills are short term government debts guaranteed by the full faith and credit of the U.S Government. They are issued at discounts and they pay no periodic interest payments. The investor receives one payment- which includes principal and interest at maturity Exempt from state and local taxes, T-bills are issued in minimum denominations of $10,000, and in multiples of $1,000 thereafter. With the shortest maturities -- three and six months, and one year at issue -- T-bills are considered the least volatile of all Treasuries.

Treasury Bonds
Treasury bonds, which are guaranteed by the full faith and credit of the U.S. Government, are coupon-bearing securities with initial maturities that extend beyond 10 years. Like notes, they pay interest semiannually and repay principal at maturity. T-bonds are also exempt from state and local taxes; they're available for a minimum and multiple of $1,000. Treasury bonds usually offer higher yields than notes due to their longer maturities. (note: the 30 yr. Bond was suspended in 2001, however old bonds remain in circulation.)

Treasury Notes
Treasury notes, which are guaranteed by the full faith and credit of the U.S. Government, are coupon-bearing securities exempt from state and local taxes, with initial maturities ranging between one and ten years. They pay accrued interest twice a year and repay principal at maturity. You can buy notes with two- and three-year maturities for a minimum of $5,000 and in multiples of $1,000 thereafter. Notes with four- to ten-year maturities are sold for a minimum and multiple of $1,000.

Trust
A relationship established by agreement between a grantor and a trustee to manage assets or property for another's benefit.

Trustee
A person or institution holding property in trust. The trustee manages and invests the assets and makes distributions according to the terms of the trust. For instance, a bank might be designated by the issuer as the custodian of funds and official representative of bondholders.

Trustor
(See Grantor.)

Turnover Rate
An indication of a mutual fund's trading activity. Funds with high turnover rates incur more transaction costs and are likely to distribute more capital gains (which are taxable to investors).

U
Unearned Income
Unearned income is income such as dividends, interest payments, or other income that is not earned through salaries or wages.

Unit Investment Trust
Investment fund created with a fixed portfolio of investments that never changes over the life of the trust. As the investments within the trust are paid off, they provide a steady, periodic flow of income to investors.

V
Volatility
The tendency of an investment to experience wide price swings (ups and downs) over periods of time.

Y
Yield
A measure of an investment's dividend distributions. The yield is annualized and expressed as a percentage of the current price. For example, an investment that is currently priced at $50 and pays a dividend of $.50 per quarter ($2 per year), would have a yield of 4%.

Yield Curve
A line tracing relative yields on a type of security over a spectrum of maturities ranging from three months to 30 years.

Yield to Call
A yield on a security calculated by assuming that interest payments will be paid until the call date, when the security will be redeemed at the call price.

Yield to Maturity
Yield to maturity is the overall rate of return on a bond investment if held until maturity. The actual yield-to-maturity calculation takes into account the coupon rate, the maturity date, the price and the time value of money. It is important to have a basic understanding of this concept since most bonds are sold on the basis of yield to maturity.

Z
Zero-Coupon Bonds
Zero-coupon bonds are fixed-income securities that are sold at a deep discount. They pay principal and interest upon maturity, not periodically like coupon bonds. The difference between the amount you pay for the bonds and the amount you receive on maturity equals the return on your investment. If the zero-coupon bonds are municipal obligations, or municipal zero-coupon bonds, they generally are tax-exempt from Federal and state taxes for residents of the issuing state. The market value of zero-coupon bonds fluctuate more than regular coupon bonds and therefore may not be suitable for all investors. Interest on some municipal bonds may subject certain taxpayers to the alternative minimum tax (AMT).