12(b)(1) plan
A method of charging service- or distribution-related expenses directly against fund assets. "12(b)1" refers to the 1980 U.S. Securities & Exchange Commission rule that permits the use of these plans. A fund is required to include any 12b-1 fees in its stated expense ratio.

12(d)(1) limit
Section 12(d)(1) of the Investment Company Act of 1940 limits the ability of registered investment companies to invest in other investment companies. Without specific exemptions from this section, no registered investment company may acquire more than 3% of the outstanding stock of another investment company, or acquire securities from a single investment company with an aggregate value of more than 5% of its total assets, or acquire securities from multiple investment companies with an aggregate value in excess of 10% of its total assets. For example, a fund could not hold more than 3% of all outstanding Qubes (QQQ). Certain funds-of-funds have obtained exemptions from these limits.

$25 par preferred securities
These securities generally have a term of 30 to 40 years, pay a fixed rate monthly or quarterly income, offer five years of call protection, and benefit from various protective covenants usually associated with subordinated debt.

40 Act
See Investment Company Act of 1940.

401(k) plan
A type of defined contribution plan (defined by section 401(k) of the Internal Revenue Code) that allows an employee to elect to defer income by making pretax contributions to a profit sharing plan, a target benefit plan, or a stock bonus plan. Employees may defer a percentage of their compensation into the plan each year, and the contributions and earnings grow tax deferred until withdrawn.

403(b) plan
A retirement plan for employees of nonprofit organizations such as universities, churches, or public schools. The employee can contribute a portion of their salary to the plan each year, and the contributions and earnings grow tax-deferred until withdrawn.

Form 706
The estate tax return. Required to be filed by the deceased representative for every U.S. citizen or resident decedent whose gross estate exceeds $2 million in years 2006 - 2008. The return is due within 9 months of the decedents date of death.

Form 709
The gift tax return. The donor is primarily liable to file this return and must pay any tax due. An individual donor must file this return when a gift is made to a single individual exceeding $12,000 in 2006. The return is generally due on or before the 15th day of April of the year following the close of the calendar year.

Form 1040
The individual’s income tax filling form. The complexity of the individual return determines the use of a 1040A or 1040 or 1040EZ. Generally due on or before April 15th following the calendar year.

Form 1065
The partnership return. Normally filed as an information return only, i.e. no tax due as earnings have flowed through to the individual partners. Due on or before April 15th following the calender year.

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Accelerated death benefit: Benefits available with some life insurance policies that offer early payout (before death) in situations such as long-term, catastrophic or terminal illness.

Accrued interest: The amount of interest due on a bond since the last interest payment was made. Buyers of existing bonds pay the market price plus accrued interest.

Administrator: A court-appointed individual assigned to handle the estate of someone who dies without a will.

Adjustable life insurance: Life insurance that allows the insured to make changes to the policy, such as raising or lowering the face value, changing the amount of the premium, or adjusting the period of protection and length of the premium payment period.

Aggressive growth funds: Mutual funds with aggressive investment strategies, often investing in companies that are positioned for rapid growth and often involving a higher amount of risk.

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

Alternative minimum tax (AMT): A tax regulation requiring taxpayers who use certain methods of sheltering income to prepare a conventional tax return, then recompute the tax without the sheltering provisions. If the AMT computation results in a higher tax, the taxpayer owes that amount.

American Stock Exchange (AMEX): A stock exchange located in downtown Manhattan. Companies that trade on the AMEX are generally smaller than those traded on the New York Stock Exchange. The AMEX is the principal listing exchange for ETFs.

AMT Bonds: Certain types of municipal bonds whose income is subject to the alternative minimum tax (AMT). AMT bonds include those issued to finance such private purpose activities as industrial redevelopment and sports stadium construction.

American depositary receipts (ADRs): Certificates traded in U.S. markets representing an interest in shares of a foreign company. ADRs were created to make it possible for foreign issuers to meet U.S. security registration requirements, and to facilitate dividend collection by dollar-based investors. Some ADRs sold in the U.S. under Section 144a exemptions are not readily resalable to all U.S. investors; but most ADRs are nearly as freely traded in the U.S. as domestic issues.

Annual exclusion: The annual amount a donor may gift per recipient (up to $12,000 in 2006 or $24,000 if spouse joins) as indexed for inflation and free of tax as long as the gift represents a present interest in the property (i.e., the recipient must have an immediate right to use the property).

Annual report: A legally required document that every fund sends to its shareholders within 60 days after the end of the fund's fiscal year. The annual report describes the fund's financial condition and performance and includes a list of portfolio securities and an audited financial statement.

Annualized rate of return: The average return over a stated number of years, taking into account the effect of compounding. For example, a 100% return over five years is equivalent to an annualized rate of return of 18.2% per year.

Annual yield: The percentage of return that an investment yields each year, usually expressed in terms of dividends or interest.

Arbitrage: 1) Technically, the action of purchasing a commodity or security in one market for immediate sale in another market (deterministic arbitrage). (2) Popular usage has expanded the meaning to include any attempt to buy a relatively underpriced item and sell a similar, relatively overpriced item, expecting to profit when the prices resume a more appropriate theoretical or historical relationship (statistical arbitrage). (3) In trading options, convertible securities, and futures, arbitrage techniques can be applied whenever a strategy involves buying and selling packages of related instruments. (4) Risk arbitrage applies the principles of risk offset to mergers and other major corporate developments. The risk-offsetting position(s) do not insulate the investor from certain event risks (such as termination of a merger agreement or the risk of delay in the completion of a transaction), so the arbitrage is incomplete.

Ask: The lowest price at which someone is willing to sell a security.

Asked or offering price: The current price at which a security may be bought. It is the lowest price any seller will accept at a given time. In the case of a mutual fund, it is the net asset value plus the sales charge, if any. This is also known as the offer price.

Assets: Any property of economic value (that can be converted to cash) owned by an individual or organization. Examples include cash, securities, accounts receivable, inventory, equipment, real estate, etc. In the financial services industry, the three basic asset classes are stocks, bonds and cash.

Asset allocation: The division of investments among different categories of assets, such as stocks, fixed-income investments, real estate and cash equivalents. Asset allocation is designed to help offset risk.

Asset allocation funds: Mutual funds that feature a mix of stocks, bonds and cash equivalents to help offset the risks of investing.

Automatic reinvestment: A shareholder-authorized arrangement in which mutual fund dividends or capital gains are used to purchase additional shares, rather than being distributed to the shareholder. Even though you never see the dividends or capital gains, the funds are still subject to income taxes.