Harvesting losses: A euphemism for tax-loss-motivated sales of securities to offset gains realized on other positions.

Hedge: A strategy used to manage investment risk. In investing, hedging involves the purchase of an offsetting position, such as a put option or futures contract, to guard against the risk of a market decline.

Highest in, first out (HIFO): Accounting: A principle of tax efficiency in a conventional mutual fund that defers taxes as much as possible by selling the highest cost lot of a particular stock first and then others in sequence until the lowest cost lot is sold last.

High yield: Securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal, and are commonly referred to as junk bonds. Issuers of high yield securities may be highly leveraged and may not have available to them more traditional methods of financing. The prices of these lower grade securities are typically more sensitive to negative developments, such as a decline in the issuer's revenues or a general economic downturn, than are the prices of higher grade securities. The secondary market for high yield securities may not be as liquid as the secondary market for more highly rated securities.

High yield bonds: Bonds that are rated below Baa, the lowest investment grade bond rating.

HOLDRS: Shares in a grantor trust which represent an undivided interest in a specific portfolio of stocks, usually in a particular industry, sector or group. HOLDRs were developed by Merrill Lynch to allow an investor to own a moderately diversified group of stocks in a single investment that is transparent and liquid. HOLDRs are characterized by low ongoing expenses, a high degree of tax flexibility which leads to tax-efficiency as long as the investor does not sell a highly appreciated component shares. The holder of HOLDRs can separate the portfolio into its component securities at modest cost to realize losses. The principal disadvantage of HOLDRs is that any investor who breaks them up will find that keeping track of the tax basis and tax consequences associated with subsequent transactions in the component securities may be relatively complex.

Hybrid: A security that has mixed risk and return characteristics. For example, a convertible bond generally has a coupon that pays interest, so it behaves somewhat like a credit market instrument. However, its imbedded conversion feature also makes it behave like an equity instrument.

Hybrid preferred securities: A synonym for taxable preferred securities.