Glossary of Terms

401(k) Plan: A 401(k) is simply a retirement savings plan, set up by a company for the benefit of its employees, that allows you to make pre-tax contributions and choose your own investments. Money invested in the plan grows on a tax-deferred basis, so you only pay taxes when you take withdrawals - usually at retirement. See also Company Match and Profit Sharing Contributions.

Annual Report: A publication sent to mutual fund shareholders yearly to update them on their fund's performance for the year, its investment objectives, and its holdings. Annuity: A contract issued by an insurance company that offers professionally managed investments. Often patterned after mutual funds, it generally guarantees lifetime income to the individual on whose life the contract is based. Both types of annuities - variable and fixed - are tax deferred retirement savings vehicles.

Appreciation: Growth in the value of an asset, such as a stock or mutual fund share.

Asset Allocation: The way in which you spread your investment dollars among different asset classes. See also Asset Classes; Diversification.

Asset Classes: Broad categories of investments, such as stocks, bonds, and stable value investments.

Assets: The principal, or money you have invested, together with any earnings.

Balanced Investment: An investment that combines two or more of the three basic asset classes. See also Asset Classes.

Bear Market: A generally declining market where stocks decrease in value, despite occasional rallies. See also Bull Market; Market Value.

Blend Style: A type of investment style often used to classify a mutual fund. A blend fund will contain growth stocks and value stocks, or it may contain stocks that exhibit both characteristics. See also Growth Style; Value Style.

Blue Chip: The common stock of a nationally known company that has a long record of profitability and a reputation for quality management, products and services. Blue chips are typically large capitalization, highly liquid stocks. See also Large Cap funds; S&P 500.

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Bond: A debt security, or an IOU; evidence of loans to a government, government agency, municipality, or corporation with a fixed interest rate and a maturity date that can be short or long term. See also Equities.

Bull Market: A generally rising market where stocks increase in price (value), despite occasional declines. See also Bear Market; Market Value.

Catch-up Contributions: A catch-up contribution is an additional salary deferral that you can make into your employer's 401(k) plan if the option is offered under the plan and you meet the eligibility requirements. To be eligible to make a catch-up contribution, you must be at least age 50 by the end of the calendar year for which you will make those contributions. In addition, you must make regular salary deferrals equal to the lesser of any legal limit or plan limit on salary deferrals. If your employer's plan permits catch-up contributions, you should contact your Human Resources Department or Benefits Representative for more details.

Certificate of Deposit (CD): A short-term debt instrument issued by a bank that usually pays interest.

Collective Fund: Like a mutual fund, a collective fund is professionally managed and invests a pool of money from a group of investors in a variety of stocks, bonds, or other securities. Unlike a mutual fund, a collective fund is not created for the general public and cannot be tracked in the newspaper. Collective funds are designed for qualified retirement plans.

Compounding: Money earned on a principal investment and its interest, usually calculated on a monthly or yearly basis. Compounding is said to be one of the best ways to create wealth over time.

Company Match: The amount your employer may choose to contribute to your 401(k) savings account to match your pre-tax, payroll deducted contributions. See also Vesting.

Convertible Securities: Debt or preferred equity securities which may be converted into common stock.

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Current Income: Money that is received on an ongoing basis from investments in the form of dividends, interest, rents or other income sources.

Daily Valuation: Refers to the method of recordkeeping that provides you with current account details including the market value of your assets. Your account is adjusted daily to reflect investment earnings or losses which makes it easier for you to track the growth of your savings. It allows you to perform investment transfers on a daily basis as well.

Deferral: The total contributions you have deducted from your paycheck.

Distribution: A withdrawal of all or a portion of the pre-tax contributions that have accumulated in your retirement savings account. When you withdraw money from your account, generally you cannot put it back, and all your distributions are subject to ordinary income taxes in the year they are received. You may also be subject to a 10% early withdrawal penalty if you are under age 59 ½. See also Early Withdrawal Penalty; Hardship Withdrawal; Lump Sum Payment; Minimum Distribution Requirement.

Diversification: The process of seeking to reduce risk by investing in several different types of asset classes and securities. See also Risk.

Dividends: A share of a company's earnings that are paid to stockholders, usually four times a year.

Dollar Cost Averaging: A systematic method of investing a specific amount of money in securities on a regular periodic schedule. This approach is designed to help reduce the average price an investor pays for shares and help minimize the impact of the market's volatility. Dollar Cost Averaging allows the investor to purchase more shares of a security or fund when the price is low and fewer when the price is high. This process does not assure a profit or protect against loss in a declining market.

Early Withdrawal Penalty: The IRS 10% tax penalty for premature withdrawals from tax-deferred retirement accounts taken prior to reaching age 59 ½.

Earnings: Money generated by your investments, typically in the form of interest or total return.

ERISA: Employee Retirement Income Security Act, passed in 1974, is a comprehensive body of federal law which incorporates the Department of Labor (DOL) rules which govern retirement savings plans. The Internal Revenue code (IRC) contains many provisions which are similar to those found in ERISA. See also Internal Revenue Code (IRC).

Equities: Securities representing ownership in a corporation. Includes both common and preferred stocks. See also Bond.

Growth Style: An approach to portfolio management that emphasizes earnings growth when selecting securities. See also Value Style.

Guaranteed Investment Contract (GIC): An investment contract issued and backed by the assets of the issuing corporation, such as an insurance company or other financial institution, that pays a fixed rate of return for a specified period of time.

Hardship Withdrawal: An early withdrawal from a retirement savings plan that is allowed under limited circumstances as specified in the plan document. To obtain a hardship withdrawal, an employee must suffer an immediate and heavy financial need. The rules and requirements which apply to hardship withdrawals are regulated by the Internal Revenue Code (IRC).

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Index: A statistical measure that reflects changes in the economy or in financial markets.

Index Fund: A mutual fund that tries to match the investment performance of a particular index, such as the S&P 500. See also S&P 500.

IRA: An account with tax incentives to encourage individuals to save money for retirement. In a regular (or traditional) IRA, money invested grows tax-free until retirement, after which withdrawals are treated as ordinary income. In addition, some investors may be able to deduct their regular IRA contributions from their taxable income. Contributions to a Roth IRA are not tax deductible, but accumulated earnings can be distributed free of federal income taxes after certain requirements are met.

Inflation: Rise in the prices of goods and services; as inflation increases, the buying power of your money decreases. The most common measure of inflation is the Consumer Price Index (CPI), which is reported monthly.

Interest: A charge for borrowed money, generally a percentage of the amount borrowed.

Internal Revenue Code (IRC): The basic federal tax law that must be administered, interpreted and enforced by the Internal Revenue Service (IRS).

International Equity Funds: Mutual funds that invest in securities traded on markets throughout the world.

Investment Objective: The financial goal that an investor uses to determine which kind of investment is appropriate.

Large Cap Funds: Mutual funds that invest in stocks of companies whose market capitalization (number of shares outstanding multiplied by stock price) is greater than $5 billion. See also Small/Mid Cap Funds.

Liquidity: A measure of how easily an asset can be sold for cash.

Load: Sales charge paid by an investor who buys shares in a load Mutual Fund or an Annuity. Loads are usually charged when shares or units are purchased; a charge for withdrawing is called a Back End Load. A fund that does not charge this fee is called a No Load Fund. See also No Load.

Loan: Many 401(k) retirement savings plans offer a loan provision and for those that do, the Department of Labor (DOL) and Internal Revenue Code (IRC) rules allow participants to borrow up to 50% of the total vested assets in their account, up to a maximum of $50,000, less adjustments for outstanding loans. Through payroll deductions, you repay your account the balance you borrowed, plus a fixed rate of interest. The specific terms of the loan - such as frequency of payments and interest rate - will be defined by your plan. As long as you repay your loan on time, you will not be subject to withholding taxes or penalties which apply to early withdrawals. See also Early Withdrawal Penalty; Opportunity cost.

Lump Sum Payment: A single payment (distribution) of the entire amount of money that has accumulated in your retirement savings account.

Management Fee: Charge levied annually against investor assets for managing the portfolio of a mutual fund. The fee, as discussed in the prospectus, is a fixed percentage of the fund's net asset value. See also Net Asset Value (NAV); Prospectus.

Market Capitalization: The value found by multiplying the number of common stock shares outstanding by stock price. This value indicates the size of a company and is used when making investment decisions.

Market Value: The price at which investors buy or sell a share of common stock or a bond at a given time. Market value is determined by the interaction between buyers and sellers.

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Money Market Funds: Mutual funds that invest only in short term securities.

Mutual Fund: A collection of stocks, bonds, or other securities purchased by a group of investors and managed by a professional investment company. These funds offer investors the advantage of diversification.

Net Asset Value (NAV): The daily market value of one share of a mutual fund. NAV equals the total value of all the mutual fund's assets minus liabilities (including accrued expenses) divided by the number of shares outstanding.

No Load: A mutual fund that imposes no sales charge (load) on its shareholders. Investors buy shares in no load funds directly from the fund companies, rather than through a broker, as is done with load funds.

Opportunity Cost: The chance that, by taking a retirement plan loan, a participant may lose the opportunity to earn more on the amount than if it had not been invested in a plan loan.

Portfolio: The combination of investments you own.

Pre-tax Contributions: Earned income transferred directly to your 401(k) plan, through payroll deductions, before it is taxed.

Principal: The basic amount invested, exclusive of earnings.

Profit Sharing Contributions: Contributions made to a plan by an Employer, usually from current or accumulated earnings. The annual amount of a profit sharing contribution is within the discretion of the Employer.

Prospectus: An official document that provides a thorough description of a mutual fund. It contains information such as the fund's investment objective, policies, performance history, fees and expenses, which must be furnished to all investors. See also Investment Objective; Management Fee.

Required Minimum Distributions: Generally, you must begin taking minimum distributions from your retirement plan no later than April 1st of the year in which you turn 70 ½ or, if later, retire. (Special rules apply for 5% owners). If you do not begin taking distributions as outlined above, you risk severe tax penalties.

Return: The increase or decrease in the value of an investment, expressed as a percentage of the original investment. Includes income generated as dividends or interest, as well as capital appreciation or depreciation.

Risk: The chance that your investment may decrease or fail to increase in value. Short term risk refers to price volatility. Long term, or inflation risk, refers to the chance that your return on investment will not outpace inflation, leaving you with less purchasing power. See also Volatility.

Risk Tolerance: Your ability to withstand changes - both up and down - in the value of your investment in pursuit of your goals.

Rollover: A rollover is the transfer of all or a portion of a distribution from a tax-deferred retirement plan (such as a 401(k) plan or an IRA) into an IRA or another employer's eligible retirement plan. The rollover rules have been expanded beginning January 1, 2002. If an employer plan permits, rollovers can be made among qualified retirement plans, 403(b) plans, and 457 plans. In addition, after-tax amounts can also be rolled over to an eligible plan (if permitted under the plan). All such eligible distributions can also be rolled over to a Rollover IRA.

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Rollover IRA: A Rollover IRA is a type of Individual Retirement Account that you can establish if you are changing jobs or retiring and receiving a distribution from your employer's retirement plan. Eligible distributions from such plans may be "rolled over" directly into a Rollover IRA.

S&P 500: The Standard & Poor's 500 is an index of 500 widely held common stocks. It is a broad measure of blue chip stock performance. See also Blue Chip.

Securities: The general term for stocks, bonds, and short term investments.

Share: A percentage of ownership in a corporation or a mutual fund.

Small/Mid Cap Funds: Mutual funds that invest in stocks of companies whose market capitalization (number of shares outstanding multiplied by stock price) is less than $5 billion. See also Large Cap Funds.

Stable Value Investment: Short term investments that tend to offer lower returns in exchange for protection of principal. For examples, see also Certificates of Deposit; Guaranteed Investment Contract (GIC); Money Market Funds; Treasury Bills (T-Bills).

Stock: See Equities.

Tax Deferral: Postponing the payment of taxes on retirement plan contributions and investment earnings until a later date.

Time Horizon: The amount of time available to meet your investment goals.

Treasury Bills (T-Bills): Short term government securities with maturities of one year or less.

Value Style: A type of investment style. Generally speaking, a value-oriented portfolio will mostly contain stocks that the portfolio manager thinks are currently undervalued in price and believes will eventually see their worth recognized by the market. See also Blend Style; Growth Style.

Vesting: For a retirement savings plan participant, vesting refers to the gradual granting of "ownership" to contributions made by your employer. You are always 100% vested in contributions you make to the plan through payroll deductions (and in any money you rollover to the plan) plus any earnings this money generates. See also Company Match.

Volatility: A security's tendency to rise and fall in price in a short period of time. Also referred to as short term risk or market risk.

Withdrawal: See Distribution.

Yield: The rate of return on an investment usually expressed as an annual percentage rate. See also Return. 

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