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Mutual Fund Equity Glossary Of Terms

A B C D EF GH I L M NO P R S TU 12



ACCOUNT SET-UP FEE
The fee charged to open a new account, usually a one-time charge.

ACCRETION (of a discount)
In portfolio accounting, a straight-line accumulation of capital gains on a discount bond in anticipation of receipt of par at maturity.

ACTIVATION FEE
The fee charged for establishing the credit line and the related securities accounts, usually a one-time charge.

ADVANCE RATE
A term that is used interchangeably with LTV (Loan-To-Value) or Collateral Ratio or Borrowing Power Ratio - see Borrowing Power Ratio.

ADVISOR
An organization employed by a mutual fund to give professional advice on the fund's investments and asset management practices, also, known as an "Investment Advisor".

APR
Annual Percentage Rate. The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an APR of 20%.

AMORTIZATION
Repayment of a debt with equal periodic payments of both principal and interest, calculated to pay off the debt at the end of a fixed period of time. Does not apply to equity lines of credit.

APPLICANT
A prospective borrower who has completed an application.

ASSETS
Any possession that has value in an exchange.

AUTOMATIC REINVESTMENT
A fund service that is extended to the shareholders to purchase additional shares using the dividend and capital gain distribution.

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BEAR MARKET
Any market in which prices exhibit a declining trend, for a prolonged period, usually falling by 20% or more.

BORROWING POWER RATIO
The percentage that the loan amount is of the total market value of the securities being pledged to secure the loan.

BROKER/DEALER (or B/D)
A firm that buys and sells mutual fund shares and other securities from and to investors.

BULL MARKET
Any market in which prices are in an upward trend.

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CAPITAL GAIN
When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

CAPITAL GAINS DISTRIBUTION
A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.

CAPITAL GAINS TAX
The tax levied on profits from the sale of capital assets. A long-term capital gain, which is achieved once an asset that is held for at least 12 months, is taxed at a maximum rate of 20% (taxpayers in 28% tax bracket) and 10% (taxpayers in 15% tax bracket). Assets that are held for less than 12 months are taxed at regular income tax levels, and, since January 1, 2000, assets that are held for at least five years are taxed at 18% and 8%.

CLOSED-END FUND
An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value.

CLOSED FUND
A mutual fund that is no longer issuing shares, mainly because it has grown too large.

COLLATERAL
Property pledged as security for a debt. Relating to the Mutual Fund line of credit any investment security that is held in the custody account and coded as pledged collateral.

COLLATERAL MAINTENANCE CALL
A notice or demand from the Bank to the borrower to reduce the principal amount of the indebtedness or to pledge additional Collateral in the form of Liquid Assets in order to remedy the insufficient collateral.

COLLATERAL RATIO
A term that is used interchangeably with LTV (Loan-to-Value) or Advance Ratio or Borrowing Power Ratio-see Borrowing Power Ratio above.

COMMISSION
A fee paid by an investor to a broker or other sales agent for investment advice and execution in buying and selling securities.

COMMITTEE ON UNIFORM SECURITIES INDENTIFICATION PROCEDURES
CUSIP Committee that assigns identifying numbers and codes for all securities. These "CUSIP" numbers and symbols are used when recording all buy or sell orders.

CONTINGENT DEFERRED SALES CHARGE (CDSC)
A fee imposed when shares are redeemed (sold back to the fund), typically during the first few years of ownership. This fee is an alternative way to compensate financial professionals for their service and is sometimes called a "back-end load."

CREDIT ADVANCES
The used portion of the "Line of Credit".

CREDIT LIMIT
The maximum amount that you may have outstanding at any one time on your Credit Line, however it may never exceed the principal amount.

CREDIT REPORT
A report to a prospective lender on the credit standing of a prospective borrower, used to aid in verifying that the borrower is credit-worthy. Relating to the "Credit Report's" use for the Mutual Fund line of credit product, it will be used only to verify the validity of borrower's personal information that is provided on the application.

CUSIP NUMBER
Unique number given to a security to distinguish it from other stocks and registered bonds.

CUSTODIAN
Either a bank, agent, trust company, or other organization responsible for safeguarding financial assets, or the individual who oversees the assets of a minor's custodial account.

CUSTODY AGREEMENT
The agreement executed by the Grantor whereby the Grantor as custodian of assets of the Grantor appoints the bank.

CUSTODY FEES
Those account fees usually charged annually or semi-annually, on a per security basis, for the costs of custodial services.

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DISTRIBUTION
A method for selling mutual funds to the public.

DISTRIBUTION PERIOD
The few days between the board of directors' declaration of a stock dividend (declaration date) and the record date, or the date an individual must own shares to be entitled to a dividend.

DIVERSIFICATION
The practice of investing broadly across a number of securities to reduce risk.

DIVIDEND
A portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

DRAW PERIOD
Period of time during which you are permitted to obtain credit advances by drawing on your Credit Line, before you must begin repaying the loan.

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EX-DIVIDEND
With regard to mutual funds, this is the day on which declared distributions (dividends or capital gains) are deducted from the fund's assets before it calculates the net asset value (NAV). The NAV will drop by the amount of the distribution per share.

EXCHANGE FEE
The fee that may be charged when transferring money from one fund to another within the same fund family.

EXCHANGE PRIVILEGE
A fund option enabling shareholders to transfer their investments from one fund to another within the same family as needs or objectives change.

FACE VALUE
The amount that a bond's issuer must repay to the bondholder at the maturity date.

FAMILY of FUNDS
A group of mutual funds, each typically with it's own investment objective, managed and distributed by the same company.

FRONT-END SALES CHARGE OR LOAD
The % charged by a broker or sales professional for the purchase of some mutual fund shares. It is reflected in the offering price and is described as the "front-end load" when part of the initial purchase cost. By law, the maximum sales charge is 8.5%, although most fund families charge less than the maximum.

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GRANTOR
One who gives to another the possession or title to their property.

HEDGE FUND
A private investment pool for wealthy investors that, unlike a mutual fund, is exempt from SEC regulation.

HISTORICAL PRICE VOLATILITY
Historic volatility is a measure of the variability of the range of closing prices seen over a past period of time. To put it another way, historic volatility is essentially the standard deviation of closing prices over a period of time. A wide range of closing prices results in a higher standard deviation and thus in a higher historic volatility. Thus, a Stock with an historic volatility of 20% would have been closing over a broader range than did a similar Stock with an historic volatility of only 10%. Historical volatility can also be used as a tool by traders who are trading only the underlying instrument. Quantifying the volatility in a market can affect a trader's perception of how far the market can move and thus provides some help in making price projections and placing orders. High volatility may indicate a trend reversal as heavy buying/selling comes into the market and make sharp price reversals. Also referred to as the "Risk Factor".

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INFLATION RISK
The risk that a portion of an investment's return may be eliminated by inflation.

INITIAL ADVANCE
The first draw request amount.

INTEREST RATE RISK
The possibility that a bond's or bond mutual fund's value will decrease due to rising interest rates.

INVESTMENT COMPANY
A corporation, trust, or partnership that invests pooled shareholder dollars in securities to achieve the institution's objective. Mutual funds, closed-end funds and unit investment trusts (UITs) are the three types of investment companies.

INVESTMENT OBJECTIVE
The goal that an investor and a mutual fund pursue together.

ISSUER
The company, government agency or municipality that issues a security such as a stock, bond, or money market instrument.

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LINE OF CREDIT
A loan arrangement between a bank and a customer allowing the customer to borrow up to a prespecified amount.

LIQUID ASSETS
Assets included in the Collateral and consisting of cash, deposit accounts (net of any applicable withdrawal fees); mutual fund shares (net of any applicable redemption charges) that may be currently and ordinarily redeemed in cash at the current net asset value per share each day.

LIQUIDITY
The ability to have ready access to invested money.

LONG-TERM FUNDS
A mutual fund industry descriptive term for all funds other than money market funds.

LTV
A term that is used interchangeably with LTV (Loan-to-Value) or Advance Ratio or Borrowing Power Ratio-see Borrowing Power Ratio above.

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MARKET VALUE
The price at which a security is trading and could presumably be purchased or sold. What investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

MATURITY
The date on which an issuer promises to repay a bond's face value.

MATURITY DATE
The earlier of the two dates of any demand made by the lender for immediate repayment of the loan in full or the end of the Repayment Period.

MAXIMUM LINE OF CREDIT
"Maximum Line of Credit" is the maximum amount that you may have outstanding at any one time on your Credit Line. When your Credit Line Account is approved, the Lender will determine, and will notify you of, the amount of your initial Credit Limit.

MUTUAL FUND
Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge or load on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are investment companies regulated by the Investment Company Act of 1940. Related: open-end fund, closed-end fund.

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NET ASSET VALUE (NAV)
The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.

NO-LOAD FUND
A mutual fund whose shares are sold without a sales commission and without a 12b-1 fee of more than 0.25% per year.

OPEN-END FUND
Mutual fund that continually creates new shares on demand. Mutual fund shareholders buy the funds at net asset value and may redeem them at any time at the prevailing market prices. Antithesis of closed-end fund.

OPEN-END INVESTMENT COMPANY
The legal name for a mutual fund, indicating it stands ready to redeem (buy back) its shares from investors.

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PENALTY FEES
Fees charged for services that are not normally exercised or for services in which the fees act as a modest deterrent to actions with unfavorable costs to the service provider.

POOLING
The aggregation of assets provided by investors who have a common financial goal. The investment pool is used to buy a portfolio of stocks and bonds; this diversified portfolio becomes mutually owned by the mutual fund investors who have "per share" interests.

PORTFOLIO
A collection of securities owned by an individual or an institution (including a mutual fund).

PREPAYMENT RISK
The possibility that a bond owner will receive his or her principal investment back, from the bond issuer, prior to a bond's maturity date.

PRINCIPAL AMOUNT
The maximum line of credit amount.

PRIVATE BANKING
Many banks have some form of Private Banking, which designates a service unit that provides securities safekeeping, investment advice and lending to their wealthiest customers. Larger banks and some brokerage firms have a service unit that provides global Private Banking and have security asset minimums ranging from $500,000 to $5,000,000.

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REDEEM
Cashing in mutual fund shares by selling them back to the fund.

REDEMPTION FEE
Another type of back-end charge for redeeming shares. It is expressed as a dollar amount or as a percentage of the redemption price.

REPAYMENT PERIOD
The repayment period will begin at the end of the Draw Period and will continue for a period of exactly 8 years, during which time the borrower pays the balance due on the line of credit and interest payments in monthly increments, but no new draws may be made.

RISK-REWARD TRADEOFF
The principle that an investment must offer higher returns as compensation for the probability of greater volatility and risk.

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SECURITIES
Stocks, bonds, or mutual fund shares.

SECURITY AGREEMENT
The Grantor assigns, grants and pledges to the Bank a security interest in the Collateral, including without limitation all Investment Securities held in the custodial account(s) to secure the Indebtedness, and agrees that the Bank shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which the Bank may have by law.

SELL OUT MARGIN
When the collateral is insufficient to secure the indebtedness, the Bank may sell any security included in the Collateral held in the Trust Custody account in order to reduce the used line of credit principal amount to an amount that can be secured by the value of the collateral.

SERIES FUND
A group of different mutual funds, each with its own investment objective, which is structured into a single business trust or corporation.

SHARE CLASSES (CLASS A, CLASS B, CLASS INSTITUTIONAL, etc.)
The same fund but with different sales charge structures (for example, front-end load; back-end load, level-load, etc.), which provide alternatives to meet differing investor needs.

SIGNATURE GUARANTEE
STAMP "Securities Transfer Association Medallion Program". Most commercial banks, savings banks, credit unions, trust companies, and member firms of U.S. stock exchanges offer this service. This service is the authentication of a signature in the form of a stamp. A notary public cannot provide a signature guarantee. A signature guarantee is a common requirement when transferring or redeeming shares or changing the ownership of an account. For a signature guarantee to be valid, it must appear in the following format:
"Signature(s) Guaranteed"
By (Signature & Title)
Institution's Name

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TRANSFER AGENT
The organization used by a mutual fund to prepare and maintain records for shareholder accounts.

TRUST
A fiduciary relationship calling for a trustee to hold the title to assets for the benefit of the beneficiary. The person creating the trust, which may or may not also be the beneficiary, is called the grantor.

UNDERWRITER
The organization that sells a mutual fund's shares to the investing public and to broker/dealers.

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12B-1 FEES
The percent of a mutual fund's assets used to defray marketing and distribution expenses. The amount of the fee is stated in the fund's prospectus. The SEC has recently proposed that 12B-1 fees in excess of 0.25% be classed as a load. A true no load fund has neither a front-end, back-end, or 12B-1 fee.

12B-1 FUNDS
Mutual funds that do not charge an up-front or back-end commission, but instead take out up to 1.25% of average daily fund assets each year to cover the costs of selling and marketing shares, an arrangement allowed by the SEC's Rule 12B-1 (passed in 1980).

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Updated: 16 Aug 2018 - MH