Accounts Receivable - Money
that is owed to a company for products or services that were sold on
credit.
Accretive - Growing in size
by external addition. Accretive often refers to an acquisition which
is expected to increase earnings per share.
Accumulation Phase - The
period during which the dollars or premiums invested remain within the
account, growing tax-deferred until they are withdrawn. The
accumulation period begins once the insurance company receives the
first premium.
Adjustable Rate Bond (or Preferred Stock)
- A security with an interest rate (or dividend rate) that is adjusted
each payment period according to a recognized market rate (such as the
“prime” interest rate that banks charge, the rate on Treasury bills,
etc.)
Adjusted Gross Income - The
amount used in the calculation of an individual’s income tax
liability. It is equal to one’s income after certain adjustments are
made, but before standardized and itemized deductions and personal
exemptions are made.
Advisory Service - A service
that offers investment information (usually buy and sell advice) for a
fee.
American Depository Receipts (ADRs)
- Negotiable certificates, issued by U.S. depository banks, which
represent the actual shares of a foreign company’s stock that an
overseas branch of the depository bank or a custodian is holding.
Amortization - An accounting
term that refers to the reduction in the value of an intangible item,
such as a patent or trademark, through periodic reductions in income.
Anniversary Date - The
annual recurrence of the policy’s effective date. The anniversary date
is often the time the owner of a universal life insurance policy is
permitted to make changes to the policy, such as increasing the death
benefit.
Annual Report - The formal
financial statement that a corporation issues annually to its
shareholders.
Annual Return - The
percentage increase in the value of an investment over a 12-month
period or a series of 12-month periods, taking into account
compounding of investment dividends or capital gains.
Annuitant - The individual
who is entitled to receive the benefits of an annuity.
Annuitize - To commence a
series of payments for the capital that has accumulated in an annuity.
The payments may be a fixed amount, for a fixed period of time, or for
a lifetime.
Annuity - A contract between
an insurance company and an individual. It guarantees payouts for a
specified period of time, usually the annuitant’s lifetime, in return
for either a single premium payment or periodic flexible premium
payments to the insurance company.
Ask Price - The lowest
amount a seller is willing to accept for a security at a given time.
See bid price.
Asset - Any item of economic
value owned by an individual or corporation. Usually refers to items
that can be sold and converted to cash. Examples are cash, securities,
financial accounts, a house, a car, jewelry, and other property.
Asset Allocation - The
process of dividing investor funds among several classes of assets to
limit risk and increase opportunities for gains.
Asset-Backed Securities - A
bond backed by loans or account receivables originated by banks,
credit card companies or other credit providers.
Assumed Invest Return (AIR)
- The guaranteed rate of return used in variable annuities to set the
initial annuity payment.
Auto Insurance - Provides
coverage for you and your automobile in a variety of cases. Liability
coverage typically helps protect you for damages to others if you are
at fault in a covered accident. Medical coverage helps provide payment
for your reasonable and necessary medical treatment for bodily injury
caused by a covered accident.
Average Tax Rate - an
individual’s average tax rate is the result of total income taxes paid
divided by taxable income. For example, if an individual has taxable
income for the year of $50,000 and paid income taxes of $10,000, the
average tax rate would be 20%. ($10,000 / $50,000= .20).
B
————————————————————————————
Back-End Load (Sales Charge) -
A back-end load (sometimes referred to
as a contingent deferred sales charge) is usually associated with
Class B shares of a mutual fund. It is a sales commission, deducted
from the net asset value of the shares redeemed, that is assessed at
the time you sell shares you own. It’s computed as a percentage of the
total selling price, but is generally not assessed on any increase in
the value of your shares, or any reinvested dividends or capital
gains. As an example, if you sell 1000 shares at a share price of $30,
or 29,300. The maximum amount of the back-end load, which usually
declines over time, and the period over which the load is imposed, are
contained in the front of your fund’s prospectus, or ask your broker.
Bailout Provision -
A special clause within an annuity contract that
allows the owner to surrender the contract, without incurring
surrender charges, if the renewal rate is below a specified amount.
Balance Sheet -
An accounting statement that shows the amount of a
company's assets, liabilities, and owner’s equity on a certain date.
Balloon Loan -
A loan where either principal and interest or just
interest payments are made for a few years, usually between 5 and 10
years, and then the entire remaining balance must be refinanced or
paid in full.
Banker’s Acceptance -
A time draft drawn on and accepted by a bank
that is often used to effect payment for import-export transactions
and international trade.
Bear -
A person who believes that stock prices will fall. See bull.
Bearer Bond -
A bond that provides for interest and principal to be
paid to the bearer; an unregistered bond. See coupon and registered
bond.
Benchmark -
A standard-typically an index such as the Standard &
Poor’s 500-against which investors compare the performance of a mutual
fund or other investment.
Beneficiary -
The party who will receive the death benefit of the
policy upon the insured’s death.
Bereavement period -
A period to time during which the survivors
adjust emotionally and financially to the loss of a loved one.
Bid Price -
The highest amount a prospective buyer is willing to pay
for a security at a given time. See ask price.
Blue Chips -
The high-quality stocks of major corporations with long
records of uninterrupted earnings and dividends, capable management,
and good growth prospects.
Bond Mutual Fund -
An investment company that invests primarily in
bonds and debt securities. The objective of most bond funds is to
provide current income while protecting the principal from decreasing
in value. Both the net asset value and the monthly income can
fluctuate with changes in interest rates.
Bonds -
The debt instrument of an issuer (especially an I.O.U. for
money you lend to the issuer) that promises to pay the holder a
specified amount of interest, for a specified time period, with
principal to be repaid on the maturity date.
Book Value -
An indicator of a company’s value, calculated by
subtracting the company’s liabilities from its total assets.
Broker -
An agent who executes buy and sell orders for securities or
commodities for a fee.
Bull -
A person who believes that stock prices will rise. See bear.
Business Cycle Risk -
The risk that a company’s business and,
therefore, its revenue are tied to economic activity or market trends.
As the economy grows, the revenues for these companies can also
increase. However, as the economy slows, their revenues decrease, as
do their earnings. This cynical impact on a company’s earnings can be
severe if the economic downturn lasts for an extended period.
Generally, a decline in a company’s earnings will result in a fall in
its stock price.
Business Risk -
The risk associated with investing in companies in
very competitive industries or those with low barriers to entry. The
industry may also be dominated by one or two companies that have deep
pockets and are able to ward off competition. Additionally, business
risk includes the risk that an industry will be overtaken by new
technology and become obsolete. These factors can lead to a
significant decline in the financial health of a company.
C ————————————————————————————
Callable Bond (or Preferred Stock) -
A bond or preferred stock that
the issuer (e.g., a corporation or municipality) may redeem before
maturity.
Call Option -
A contract that gives the right to buy a certain number
of shares of a stock at a definite price within a certain time period.
Capital Appreciation -
The increase in a fund share’s value.
Capital Gain (Loss) -
Profit (loss) from the sale of securities or
other capital assets.
Capital Preservation -
A conservative investment strategy that aims to
avoid risk of loss.
Capitalization -
The value of all securities issued by a corporation,
together with its retained earnings.
Cash Equivalents -
Investments that are highly liquid and safe, and
considered equal to cash. Examples are Treasury Bills, money market
funds and short-term CDs and bonds (maturities of 6 months or less).
Cash Surrender Value -
The value a policy owner receives upon
termination of a permanent life insurance policy for any reason other
than death of the insured. The cash surrender value of a life
insurance policy is equal to the cash value less any surrender charge
imposed by the insurance company. Cash surrender values are typically
not available during the first year or two of the policy’s life.
Usually, the policy owner is allowed to take the cash surrender value
in the form of cash, a reduced amount of paid-up life insurance, or
extended term life insurance protection.
Cash Value -
The “savings” element of all permanent forms of life
insurance. The cash value is the amount of money a policy owner can
get for surrendering the policy. The cash value of whole life is
pre-determined and fixed when the policy is issued. The cash value of
a universal life policy depends on the amount and timing of premium
payments, the expense and risk charges the insurance company charges
for providing benefits and the interest rate the company credits. The
cash value of variable life or variable universal life policy will
vary depending upon the performance of the investment accounts
selected by the policy owner. Increase in cash values are not taxable
until withdrawn. Some policies may allow the owner to borrow against
the cash value.
Cash Value of Life Insurance -
The amount of money accumulated in a
whole life, universal life or a variable life insurance policy. The
cash value is accumulated based on the return of the underlying
investments in a universal life or variable life and the terms of the
policy itself for a whole life insurance policy.
Certificates of Deposit (CDs) -
An FDIC-insured account offered by
banks and savings and loans. As with a bond, they are usually opened
with a single deposit, earn a fixed return and have a set maturity
date. Their maturities normally range from three months to five years.
Checking Account -
It is available from banks and other depository
institutions and guaranteed by the FDIC for up to $100,000. Typically,
it earns little or no interest.
Churning -
Unjustified, excessive trading in a customer’s securities
or commodities account to generate additional brokerage commissions.
Closed-end Fund (CEF) -
An investment company in which a money manager
sells a fixed number of shares to the public at a set price. Once all
of the shares have been offered, the money manager invests the
proceeds in accordance with the fund’s investment strategy. After the
initial offering, shares in the fund are bought and sold on an
exchange similar to stocks. The market price of the fund’s shares will
fluctuate based on supply and demand and is not directly tied to the
value of the securities in its portfolio.
Closing Costs -
Fees and expenses that are generally collected when
the buyer and the seller are ready to complete or close the
transaction. Total closing cost expenses typically range from 2% to 7%
of the purchase price.
Codicil -
A legal document that modifies an existing will. A codicil
is used to change information like beneficiary designations.
Collision Coverage -
Pays to repair or replace your insured car after
a covered accident. Comprehensive coverage pays for covered damages to
your insured car resulting from peril other than a collision, such as
theft, windstorm, or flood.
Commercial Paper -
Short-term unsecured obligations of corporations or
banks with maturities ranging from 2 to 270 days.
Commission -
A fee an investor pays a broker for buying or selling
securities.
Common Stock -
Securities that represent an ownership interest (with
voting rights) in the issuing corporation. See preferred stock.
Consumer Price Index -
A measure of the change in prices of a fixed
basket of goods and services, including food, clothing, medical care,
transportation, housing, and electricity.
Controllable Expense -
An expense over which an individual has control
as to how much is spent. Examples of controllable expenses include
entertainment, clothing, food, investments and savings.
Conversion Period -
The period of time during which the owner of a
term life insurance policy may convert it to a permanent life policy
without evidence of insurability.
Convertible Security -
A bond, debenture, or preferred stock that the
holder may exchange for common stock (or another security) of the same
company.
Counteroffer -
Response by the seller to the buyer’s offer.
Coupon Bond -
A bond with attached interest coupons that are clipped
and presented for payment as interest comes due.
Coupon Rate -
The stated rate of interest a bond pays.
Coverdell Education Savings Account -
Formerly known as the Education
IRA, the Coverdell is a tax-advantage investing method used to save
for college.
Credit History -
A record of the repayment of your consumer debts.
Every individual’s history of borrowing from, and repaying money to,
credit card companies, mortgage lenders, banks, credit unions,
automobile financing and leasing companies and sometimes utility
companies is reported to, and tracked by credit bureaus.
Credit Risk -
The risk that a particular company will default on its
promise to pay creditors and to make interest and principal payments
to bondholders. If a company files for bankruptcy, the court will work
with creditors and management to determine the best outcome for all.
If the company cannot be restructured and continue to operate, its
assets will be sold. If the company’s assets are sold or liquidated,
creditors and bondholders are generally among the first to be paid. If
any assets remain, preferred stockholders are paid, followed by common
stockholders.
Currency Risk -
The risk that a fluctuation in exchange rates between
currencies will negatively affect the return on any foreign securities
you own. The standard rule of thumb is that, when the dollar
appreciates, it grows stronger, against a foreign currency, the return
on an investment in that currency will be reduced. The foreign
currency will now translate into fewer of the stronger dollars.
Conversely, when the dollar depreciates, or loses value, against a
foreign currency, the return on an investment that currency will be
greater.
Current Market Value -
The largest amount any buyer is currently
willing to pay for an asset.
Custodial Account -
An account that allows a custodian to hold
securities for the benefit of the owner. The custodian collects
investment income for the owner, executes the owner’s buy or sell
orders, and keeps records of all transactions, among other duties.
Cyclical Stocks -
Stocks of corporations whose earnings rise and fall
with the business cycle.
D ————————————————————————————
Death Benefit
- The amount of money paid to the beneficiary of a life
insurance policy when the insured dies. The death benefit is generally
equal to the policy’s face value, although the death benefit can be
reduced dollar-for-dollar by the amount of any outstanding policy
loan.
Debenture -
A corporation’s promissory note, backed by the
corporation’s general credit.
Debt -
Obligations in the form of bonds, loans, notes or mortgages,
owed to another person or institution and required to be paid by a
specified date.
Debt-to-income-Ratio -
Takes into account gross monthly income
compared to long-term monthly debt-including the proposed monthly
mortgage payment.
Deferred Annuity -
With a deferred annuity, the payout phase typically
does not start until many years later.
Deferred Compensation Plan -
A contractual agreement between an
organization and an employee. The organization makes an unsecured
promise to deter (or delay) the compensation of the employee to some
future date for services currently performed by the employee. The
contract ends upon termination of employment, retirement, extreme
financial hardship, or when the plan participant dies. The funds are
not taxed until withdrawn.
Defined Benefit Plan -
Traditional pension plan that promises to pay
workers a specific monthly benefit when they retire. The amount of the
monthly benefit is determined by a benefit formula. The company
defines the benefit formula in advance, based on employment-related
factors such as earnings and years of service.
Defined Contribution Plan -
Qualified retirement plan where the only
definitive components are the amount, source (employer or employee),
and type (before-tax or after-tax) of the contributions made to the
individual employee accounts. A defined contribution plan does not
promise a specific benefit or benefit formula at retirement.
Contributions may be made by the employee, employer and/or both and
are invested in an account for the benefit of the employee.
Predominant types of defined contribution plans include 401(k) and
403(b) plans.
Depreciation -
An accounting term that refers to the reduction in the
value of physical assets, such as manufacturing plants and equipment,
through periodic reductions in income.
Disability Insurance -
An insurance policy designed to pay a specified
monthly income to the policyholder in the event that he/she becomes
either temporarily or permanently incapable of working.
Discount Broker -
A broker who charges a lower commission for by and
sell orders than a full-commission broker. Typically, a discount
broker does not give investment advice.
Discretionary Income -
The amount of an individual’s income available
for spending after all fixed and necessary expenses (such as food,
clothing and shelter) have been paid.
Diversification -
Investing in several different companies in various
industries or in several different types of investments in order to
spread risk.
Dividend -
A corporation’s pro-rata payment to its shareholders.
Double Indemnity -
Payment of double the face amount of a life
insurance policy when death of the insured is due to an accident.
Policies can be very specific in defining an accident.
Dow Jones Industrial Average -
An average of thirty blue chip stocks
commonly used as an indicator of whether the stock market is moving
“up” or “down.”
Down Payment -
Cash contribution from the buyer towards the purchase
price.
E ————————————————————————————
Economic Value -
The value of the tasks a family member provides to
the rest of the family. The economic value for a non-working spouse
would be equal to the cost the family would incur to hire someone to
complete the tasks in the absence of the non-working spouse less the
cost of that spouse’s personal maintenance. These costs usually
include childcare and housekeeping but may also include
transportation, the cost of eating out more often, tutoring, and the
like.
Emergency Fund -
An emergency fund is money set aside to allow you to
weather any unexpected events or expenses in your life. Emergency
funds are often used to pay for expenses not incorporated into the
budget such as property losses or medical expenses not covered by
insurance, or living expenses during a period of unemployment. It is
generally recommended that your emergency fund equal three to six
months of your living expenses.
Emerging Market -
A stock or bond market in an economically developing
country. Emerging markets are extremely volatile, but they offer the
potential to share in the early stages of a country’s economic growth.
Employee Stock Ownership Plan (ESOP) -
Employee Stock Ownership Plans
are qualified retirement plans designed to increase productivity and
loyalty by giving employees a feeling of shared ownership in their
company while providing it with valuable tax incentives. Both public
and privately-held companies may offer this plan.
Equities or Stocks -
Represent ownership or equity interests in a
corporation.
Estate Planning -
The process of planning for the efficient transfer
of assets at one’s death. Estate planning begins with preparing a will
and may also include naming a power of attorney, establishing trusts
and making pre-death gifts.
Estate Tax -
Tax imposed by a state or the federal government on the
transfer of property from a deceased to his/her heirs.
Evidence of Insurability -
Proving that you are a good risk for the
insurance company by answering health and lifestyle related questions
and possibly submitting to a medical exam.
Executor -
An individual or institution that is tasked with the
settling of an estate for the deceased. Activities may include
gathering the assets, paying the taxes and distributing the estate in
accordance with the will.
Ex-dividend -
Without dividend. The ex-dividend date is the date when
a buyer purchasing a stock has no right to the most recent dividend.
Expense -
An individual’s cost or obligation to meet a need or pay a
debt.
F ————————————————————————————
Face Amount -
The named dollar amount of coverage provided by a life
insurance policy. Generally, for a while life or term policy, the face
amount is the same as the death benefit.-the amount paid to the named
beneficiary upon the insured’s death.
Fair Market Value -
The price that a seller would receive for the
property if it were sold today to be used for purposes that would make
the property most valuable.
FDIC -
The Federal Deposit Insurance Corporation is the government
agency that insures deposits at most banks and savings associations in
the event of a bank failure.
Fee Simple -
Ownership (for real property), or individual (for
personal property) is the most unrestricted form of ownership. As the
sole owner, you have complete control of the property and can choose
whether to use, sell, or give it away.
FICO Score (Credit Score) -
Fair, Isaac and Company, in partnership
with the credit reporting company Equifax, introduced credit scoring
in 1989. Using a secret mathematical formula, Fair, Isaac computes an
overall score, called FICO. This score is based on an individual’s
past and current credit record. FICO scores range from 300 to 850,
with the median score of about 720. The higher an individual’s score
is, the better his or her credit rating will be. Presumably, the FICO
score will help predict whether a consumer will pay their future
credit obligations.
Fiduciary -
a person or company that holds assets for retirement plan
participants and/or exercises any discretionary authority or control
related to the management of the plan or the plan’s assets. Providing
investment advice for a fee, or other compensation will also make an
individual or company a fiduciary.
Final Expenses -
Expenses that occur at the death of an individual
that must be paid before concluding the probate process. Examples
include estate taxes, medical bills, funeral expenses, legal fees,
probate costs, outstanding debts, appraisal fees and the like.
Financial Planner -
An individual who will help you develop your
financial plan and select an asset allocation model for your
situation. A financial planner may be licensed to implement your plan,
or he or she may be a fee-only planner who simply creates your plan.
Fiscal Year -
A company’s accounting year.
529 Plan -
Tax-advantage investing method used to save for college.
Fixed Annuities -
an investment contract offered by an insurance
company that pays a fixed return (which may be periodically adjusted
by the insurance company) and whose principal is guaranteed by the
insurance company to be repaid at a specified date. Any earnings on
the account remain tax-deferred until the interest is withdrawn from
the contract. The contract can be converted to a guaranteed stream of
fixed payments to the owner, either for life or for a specified
period.
Fixed Expenses -
Expenses that are set and difficult to change or
minimize. Examples include mortgage payments, car payments, utility
bills, and income and social security taxes.
Fixed-Income Securities -
Investments, primarily bonds and bond fund,
that generate a predictable flow of income over a specified period.
Fixed Investment -
A security or investment account that pays a fixed
rate of return.
Fixed-Rate Mortgage -
The original and most popular type of mortgage,
where a homebuyer pays a fixed principal amount and interest rate for
the life of the loan. Fixed rate mortgages have terms of 10, 15, 20,
and 30 years.
Form 1099 -
The Internal Revenue Service (IRS) form used by companies
to pay annual dividends and interest paid to an individual. The
company paying the dividends and interest will send a copy of the form
to the individual and the IRS.
401(k) -
A qualified, tax-deferred retirement plan offered by
employers, which allows employees to save a percentage of their
current salary for retirement.
403(b) Plan -
A retirement plan for certain employees of public
schools, employees of certain tax-exempt or nonprofit organizations,
and certain members of the clergy. Similar to 401(k) plans,
contributions and investment gains in 403(b) plans grow tax-deferred
until withdrawn, at which time they are taxed as ordinary income. A
403(b) plan differs from a 401(k) plan in one respect: investment
options are limited to fixed and variable annuity contracts or mutual
funds.
457 Plan -
A type of deferred compensation plan offered by state and
local governments or tax-exempt organizations. With a 457 plan, an
individual contributes a portion of his/her salary to save for
retirement while deferring taxes on that portion of the salary. Taxes
are paid on the contribution and earnings from investments when the
money is withdrawn from the plan.
Free Look Period -
Specified period of time, generally ten days,
during which the annuity owner or the life insurance policy owner may
review the annuity contract or life insurance policy. During this
period, the annuitant or the policy owner reserves the right to return
the annuity or life insurance policy to the insurance company for a
complete refund of the premiums paid.
Front-End Load (Sales Charge) -
A front-end load (or front end sales
charge) is usually associated with Class A shares of a mutual fund. It
is a sales commission, over and above the net asset value of the
shares purchased, which is charged at the time you purchase shares.
It’s computed as a percentage of the dollar amount you’re investing.
For example, if you pay a front load of 3% on a $10,000 transaction,
$300 of your $10,000 is paid to the mutual fund distributor, and the
remaining $9,700 is used to purchase shares. The fund distributor
keeps a small portion of the sales charge for its services, and the
bulk of the sales charge is paid to the selling broker/dealer firm or
financial institution. The agent selling the funds to you receives a
portion of the sales charge from his/her firm. You can find a listing
of the sales charges you will pay in the front of your fund’s
prospectus, or you can ask your broker.
Fund Objective -
A fund’s primary goal-for example, current income,
capital appreciation or preservation of principal.
G ————————————————————————————
General Account -
An account within an insurance company that is made
up of the assets and investments that back the obligations of the
insurance company.
General Obligation Bond -
A type of municipal bond backed by the
issuer’s full faith and credit. See municipal bond.
Gifting -
A living donor, (the person giving), transfers property,
with the intent of making a gift, to a donee, (the person receiving),
for less than its full value. Annual gifts of up to $10,000 per person
gift tax-free are allowed. If married, each spouse can gift up to
$10,000 per year to the same individual gift-tax free. Individuals
gifting above these limits must file a Gift Tax Return in the year
that the gift is made.
Goodwill -
An intangible or non-physical asset, such as value of a
company’s brand or reputation. Goodwill is also the price a company
pays to purchase another company over and above the value of its
physical assets.
Government Agency Bond -
A debt security issued by a U.S government
related agency.
Government Agency Paper -
Short-term debt securities issued by U.S.
government related agencies.
Gross Income -
Total personal income before taxes or other deductions.
Growth Stock -
The stock of a corporation whose sales and earnings are
expanding faster than the general economy.
Guaranteed Renewable -
A provision in term insurance contracts that
allows the owner to renew the policy at the end of its term without
evidence of insurability.
H ————————————————————————————
Health Insurance -
Insurance that covers medical expenses or health
care services.
High-grade Bonds -
Debt securities or bonds with an AAA or AA rating
from an independent rating organization.
Homeowners Insurance -
Insurance that combines liability insurance and
hazard insurance and protects homeowners against property and casualty
damage.
I ————————————————————————————
Illustrations -
Printed projections of a life insurance policy’s
performance based on certain return and premium payment assumptions.
Immediate Annuity -
Involves making a lump-sum payment for the
accumulation phase and the payout phase begins almost immediately.
Income Stock -
Common stock that pays out a relatively large portion
of earnings as dividends, resulting in a high yield for investors.
Individual Retirement Account (IRA) -
A tax-favored retirement account
that allows all earners to make contributions (in many cases, tax
deductible contributions) of up to $2,000 a year and defer income tax
on the IRA earnings until distributions are made from the IRA.
Inflation -
The general increase in the cost of goods and services.
Inflation is often measured by the Consumer Price Index, which
represents a fixed basket of goods such as food, utilities,
transportation, and medical care.
Insurable -
An individual is insurable if he or she is able to obtain
life insurance under the insurance company’s underwriting criteria.
Insurability is usually based upon the individual’s age, health,
occupation and lifestyle.
Insurance Agent -
An individual who will help you with all of your
insurance needs-life, health, disability, long term car, auto, and
home-and may be licensed as a broker to sell mutual funds and
annuities.
Insurer Risk -
The risk that an insurance company will be unable to
meet its obligations to policyholders.
Interest Rate Risk -
The risk that a rise in interest rates will cause
the price of bonds to fall. In general, there is an inverse
relationship between interest rates and bond prices so that when
interest rates rise, bond prices fall and vice versa.
International Bond -
A debt security issued by a foreign corporation
or government.
Investable Assets -
Financial assets that are available for investing.
This would exclude money or securities set aside in an emergency fund
or earmarked for other purposes.
Investment Advisor -
An individual who will help you implement your
plan by managing your investments for a fee based on assets under
management. This option is generally available only for high net worth
individuals with significant assets.
Investment Banker -
An institution that assists corporations in
raising capital from investors through stock offerings, etc.
Investment Management Account -
An account through which a bank or
other institution has the discretionary power to make investment
decisions for an investor.
Investment Vehicle -
An investment product that usually provides the
investor with a diversified portfolio of securities. Examples are
mutual funds, unit investment trusts and variable annuities.
IRC -
The Internal Revenue Code, which is the federal tax law in the
United States.
Irrevocable Trust -
The grantor surrenders control over the property
by transferring it to the trust. The property that is transferred to
the trust is no longer owned or controlled by the grantor; therefore
does no pass through probate and is generally not subject to federal
estate taxes. Transfer of property to an irrevocable trust may cause
gift tax liability. Before you transfer property to an irrevocable
trust, you should ensure that you understand the full ramifications of
your action by consulting your tax adviser.
J ————————————————————————————
Joint Beneficiaries -
Parties that share in any benefits payable under
the life insurance policy. If no beneficiary has been named on the
policy, the benefits usually pass directly to the estate of the
deceased owner, and thereby fail to avoid probate.
Joint Tenancy -
Two or more people own the property. Ownership of the
property belongs jointly to the owners, or tenants, as determined by
the type of joint tenancy.
Junk Bonds -
Below investment-grade bonds that provide high yields
with high risk.
K ————————————————————————————
KEOGH Plan or H.R. 10 Plan -
A retirement plan for sole proprietors,
partnerships, and unincorporated professionals. Keogh plan can be
either a defined benefit or a defined contribution plan.
L ————————————————————————————
Large Cap Funds -
Mutual funds that primarily invest in stocks of
large corporations such as those found in the S&P 500 like General
Electric, Wal-Mart or Microsoft. Large Cap funds typically invest in
companies with a market capitalization greater than $5 billion.
Leading Economic Indicators -
A group of economic activity reports
that tend to foretell an upswing in general economic activity.
Lehman Government/Corporate Bond Index -
Index made up of government
and investment-grade bonds maturing in one to ten years.
Level Load -
A level load is usually associated with Class C shares of
a mutual fund. It is a sales charge deducted from the net asset value
of the shares held by an investor. For example, if you buy 1,000
shares of a mutual fund that has a 1% (annualized) level load, with a
share price of $30, the total worth of a your shares is $30,000.
Assuming the fund’s NAV remained the same, you’ll be charged a 12b-1
fee of 1% of that amount to pay the load (sales charge), or $300. That
12b-1 fee used to pay the sales charge would bring the worth of your
holdings in the fund to $29,300, assuming there were no income (for
the sake of our illustration). In actual operation, the 12b-1 fee is
deducted monthly, like other fund expenses, and 1/12th of the annual
fee is assessed on the average value of your account during the month.
Leverage -
Using borrowed funds in addition to invested equity in a
financial undertaking.
Liability -
A financial obligation, debt, or claim against a person
institution.
Life Insurance -
An insurance policy that pays a death benefit to the
beneficiaries when the insured dies.
Limited Partnership -
A partnership formed by a general partner (who
usually provides management expertise) and one or more limited
partners (whose liability is limited to the amount invested) to engage
in a financial venture.
Limited-Pay Life -
A whole life insurance policy where the premiums
are paid for a limited period of time such as 20 years or until age 65
rather than for the life of the insured. At the end of the payment
period, the policy becomes “paid-up” and guarantees death benefit
protection in the face amount for the remainder of the insured’s life
without further premiums.
Liquidity -
The ability of an asset to be converted into cash quickly
and without significant loss of value.
Listed Stock -
Stock which is traded on a securities exchange.
Living Trust -
A trust established during the lifetime of the person
creating the trust, rather than under the person’s will. Also known as
an inter vivo trust.
Load -
A sales charge on the purchase of certain mutual funds.
Long-Term Care Insurance -
An insurance policy that provides medical
and nursing home benefits for the chronically ill or disabled.
Long-Term Disability -
Generally pays the insured income benefits in
the event of a disability that lasts beyond 90 days, and the benefits
are usually paid to a certain age, such as age 65.
Long-Term Growth of Principal -
Increase in the value of an investment
over a sustained period-typically 12 months or longer.
Margin -
The value of securities and cash in a brokerage account that
an investor may borrow against in order to buy more securities.
Margin Call -
A request by a broker for additional cash in order to
bring the equity in a customer’s margin account up to the margin
maintenance requirements that the stock exchange sets.
Market Risk -
The risk that an overall decline in the stock market
will have a negative impact on the securities you own. The decline in
value can be dramatic and possibly last for some time. Although the
companies in which you are invested may be doing well, if there is a
general decline in stock prices your shares may decline in value
anyway. It is difficult to avoid the impact that a widespread drop in
the market can have on individual stocks.
Maturity Date -
The date upon which the contract must be annuitized.
Some insurance companies strictly enforce the maturity date, requiring
that the annuitant select a specific payout option or surrender the
contract. Other insurance companies notify the annuitant that the
contract has reached its maturity date but allow the annuitant to
maintain the contract as a deferred annuity and do not force
annuitization.
Medium-Term Bonds -
bonds that have remaining maturities of 3 to 10
years.
Mid Cap Funds -
Mutual funds that primarily invest in stocks of
corporations with a market capitalization greater then $1 billion but
less than $5 billion.
Minimum Rate Guarantee -
The minimum fixed interest rate an insurance
company pays on the cash value of a policy. The minimum rate
guaranteed is stated in the insurance contract. Insurance companies
are required by state law to pay a certain minimum guaranteed rate.
Model Portfolio -
An asset allocation model that has been created
using statistical analyses of the various asset classes and subclasses
to meet a given risk profile.
Modified Endowment Contract -
A category of life insurance contract
created by legislation passed by Congress in 1988. A policy becomes a
Modified Endowment Contract (MEC) when premiums are paid into the
contract in excess of the so-called seven-pay test. The purpose of the
law is to discourage policyholders from making very large premium
payments during the first seven years of the contract in order to
create a “paid up” policy. When a contract becomes an MEC, a policy
loan may be taxable and subject to penalties. Partial surrenders of
MEC’s are treated as first being a taxable distribution of earnings
rather than a non-taxable return of premium. Taxable distributions
from a MEC taken prior to the owner’s age 59-1/2 may also be subject
to an Internal Revenue Code of 10%.
Money Market -
The market for borrowing and lending large amounts of
short-term funds. Money-market instruments include notes, negotiable
certificates of deposit, Treasury Bills, and the like.
Money Market Accounts -
Federally insured accounts (with banks and
other financial institutions) that pay rates established by the bank
based upon money-market yields. Money Market Mutual Funds, however,
are similar to Money Market accounts but are not federally insured.
Money Market Deposit Accounts -
A highly liquid account offered by
banks that typically provides a higher interest rate than that of a
savings account. The account is FDIC insured and its rate of interest
is usually sensitive to changes in market rates.
Money Market Mutual Fund -
An open-end mutual fund which invest only
in cash or cash equivalents. The fund’s net asset value remains a
constant $1 per share, although not guaranteed, and the interest rate
fluctuates with the market.
Morningstar -
A mutual fund and variable annuity research and
reporting company.
Mortality Cost -
The amount of money the insurance company charges
(usually monthly) for providing the death benefit in a universal life
policy or a variable universal life policy.
Mortgage Securities -
Securities, usually bonds, that are backed by a pool of mortgages. The
interest and principal payments are passed through to investors each
month.
MSCI-EAFE -
(Morgan Stanley Capital International-Europe, Australia, Far East)
Index - Follows approximately 1,000 of the largest stocks in Europe
and Asia.
Municipal Bonds -
A bond issued by a state, a municipality, or a state agency or
authority for the purpose of funding some governmental function,
which pay interest that is exempt from federal income tax.
Municipal Bond Fund -
A mutual fund that invests primarily in bonds and debt securities
issued by states or municipalities. The objective of most municipal
bond funds is to provide current income that is exempt from federal
income taxes while protection the principal from decreasing in
value. Both the net asset value and the monthly income can fluctuate
with changes in interest rates.
Mutual Fund -
An investment company that enables its shareholders to
pool their funds for professional management as a single investment
account.
1155 E. Commerce Blvd.
P.O. Box 183
Slinger, WI 53086
Fax (262) 644-7777
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