Webb & Associates Mutual Fund Glossary

1 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

1

12b-1 Fee
A fee for the promotion, sale or other activity connected with the distribution of its shares, determined annually as a flat dollar amount or as a percentage of the company's average total net asset value during the year.

30 Day Distribution Rate
A figure that indicates what the 12 Month yield would be only taking into account the most recent distribution and the month-end offer price. While yield calculations use the actual distributions over the most recent 12 months, the 30 day distribution Rate is calculated by annualizing the last distribution and dividing by it's offer price.

30 Day Distribution Rate - Defined
The basic formula for the 30 Day Distribution rate is as follows:

30 Day Distribution Rate =

Most Recent Distribution * Distribution Frequency
-------------------------------------------------
              Month End Offer Price

For Example, a fund had an 11/30/95 Income Dividend of $.03727 and a month-end NAV of $9.84. The fund pays dividends monthly and has a maximum load fee of 2.25%. Given these variable, the expanded version of the formula must be used:

30 Day Distribution Rate =

Most Recent Distribution * Distribution Frequency
-------------------------------------------------
   Month End Net Asset Value / (1-Max Load/100)

30 Day Distribution Rate =

      .03727 * 12          .03727 * 12
----------------------- = -------------
9.84 / (1 - 2.25 / 100)   9.847 / .9775

30 Day Distribution Rate =

 .4472
------- =.0444 = 4.44%
10.0737

This 4.44% is the estimated amount of the funds return which is attributable to income.

A

Accumulation Value
A unit of measurement to determine the value of each sub-account, determined by the same process as the NAV of mutual fund shares. Such units are valued daily to reflect investment performance and the prorated daily deduction for expenses, including management fees.

Alpha
A measure of risk adjusted performance used to quantify the difference between the security's actual performance and the performance anticipated in light of the security's risk (beta) and the market’s (relative market index) behavior. In short, alpha tells how much better, or worse, a security did relative to what it was expected to do based on its risk posture. A positive alpha indicates a security's return has been more than commensurate with its risk posture. Higher numbers are better than lower.

Alpha - Detailed Definition
In calculating the alpha, the underlying component of risk is the beta coefficient. Alpha is the difference between the security's actual performance and the performance anticipated in light of the security's risk (beta) and the market's behavior. The market behavior is determined by the security's investment category's related index.* In short, alpha tells how much better (or worse) a security did relative to what it was expected to do. Alpha is calculated using three years of history, and it is expressed in compound annual form, plus or minus.

Modern portfolio theory tells us that the performance expected of a security can be divided into two parts. The first part is the return on U.S. Treasury Bills, which is virtually risk-free and available to all securities, regardless of the amount of risk actually incurred. The second part is the risk premium (i.e. the excess return over and above the T-Bill rate), which is a function of risk and which, therefore, should be proportional to the security's beta coefficient.

If a security's actual performance exceeds its expected performance, then risk-adjusted return will be positive, and vice-versa. A positive risk-adjusted return indicates that the manager has been successful at security selection and/or market timing, and has produced a rate of return which is more than commensurate with the security's risk posture. It's this kind of superior performance that investors should be seeking.

For statisticians, the alpha coefficient in the a intercept in the regression equation y = a + bx, the same equation used to calculate the beta coefficient. The following illustration might help. Let's assume that a particular security has a beta of 1.20 and that the market was up 10% more than the return on risk-free T-Bills. In this case, the security should have out-performed T-Bills by 12% (1.20 x 10%). But in reality the security's actual performance was 15% better than T-Bills. Accordingly, its alpha or risk-adjusted return would be 3% (15% actual minus 12% expected). The security, given its own risk experience, did 3% better than it was expected to do.

*A security's alpha and beta are calculated in relation to a market index. All securities are linked to an appropriate index based on their investment objective.

Ask
The price at which a dealer is willing to sell a security.

AUV (Accumulation Unit Value)
A unit of measurement to determine the value of cash sub account unit, determined by the same process as the NAV (Net Asset Value) of mutual fund shares. The AUV is calculated by taking the NAV and adjusting it for insurance expenses (M&E rate and administration expenses).

Average 3Yr Median Market Capitalization
A figure derived from the weighted average of median market capitalization figures for the stock indexes underlying the factors. The figure is the effective market capitalization of the US stock portion of a sub account.

Average Annual Total Returns
This figure represents the annualized return for the security, averaged over the specified time period.

Average Annual Turnover Ratio
The turnover ratio is a measure of the amount of buying and selling activity of a security. Turnover is defined as the lesser of securities sold or purchased during a year divided by the average monthly net assets. A turnover of 100 percent, for example, implies that positions are held, on average, for about a year.

Average Bond Quality
The average quality value of all bonds held by the security.

Bond Quality indicates the likelihood of default by the bond issuer. A ratings method based on the range from AAA(highly unlikely) to D (in default) is used to measure the default probability.

Average Coupon Rate
The average coupon value of all bonds held by the security.

A bond's coupon value is the interest rate that the issuer agrees to pay the holder until maturity.

Average Duration
The average Duration in years for all securities held by the fund or sub account.

Duration: Gauge of price sensitivity to interest rates. Expressed in years, duration shows the weighted average time for an investor to realize the current stated yield.

Average Fund Duration
This figure represents the duration of a fund/sub account's entire portfolio, as determined by its US bond factors. Duration is a measure of a bond's lifetime that accounts for the size and timing of the bond's cash flows. Generally, the shorter the duration, the lower the price volatility, all other things being equal. Unlike most measures of duration, since this figure is statistically derived from total returns, it will be diluted by equity factors in the portfolio.

Average P/B
The average P/B for all equities held by the fund or sub account. Price/Book (P/B): The market price divided by stock equity. The ratio shows how much investors are willing to pay for each dollar of company equity.

Average P/E
The average P/E for all equities held by the fund or sub account. Price/Earnings (P/E): The share price of the stock divided by the earnings per share (EPS). The ratio shows how much investors are willing to pay for each dollar of the company's earnings.

Average Years to Maturity
The average number of years until all negotiable instruments held by a fund or sub account become due and payable.

Average Yield to Maturity
The average rate of return on a debt security held to maturity, including appreciation and interest, for all debt securities held by the fund or sub-account.

B

Back-End
See Redemption Fee.

Basis Point
A basis point is equal to .01% of a bond yield. An increase of 100 basis points will be a 1% increase in yield.

Beta
A measure of a security's volatility in relation to the equity market as measured by the market index relative to each security's investment category. This statistic reflects only the market-related portion of a security's risk, and so is a narrower measure than standard deviation, which reflects total risk (market related and unique.) In general, the volatility of the relative market index is considered to be 1.00, so beta of 1.50 would indicate a volatility level 50% greater than that of the market. Since this statistic is relative to the market, betas for securities with little or no correlation to the market are less significant. Consider the R-Squared as a measure of more significance of this statistic.

Beta - Detailed Definition
The beta coefficient is a measure of the security's volatility relative to the market.* Since beta reflects only the market-related portion of a security's risk, it is a narrower measure than standard deviation, which reflects total risk (both market-related and unique). Its very narrowness, however can be revealing. Beta focuses on that portion of total risk which investors cannot reduce by further diversification.

Here's how the beta is computed. First, calculate the monthly returns for both the security and the relative index over the most recent 36 months. Second, express these returns in risk premium form. Do this by subtracting the return on risk-free Treasury Bills, thus reducing each of the monthly observations to numbers indicative of the rewards attained for bearing risk. The resultant risk premiums (sometimes called excess returns) are next expressed in continuously compounded terms, and used to construct a scatter chart. The Y values (security risk premiums) would be scaled along the vertical axis, and the X values (relative index risk premiums) would be scaled along the horizontal axis. The result, after plotting paired observations, would be a scatter of dots probably clustering around the average of the two sets of monthly returns. Finally, using least squares linear regression techniques, determine the line which seems to better fit the scatter observations. Solving for the slope of that line gives the regression (i.e. beta) coefficient.

The slope of the regression determines the exact relationship between the security's performance and the market's performance over the last three years. Beta can be interpreted, roughly, as the percentage performance of the security which has historically accompanied a 1% move in the relative index. Securities which are about as volatile will have a beta of 1.00; those that are half as volatile will have a beta of 0.50; and those with a beta of 1.50 would be 50% more volatile than the market. Since volatility is a two-way street, high beta securities would be expected to do worse than average during market declines.

Is beta or standard deviation a better measure of risk? In most cases, securities that have a high beta also have a high standard deviation, and vice versa. So, in these instances, either measure would be acceptable in conveying the level of risk experienced. There are certain situations, however, where both the beta coefficient and the standard deviation should be taken into account.

*A security's beta is calculated in relation to a market index. All securities are linked to an appropriate index based on their investment objective.

Bid
The price a mutual fund will pay to redeem shares or price a dealer is willing to buy a security.

Blue Chip
Stock of a large, well-established company with consistent profit growth. Example- Dow Jones 30, like IBM or GE.

Blue Sky Laws
A body of state laws governing registration and distribution of mutual fund shares. All 50 states and the District of Columbia regulate mutual funds. Not all funds are registered for purchase in all states.

Bond
Any interest bearing or discounted government or corporate security.

Bond Rating
See Average Bond Quality.

Book Value
The book value is normally considered as the company's assets minus its liability. Intangibles, like goodwill, are usually excluded from assets.

Bottom Up
Investing strategy that focuses on good firms or securities first, then the industry and economic trends are considered. The theory supposes that a portfolio of well chosen securities will have long-term success in any environment.

Breakpoint
A volume based percentage discount in the load fee charged by a security. Larger amounts invested qualify for increasingly generous discounts.

Buy and Hold Strategy
This strategy emphasizes a more passive management approach. By holding on to assets longer, fund managers minimize the cost of transactions and the tax obligations from capital gains.

C

Calendar Years
The accounting reporting method using January 1 through December 31 as the fiscal year.

Callable
A bond option that allows the issuing company to redeem the security before its scheduled maturity. Bonds are usually called when interest rates drop, allowing companies to issue new bonds at lower rates.

Capital Gains
The profit derived from selling a security at a higher price than that which was paid to acquire it. A distribution of all or some of a mutual security's accumulated net capital gains to its shareholders.

Cash
Highly liquid securities with a known market value.

Cash Equivalents
Highly liquid assets with short-term obligations. Example- Treasury bills.

CDA Rating
A percentile rank (1=best, 99=worst), which is based on the composite performance of each security over five time periods with a penalty assessed for inconsistency. The five time periods are: the latest two down market cycles, the latest two up market cycles, and the most recent 12 month period. If there is limited data, one up and one down market cycle are used. If no data is available for at least one up and one down market cycle, the security is not yet rated. This rating system has been found to be a reliable predictor of consistent performance.

CDA Rating - Detailed Definition
The CDA rating is a percentile rank (1=best, 99=worst), which is based on the composite performance of each security over five time periods with a penalty assessed for inconsistencies. The five periods are: the latest two up market cycles; the latest two down market cycles, and the most recent 12-month period. (If the security has not been around long enough to have two up and two down market cycles, then we use one each. If we cannot compute one up and one down cycle, the security is not rated.)

The composite performance number (let's call it X) is the average of the percentile ranks for the five (or three) time periods, plus 1/2 of the mean absolute deviation of the five (or three) numbers. To illustrate, assume the specific percentile ranks for a particular security over the five time periods are 10, 20, 30, 30 and 10. The average of the five numbers is 20, and the mean absolute deviation is 8. (We get the 8 as follows: Take the sum of the absolute difference between each of the five percentile ranks and the average of 20 - they are 10 + 0 + 10 + 10 + 10, or 40, then divide by 5, which equals 8.) For this security our X is 24 (20 + 1/2*8). Now, let's take another security whose five ranks are 20, 20, 20, 20 and 20. Obviously, the average rank is 20, the same as the first security. However, the mean absolute deviation is 0, so X would remain 20. The second security has a better (i.e. lower) X than the first because its performance is more consistent.

Once X's are computed for all securities, they are ranked and assigned a percentile rating. The final CDA rating is thus a measure of performance over market cycles with a penalty for inconsistency.

CDA Rating Overall
A measure of a fund/sub account's volatility during the market’s up and down cycles. (1=least volatile, 99=most volatile)

Clone Fund
A fund that imitates another successful fund.

Closed-End Fund
A type of fund with a fixed number of shares. Shares of closed-end funds are bought and sold through an exchange like the NYSE, not through the company that manages the fund. The large majority of mutual funds are open-end funds not closed-ends.

Closed Fund
A fund that no longer issues shares. Normally, a fund will close because the fund's manager feels there a limited number of good investments left or because the fund needs to keep net assets low enough to enter and exit holdings quickly.

Commercial Paper
Short-term obligations issued by corporations, banks, or government agencies.

Contract Net Assets
The total value of a variable annuity contract's assets minus its liabilities.

Contrarian
Investor who thinks and acts in opposition to the conventional wisdom; when the majority of investors are bearish, a contrarian is bullish and vice versa.

Conversion Privilege
Ability to switch from one fund to another within the respective fund family without sales fees.

Convertibles
Corporate securities such as preferred shares or bonds that are exchangeable for a set number of another form like common shares at a pre stated price.

Cost Basis
The purchase price of the fund shares.

CUSIP
The American Bankers Committee on Uniform Securities Identification Procedures that established alphabetical and numerical descriptions of securities traded on the exchanges and in over the counter markets.

D

Death Benefit
In the event of the death of the contract owner prior to annuitization, the insurance company will pay the annuity beneficiary the contract’s accumulated value, less any withdrawals, or the amount of premiums paid, less any withdrawals, whichever is greater. Variable annuity contracts never pay beneficiaries less than 100% of the premiums paid.

Dividends
Distributions resulting from the income and dividends from the fund's investments.

Dividend Policy
The yearly dividend distribution schedule.

Dollar-Cost Averaging
Strategy that diversifies the prices of a security by buying a specific amount over set intervals.

Duration
See Average Duration.

E

Eurodollars
U.S. currency held in foreign banks.

Ex Dividend Or Ex Distribution
The date when distributions are deducted from assets.

Expense Ratio
A fund's annual expenses(management fees, 12b-1 fees, and other operating expenses)expressed as a percentage of a fund's average net assets. The total return data provided reflects performance after operating expenses are deducted. F

Fair-Weather Fund
Strong performance during Bull markets.

Foul-Weather Fund
Strong performance during Bear markets.

Front-End Load Fee
A one time sales charge, assessed at the time of a mutual security purchase. Large purchases may qualify for discounts of this fee - see Breakpoints.

Fund Families
Fund management company that manages multiple funds.

Fund Specific 3 Yr Alpha
This is the amount of "extra return" contributed to the security's total returns through the skill of the manager in selecting individual stocks or bonds, or in making tactical allocations among those asset classes.

"Extra return" means the value added by a security's manager compared to the returns that would have been obtained by investing in index securities in the same proportion as the security's factors.

Negative alphas indicate that a security under-performed a collection of index securities weighted in proportion to the security's factors.

Future Value
The calculated value of a specified current investment, compounded at a fixed rate over a set number of years.

G

Global Fund
A fund that invests in both foreign and domestic securities. These funds differ from traditional international funds because they can keep a significant portion of their assets in U.S. stocks and bonds.

H
I

Inception Date
The date a security commenced operations.

Income Distributions
A distribution to a security's shareholders of the accumulated net income from investments.

Index
A hypothetical, unmanaged, often weighted portfolio of securities, the performance of which is used as a benchmark in measuring performance of actual securities such as mutual securities or of markets in general. Common examples are the Dow Industrials and the Standard & Poor's 500.

Index Fund
A fund designed to match the performance of a particular index. For example, an S&P 500 index fund would buy the same companies and their weightings as found in the S&P 500. This is more of a passive management style which should convey lower management fees to investors.

Initial Investment
The investment made on the beginning date (From date) of the illustration. This is set on the Hypothetical View Settings General tab in the initial investment field.

Initial Public Offering(IPO)
A corporation's first offering of stock to the public.

Internal Rate of Return
This is the rate of discount at which the present value of future cash flows is exactly equal to the initial capital investment.

Internal Rate of Return - Defined
If a security experiences no contributions or withdrawals of capital subsequent to initial investment, the measurement of rate of return over a specified period of time is relatively simple. For example, given a beginning investment cost (C) of $100 and ending portfolio value (V) of $106.70, the percentage return can be computed by V/C -1 = 6.7%. If it is desired to convert this percentage into an annual rate of return, the formula becomes (V/C)^1/y -1, where y is the time period expressed in years. Thus, in the forgoing illustration, had the time period been 73 days (1/5 year), the annual rate of return would have been (1.067)^5 -1 = 38.3%; and had the time period been 1095 (three years), the annual rate of return would have been ((1.067)^1/3) - 1 = 2.2%. In more general terms, V= C(1 + r)^y where r is the annual rate of return compounding annually.

The problem becomes somewhat more complex, however, if contributions and withdrawals of capital occur during the specified time period. Under these conditions the quotient V/C becomes meaningless since C would be composed of discrete increments and decrements some or all of which would apply to only a part of the time period. That is, if new money is contributed it is available to investment only from the date of contribution to the end of the time period; and if capital is withdrawn, performance on that capital is only possible from the beginning of the time period to the date of withdrawal. Consider the following example:

Month No.        Beginning of Month             End of Month
             Contribution or (Withdrawal)      Portfolio Value
--------------------------------------------------------------
    1                    $100                       $106

    8                     --                        $110

    9                  ($50) --                      $50

    18                    --                         $40

    19                   $250                       $320

    24                    --                        $330
The ratio of value to cost (V/C) at the end of the time period is 1.100. This does not mean, however, that the rate of return for the two-year period was 10% (4.9% per year). To find the annual rate of return, the interest rate which would produce sufficient profits (losses) to equalize the contributions (withdrawals) and the value of the ending portfolio must be determined. The general formula is V = C1 (1 + r)y1 + C2 (1 + r)y2 ... + Cn ( 1 + r)yn where C1 is the contribution ( if positive) or withdrawal ( if negative), and y1 is the remaining time period in years when the contribution or withdrawal is made.

Solving the above formula is an iterative process. Successive trials for r must be made, each trial more closely approximating the true return. In the preceding illustration, 330 = 100 (1 + r)2 - 50 ( 1 + r )4/3 + 250 (1 + r )1/2. Using detailed compound interest tables, logarithms or an electronic computer, the correct value of r can be obtained. A trial of r = 11% yields 330 = 329.14; a trial of r = 12% yields 330 = 331.86. The approximate annual return is 11.3%; this is the rate at which the specified contributions would have had to had been invested to produce the ending portfolio value of $330 in two years, while allowing for a $50 withdrawal at the beginning of month 9.

The above described "dollar weighted" return has two advantages. First, in the case of a pension security, it produces a rate which can be compared against actuarially computed requirements. Second, it necessitates only one valuation of the portfolio -- at the end of the period.

These advantages are countered by one disadvantage of major significance. Portfolio managers usually have no control over the timing or amount of contributions to and withdrawals from a security. The fact that the portfolio illustrated above performed well from months 19 through 14 when the greatest dollar amount was invested, and poorly from months 9 through 18 when the least dollar amount was invested, was happenstance as far as the portfolio manager was concerned. Certainly the portfolio benefited from the varying dollar investments in this instance; but the benefits should not be credited to the skill of the manager. In measuring investment management ability, some method of eliminating the effect of varying "dollar weights" should be utilized.

Investment Category
The stated purpose or goal of a security's operations. This term often determines the types of investments the security makes, the results expected, and the level of risk with which it is associated.

Investment Grade Bonds
Bonds with ratings of BBB or above.

IRA (Individual Retirement Account)
Originally, IRAs were individual pension accounts available to anyone not covered at work by a qualified pension plan. Effective January 1, 1982, all wage earners, including those already in company pension plans are able to make tax-deferred contributions to IRAs. An individual can put away an extra $2,000 per year, or a total of $2,250 if there is a nonworking spouse, and let earnings accumulate tax-deferred until age 59 1/2.

J

Junk Bonds
Bonds with ratings of BB or below.

K
L

Last Capital Gain
The dollar amount and date of the most recent capital gain distribution made by a security.

Last Income Dividend
The dollar amount and date of the most recent income distribution paid by the security.

Leverage
Debt in relation to equity in a company's financial structure.

Leverage Buy out
The practice of buying a company using borrowed funds or replacing existing equity with debt.

Load
Sales fee that is charged when shares are purchased(front-end) or sold(back-end).

Load Adjusted Returns
More commonly known as SEC returns, these figures are calculated using the formula in form N-1A for mutual funds and form N-4 for variable annuities as mandated by the Securities and Exchange Commission. The calculations take into account the maximum sales and/or redemption charges currently in effect, and any annual expenses assessed. The figures assume a one-time lump sum investment and do not include the effect of taxation.

Load Type
The type of sales charge on a particular, security investment. There are basically four types of loads: front-end, back-end, level , and no-load. A front end load is a sales charge applied upon initial purchase of shares. (typically 'A' shares) A back-end load is a sales charge applied when an investor withdraws money from an investment within a specified time period. (typically 'B' shares The amount and duration of the charge is specific to each security. A level load is a sales charge that remains constant over time. (typically 'C' shares) A no-load indicates the nonexistence of any type of sales charge.

M

Management Fee
The amount paid by a mutual fund to the investment adviser for its services; the industry-wide average annual fee is about one-half of 1 percent of fund assets.

Market Timing
Buying and selling funds (or any security) based on economic indicators or market forecasts.

Market Value
The current share price of a security.

Maximum Front-End Load
The utmost sales charge that can be assessed up-front to invest in a security. The front-end load fee is assessed at the time of purchase, with the charge amount often dependent on the dollar amount of the purchase.

Maximum Redemption Fee
The utmost charge that can be applied towards a shareholder who sells shares within a specified time period.

Maximum Sales Fee
The largest sales charge that can be assessed. See also Maximum Front-End Loadand Maximum Redemption Fee.

Maximum Surrender Charge
The utmost charge that can be applied towards a policyholder upon cancellation of a policy.

Median
The median is the "middle" value in a distribution, above and below which lie an equal number of values.

Minimum Initial Purchase/Investment
The lowest amount of money that one can invest in a security for the first time.

Minimum Reinvestment
The lowest additional amount of money that can be invested into a security after an additional investment.

Momentum Following
Buying a mutual fund with rising annual returns. Selling a fund with declining returns. Can also be associated with rising and falling net assets.

Mortality and Expense Ratio
The percentage of a sub account's assets that an insurance company deducts to cover the costs associated with the obligation to pay guaranteed death benefits.

Moving Averages
An average of a securities prices over a specific period of time, used a lot with commodity prices to show trends.

MPT Statistics
Statistics common to a discipline known as Modern Portfolio Theory. These figures are commonly used to evaluate risk and other factors relating to securities. See Alpha, Beta, R-Squared, and Standard Deviation.

Municipal Bond State
A debt obligation that involves a specified state as the issuer of securities.

N

NASD
National Association of Securities Dealers. Organization formed to enforce SEC regulations through its membership.

NAV or Net Asset Value
A mutual fund’s share price, computed by subtracting total liabilities from total assets and dividing by the number of shares outstanding.

Net Assets
The difference between a mutual fund's or variable annuity's total assets and liabilities.

Net-investment Income
Dividends and other income distributed to mutual fund shareholders. Usually stated as income per share.

Net-realized Capital Gains
Gains realized through the selling of securities that have increased in value. Net-realized capital losses occur when funds sell securities that have decreased in value by an amount greater than securities that have increased in value.

No-Load Fund
Fund without an up front or back-end sales fee. However, there are no-load funds that have redemption fees for a short period of time. These fees are designed to prevent short-term investors from buying and selling on a daily basis.

O

Option
The right to buy or sell a security at a certain price within a specified period of time. The option itself is a contract and has fluctuating price entitling the holder to buy or sell if exercised. Call options allow the holder to buy a security whereas Put options allow the holder to sell a security.

Other Insurance Expense
All insurance related charges other than the Mortality and Expense charges. The fee also includes administrative charges.

Over-The-Counter(OTC)
Over-The-Counter securities are bought and sold through dealers rather than through the floor of an exchange. Because most OTC securities are too small to be traded on the New York or American stock exchanges, dealers make markets for these securities through Bid and Ask prices. The NASDAQ provides these price quotations.

P

Policy Fee
An expense that is charged by a variable annuity contract to cover the maintenance of annuity records.

Portfolio Composition
A percentage breakdown of securities holdings in several specified categories.

Preferred Stock
Class of stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets.

Premium Type
Two main types of premiums exist for variable annuities - single and flexible. A single premium type is one that offers a single lump-sum payment option. A flexible premium type is one that offers multiple payment options, throughout the life of the contract. Payments may be of any size as long as they are above any minimum or maximum amount specified by the insurance company's guidelines.

Premium/Discount
Premium and discount refer to the current Market Price for a closed end fund compared to its NAV.

A closed end fund selling at a premium has a market price higher than its NAV.

A closed end fund selling at a discount has a market price less than its NAV.

                   Share Price-NAV
Premium/Discount = ---------------
                         NAV
Premiums appear as positive values, while discounts appear as negative values.

Present Value
The current value of a future payment or stream of payments, adjusted for fixed rate compounding.

Private Purpose Bonds
Category of municipal bond where 10% or more of the bond's benefit goes to private activities. These bonds are taxable unless specifically exempted.

Prospectus
A document mutual funds are required to send to investors before they are allowed to enter the fund. Prospectuses include information regarding: fees and expenses, objectives and strategies, buying and selling, risk factors, distributions, management and organization history, and other services.

Public Purpose Bonds
Category of municipal bond exempt from federal income tax.

Q
R

Re balancing
The act of setting a portfolio of securities back to its original target percentages for each asset class.

Redemption Fee
A deferred charge imposed when a fund is sold. These fees are normally used to prevent short-term investors from buying and selling on a daily basis.

Reinvestments
The return of any cash flows (i.e. income and capital gains) from a security back into its investment.

Risk or Investment Risk
Market Risk The uncertainty due to change in the general level of market prices for investments, caused by political, social, and/or economic changes; systematic risk represented by the fund's beta.
Inflationary Risk The uncertainty that investments will not keep pace with inflation and purchasing power will be reduced.
Currency Risk The uncertainty that currency fluctuations may affect the value of foreign investments or profits when converting them into the investor's local currency
Event Risk A company may become the subject of a takeover bid or leveraged buy out involving additional debt, so that its existing bonds are downgraded.
Interest Rate Risk The risk that interest rates may rise and decrease the value of an investment
Credit Risk The risk that a company, agency, or municipality may experience difficulty in paying its debts.

R-Squared
A measure of a security's diversification in relation to the market, this statistic indicates the percentage of a security's risk which cannot be eliminated through further diversification. In precise percentage terms, this figure indicates just how closely a security's performance variation paralleled the market over the same time period. Lower figures indicate less correlation with the market, and hence lower significance of the beta statistic. A relative market index is used as a proxy for the market when measuring R-Squared.

R-Squared - Detailed Definition
When the word diversification is mentioned, most investors think in terms of how well a portfolio's assets are dispersed among various asset classes. A sector security that concentrates all of its assets in one industry group or market sector is obviously non-diversified. Whereas, another security whose assets are spread fairly uniformly among a large assortment of security types, industry groups, and market sectors, may be considered to be a well-diversified security.

Findafund's use of the statistical measure known as R-squared is a little different. Findafund uses the particular security's investment objective's related index as a proxy for the market.* In precise percentage terms, the R-squared explains just how closely a particular security's performance variation paralleled the market over the same three-year time period. R-squared explains what percentage of the security’s risk is market-related, and thus cannot be eliminated by diversification. Conversely, it also explains what percentage of the risk is unique to the security, and thus susceptible to reduction if the security were more diversified (i.e., more like the market).

A completely diversified security will be perfectly correlated with the market, and will have an R-squared of 100%. In other words, the security’s results have so perfectly emulated the market's results (such as might be the case with an index security), that the security is 100% as diversified as the security's related index. A security with an R-squared of 75%, for example, is only 75% as diversified as the security's related index. This means that 75% of the security's risk is market-related, and the other 25% is attributable to the security's unique characteristics. Obviously, our underlying premise is that the security's related index is representative of a fully-diversified portfolio.

It is not suggested that security investors discard more traditional approaches to the analysis of security diversification. If one is more comfortable with the process of reviewing individual portfolio detail, by all means continue to do so. Findafund finds the R-squared concept to be particularly useful when faced with the prospect of screening a very large universe of available mutual securities.

*A security's r-squared is calculated in relation to a market index. All securities are linked to an appropriate index based on their investment objective.

S

Sector Weightings
The breakdown of a fund’s holdings in each of the major industry classifications.

Shares
A measurement of the amount of ownership in a corporation.

Sharpe Ratio
A measure of risk-adjusted performance calculated by dividing the excess return of a portfolio above the risk-free rate by its standard deviation. Higher values are desirable and indicate greater return per unit of risk.

Signature Guarantee
Written confirmation by a financial institution such as a bank or brokerage firm that a customer's signature is valid.

Small-Cap
Companies with market capitalization less than $1 billion.

Spread
Difference between the Bidand Ask prices.

Standard Deviation
A statistical measure of the month-to-month ups and downs of a securities returns. Money-market securities, which have stable asset values, have standard deviations of zero. Volatile, aggressive-growth portfolios can have standard deviations of 6 percent or more.

Standard Deviation - Detailed Definition
Risk may be defined in terms of the uncertainty of the expected return, and uncertainty is generally associated with variability. Available empirical evidence indicates that investors demand and receive a higher level of return with increased variability, thus suggesting that variability and risk are related, if not synonymous. Surely, investors would consider it less risky to receive a 12% annual return at the approximate rate of 1% each month, rather than at the rate of 20% the first month, -11% the second month, etc. Consistency in expected return permits rational investors to estimate the value of their investment throughout specific holding periods, in the event that adverse circumstances should force them to liquidate prematurely.

The standard deviation is used to measure the average variability of the monthly returns for individual securities and market average over the most recent 3-year period. It reflects the dispersion of the monthly returns around their average. Specifically, the standard deviation is calculated by:

  1. Computing the average of the 36 most recent monthly returns
  2. Expressing each month’s return in terms of its deviation from the average
  3. Squaring each of the monthly deviations (which both eliminates the minus signs and gives more weight to extreme deviations)
  4. Determining the average of the 36 squared deviations
  5. Computing the square root of the average
In simpler terms, standard deviation gives a feel for how a security's performance has been over the last 3 years. The number can be used in the absolute. If a security's standard deviation were, let's say, 3.6%, then its return for 2 out of every 3 months would fall within a range of plus or minus 3.6 percentage points from the security's average return. Generally, standard deviation is used in a relative sense, to compare one security's risk against another, or to compare one security’s risk against similar results for certain market indexes. If the standard deviations for Security A and Security B were 8.0 and 4.0, respectively, then Security A has experienced twice as much variability as Security B.

Standard deviation is shown as an annualized number.

Standardized Returns
Returns that have been adjusted for sales fees, both front-end and back-end.

Statement of Additional Information
Supplemental information about the fund that is not required to be in the prospectus.

Stock
Ownership of a corporation represented by shares.

Subsequent Investment
An investment of additional money into an existing account.

Surrender Charge Period
The time frame that an insurance company can charge policyholders for an early withdrawal.

Surrender Value
The amount that the insurer will return to the policyholder upon cancellation of a policy.

Symbol
A 5 letter identifier for mutual funds. (usually an abbreviation of the fund name)

T

Time Horizon
The period of time one can stay invested (eg. number of years to retirement). Longer time horizons can reduce volatility risk.

Top Down
Investment strategy which looks at the economic outlook and overall industries first, then which companies will benefit the most from a favorable forecast.

Top Holdings
A listing of corporations that a mutual fund is primarily invested in, this information is required by the SEC to be updated on a semiannual basis.

Total Returns
The annual return on an investment that includes income, capital gains, and interest.

Transfers
The act of moving income, capital gains and/or cash from on security to another.

Treynor Ratio
A gauge of risk-adjusted performance calculated by dividing the excess return of a portfolio above the risk-free rate by its beta. Higher values are desirable and indicate greater return per unit of risk.

Turnover Rate
See Average Annual Turnover Ratio.

U

Unit Investment Trust
Investment portfolio of a specific amount of fixed-assets that is unchanging until the maturity of all securities within the portfolio. In Britian, open-end mutual funds are called Unit Trusts.

V

Value Investing
Strategy of buying undervalued securities. These securities will usually have low P/Eand P/B ratios. Many securities become undervalued because they don't garner enough attention from the Market.

V

Withdrawal
The act of selling a specified dollar value or number of shares of a security on a one-time, systematic or variable basis.

Wrap Fee
A "Wrap" Account (or "Wrap" Fee) is a tailor-made, professionally managed stock or bond portfolio designed to assist investors in devising an asset allocation strategy to meet their individual needs. Conceptually, "Wrap" Accounts are just like mutual funds offering investors options such as Automatic Investment and Redemption Plans and Exchange privileges. Generally, a recommended allocation is suggested and the investor has the option to have his account automatically rebalanced to meet this recommendation on a periodic basis. Investors can also have their investment needs re-evaluated regularly or as needed.

The rolling load is the latest twist on the "Wrap" Accounts now being offered by some banks and full-service brokerage firms. With these accounts, investors have access to no-load funds but are charged an annual "Wrap" Fee. So instead of paying an up front load or sales commission, they pay a fixed rate fee every year. Initial investment amounts are usually higher than those imposed by Mutual funds.

X
Y

Year-To-Date Returns(YTD)
The year-to-date return on an investment that includes income, capital gains, and interest.

Yearly Total Returns
The sum of a security's return for a 12 month time period corresponding to calendar years.

Yield
The total amount of income distributions for the preceding 12 months divided by the net asset value. The yield should not be confused with the total return which includes capital gains and losses.

Z

Zero Coupon Bond
Fixed-asset that does not pay interest until maturity.