Mutual Funds Glossary

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Active Management

Ongoing supervision of a portfolio and its holdings to achieve maximum results. Active management is one of the main benefits of investing in a mutual fund.

Adjustable Rate Mortgage Funds (ARMs)

A fund that invests primarily in adjustable rate mortgage securities. Funds in this category usually attempt to maintain a relatively stable net asset value, but can still be volatile in times of rising or falling interest rates. During periods of rising interest rates, investors stand to make more money, but homeowners faced with the prospect of paying more tend to prepay, prematurely canceling the investor's expected income. During periods of falling interest rates, the value of adjustable rate mortgages decreases relative to other fixed income securities.

Adviser

The company that takes primary responsibility for managing a mutual fund. The adviser receives an annual fee for this service, usually ranging between 0.50% and 1% of a fund's total assets.

Agressive Growth Funds

A fund with an investment objective of rapid growth of capital. Aggressive growth funds usually include funds that invest in smaller companies, funds that invest heavily in a single industry, and funds that employ riskier investment techniques such as leveraging and short selling.

AMBAC Indemnity Corporation

One of the largest private insurers of municipal bonds. This insurance provides that the bonds will be purchased from an investor at par value should the bond issuer default. Municipal bond funds featuring insured bonds tend to provide a higher degree of safety than funds without such insurance, but they also tend to offer a lower yield.

Annual and Semi-annual Reports

Reports issued twice a year to a fund's shareholders detailing the fund's performance, portfolio holdings and current investment strategy.

Appreciation

An increase in a fund's value.

ARMs (Adjustable Rate Mortgage Funds)

ARMs are mortgages that require the real estate buyer to pay an interest rate that is periodically adjusted. The amount of the rate is tied to some index outside the control of the lender, such as the interest rate on U.S. Treasury bills. Like fixed-rate mortgages, ARMs are often grouped by a government agency and sold as a single security, with investors receiving payments out of the interest and principal on the underlying mortgages. Funds that invest primarily in these ARM-backed securities are called Adjustable Rate Mortgage Funds.

Asian Funds

A fund that invests primarily in the stocks of companies located in Asia. These funds appeal to investors who believe that Asia potentially represents a growth area, and want to capitalize on that growth.

Ask Price

Also known as the offering price, the ask price is the amount at which a mutual fund's shares can be purchased. To calculate the ask price, add a fund's current net asset value per share to its sales charge, if any.

Asset allocation fund

A fund that invests in a variety of asset classes, including domestic and foreign stocks and bonds, money market instruments, precious metals, and real estate. Some asset allocation funds maintain a relatively fixed allocation between asset classes, while others actively alter the mix as market conditions change.

Asset-backed security

A debt instrument collateralized by credit card receivables, auto loans, or other assets and securitized by a bank or other financial institution.

Assets

A fund's investment holdings and cash. Holdings can include stocks, rights, warrants, options, bonds, CDs, RANs TANs and BANs.

Automatic Investment

A shareholder service that allows the periodic withdrawal of a specified amount from the shareholder's bank account to be invested in his or her mutual fund account. Some mutual fund groups also offer this service as a payroll deduction plan. (See also "dollar cost averaging.")

Automatic Reinvestment

A shareholder service that authorizes dividend and capital gain distributions to automatically purchase more fund shares. Taxes still must be paid on the amount reinvested even though no funds are received directly by the investor.

Automatic Withdrawal

A shareholder service that entitles an investor to fixed payments, every month or quarter. The payment comes from the dividends, income and/or realized capital gains on securities held by the fund. This service is often chosen by retirees who want to receive a regular income supplement.

Average Annual Total Return

A standard measurement of fund performance that includes dividends, gains, and changes in share price.

Average Life

The weighted average maturity date of a portfolio of bonds.