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1035 Exchange

Section 1035 of the Internal Revenue Service Code allows the movement of non-qualified monies from certain financial products to others without an income tax consequence. This is called a "1035 Exchange." A 1035 Exchange allows non-qualified monies from an annuity to move to another annuity, from a life insurance policy to another life insurance policy, or to move from a life insurance policy to an annuity. An exchange from an annuity to a life insurance policy is NOT a 1035 Exchange and may result in income tax consequences.

12b-1 Fee

A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.

401(k) Plan

A defined contribution plan, established by an employer. It enables employees to make pretax contributions by salary reduction agreements structured within the format of a cash or deferred plan.

403(b) Plan

A defined contribution plan established by certain tax exempt organizations and public schools for their employees.

457 Plan

A tax-exempt deferred compensation program made available to employees of state and federal governments and agencies. A 457 plan is similar to a 401(k) plan, except there are never employer matching contributions and the IRS does not consider it a qualified retirement plan. Participants can defer some of their annual income (up to an annual limit), and contributions and earnings are tax-deferred until withdrawal. Distributions start at retirement age but participants can also take distributions if they change jobs or in certain emergencies. Participants can choose to take distributions as a lump sum, annual installments or as an annuity. Distributions are subject to ordinary income taxes and the amounts cannot be transferred into an IRA.

Accident indemnity rider

An optional benefit that will increase the death benefit amount if your death is due to an accident.

Accrued Interest

Interest that has accumulated, but has not been paid yet.

Accumulation value

See "Cash value".

Active Management

The trading of securities to take advantage of market opportunities as they occur, in contrast to passive management. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

Affiliated Service Group

An affiliated service group is a group of related employers in which the relationship is comprised of two or more organizations that have a service relationship and, in some cases, an ownership relationship.

After-Tax Contributions

An amount or percentage of pay an employee elects to contribute from pay, after taxes are calculated and withheld.

Aggressive

An investment approach that accepts above-average risk of loss in return for potentially above-average investment returns.

Aggressive Growth Fund

An investment fund that takes higher risk of loss in return for potentially higher returns or gains.

Alternate Payee

An alternate payee is a spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order (DRO) as having a right to receive all or a portion of the benefits payable under the qualified retirement plan with respect to the participant.

American Depositary Receipts (ADRs)

An American Depositary Receipt (ADR) represents ownership of shares of a non-U.S. company and trades on U.S. securities exchanges.

Annual Rate of Return

The annual rate of gain or loss on an investment expressed as a percentage.

Annual Report

A yearly report or record of an investment's (e.g., a mutual fund's or company's) financial position and operations.

Annuitant

The person whose life expectancy determines the amount of VA payments or the person who receives annuity payments.

Annuity

A form of insurance contract that provides a stream of periodic payments, typically for life. Annuities are available in a variety of forms. See also Life Annuity, Joint and Last Survivor Annuity.

Appreciation

An increase in the value of an investment.

Asset

Anything with commercial or exchange value owned by a business, institution or individual. Examples include cash, real estate and investments.

Asset Allocation

A method of investing by which investors include a range of different investment classes - such as stocks, bonds, and cash equivalents - in their portfolios. See Diversification.

Asset Class

A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash equivalents (e.g., money market funds).

Asset-Backed Security

Asset-backed securities are created by bundling a pool of loans or leases (such as car loans, student loans, etc.) and issuing fixed income securities backed by the payments on those loans or leases.

Automatic withdrawals

Amount of dollars you authorize Transamerica to automatically and periodically deduct from your bank account to pay premiums.

Average Annual Total Return

The yearly average percentage increase or decrease in an investment's value that includes dividends, gains, and changes in share price.

Back End Load

A sales charge or commission paid when an individual sells an investment, such as a mutual funds or an annuity. Intended to discourage withdrawals. Also called redemption fee or deferred sales charge.

Back-End Sales Load

A sales charge or commission paid when an individual sells an investment (the % charged typically declines over time.) It is also referred to as a redemption fee or contingent deferred sales charge.

Balanced Fund

A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.

Barclay's Capital U.S. Aggregate Bond Index

A common index widely used to measure performance of U.S. bond funds.

Basis Point

One-hundredth of one percent, or 0.01%. For example, 20 basis points equal 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.

Bear Market

A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was the Great Depression of the 1930s. A bear market is the opposite of a bull market.

Benchmark

An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.

Beneficiary

The person or party you’ve chosen to receive the benefits from your life insurance policy.

Benefit Base

A hypothetical amount (not actual cash value) used to calculate the owner’s optional benefits within a VA. A benefit base cannot be withdrawn for cash and is used solely to calculate the VA’s optional guarantees.

Benefits Administration

The implementation and coordination of an employee benefits plan.

Blackout Period

A period of more than three consecutive business days during which participants will not be able to direct or diversify their investments, obtain a loan or take a distribution.

Bond

A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.

Bond Fund

A fund that invests primarily in bonds and other debt instruments.

Bond Rating

A rating or grade that is intended to indicate the credit quality of a bond, considering the financial strength of its issuer and the likelihood that it will repay the debt. Agencies such as Standard & Poor's, Moody's Investors Service, and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).

Broker

A person who acts as an intermediary between the buyer and seller of a security, insurance product, or mutual fund, often paid by commission. The terms broker, broker/dealer, dealer, financial adviser and registered representative are sometimes used interchangeably.

Brokerage Window

A plan feature that permits participants to purchase investments that are not included among the plan's general menu of designated investment alternatives. A brokerage window is also known as a "self-directed brokerage account (SDBA)."

Bull Market

A financial market in which the value of an investment or market is rising or is expected to rise over time. Often accompanied by increasing investor confidence.

Call risk

The risk that the issuer will redeem a bond (or other debt instrument) before maturity.

Capital Appreciation Fund

An investment fund that seeks growth in share prices by investing primarily in stocks whose share prices are expected to rise.

Capital Gain

The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain. For most investments sold at a profit, including mutual funds, bonds, options, collectibles, homes, and businesses, the IRS is owed money called capital gains tax. Opposite of capital loss.

Capital Loss

The loss in the value of an investment, calculated by the difference between the purchase price and the net sale price.

Capital Preservation

An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.

Capitalization (Cap)

The total market value of a company's outstanding equity.

Cash Equivalent

An investment that is short term, highly liquid, and has high credit quality.

Cash Surrender Value

The amount an insurance company pays (minus any surrender charge) to the VA owner when the contract is voluntarily terminated prematurely.

Cash value

The amount of money and interest accumulated in your life insurance account (after adjustment for factors like policy loans or late premiums). If you cancel your coverage and surrender the policy to the insurance company, you will get your cash value back (there is a possible surrender charge based on the policy). Cash value is a feature of most types of permanent life insurance, such as whole life and universal life insurance.

Closing Price

The price of the last transaction for a given security at the end of a given trading session.

Collective Investment Fund

Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans, that pool the assets of retirement plans for investment purposes. They are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC. These funds are also referred to as collective or commingled trusts.

Commercial Paper

Promissory notes sold to the public by large corporations to meet their short-term needs for funds.

Commission

Compensation paid to a broker or other salesperson for his or her role when investments are bought or sold.

Commodities

Commodities are raw materials used to create products, such as gold and other metals, oil, and agricultural products.

Common Stock

An investment that represents a share of ownership in a corporation.

Company Matching Contributions

An amount or percentage of pay that a plan sponsor may contribute to an employee's retirement plan account. The contribution is often based on the employee's rate of contribution to the plan. Generally, although the type and amount of company contributions vary, a company may match a percentage of the amount an employee contributes, up to a stated maximum – hence the term company match or company matching contribution. The type and amount of a company matching contributions vary and are set by the employer.

Company Stock Fund

A fund that invests primarily in employer securities that may also maintain a cash position for liquidity purposes.

Competing Funds

An investment fund that is identified by the investment manager of another fund and which is subject to special rules relating to an investor's ability to buy and sell investments between the two funds. See Equity Wash Restriction.

Compounding

The cumulative effect that reinvesting an investment's earnings can have by generating additional earnings of their own.

Confirmation

A letter sent to an employee / participant confirming their transaction ( e.g. Loan, Transfers).

Conservative

An investment approach that accepts lower rewards in return for potentially lower risks.

Contingent beneficiary

The person who will receive your life insurance benefits if your primary beneficiary dies before you.

Contract Asset Charge

These charges, which are related to the administration of the group annuity contract, are used to offset costs for Plan-related recordkeeping, administrative and other retirement plan services that would otherwise be charged separately.

Contribution Types

The transfer of funds or property by either and employer or an employee to an employee retirement plan. Transamerica has identified eight contribution types relating to employee or employer contribution.

Contributions (Saving Rate)

A portion of an employee / participant's current salary that is invested in a retirement plan.

Controlled Group

A controlled group of companies may exist when there is overlapping ownership in two or more companies. There are two kinds of controlled groups: a parent-subsidiary controlled group and a brother-sister controlled group.
In general, a parent-subsidiary controlled group exists when one company owns 80% or more of a subsidiary and a brother-sister controlled group exists when 5 or fewer individuals own 80% or more of two or more companies. In certain cases, ownership by a spouse, parent, child or grandchild may be combined to determine whether a controlled group exists. If two or more organizations are part of a controlled group, the organizations are typically treated as a single employer when applying certain qualified plan requirements.

Conversion privilege

The right to change insurance coverage in certain situations from one type of policy to another, such as the right to change from an individual term insurance policy to an individual whole life insurance policy or universal life insurance policy.

Convertible Securities

A security, usually a bond or a preferred stock, that can be converted into a different type of security – usually common stock.

Convertible term insurance

A type of term insurance that allows you to exchange the term insurance policy for a permanent life insurance policy (whole or universal) without having to take a new medical exam. The premium rate is normally based on the age of the insured at the time of the conversion.

Corporate Bond

A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the re-payment ability of the company that issued the bond.

Coupon

The stated interest rate on a bond that the bond issuer pays to the bondholder.

Credit market

The market for debt offerings, including investment-grade and junk-rated and short-term commercial paper.

Credit metric

A quantitative measures used to assess the credit or worthiness of an issuer or investment. 

Credit quality

A measure of an issuer's ability to meet its financial obligations.

Credit Risk

The risk that a bond issuer will default, meaning not repay principal or interest to the investor as promised. Credit risk is also known as "default risk."

Current Year Testing Method

The "Current Year" testing method uses the non-highly compensated employee (NHCE) Average Deferral Percentage (ADP) in the current year to determine the maximum allowable ADP for highly compensated employees (HCE) during the year. This method is sometimes favorable if participation is anticipated to increase and does not (potentially) artificially lower the allowed contributions from the HCE group.

Current Yield

The current rate of return of an investment calculated by dividing its expected income payments by its current market price.

Custodian

A person or entity (e.g., bank, trust company, or other organization) responsible for holding financial assets.

Death benefit

The amount of money paid or due to be paid when a person insured under a life insurance policy dies, after adjustments for any outstanding policy loans, dividends, paid-up additions or late premium payments (if applicable) are made.

Declared Rate

In a fixed annuity, the rate of interest set by the insurance company each period based on prevailing market rates.

Decreasing term life insurance

Term life insurance, where the death benefit decreases in amount over the policy term.

Default

When a borrower, or bond holder, fails to meet its interest or principal payment obligations.

Defined Benefit Plan

A company retirement plan, such as a pension plan, in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.

Defined Contribution Plan

A company retirement plan, such as a 401(k) or 403(b) plan, in which the employee elects to defer some amount of his/her salary into the plan.

Deflation

The opposite of inflation-a decline in the prices of goods and services.

Depreciation

A decrease in the value of an investment.

Derivatives

Derivatives are contracts whose value is "derived" from some other investment, such as a commodity, stock, bond, or currency, or an index of such investments. Common types of derivatives include options, futures, and swap contracts.

Designated Investment Alternative

The investment options picked by your plan into which participants can direct the investment of their plan accounts.

Discontinuance Charge

An adjustment made to the value of one or more of the contract accounts, if the group annuity contract is terminated in whole or in part.

Diversification

Diversification simply means not putting all your investment 'eggs in one basket.' The key to diversification is that each chosen investment exhibits a low correlation, or dissimilar volatility and price movement, in order to achieve the optimal risk / return tradeoff. The goal of diversification is to reduce overall portfolio risk given a desired level of return.

Dividend

Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.

Dividends and interest

A mutual fund may earn income through dividends from stocks and interest from bonds in its portfolio. The fund pays out nearly all of the income (less expenses) it earns in the form of a distribution.

Dollar Cost Averaging

Dollar cost averaging results in the purchase of more units when the unit value is low, and fewer units when the unit value is high. However, there is no guarantee that the dollar cost averaging program will result in higher policy values or will otherwise be successful. Dollar cost averaging requires regular investing regardless of fluctuating prices and does not guarantee profits or prevent losses in a declining market. Should you elect to make systematic transfers from the Fixed Account, any fixed rates credited will be paid on declining balances resulting in a significantly lower actual rate. Before you elect this option, you should consider your financial ability to continue transfers through periods of both high and low price levels. Amounts allocated to the subaccounts of the separate account are subject to investment risk, including possible loss of principal.

Dollar-Cost Averaging

The practice of investing equal dollar amounts at regular intervals in a particular investment, with the goal of lowering the average cost per share/unit of the investment over time.

Dollar-for-Dollar Withdrawal

A method of calculating the reduction of a VA benefit base after a withdrawal in which the benefit is reduced by one dollar for every dollar withdrawn.

Dow Jones Industrial Average (Dow or DJIA)

A widely followed price-weighted index of 30 of the largest, most widely held U.S. stocks.

Draft date

The pre-authorized checking withdrawals are set up to draft on a certain day. It is not always the premium payment due date.

Duration

A measure of an investment's sensitivity to changes in interest rates.

Earnings Per Share

The trailing 12-month net income of a corporation divided by the number of shares outstanding. Earnings per share helps to indicate a corporation's profitability.

eDelivery

A fast and secure way of receiving statements and other documents electronically. Subscribers to eDelivery are notified by e-mail when materials, periodic statements, financial transaction confirmations, prospectuses and financial reports become available.

Emerging Market

Generally, economies that are in the process of growth and industrialization, such as in Africa, Asia, Eastern Europe, the Far East, Latin America, and the Middle East which, while relatively undeveloped, may hold significant growth potential in the future. Investing in these economies may provide significant rewards, and significant risks. May also be called developing markets.

Emerging Market Fund

A fund that invests primarily in emerging market countries.

Emerging markets

Emerging markets are nations undergoing rapid growth and industrialization.

Employee Stock Ownership Plan

A trust established by a corporation which acts as a tax-qualified, defined-contribution retirement plan by making the corporation's employees partial owners. Contributions are made by the sponsoring employer, and can grow tax-deferred, just as with an IRA or 401(k). The benefits for the company include increased cash flow, tax savings, and increased productivity from highly motivated workers. The main benefit for the employees is the ability to share in the company's success. Due to the tax benefits, the administration of ESOPs is regulated, and numerous restrictions apply. Also called stock purchase plan.

Employer Securities

Securities issued by an employer of employees covered by a retirement plan that may be used as a plan investment option.

Enhanced Death Benefit

An optional benefit (available for an additional cost) that locks in investment gains annually, or every few years, or pays a minimum stated interest rate on purchase payments to the beneficiary.

Equity/Equities

A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with "stock."

Equity (Stock) Funds

Equity (Stock) Funds invest in common stocks of publicly traded companies, generally with capital appreciation as a primary objective. Equity funds represent the largest category of mutual funds and can be broken down into a number of different sub-categories.

Equity Fund

A fund that invests primarily in equities.

Equity Wash Restriction

A provision in certain stable value or fixed income products under which transfers made from the stable value or fixed income product are required to be directed to an equity fund or other non-competing investment option of the plan for a stated period of time (usually 90 days) before those funds may be invested in any other plan-provided competing fixed income fund (such as a money market fund).

Exchange Traded Fund (ETF)

An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market-determined prices.

Expense Ratio

A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. See Operating Expenses and Total Annual Operating Expenses.

Face amount

The amount of the death benefit payable if the insured person dies while the policy is in force.

Fed tapering

The reduction of the Fed's policy for quantitative easing (bond-buying program).

Federal Deposit Insurance Corporation (FDIC)

A federal agency that insures money on deposit in member banks and thrift institutions.

Federal Reserve (Fed)

The central bank of the U.S. which serves as both a regulator and a banker to U.S. banks. The Federal Reserve is composed of a central government agency (the Board of Governors) and 12 regional Federal Reserve Banks.

Fiduciary

An individual, corporation or association holding assets for another party, often with the legal authority and duty to make decisions regarding financial matters on behalf of the other party.

Financial Industry Regulatory Authority (FINRA)

A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the SEC. The organization's objectives are to protect investors and ensure market integrity.

Financial Statements

The written record of the financial status of a fund or company, usually published in the annual report. The financial statements generally include a balance sheet, income statement, and other financial statements and disclosures.

Fixed Annuity

An annuity contract in which the insurance company makes fixed or guaranteed payments to an individual for the term of the contract.

Fixed income (bond) funds

Fixed income (bond) funds invest in corporate, government and municipal bond debt. Most investors invest in bond funds for their stability and income. Bond funds are often preferred over individual bond investments because they have lower minimum entry points, spread risk among multiple investments, and are more liquid. Nearly all bond funds are subject to interest rate risk and when rates go up, the value of the fund goes down and vice versa, when interest rates go down, the value of the fund typically goes up.

Fixed Income Fund

A fund that invests primarily in bonds and other fixed-income securities, often to provide shareholders with current income.

Fixed Return Investment

An investment that provides a specific rate of return to the investor.

Flexible Premium Annuity

With a flexible premium annuity, the amounts you pay into your annuity can change to meet your needs. You can make additional payments according to the conditions set forth in the policy.

Floating rate

The interest rate of a debt instrument that adjusts to a benchmark such as LIBOR.

Fraudulent claim

Giving false or exaggerated information when filing a claim in an attempt to collect policy benefits that would otherwise not be paid.

Front-End Load

A sales charge paid when an individual buys an investment, such as a mutual fund, limited partnership, annuity, or insurance policy. The load is clubbed with the first payment made by an investor, so the total initial payment is higher than the later payments. The purpose of a load is to cover administrative expenses and transaction costs and sometimes to discourage asset turnover. Opposite of back-end load.

Fund Family

A group or "complex" of mutual funds, each typically with its own investment objective, and managed and distributed by the same company. A Fund Family also could refer to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.

Fund of Funds

A mutual fund, collective investment fund or other pooled investment that invests primarily in other mutual funds, collective investment funds or pooled investments rather than investing directly in individual securities (such as stocks, bonds or money market securities).

Future Allocations

To distribute a percentage of money to one or more funds from future contributions.

Futures Contract

An agreement to buy or sell a commodity or an underlying index, currency or other asset at a specific price and date in the future. Futures contracts are a type of derivative contract.

GAAP (Generally Accepted Accounting Principles

A widely accepted set of rules, conventions, standards and procedures for reporting financial information as established by the Financial Accounting Standards Board.

General Obligation Bond

A municipal bond secured by the taxing and borrowing power of the municipality issuing it.

GIC

Guaranteed Investment Contract. A debt instrument issued by an insurance company, usually in a large denomination, and often bought for retirement plans. The interest rate paid is guaranteed, but the principal is not. Also called guaranteed interest contract.

Glide Path

The change over time in a target date fund's or model's asset allocation mix to shift from a focus on growth to a focus on income.

Global Fund

A fund that invests primarily in securities anywhere in the world, including the United States.

Government bond funds

Government bond funds invest in debt issued by the US government such as T-bills, notes and bonds. They are guaranteed by the US government. Some government bond funds may also invest in bonds offered by government agencies such as Freddie Mac and Fannie Mae, which are not explicitly backed by the government.

Government Securities

Any debt obligation issued by a government or its agencies (e.g., Treasury Bills issued by the United States).

Grace period

The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force.

Group Annuity Contract

An annuity contract entered into between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.

Growth and Income Fund

A fund that has a dual strategy of growth or capital appreciation and current income generation through dividends or interest payments.

Growth Fund

A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.

Guaranteed Investment Contract

A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.

Guaranteed Lifetime Withdrawal Benefit or Guaranteed Minimum Withdrawal Benefit

A feature that may be offered under an annuity contract in which the insurance company promises an individual may withdraw a specified amount from an account, even if the account balance is reduced to zero: (1) for the life of the individual, or the joint lives of two individuals (e.g., the individual and spouse); or (2) for a specified period of time.

Guaranteed Minimum Rate

In a fixed annuity, the minimum interest rate that the insurance company is obligated to credit on your investment.

Hedge Fund

A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing goals. They are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).

High yield

Sometimes also called junk-rated or noninvestment-grade. High yield investments are considered speculative and risky, rated BB/Ba or lower, and are more likely to default. In exchange for the increased risk, high-yield investments generally offer higher coupons and greater return potential.

High yield bonds

High yield bonds are taxable corporate issues with lower credit quality, which means the risk of default is greater.

High-Grade Bond

A bond with a rating of AAA or AA, the two highest ratings.

High-Yield Bonds

A bond that is rated below investment grade and typically offers a higher interest rate in order to attract investors due to the greater risk of default. High yield bonds may also sometimes be called junk bonds.

Inception Date

The date that a fund began operations.

Income Fund

A fund that primarily seeks current income rather than capital appreciation.

Increasing term life insurance

Term life insurance, where the death benefit increases in amount over the policy term.

Index

A benchmark against which to evaluate a fund's performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor's 500 Index.

Index Fund

An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Index funds are often referred to as passively managed investments.

Index funds

Index funds are passively managed and aim to replicate the movements of their corresponding benchmark indexes. Their goal is not to do better than their benchmarks but to mirror their performance. The difference in the performance of an index fund vs. its benchmark is called tracking error.

Individual Retirement Account (IRA)

An individual retirement account, or IRA, is a personal savings plan trusteed by a bank or a qualified nonbank trustee. It allows you to set aside money for retirement, while offering you tax advantages.

Inflation

A rate that measures the rise in the general level of prices for goods and services.

Inflation protected funds

Inflation protected funds primarily invest in Treasury Inflation Protected Securities (TIPS), which adjust to inflation.

Inflation-Linked Bonds

A bond where the principal amount or interest rate is adjusted periodically based on inflation rates.

Insured

The person whose life is insured by the policy. This may or may not be you.

Interest Rate Risk

The possibility that a bond's or bond fund's market value will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down and vice versa.

Interest/Interest Rate

The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond's issuer.

International bond funds

International bond funds can be divided into those that invest in sovereign debt and those that invest in corporate debt and by developed vs. emerging market classification.

International Fund

A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.

Investment Advisor

A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.

Investment Company

A corporation or trust that invests pooled shareholder dollars in securities appropriate to the organization's objective. The most common type of investment company, commonly called a mutual fund, stands ready to buy back its shares at their current net asset value.

Investment grade

Investment-grade refers to the strong likelihood that a government or corporate debt issue will be able to meet its financial obligations. Investment-grade issues with the greatest likelihood are generally rated AAA or Aaa. Investment-grade issues that may subject to adverse economic conditions or other risks are rated BBB or Baa.

Investment Grade Bonds

Bonds that are assigned a rating in the top four categories by credit rating agencies.

Investment Mix

The combination of all the funds in your investment portfolio.

Investment Objective

The goal that an investment fund or investor seeks to achieve (e.g., growth or income).

Investment Return

The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.

Investment Risk

The possibility of losing some or all of the amounts invested or not gaining value in an investment.

IRA

Individual Retirement Account- A retirement savings program for individuals to which yearly tax deductible contributions up to a specified limit can be made. The amounts contributed are not taxed until withdrawal. Withdrawal is not permitted, without penalty, until the individual reaches age 59 ½.

Irrevocable beneficiary

A beneficiary whose interest cannot be cancelled without his or her consent.

January Effect

Tendency of the stock market to rise between December 31 and the end of the first week in January. The January Effect occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise. Although the January Effect has been observed numerous times throughout history, it is difficult for investors to profit from it since the market as a whole expects it to happen and therefore adjusts its prices accordingly.

Joint Life Annuity

An annuity issued on two individuals under which payments continue in whole or in part until both individuals die. Also called joint and survivor annuity.

Joint Tenants

Typically know as Joint Tenants with Rights of Survivorship (JTWROS), this is a form of an account registration whereby two or more people maintain ownership. A characteristic of a joint account is that normally upon the death of one account holder, ownership of the account assets pass to the remaining account holder(s). See also Tenants in Common.

Junk Bond

A high-risk, non-investment-grade bond with a low credit rating, usually BB or lower; as a consequence, it usually has a high yield . Opposite of investment-grade bond.

Kappa

A value representing the expected change in the price of an option in response to a 1% change in the volatility of the underlying stock.

Keogh Plan

A tax-deferred qualified retirement plan for self-employed individuals and unincorporated businesses. Also called self-employed pension.

Key Person Insurance

Life insurance purchased by a company or investor on the life of a key executive. Usually the company is the policy's beneficiary. Also called business life insurance.

Krugerrand

Gold coin minted by the Republic of South Africa.

Lapse

The termination of an insurance policy if premium is not paid by the end of the grace period.

Large Cap Fund

A fund that invests primarily in large cap stocks

Large Cap Stocks

Stocks of companies with a large market capitalization. Large caps tend to be well-established companies, so their stocks typically entail less risk than smaller caps, but large-caps also offer less potential for dramatic growth.

Large Capitalization (Cap)

A reference to either a large company stock or an investment fund that invests in the stocks of large companies.

Level premiums

Premiums that are scheduled to remain the same each year for a specified duration.

Leverage

Leverage is using borrowed money to potentially increase the return on your investment. Leverage can also be created by using financial instruments such as derivatives.

Leveraged buyout (LBO)

A transaction in which a company or asset is bought using borrowed funds.

Leveraged loans

Leveraged loans are junk-rated (BB+ or lower) corporate debt instruments, have adjustable spreads based on LIBOR or other such benchmark, and are secured.

Life Annuity

An annuity that makes periodic payments only for the life of one individual. Also known as "single life annuity."

Life insurance

Insurance that provides protection against the financial loss caused by the death of the person insured.

Lifecycle Fund

A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor's age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as "target date retirement" or "age-based" funds.

Lifestyle Fund

A fund that maintains a predetermined risk level and generally uses words such as "conservative," "moderate," or "aggressive" in its name to indicate the fund's risk level. Used interchangeably with "target risk fund."

Lipper

A leading mutual fund research and tracking firm. Lipper categorizes funds by objective and size, and then ranks fund performance within those categories.

Liquidity

The ease with which an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.

Load

A sales charge assessed on certain investments to cover selling costs. A front-end load is charged at the time of purchase. A back-end load is charged at the time of sale or redemption.

Loan Note

A form of vendor finance or deferred payment, in which the purchaser acts as a borrower, agreeing to make payments to the holder of the transferable loan note at a specified future date.

Loan Schedule

A listing of the amounts of principal and interest, due dates, and balance after payment for a given loan.

Longevity Risk

The risk that you will live longer than expected with the potential result that you run out of money before you die.

Management Fee

A fee or charge paid to an investment manager for its services.

Matching Funds

A type of employer contribution to an employee retirement fund in which employee contributions up to a maximum limit are accompanied by identical, or at least proportional, contributions by the employer.

Money market funds

Money market funds invest in short-term debt instrument such as T-bills and are considered a relatively safe and highly liquid place to stash your cash. With a money market fund, you generally won’t get great returns, but you’ll hopefully do better than sitting on cash in a savings account. Money markets aim to keep their value at $1 per share. But it is possible to lose money by investing in a fund. It is important to note that money market funds are not guaranteed and may lose value. In addition, money market funds are not FDIC insured.

Mortgage-backed securities

Mortgage-backed securities are backed by pools of mortgages and may be issued by government agencies such as Fannie Mae.

Municipal funds

Municipal funds invest in debt issued by states, counties, and municipalities and offer tax benefits to some investors.

Mutual Funds

Type of investment vehicle in which many investors / employee money is pooled for specific investment purposes. Participants own shares in an investment portfolio, rather than individual securities.

Nasdaq Composite Index

A market-value weighted index of all common stocks listed on Nasdaq. The Nasdaq Composite dates back to 1971, which is when the Nasdaq exchange was first formalized. The index is used mainly to track technology stocks, and thus it is not a good indicator of the market as a whole. Unlike the Dow Jones Industrial Average (DJIA), the Nasdaq is market value-weighted, so it takes into account the total market capitalization of the companies it tracks and not just their share prices.

Net Asset Value (NAV)

The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.

New York Stock Exchange (NYSE)

The oldest and largest stock exchange in the U.S., located on Wall Street in New York City. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. It traces its origins back to 1792, when a group of brokers met under a tree at the tip of Manhattan and signed an agreement to trade securities. Unlike some of the newer exchanges , the NYSE still uses a large trading floor in order to conduct its transactions. It is here that the representatives of buyers and sellers, professionals known as brokers, meet and shout out prices at one another in order to strike a deal. This is called the open outcry system and it usually produces fair market pricing. In order to facilitate the exchange of stocks, the NYSE employs individuals called specialists who are assigned to manage the buying and selling of specific stocks and to buy those stocks when no one else will. Of the exchanges, the NYSE has the most stringent set of requirements in place for the companies whose stocks it lists, and even meeting these requirements is not a guarantee that the NYSE will list the company. The NYSE is also called Big Board.

No-Load Fund

A mutual fund whose shares are sold without a sales commission and which does not charge a combined 12b-1 fee and service fee of more than 25 basis points or 0.25% per year.

Non-Qualified Annuity

A non-qualified annuity is funded with after-tax dollars. Funding an annuity with after-tax dollars will mean that only the portion of the distribution that comes from earnings is taxed upon distribution, not the entire amount.

Obligation Bond

Mortgage bond whose face value exceeds the value of the underlying property, and for which a personal obligation is created to compensate the lender for any costs that may exceed the value of the mortgage.

Offering

The making available of a new securities to the public through an underwriting. Also called public offering.

Online Trading

The increasingly popular activity of buying and selling securities over the Internet, or to a lesser extent, through a broker's proprietary software.

Operating Expenses

The expenses associated with running or operating an investment fund. Operating expenses may include custody fees, management fees, and transfer agent fees. See Expense Ratio and Total Annual Operating Expenses.

Option

The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency,index, or debt, at a specified price (the strike price) during a specified period of time. For stock options, the amount is usually 100 shares. Each option has a buyer, called the holder, and a seller, known as the writer. If the option contract is exercised, the writer is responsible for fulfilling the terms of the contract by delivering the shares to the appropriate party. In the case of a security that cannot be delivered such as an index, the contract is settled in cash. For the holder, the potential loss is limited to the price paid to acquire the option. When an option is not exercised, it expires. No shares change hands and the money spent to purchase the option is lost. For the buyer, the upside is unlimited. Options, like stocks, are therefore said to have an asymmetrical payoff pattern. For the writer, the potential loss is unlimited unless the contract is covered, meaning that the writer already owns the security underlying the option. Options are most frequently as either leverage or protection. As leverage, options allow the holder to control equity in a limited capacity for a fraction of what the shares would cost. The difference can be invested elsewhere until the option is exercised. As protection, options can guard against price fluctuations in the near term because they provide the right acquire the underlying stock at a fixed price for a limited time. risk is limited to the option premium (except when writing options for a security that is not already owned). However, the costs of trading options (including both commissions and the bid/ask spread) is higher on a percentage basis than trading the underlying stock. In addition, options are very complex and require a great deal of observation and maintenance. Aso called option contract.

Partial Withdrawal

Withdrawal of an amount less than the entire cash surrender value of a Variable Annuity.

Passive Management

The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.

PCRA

(Personal choice retirement account) is an investment option that allows participants to invest directly into a individual stocks or bonds, or a mutual fund not offered in their retirement plan.

Pending Transfer

A pending transfer is a transfer that has not been processed. This transfer will be valued using today's market closing unit values provided the transaction is completed prior to 4:00 PM ET. Transfer requests completed after 4:00 PM ET will be valued using the market closing unit values for the following business day.

Period Certain

A payment feature that may be available in an annuity contract which guarantees periodic payments for no less than a set period of time. For example, in a life annuity, periodic payments would be made for the longer of either: (1) the guaranteed period, to the individual or a beneficiary, or (2) the life of the individual.

Policy

The written document that spells out the insurance contract between the insurance company and you.

Portfolio

A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.

Portfolio Manager

The individual, team or firm who makes the investment decisions for an investment fund, including the selection of the individual investments.

Portfolio Turnover Rate

A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.

Preferred Stock

A class of stock that entitles the holder to be paid dividends before a common stockholder, but does not provide any voting rights. Some preferred stocks provide for minimum guaranteed dividends.

Premium

The payments you make to the insurance company for the insurance coverage. Depending on the type of coverage, premiums may be fixed or flexible.

Pre-Tax Contributions

An amount or percentage of pay an employee elects to defer into a retirement plan from pay before taxes are calculated and withheld.

Price-Earnings Ratio

The price of a stock divided by its earnings per share. It reflects the amount an investor is willing to pay per dollar of a company's earnings.

Primary beneficiary

The person you’ve chosen to have the first right to receive insurance payments or proceeds upon your death.

Principal

The original dollar amount of an investment. Principal may also be used to refer to the face value or original amount of a bond.

Prior Year Testing Method

The "Prior Year" testing method uses the non-highly compensated employee (NHCE) Average Deferral Percentage (ADP) from the prior Plan Year to determine the maximum highly compensated employee (HCE) ADP for the current plan year. This method can assist HCEs in setting their deferral percentage so as to not receive excess refunds at plan year end.

Pro-Rata Withdrawal

A method of calculating the reduction of a VA benefit base after a withdrawal in which the benefit is reduced by the same percentage as the percentage of the withdrawal; for example, a 20% withdrawal of the money reduces the death benefit by 20%.

Prospectus

The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.

Qualified Annuity

An annuity funded with pre-tax dollars. An annuity that is funded with pre-tax dollars means that the contribution may qualify as a tax deduction, which could lower current taxable income. When a distribution is taken from a qualified annuity, the entire distribution amount will be subject to ordinary income taxes.

Qualified Domestic Relations Order (QDRO)

A Qualified Domestic Relations Order (QDRO) is a judgment decree or order made pursuant to a state domestic relations law that creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a qualified retirement plan and that complies with certain special requirements.

Qualified Nonelective Contributions (QNECs)

A QNEC is a corrective contribution the Employer can make to the plan on behalf of some or all non-highly compensated employees (NHCEs) instead of making distributions to highly compensated employees (HCEs). QNECs are 100% vested at all times and are subject to the same restrictions on distributions as elective contributions. A QNEC must be funded no later than the last day of the plan year following the year of the NHCE ADP data that was used for testing.

Qualified Retirement Plan

A plan that meets the requirements of Internal Revenue Code Section 401(a) and the Employee Retirement Income Security Act of 1974(ERISA) and is thus eligible for favorable tax treatment. These plans offer several tax benefits: they allow employers to deduct annual allowable contributions for each participant; contributions and earnings on those contributions are tax-deferred until withdrawn for each participant; and some of the taxes can be deferred even further through a transfer into an IRA.

Qualified Roth 401(k) Account

A separate account under a 401(k) plan to which designated Roth contributions are made, and for which separate accounting of contributions, gains, and losses is maintained.

Qualified Roth 401(k) Contributions

Voluntary employee contributions that, unlike before-tax elective contributions, are currently includible in gross income for current income tax purposes. If a 401(k) plan provides for designated Roth contributions, it must also offer before-tax elective contributions.

Qualified Roth 401(k) Distributions

The tax rules for distributions from Roth 401(k) accounts differ significantly from those for traditional 401(k) accounts. If a distribution is a qualified Roth distribution, the entire distribution, including any earnings, is free from federal tax. 

Qualified Roth 401(k) distributions must satisfy two rules (both, not either/or): the five-year rule and the purpose rule. 

The five-year rule is satisfied if the distribution from the Roth account is made at the end of the 5-year-taxable period following the participant's first Roth contribution. 

For purposes of the five-year rule, the participant's first Roth contribution is considered contributed on January 1, even if made on December 31, of that same calendar year. If the participant changes employers, a new 5-year period starts with the date of the first Roth 401(k) contribution to the new employer's plan. However, if the Roth account from the previous employer's plan is rolled over in a direct rollover to the new employer's plan, the previous 5-year-taxable period is kept. 

The purpose rule is satisfied if the distribution from the Roth account is attributable to the participant's attainment of age 59 ½, disability, or death.

Quantitative easing (QE)

A form of monetary policy used by central banks to increase the money supply by buying government securities or other securities from the market to liquidity.

Quarterly Report

Unaudited document required by the SEC for all U.S. public companies, reporting the financial results for the quarter and noting any significant changes or events in the quarter. Quarterly reports contain financial statements, a discussion from the management, and a list of "material events" that have occurred with the company (such as a stock split or acquisition). Also called Form 10-Q.

Rate of Return

The rate of return on an investment, expressed as a percent of the total amount invested.

Rating

An evaluation of securities by an independent rating service, such as Standard & Poor's, Moody's, Fitch, and A.M. Best. Ratings are typically used to evaluate corporate and municipal bonds. High Quality - AAA, AA, A; or Aaa, Aa, A ; or Aa1, Aa2, Aa3 Medium Quality - BBB, BB, B; or Baa, Ba, B; or Ba1, Ba2, Ba3 Low Quality - CCC, CC, C; or Caa, Ca, C; or Ca1, Ca2, Ca3 In Default or Questionable Value - DDD, DD, D

Rating Agency

Rating Agencies typically review a company's overall financial standing and assign a "credit rating" to the bonds they have issued, or will be issuing. Two of the most commonly accepted rating agencies are Standard & Poor's and Moody's.

Real Estate Investment Trust (REIT)

An investment trust that holds different kinds of real estate or real estate related assets.

Real Rate of Return

The rate of return on an investment adjusted for inflation.

Rebalance (Investment Mix)

The process of changing your current investment mix to a new Investment Mix.

Redemption

To sell fund shares back to the fund. Redemption can also be used to mean the repayment of a bond on or before the agreed upon pay-off date.

Redemption Fee

A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short-term or excessive trading. If a redemption fee is charged it is done when the investment is redeemed or sold.

Registered Representative

A licensed employee of a stock exchange member or financial services company who may function as an account executive for clients. To qualify as a registered representative, individuals must pass a series of tests, including the General Securities Examination (GSE) and state securities tests.

Reinstatement

In certain cases, if your policy lapses, you can restore it by providing acceptable evidence of insurability and bringing unpaid premiums plus interest up to date. The policy must not have been surrendered for its cash value.

Renewal premiums

Premiums payable after the initial premium.

Renewal provision

When the specified term for your life insurance is over, this provision allows you to continue coverage without taking another medical exam to prove your insurability.

Retirement Age

Typically, most retirement plans set age 65 as the normal retirement age. However, for Social Security purposes, your normal retirement age – the age at which you can collect unreduced Social Security retirement benefits – ranges from 65 to 67, based on your date of birth.

Return

The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.

Rider

Optional protection you can add to your insurance plan. Provides benefit in addition to what is contained in the base policy.

Risk

The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.

Risk Tolerance

An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.

Rollover

A tax-free reinvestment of a distribution from a qualified retirement plan into a IRA or other qualified plan within a specific time frame, usually 60 days.

Roth 401(k)

The Roth 401(k) feature permits eligible plan participants, regardless of their income, to make after-tax contributions to a qualified "Roth" account. In addition, qualified distributions from a Roth 401(k) account are free from federal tax.

Roth IRA

A Roth IRA differs from traditional IRAs in that contributions are not deductible and can be made only by taxpayers that fall below certain AGI (adjusted gross income) levels. Unlike a traditional IRA, contributions may be made after age 70½. Distributions made after the 5-year-taxable period, beginning with the first year a contribution was made to a Roth IRA set up for your benefit, are not taxable if made either: 

  1. After you are 59 1/2 2 
  2. Because you are disabled 
  3. To a beneficiary or your estate after your death 
  4. To buy, build or rebuild a first home

Round Trip Restriction

A policy that limits the number of times an investor can exchange into and out of a fund within a given time frame. This is intended to discourage frequent trading that increases the costs to all the fund's investors.

Russell Indexes

A group of indexes that are widely used to benchmark investment performance. The most common Russell index is the Russell 2000 Index, an index of U.S. small-cap stocks, which measures the performance of the 2,000 smallest U.S. companies in the Russell 3000 Index.

S&P 500®

An unmanaged index comprised of 500 stocks and is generally considered a broad measure of U.S. equity performance.

S&P 500 (Standard and Poor's 500 Composite Index)

A market value weighted index that provides a representative sampling of large cap U.S. securities, chosen for market size, liquidity and industry group. The S&P 500 is frequently used as a standard for measuring large cap U.S. stock performance.

Sarbanes-Oxley Act of 2002

Law that requires plans to provide written notice to participants and beneficiaries 30 days before a blackout period begins. The notice cannot be sent more than 60 days before the blackout period begins. Failure to issue notification of a blackout period may result in severe penalties.

Savings Bond

A registered, non-callable, non-transferable bond issued by the U.S. Government, and backed by its full faith and credit. Savings bonds differ from other treasury securities in several ways. Savings bonds are non-marketable, meaning that they cannot be bought and sold after they are purchased from the government; therefore, there is no secondary market for savings bonds. The tax benefits associated with savings bonds are significant. Like all treasury securities, they are exempt from state and local taxes, but in the specific case of savings bonds, all federal taxes may be deferred until the bond is redeemed. Therefore, even though interest will accrue, no taxes will be due until that money can be accessed. Additionally, if the money received at redemption is used to pay tuition expenses for the holder, a spouse or a dependent in the same year, the interest earned may be exempt from federal taxes as well. Face values range from $50 to $10,000. Also called U.S. Savings bond.

SEC (Securities and Exchange Commission)

A federal regulatory agency that oversees the U.S. financial markets. The statutes administered by the SEC are designed to promote full disclosure and to protect the investing public from fraud and malpractice in the securities industry.

Sector Fund

A mutual fund which invests entirely or predominantly in a single sector of the stock market. A sector funds tend to be riskier and more volatile than the broad market because they are less diversified, although the risk level depends on the specific sector. Some investors choose sector funds when they believe that a specific sector will outperform the overall market, while others choose sector funds to hedge against other holdings in a portfolio. Some common sector funds include financial services funds, gold and precious metals funds, health care funds, and real estate funds, but sector funds exist for just about every sector.

Securities and Exchange Commission (SEC)

Government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.

Security

A general term for stocks, bonds, mutual funds, and other investments.

Separate Account

An insurance company account that is segregated or separate from the insurance company's general assets. Also refers to a fund managed by an investment adviser for a single plan.

Share

A representation of ownership in a company or investment fund.

Share Class

Some investment funds and companies offer more than one type or group of shares, each of which is considered a class (e.g., "Class A," "Advisor" or "Institutional" shares). For most investment funds each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.

Shareholder

An owner of shares in an investment fund or corporation.

Shareholder-Type Fees

Any fee charged against your investment for purchase and sale, other than the total annual operating expenses.

Short Sale

A sale of securities not owned by the seller. The seller borrows the securities from a third party and then hopes to buy them back later at a lower price.

Signature Guarantee

An original signature guarantee assures that a signature is genuine so that in order to protect you from unauthorized account transactions. Notarization is not an acceptable substitute. Acceptable guarantors are participants in the Securities Transfer Agents Medallion Program ("STAMP2000"). Participants in STAMP2000 may include financial institutions such as banks, savings and loan associations, trust companies, credit unions, broker-dealers, and member firms of a national securities exchange.

SIMPLE-IRA

"SIMPLE" stands for Savings Incentive Match Plans for Employees. Eligible employees under a SIMPLE-IRA plan may elect to make contributions to the plan, similar to a 401(k) plan.

Single Premium Annuity

A single premium annuity is one that's funded by one payment made at the time of purchase. Once the policy goes into effect, you cannot make any additional premium payments.

Small Cap Fund

A fund that invests primarily in small-cap stocks.

Small Cap Stocks

Stocks of companies with a smaller market capitalization. Small caps are often considered to offer more growth potential than large caps and mid caps but with more risk.

Small Capitalization (Cap)

A reference to either a small company stock or an investment fund that invests in the stocks of small companies.

Specialty and sector fund

Specialty and sector funds focus on a narrow segment, sector, or region of the market. Because they are concentrated portfolios, they are often more volatile.

Spread

The difference between the yields of securities that often have different credit profiles.

Stable Value Fund

An investment fund that seeks to preserve principal, provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.

Standard & Poor's 500 Stock Index (S&P 500)

An index comprised of 500 widely held common stocks considered to be representative of the U.S. stock market in general. The S&P 500 is often used as a benchmark for equity fund performance.

Standard deviation

Standard deviation is a measure of a security’s historic volatility—the degree of a data set’s dispersion from its mean.

Step-Up

An optional VA feature (available at additional cost) that can increase the benefit base amount if the VA account value is higher than the benefit base on specified dates.

Stock

A security that represents an ownership interest in a corporation.

Stock Fund

A fund that invests primarily in stocks. An abbreviation using letters and numbers assigned to securities to identify them. Also see Ticker Symbol.

Strategic Allocation Fund (Multi asset class)

A "fund of funds" that invests in an array of mutual funds to obtain a stated investment objective. Also known as "lifestyle funds".

Subaccount

An investment option offered in VA contracts. Subaccounts can be actively or passively managed and invest in stock, bond or money market portfolios.

Summary Prospectus

A short-form prospectus that mutual funds generally may use with investors if they make the long-form prospectus and additional information available online or in paper upon request.

Surrender Charge

A fee paid by a VA contract owner for withdrawal of an amount that exceeds a specific percentage or for cancellation of the contract within a specified amount of time after purchase.

Swap Contract

Swaps are customized contracts between two private parties to exchange a sequence of cash flows (such as interest rate payments) for a set period of time. Swap contracts are a form of derivative contract.

Target Date Fund

A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor's age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as a "lifecycle fund."

Target Risk Fund

A fund that maintains a predetermined asset mix and generally uses words such as "conservative," "moderate," or "aggressive" in its name to indicate the fund's risk level. Often used interchangeably with "lifestyle fund."

Tenants In Common

A form of account registration whereby two or more individuals share ownership. As opposed to a joint tenant account, however, ownership is not passed over to the other tenant(s) at death, but is part of the deceased owner's disposable estate.

Tender Offer

A take over bid in the form of a public invitation to shareholders to sell their stock, generally at a price above the market price.

Term life insurance

Life insurance which pays a benefit if the insured dies during a specified period.

Ticker Symbol

An abbreviation using letters and numbers assigned to securities and indexes to identify them. Also see Stock Symbol.

Time Horizon

The length of time a sum of money is expected to be invested. Also called investment horizon or horizon.

Total Annual Operating Expenses

A measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. See Expense Ratio and Operating Expenses.

Traditional IRA

A traditional IRA is what most people think of when they think of an IRA. The IRS uses the term "traditional" to distinguish it from any other form of IRA. Any individual with compensation for a calendar year may contribute to a traditional IRA, however you must be under age 70 ½ at the end of the calendar year. Whether a contribution to a traditional IRA is deductible will depend on the individual's gross income and whether the individual is an active participant in a qualified plan. A single traditional IRA can accept both deductible and nondeductible contributions. Withdrawals taken before age 59 ½ may be subject to a 10% tax penalty.

Transfer

A function that moves account balances between various funds.

Transreferance Number

A number assigned to each transaction, consisting of a current date and a sequential number within that date.

Trustee

A person or entity (e.g., bank, trust company, or other organization) that is responsible for the holding and safekeeping of trust assets. A trustee may also have other duties such as investment management. A trustee that is a "directed trustee" is responsible for the safekeeping of trust assets but has no discretionary investment management duties or authority over the assets.

U.S. Treasury Securities

Negotiable U.S. Government debt obligations, backed by its full faith and credit. Exempt from state and local taxes. U.S. Treasury Securities are issued by the U.S. government in order to pay for government projects. The money paid out for a Treasury bond is essentially a loan to the government. As with any loan, repayment of principal is accompanied by a specified interest rate. These bonds are guaranteed by the "full faith and credit" of the U.S. government, meaning that they are extremely low risk (since the government can simply print money to pay back the loan). Additionally, interest earned on U.S. Treasury Securities is exempt from state and local taxes. Federal taxes, however, are still due on the earned interest. The government sells U.S. Treasury Securities by auction in the primary market, but they are marketable securities and therefore can be purchased through a broker in the very active secondary market. A broker will charge a fee for such a transaction, but the government charges no fee to participate in auctions. Prices on the secondary market and at auction are determined by interest rates. U.S. Treasury Securities issued today are not callable, so they will continue to accrue interest until the maturity date. One possible downside to U.S. Treasury Securities is that if interest rates increase during the term of the bond, the money invested will be earning less interest than it could earn elsewhere. Accordingly, the resale value of the bond will decrease as well. Because there is almost no risk of default by the government, the return on Treasury bonds is relatively low, and a high inflation rate can erase most of the gains by reducing the value of the principal and interest payments. There are three types of securities issued by the U.S. Treasury (bonds, bills,and notes), which are distinguished by the amount of time from the initial sale of the bond to maturity. Also called Treasuries.

Undervalued

Something whose price is below its perceived value.

Underwriter

Another name for a life insurance company, or a person or department at a life insurance company that does underwriting.

Underwriting

A process which provides an insurance company the opportunity to review and assess customer risk prior to acceptance of the application. May require a potential customer to take a physical exam to satisfy the underwriting requirements.

Unit

A representation of ownership in an investment that does not issue shares. Most collective investment funds are divided into units instead of shares. See Share.

Unit Class

Investment funds that are divided into units (e.g., collective investment funds) instead of shares may offer more than one type or group of units, each of which is considered a class (e.g., "Class A"). For most investment funds each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.

Unit Value

The dollar value of each unit on a given date.

Unit Value (NAV)

The value of a mutual fund share determined by deducting the fund's liabilities from the total asset of the portfolio and dividing this amount by the number of shares outstanding. This is calculated once a day, based on the closing market price for each security in the fund portfolio.

Unitholder

An owner of units in an investment. See Shareholder.

Universal life insurance

A permanent life insurance product that builds cash value at an interest-crediting rate declared by the company. Within certain limits, you can choose the premium you wish to pay, and this affects the policy's cash value. Each month, a monthly deduction to cover the cost of the insurance protection provided by the policy is deducted from the policy cash value.

Unrealized Loss

Loss which has occurred but has not yet been realized through a transaction, such as a stock which has fallen in value but is still being held. also called paper loss.

Value Fund

A mutual fund that invests in companies which it determines to be underpriced by fundamental measures. Assuming that a company's share price will not remain undervalue indefinitely, the fund looks to make money by buying before the expected upturn. Value funds tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. They invest in companies that have low P/E ratio, and stocks that have fallen out of favor with mainstream investors, either due to changing investor preferences, a poor quarterly earnings report, or hard times in a particular industry. Value stocks are often mature companies that have stopped growing and that use their earnings to pay dividends. Thus value funds produce current income (from the dividends) as well as long-term growth (from capital appreciation once the stocks become popular again).

Variable Annuity

An annuity contract under which the insurance company promises to make payments beginning immediately or at some future date. The value of the annuity and amount of the benefits paid by the insurance company will vary depending on the performance of the investment options.

Variable Return Investment

Investments for which the return is not fixed. This term includes stock and bond funds as well as investments that seek to preserve principal but do not guarantee a particular return, e.g., money market funds and stable value funds.

Vesting

Represents the percent of ownership of employer contribution to a participant / employee account in a retirement saving plan. This is based on various eligibility factors.

Volatility

The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk since there is an increased chance that the price of the security will have fallen when an investor wants to sell.

Weak Dollar

Dollar that can be exchanged for only a small or decreasing amount of foreign currency. A weak dollar means that the U.S. dollar cannot buy very much of another currency. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation. A weak dollar usually leads to high exports and low imports. Opposite of strong dollar.

Whole life insurance

Life insurance that remains in force during your entire lifetime, provided premiums are paid as specified in the policy. Whole life insurance also develops a cash value as a result of the level premium approach to funding the death benefit.

Windfall

Money received which was not expected and not a direct result of something the recipient did.

World Bank

An organization whose focus is on foreign exchange reserves and the balance of trade.

Wrap Fee

A fee or expense that is added to or "wrapped around" an investment to pay for one or more product features or services.

X or XD

A symbol used by newspapers to signify that a stock is trading ex-dividend, or that a bond is trading without interest, or that a mutual fund recently paid a capital gain or dividend.

XR

A symbol used by newspapers to signify that a stock is trading without rights attached. Those rights remain with the seller.

XW

A symbol used by newspapers to signify that a stock is ex-warrants.

Yankee Bond Market

Market for dollar-denominated bonds issued in the U.S. by foreign corporations, banks and governments.

Yearly renewable term (YRT) insurance

Term life insurance that gives you the right to continue the coverage for another year at the end of each policy year. This renewal right continues for a specified number of years or until you reach the age specified in the policy. Also called annually renewable term (ART) insurance.

Yield

The value of interest or dividend payments from an investment, usually stated as a percentage of the investment price.

Yield curve

Interest rates plotted on a graph over a set period of time with different maturities and the same credit quality.

Yield to Maturity

Yield that would be realized on a bond or other fixed income security if the bond was held until the maturity date. It is greater than the current yield if the bond is selling at a discount and less than the current yield if the bond is selling at a premium.

Zero-Coupon Bond

A bond which pays no coupons , is sold at a deep discount to its face value, and matures at its face value. A zero-coupon bond has the important advantage of being free of reinvestment risk, though the downside is that there is no opportunity to enjoy the effects of a rise in market interest rates. Also, such bonds tend to be very sensitive to changes in interest rates, since there are no coupon payments to reduce the impact of interest rate changes. In addition, markets for zero-coupon bonds are relatively illiquid. Under U.S. tax law, the imputed interest on a zero-coupon bond is taxable as it accrues, even though there is no cash flow.

Zero-Coupon Convertible

A zero-coupon issued by a corporation which can be converted into that corporation's common stock at a certain price, or a zero-coupon bond issued by a municipality which can be converted into an interest-bearing bond under certain circumstances. Also called split coupon bond.