Alpha. The difference between a fund's actual returns versus its expected performance, given its level of market risk as measured by beta. A positive alpha indicates the fund performed better than its beta would predict while a negative alpha indicates the fund's underperformance based on the expectations indicated by the fund's beta.
Alternative minimum tax (AMT). An alternative method of computing your tax liability separate from the federal regular income tax. The AMT was designed to ensure that taxpayers pay a minimum amount of tax on their economic income. This tax may apply to taxpayers who receive certain benefits for regular tax purposes (for example, the exemption from regular tax on interest from municipal private activity bonds) or who have substantial itemized deductions and/or credits. Please consult your tax advisor to determine if the AMT applies to your tax situation.
American depositary receipt (ADR). Certificates that represent a given number of shares in a foreign corporation, held on deposit in a U.S. bank that has overseas branches. They can be bought and sold directly in the U.S. market, offering U.S. investors an easy way to own individual foreign stocks.
Annuity. A contract between the contract owner and an insurance company guaranteeing that in return for a purchase payment(s) a series of fixed or variable income payments will be paid for the life of the annuitant or for a specified period of time, beginning right after purchase (immediate annuity) or after an accumulation period (deferred annuity).
Asset allocation. An investment strategy that involves committing specific percentages of a portfolio to different asset types such as stocks, bonds, or money market instruments. The portfolio should be rebalanced periodically to maintain the target percentages.
Automatic investment plan. Any plan in which an investor can automatically accumulate shares of a fund or company on a regular basis.
Average annual total return (standardized). An SEC standardized calculation that represents the average annual change in value of an investment over specified periods. Typically assumes sales charges and reinvestment of dividends and capital gains.
Average basis single category method. A method used to determine your cost basis of fund shares sold in the current year. Under this method, cost basis is determined by calculating the average basis of all shares owned at the time of each disposition, regardless of holding period. Even though all unsold shares of a fund in a single category are used to compute average basis, generation of short-term and long-term capital gains or losses is possible when these shares are sold. To determine the holding period, the shares disposed of are considered to be those acquired first.
Average cost. For a bond fund this figure indicates the average amount paid for bonds in a portfolio as a percentage of their par value. Individual bonds typically have a par value of $1,000.
Average coupon rate. For bond funds, this figure is computed by weighting the coupon rate of each bond in the portfolio by its market value. Then the average of the weighted figures is determined.
Average duration. Indicates the sensitivity of a fund's NAV to changes in interest rates. When comparing funds, the one with the longer average duration is more sensitive to interest rate changes.
Average life. This figure refers to the length of time before half of a debt has been retired. It usually refers specifically to mortgage-backed securities as an indicator of how long, on average, before the underlying mortgages will be paid off.
Average market value. Indicates the average market value of bonds in a portfolio as a percentage of their par value. Individual bonds typically have a par value of $1,000.
Average weighted maturity. For bond funds, this figure is computed by weighting the maturity of each bond in a portfolio according to its market value. Then the average of the weighted figures is determined.