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12b-1
Fees: The maximum charge deducted
from fund assets to pay for distribution and marketing costs. Charged to
investors. Usually assessed as a percentage of assets held, although sometimes
as a flat amount; methodology is listed in the fund's prospectus. Sometimes
called a management fee, although distinct from
"annual management
fees."
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Annual Management
Fee: Annual fee charged by the mutual
fund company to investor to, in part, pay the professional
fund manager
of the investment. Usually range from
0.25% to 1.5% of assets held. Deducted automatically from investors' accounts.
Higher management fees do not assure superior fund performance.
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Asset Allocation
Fund: Income and capital appreciation
are dual goals for funds with this objective. Managers often use a flexible
combination of stocks, bonds and cash; some, but not all, shift assets frequently
based on analysis of business-cycle trends.
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Automatic
Enrollment: (see Passive enrollment,
below)
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Back-End
Load: The sales charges assessed
when the investor removes money from the investment. Generally declines with
the time the investors own the shares. Usually starts out at 6% for the first
year and gets smaller each year thereafter until it reaches zero (usually
in the sixth or seventh year of owning the investment). Also called a deferred
load, deferred sales charge or exit charge. Back-end loads are used primarily
to pay a commission to the broker/dealer who sold the fund to the investor.
Often coupled with 12b-1 fees.
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Balanced
Fund: Seek both income and capital
appreciation by investing in a generally fixed combination of stocks and
bonds. These funds generally hold a minimum of 25% of their assets in
fixed-income securities at all times.
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Beta:
A historical measure of the magnitude of a
portfolio's past share-price fluctuations in relation to the ups and downs of
the overall market (or appropriate market index). The market (or index) is
assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its
share price rise or fall by 12% when the overall market rose or fell by 10%.
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Bond Fund (aka, Fixed
Income Fund): Mutual funds that have
higher risks than money market funds but seek to pay higher yields. Not
restricted to high-quality or short-term investments (as are Money Market
Funds). Because there are many different types of bonds, bond funds can vary
dramatically in their risks and rewards. Long-term bond funds invest in bonds
with longer maturities (a longer length of time until final payout). The
values of long-term bonds can go up and down more rapidly than those of
shorter-term bond funds.
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Broker/Dealer: An investment professional licensed by the National
Association of Securities Dealers to act as the liaison between buyers and
sellers of securities.
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Bundled
Plan: A 401k
investment-administration-plan package sold as one unit. In contrast to a
basic 401k plan, in which the employer can individually hire the investment
provider and administration provider as he or she chooses. In most bundled
plans, no variation from the standard is allowed; in others, such as
Advisors 401(k), there's immense investment
selection as well as many variable features you choose among to customize
your 401k plan to the needs of your company and its employees.
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Class A
Fund:
Mutual fund investments that generally
charge a front-end load, the size of which usually runs inverse to the amount
of money being invested.
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Class B
Fund: Mutual fund investments that
generally charge a back-end load that declines with the amount of time the
person holds the investment.
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Class C
Fund: Mutual fund investments that
generally function similarly to Class B shares, but with a back-end load
that's typically lower. Class C management fees, however, are typically higher
than those for Class B or Class A shares.
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Compliance
Tests: IRS-mandated tests that compare
contribution levels and actual amounts made by different classifications
of plan participants. The four most common tests 401k plans must pass each
year are the ADP Test (Actual Deferral Percentage), ACP Test (Actual Contribution
Percentage), Multiple Use Test and Top-heavy Test. click here for
more
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Corporate Bond
Fund--General: Seek income by investing
in fixed-income securities, primarily investment-grade corporate bonds.
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Corporate Bond Fund--High
Yield: Seek income by generally investing
65% or more of assets in bonds rated below BBB. The price of these issues
is generally affected more by the condition of the issuing company (similar
to stock) than by the interest rate fluctuation that usually causes bond
prices to move up and down.
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Declining
Load:
A purchase or liquidation fee that
goes down either in conjunction with the amount of time the person has held
the mutual fund shares or with the amount of shares the person owns.
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Deferred
Fees: (see Back-end load)
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Discrimination
Testing: (see compliance tests)
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Emerging Growth
Fund: Seek rapid growth of capital
and that may invest in emerging market growth companies without specifying
a market capitalization range. They often invest in small or emerging growth
companies and are more likely than other funds to invest in IPS's or in companies
with high price/earnings and price/book ratios. They may use such investment
techniques as heavy sector concentrations, leveraging and short-selling.
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Equity-Income
Fund: Funds expected to pursue current
income by investing at least 65% of their assets in dividend-paying equity
securities.
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ERISA:
Employee Retirement Income Security Act of 1974,
legislation designed to protect the rights of the plan participants and
beneficiaries.
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Exit
Charge:
(see Back-end load)
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Expense
Ratio:
The annual fee charged to mutual
fund shareholders (usually as a percentage of total investment) for the
administration, operation and management expenses associated with a particular
fund. May include management fees, 12b-1 fees and other fees, but does not
include sales charges. Shows the actual amount that a fund takes out of its
assets each year to cover its expenses.
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Fiduciary:
The person who provides investment advice to
a company's qualified retirement plan for a fee, and/or has discretionary control
or authority over the administration of the plan, and/or has authority or
control over the assets of the plan.
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Foreign Stock
Fund: Funds that invest primarily
in equity securities of issuers located outside of the United States.
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Form 5500:
The Form 5500 is required by the IRS and
Department of Labor annually. The 5500 provides statistical information about
the plan and plan sponsors, reports financial information about the plan, and
demonstrates compliance with 401k rules.
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Front-End
Load: A fee assessed at the purchase
of mutual fund shares, usually as a percentage of the purchase dollar amount.
By law cannot be higher than 8.5% of the amount being invested. Front-end
loads go to pay a commission to the broker who sold the fund, in theory in
exchange for the broker giving the investor professional advice.
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Full-Service
Plan:
In the context of this website, a
full-service plan is any 401k plan in which you pay people outside of your
company to provide the plan's administration, investments and other services.
One or more companies may take care of these duties, depending on the plan
and its provider. Go to Full Service
Plans.
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Fund
Family:
A company that offers mutual funds.
Generally, the company name is included in the official fund name.
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Fund
Manager: The person(s) whose job
it is to "manage" the investment by buying and selling securities with the
goal of having the investment meet the growth and other Objectives stated
in the prospectus within the constraints (conservative growth, moderate growth,
etc.) also stated in the prospectus; investors are credited with profits/losses
from these transactions in proportion to the number of shares they own.
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Government Bond
Fund--General: Offerings that pursue
income by investing in a combination of mortgage-backed securities, treasuries
and agency securities.
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Growth
Fund: Funds that pursue appreciation
by investing primarily in equity securities. Current income, if considered
at all, is a secondary concern.
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Growth and Income
Fund: Growth of capital and current
income are near-equal objectives for these funds. Investments are typically
selected for both appreciation potential and dividend-paying ability.
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Highly-Compensated Employee:
For Tax Year 2000, highly-compensated employees
are defined by the IRS as persons who own 5% or more of the company and/or
earn more than $170,000 annually, and/or earn more than $85,000 annually and
are in the top 20% of the company, ranked by pay.
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Index:
hypothetical portfolio (common examples
are; Dow Jones Industrials, and S&P 500) The performance of which is
often used as a benchmark in judging the relative performance of securities
such as mutual funds, stocks, and variable annuity sub-accounts. Indexes
are unmanaged portfolios and should only be compared with securities or mutual
funds with similar investment characteristics and criteria.
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Load (load
fund): Mutual fund investments that
charge either a front-end (purchase) or back-end (liquidation) fee on
shares.
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Plan Sponsor:
The person (typically the employer) who is
responsible for adopting the plan and sponsoring it for the benefit of the
employees..
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NASD: Acronym for National
Association of Securities Dealers. The securities industry's largest
self-regulatory organization. For more information, visit any of the NASD
websites, especially
www.investor.NASD.com or
www.nasd.com.
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Management
Fee: see Annual management fee.
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Money Market
Fund: A relatively low-risk mutual
fund (when compared with others) managed to maintain a stable $1 share price/NAV.
Investments in these funds are neither insured not guaranteed by the U.S.
government, and there can be no assurance that a fund will be able to maintain
a stable net asset value of $1 per share.
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Mutual
Fund:
A collection of money invested in
a group of assets and managed by an investment company (a mutual fund company
or other). The money comes from investors who want to buy shares in the fund.
The benefits to investors in buying shares of mutual funds come primarily
from diversification, professional money management, and capital gains and
dividend reinvestment.
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Mutual Fund
Company: A company that brings together
money from many people and invests the money in stocks, bonds or other
securities. The combined holdings of the stocks, bonds and other securities
and assets the fund owns are known as it s
portfolio. Each investor owns shares of the portfolio; each
shares represents a percentage ownership in the portfolio holdings.
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Net Asset Value
(NAV): The per share market value
(price) of a mutual fund; in general, the price offered to purchase one share
of the mutual fund. The NAV in most cases is calculated b including the closing
day's prices of all securities held in a particular fund, plus all other
assets owned by the fund (including cash), subtracting all liabilities of
the fund, and then dividing the sum by all the outstanding shares of the
fund on that given day. If the fund is a no-load fund, then the offering
per share price for the fund and the NAV per share will be the same.
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Negative
Elections: (See passive
enrollment).
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No-Load
Fund: Mutual fund investments that
do not charge front-end (purchase) or back-end (liquidation) fees; load mutual
funds do, however, involve annual management fees.
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Passive Enrollment
(a.k.a., automatic
enrollment or negative
elections): When employees
are automatically enrolled in the 401k plan as soon as they meet the plan's
eligibility standards. Default investments (usually a money market fund)
and a default contribution rate (usually 3% to 5% of the person's compensation)
are preset by the employer. All passively enrolled employees must be immediately
notified of their new 401k participant status, and they must be given the
opportunity to change from the default contribution rate and/or investment
selection (and, of course, given the opportunity to withdraw from the plan
entirely). The small amount of money that was placed in the 401k for a
new employee who cancels participation soon after automatic enrollment must
stay in the plan until the person's employment is terminated.
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Plan Vendors:
Companies that sell 401k plans
that are pre-packaged or bundled.
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Portfolio: The combined holdings
of stocks, bonds or other securities and assets a mutual fund company owns.
Also, the combination of stocks, bonds and other securities and assets an
individual person owns.
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Prospectus: A printed document for investors that describes a
particular mutual fund investment; needs to explain the overall investment
goals, how the fund manager expects to meet those goals, any management fees
charged to investors, the investment's historical returns and projections
for the future.
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Rollover: A transfer from one qualified tax-deferred pension
plan (such as a 401k plan) into another (such as a new employer's 401k
plan) that does not expose the money to early withdrawal penalties nor income
taxation. An IRA rollover is a common choice for employees leaving a company:
the money goes from the former employer's 401k into an Individual Retirement
Account (IRA), where it continues to grow and compound tax-free.
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Russell
2000: Measures the performance of
the 2,000 smallest companies in the Russell 3000 index, which represents
approximately 10% of the total market capitalization of the Russell 3000Index.
As of the latest reconstitution, the average market capitalization
was approximately $421 million; the median market capitalization was
approximately $452 million. The largest company in the index had an approximate
market capitalization of $1.0 billion. The stocks represented by this
index involve investment risk which may include the loss of
principal.
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S & P 500
Composite: A market capitalization
weighted price index composed of 500 widely held common stocks listed on
the New York Stock Exchange, American Stock Exchange and Over-The-Counter
market. The value of the index varies with the aggregate value of the
common equity of each of the 500 companies. The stocks represented
by this index involve investment risks which may include the loss of
principal invested.
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Sales Charge:
A fee charged when new shares of a mutual fund are
purchased. It is sometimes called a load, front-end load, or exit charge.
Mutual funds that don't have sales charges are called no-load funds.
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SEC: Acronym for Securities and Exchange Commission. An "independent,
nonpartisan, quasi judicial regulatory agency with responsibility for
administering federal securities laws" (from the SEC's "who we are" in its
website). For more information, visit the SEC's website:
http://www.sec.gov.
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Service Requirement:
The service requirement is the minimum amount of
time that an employee must work for you, before he is eligible to participate in
the plan.
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Shares: Short for shares of a mutual fund investment. Each investors
owns a percentage of a
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Specialty
Fund: Funds that invest primarily
in equity securities of issuers within a narrow industrial category.
(ie. automotive, travel, electronics,etc.)
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Stock Funds (aka,
Equity Funds): Mutual funds that
generally involve more risk than Money Market or Bond funds -- but they also
can offer the highest returns. A Stock Fund's value (NAV) can rise and fall
quickly over the short term, but historically stocks have performed better
over the long term than other types of investments. Not all stock funds are
the same (e.g., Growth Funds focus on stocks that may not pay a regular dividend
but have the potential for large capital gains; other specialize in a particular
industry, such as technology).
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Summary Annual Report (SAR):
The SAR is a recap of the financial activity that
occurred in the 401(k) during the plan year. The SAR must be distributed to
each participant and beneficiary with in nine months after the close of the plan year.
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Summary Plan Description (SPD):
The SPD overview of the rules and benefits of a
401(k) plan. The DOL requires the plan administrator provide a copy of the SAR
to each employee participating in the plan.
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Third-Party Administrator
(TPA):
A company that provides plan
administration and record keeping services to a plan sponsor. The third-party
administrator may also provide investments to the plan.
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Ticker
Symbol: The letters assigned to a
particular stock, option or mutual fund used to identify that particular
security for trading or quoting purposes.
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Vesting:
The portion of a participant's 401(k) account
balance that they are entitled to under the plan's rules. Depending on the
provisions of the plan, employees become "vested" over a pre-determined period
of time, incrementally over a period of years.
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World Bond
Fund:
Seek current income with capital
appreciation as a secondary objectives by investing primarily in debt obligations
issued throughout the world. These bonds are frequently foreign government
issues.
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World Stock
Fund:
Funds that invest primarily in equity
securities of issuers located throughout the world, while maintaining a
percentage of assets (normally 25% to 50%) in the United States.
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Wrap Fee:
A charge for an investment program that bundles or
"wraps" together a number of services (such as brokerage, advisory, research,
consulting, and management services) and covers them with a single fee.
Typically the wrap fee is based on the value of 401(k) assets being managed.
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