Glossary

A

accumulation period/stage
The time from the date when an annuity contract is issued until the start of income payments.
accumulation unit
A share of participation in a Variable Annuity. At retirement, accumulation units are converted to Annuity Units. To calculate the current value of the accumulation, multiply the number of units owned by the current value of one accumulation unit.
acquisition
When one company takes over controlling interest of another company.
active portfolio management
A method of choosing individual securities with the goal of outperforming the general markets and/or indexes. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell. This management style may have higher operating costs (expense ratio) than passive management due to active trading.
adjustable rate mortgage
A mortgage whose interest rate changes periodically based on the upward or downward movement of a specified benchmark - for example, six-month or one-year Treasury Bills.
adjusted gross income (AGI)
Your total income, as reported on your federal income tax return, after allowing for certain adjustments, such as subtracting certain contributions to individual retirement accounts, but before subtracting Standard or Itemized Deductions and personal exemptions.
advisor
An organization responsible for managing a mutual fund’s assets. Also, a company or individual -- usually called a financial adviser -- who manages someone else’s investments.
advisory fee
See management fee.
after-tax return
The return on investments after applicable income taxes are subtracted. For example, an investment with a before-tax return of 8% would have an after-tax return of 5.8% for an individual in the 28% bracket. This is calculated by multiplying .08 by 1 minus the tax bracket of .28 [.08 (1 - .28)].
aggressive
An investment approach that accepts above-average risks in return for potentially above-average investment returns.
aggressive growth fund
A mutual fund that invests primarily in the more growth-oriented sectors of the economy. These growth stocks typically have relatively higher valuations than the market.
alpha
A performance measure. The incremental return achieved by a portfolio above its benchmark. A positive (negative) alpha indicates stronger (poorer) fund performance than predicted by the fund’s level of risk (measured by beta). In other words, it is the difference between a security’s expected (or actual) return and its required return. Alpha and beta are more reliable measures when used in combination with a high R-squared (R2), which indicates a high correlation between the movements in a fund’s returns and movements in a benchmark index. Alpha is annualized. See beta and R-squared (R2).
alternative minimum tax (AMT)
An alternative income tax calculation designed to ensure that taxpayers with large deductions or credits do not escape federal tax liability.
A.M. Best Co.
A firm that assesses the financial soundness of companies that sell insurance policies and annuities. Best’s highest rating is ‘A++ (Superior).’
American Depositary Receipt (ADR)
A negotiable receipt representing a specific number of equity shares in a foreign corporation held by a U.S. bank, entitling the shareholder to all dividends and capital gains. ADRs allow Americans to invest in foreign-based companies by buying their shares in the U.S. instead of in overseas markets. ADRs trade in American dollars in the American securities markets like domestic equities.
American Depositary Shares (ADS)
A trading unit for the issuer in the U.S. that may represent more or less than one underlying share of the issuer. ADSs are issued in New York in registered form, are eligible for trading and clearing in the U.S. markets, and may be made eligible for clearing outside the U.S. in Euroclear and CEDEL.
American Stock Exchange (AMEX)
A not-for-profit, privately owned corporation in New York that handles approximately 10% of all securities trades within the United States. In 1998 the AMEX merged with the National Association of Securities Dealers (NASDAQ).
AMEX Major Market Index
An index of 20 blue chip industrial stocks that closely tracks the changes in the Dow Jones Industrial Average. Fifteen of the stocks in the index are also included in the Dow Jones Industrial Average.
amortization
The process of gradually reducing a debt through installment payments of principal and interest, versus paying off the debt all at once.
annual percentage rate (APR)
The annual rate of interest paid by a borrower.
annual report
A financial statement provided to shareholders each year by corporations (including mutual funds), as required by Securities and Exchange Commission (SEC) regulations. A mutual fund’s annual report lists assets (such as the fund’s securities holdings), liabilities, and earnings, as well as certain historical information. Annual reports also usually include a discussion of current business issues.
annualize
To make a period of less than a year apply to a full year, usually for purposes of comparison. For instance, a portfolio turnover rate of 36% over a six-month period could be converted to an annualized rate of 72%.
annuitant
A person receiving benefits under an annuity contract. See "annuity."
annuity
A contract by which an insurance company agrees to make regular payments to someone for life or for a fixed period. See Fixed Annuity and Variable Annuity.
annuity commencement date
The date on which annuity payments to a person begin.
annuity unit
A share of participation in a variable annuity once income payments have begun.
appreciation
An increase in the value of an asset.
arbitrage
Profits earned when the same security is traded in two or more markets at different prices.
asked price
The price at which a security is offered for sale. Also called the offering price.
asset
Anything with commercial value that is owned and adds to your Net Worth.
asset allocation
The apportioning of investment dollars among various asset classes, such as cash investments, bonds, equity (stocks) and real estate. Also known as investment mix.
asset allocation fund
A mutual fund that invests in multiple asset classes such as short-term instruments, bonds, and equities. Example: TIAA-CREF Managed Allocation Fund.
asset-backed securities (ABS)
Securities that are collateralized by loans, receivables, or installment contracts on personal property, not real estate. Examples include car loan and credit card receivables. All ABSs are considered to be structured securities.
asset classes
Major categories of financial securities. The major asset classes are cash investments (also called cash reserves or money market instruments), stocks, bonds, guaranteed, and real estate.
assignment
A legal arrangement that transfers ownership from one party to another. Ownership can include real or investment property, contractual rights, or even the option to assign ownership at a future date.
auction market
A market for securities, typically found on a national securities exchange, in which trading in a particular security is conducted at a specific location with all qualified persons at that post able to bid or offer securities against orders via outcry.
Automated Clearing House (ACH)
A nationwide network linking U.S. banks and financial institutions for the purpose of electronic money movement.
automatic investment plan
See periodic payment plan.
automatic reinvestment
An arrangement by which the dividends or other earnings from an investment are used to buy additional shares in the investment vehicle.
average annual total return
Average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. Average annual total returns smooth out variation in performance; they are not the same as actual year-by-year results. Also, it is the average annual profit or loss realized by an investment at the end of a specified calendar period, stated as the percentage gained or lost per dollar invested.

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B

BB
The highest bond rating for non-investment grade issues (Standard & Poor’s).
back-end load
A sales charge or commission for an investment paid by the buyer at the time of sale. See front-end load.
balance sheet
A financial report that indicates the net worth of an individual or business at a given moment, comparing what is owned (assets) to what is owed (liabilities).
balanced mutual fund
A fund that invests in both equities (e.g., common stocks and preferred stocks) and debt instruments (e.g., bonds) with the goal of reducing risk by investing in different markets. These funds generally hold a minimum of 25% of their assets in fixed-income securities at all times.
balloon payment
Final payment on a debt that is substantially larger than the preceding payments. Loans or mortgages are structured with balloon payments when some projected event is expected to provide extra cash flow or when refinancing is anticipated. Balloon loans are sometimes called "partially amortized loans."
banker’s acceptance (BA)
A financial draft drawn on a bank, and used extensively as a form of payment in the import/export business. BAs often qualify as money market instruments and can be resold as short-term cash management investments.
Barclay's Capital Aggregate Bond Index
A common index widely used to measure performance of U.S. bond funds.
basis
The amount a person has invested in an asset. See cost basis.
basis point
One one-hundredth (1/100 or 0.01) of one percent. For example, 30 basis points equal 0.30%. Yield differences among fixed income securities are stated in basis points. The smallest measure used in quoting yields on mortgages, bonds, stock, notes, etc.
BBB
The lowest bond rating for investment grade issues (Standard & Poor’s).
bear
A person with a generally pessimistic market outlook.
bear market
A prolonged period of falling stock prices usually by 20% or more in more than one index (Dow or S&P 500) is considered a bear market.
before-tax contributions
The portion of an employee’s salary contributed to a retirement plan before federal income taxes are deducted; this reduces the individual’s gross income for federal tax purposes.
benchmark
An unmanaged group of securities (hence no expenses) whose overall performance is used as a standard to measure investment performance of other funds or the overall market. Examples of indices used as benchmarks are S&P 500 Index, Russell 3000 Index, MS-World Index, and the Lehman Brothers Aggregate Bond Index.
beneficiary
The person(s), institution, trustee, or estate named to receive death benefits, if any, from insurance or annuity contracts.
bequest
Personal property left to another by will.
beta
A measure of the magnitude of a portfolio’s historical 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%.
bid and ask
Bid is the highest price a potential investor is willing to pay (e.g., for a stock); ask is the lowest price acceptable to a potential seller. Also known as the bid-ask spread.
blue-chip stocks
Equity ownership in highly regarded investment-quality companies. (These companies tend to be well established, older, and have the ability to pay dividends in good and bad years. The Dow Jones Industrial Average is based on 30 stocks which are primarily blue chip stocks.)
blue sky laws
State regulations for the sale of securities within that state. These laws are intended to protect investors.
board of directors
Individuals (elected by company or mutual fund shareholders) who meet several times a year to provide numerous management directives.
Board of Trustees (TIAA)
The role of the TIAA Board of Trustees is to oversee the management of TIAA. The Board is composed of experienced executives and academics, most of whom are independent of management. The Board meets throughout the year.  View our Newsroom Bios section to see a listing of the current TIAA Trustees.
Board of Trustees (CREF)
The role of the CREF Board of Trustees is to oversee the management of CREF.  The Board is composed of experienced executives and academics, most of whom are independent of management. The Board meets throughout the year to oversee CREF’s activities, review contractual arrangements with companies that provide services to CREF and review CREF performance. View our Newsroom Bios section to see a listing of the current CREF Trustees.
bond
A formal certificate of debt, usually issued by corporations or units of government.
bond fund
A fund that holds mainly municipal, corporate, and/or government bonds.
bond ratings
A measure of the quality, safety, and potential performance of a bond issue. Moody’s Investors Service and Standard & Poor&’s are two major companies that rate bonds.
book value
A company’s assets, minus any liabilities and intangible assets (i.e., depreciation).
bourse
French term for stock exchange, for example, Bourse de Brussels for Brussels Stock Exchange.
Brady Bonds
U.S. dollar-denominated bonds issued by developing markets particularly in Latin America. The bonds were exchanged for commercial bank loans in default and are collateralized by U.S. Treasury zero-coupon bonds.
broadly diversified international equity funds
Broadly diversified international equity funds generally fall into two categories: international funds, which do not invest in U.S. securities, and global funds, which invest anywhere in the world, including the U.S. Although they are both considered more aggressive than most domestic equity funds, broadly diversified funds are often considered to be a "less aggressive" type of international fund because of their typical emphasis on diversification within established markets. With these funds, risk is spread out across an expansive geographic area rather than concentrated in a single region or country. These funds are used by many investors to form the foundation of the international component of their portfolio.
broker/broker-dealer
An individual or firm that buys or sells mutual funds or other securities for the public.
brokerage window
A plan feature that permits participants to purchase investments that are not included among the plan’s general menu of investment options.
bull
A person with a generally optimistic market outlook.
bull market
A period of rising prices in a financial market.
buy-and-hold
A strategy in which the investor ignores short-term market fluctuations and holds on to his/her investments for long periods of time.
business risk
Investment risk that addresses the uncertainty of investment returns resulting from the operating nature of a business or the industry in which it operates.
busted convertibles
Convertible securities that trade like fixed income investments because the market price of the common stock that they convert to has fallen so low as to render conversion meaningless.
buyout
An individual group or company’s purchase of at least a controlling percentage of a company’s stock to take over its assets and operations. A buyout can occur through negotiations or through tender offers.

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C

call feature
The terms of a bond contract giving the issuer the right or requiring the issuer to redeem or "call" all or a portion of an outstanding issue of bonds prior to their stated dates of maturity at a specified price, usually at or above par.
call/call option
A contract giving an investor the right but not the obligation to buy a prescribed number of shares of a security by a specified date and at a predetermined price. See option and put.
call price
See redemption price.
call protection
The aspects of the call provisions of an issue of callable securities that partially protect an investor against an issuer's call of the securities or act as a disincentive to the issuer's exercise of its call privileges. These features include restrictions on an issuer's right to call securities for a period of time after issuance (for example, an issue that cannot be called for ten years after its issuance is said to have ten years' call protection), or requirements that an issuer pay a premium redemption price for securities called within a certain period of time after issuance.
call risk
The possibility that falling interest rates will cause a bond issuer to redeem -- or call -- its high-yielding bond before the bond's maturity date.
callable bond
A bond that the issuer is permitted or required to redeem before the stated maturity date at a specified price, usually at or above par, by giving notice of redemption in a manner specified in the bond contract.
capital
Assets that are invested in a venture; or the net assets of a legal entity, like a corporation or partnership, plus all gains and profits.
capital appreciation
The rise in the value of the principal of an investment.
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/loss
Increase/decrease in the value of certain assets, such as those held for investment, measured for tax purposes when the property is sold or otherwise disposed of. A net short-term capital gain is treated as ordinary income. A net long-term capital gain is generally subject to a maximum tax rate. Net capital losses are deductible only against other income up to a set cap per year;however, there is an indefinite capital loss carried forward.
capital gains distributions
Payments to mutual fund shareholders of gains realized during the year on securities that the fund has sold at a profit, minus any realized losses. Variable annuities do not distribute current capital gains because all distributions are deferred until retirement, at which time annuitants' capital gains are taxed at a lower rate.
capital market
The market where financial assets -- debt (bonds) and equity (stocks) -- are traded.
capital preservation
An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.
capitalization or cap
The total market value of a company's outstanding securities.
cash and cash equivalents
Investments that are short-term, highly liquid and have high credit quality and are considered to be virtually as good as cash.
cash balance plan
A defined benefit retirement plan that maintains individual employee accounts like a defined contribution plan. The employees' accounts earn a fixed rate of return that changes from year to year. 
cash & other category
A balance sheet asset classification or mutual fund asset allocation category that includes net cash, short-term securities, and any other securities (such as options) not included in other asset allocation categories.
cash drag
Detraction from a fund's performance due to cash holdings and annual fund expense charges. Computed as the difference between a fund's investment returns without cash and the total fund returns including cash and expenses.
cash flow
The difference between income and expenses.
cash management
The strategy for administering cash and investing any excess, usually on a short-term basis.
cash position
The percentage of a mutual fund's assets invested in short-term reserves, such as U.S. Treasury bills or other money market instruments.
cash refund annuity
An annuity that makes periodic payments for the life of an individual and a benefit payable to a beneficiary upon death equal to the premium(s) paid less payments made to the individual.
cash withdrawal
A contractual provision that permits participants to withdraw some or all of an accumulation from an insurance contract or an annuity.
CEDEL
An international clearing system that provides book-entry settlement and custody for certain instruments.
central assets account
A stock or banking investment account that includes money market funds, checking accounts, and other financial assets.
certificate of deposit (CD)
A short-term debt security with a period of maturity ranging from a few weeks to several years. Interest rates are established by market demand and competition and fixed at the time of purchase. Maturities vary from a few months to a few years, and early redemption may result in the payment of penalties. Because CDs are issued by banks and savings and loan associations, principal is insured through the FDIC in most cases.
 CFA
See chartered financial analyst.
 CFP
See certified financial planner.
charitable remainder trust
A trust that provides income and tax benefits to the grantor (or his/her beneficiary) for a fixed period, or for life. The balance is then distributed to a pre-designated charity.
chartered financial analyst (CFA)
A designation for investment professional conferred by the Association for Investment Management and Research (AIMR). Candidates are required to meet competency standards and pass multiple exams in quantitative analysis, economics, securities analysis, portfolio management, and financial accounting. Candidates are required to have three years of investment-management experience.
checkwriting
A feature available on certain types of mutual funds whereby investors can access their funds easily through an endorsed written order.
closed-end investment company
A company that invests in diversified portfolios of securities on behalf of investors, but that has fixed capitalization. The company issues a fixed number of shares, and by purchasing shares of the company, an investor presumably will share in the gains or losses experienced by the underlying portfolio of investments. When the portfolio performs well, the investor's shares in the company generally will increase in value; when the portfolio does poorly, the shares generally will decrease in value. The investor must buy or sell shares in the market; they are not purchasable or redeemable by the investment company. As a result, changes in the value of the portfolio are not the only determinant of changes in the price of the shares; share price is also determined by market conditions and investor sentiment. For example, even if the underlying portfolio has experienced declines, shares of the investment company could increase in value if investors expect good results in the future. Compare with exchange-traded fund (ETF).
closing price
A mutual fund's closing price, or net asset value (NAV), calculated at the end of each business day. Also refers to the last trading price of a stock when the market closes.
coinsurance
An insurance policy provision under which the insured and the insurer share costs incurred after the deductible is met up to a specific dollar limit (stop-loss limit), after which the insured is no longer required to pay and the insurer bears all covered costs.
collateral
Anything of value pledged by a borrower to secure a loan.
collateralized mortgage obligation (CMO)
A type of mortgage-backed security that separates mortgage pools into different maturity, interest or principal classes called tranches. This is accomplished by applying income (payments of principal and interest) from mortgages in the pool to retire the bonds in the order specified in the prospectus.
collateral trust bond
Corporate debt security backed by other securities usually held by a bank or other trustee. Such bonds are backed by collateral trust certificates and are usually issued by parent corporations that are borrowing against the securities of wholly owned subsidiaries.
collective or commingled trust
An investment fund created especially for employee benefit plans, such as 401(k) plans, that combines the assets of retirement plans for investment purposes.
commercial mortgage-backed securities (CMBS)
Similar to mortgage-backed securities but backed by loans secured with commercial rather than residential property. Commercial property includes multi-family, retail, office buildings, etc. All CMBS are considered structured securities.
commercial paper
Notes with maturities ranging from 2 to 270 days, issued by corporations and other borrowers to short-term investors. Primarily used to finance accounts receivable and inventories, commercial paper is issued in large denominations usually at a discount reflecting prevailing market interest rates.
commingling
Combination of assets across multiple investors and across different products into a single investment vehicle. One specific example is combining the assets distributed from a qualified plan or 403(b) plan with other IRA assets. By commingling assets from these different plans, the IRA account owner forfeits the ability to roll the money back into another qualified plan or 403(b) plan with a future employer.
commission
A fee charged by a broker for executing a securities transaction.
commodity futures
Contracts for future delivery of certain products like wheat, soybeans, pork bellies, metals, and financial instruments or indices of financial instruments. Commodity futures specify both prices and delivery dates and are traded on special exchanges, such as the Chicago Mercantile Exchange.
common stocks
Equity, or ownership, in a corporation. Stockholders participate in a company's profits or losses through dividends and changes in the stock's Market Value.
community property
In certain states, for any property that a married couple has acquired over the course of their marriage, the property is equally divided between them in a divorce.
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. Also see Equity Wash.
compound interest
Interest credited daily, monthly, quarterly, semiannually, or annually on both principal and previously credited interest.
compounding
The process of interest being earned (daily, monthly, quarterly, semiannually, or annually) on both a principal balance and previously earned interest that has been reinvested.
compounding period
The period of time that passes before interest is compounded once. For example, if the compounding period is one year, interest is being compounded once a year. If the compounding period is a month, interest is being compounded each month. Compounding period may also be daily or continuously.
conservative
An investment approach that accepts lower rewards in return for potentially lower risks.
conservative growth portfolio
A portfolio aimed at long-term capital appreciation with low risk; it will likely contain a high percentage of ‘blue-chip' companies with low turnover, infrequent trading. See blue-chip stock.
constructive receipt
The date that the IRS determines an individual received dividends, a retirement benefit, a death benefit, etc. Generally the date on which the property is available to the individual.
Consumer Price Index (CPI)
A widespread measure of the increase (or decrease) in price of consumer goods and services, published by the U.S. Department of Labor. The CPI is used to track the pace of inflation.
contingent deferred sales charge (CDSC)
A fee imposed when shares of a mutual fund or a variable annuity contract are redeemed (sold) during the first few years of ownership. Also called a back-end load.
contract
A binding agreement between two or more parties.
contractual cap
An arrangement that limits certain fees and/or expenses so that a fund’s total annual operating expenses do not exceed a certain percentage of the fund’s average net assets. If the cap is contractual, it generally cannot be terminated until a date specified in the prospectus, unless approved by the fund’s board of directors.
contractual waiver
An arrangement in which the fund’s investment advisor contractually agrees to reimburse the fund for certain expenses. If the waiver is contractual, a fund's investment advisor generally cannot terminate the waiver until a date specified in the prospectus, unless approved by the fund’s board of directors.
contract owner
The person who purchases an annuity or to whom an annuity contract is issued and who is entitled to its benefits.
contrarian investing
An investing technique that ignores current market trends by buying securities that are considered by the investor to be undervalued and out of favor with other investors. See value stock fund.
contribution
Money placed in anIndividual Retirement Account (IRA), an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.
contributory plan
A retirement or benefit plan under which employee contributions are required for participation.
convertible bond
A bond that can be exchanged for the common stock of the same company under the terms set at the time of issue.
convertible hedge
An arbitrage strategy that involves buying a convertible bond or preferred stock and selling short an appropriate number of shares of the common stock. If the stock goes up, there should be a profit in the convertible and a loss in the stock. If the stock goes down, there should be a profit in the stock and a loss in the convertible. Always consider tax treatment of this strategy and the time limits that may apply. See hedge.
convexity
Along with duration, a mathematical concept that measures the sensitivity of the market price of interest-bearing bonds to changes in interest rate levels. It measures the curvature in the relationship between bond prices and bond yields or how the duration relationship changes at different points in a bond's price-yield relationship. See duration.
corporate bond
A debt security issued by a corporation. Typical features include semiannual interest payments based on a stated coupon rate and payment of the face amount upon maturity. Bonds are the major form of corporate borrowing.
corporate governance
The balance between the rights of shareholders, the owners of the corporation, and the need of the board and management to direct and manage the corporation's affairs free from nonstrategic short-term influences.
corporation
A business organization that, for tax purposes, is a legal entity. A corporation has limited liability (owners can lose only what they invest), easy transfer of stock, and continuity of existence. 
correction
See market correction.
correlation
A complementary or parallel relationship between two securities or portfolios. For example, the performance of two stocks within the same industry is strongly correlated. The correlation coefficient (rho) may take on any value between plus and minus one. See R-squared (R2).
cost basis
The original cost of an investment. For tax purposes, the cost basis is subtracted from the sales price to determine any capital gain or loss.
country allocations
The percentages of a fund's net assets allocated to securities of various countries. These percentages serve as an indicator of a fund's diversification and its vulnerability to fluctuations in foreign financial markets or currency exchange rates.
country diversification
The percentages of a global or international portfolio's assets invested in securities of various countries.
country risk
The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline.
coupon
The term is used colloquially to refer to a security's interest rate.
coupon rate
The annual interest rate that an issuer promises to pay periodically over the life of a bond or other debt security, expressed as a percentage of face value.
Coverdell education savings account
A tax-advantaged savings account designed to provide for a child's post-secondary education.
credit insurance
Insurance issued to cover the payment of a loan, installment purchase, or other obligation if the borrower dies or defaults (e.g., mortgage insurance).
credit quality
A measure of the safety of a bond and the likelihood of default, based on the issuer's financial condition. An issuer with very high credit quality will be able to sustain a significant financial setback and still be able to repay its interest and principal obligations in a timely manner. Treasury securities are considered to be of the highest credit quality, because they are backed by the full faith and credit of the U.S. Government.
credit rating
A published ranking, based on detailed financial analysis by a credit bureau, of one's financial history, specifically as it relates to one's ability to meet debt obligations. The highest rating is usually AAA, and the lowest is D. Lenders use this information to decide whether to approve a loan.
credit risk
See Default Risk
credit selection
A fund's selection of individual bonds based primarily on the credit quality of the bonds.
CREF Composite Index
A customized weighted benchmark index against which the performance of the CREF Stock Account is compared. Its target weight is 80% Russell 3000 Index and 20% Morgan Stanley EAFE + Canada Index.
cumulative total return
The actual performance of a fund over a stated period of time.
currency fluctuations
Changes in the value of a currency relative to other major currencies. Currency fluctuations can have a significant effect on the value of international mutual funds.
currency risk
The risk that shifts in foreign exchange rates may undermine the dollar value of overseas investments. Also called exchange rate risk, it is the risk of diminishing both principal and return on a foreign investment because of unforeseen changes in the relative values of U.S. and foreign currencies. It is considered a type of non-diversifiable risk.
current income
Payments received during the period an investment is held. Examples include bond interest and stock dividends.
current market value
The amount a willing buyer will pay for an asset today. For a bond it may be at par (at face value), at a premium (above face value) or at a discount (below face value).
current return
Present annual rate of return of income from any investment.
current yield
A popular measure of investment return on bonds, calculated by the following formula:  Current Yield = (Current Coupon Rate or Dividend) /Current Price
CUSIP number
A numerical identification assigned by the Committee on Uniform Security Identification Procedures to each security approved for trading in the United States.
custodian
An organization (bank, agent, trust company, etc.) that holds in safekeeping the securities and other assets of an investment company. Also the individual who oversees the mutual fund assets of a minor's custodial account.
cyclicals
Equity in companies that tend to prosper in growing and expanding economies and tend to do poorly during down business cycles. These companies have large investments in plant equipment, and therefore have high fixed costs. (The auto, chemical, paper, and steel industries are considered cyclical because their earnings tend to fall when the economy slows; food and drug stocks are considered to be non-cyclical because demands for food and medical care are less susceptible to changes in the state of the economy.)

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D

day order
A buy or sell order that, unless executed or canceled, will expire automatically at the end of the trading day on which it was placed. All orders are day orders unless otherwise specified.
death benefit
The amount payable to a beneficiary at the annuitant's or insured's death. Also called the "survivor benefit."
debenture
Unsecured debt backed by the creditworthiness of the issuer. There is no collateral, and the agreement is documented by an indenture (bond contract). In the event of business failure, debenture holders generally have claim on corporate assets only after mortgage bondholders have been satisfied.
debt
Money borrowed or owed by an individual or entity resulting in an obligation to repay the amount borrowed plus interest according to a set schedule. Bonds, loans, and commercial paper are all examples of debt.
declaration date
The date the board of directors of a company or mutual fund announces the amount and date of its next dividend payment.
deductible
A specific dollar amount that the insured must pay before the insurance company shares part of the loss/expense through a co-payment. The insurance company reimburses the policyholder according to the Coinsurance rate in effect.
deductible contribution
Pretax money paid into an IRA, an employer-sponsored retirement plan, or other type of retirement plan for a particular tax year.
deep discount bond
A bond that sells for significantly less than the face amount, ensuring built-in gain if the bond is held until maturity. Deep discount bonds may originally have been issued when interest rates were lower than they are at present or because of credit deterioration. The bond price then decreases to compensate for the bond's lower current returns compared to those that could be obtained if a new bond were purchased.
default
The state of a bond when any terms of the bond's indenture are not followed, e.g., the failure to pay interest or principal promptly when due.
default risk
The risk that a company or individual will be unable to pay the contractual interest or principal on its debt obligations. Default risk tends to be highest among businesses without enough profitable sales, especially when they also have excessive debt. Also called credit risk.
defensive stocks
Shares of companies relatively unaffected by general fluctuations in the economy. These companies tend to have slow, steady growth and become more popular during recessions. These companies usually provide products necessary for everyday life.
deferred annuity
An annuity not yet paying income because it is still in the accumulating or preretirement stage, which means money is accumulating on a tax-deferred basis.
deferred compensation plan (457 plan)
An arrangement in which part of an employee's income is deferred to a future date to avoid taxation in the current year.
defined benefit plan
A retirement plan that provides a specified benefit based on salary and years of service.
defined contribution plan (401k/403b plans)
A retirement plan that specifies a rate of employer and/or employee contributions usually defined as a percentage of salary. How much income a participant receives in retirement will depend on several factors, including salary level, duration of contributions, investment earnings, and age at retirement.
deflation
A contraction in the supply of money or credit that results in declining prices; the opposite of inflation.
delayed vesting
A provision requiring that an employee complete a specific period of service before being entitled to retirement benefits.
denomination
The face amount or par value of a security which the issuer promises to pay on the maturity date.
depreciation
An expense recorded to reduce the value of a long-term tangible asset. It is a systematic method of recovering (deducting) the cost of a tangible asset. Also, a decrease in the value of assets such as a currency relative to other currencies or in the value of real estate.
deregulation
The act of reducing government regulation in order to allow more free markets to create a more efficient marketplace. Some government oversight usually remains after deregulation.
derivative
A financial contract whose value is based on, or "derived" from, an underlying traditional security (such as a stock or bond), an asset (such as a commodity), or a market index (such as the S&P 500 Index). Futures contracts, forward contracts and options are the most common types of derivatives. Derivatives are generally used by institutional investors to increase overall portfolio return or to hedge portfolio risk.
designated investment alternative
The investment options picked by your plan into which participants can direct the investment of their plan accounts.
developing markets
See “emerging market”.
direct deposit (payroll deduction)
A service that electronically transfers all or part of any recurring payment-including paychecks, pensions, and Social Security payments-directly to a participant's TIAA-CREF accounts.
direct rollover
The simplest kind of IRA rollover, in which the assets are transferred between carriers without passing through your hands and no withholding tax is required.
directed trustee
A person or entity (e.g., bank, trust company, or other organization) that is responsible for the safekeeping of trust assets, but generally has no decision making authority over the assets.
disability insurance
Insurance that replaces income for individuals unable to work because of accident or illness.
discount
The difference between a bond's current (lower) market price and its face or redemption value.
discount rate
The interest rate on loans charged by Federal Reserve banks on loans to member banks. The Federal Reserve can seek to directly affect business growth by raising or lowering discount rates.
discretionary income
The amount of a consumer's income available for spending after the essentials have been met.
distributions
For tax purposes, a mutual fund generally passes along dividends and interest it receives from securities it owns. A fund also passes along an investor's share of the profits it makes when it sells securities for a higher price than it paid for them. Investors may choose to have these distributions sent to them or have them reinvested. Distributions are subject to federal tax, and may also be subject to state or local taxes. Distributions are taxable when they are paid, whether they are taken in cash or reinvested.
diversification
A risk-reduction strategy that involves spreading assets across a mix of companies, investments, industries, geographic areas, maturities, and/or investment categories.
dividend
An amount distributed to stockholders from a company's net profit.
dividend reinvestment plan
The automatic reinvestment of shareholder dividends in more shares of the company's stock.
dividend yield
The annual rate of return on a share of stock, determined by dividing the annual dividend by its current share price. In a stock mutual fund, this figure represents the average dividend yield of the stocks held by the fund.
dollar-cost-averaging
The process of systematically investing the same amount of money in the same stock or group of stocks over a period of years, regardless of changing share prices. Because more shares can be purchased when costs are low, the average cost per share will usually be lower than for irregular stock purchases. Although dollar cost averaging can help to reduce timing risks, it does not assure a profit and does not protect against loss in declining markets.
Dow Jones Industrial Average (DJIA)
A widely recognized stock market index based on the prices of 30 of the largest New York Stock Exchange (NYSE) listed stocks, as published by Dow Jones and Company.
duration
A measure of the price sensitivity of a bond or bond portfolio to changes in interest rates. For example, if interest rates rise by 1% (100 basis points), the market value of a portfolio with a duration of 5 years will decline by approximately 5%. Conversely, if interest rates decline by 1% (100 basis points), the market value of a portfolio with a duration of 5 years will increase by approximately 5%. See also modified duration and option-adjusted duration.

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E

early withdrawal penalty
A penalty on money withdrawn early from a fixed-term investment. For example, withdrawing from a tax-advantaged retirement plan before age 591/2 or cashing in a certificate of deposit (CD) before its maturity.
earned income
Compensation earned from employment, which includes wages, salary and tips.
earnings
Revenue for a specified period of time, after related costs and expenses have been deducted.
earnings per share
The company's net income (profit) for the year divided by the average number of common shares outstanding during the year.
economic risk/country risk
The risk related to international developments and domestic events.
effective duration
Duration measure in which it is recognized that yield changes may change the expected cash flow. This measure is appropriate to use when bonds have embedded options. See also option-adjusted duration.
effective yield
The way total return is usually expressed when a Certificate of Deposit is held until maturity. It considers the effect of compounding interest during the holding period. Also, a bond's yield, assuming that the interest payments are reinvested once they are received.
Efficient Market Hypothesis (EMH)
An investment theory, which states it is impossible to consistently predict future stock prices and to beat the market because prices already incorporate and reflect all relevant information that is known by all investors. This is a highly controversial and often disputed theory. Supporters of this model believe it is pointless to search for undervalued stocks or try to predict trends in the market through any technique from fundamental (see fundamental analysis) to technical (charting) analysis. Academics point to much evidence that is in support of EMH. See Random Walk Theory.
8-K
A form companies must file with the SEC within ten days of the end of the month in which: there is a change in control of the company, the company declares bankruptcy, the company acquires or disposes of a significant amount of assets, the company changes accountants, a company director resigns, or any other significant corporate change.
emerging growth stock
Equity ownership in growth companies that are typically smaller and younger. These stocks have survived their early years and are beginning to grow and expand. These stocks usually involve higher risk.
emerging market
A securities market in countries with developing economies (that is, those that are becoming industrialized) that is of smaller size or that has a short operating history. Emerging markets investments tend to be more volatile than domestic investments due to currency fluctuation and political instability. Consequently, securities prices can fluctuate dramatically.
emerging market fund
A fund that invests primarily in emerging market countries.
employee contribution
An employee's own deposit to a company retirement plan.
Employee Retirement Income Security Act of 1974 (ERISA)
The primary federal law governing private pension plans. ERISA sets standards for funding and administering pension plans and governs investment practices. ERISA also established a federal program to guarantee benefits from defined benefit plans under the Pension Benefit Guaranty Corporation.
employer securities
Securities issued by an employer of employees covered by a retirement plan and used as a plan investment option.
enhanced indexing strategy
An indexing strategy designed to exceed or replicate the total return performance of some predetermined index. Also called "indexing-plus."
employee stock ownership plan (ESOP)
A qualified retirement plan that invests in the employer's company stock on behalf of employees.
employer matching contribution
The amount, if any, a company contributes on an employee's behalf to the employee's retirement account, usually tied to the employee's own contribution.
equity
A synonym for ownership or a share of ownership (e.g., stock or real estate holdings). In finance, equity is synonymous with stock and real estate.
equity fund
A fund that invests primarily in equities.
equity income mutual fund
A mutual fund that invests primarily in equity securities of companies that are concerned with both income generation and capital gains. In addition, these companies exhibit much higher yields than the average dividend yield of S&P 500 companies.
equity wash
Many stable value and guaranteed annuity products include restrictions on participant-initiated transactions that are not the result of “benefit responsive events” (i.e. retirement, death, disability, termination, etc.) One such transfer restriction is the industry standard “90 day equity wash” provision. This provision restricts participants from transferring accumulations directly from products such as TIAA Stable Value, TIAA Stable Return Annuity, and Stable Value Collective Trust Funds to certain other plan investment options designated as “Competing Funds”. Competing Funds are plan investment options that generally exhibit a pattern of performance consistent with stability. On TIAA-CREF’s recordkeeping platform, Competing Funds include money market funds, short-term bond funds, the TIAA Real Estate Account, self-directed brokerage windows and certain other guaranteed / stable options. In addition, some lifecycle or target date funds may become designated as competing funds as their allocation glides towards a make-up consisting primarily of short-duration fixed income investments.

If your plan offers investment options that include equity wash provisions (“Equity Wash Funds”) and also offers Competing Funds then you may not transfer amounts directly from Equity Wash Funds to Competing Funds. You may only transfer from Equity Wash Funds to Non-Competing Funds (e.g. equity funds, intermediate-term bond funds, etc.). Amounts transferred from Equity Wash Funds to Non-Competing Funds may not be subsequently transferred to Competing Funds for 90 days.

equivalent taxable yield
The yield needed from a taxable bond to give the same after-tax yield as a tax-exempt issue.
estate administration
The resolution of all outstanding responsibilities, obligations and rights of the decedent as well as the transfer of all property to intended beneficiaries. Including but not limited to funeral arrangements, outstanding medical bills, probating the will, appointing an executor or administrator, assembling property, managing the estate, paying debts and taxes and distributing the estate.
estate planning
The process of wealth accumulation, conservation, management, and transfer based on legal, tax, and personal objectives.
estate settlement costs
The costs to administer or settle an estate.
estate tax
A tax imposed on assets being transferred to heirs after the death of the asset owner. An estate tax is levied on the deceased's estate and not on the heir receiving property.
estate transfers
The decision to move assets out of one's estate during one's lifetime and upon one's death to meet individual objectives. Transfer objectives might include minimizing taxes, avoidance of probate, meeting liquidity needs, planning for children of all marriages, fulfillment of charitable intentions.
estimated tax
Tax to be paid on income that is not subject to withholding tax, including investment income, alimony, rent, and capital gains.
Eurobond
An international bond issued and traded outside the country of the borrower and outside the regulations of a single country. Also called a global bond.
Eurodollar
U.S. dollars held by foreign institutions outside the United States. Commonly used for settlement of international transactions.
exchange privilege
The shareholder's ability to move money from one mutual fund to another within the same fund family, often without additional charge.
exchange rate
The price at which one currency trades for another.
exchange-traded fund (ETF)
A mutual fund that trades like a stock. Like an index fund, an ETF represents a basket of stocks that reflect an index such as the S&P 500. ETFs are listed for trade on a stock exchange and are priced throughout the day at market value based on the NAVs/prices of the underlying funds. Examples of ETFs include iShares, offered by Barclay Financial Corporation, which represent over 70 different index funds that trade like stocks; and SPDRs, which bundle the benchmark S&P 500 and gives you ownership in the index. Various sectors of the S&P 500 stocks are also divided and sold as separate ETFs. Others include DIAMONDs, offered by Diamonds Trust Series I, that tracks the Dow Jones Industrial Average, and QUBEs (QQQs), which represent the Nasdaq-100.
ex-dividend
Refers to a stock that has been reduced in price by the amount of dividends that have been declared or paid on the stock.
ex-dividend date
The day that a fund's board of directors declares the amount of income or capital gain to be distributed to shareholders and deducts that amount from the fund's net asset value. On the ex-dividend date, the fund's share price drops by the amount of the distribution (plus or minus any market activity). Also known as the reinvestment date.
exercise price/strike price
The stated price per share for which underlying stock may be purchased for a warrant or call; or sold for a put by the option holder upon exercise of the option contract. When an option is exercised, this is the value for which shares are purchased or sold in case of a put option. If this price is below the current market value of the stock then the profit (on the call or the warrant) is the spread between the two 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.
ex-warrant
Refers to a security that has been reduced in price by amount equal to the value of its warrant.

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F

face value
Value that appears on the face of a bond and indicates the value of the bond at maturity. Usually, corporate bonds are issued in face values of $1,000, municipal bonds at $5,000, and federal bonds at $10,000. Face value is not an indication of Market Value.
fair market value
The price an asset would receive if the buyer and the seller were equally interested.
Federal Deposit Insurance Corporation (FDIC)
The federal corporation that insures bank deposits up to $100,000 per Social Security number. A bank may or may not participate. SAIF is the comparable federal corporation for savings banks.
federal funds
Federal Reserve deposits that banks and other financial institutions "borrow" from one another to meet short-term cash needs.
federal funds rate
The interest rate charged by banks to lend to other banks needing overnight loans; this figure is the best indicator of the direction of interest rates.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Macs)
A government-sponsored private corporation established to facilitate the financing of single-family residential housing by creating and maintaining an active secondary market for conventional home mortgages. The FHLMC buys and pools mortgages from federally insured financial institutions and sells them as mortgage-backed securities called "Freddie Macs."
Federal National Mortgage Association (FNMA, Fannie Mae)
A government-owned corporation that purchases private mortgages, pools them, and resells them to investors to facilitate the orderly operation of a secondary market for home mortgages.
Federal Reserve
The central bank that sets monetary policy, including discount interest rates, bank regulations, and the availability of credit throughout the United States. The Fed's seven-member board of governors, appointed by the President, has significant influence on U.S. monetary and economic policy.
fee table
A table, found in a mutual fund's prospectus, that discloses and illustrates the expenses and fees a shareholder will incur.
fiduciary
An individual, corporation, or association entrusted with the management, investment, or disposition of another's property.
financial planner
An investment professional who assists individuals with long- and short-term financial goals.
financial planning
A comprehensive strategy to integrate an individual's or family's financial goals, including risk management, investments, tax planning, retirement planning and estate planning.
financial risk
A fundamental of investing. It is the possibility that a security issuer will run into financial difficulties and not be able to meet its obligations to investors.
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.
Financial Industry Regulatory Authority (FINRA)
Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, it is the largest non-governmental regulator for all securities firms doing business in the United States. It oversees brokerage firms, branch offices and registered securities representatives.
fiscal year
A 12-month accounting period.
Fitch
An independent agency that rates an insurance company's financial strength and claims-paying ability. Fitch's highest rating is AAA.
fixed annuity
A traditional insurance investment vehicle, often used for retirement accounts, that guarantees principal and a specified interest rate and may also offer dividends.
fixed period payout
An income arrangement that pays income from an annuity or other source for a specified number of years.
fixed income fund.
A fund that invests primarily in bonds and other fixed-income securities to provide shareholders with current income and to preserve capital. Often used interchangeably with bond fund.
fixed return investment
An investment that provides a specific rate of return to the investor.
foreign holdings
The percentage of a portfolio's investments represented by stocks or American Depository Receipts (ADRs) of companies based outside the United States.
401(k)
A defined contribution retirement plan for pretax contributions by an employee (and sometimes also the employer) available to employees of public companies and for-profit private companies and institutions. 401(k) funds grow tax-deferred until retirement (or 591/2) when they may be distributed without penalty, to be taxed at the account holder's ordinary income tax rate. Distributions must begin by age 701/2 (see minimum distributions).
403(b)
A defined contribution retirement plan for pretax contributions by an employee (and sometimes also the employer) available to employees of not-for-profit private organizations. 403(b) funds grow tax-deferred until retirement (or 591/2) when they may be distributed without penalty, to be taxed at the account holder's ordinary income tax rate. Distributions must begin by age 701/2 (see minimum distributions).
457
A plan similar to a 401(k) or 403(b) plan that enables governmental employees to contribute pretax dollars until the employee retires or terminates employment. These plans may also be offered to a select group of management at some nonprofit institutions.
front-end load
A sales charge or commission paid for an investment at the time of purchase.
fund assets
The total value of a portfolio's securities, cash, and other holdings, minus any outstanding debts.
fund family
A group of mutual funds sponsored by the same organization, often offering exchange privileges between funds and combined account statements for multiple funds.
fund manager
Investment managers who make the investment decisions for an investment fund, including picking the individual investments.
fund of funds
A mutual fund or other pooled investment that invests in other mutual funds or pooled investments.
fundamental analysis
A method of examining a company's financial statements and operations as a means of forecasting stock price movements.
futures/futures contracts
Contracts to buy or sell a commodity on a specified day for a preset price. These contracts are traded on exchanges like stocks.
future value
How much a sum of money invested today will be worth at a future date, with compounded interest. For instance, the future value of $10,000 ten years from now, with a 4.5% earnings rate, compounded annually, would be $15,529. See Present Value.

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G

general obligation bond (GO)
A municipal bond that is backed by the full faith and credit (taxing and borrowing power) of a municipality. These bonds are of higher quality than municipal bonds issued for specific projects but also provide lower returns.
general partner
In a general or Limited Partnership, a partner with unlimited legal responsibility for debts and liabilities.
generation-skipping transfers
A trust or similar arrangement where the beneficiary is two or more generations younger than the donor. This automatically removes the tax liability from the donor's estate and reduces the ultimate tax burden on the second-generation beneficiary. Large transfers may be subject to the generation-skipping transfer tax.
gifting
The free transfer of assets to another individual. The first $10,000 may be transferred to an individual free of federal taxes each year. Amounts greater than $10,000 per individual per year are taxable to the grantor but the excess may be applied against the grantor's Unified Credit.
glide path
The change over time in a target date fund’s asset allocation mix to shift from a focus on growth to a focus on income.
global fund
A fund with holdings in worldwide (U.S. and foreign) investments, mainly common stocks. Global bond funds, with holdings in international bonds, are also available.
good-till-canceled order
An order to buy or sell a security, usually at a specified price, that remains in effect until the order is executed or canceled.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation that purchases insured mortgages, pools them, and resells them as guaranteed mortgage-backed securities to investors on the open market.
government securities or government paper
Any debt security, for short-term investors, issued by or guaranteed by the U.S. Government.
grace period
An extension of the normal period of time during which a premium payment is due for many loans or insurance policies.
gross domestic product (GDP)
Total value of goods and services produced in a nation's economy over a period of time. In the U.S., the GDP is calculated and reported quarterly by the Department of Commerce.
gross expense ratio
The percentage of a fund's average net assets used to cover the annual operating expenses of managing the fund before any waivers or reimbursements made by a fund's investment advisor.
gross income
An individual's or company's net receipts before taxes, benefit costs, and other expenses are deducted.
gross national product (GNP)
Total value of goods and services produced in a nation's economy including all global production of companies domiciled in that country.
group annuity contract
An annuity contract entered into by an owner for the benefit of a designated group, such as plan participants.
group insurance
A policy that provides coverage to employees of an organization and sometimes their dependents. Because the cost is shared by a large number of people, group life and health plans frequently offer broader coverage at lower costs than individual policies.
growth fund
A fund that invests in the stocks of companies whose growing earnings are reinvested for the purpose of expansion, research, or development.
growth stock
Stock in corporations with higher than average sales and earnings growth. To maintain growth, they reinvest earnings in the company rather than pay dividends. The share prices of these stocks often outpace the market. The appreciation goes untaxed until the stock is sold. This acts as an income tax deferral and allows for higher compounding returns. Long-term capital gains are taxed at a lower maximum rate than ordinary income.
growth-and-income funds
Growth and income funds are designed to pursue long-term growth of capital as well as regular dividend income.
guaranteed interest accounts
An account that is guaranteed to earn at least a minimum rate of interest while invested in the insurance company’s general account.
guaranteed investment contract (GIC)
An agreement between an insurance company and a corporate profit-sharing or pension plan that guarantees a specific rate of return over the time span of the agreement.
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 withdrawal amount
The withdrawal amount that is guaranteed for the life of the contract owner even if the account value decreases to zero.

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H

Hang Seng Index
The Hang Seng Index is a market capitalization weighted index of the stocks of the 33 largest companies in the Hong Kong market. The Hang Seng Index is a price weighted/share price index. See price weighted index.
hedge
A strategy in which one investment is used to offset the risk of another security. Derivatives (put and call options, futures contracts, stock index options, interest rate options, and currency options) are the primary instruments used for hedging.
high-yield bond
A bond with a credit rating of BB or lower. Also known as junk bonds because of the rewards offered to those who are willing to take on the additional risks of a lower-quality bond. Junk bonds are speculative compared with investment- grade bonds.
high-yield bond fund
A mutual fund that invests primarily in bonds with a credit rating of BB or lower. Because of the speculative nature of high-yield bonds, high-yield funds are subject to greater share price volatility and greater credit risk than other types of bond funds.
holding period
The length of time an asset is owned (held). For tax purposes, a holding period is short term if it is one year or less; it is long term if it is more than one year.

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I

IBC's Money Fund Report Averages
A composite of the annualized seven-day yields for over 800 taxable money market funds.
immediate annuity contract
An annuity contract under which benefit payments begin within a year of purchase.
inception date
The date that a fund began operations.
income bond
An income bond is an unsecured bond that requires interest to be paid to its bondholders only if sufficient revenue can be generated from the project for which the bond was issued. There is no legally binding requirement to meet interest payments on a regular or timely basis. These bonds are similar to municipal revenue bonds.
income fund
A mutual fund that seeks current income rather than growth of capital. Income funds typically invest in bonds and/or high-yielding stocks.
income options
Choices for receiving retirement income from a pension plan or annuity.
income replacement ratio
The percentage of income that an individual who is working will need to maintain the same standard of living during each year of retirement. The desired replacement ratio is usually equal to 70% to 90% of an individual's salary during the last year of work.
income risk
The possibility that a portfolio's dividends will decline as a result of falling interest rates. Income risk is generally greatest for money market instruments and short-term bonds, and least for long-term bonds.
income stock
A stock that pays regular and steady income. These stocks should appreciate enough to keep up with inflation. Income stocks are those of well-established companies, such as utilities, some telephone companies, and some blue-chip companies.
indenture
A formal contract for a bond that specifies maturity date, coupon rate, call privileges, and other rights.
index
An unmanaged group of securities whose overall performance is used as a standard to measure investment performance (e.g., the Dow Jones Industrial Average, Standard & Poor's - 500 Stock Price Index, or the Russell 3000 Index).
index fund
An investment fund. A passively managed mutual fund with relatively lower expenses, that attempts to parallel the risk and return profile of an unmanaged established stock index -- such as the S&P 500, Dow Jones Industrial Average, or Wilshire 5000 -- by holding a portfolio of stocks or bonds that is representative of that market.
indexing
A low-cost investment strategy that seeks to match, rather than outperform, the return and risk characteristics of an index, by holding all securities that make up the index or a statistically representative sample of the index. Also know as passive management.
individual annuity contract
An annuity contract generally entered into between an insurance company and a person(s).
Individual Retirement Account (IRA)
A savings device that permits individuals to set aside funds for retirement. There are several types of IRAs, each with its own special features.
inflation
Increase in the volume of money and credit relative to available goods and services resulting in a continuing increase in general price levels.
inflation risk
The possibility that increases in the level of prices (cost of living) will reduce or eliminate the "real" returns on a particular investment.
initial public offering (IPO)
The first offering of stock by a company.
inflation-linked bond/inflation-indexed bond (Treasury Inflation Protection Securities, TIPS)
U.S. Treasury securities and other bonds whose principal or interest is adjusted to track the inflation rate.
insider trading
Illegal trading by a person with access to key information.
installment payments
A distribution of plan assets based upon a regular schedule.
interest
Cost of borrowing money, expressed as a percentage of the amount borrowed. See annual percentage rate (APR).
interest rate
The annual rate expressed as a percentage of principal, payable for use of borrowed money.
interest rate risk
The degree of uncertainty in the prices of securities associated with changes in interest rates; the value of the securities moves in an inverse relation to interest rates. This term is generally associated with bond prices, but applies to all investments.
interest-sensitive stocks
Stocks whose prices are more readily affected by changes in interest rates. Some industries especially affected by changes in interest include housing, banking, and utilities.
Internal Revenue Code
All federal tax laws that define tax liabilities for taxpayers.
Internal Revenue Service (IRS)
The federal agency responsible for administering and enforcing the Internal Revenue laws.
international funds
These funds invest only in foreign securities (of countries outside the U.S.). Most foreign investments, particularly those in emerging markets, present additional risks, including currency fluctuation and political instability, than those of U.S. investments. These risks have, in the past, caused the prices of foreign stocks to be more volatile than those of U.S. stocks.
International Monetary Fund (IMF)
An organization set up by the Bretton Woods Agreement in 1944. Unlike the World Bank, whose focus is on foreign exchange reserves and the balance of trade, the IMF focus is on lowering trade barriers and stabilizing currencies. While helping developing nations pay their debts, the IMF usually imposes tough guidelines aimed at lowering inflation, cutting imports, and raising exports. IMF funds come mostly from the treasuries of industrialized nations.
intestate
The legal term for dying without a valid will.
investment
The purchasing of stocks, bonds, mutual funds, options, real estate, etc., made with the expectation of future income or capital gains.
investment advisor
An individual or organization entrusted with conserving and managing assets. Also called a portfolio manager.
investment bank
A financial firm, frequently a broker/dealer, that acts as an intermediary between an issuer and the investing public when new securities are initially brought to market.
investment company
An entity that pools the assets of shareholders and invests in securities that meet stated investment objectives for individual or institutional clients. The most common type of investment company is an open-end fund, commonly known as a mutual fund, which continuously offers its shares and will redeem shares at any time at its net asset value.
Investment Company Act of 1940
The federal law, enforced by the Securities and Exchange Commission (SEC), that regulates the activities of investment companies.
investment-grade bond
Bonds that are appropriate for purchase by conservative investors because they represent moderate-to-low risk of default. A number of firms, including Standard & Poor's and Moody's Investors Service, evaluate bonds. S&P's first four categories are investment grade: AAA to BBB. Moody's investment grades are Aaa through Baa. A bond whose credit quality is considered to be among the highest by the independent bond-rating agencies.
investment objective
The broad goal sought by a fund or investment company (e.g., ‘high current income,' along with the means to be used to achieve it).
investment return
The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains are included in calculating the investment return.
investment risk
A type of risk incurred when making investments. Examples include Financial Risk, Market Risk, Interest Rate Risk, and Inflation Risk.
IRA rollover
A traditional individual retirement account holding money from a qualified plan or 403(b) plan. These assets, as long as they are not mixed with other contributions, can later be rolled over to another qualified plan or 403(b) plan. Also known as a conduit IRA.
irrevocable beneficiary
A beneficiary designation that cannot be changed without the beneficiary's consent.
irrevocable trust
A trust that cannot be amended, altered, or revoked.
issuer
A state, political subdivision, agency or authority that borrows money through the sale of bonds or notes.
itemized deductions
Items used by the taxpayer to reduce the amount of income subject to tax, for federal income tax purposes. Unless the total of the items exceeds the standard deduction, it is not advantageous for the taxpayer to itemize his or her deductions. Itemized deductions may include mortgage interest, state taxes, and gifts to charity.

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J

joint and survivor annuity
An annuity covering two people and paying benefits until the last survivor dies. Also called a joint life annuity.
joint and survivor annuity with lump sum refund
A joint and survivor annuity which also provides for a refund payable to a designated beneficiary of some or all of the original purchase payment in the event that both the Annuitant and the survivor die before receiving payments equal to the original purchase payment lump sum value, which will be paid in a lump sum to a Beneficiary.
joint and survivor annuity with period certain
A joint and survivor annuity with payments guaranteed for a minimum period. If the annuitant and beneficiary both die before the certain payment period ends, the remaining guaranteed payments continue to another designated beneficiary.
joint life annuity
Income paid as long as either of two individuals is alive.
joint ownership
When two or more share ownership of property, securities, or rights. Examples of joint ownership include Joint Tenancy With Right of Survivorship, Tenancy by the Entirety, Tenants in Common.
joint tenants with right of survivorship
A form of account registration in which two or more individuals share an undivided interest in an account. In the event of one tenant's death, the surviving tenant (or tenants) automatically inherits the property without the necessity of court proceedings.
junk bond
See high-yield bond.

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K

Keogh
A tax-deferred retirement plan for self-employed persons that can be set up as either a profit-sharing plan or a money purchase plan.

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L

large cap fund
A fund that invests primarily in large cap stocks.
large-cap stocks (large-capitalization stocks)
The stocks of companies whose market capitalization exceeds a certain dollar amount. As of December 2001, as per Morningstar, large-cap stocks had market capitalization of over $5 billion.
large capitalization (cap)
A reference to either a large company stock or an investment fund that invests in the stocks of large companies.
last-in, first-out (LIFO)
A method of computing the gains or losses in a transaction that takes cost basis from the most-recently-purchased shares.
leading (economic) indicators
A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Examples of leading economic indicators are the unemployment rate, inflation rate, and consumer confidence.
Lehman Brothers 1 - 3 Year Government/Corporate Bond Index
This index is a market value-weighted performance benchmark for government and corporate fixed-rate debt issues with maturities between one and three years.
Lehman Brothers Aggregate Bond Index
An index measuring the total return of about 6,000 U.S. bonds; a market value- weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities between one and 10 years. This index serves as the benchmark for the CREF Bond Market Account, the fixed portion of the CREF Social Choice Account, the TIAA-CREF Bond Plus Fund, and the Institutional Bond Fund.
Lehman Brothers Intermediate Government/Corporate Bond Index
This index is a market value-weighted performance benchmark for investment-grade government and corporate fixed-rate debt issues with maturities between one and 10 years.
Lehman Brothers Mutual Fund Short Government/Credit Index
This index is a market value-weighted performance benchmark for U.S. Treasury and agency securities as well as high-grade corporate fixed-rate debt issues, with maturities between one and 5 years. This index serves as the benchmark for the TIAA-CREF Short-Term Bond Fund.
Lehman Brothers 10-Year Municipal Bond Index
This index is a market value-weighted performance benchmark for investment grade municipal fixed-rate debt issues, with maturities between one and 10 years. This index serves as the benchmark for the TIAA-CREF Tax-Exempt Bond Fund.
leverage
The process of using borrowed money to invest.
liability
Claims against or amounts owed by an individual or business.
life annuity
An annuity that makes regular (e.g., monthly, quarterly) benefit payments for the life of one person. All benefit payments under the annuity stop when the person dies and there are no survivor or beneficiary benefits
life annuity with lump sum refund
A life annuity which also provides for a refund to the designated beneficiary of some or all of the original purchase payment in the event that the Annuitant dies before receiving payments equal to the lump sum value.
life annuity with period certain
An annuity that provides a lifetime retirement income benefit with payments guaranteed for a minimum period (the “period certain”). If the Annuitant dies before the certain payment period ends, the remaining guaranteed payments continue to a designated Beneficiary.
life expectancy
The age to which an average person is expected to live, as calculated by actuaries and shown on a mortality table.
life insurance
Insurance providing payment of a specified sum of money to a beneficiary when the insured dies.
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 a target date fund.
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.”
lifetime learning credit
A nonrefundable (and AGI-limited) income tax credit for up to 20% of the first $10,000 of qualified tuition expenses for all students in a household; if a household claims the Hope Scholarship Credit for a student, that student's expenses may not also be used to claim the Lifetime Learning Credit.
limit order
Order to buy or sell a stock at a specified price or better. Buy limit orders state the maximum price at which to buy. Sell limit orders state the minimum price at which to sell.
limited partnership
A business organization with one or more general partners and one or more limited partners. The general partners manage the business and assume legal debts and obligations; the limited partners contribute cash or property to finance the business, but cannot lose more than their investment. In contrast to the responsibilities of general partners, limited partners bear limited legal responsibilities and don't participate in management.
Lipper Analytical Services, Inc.
A service that provides data and analysis on Mutual Funds and Variable Annuities. Peer group averages are based on universes of funds with the same investment objective, and include reinvested dividends and capital gains, if any, and exclude sales charges. These averages include the following: Balanced Funds, Equity-Income Funds, Growth Funds, Growth and Income Funds, High Current Yield Funds, International Funds, Intermediate Investment-Grade Debt Funds, Lipper Intermediate Municipal Debt Funds Average, and Short Investment-Grade Debt Funds.
liquidity
The ease and speed with which an investment can be converted into cash.
living trust
A trust that an individual establishes while he/she is alive, enabling the person to control the assets contributed to the trust. Also known as an inter vivos trust.
living will
A document in which a person specifies the kind of medical care he/she wants or does not want in the event of terminal illness or incapacity.
load
A sales fee or commission charged for the purchase or sale of some mutual fund shares. Mutual funds that don't have any sales charges are called no-load funds.
load fund
A mutual fund that levies a sales charge, either when shares are bought (a front-end load) or sold (a back-end load).
long bond
The 30-year T-Bond is the longest maturity issued by the U.S. Treasury. It is also the most widely traded bond, not only in the United States but worldwide. Because it is such a key security, the most recently issued 30-year Treasury bond, known as the "long bond" is viewed as the benchmark against which all other bonds are measured. In October 2001, the Treasury Department announced that it would stop issuing the 30-year Treasury bond. For now, the 10-Year Treasury Bond is the new long bond.
long position
Pertains to stock or asset ownership. When assuming a long position, the investor buys stock, holds it, and then sells it. This would be the proper technique to use when the value of the stock is expected to rise.
long-term care insurance (LTC)
An insurance policy that provides financial assistance to support medical, personal, and social services that meet basic daily living needs of the chronically ill or disabled over a long period of time.
longevity risk
The risk that you will live longer than expected with the result that you run out of money before you die.
lump-sum distribution
The payment of the entire value of a profit-sharing plan, pension plan, or other investment. When it represents an employee's interest in a qualified retirement plan, the payment must be prompted by retirement (or other separation from service), death, disability, or attaining age 591/2, and must be made within a single tax year to avoid the federal government's 10% penalty tax.

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M

major medical insurance
Insurance that covers most serious medical expenses up to a maximum limit, usually, after a deductible and coinsurance provision. These policies usually complement hospital-medical-surgical coverage.
management fee
The fee charged by a mutual fund for administering the fund and managing its portfolio. Also called an advisory fee.
margin
The ability to borrow a portion of the purchase price of securities from a broker or to borrow against eligible securities an investor owns, to purchase other securities, cover checks written against the account, etc., up to a specified limit.
margin account
An account that lets an investor borrow from the broker to buy additional securities using part of the securities as collateral. Margin accounts are governed by the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange (NYSE), and the lending brokerage firm.
marginal tax rate
The income tax rate at which the highest dollar of an individual's income is taxed. Under federal law, the individual pays a lower tax rate on his/her first dollar of income than on his/her last dollar. The marginal rate -- the highest rate at which the individual's income is taxed -- is used to calculate taxes due on investment income.
marital deduction
The estate tax provision that allows the spouse of a decedent to receive all assets free of federal estate taxes.
marital trust
A trust created to allow one spouse to transfer, during life or upon death, an unlimited amount of property to his/her spouse without incurring gift or estate tax.
market capitalization
A determination of a company's total market value, calculated by multiplying the total number of company shares outstanding by the price per share. Also called capitalization.
market correction
A relatively short-term drop in stock market prices, generally viewed as bringing overpriced stocks back to a level closer to companies' actual values.
market order
An order to buy or sell a stock at the best current price attainable in the market. Most orders executed on the exchanges are market orders. Also called "at the market."
market risk
Risk coming from price fluctuations in a whole market or in an industrial group. See systematic risk.
market timing
A strategy based on buying or selling securities in anticipation of changes in market or economic conditions.
marketability
The degree to which there is an active market in which an investment may be traded. The ease or difficulty with which securities can be sold in the market. See Liquidity.
market value
The price that an investment instrument can command on the open financial markets.
maturity or maturity date
The date on which a loan, bond, mortgage, or other debt security is due to be repaid.
maturity value
The amount (other than periodic interest payments) that will be received at the time a security is redeemed at its maturity. On most securities the maturity value equals the par value.
median market cap
The midpoint of market capitalization (market price multiplied by the number of shares outstanding) of the stocks in a portfolio. Half the stocks in the portfolio will have higher market capitalizations, half will have lower.
Medicaid
A federally funded benefits program, administered by individual states, that pays some medical expenses for those who meet income and other eligibility requirements.
Medicare
The Social Security-administered federal plan for paying certain hospital and medical expenses for those who qualify, primarily those age 65 and over.
merger
The combination of two or more companies.
Merrill Lynch BB/B Cash Pay Index
This index is a performance benchmark for below investment-grade corporate fixed-rate debt issues, with maturities greater than one year. This index serves as the benchmark for the TIAA-CREF High-Yield Bond Fund.
mid cap fund
A fund that invests primarily in mid-cap stocks.
mid-cap stocks (middle-capitalization stocks)
Stocks of companies with market capitalizations between the small cap upper and large cap lower boundaries. As of December 2001, as per Morningstar, mid cap stocks had market capitalization between $1 and 5 billion.
mid capitalization (cap)
A reference to either a medium sized company stock or an investment fund that invests in the stocks of medium-sized companies.
MIL Rate
An expression of the daily rate of per-share income earned in a bond or money market fund.
minimum distribution
The amount required by federal law to be paid from most tax-favored retirement plans, generally beginning by April 1 of the calendar year following the year in which the participant turns 701/2; or retires, whichever is later. Minimum distribution from Classic IRAs must begin by April 1 following the year the participant turns age 701/2;. The Roth IRA does not require a minimum distribution.
Modern Portfolio Theory (MPT)
An approach to strategic asset allocation, that strives for the highest return for a given level of risk or the lowest risk for a given level of return. A theory on how risk-averse investors can construct portfolios in order to optimize market risk against expected returns. The theory emphasizes that risk should not be viewed in a negative context, but rather as an inherent part of greater reward. According to the theory, an "efficient frontier" of optimal portfolios can be constructed by offering the maximum possible expected return for a given level of risk.
modified duration
Duration measure in which it is assumed that yield changes do not change the expected cash flow. This measure is appropriate for option-free bonds.
monetary policy
The Federal Reserve Board's plan for regulating the money supply by determining reserve requirements for banks, as well as interest rates and credit policies.
money manager
See investment advisor.
money market fund
A fund or annuity that invests in short-term debt instruments. Interest rates change daily, but the Net Asset Value of one share generally stays at $1.
money purchase plan
A defined contribution retirement plan that maintains individual employee accounts and determines benefits by the amounts that can be provided from the balance of each individual account. The contribution rate is fixed (i.e., it is not subject to employer discretion like a profit-sharing plan). Contributions are usually calculated as a percentage of the participant's compensation.
Moody's Investors Service, Inc.
An investment rating company. Moody's evaluates stocks, bonds, commercial paper, municipal short-term issues, and a company's Financial soundness. A classification between Aaa and Baa qualifies as Investment Grade and reflects minimal risk.
Morgan Stanley Capital International (MSCI) Developed Market Indices
MSCI Developed Market Indices are unmanaged and based on the share prices of approximately 1,700 companies listed on the stock exchanges in the twenty-two countries that make up the MSCI World Index. They are calculated without dividends, with net and gross dividends reinvested.
Morgan Stanley Capital International (MSCI) EAFE Index
The Morgan Stanley Capital International Europe, Australasia, Far East Index; a widely recognized benchmark of the world's stock markets (excluding the United States). This index serves as the benchmark for the TIAA-CREF international equity mutual funds.
Morgan Stanley Capital International (MSCI) EAFE+Canada Index
The Morgan Stanley Capital International Europe, Australasia, Far East, plus Canada Index; a widely recognized benchmark of the world's stock markets (excluding the United States). See CREF Composite Index.
Morgan Stanley Capital International (MSCI) World Index
The Morgan Stanley Capital International World Index is a market capitalization weighted index composed of companies representative of the market structure of 21 developed market countries in North America, Europe, and the Asia/Pacific Region. This index serves as the benchmark for the TIAA-CREF Global Equities Account.
Morningstar
A research company that rates the performance of Mutual Funds and Variable Annuities.
Morningstar category
The Morningstar methodology which classifies funds based on their investment styles, market capitalization and asset mix as measured by their underlying portfolio holdings over the past three years. If the fund is new and has no history, Morningstar estimates where it will fall before assigning a more permanent category. Some examples of Morningstar categories are: Large Cap Growth, Large Cap Blend, Mid Cap Value, Domestic Hybrid, Specialty, International Stock and Domestic Bond.
mortality basis
A mortality basis is a specific mortality table that is used to compute insurance values for life insurance and annuity factors for annuities.
mortality table
Actuarial tables used by the insurance industry to predict the survival and death rates of large groups of people.
mortgage
A loan to finance the purchase of real estate. Usually there are established payment periods and interest rates. The real estate is used as collateral for the loan.
mortgage-backed securities (MBS)
Debt instruments secured by a pool of residential mortgage loans. The cash flows from the assets can be channeled to investors in two ways: 1) They can simply be passed through to investors after administrative or servicing fees are subtracted, a method that produces a pass-through security; or 2) The cash flows can be allocated according to specified rules, creating structured securities, such as collateralized mortgage obligations (CMOs). The MBS securities in TIAA's General Account are predominantly structured securities. The MBS securities in the CREF Bond Market Account are pass-through securities.
mortgage bond
A corporate bond that is secured by a lien on all or a portion of the fixed property of the issuing company.
municipal bond
Debt issued by a state or local government body. The interest is usually exempt from federal (and sometimes state and local) taxation.
municipal bond fund
A mutual fund that invests in tax-exempt bonds issued by state, city, and/or local governments. The interest obtained from these bonds is passed through to shareholders and is generally free of federal (and sometimes state and local) income taxes.
mutual fund
An investment company that pools funds from individuals to buy securities selected to meet specific criteria and goals.

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N

naked options
Options sold on securities that are not owned by the brokerage client. Also called uncovered options.
NAREIT Share Price Equity Index
A price-weighted index based on tax-qualified Real Estate Investment Trusts (REITs) listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System.
NASDAQ (National Association of Securities Dealers Automated Quotations)
A computerized system that provides brokers and dealers with price quotes for stocks sold Over-the-Counter.
NASDAQ Composite Index
A market capitalization price-weighted index that is designed to represent domestic and internationally based common stocks listed on the NASDAQ Stock Market. It includes over 4,000 companies, more than most other stock market indices. Because it is so broad-based, the composite is one of the most widely followed and quoted major market indices.
NAV change
The difference between today's closing net asset value (NAV) and the previous day's closing net asset value (NAV).
NCREIF Classic Property Index
A market value-weighted index that measures historical performance of income-producing properties. All investments are acquired on behalf of tax-exempt institutions and are held in a fiduciary environment. Acquisitions must be on an all-cash, non-leveraged basis. Wholly owned investments and joint venture investments are also included. The index includes existing properties only and is restricted to investment-grade, non-agricultural, income-producing properties; development projects are not included until completion. The index is maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF). This index represents one of the components of the customized benchmark for the TIAA-CREF Real Estate Account.
Net Asset Value (NAV)
The market value of one share of a Mutual Fund, calculated by adding the value of all securities in the fund, subtracting liabilities, and dividing by the number of outstanding shares.
net expense ratio
Reflects the percentage of a fund's average net assets used to cover the annual operating expenses of managing the fund after (net) any waivers or reimbursements made by a fund's investment advisor.
net profit
Investment gains after the deduction of all expenses.
net worth
The amount by which assets exceed liabilities, for a company or an individual.
New York Stock Exchange (NYSE)
The largest and oldest security exchange in the United States, generally representing stocks of older, more established companies. There are now over 3 million companies listed on the exchange. It is a corporation, operated by a board of directors, and it is responsible for setting policy, supervising Exchange and member activities, listing securities, overseeing the transfer of members' seats on the Exchange and judging whether an applicant is qualified to be a specialist.
Nikkei 225 Average Index
The Nikkei-225 Stock Average is an unmanaged price-weighted index of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. Like the Dow Jones Industrial Average, it is made up of representative blue-chip companies.
no-load fund
A mutual fund that charges no sales commission or load.
nominal yield
A measure of investment return that compares the annual amount of interest or dividends paid with a security's par or face value. This yield has little practical use.
nominal return
The return on an investment before adjustment for inflation.
non-contributory plan
A retirement or benefit plan in which the employer makes all contributions.
non-deductible contribution
A contribution to either a traditional IRA or Roth IRA. Income tax is due on the contribution in the tax year for which the contribution is made.
non-qualified plan
A pension plan that does not meet the requirements for preferential tax treatment. It allows an employer more flexibility and freedom in its coverage requirements, benefit structures, and financing methods.
note
A written agreement to pay a specific amount on demand or on a certain date.

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O

odd lot
A stock transaction involving sales of fewer than 100 shares, or a bond transaction involving a face value of less than $500.
offer price/(sell)
The lowest price that a seller is willing to accept from a prospective buyer. In the case of a mutual fund with a sales charge, this price is the net asset value (NAV) plus the sales charge. In the case of no-load funds, it is the NAV. See asked price.
open order
A buy or sell order that has not yet been executed or canceled.
open-end investment company
An investment company which continually sells or redeems its own shares to meet investor demand. Conversely, a closed-end investment company has a finite number of shares that can be bought and sold when available on market exchanges.
operating expenses
From the investor’s perspective, this is the cost or part of the cost of investing in an investment fund. From the investment fund provider’s perspective, this is the cost of operating the investment fund. The total annual operating expense is generally expressed as a percentage or in basis points and is often also called the “expense ratio.” Also see Expense Ratio.
opportunity cost
The rate of return that could be earned on an alternative investment.
opportunity risk
The risk that a better opportunity may present itself after one has already committed his money elsewhere.
option
A contract conveying the right to buy or sell a security, commodity or property interest for an agreed-upon sum during a stipulated period. If it is not exercised during that time, the option expires and becomes worthless. Options are a popular investment hedge. The right to buy  is a "call"; the right to sell is a "put." The option buyer pays a premium for this right. The specified price is called the strike price or exercise price, and the maturity date is called the expiration date.
option-adjusted duration
Duration measure in which it is recognized that yield changes may change the expected cash flow. This measure is appropriate to use when bonds have embedded options. See also effective duration.
order
A request, from a client to a broker, to buy or sell a given amount of a specified stock at the market price or at a specific price.
Over-the-Counter (OTC) Market
A market in which securities are bought and sold by telephone and computer network, rather than on an exchange. Typically, OTC stocks are companies that do not or choose not to meet requirements to trade on the New York Stock Exchange or the American Stock Exchange. (See NASDAQ.) Also known as the third market.
overvalued
The perception that a security's price is too high, given the company's current value.

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P

paper
Any short-term debt security.
par
The face value of a security at the time of issuance. Par value does not necessarily denote market value.
partnership
An unincorporated business organization where two or more people or entities join together by contract. Partnerships can be Limited Partnerships or General Partnerships.
party in interest
An ERISA-specified individual -- such as an administrator, officer, fiduciary, trustee, custodian, or counsel -- who is prohibited from making certain transactions involving a retirement plan. A trustee, for example, would be prohibited from using an IRA as collateral for a loan.
pass-through certificate
A security issued by a financial institution that represents a part of a mortgage pool.
passive portfolio management
A method of choosing individual securities designed to track a specific benchmark. This management style may have lower operating costs (expense ratio) due to less active trading. See Active Portfolio Management.
payable date
The date when dividends or capital gains are paid to shareholders. Payable date is usually within two to four days of the record date. The payable date also refers to the date on which a declared stock dividend or bond interest payment is scheduled to be paid.
payout annuity
When the assets in a tax-deferred annuity are converted into a guaranteed lifetime income, also referred to as "annuitized," an annuity contract becomes a payout annuity. Variable Annuity values will fluctuate and an annuitant may have a gain or loss when money is withdrawn. Amounts withdrawn prior to age 591/2; are subject to a 10% IRS penalty in addition to income tax.
payout period
The time period during which withdrawals from a retirement account or annuity are paid.
peer group
Groups of investment funds sharing some similar investment characteristics that are tracked and reported on as a group. Financial information companies such as Morningstar and Lipper Analytics typically compile these data.
penalty tax
A federal tax that can be applied if a plan holder does not meet certain requirements when making withdrawals from a tax-advantaged retirement plan (for instance, if the plan holder has not reached age 591/2). This penalty tax is owed in addition to any income taxes due.
penny stock
An inexpensive, speculative stock, typically selling for under $1 a share. Also known as a micro-cap stock.
pension plan
A plan set up by a corporation, government, institution, labor union, or other group to pay retirement benefits to employees.
period certain annuity
An annuity that provides a retirement income benefit to a person for a guaranteed period of time. Once the agreed upon period ends, the benefit payments stop. If the contract owner dies before the end of the agreed upon period, the payments that had not yet been made are paid to the contract owner's beneficiary.
periodic payment plan
A series of automatic purchases in a mutual fund, typically through the electronic transfer of funds from an individual's checking account. Also called an automatic investment plan.
periodic payments
A series of payments from an annuity, qualified retirement plan, or 403(b)(7) account made over a certain term of years. A payment from an IRA, even if over a period of years, is not considered a periodic payment for tax purposes.
plan agreement
A document detailing the terms and conditions of a retirement plan such as an IRA.
point
A unit that measures a security's price fluctuation in the market. In stocks a point is $1 per share, in bonds a point is 1% of the Face Value. (In real estate a point is a fee of 1% of the loan paid by the borrower to the lender.)
poison pill
A tactic by a company targeted for takeover to make its stock less appealing to the acquiring company in the hope of blocking the takeover. For example, the company might issue preferred stock that gives shareholders the right to redeem their shares at a premium after the takeover.
portfolio
The group of stocks, bonds, and other securities held by an investor or mutual 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 transaction costs
The expenses associated with buying and selling securities, including commissions, purchase and redemption fees, exchange fees, and other miscellaneous costs. In a mutual fund prospectus, these expenses would be listed separately from the fund's expense ratio.
portfolio turnover rate
A measure of how frequently investments are bought and sold within an investment fund over a period of time, typically one year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.
power of attorney
A legal document granting one person the right to act accordingly on behalf of another. A power of attorney may be limited or full.
pre-existing conditions
A mental and/or physical condition that existed before a health insurance policy was issued. Some policies exclude pre-existing conditions from coverage.
preferred stock
A type of stock that gets preference over common stock in that it stands first in line for the payment of dividends and liquidation in the case of bankruptcy.
premium
In insurance, the fee paid to an insurance company in exchange for risk protection. For an annuity, the payment made to build an annuity accumulation. In stocks, the amount by which a stock's price exceeds its par value. For a bond, the amount by which the sale price of the bond exceeds the face value.
prepayment penalty
A charge levied by a lender to the holder of a loan or mortgage when the borrower pays off the loan before its scheduled maturity.
pre-refunding/advanced refunding
A procedure, in which a bond insurer floats (issues) a longer-maturity bond in order to pay off an earlier bond at the first call date (prior to maturity) in order to take advantage of a fall in interest rates.
present value
The value today of some future dollar amount after it has been discounted for interest. For instance, at a 4.5% interest rate, the present value of $15,000 ten years from now would be about $10,000 today. See future value.
pretax contribution
An addition to an account made with funds from a worker's paycheck before federal income taxes are deducted.
pretax investment
Certain types of tax-sheltered investments, such as 403(b) annuities, 401(k) plans, 457(b) plans, and Keogh plans, in which income can be invested before it has been subjected to taxes.
price-earnings (P/E) ratio
A popular measure of the value of common stock; it is the market price of a share of stock divided by its annual earnings per share. P/E = Stock Price Earnings Per Share.
price-to-book (P/B) ratio
The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the ratio is the weighted average price/book ratio of the stocks it holds.
price-weighted index
An index which measures movements in the prices of shares, but not of their dividends. Each stock is given a weighting proportional to its market price. Examples of price-weighted index are the Dow Jones Industrial Averages (DJIA).
primary market (new issue market)
The market in which newly issued securities are sold, including government security auctions and underwriting purchases of blocks of new issues, which are then resold.
prime rate
The interest rate major banks charge their most creditworthy borrowers.
principal
The original value of investment or debt.
probate
The legal process of verifying a will and appointing an executor to carry it out.
proceeds
Money received by the seller of an asset. Net proceeds refers to the amount after the deduction of transaction charges such as commissions or exchange fees.
profit sharing
An agreement under which employees share in the profits of their employer.
program trading
The act of simultaneously executing a group of stock transactions, usually by automated buy and sell orders, rather than buying/selling one lot of stocks at a time.
property and casualty insurance
Risk protection that reimburses for property losses; it also often includes liability coverage.
prospectus
A document outlining the terms of an investment offering.
proxy
Authority or power to act for another. A shareholder's written authorization turning over voting rights to someone else, usually at a shareholder's meeting.
prudent man rule
A rule for those responsible for investing others' money: the person must use discretion and intelligence, seek reasonable income, preserve capital, and avoid unreasonably speculative investments.
purchase fee
A charge assessed by an intermediary, such as a broker-dealer or a bank, for assisting in the sale or purchase of a security.
purchasing power risk
The risk of loss because of inflation. In high inflation periods, the dollar buys less, which in turn reduces the value of a bond or other fixed-income security. Estimates of future purchasing power risk can be made by calculating the future value of the dollar based on an average inflation rate.
put
An option to sell a stock at a predetermined price within a specific time period. See call.
put-call ratio
The ratio of the volume of traded put options to the volume of traded call options. The ratio is used as an indicator of market sentiment.

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Q

qualified domestic relations order (QDRO)
A judgment, decree, or order that gives a pension plan participant access to retirement assets that must be used to pay an ex-spouse or dependent children.
qualified retirement plan
A retirement plan established by employers for their employees that meets the requirements of Internal Revenue Code Section 401(a) or 403(a) and is eligible for special tax considerations. The plan may provide for employer contributions, as in a pension or profit-sharing plan, as well as employee contributions. Employers can deduct plan contributions made on behalf of eligible employees on the business's tax return as business expenses. Plan earnings are not taxed until withdrawn.
qualified terminable interest property trust (Q-TIP)
A trust that allows a surviving spouse to receive income generated from the trust, but actual distribution of the trust's property is made to other beneficiaries such as the grantor's children.
qualified total distribution
A payment representing an employee's interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attainment of age 591/2. Payment can be in installments as long as they are made within a single tax year.
quantitative analysis/quantitative techniques
Methodology in investment analysis, where mathematical models are used to predict stock market returns. TIAA-CREF uses a quantitative methodology, which uses a multi-factor mathematical model to predict stock market returns. This model picks stocks based on statistical analysis of specific measurable, publicly available data. Forecasts of companies' returns are made using a top-down approach, that is, by examining the macroeconomic climate, industry valuations and various stock factors, and as well as financial and technical analysis of company performance.
quotation
The price being bid (by a prospective buyer) or offered (by a potential seller) for a security. It usually refers to the highest bid and lowest asked (offered) price currently available on a security.

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R

Random Walk Theory
A stock market theory that states that the past movement or direction of the price of a stock or market cannot be used to predict its future movement. The theory also believes stock price changes are independent of each other and have the same probability distribution, but over time maintain an upward trend. In short, the idea that stocks take a random and unpredictable path.
rate of return
For stocks, the annual dividend divided by the purchase price. For bonds, the rate of return is the current yield.
ratings/bond ratings
Designations used by various investors' services to give relative indications of credit quality. See credit rating.
real estate
Property such as one's own home, a second home, other income-producing properties, or larger investments frequently structured through Limited Partnerships.
real estate fund
A fund that seeks a favorable rate of return by investing in a real estate portfolio.
real estate investment trust (REIT)
Similar to a closed-end investment company, but organized to manage a portfolio of real estate investments and distributes to its shareholders at least 95% of its net earnings annually. Usually traded publicly, REITs often specialize in a particular kind of property. They can: invest in real estate such as office buildings, shopping centers, or hotels; purchase real estate (an equity REIT); and provide loans to building developers (a mortgage REIT). A REIT provides centralized management, limited liability, continuity of interest, and transferability of ownership. REITs generally avoid corporate tax by distributing earnings to shareholders. Distributed earnings are then taxed as ordinary income.
real return or real rate of return
The rate of return on an investment after adjusting for inflation and taxes.
rebalance
The process of moving money from one type of investment to another to maintain a desired percentage of an asset allocation.
record date
The date used to determine who is eligible to receive a company or fund's next distribution of dividends or capital gains.
redemption
The process of selling stock shares or bonds to the issuer in return for their current value or, with mutual funds, for their Net Asset Value.
redemption fee
A fee charged by some mutual funds when an investor sells shares within a short period of time.
redemption price
The price at which a mutual fund's shares are redeemed, or bought back, by the fund. The redemption price is determined by deducting any applicable charges from the net asset value (NAV) per share. Also referred to as the call price.
refundable bond
A type of municipal bond that can be "advance refunded" in a transaction similar to refinancing a home mortgage. The advance refunding results in a credit upgrade due to the payoff of the existing bonds by new bonds with lower coupons.
refunding
The replacement of an existing bond issue by a new bond issue at conditions generally more favorable to the issuer.
registered investment adviser (RIA)
Title created by the Investment Advisers Act of 1940. Any individual who sells advice to 15 or more interstate clients during a 12-month period must register with the SEC and file educational and background information.
registered representative
An employee of a brokerage firm who has acquired a background in the securities business, has passed a series of tests, and is licensed by the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), and the Financial Industry Regulatory Authority (FINRA).
registration
The ownership, address, tax status, certified Social Security number or tax identification number, and authorized individuals of an account. Also, generally used to describe the process of entering an owner's name on the books and records of the company's share registrar. Time frames for registration and share availability during the process vary by market.
reinvestment
Use of investment income to buy additional securities. Many mutual fund companies and investment services offer the automatic reinvestment of dividends and capital gains distributions as an option to investors.
relative risk/volatility
A ratio of a portfolio's standard deviation to the standard deviation of a benchmark index. See volatility measures and standard deviation.
remaindermen
The person who receives the residual assets of a trust after it has been terminated.
repatriate
Conversion of foreign currency back to an investor's base currency. Balances on foreign currency accounts held abroad might be transferred back to the investor's home country with or without restriction depending on the laws of the particular country.
replacement cost insurance
Most property insurance policies replace property at the depreciated value. Replacement cost insurance replaces a loss at current market prices.
repurchase agreement (REPO)
An arrangement by which the seller of an asset agrees, at the time of the sale, to buy the asset back at a specific price and, typically, on a given date.
required minimum distribution (RMD)
The minimum amount that the IRS requires must be withdrawn each year from all tax-advantaged retirement plans starting in the calendar year following the year in which the plan holder reaches age 70-1/2. Roth IRAs are excluded from this rule. See Minimum Distribution.
required return
The return that the investor needs to accept a given level of risk. The higher the level of risk exposure an investor assumes, the greater should be the return potential of his investment.
retirement planning
A process involving all aspects of financial planning that helps an individual understand the resources available - and the additional resources that must be accumulated - to support an anticipated retirement lifestyle.
return
The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.
return of capital
A distribution that is not paid out of earnings and profits. It is a return of the investor's principal.
return on equity (ROE)
The amount, expressed as a percentage, earned on a company's common stock investment for a specific time frame. This figure tells shareholders how effectively their money is being utilized. It is calculated by dividing earnings by average outstanding shares. For instance, if the earnings of a company is $1m and average outstanding shares is $10m, the return on equity is 10 percent.
revenue bond
A municipal bond payable solely from net or gross non-tax revenues derived from tolls, charges or rents paid by users of the facility constructed with the proceeds of the bond issue.
rider
A document that amends a prospectus, contract, or insurance policy, sometimes for an additional premium.
risk
The possibility of losing or not gaining value. In investments, there are many kinds of risk including: Inflation Risk, Economic Risk, Financial Risk, Market Risk, etc. Also, the potential dangers facing the subject of an insurance contract.
risk tolerance
An investor's ability or willingness to endure declines in the prices of investments while waiting for them to increase in value.
risk-adjusted return
A measure of how much risk a fund assumed to earn its returns. Usually given as a number or a rating. The more return per unit of risk, the better.
risk/reward
An investment theory that correlates an increase in certain types of risk with greater return on an investment. (Lower-risk investments typically yield smaller returns.)
risk averse investor
An investor who when faced with two investments with a similar expected return, but different risks, will prefer the one with the lower risk. See risk.
roll-down effect
When a bond begins trading as though it were a year closer to maturity (i.e., a bond maturing in 2000 trades like a three-year bond in the year 1997 and a two-year bond in 1998).
rollover
An employee's transfer of retirement funds from one retirement or tax-deferred annuity plan to another plan or to an IRA (without incurring a tax liability). The transfer must be made within 60 days of receiving a cash distribution. The law requires 20% federal income tax withholding on money eligible for rollover if it is not moved directly to the second plan or IRA via a direct rollover or trustee to trustee transfer.
rollover IRA (IRA rollover)
A traditional individual retirement account holding money from a qualified plan or 403(b) plan. These assets, as long as they are not mixed with other contributions, can later be rolled over to another qualified plan or 403(b) plan. Also known as a conduit IRA.
Roth IRA
A special type of Individual Retirement Account (IRA) introduced by the Taxpayer Relief Act of 1997, to which an individual can make contributions with after-tax dollars. Distributions from a Roth IRA are tax-free if they meet certain requirements (income, time since the Roth IRA was established, age of the Roth IRA owner, etc.).
round lot
The typically accepted unit of trading at a particular exchange. Usually 100 shares of stock (10 for inactive issues) for an individual investor or 500 shares for an institutional investor. For bonds, usually $1,000 or $5,000 par value. Also called an even lot or a normal trading unit.
round trip restriction
A policy that limits the number of times you 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.
R-squared (R x R)
A measure of how much of a portfolio's performance can be explained by the returns from the overall market (or a benchmark index). If a portfolio's total return precisely matched that of the overall market or benchmark, its R-squared would be 1.00. If a portfolio's return bore no relationship to the market's returns, its R-squared would be 0. Beta should be considered with R-squared, a historical measurement that indicates how closely a fund's past fluctuations have correlated with the fluctuations of its benchmark index, such as the S&P 500. For example, a fund with an R-squared of 0.80 indicates that 80% of the fund's past fluctuations were explained by fluctuations in the benchmark index. Generally, the higher the R2, the more meaningful the beta figure.
rule of 72
An approximate guideline for determining how long it will take an investment to double in value or for determining the interest rate required for an investment to double in value. To calculate the number of years for an investment to double in value, 72 is divided by the interest rate. To calculate the interest rate that will be required for an investment to double in value, 72 is divided by the number of years in which the doubling of money is desired.
Russell 1000 Index
A market-capitalization-weighted benchmark index made up of the 1,000 highest-ranking U.S. stocks in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. This index represents the universe of large capitalization stocks from which most active money managers typically select.
Russell 2000 Index
A market-capitalization-weighted benchmark index made up of the 2,000 smallest U.S. companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
Russell 3000 Index
An index of the stocks of the 3,000 largest U.S. companies traded on the New York Stock Exchange, other U.S. exchanges, and over-the-counter (i.e., stocks such as those listed in the NASDAQ system). The Russell 3000 Index is a trademark of the Frank Russell Company. Other Russell indexes include the Russell 1000 Index, consisting of the 1,000 largest securities in the Russell 3000 Index, and the Russell 2000 Index, which consists of the 2,000 smallest securities in the Russell 3000 Index.
Russell 3000 Value Index
Measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes.

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S

salary deduction
Contributions to a savings or investment plan that are withheld from an individual's salary but are subject to current income tax.
salary reduction
Contributions to a savings or investment plan that are withheld from an individual's salary under the terms of an agreement between an employer and employees. These funds are exempt from current federal (and usually state and local) income taxes.
salary reduction agreement
An arrangement in which an employer deposits a portion of an employee's salary into a tax-advantaged retirement plan, such as a 401(k) plan. Typically, an employee can specify a salary percentage, some or all of which may be pretax dollars, and the employer will match part or all of the employee contribution.
sales charge
Commonly referred to as the load; a transaction fee or commission paid for an investment instrument, such as a mutual fund. See Load and No-Load Funds.
Salomon Smith Barney Inflation-Linked Security Index (ILSI)SM
This index measures the return of debentures with fixed-rate coupon payments that adjust for inflation as measured by the Consumer Price Index (CPI). The index employs a minimum maturity of one year and a minimum amount outstanding of U.S. $1 billion for both entry and exit. This index currently comprises only U.S. Treasury Securities. This index serves as the benchmark for the CREF Inflation-Linked Bond Account.
secondary market
The market for securities previously offered or sold. All the major markets: NYSE, AMEX, NASDAQ, etc. are secondary markets.
sector
A group of securities, often related to a particular industry, that have certain shared characteristics.
sector fund
A mutual fund that concentrates on a relatively narrow market sector such as health care, chemicals, or retailing. These funds can experience higher share-price volatility than some diversified portfolio of stocks in many industries because sector funds are subject to issues specific to a given sector.
sector diversification
The percentage of a portfolio's stocks from companies in each of the major industry groups.
sector allocation
That portion of a fund which invests in narrowly defined segments of the economy, i.e., utilities, healthcare services, telecommunications, etc.
security
Investment instruments such as stocks or bonds issued by corporations, government bodies, or other entities that offer investors shares of ownership or a creditor relationship. See collateral.
Securities and Exchange Commission (SEC)
An agency established by the Securities Exchange Act of 1934. The federal agency that administers the laws governing the securities industry.
Securities Investor Protection Corporation (SIPC)
A nonprofit corporation that acts as an insurance company and pools money from securities brokers to cover the restoration of funds to investors with assets of bankrupt and otherwise financially troubled brokerage firms. Securities and cash in customer accounts typically are insured up to $500,000 per tax identification number.
self-directed account
An account in which a plan participant makes individual decisions about what stocks, bonds and mutual funds to buy through a brokerage window.
sell price
See redemption price.
selling short
The decision to borrow a security from a broker/dealer to sell because an investor thinks it's going to decline. The investor profits if the price goes down, since he/she can replace the borrowed securities at a lower cost and thereby generate a profit.
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.
serial bonds
A group of bonds issued at the same time but maturing at different dates.
Series EE Bond
A registered bond that is a U.S. Government obligation. These bonds are issued at a discount par, sold in face amounts of $25 to $10,000. All interest is paid at maturity and is exempt from state and local taxes.
Series HH Bond
A registered bond that is issued at par in exchange for EE bonds. Interest is paid semiannually and is exempt from state and local taxes. It is sold in amounts from $500 to $10,000 and may be redeemed after only six months.
settlement
The closing of a transaction.
settlement date
The date by which a broker must receive either cash or securities to satisfy the terms of a security transaction. The current settlement period for stocks and bonds is three business days following the execution of the trade (T+3). For listed options and government securities, settlement is required by the next business day.
share
A unit representing a measure of ownership in a corporation.
share class
Some mutual 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 mutual funds each class has different fees and expenses but all the classes invest in the same pool of securities and have the same investment objectives.
share price
The value of one share in the fund. With most funds, the share price is calculated every day, because the value of a fund's securities changes every day in response to the movements of the stock, bond and money markets. For some funds, share price is calculated on an hourly basis.
share price index
See price-weighted index.
shareholder
The owner of one or more shares of stock in a corporation or one or more shares or units of a mutual fund. Shareholder rights can vary according to the articles of incorporation of the by-laws of a particular company or fund.
shareholder-type fees
Any fee charged against your investment for purchase and sale, other than the total annual operating expenses.
Sharpe ratio
A measure of risk-adjusted return. To calculate a Sharpe ratio, divide an asset's excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) by the asset's standard deviation of returns.
short position
Position when an investor borrows a security, and sells it to another, with the intent to re-purchase the same security in the near future -- at a lower price -- to repay the borrower. This technique is generally used when investors expect a decrease in the value of a stock.
short sale
Sale of a security or option contract not owned by the seller, usually to take advantage of an expected drop in the price of the security or option. In a typical short sale transaction, a borrowed security or option is sold, and the borrower agrees to purchase replacement shares or options at the market price on or by a specified future date. Generally considered a speculative investment strategy.
short-term capital gain
A profit on the sale of a security or mutual fund share that has been held for one year or less. A short-term capital gain is taxed as ordinary income.
signature guarantee
The authentication of a signature in the form of a stamp, seal, or written confirmation by a bank or member of a domestic stock exchange (or other acceptable guarantor). A notary public cannot provide a signature guarantee. Requiring a signature guarantee is a common practice when transferring or redeeming shares or changing the ownership of an account.
SIMPLE plan for small businesses
Savings Incentive Match Plan for Employees (SIMPLE). Plans can be adopted by employers with 100 or fewer employees. May be organized as an IRA or 401(k). Income and contribution rules apply. Employee contributions are immediately vested and are deductible for AGI. It is effective for tax years beginning after December 31, 1996.
Simplified Employee Pension Plan (SEPP)
A retirement plan that allows employers to contribute to their employees' IRA plans rather than establishing a pension plan.
single life annuity
An annuity that provides income benefits for one person only.
small capitalization (cap)
A reference to either a small company stock or an investment fund that invests in the stocks of small companies.                                          
small-capitalization ('small cap') fund
A mutual fund that invests primarily in stocks of companies whose market value is less than a certain amount.
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 more risk.
Social Choice Account Composite Index
A customized weighted benchmark index against which the performance of the CREF Social Choice Account is measured. Its target weight is 60% S&P 500 Index, which represents the equity component of the account, and 40% Lehman Brothers Aggregate Bond Index, which represents the account's bond component.
Social Security
U.S. government program established in 1935. It includes old age and survivors insurance, disability insurance and Medicare. The program covers participating workers and their dependents.
Social Security benefits
Monthly government payments to retired workers or their families who have paid Social Security taxes for a total of 40 quarters or 10 years.
socially responsible investing
A philosophy of investing by both financial and social criteria, where investors seek to align their personal values and financial goals by choosing to invest in companies and organizations displaying values comparable to their own.
sole proprietorship
A form of business in which one person owns all the assets of the business. Unlike a partnership, trust, or corporation, the sole proprietor is the only person liable for all the debts of the business. Profits are taxable as a part of the proprietor's personal income.
speculative portfolio
A collection of high-risk securities chosen in the hope of producing high profit.
spot price
The current price of a commodity or foreign currency.
spread
For stocks and bonds, the difference between the bid price and the asked price.
spread sectors
Spread sectors include all non-Treasury investment grade sectors including federal agency securities, corporate bonds, asset-backed securities, mortgage-backed securities and commercial mortgage-backed securities.
stability
The relative steadiness or safety of a security or fund compared to the market as a whole. For example, money market funds and other short-term investments offer more stability than funds that invest in growth stocks.
stable value fund
A type of investment fund that is designed to preserve principal while providing a consistent rate of return. Stable value funds invest primarily in fixed-income securities.
Standard & Poor's 500 Index (S&P 500 Index)
A market capitalization-weighted index of the 500 largest capitalized stocks in the United States that is widely recognized as a guide to the overall health of the U.S. stock market. The Index covers industrial, utility, transportation, and financial companies of the U.S. markets (mostly NYSE issues). The Index represents about 75% of NYSE market capitalization and 30% of NYSE issues. This index serves as the benchmark for the TIAA-CREF Growth & Income Fund.
Standard & Poor's rating
A classification of bonds according to risk. S&P's four top grades, Aaa, Aa, A, and Bbb, are called Investment Grade because they are lower-risk investments.
standard deduction
The minimum deduction allowed, without substantiation, on an individual's federal income tax form. Contrasts with Itemized Deductions.
standard deviation
A statistical measurement of the dispersion of a fund's return over a specified time period. Calculated by comparing a fund's monthly returns to its average monthly return over a 36-month period, and then annualizing the number (3-Yr STD). Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how the fund actually performed, but merely indicates the volatility of its returns over time.
statement of additional information (SAI)
An informational brochure on a mutual fund, which is available upon request. The statement contains information that is classified as useful but nonessential by the Securities and Exchange Commission and therefore, typically, is not included in the prospectus. A document provided as a supplement to a mutual fund prospectus. It contains more detailed information about fund policies, operations, and risks. Also known as a Part B prospectus.
stock
A security that represents an ownership interest in a corporation.
stock broker
A licensed individual who executes orders to buy or sell a security on behalf of investors, and who usually gets a commission for doing so.
stock certificate
A document verifying legal ownership of a specific number of stock shares in a corporation.
stock exchange
A market facility for the trading of securities by members (usually brokers, dealers, and traders). An example is the New York Stock Exchange (NYSE), which is the oldest and largest exchange in the United States.
stock fund
A fund that seeks a favorable rate of return through investments in the stocks of various companies.
stock purchase plan
A corporation's program that allows its employees to purchase shares of stock.
stock split
An increase in the number of shares in a corporation without changing the number of shareholders, usually designed to make the stock more marketable. For example, if a stockholder had one share of XYZ stock with a market value of $100 and the stock split 2-for-1, the stockholder would then own two shares, each worth $50. Under a reverse stock split, one new share of stock is exchanged for two or more old shares.
stock symbol
An abbreviation using letters and numbers assigned to securities to identify them.
stockholder
The owner of one or more shares of corporate stock. A preferred stockholder may have proportionate voting rights and claims which take precedence over those of common stockholders with respect to dividends when issued, a proportionate share of the company's undivided assets, and often, an opportunity to buy new stock issues before public offerings. Common stockholders have claims subordinate to preferred stockholders.
stop order
A stock transaction order: Buy at a price above, or sell at a price below, the current market. This guarantees that a buyer's or seller's price criteria will be met.
Student Loan Marketing Association (Sallie Mae)
Pools of student loans backed by the SLMA, a government agency. Units of the pool are offered for investment.
strategy
The general or specific approach to investing that an individual, institution, or fund manager employs.
street name
Securities held in the name of the owner's broker or other nominee to facilitate share transfers at the time of sale.
structured securities
Securities that are collateralized by loans or receivables. The cash flows are allocated to investors according to specified rules. Mortgage-backed securities (MBS), commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS) are structured securities.
STRIPS
For bonds, it is the process of removing the coupons from a bond and then selling the separate parts as a zero coupon bond and interest paying coupons. Also known as a stripped bond. STRIP is an acronym for Separated Trading of Registered Interest and Principal of Securities. In options it is a strategy created by being long in one call and two put options with the exact same strike price.
style fund
A general categorization for an equity fund that invests predominantly in stocks that are in one or the other of the two basic investing styles, i.e., growth or value. See growth stocks. See value stocks.
subordinated debenture
A debenture that has a lower claim on the earnings and general assets of the corporation than more senior debt. Given the additional risk, subordinated debentures generally feature higher potential returns.
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 on paper upon request.
surrender value
The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage.
survivor benefits
An amount payable to a beneficiary from an annuity or insurance policy when the policyholder dies.
swap agreement
An arrangement between two parties to exchange one security for another, to change the mix of a portfolio or the maturities of the bonds it includes, or to alter another aspect of a portfolio or financial arrangement, such as interest-rate payments or currencies
systematic risk/market risk/non-diversifiable risk
The variability of return that is caused by general macro-economic factors affecting all comparable investments. That is, risk that is common to an entire class of assets or liabilities; also referred to as non-diversifiable risk.
systematic withdrawal plan (SWP)
An automatic withdrawal program in which a shareholder receives regular payments, usually monthly, quarterly, semiannually, or annually, from a mutual fund account or retirement plan.

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T

takeover
A change in the controlling interest of a corporation. A takeover may be a friendly acquisition or a hostile bid. A hostile takeover is usually attempted through a public tender offer.
target benefit plan
A Defined Contribution retirement plan that sets employer contributions based on an actuarial calculation designed to provide a specific benefit to each employee on retirement.
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.”
taxable equivalent yield
The interest rate that must be received on a taxable security to provide the holder the same after-tax return as that earned on a tax-exempt security.
taxable income
The amount of income, after deductions and other items are subtracted from Adjusted Gross Income (AGI), subject to income taxes.
tax deferral
The postponement of taxes due on the earnings or growth related to certain favored investments until the earnings are withdrawn or the investment is sold or otherwise disposed of.
tax-deferred annuity (TDA)
A tax-deferred annuity can help one supplement other retirement savings. Issued by an insurance company, a deferred annuity allows one to accumulate money on a tax-deferred basis for long-term goals, such as retirement. There are fixed and variable tax-deferred annuities. With a fixed-deferred annuity, one receives a fixed rate of return, which is guaranteed by the issuing insurance company for a specific period of time. One also chooses an interest rate for a period of time, usually ranging from 1 to 10 years. With a variable-deferred annuity, one has control over the investment decisions, as opposed to a fixed annuity where the insurance company makes the investment decisions. The investor can choose how to allocate his annuity among a number of managed portfolios, ranging from very conservative to very aggressive options. And he has the flexibility to change his portfolio allocations as his situation or market conditions change. Once retired, one can turn the annuity's value into a regular stream of income, or take partial withdrawals, as income is needed.
tax efficiency
How efficient a portfolio is in creating after-tax returns in comparison with the more commonly quoted pretax total return figures featured in most marketing materials and advertisements. An unduly heavy tax burden can erode even the best mutual fund performance. For instance, it's common to see a fund whose performance appears to be excellent, until taxes are calculated and the return is actually much lower.
tax-free exchange
A method of exchanging annuity or life insurance contracts without incurring a current income tax liability by making a Section 1035 (Internal Revenue Code) exchange.
technicals/technical analysis
Short-term trends that technical analysts attempt to identify as significant in the price movement of a security or a commodity. Such trends may be in the demand and supply for securities, options, mutual funds, and commodities based on trading volume and price studies. Technical analysis is generally not concerned with the fundamental analysis of a company.
10-K
Annual comprehensive overview of business activity registered companies must file with the SEC within 90 days of the end of the fiscal year.
tenancy by the entirety
Property owned jointly by a husband and wife; survivorship rights may be terminated by mutual consent of both parties.
tenants in common
Co-ownership by two or more people, each owning a defined percentage of the whole. There are no survivorship rights.
tender offer
A public offer made to shareholders of one corporation by another corporation to purchase any or all of the shareholders' stock at a specific price.
term
The time during which interest payments will be made on a bond or certificate of deposit.
term insurance
The simplest and least expensive kind of life insurance. It provides protection for a specific period of time, but does not accrue any cash value.
testate
The legal term for dying with a valid will.
thrift plan
A defined contribution retirement plan in which employees can contribute after-tax savings for retirement. The employee contributions may be fully or partially matched by the employer.
ticker symbol
An abbreviation assigned to a security for trading purposes. A security's ticker symbol is often used in newspapers and price-quotation services. Also called a trading symbol or stock symbol.
time horizon
The amount of time, usually expressed in years, that an investor expects to hold an investment.
top ten holdings/ten largest holdings
A listing and associated percentage of a portfolio's total net assets or equity holdings in its ten largest securities positions. As this percentage rises, a portfolio's returns are likely to be more volatile because they are more dependent on the fortunes of a few companies.
total return
The sum of the current income and the capital gains (or losses) earned on an investment over a specified period of time. For mutual funds, a percentage change, over a specified period, in net asset value, taking into account capital appreciation, and reinvestment of all distributions of dividends or interest and capital gains, and individual tax considerations adjusted for present value and expressed on an annual basis.
total return for calendar year
The profit or loss realized by an investment at the end of a specified calendar year, stated as the percentage gained or lost per dollar invested on January 1.
tracking error
A measure of how close a portfolio is to its benchmark. The lower the tracking error, the closer the fund is to its benchmark; and the higher tracking error, the more actively managed the portfolio. Technical Definition of Tracking Error: the standard deviation of the difference between a fund's return and that of its benchmark, due primarily to statistical sampling of the benchmark index. (This arises from the fact that it is costly for portfolio managers to replicate precisely their benchmark at all times.)
trade
Buying or selling a stock, bond, or other financial commodity or option. A buyer and seller must agree on a price before a trade can be carried out. A broker or agent often facilitates this process, serving as an intermediary.
trade date
The actual date on which an investor's shares are purchased or sold. The transaction price is determined by the closing net asset value on that date. This date also determines the eligibility for dividends.
trading fee
A fee paid when one redeems, or sells shares. Not all funds charge trading fees.
trading price
The price at which a security is currently selling.
trading range
The upper and lower selling price of a security over a given period of time such as the previous 52 weeks.
traditional IRA
A tax-deferred individual retirement account that allows annual contributions of up to $2,000 for each income earner. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants within certain income ranges.
transaction
The execution of a trading order. Once a buyer and seller agree on a price, they are obligated to complete the transaction.
transaction fee
charge assessed by an intermediary, such as a broker-dealer or a bank, for assisting in the sale or purchase of a security.
transfer
The changing of an asset's ownership.
transfer agent
A financial service organization, such as a commercial bank or an individual employed by a corporation or mutual fund, that maintains records and handles problems relating to the transfer, issue, purchase, sale, or conversion of securities. The transfer agent also may be responsible for mailing notices and reports to stockholders, paying dividends, and maintaining the accounting records of the corporation.
transfer restriction
A limitation on the dollar amount or number of transfers or fund exchanges that a contract owner can make between variable or fixed investment options within a variable annuity contract. ß Needs to be clear that this is annuity/lifetime income specific.
Treasury Bill (T-Bill)
Government-backed securities issued on a discount basis in denominations of $10,000. Maturities range from three months to one year. Income is received upon maturity and is not taxed at a state or local level.
Treasury Bond (T-Bond)
Government-backed securities that pay interest every six months. Maturities are ten years or more, but many are callable prior to maturity. Interest is paid semiannually and is not taxed at a state or local level.
Treasury Note (T-Note)
Government-backed securities with maturities of one to ten years, with interest paid every six months and not taxed at a state or local level.
treasury security
A negotiable debt obligation issued by the U.S. Government for a specific amount and maturity. Income from Treasury securities is exempt from state and local tax but not from federal income tax. Treasury securities include short-term Treasury bills (T-bills), medium term Treasury notes (T-notes), and long term Treasury bonds (T-bonds).
triggering event
An event (such as separation from service, disability, or financial hardship) that must occur before payment can be made from a post-1988 tax-deferred annuity (and some other retirement savings accumulations) before age 591/2.
triple tax-exempt fund
A municipal bond mutual fund whose dividends and interest are exempt from federal, state, and local income taxes for residents of the issuing state or municipality.
trust
A legal entity in which one person or institution (trustee) holds the right to manage property or assets for the benefit of someone else (trust beneficiary).
trustee
A person to whom property is committed so that it can be administered on behalf of a beneficiary.
TSE 100 Index (Toronto Stock Exchange Index 100)
The Toronto Stock Exchange (TSE) 100 is a market capitalization-weighted index of 100 blue-chip stocks that trade in the Canadian market.
turnover/turnover rate
In an investment fund, the rate at which holdings are bought and sold. Since these transactions involve expenses and sometimes taxes too, a high turnover can adversely affect a fund's return.
12b-1 fee
A fee assessed on certain mutual funds or share classes under an SEC rule to help cover the costs associated with marketing and selling the fund.

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U

undervalued security
A security selling below its market value or liquidation value.
underwriting
In insurance, the process of identifying and quantifying the degree of risk posed by an applicant. Also, the procedure by which investment capital is channeled from investors to corporations and municipalities.
unified tax credit
A federal tax credit that decreases tax liability, dollar for dollar, on lifetime gifts and asset transfers at death.
Uniform Gifts to Minors Act (UGMA)
A law adopted by many states to provide a simple method for giving irrevocable gifts to children via a custodial account without having to establish a formal trust. UGMA accounts are managed by a custodian who acts on behalf of a minor. UGMA assets must be turned over to the minor at the state-established age of majority (also called age of termination), which ranges from 18 to 25, depending on the state.
Uniform Transfers to Minors Act (UTMA)
Adopted by all states and similar to the Uniform Gifts to Minors Act, this law allows irrevocable transfer of gifts besides money (ranging from real estate and fine art to patents and royalties) to a minor via a simple custodial account. The UTMA either supplements or replaces the UGMA, depending on the state.
unit
A representation of ownership in an investment that does not issue shares.
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 investment trust (UIT)
Self-liquidating, passive investment companies. They purchase specific investments, hold them for a specific time, then pay out income and principal.
unitholder
An owner of units in an investment. See Shareholder.
unit trust
Term for an open-end mutual fund in the United Kingdom and other foreign markets.
unit value
The dollar value of each unit on a given date.
unlimited marital deduction
An Internal Revenue Service provision that allows an individual to transfer an unlimited amount of assets to a spouse, during life or at death, without incurring federal estate or gift tax.
unified credit
A onetime credit that exempts the first $600,000 of a person's estate from estate taxes. It may also be applied against gifts made during one's lifetime.
universal life insurance
A form of life insurance that combines the low-cost protection of term insurance with a savings component that is invested in a tax-deferred account. The cash value of such insurance may be available for policyholder loans.
unrealized capital gain/loss
An increase (or decrease) in the value of a security that is not "real" because the security has not been sold. Once a security is sold by the portfolio manager, the capital gains/losses are "realized" by the fund, and any payment to the shareholder is taxable during the tax year in which the security was sold.
un-systematic risk/diversifiable risk/specific risk
The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market. This risk can be virtually eliminated from a portfolio through diversification.
U.S. Government agency securities
Securities issued by federal agencies not backed by the full faith and credit of the U.S. Government.
U.S. Savings Bonds
Registered, noncallable and nontransferable securities which cannot be used as loan collateral. Series EE bonds are sold in face amounts of $25 to $10,000 and are issued at a discount so they pay all their interest at maturity. Series HH bonds are sold in ranges from $500 to $10,000, pay interest every six months, and may be redeemed after only six months.

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V

valuation
The estimated worth or desirability of an asset such as a security. A valuation makes it easier to decide if an asset would make a good investment at a given purchase price. The price/earnings ratio is an example of a stock valuation.
value date
The date on which a foreign exchange transaction or a cash movement takes place. Can be used interchangeably with settlement date.
value stock fund
A mutual fund that emphasizes stocks of companies whose growth opportunities are generally regarded as sub-par by the market. Value stock companies often pay regular dividend income to shareholders and sell at relatively low prices in relation to their earnings or book value.
value stocks/value investing
Stocks that are considered to be undervalued based upon such ratios as price-to-book or price-to-earnings (P/E). Historically, these have been stocks that have low price-to-earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or a combination of all three. These companies generally have lower forecasted growth rates than growth stocks.
variable annuity
An annuity, the value of which fluctuates based on the market performance of an underlying securities portfolio. Unlike Fixed Annuities, there is no guarantee of principal repayment or rate of return.
variable life insurance
Life insurance policies where the cash value is invested in stocks or other higher-risk/higher-yielding securities. The cash values and/or death benefits may fluctuate, reflecting the performance of the investments.
variable return investment
Investments for which the return is not fixed. This term includes stock and bond funds and also investments that seek to preserve principal like money market funds and stable value funds but do not guarantee a particular return.
vesting
An employee's right, usually earned over time, to receive some retirement benefits regardless of whether or not he or she remains with the employer. The Tax Reform Act of 1986 established minimum vesting rights for employees based on their years of service -- full vesting in five years or 20% vesting per year starting by the end of the third year.
volatility
The degree of fluctuation in the value of a security, mutual fund, or index, volatility is often expressed as a mathematical measure such as a standard deviation or beta. The greater a fund's volatility, the wider the fluctuations between its high and low prices.
volatility measures
Volatility measures the variability of historical returns. Relative volatility, beta, and R2 compare a portfolio's total return to those of a relevant market, represented by the benchmark index. Standard deviation is calculated independent of an index.
volume
The amount (expressed in shares or dollars) of a security that trades hands during a specific period.
voluntary cap
An arrangement that limits certain fees and/or expenses so that a fund’s total annual operating expenses do not exceed a certain percentage of the fund’s average net assets. If the cap is voluntary, the investment advisor may discontinue the arrangement at any time.
voluntary waiver
An arrangement in which the fund’s investment advisor voluntarily agrees to reimburse the fund for certain expenses. If the waiver is voluntary, the investment advisor may discontinue the arrangement at any time.

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W

Wall Street
The financial district in New York City where the New York Stock Exchange, American Stock Exchange, and many brokerage firms are based. Also a reference to the investment community in general.
warrant
A certificate giving the holder the right to purchase securities at a defined price within a specified time. Warrants have longer maturities than put or call options, with maturities ranging up to 20 years.
wash sale rule
The IRS regulation that prohibits a taxpayer from claiming a loss on the sale of an investment if that same investment is purchased within 30 days before or after the sale.
weighted average maturity
The maturity of a bond, using the principal repayment schedule as the weight.
whole life insurance
Individual insurance protection with benefits payable to a beneficiary when the insured dies. Premiums may be paid in one lump sum, over a prescribed period, or throughout the insured's lifetime. A savings element, called cash or loan value, builds over time and can be used for wealth accumulation.
will
A legally enforceable declaration of a person's wishes regarding the disposal of his or her property after death. Wills can be changed or revoked before the author dies.
Wilshire 4500 Equity Index
A market capitalization-weighted index of approximately 6,500 U.S. equity securities. The index includes all the stocks in the Wilshire 5000 excluding stocks included in the Standard & Poor's 500 Index.
Wilshire 5000 Equity Index
A market capitalization-weighted index of approximately 7,000 U.S. equity securities. The index is made up of all U.S. stocks regularly traded on the three major U.S. exchanges, including the New York Stock Exchange, American Stock Exchange, and NASDAQ.
withdrawal
Money taken out of an account. A withdrawal from a tax-advantaged retirement plan may be subject to tax and, if the investor is under age 591/2, to a possible penalty, unless the withdrawal qualifies as an exception for certain cases, such as a medical emergency.
withdrawal plan
See systematic withdrawal plan.
withholding
Federal income tax that must be deducted from distributions unless the recipient elects otherwise. The payer of distributions from a qualified plan, a tax-sheltered custodial account, and/or a traditional IRA is responsible for withholding the tax.
wrap fee
A fee or expense that is added to or wrapped around an investment fund to pay for one or more services.

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X

X
NASDAQ stock symbol specifying that it is a mutual fund. NASDAQ-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.
XD
A symbol used to signify that a security is trading "ex-dividend." This symbol is often used in the financial press. See ex-dividend.
xenocurrency
Another name for a currency that trades outside of its own borders.
XW
A symbol used to signify a security is trading ex-warrant. This symbol is often used in the financial press. See ex-warrant.

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Y

yankee dollars/bonds
Debt obligations, such as bonds or certificates of deposit bearing U.S. dollar denominations, issued in the United States by foreign banks and corporations.
yield
A return earned from an investment, typically expressed as a percentage. There are several methods of measuring yield, such as nominal yield, current yield, and yield to maturity.
yield curve
A line plotted on a graph that depicts the yields of bonds of varying maturities, from short-term to long-term -- commonly, Treasury bills, notes, and bonds. The line or "curve" shows the relationship between short- and long-term interest rates. The curve typically slopes upward since longer maturities normally have higher yields, although it can be flat or even inverted.
yield to maturity
Calculation of yield on a bond from the current date until the date on which it is scheduled to be retired; it takes into account the gain on a discount or loss on a premium.

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Z

zero-coupon bond
A bond sold at a deep discount from its face value that makes no interest payments and matures at face value. It involves interest rate risk but not reinvestment risk. If held by an individual outside of a tax-sheltered account, these bonds create taxable income each year even though no interest payments are made.
z-score
Statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy. A z-score of 0 is equal to a 50 percent probability.

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© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017