Glossary of Terms

A B C D E F G H I J L M N O P R S T U V W Y

A

absolute return. The fund’s return over a specified period of time; may be measured gross or net of fees.

account maintenance fee. The fee that a shareholder with a low account balance may pay to reduce the cost of maintaining the account.

actively managed fund. A fund that employs a portfolio manager or management team to manage the fund’s investments to try to outperform their benchmarks and peer group average.

administrator. A fund’s administrator handles back-office functions for a fund. For example, administrators often provide office space, clerical and fund accounting services, data processing, and bookkeeping and internal auditing; they also may prepare and file SEC, tax, shareholder, and other reports. Fund administrators also help maintain compliance procedures and internal controls, subject to oversight by the fund’s board and chief compliance officer.

adviser. See investment adviser.

advisory contract renewal. Annual process by which the fund’s independent directors review and consider for renewal the fund’s contract with the fund’s investment adviser for advisory services. The annual review is commonly referred to as the 15(c) process after the statutory provision under the Investment Company Act of 1940 that governs the terms of the advisory contract and the process for entering into, continuing, amending, and terminating the contract. See Section 15(c). 

alpha. The difference between a fund’s actual returns against its expected performance over a period of time, given its level of market risk as measured by beta. A positive alpha indicates the fund performed better than its beta would predict. A negative alpha indicates the fund’s underperformance based on the expectations indicated by the fund’s beta.

amortized cost. The purchase price of the security, adjusted for accretion of discount or amortization or premium. Stable net asset value (NAV) money market funds use amortized cost, rather than market value, to value their securities when calculating net asset value. Floating NAV money market funds and other types of mutual funds may use amortized cost to value securities with maturities of 60 days or less when calculating NAV.

annual report. A report that a fund sends to its shareholders that discusses the fund’s performance over the past fiscal year and identifies the securities in the fund’s portfolio on the last business day of the fund’s fiscal year. The annual report includes audited financial statements. See also semiannual report.

anti–money laundering (AML) program. A fund program that must be approved by the board and include, among other things, policies, procedures, and internal controls reasonably designed to prevent the fund from being used for money laundering or the financing of terrorist activities.

audit committee financial expert. A director whom the board has determined has certain attributes specified in an SEC rule relating to an understanding of and experience in financial accounting. A fund must disclose whether its board has an audit committee financial expert and, if so, the name of the expert.

auditor. An auditor certifies a fund’s financial statements, providing assurance that they are prepared in conformity with generally accepted accounting principles (GAAP) and fairly present the fund’s financial position and results of operations.

authorized participant. An entity, usually an institutional investor, that submits orders to an exchange-traded fund (ETF) for the creation and redemption of ETF creation units.

B

back-end load. See contingent deferred sales load (CDSL).

basis point. One one-hundredth of 1 percent (0.01 percent); thus, 100 basis points equals 1 percentage point. When applied to $1.00, 1 basis point is $0.0001; 100 basis points equals one cent ($0.01). Basis points are often used to simplify percentages written in decimal form.

benchmark. A standard against which the performance of a security or a mutual fund can be measured. For example, many equity mutual funds are benchmarked to the S&P 500 index.

beta. A measure of a fund’s volatility in relation to a securities market, as measured by a stated index. By definition, the beta of the stated index is 1; a fund with a higher beta has been more volatile than the index, and a fund with a lower beta has been less volatile than the index.

breakpoints. Designated levels above which certain discounts or fee rate reductions apply. Funds may establish breakpoints requiring a reduction in the rate of the management fee the fund’s investment adviser may charge as fund assets surpass specified levels.

broker-dealer. A broker is a firm engaged in the business of effecting transactions in securities for the accounts of others, and is often paid by commission. A dealer is a firm engaged in the business of buying and selling securities for its own account. A broker-dealer is a firm that acts as both a broker and a dealer.

business development company (BDC). A category of closed-end funds that are operated for the purpose of making investments in small and developing businesses and financially troubled businesses.

business judgment rule. The business judgment rule generally protects fund directors from liability for their decisions so long as the directors acted in good faith, were reasonably informed, and rationally believed that the action taken was in the best interests of the fund.

C

chief compliance officer (CCO). Person designated by the fund’s board to administer the fund’s compliance policies and procedures. The CCO’s designation, compensation, and removal must be approved by the board.

closed-end fund. A type of investment company that issues a fixed number of shares that trade intraday on stock exchanges at market-determined prices. Investors in a closed-end fund buy or sell shares through a broker, just as they would trade the shares of any publicly traded company.

cluster board. A board structure in which several separate boards oversee different groups or clusters of funds at a fund complex.

code of ethics. A code designed to prevent persons with access to information regarding fund portfolio security activities from engaging in fraudulent, deceptive, or manipulative trading practices.

Commodity Futures Trading Commission (CFTC). The government agency that regulates derivatives and other products that are subject to the Commodity Exchange Act.

contingent deferred sales load (CDSL). A fee that may be imposed by a fund on shareholders who redeem (sell back to the fund) shares during the first few years of ownership. Also known as a back-end load.

counterparty risk. The risk associated with the financial stability of the opposite party of a contract.

creation unit. Financial institutions (called authorized participants) interact directly with an ETF by purchasing and redeeming ETF shares in large blocks called creation units. A creation unit generally contains between 25,000 and 200,000 ETF shares. See also authorized participant.

custodian. An organization, usually a bank, that safeguards the securities and other assets of a mutual fund.

D

dark pools. Alternative trading systems that do not publicly display quotations in the consolidated quotation data.

dealer. See broker-dealer.

derivatives. Instruments or contracts whose value is based upon, or derived from, some other asset or metric.

directors and officers (D&O) insurance. D&O coverage insures against financial losses that individuals may sustain in claims alleging that negligent acts, errors, or omissions were committed by them in their capacity as directors or officers of a fund. D&O insurance commonly protects independent directors against financial liabilities incurred by them in fund-related civil litigation or administrative proceedings. D&O insurance may also be structured to protect independent directors against financial liabilities that they may incur in formal and/or informal regulatory investigations or as non-party witnesses in fund-related claims. In the fund industry, D&O insurance is typically combined with E&O insurance in a single “D&O/E&O” policy form.

distributor. The entity (also known as the principal underwriter) in charge of selling (distributing) fund shares. See principal underwriter.

diversification. The practice of investing broadly across a number of different securities, industries, or asset classes to reduce risk. Diversification is a key benefit of investing in mutual funds and other investment companies that have diversified portfolios.

DOL fiduciary duty rule. The Department of Labor (DOL) rule expanding the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA) and modifying the prohibited transaction exemptions for investment activities in light of that expanded definition.

duty of care. The duty of care is a state law fiduciary duty that requires directors to act with reasonable care and skill in light of their actual knowledge and any knowledge they should have obtained in functioning as directors.

duty of loyalty. The duty of loyalty is a state law fiduciary duty that requires directors to act in good faith and in the best interests of the fund, rather than their private interests.

E

economies of scale. Reductions in fund expenses per dollar of assets that are realized as a fund grows larger.

errors and omissions (E&O) insurance. E&O coverage insures the fund itself (and/or any joint insured entity) against financial losses in claims alleging that negligent acts, errors, or omissions were committed by the fund (and/or any joint insured entity) or its representatives. In the fund industry, E&O insurance is typically combined with D&O insurance in a single “D&O/E&O” policy form.

exchange fee. The amount a shareholder may pay to exchange fund shares for shares of another fund within the same fund family. This fee is to cover the costs associated with the exchange or to deter market timing activity.

exchange-traded fund (ETF). An investment company, typically a mutual fund or unit investment trust, whose shares are traded intraday on stock exchanges at market-determined prices. Investors may buy or sell ETF shares on the secondary market through a broker, just as they would the shares of any publicly traded company. Authorized participants are the only entities allowed to purchase and redeem ETF shares directly from the ETF. See also authorized participant.

expense ratio. A measure of what it costs to operate a fund, expressed as a percentage of its assets. This ratio is disclosed in the fund’s prospectus and shareholder reports.

F

fair value. The amount a fund might reasonably expect to receive upon a current sale of a security. Where the value of the security cannot be readily determined from transactions occurring on an exchange or otherwise, a fund must have a process in place to determine how to value the amount it would expect to receive upon a current sale.

fidelity bond. A bond—issued by a fidelity insurance company—that a fund is required under the Investment Company Act of 1940 to maintain against larceny and embezzlement.

fiduciary duty. Directors have a fiduciary duty to represent the interests of the fund’s shareholders and are subject to state law duties of loyalty and care.

Financial Industry Regulatory Authority (FINRA). A self-regulatory organization that was created under the Securities Exchange Act of 1934 and that is charged with regulating broker-dealers. To fulfill its responsibilities, FINRA adopts regulatory rules that broker-dealers must comply with, conducts inspections of such broker-dealers, and imposes sanctions on those broker-dealers that violate its rules. FINRA’s activities are overseen by the SEC.

Financial Oversight Stability Board (FSOC). Established under the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide comprehensive monitoring of the stability of the US financial system.

forward. A contract that obligates each party to the contract to trade an underlying asset (commonly, foreign currency) at a specified price at a specified date in the future.

forward pricing. The concept describing the price at which mutual fund shareholders buy or redeem fund shares. Shareholders must receive the next computed share price following the fund’s receipt of a shareholder transaction order.

front-end load. A fee imposed by some funds at the point of purchase to cover selling costs. Any front-end load imposed by a fund will be described in detail in the fund’s prospectus.

funds of funds. Mutual funds (including ETFs) that primarily invest in shares of other mutual funds or ETFs rather than investing directly in individual securities.

fund supermarket. A brokerage platform that provides access to funds from a wide range of fund families.

futures. A standardized contract to purchase or sell an underlying asset in the future at a specified price and date.

G

Gartenberg factors. Factors articulated by the court in Gartenberg v. Merrill Lynch Asset Management for judicial review of board approval of fund advisory agreements. The Gartenberg factors have been incorporated into the process for fund boards reviewing for approval fund advisory agreements. The factors also formed the basis for new disclosure requirements that the SEC adopted in 2004, requiring funds to disclose the material factors and the conclusions with respect to those factors that formed the basis for the board’s approval of advisory contracts.

H

hedge fund. A private investment pool for qualified (typically wealthy) investors that, unlike a mutual fund, is exempt from SEC registration.

high-frequency trading (HFT). Trading strategy that generates a large number of trades on a daily basis, often with the use of high-speed and sophisticated computer programs for generating, routing, and executing orders.

I

indemnification. Indemnification allows independent directors to be paid from fund assets for legal expenses and other financial liabilities they may incur as defendants or non-party witnesses in fund-related proceedings. Indemnification also allows independent directors to receive advancements from fund assets to cover their legal and associated expenses as those expenses are incurred by them during the course of the underlying proceedings. Because funds typically have minimal risk of insolvency, indemnification generally affords even stronger protection to independent directors of funds than to directors of operating companies.

independent chair. Independent director who serves as chair of the fund’s board of directors. 

independent director. A fund director who meets a number of specific requirements under the Investment Company Act of 1940. In general, under the 1940 Act, an independent director cannot currently have, or at any time during the previous two years have had, a significant business relationship with the fund’s adviser, principal underwriter (distributor), or affiliates. An independent director also cannot own any stock of the investment adviser (or subadviser) or certain related entities, such as parent companies or subsidiaries.

independent directors liability (IDL) policy. IDL insurance is stand-alone liability coverage that affords protection solely to independent directors, and is designed to supplement the liability protections afforded to them by fund indemnification and by D&O/E&O insurance. IDL policies typically respond to non-indemnifiable exposures of independent directors; some IDL policies also respond to indemnifiable exposures of independent directors.

independent lead director. Independent director who serves as the lead director of the independent directors on a fund’s board.

independent legal counsel. Legal counsel to a fund board’s independent directors that does not also represent the fund’s adviser or other service providers (except in the case of a special determination by the independent directors). SEC rules under the Investment Company Act of 1940 define independent legal counsel and require that such counsel meet certain specified conditions.

independent public accountant. The entity that audits a fund’s financial statements. As part of the audit, the independent public accountant must consider the fund’s internal control over financial reporting, including controls for safeguarding the fund’s securities. The independent public accountant reports to the board’s audit committee.

individual retirement account (IRA). A tax-advantaged account set up by or for an individual to hold and invest funds for retirement.

interested director. Fund board director who is affiliated with the adviser or otherwise does not meet the independence standards for an independent director.

intermediary. Broker-dealers, fund supermarkets, banks, retirement plan administrators, financial advisers, and others that operate platforms through which investors buy and sell fund shares.

interval fund. Closed-end funds that differ from traditional closed-end funds because their securities are subject to periodic repurchase offers by the interval fund at net asset value. Interval funds also may differ from traditional closed-end funds by offering their shares continuously at net asset value.

intraday indicative value (IIV). A real-time estimate of the intraday value of an exchange-traded fund (ETF). Typically, third-party providers calculate and disseminate this measure every 15 to 60 seconds during securities market trading hours.

investment adviser. An organization retained by an investment company to give professional advice on the fund’s investments and asset management practices. All investment advisers to registered investment companies, such as mutual funds, must be registered with the US Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940.

Investment Advisers Act of 1940. Regulates investment advisers. Requires all advisers to registered investment companies and other large advisers to register with the SEC. The Advisers Act contains provisions requiring fund advisers to meet recordkeeping, custodial, reporting, and other regulatory responsibilities.

Investment Company Act of 1940. Regulates the structure and operations of investment companies through a combination of registration and disclosure requirements and restrictions on day-to-day operations. The 1940 Act requires the registration of all investment companies with more than 100 investors. Among other things, the act addresses investment company capital structures, custody of assets, investment activities (particularly with respect to transactions with affiliates and other transactions involving potential conflicts of interest), and the duties of fund boards.

J

Jones v. Harris. A 2010 U.S. Supreme Court decision that upheld the Gartenberg standard for evaluating the merits of excessive-fees cases.

L

level load. A combination of an annual 12b-1 fee (typically 1 percent) and a contingent deferred sales load fee (also often 1 percent) imposed by funds when shares are sold within the first year after purchase. See also contingent deferred sales load and 12b-1 fee.

leverage. The use of financial instruments, such as options and futures, or borrowed capital such as margin, to increase potential returns.

lifecycle fund. See target date fund.

lifestyle fund. Mutual funds that maintain a predetermined risk level and generally use words such as “conservative,” “moderate,” or “aggressive” in their names to indicate the fund’s risk level. Also known as target risk fund.

liquidity. The ability to gain ready access to invested money. Mutual funds are liquid because their shares can be redeemed for the next computed net asset value (NAV) on any business day. In the securities market, a security is said to be liquid if the spread between bid and ask prices is narrow and reasonably sized trades can take place at those quotes.

load. See sales charge.

load fund. A mutual fund that imposes a sales charge—either when fund shares are purchased (front-end load) or redeemed (contingent deferred sales load)—or a fund that charges a 12b-1 fee greater than 0.25 percent. See also 12b-1 fee.

M

manager of managers fund. Fund strategy in which primary investment adviser selects and oversees subadvisers who make the investment decisions for the fund.

master-feeder fund. Fund structure where one fund serves as the “master fund” and any number of “feeder funds” have as their sole investment an investment in the master fund.

money market fund. A mutual fund regulated pursuant to Rule 2a-7 under the Investment Company Act of 1940 that invests in short-term, high-quality, fixed-income securities, and seeks the highest level of income consistent with preservation of capital.

multi-class fund. A fund that issues separate classes of shares representing different distribution arrangements.

multi-manager. See manager of managers fund.

N

net asset value (NAV). The per-share value of an investment company, calculated by subtracting the fund’s liabilities from the current market value of its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once daily on each day the financial markets are open.

no-load fund. A mutual fund whose shares are sold without a sales charge and without a 12b-1 fee of more than 0.25 percent per year. See also 12b-1 fee.

notional value. The economic value imputed to a derivatives transaction to calculate periodic payment obligations, based on, for example, price movement in an interest rate, currency, specified issuer, or index.

O

omnibus account. Account held by an intermediary with a fund’s transfer agent that represents an aggregation of fund shareholder accounts being serviced by the intermediary.

open-end investment company. The legal name for a mutual fund, indicating that it stands ready to redeem (buy back) its shares from investors.

operating expenses. Business costs paid from a fund’s assets. These include management fees, 12b-1 fees, and other expenses.

option. A contract that gives a buyer the right, but not the obligation, to buy or sell a specified quantity of a security, commodity, or other asset at a specific price within a specified period of time.

P

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

principal underwriter. A mutual fund underwriter enters into sales agreements with retail distributors (e.g., broker-dealers) of the mutual fund. To sell fund shares, a retail distributor must have executed a contract with a fund or its principal underwriter, which authorizes the distributor to offer and sell fund shares to the public. Generally speaking, a fund’s underwriter is not involved in the offer or sale of fund shares to investors.

profitability analysis. The profitability of the fund to the adviser is one of the Gartenberg factors that courts consider when assessing a claim about excessive advisory fees.

prospectus. The official document that describes an investment company to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees. Federal law requires that every mutual fund investor receive a prospectus. See also summary prospectus.

Public Company Accounting Oversight Board (PCAOB). Oversees the audits of public companies and broker-dealers.

R

redeem. To sell mutual fund shares back to the fund. Mutual fund shares may be redeemed on any business day. An investor receives the next computed share price, called net asset value (NAV), minus any deferred sales charge or redemption fee. A fund is required to pay redemption proceeds within seven days of receiving a redemption request from a shareholder.

redemption fee. The amount a shareholder may pay into a fund with such a fee when redeeming fund shares within a specified period of time. This fee is to cover the costs associated with the redemption or to deter market timing activity.

redemption price. The amount per share that mutual fund shareholders receive when they redeem. See redeem [link].

registered investment company. Any fund—including a mutual fund—that is registered as an investment company with the SEC under the Investment Company Act of 1940. In addition to registering as an investment company under the Investment Company Act of 1940, shares of the registered investment company must be registered under the Securities Act of 1933 (if they are offered to the public) and the investment company’s investment adviser must be registered with the SEC under the Investment Advisers Act of 1940.

regulated investment company (RIC). A fund eligible under subchapter M of the Internal Revenue Code to eliminate tax at the entity level by distributing all of its taxable income to its shareholders. To qualify as a RIC, a fund must be registered at all times during the taxable year under the Investment Company Act of 1940 and must derive at least 90 percent of its income from certain sources, including dividends, interest, and capital gains. It also must distribute at least 90 percent of the dividends and interest received.

relative return. The fund’s return as compared to the return of a benchmark (gross or net of fees).

retail money market fund. A money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. Retail money market funds are permitted under an Investment Company Act of 1940 rule to transact at a stable share price.

return. The gain or loss of a security in a particular period. It usually is quoted as a percentage.

revenue sharing. In general, payments made by a fund’s adviser or distributor out of its own resources to broker-dealers or other intermediaries for distribution and other services.

Rule 38a-1. Rule under the Investment Company Act of 1940 that requires each registered fund to adopt a compliance program that complies with certain requirements, including having a chief compliance officer for the fund.

Rule 12b-1. Rule under the Investment Company Act of 1940 that permits funds to compensate brokers and other financial intermediaries out of fund assets, subject to specific conditions, for services they provide shareholders related to the distribution of fund shares.

Rule 2a-7. Rule under the Investment Company Act of 1940 that governs money market funds.

S

sales charge. The sales fee that may be imposed on mutual fund shares that are purchased through a broker-dealer or other financial intermediary. By regulation, mutual fund sales charges are capped. Sales charges may vary depending on where the shares are acquired (e.g., a fund supermarket or a broker-dealer), the amount invested, and the fund purchased. Also known as the load.

Section 15(c). Section of the Investment Company Act of 1940 that governs the process by which a fund board approves an advisory contract. The annual advisory contract renewal process is sometimes referred to as the 15(c) process. See advisory contract renewal.

Section 36(b). Section of the Investment Company Act of 1940 stating that a fund’s adviser “shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services” paid by the fund and provides for a shareholder right of action against the adviser for “breach of fiduciary duty in respect of such compensation or payments.” Lawsuits alleging that a fund adviser charged an “excessive fee” for its advisory services are brought under Section 36(b).

sector fund. A fund that invests in a particular or specialized segment of the marketplace, such as stocks of companies in the software, healthcare, or real estate industries.

Securities Act of 1933. Requires the registration of public offerings of securities, including investment company shares, and regulates such offerings. The 1933 Act also requires that all investors receive disclosure of material information relating to the offering of securities, including a current prospectus describing the fund.

Securities and Exchange Commission (SEC). The federal agency responsible for overseeing the key participants in the securities markets, including securities exchanges, securities brokers and dealers, investment advisers, and mutual funds. 

Securities Exchange Act of 1934. Regulates the trading, purchase, and sale of securities, including investment company shares. The 1934 Act also regulates broker-dealers, including investment company principal underwriters and others that sell investment company shares, and requires them to register with the SEC.

securities lending. The lending of a security by one party to another in exchange for collateral. Funds that engage in securities lending typically lend their portfolio securities to broker-dealers, which, in turn, generally relend the securities to hedge funds and other market participant. The fund’s income from securities lending may come from fees paid to the fund by the borrowers and/or from the reinvestment of cash collateral. 

semiannual report. A report a fund sends to its shareholders that discusses the fund’s performance over the first six months of the fiscal year and identifies the securities in the fund’s portfolio on the last business day of the first six months of the fiscal year. See also annual report.

separate account. An insurance company account that is segregated or separate from the insurance company’s general assets.

series fund. A group of different mutual funds, each with its own investment objective and policies, that is structured as a single corporation or business trust.

service provider. Entities that provide services to a fund, including the fund’s administrator, custodian, fund accounting agent, and transfer agent.

share classes. Some mutual funds offer investors different types of shares known as classes (e.g., Class A, institutional shares). Each class will invest in the same portfolio of securities and will have the same investment objectives and policies, but each class will have different shareholder services and/or distribution arrangements with different fees and expenses and, therefore, different performance results.

Side A coverage. As relevant to fund independent directors, Side A coverage—often referred to as direct coverage—allows independent directors to be paid directly from D&O insurance for losses (e.g., legal expenses or other covered liabilities) that they incur where fund indemnification is otherwise unavailable to them (e.g., in claims where losses cannot be legally indemnified by the fund or where the fund is financially unable to indemnify the directors due to the fund’s bankruptcy or its receivership). This coverage is rarely implicated in actual fund industry claims involving independent directors, as it is uncommon for financial or legal restrictions to prevent funds from indemnifying their independent directors. Compare with Side B coverage. 

Side B coverage. As relevant to fund independent directors, Side B coverage—often referred to as company reimbursement coverage—allows funds to be paid from D&O insurance for amounts payable by the funds to indemnify their independent directors for losses (e.g., legal expenses or other covered liabilities) that they incur. This coverage is the one that commonly responds in actual fund industry claims involving independent directors. Compare with Side A coverage. 

soft dollars. A practice in which fund advisers use brokerage commissions generated by their fund’s securities transactions to pay for research and related services from broker-dealers. 

sponsor. A company or financial institution that creates a fund and determines its investment objective. When a new fund is launched, the fund sponsor (often an investment adviser) typically is the initial and sole shareholder of the new fund and elects the initial slate of directors.

standard deviation. A measure of the variability of a data set (including a data set of investment returns). A low standard deviation indicates that the data points tend to be very close to the same value (the mean), while a high standard deviation indicates that the data are spread out over a large range of values.

statement of additional information (SAI). The supplementary document to a prospectus that contains more detailed information about a fund; also known as “Part B” of the fund’s SEC registration statement.

subadviser. An investment adviser that manages a portion or all of a fund’s portfolio, while the fund’s primary adviser oversees and monitors the subadviser.

summary prospectus. SEC rules permit mutual funds to provide their investors with a brief summary (generally three to four pages) of key fund information instead of the fund’s long-form, statutory prospectus if they make the statutory prospectus available online or by mail upon request and meet certain additional conditions. See also prospectus.

swap. The exchange of one asset or liability for another asset or liability. Swaps are structured and transacted over-the-counter.

T

target date fund. Funds designed to satisfy their investors’ investment objective by a particular target date, which is usually included in the name of the fund. Also known as lifecycle fund.

target risk fund. See lifestyle fund.

total net assets. The total amount of assets, less any liabilities, a fund holds as of a certain date.

total return. A measure of a fund’s performance that encompasses all elements of return: dividends, capital gains distributions, and changes in net asset value (NAV). Total return is the change in value of an investment over a given period, assuming reinvestment of any dividends and capital gains distributions, expressed as a percentage of the initial investment.

tracking error. Often measured as the standard deviation of the relative return; that is, the standard deviation of the difference between the benchmark return and the fund return. Tracking error measures active return—the impact of differences in holdings and returns of the fund’s portfolio versus the benchmark.

transfer agent. A transfer agent is the entity within a fund complex that maintains all shareholder account records, processes all transactions effected by shareholders, and provides shareholders who own shares directly with the fund communications regarding the fund or the shareholder’s account. Typically, when a mutual fund shareholder contacts the fund to discuss the shareholder’s account, it is the transfer agent that handles such inquiries. The transfer agent must be registered with the SEC under the Securities Exchange Act of 1934.

12b-1 fee. A mutual fund fee, named for the SEC rule that permits it, used to pay distribution costs such as compensation to financial advisers for initial and ongoing assistance.

U

underwriter. See principal underwriter.

unitary board. A board structure in which a single board of directors oversees all of the investment companies (and associated portfolios) at a fund complex.

unit investment trust (UIT). A type of fund that blends characteristics of mutual funds and closed-end funds. Like mutual funds, UITs issue redeemable shares. Like closed-end funds, however, UITs typically issue only a specific, fixed number of shares. A UIT does not actively trade its investment portfolio. Instead it buys and holds a fixed portfolio of securities until the UIT’s set termination date, at which time the trust is dissolved and proceeds are paid to shareholders.

V

variable annuity. An investment contract sold by an insurance company. Capital is accumulated, often through mutual fund investments, with the option to convert to an income stream in retirement.

W

withdrawal plan. A fund service allowing shareholders to receive income or principal payments from their fund account at regular intervals.

Y

yield. A measure of income (dividends and interest) earned by the securities in a fund’s portfolio less the fund’s expenses during a specified period. A fund’s yield is expressed as a percentage of the maximum offering price per share on a specified date.