A

Advisor:

The organization employed by a mutual fund to give professional advice on the fund's investments and asset management practices.

Aggressive Growth Funds:

Seek maximum capital gains, often by investing in shares of companies with earnings and profits that grow at a rapid rate. Degree of investment risk: high.

Alternative Minimum Tax (AMT):

A federal tax that ensures high-income individuals pay a fair amount of income tax.

Angel:

A wealthy individual who invests in entrepreneurial firms committing his/her own capital rather than investing on others behalf.

Annual and Semiannual Reports:

Sent to shareholders to discuss recent fund performance and lists all the securities in a fund's portfolio as of the end of the reporting period.

Asset Allocation:

Investment strategy whereby investors diversify assets among stocks, bonds and money market investments. Purpose: to reduce investment risk.

Automated Clearinghouse (ACH):

The electronic funds transfer network that enables you to make a direct transfer of money from your bank account to your mutual fund, provided your bank participates in the ACH.

Automatic Reinvestment Plan:

An option whereby a shareholder, instead of receiving cash payments, elects to have all income and capital gains distributions from an account used to purchase additional fund shares. Even though reinvested, the distributions may be tax-reportable events.

Average Annual Total Return:

How much an investment has grown over a specified period of time. It's calculated by measuring the sum of all dividends and capital gains and is expressed as a percentage of the Fund's average net assets. This return assumes reinvestment of all distributions as well as the change in the price of the Fund's shares.

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Back-End Load:

A sales charge levied at the time of redemption. It declines annually to zero over an extended holding period.

Balanced Funds:

Seek both growth and income through a portfolio that includes stocks and bonds. Degree of investment risk: moderate.

Bank of Record:

Bank designated by the shareholder to which redemptions from the account can be wired or mailed.

Bid Price:

The price at which shares of a mutual fund are redeemed by the fund, usually the fund's net asset value per share. This amount may be reduced by a contingent deferred sales charge. Also called the redemption price.

Bear Market:

A prolonged period of falling stock prices.

Blue Chip Stocks:

Stocks of financially stable, well-established companies that have historically demonstrated their ability to pay dividends in both good and bad times. Degree of investment risk: moderate.

Bond:

A certificate of debt usually issued by a government or corporation guaranteeing payment of original principal plus interest by a specified future date.

Bond Funds:

Invest in debt securities issued by corporations or governments. Typically pays monthly dividends. Degree of investment risk: moderate to low.

Bond Rating:

An evaluation of the financial strength of a bond issuer. Ratings range from AAA (highly unlikely to default) to D (in default). Standard & Poor's and Moody's Investor Service are examples of two rating services.

Bull Market:

A prolonged period of rising stock market prices.

Buyouts:

A transaction to acquire a company or business from either a public or private entity. In many cases, companies that result from buyouts are private entities owned in part by their managers.

• Leveraged Buyout (LBO) A buyout that utilizes a significant amount of debt and perhaps very little equity.
• Management Buyout (MBO) A buyout led by the internal, existing management team with a financial backer
• Management Buy In (MBI) A buyout led by an external management team with a financial backer
• Buy In Management Buy Out (BIMBO) A buyout led by an entrepreneur alongside an existing management team with a financial backer

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Capital Call:

The payment to the Fund an amount of capital as requested by the General Partner (GP) based on a percentage of your total commitment. Capital Calls are also knows as "takedowns", "paid-in capital", or "draw-downs".

Capital Gain or Loss:

Net profits or losses from the sale of securities in the portfolio.

Capital Gains Distribution:

A taxable distribution paid to shareholders when any investments in their mutual fund's portfolio are sold at a profit. Realized Capital Gains are when stock or bond holdings are sold at a profit. Unrealized Capital Gains represent an increase in the market value of a mutual fund.

Certificate of Deposit (CD):

Short-term investments issued by banks that pay fixed principal and interest over a specified period of time. Unlike mutual funds, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000. CDs are subject to fluctuating rollover rates and early withdrawal penalties.

Certified Financial Planner:

Person who has passed examinations accredited by the Denver-based Institute of Certified Financial Planners, testing the ability to coordinate a client's banking, estate, insurance, investment, and tax affairs. (See Financial Planner.)

Class A, B and C Shares:

A way of providing multiple purchase options to investors. Class A shares of a mutual fund typically require payment of a sales charge at the time of purchase (front end). Class B shares typically require payment of a contingent deferred sales charge at time of redemption (back end). Class C shares typically impose 12b-1 and service fees in lieu of either front-end or back-end sales charges.

Commercial Paper:

Commonly used as a money market instrument, commercial paper is an unsecured, short-term promissory note issued by a corporation. Degree of investment risk: low.

Compounding:

Interest, dividends or capital gains accrued on both an original investment and its reinvested earnings. When earnings are reinvested, you buy additional shares, which, in turn purchase even more shares.

Confirm:

An acknowledgment sent to a mutual fund shareholder after each account transaction (purchase, sale, etc.) that reflects the details of that transaction.

Consumer Price Index (CPI):

Commonly used as a measure of inflation, the CPI is the monthly change in consumer prices (e.g., housing costs, food, transportation and utilities) determined by the U.S. Bureau of Labor Statistics.

Contingent Deferred Sale Charge (CDSC):

Sales charge paid at the time of redemption. Typically declines to zero after a specified period of time.

Correlation:

The degree to which a pair of investments moves in the same direction with the same impact on performance. A perfectly correlated pair of investments has a correlation factor of 1.00. A random correlation (no linkage) is zero. A negative correlation means performance moves in opposite directions.

Cost Basis:

The original share price–including any commissions or fees–used in determining capital gains or losses when the shares are sold.

Cumulative Total Return:

Measures the total rise in the value of a fund's shares over time and assumes dividends and capital gains distributions were reinvested.

CUSIP Numbers:

Identification numbers and codes assigned to securities for trading purposes. CUSIP stands for the Committee on Uniform Securities Identification Procedures.

Custodian:

A bank or other financial institution that maintains custody of assets for a mutual fund.

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Direct Investments:

Privately negotiated transactions made between a sponsor such as Invesco Private Capital and a venture or entrepreneur.

Distribution:

Payments to investors after the realization of investments of the partnership. Stock distributions are sometimes referred to as "in kind" or "specie" distributions.

Diversification:

Investment strategy of spreading investments among a wide variety of securities, thus reducing the impact of any one security on overall portfolio performance.

Dividend:

A distribution of a corporation's earnings.

Dividend Yield:

The annual rate of return on a common or preferred stock investment.

Dollar-Cost Averaging:

Regularly investing the same amount of money at fixed time intervals in both up and down markets. Rationale: over time, you'll buy fewer shares when the price is up but more shares when the price is down. This plan does not assure profits or protect against losses in declining markets. Investors should consider their ability to invest over the long term, which could include periods of low share prices.

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Early Stage:

Provision of equity capital to initiate commercial manufacturing and sales in companies that have completed the product development stage, but may not yet be generating profits.

Equity-Income Funds:

Invests primarily in stocks of companies with stable dividend-paying records. Degree of investment risk: moderate.

Exchange Privilege:

Enables mutual fund shareholders to transfer their investment from one fund to another within the same fund family.

Ex-Dividend Date:

The first day buyers of a security are not entitled to receive distributions previously declared, usually four business days before the record date.

Expansion:

Provision of equity capital to grow and expand an established company. For example, to finance increased production capacity, product development, marketing and to provide additional working capital. Also known as "development" or "growth" capital.

Expense Ratio:

A fund's costs of doing business as a percent of its assets; it is quoted in the prospectus.

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Federal Deposit Insurance Corporation (FDIC):

The government agency that provides deposit insurance for member banks and insures certificates of deposit (CDs) and passbook deposits for up to $100,000.

Fiduciary:

A person legally appointed and authorized to hold and manage assets in trust for another person.

Financial Advisor:

A licensed professional who can help with a variety of issues such as retirement planning, investing and, if qualified to do so, insurance. Click here to learn more about Choosing a Financial Advisor. See also Certified Financial Planner.

Financial Planner:

A professional who analyzes personal financial circumstances and prepares a program to meet financial needs and objectives. May or may not be certified by the Institute of Certified Financial Planners. See Certified Financial Planner.

Fiscal Year-End:

The time when a corporation closes its books and determines a profit or loss.

Fixed-Income Security:

A security that pays a fixed rate of return, such as a bond or note. Degree of investment risk: moderate to low.

401(k) Plan:

Employer-sponsored, qualified plan that permits employees to make pretax contributions from their salaries. Contributions and earnings grow tax deferred until withdrawn. Withdrawals are taxed at your income tax rate.

403(b) Plan:

A pre-tax salary deferral plan for employees of nonprofit organizations, public schools and churches. Employees can contribute a portion of their salary into a mutual fund or an annuity, and contributions and earnings grow tax-deferred until withdrawn when they're taxed at your income tax rate.

Front-End Load:

A sales charge levied at the time of purchase. (see Class A, B and C Shares)

Fund:

A pool of capital raised by Private Equity organizations.

Fund Age:

The age of a fund (in years) from its first takedown to the time an IRR is calculated.

Fund-of-Funds:

A vehicle through which the capital of private investors is pooled to participate in a variety of venture partnerships, each with different general partners, strategies and styles. A major benefit of this approach is diversification. Terms of each investment are privately negotiated between the fund organizer and general partners.

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Gatekeepers:

Specialist advisers that assist institutional investors in their allocation decisions to private equity.

General Partner (GP):

The entity who responsible for management of a fund, usually a partnership. Typically, each GP bears full risk for partnership debts and liabilities, while making a small contribution of capital.

Global Funds:

Invest primarily in securities of both U.S. and foreign companies. Degree of investment risk: high.

Growth and Income Funds:

Invest primarily in common stocks of companies with long track records and have both the potential for higher share value and a solid record of paying dividends. Degree of investment risk: moderate.

Growth Funds:

Invest in equity securities of companies expected to increase in value more rapidly than the overall market. Degree of investment risk: high.

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There are no glossary entries for this letter.

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Income Funds:

Seek a high level of monthly income with relative stability of principal. Degree of investment risk: moderate to low.

Index:

A hypothetical investment portfolio, the returns of which are used as a benchmark to measure relative market performance. An investment cannot be made directly in an index.

Individual Retirement Account (IRA):

A retirement investing tool for employed individuals that allows an annual contribution of 100% of earned income up to a maximum of $2,000. (Nonworking spouses may also contribute up to $2,000.) Some or all of the contribution may be deductible from current taxes, depending on the individual's adjusted gross income and coverage by employee-sponsored qualified retirement plans.

Inflation:

Rise in the price of goods and services that results from spending increases relative to the supply of goods. The Consumer Price Index (CPI) is commonly used as a measure of inflation.

Initial Public Offering (IPO):

The public sale or distribution of stock by a company for the first time. From the IPO forward, the company becomes "public" and must meet SEC disclosure and reporting requirements of public companies.

Internal Rate of Return (IRR):

The most widely accepted measure for calculating private equity performance. This calculation is based on the cash flows made by investors to and from the fund. The cash flows are based on cash-in/cash-out returns over time, modified to include the residual value of the private equity fund's portfolio holdings.

International Funds:

Invest in stocks of companies located outside the U.S. Degree of investment risk: high.

Investment Adviser:

Any person who makes investment recommendations in return for a flat fee or percentage of assets managed.

Investment Company:

A company engaged in the business of pooling investors' money and trading in securities for them. The best-known investment companies are mutual funds.

Investment Representative:

See Financial Advisor.

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Joint Tenants in Common (JTIC):

A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account is retained by his estate.

Joint Tenants with Right of Survivorship (JTWROS):

A form of joint ownership that stipulates that a deceased tenant's interest in the account passes to the surviving tenants(s).

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There are no glossary entries for this letter.

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Letter of Intent (LOI):

A signed agreement allowing an investor to buy front-load mutual fund shares at a lower overall sales charge, based on the total dollar amount of the intended investment.

The entity in a limited partnership that invests capital but does not participate in management. Typically, a limited partner's risk is limited to capital contributions plus any personal debt obligations agreed to (but not other debts or liabilities of the partnership).

Liquidity:

The ease with which an asset can be converted to cash.

Long-Term Gain or Loss:

Gain or loss on the sale or exchange of an asset held for more than 12 months.

Lump-Sum Distribution:

The entire amount in an employer's retirement plan that is paid out within one tax year due to termination of employment, retirement or disability. (See Rollover.)

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Management Fee:

The management Fee is the fee that the GP charges LPs for making, monitoring and exiting investments made by the Fund.

Market Capitalization:

The total value of a company's outstanding stock. Market capitalization is used to measure corporate size and is calculated by multiplying the number of outstanding shares by the current market price of the stock.

Market Timing:

An often perilous investment practice based on predicting market cycles. The aim is to anticipate the market trend by buying before share prices go up and selling before prices go down.

Mezzanine Debt:

Either (1) a venture capital financing round shortly before an initial public offering or (2) an investment that employs subordinated debt that has fewer privileges than bank debt but more than equity and usually has attached warrants.

Money Market Funds:

Invest in short-term securities, such as Treasury bills and commercial paper. Degree of investment risk: low.

Municipal Bond Funds:

Invest in bonds issued by local governments–such as cities, counties and states–that use the money for public projects like building schools, highways or libraries. Degree of investment risk: moderate to low.

Mutual Fund:

A professionally managed, diversified investment that enables you to pool your money with other investors. A diversified investment such as a mutual fund may make you less vulnerable to a major decline in any one market or sector than ownership of a single security.

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National Association of Securities Dealers (NASD):

The self-regulatory organization with authority over firms that distribute mutual funds and other securities.

Net Asset Value (NAV):

The value of a mutual fund share calculated once a day, based on the closing market price for each security in the fund's portfolio.

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Offering Price:

The price at which one share of a mutual fund may be purchased; it is net asset value per share plus the maximum applicable sales charge.

Operating Expenses:

The day-to-day costs of running a business paid from a fund's assets before earnings are distributed to shareholders. (See Expense Ratio.)

Open-End Investment Company:

An investment company that continuously offers new shares in an actively managed portfolio of securities.

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Payable Date:

The day a declared dividend is paid to all stockholders owning shares on the record date.

Portfolio Management Team:

Responsible for investing a mutual fund's assets, implementing its investment strategy and managing the day-to-day portfolio trading.

Pre-Authorized Check Transaction:

Investment plan in which a shareholder authorizes the fund to periodically take money out of the shareholder's bank account and use it to buy shares. This purchasing plan is a form of dollar-cost averaging, which involves regularly investing the same amount of money at fixed intervals in both up and down markets. Fewer shares are purchased when the price is up and more shares when the price is down. This plan does not assure profits or protect against losses in declining markets. Investors should consider their ability to invest over the long term that could include periods of low share prices.

Prospectus:

The legal document that explains the fund's investment objective, costs, and performance history. It is given to every investor who purchases mutual fund shares.

Proxy Statement:

Written authorization through which a shareholder allows another person to vote on fund issues according to the shareholder's instructions. To vote on fund issues, a shareholder must either attend the annual meeting or vote by proxy.

Public Offering Price (POP):

The net asset value plus the sales charge of a front-end load mutual fund.

Public to Private:

The purchase of a listed company's quoted shares using a special purpose vehicle (SPV) funded with a mixture of debt and unquoted equity.

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There are no glossary entries for this letter.

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Record Date:

The date that determines which shareholders are entitled to receive dividends or capital gains declared by the fund.

Redemption:

How a shareholder sells his or her mutual fund shares back to the fund.

Reinvestment:

An option whereby dividend and capital gains distributions automatically purchase new fund shares.

Refinancing Bank Debt:

To replace or reduce a company's level of gearing.

Retirement Plans –

Qualified: A corporate retirement plan that meets the standards set by the Employee Retirement Income Security Act of 1974. Contributions to a qualified plan are tax deductible.

Nonqualified: A corporate retirement plan that does not meet the standards set by the Employee Retirement Income Security Act of 1974. Contributions to a nonqualified plan are not tax deductible.

Return of Capital (ROC):

A nontaxable distribution to shareholders that reduces their cost basis. In general, a return of capital results when a fund distributes more income and gains during a year than it has actually earned.

Return on Investment (ROI):

The profit or loss resulting from a security transaction, often expressed as an annual percentage rate.

Right of Accumulation:

Allows shareholders to qualify for reduced sales charges on additional mutual fund purchases of front-end load mutual fund shares.

Rollover:

The transfer of funds from one qualified retirement plan to another qualified retirement plan within a specified period of time–otherwise the funds are taxed as ordinary income.

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Sector Funds:

Invests in a particular industry or sector of the economy. Degree of investment risk: high.

Securities and Exchange Commission:

The federal agency primarily responsible for regulating the registration and distribution of mutual funds.

Seed:

Provision of equity capital to allow a business concept to be developed, perhaps involving the production of a business plan, prototypes and additional research, prior to bringing a product to market and commencing large-scale manufacturing.

Shareholder:

One who owns mutual fund shares.

Shares:

Proportional ownership in a mutual fund or a "pool" of investors' money.

Signature Guarantee:

A stamped or typed assurance by a financial institution that a particular signature is valid. A notary cannot provide a signature guarantee. Acceptable guarantors include commercial banks that are members of the FDIC, trust companies, savings and loan associations whose deposits are insured by a federal agency, or member firms (broker/dealers) of a national securities exchange.

Simplified Employee Pension Plan (SEP):

A tax-deferred retirement plan for small businesses.

Small-Cap Stock:

Refers to stock of a company whose total market capitalization is less than $250 million. Degree of investment risk: high.

Start-Up:

Provision of equity capital to develop the company's products and fund their initial marketing.

Statement of Additional Information (SAI):

A supplement to the information contained in a mutual fund's prospectus.

Stock:

Written evidence of ownership in a company.

Stockbroker:

Person who gives advice on which securities to buy and sell. Generally collects a percentage of the total transaction as a commission.

Syndication:

The joint purchase of shares by two or more private equity organizations or the joint underwriting of an offering by two or more investment banks.

Systematic Withdrawal Plan:

Periodic withdrawal from a mutual fund of a fixed amount of money. The appropriate number of shares are liquidated to generate this fixed amount.

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Tax Bracket:

The marginal tax rate paid on the last dollar earned. The federal government calculates the income-range percentages–or brackets–for single and married people.

Tax-Deferred:

Contributions made to qualified retirement accounts may grow and accumulate earnings without being taxed. Taxes on such earnings are deferred until the money is withdrawn.

Tax-Free Funds:

Invest primarily in municipal securities to provide federally tax-free income.

Total Return:

A measure of performance that takes into account all three components of an investment's performance–dividends, capital gains, and price appreciation.

Transfer Agent:

The organization employed by a mutual fund to prepare and maintain records relating to the accounts of its shareholders.

Treasury Bill (T-bill):

A U.S. government short-term obligation of one year or less. Degree of risk: low.

Treasury Bond:

A fixed-interest U.S. government obligation with a maturity of more than ten years. Degree of risk: low.

Treasury Note:

A fixed-interest U.S. government obligation with a maturity of between one and ten years. Degree of risk: low.

12b-1 Fees:

Asset-based charges to shareholders that support a mutual fund's marketing and distribution efforts.

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U.S. Government Funds:

Invest in a variety of government securities, which include U.S. Treasury bonds, federally guaranteed mortgage-backed securities, and other government issues. Although these government securities are guaranteed, mutual fund shares are not insured, and their value and yield will vary with market conditions. Degree of investment risk: low.

U.S. Government Security:

A debt obligation of the U.S. government, backed by its full faith, credit and taxing power, and regarded as having no risk of default.

Underwriter:

The organization acting as the distributor of a mutual fund's shares to broker/dealers and/or investors.

Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA):

Legislation that permits monetary gifts or securities to be given to a minor and held in a custodial account that is managed by an adult for the minor's benefit.

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Variable Annuity:

A tax-deferred investment that offers diversification, flexibility, and important estate benefits. Variable annuities are often used as a supplement to 401(k) and IRA retirement savings vehicles because there are no contribution limits.

Venture Economics All Private Index:

A benchmark published by Thomson Financial Securities Data's Venture Economics Group that measures performance of private capital only.

Venture Economics Composite Index:

A widely used benchmark for a mix of venture partnerships and pools, published by Thomson Financial Securities Data's Venture Economics Group. For more on the group's methodology, see http://www.ventureeconomics.com/

Vintage Year:

The year of a private capital investment program's formation. A venture program may not invest some of its capital for 3-5 years. However, since investors give up use of capital in the vintage year, this is the year used for measuring returns on private capital.

Volatility:

A typical measure of risk in a mutual fund. Investments may fluctuate with the general market's "ups" and "downs," due to events such as changes in interest rates, unemployment and general economic health.

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Wash Sale:

Sale of a security such as a mutual fund at a capital loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS will disallow the claimed loss.

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There are no glossary entries for this letter.

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Yield:

The rate of return on a security, calculated by dividing the interest or dividends paid by the security's price, usually expressed as an annual percentage rate. Types of yield include nominal yield, current yield, yield to maturity, and yield to call. Their relationships vary.

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There are no glossary entries for this letter.

Sources:

The America Online Money Guide, Gus Venditto, Que Corporation, 1996.
Dictionary of Finance and Investment Terms, John Downs and Jordan Elliot Goodman, Barron's Educational Series, Inc., 1991.
Mutual Funds for Dummies, Eric Tyson, IDG Books Worldwide, 1996.
PASSTRAK Series 6 Principles & Practices, Dearborn Financial Publishing, Inc., 17th Editions, 1996.
PASSTRAK Series 6 Principles & Practices, Dearborn Financial Publishing, Inc., 16th Editions, 1994.
Taxes for Dummies, Eric Tyson and David J. Silverman, IDG Books Worldwide, 1996.