The amount of any capital gains and/or dividends is identified on IRS form 1099-DIV. The amount of any redemption distributed to the shareholder each year is reported on 1099-B (taxable accounts) or 1099-R (IRA accounts).
A mutual fund fee, named for the SEC rule that permits it, used to pay for broker-dealer compensation and other distribution costs. If a fund has a 12b-1 fee, it will be disclosed in the fee table of a fund's prospectus.
3-Month U.S. Treasury Bills
90-day Treasury Bills are debt obligations issued by the U.S. government with a maturity of 90 days.
A retirement plan that allows employees to contribute a before-tax portion of their salary. Employers can match employee contributions in whole or in part.
A retirement plan that allows employees to contribute a before-tax portion of their salary. This plan is available to government and non-profit employees such as teachers.
5498 Tax Form
Reports the amount of IRA Contributions, Rollover Contributions, Recharacterizations and Conversions made by the shareholder each year and the Fair Market Value.
An active participant is an individual who is a participant in a qualified pension, profit sharing or stock bonus plan; a qualified annuity; a SEP plan; a SIMPLE plan; a tax sheltered annuity; any plan described in IRC Sec 501(c)(18); or a plan established for its employees by the U.S, by a state or political subdivision or by an agency or instrumentality of the U.S. or a state or political subdivision (other than a plan under IRC Sec 457).
Adjusted Gross Income (AGI)
Adjusted gross income is determined when a taxpayer calculates income tax liability on his or her federal income tax return. AGI is determined by adding all sources of income such as wages and interest income and subtracting certain deductions and adjustments to income.
Adjusted Trailing P/E Ratio
Adjusted Trailing P/E Ratio is the closing stock price divided by the last 12 months of actual earnings per share.
American Depositary Receipt (ADR)
An American Depositary Receipt (ADR) is a negotiable certificate issued by a US Bank representing a specified number of shares in a foreign stock traded on a US exchange.
Average Market Capitalization
Market capitalization is calculated by multiplying the number of a portfolio company's shares outstanding by its price per share. The average market capitalization of a fund's equity portfolio provides a measure of the size of the companies in which the fund invests.
Average Market Coupon (Weighted Average Coupon)
A calculation of the fund's portfolio holdings derived by weighting the coupon of each bond by its relative size in the portfolio.
Each natural person, if any, who, directly or indirectly, through any contract or relationship, owns 25% or more of the equity interests of a legal entity customer; and a single individual with significant responsibility for managing a legal entity customer (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer).
Beta vs. Fund Index
Beta is a measure of market-related risk. The beta of every index is 1.00, no matter how volatile the index is. A beta less than one means the portfolio is less volatile than the index. A beta higher than one indicates more volatility than the index.
Bottom-Up Equity Management Style
A management style that de-emphasizes the significance of economic and market cycles, focusing instead on the analysis of individual stocks.
Identification number assigned to every stock, corporate bond and municipal bond by the Committee on Uniform Securities Identification Procedures (CUSIP), which is established by the American Bankers Association.
Capital Gains Distribution
Profits distributed to shareholders resulting from the sale of securities held in the fund's portfolio.
A contribution made to a Roth or Traditional IRA between January 1 and April 15 for the prior tax year is called a carry-back contribution.
Catch Up Contribution
Individuals age 50 and older may make an additional contribution over the maximum annual limit to Traditional IRAs and Roth IRAs. The maximum catch up contribution limit is $1,000 for tax year 2019. Income limits apply.
There are two definitions of commingling for IRA purposes. The first definition involves IRA assets being combined with assets from a different type of savings plan. Commingling of IRA assets with non-IRA assets is prohibited. The second definition involves IRA assets being combined with assets from another type of plan that is eligible to be rolled over to an IRA. This type of commingling is not prohibited; however, it may affect the tax options available for the qualified retirement plan assets that were commingled with the IRA assets.
Compensation typically includes base salary, commissions, bonuses, overtime and vacation pay. For self-employed individuals, compensation is based on net earnings from self-employment.
The second-named person, estate, or trust specified by the shareholder who will receive the proceeds of a retirement account if all primary beneficiaries are deceased at the time the assets are to be paid.
A contribution is a purchase into an IRA or other retirement plan for a particular tax year. Contributions are subject to annual limitations, depending on the type of contribution.
A conversion is a taxable movement of cash or other assets from a Traditional IRA to a Roth IRA. A conversion is a reportable transaction.
Convertible Average Price
Convertible Average Price reflects the average market price of the convertible securities held in the portfolio.
Credit Risk is the possibility that a bond issuer may not be able to pay interest and repay its debt.
A direct rollover is a means of moving an eligible rollover distribution directly from one eligible employer-sponsored retirement plan to another eligible employer-sponsored retirement plan or to an IRA. Since the participant does not have constructive receipt of the assets, federal income tax withholding is avoided.
The disclosure statement must explain in plain language the rules that govern an IRA. Anyone who opens an IRA must receive a current disclosure statement.
Diversification is the practice of investing broadly across a number of securities to reduce risk.
Duration is a common gauge of the price sensitivity of a debt security, or the aggregate market value of a portfolio of debt securities, to a change in interest rates.
Distributions taken from a Traditional or Roth IRA before age 59½ are called early distributions. Early distributions are usually subject to a 10% early distribution penalty, unless an exception applies.
Earnings Growth Rate
The compounded annualized rate of growth of a company's net income.
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
With many of its provisions effective in 2002, EGTRRA brought about some of the most substantial changes to IRAs, IRA-related plans, and employee-sponsored retirement plans in over 15 years. Increased contribution limits and asset portability between various plan types are two of the most beneficial changes.
The date on which a fund's net asset value will fall by an amount equal to the dividend and/or capital gains distribution.
The amount of an IRA contribution exceeding the allowable limits is an excess contribution. If an excess contribution is not properly corrected, a 6% IRS penalty per year applies until corrected.
The fund's total annual operating expenses (including management fees, distribution (12b-1) fees and other expenses) expressed as a percentage of average net assets.
Family of Funds
A group of mutual funds, each typically with its own investment objective, managed and distributed by the same company.
A first time homebuyer is an individual (and the individual's spouse) who had no present ownership interest in a principal residence during the two-year period ending on the date of acquisition of the principal residence.
Forecasted P/E Ratio
Forecasted P/E Ratio is the closing stock price divided by the sum of the next four quarters' estimated earnings per share.
Global Depositary Receipt (GDR)
A Global Depositary Receipt (GDR) is a bank certificate issued in more than one country for shares in a foreign country. The shares are held by a foreign branch of an international bank.
A high-yield bond, also known as a junk bond, is issued by a company judged likely, relative to stronger companies, to default by failing to make interest and principal payments on schedule. A high-yield bond will trade at a yield that is high relative to the yields of better-quality bonds of comparable maturity.
The date on which the fund commenced operations.
An unmanaged group of securities whose overall performance is used as a benchmark. An index may be broad or focus on one sector or type of security. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value.
Distribution(s) from a retirement account to be "rolled over" to a new IRA within 60 days; differs from a transfer in that the money is sent to the participant and not the new trustee.
Investment objective is the goal that an investor and mutual fund pursue together (e.g., current income, long-term capital growth, etc.)
An investment-grade bond has a maturity rating of BAA or higher from Moody's Investors Services, a rating of BBB or higher from Standard & Poor's, or both.
Legal Entity Customer
A corporation, a limited liability company, a general partnership, a statutory trust, an established non-profit corporation or any similar business entity formed in the United States or a foreign country.
The number of years an individual is expected to live based on his or her current age is the life expectancy of the individual.
Median Market Cap
An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund's stocks, weighted by the proportion of the fund's assets invested in each stock. Stocks representing half of the fund's assets have market capitalizations above the median, and the rest are below it.
Modified Adjusted Gross Income (MAGI)
MAGI for determining eligibility to make a Roth IRA contribution is an individual's AGI from his or her federal income tax return with certain modifications. For most taxpayers, MAGI will be the same as their AGI. MAGI for a Roth IRA is AGI, with the following added back: Income from US Savings Bonds used to pay higher education; foreign earned-income exclusion; foreign housing exclusion or deduction; half of Social Security or tier 1 railroad retirement benefits; passive activity losses and credits limited; employer reimbursed adoption expenses. The MAGI of an individual does not affect his or her ability to make a Traditional IRA contribution. The MAGI of an individual who is an active participant in an employer-sponsored retirement plan may affect his or her ability to deduct a Traditional IRA contribution.
Net Asset Value (NAV)
The per-share value of a mutual fund can be calculated by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once each business day.
Net Income Attributable
The amount of income earned by an excess contribution to an IRA is the net income attributable (NIA). To determine the NIA, the amount of the excess contribution is multiplied by the amount of the total earnings on the IRA and then the product is divided by the total account balance.
A mutual fund selling shares without a sales commission and without a 12b-1 fee of more than .25 percent per year.
A nondeductible contribution is a contribution made to a Traditional IRA and designated by a Traditional IRA shareholder as nondeductible either by choice or because of ineligibility to make a deductible contribution. A deduction is not taken for this contribution. If a nondeductible contribution is made, you must file a Form 8606: Nondeductible IRAs.
Omnibus accounts hold funds for multiple people or entities. Many omnibus accounts hold the funds of retirement plans for a particular company or entity and therefore trade on behalf of many people at once. Omnibus accounts may also be used by large intermediaries to trade on behalf of many people at once (not related to retirement funds) simply for the benefits related to recordkeeping.
Open-End Investment Company
The legal name for a mutual fund, indicating it stands ready to redeem (buy back) its shares from shareholders on any business day. Harbor Funds is an open-end investment company.
Business costs paid from a fund's assets before earnings are distributed to shareholders. These include management fees and 12b-1 fees and other expenses.
The prescribed order Roth IRA assets are deemed to be withdrawn. The first assets distributed will be considered to be a return of contributory basis amounts no matter which Roth IRA distributes the asset. Once the aggregate contributory basis assets are distributed, further distributions will draw on the conversion basis assets. Finally, when the conversion basis assets are exhausted, continued distributions will be made from the accumulated contributory and conversion earnings.
Pension Protection Act of 2006 (PPA)
The Pension Protection Act of 2006 (PPA) was signed into law on August 17, 2006. The legislation included a variety of provisions to protect savers and to boost retirement savings in IRAs and defined contribution plans (e.g., IRC Sec. 401(k) plans, profit sharing plans, and governmental 457(b) plans). PPA also made the retirement savings provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent.
Term used to describe the method of distributing assets of a deceased shareholder equally to his or her descendants. If a child is deceased at the time of the shareholder's death, the share due to that child will pass to his or her children, if any.
A specialist employed by a mutual fund's adviser to invest the fund's assets in accordance with predetermined investment objectives.
Price to Book Ratio (P/B)
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value. For a fund, the weighted average price/book ratio of the stocks it holds.
Price to Earnings Ratio (P/E)
A ratio used to compare a stock's current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company's future growth.
The first person, estate, or trust named to receive the proceeds of a retirement account upon the shareholder's death. See also Contingent Beneficiary.
Probate is a court process used to transfer property from a decedent to their named heirs in an estate.
A prohibited transaction is a transaction between a Traditional IRA, Roth IRA, Coverdell education savings account (ESA), SIMPLE IRA, or qualified retirement plan, or IRC Sec. 403(b) plan and a party in interest (referred to as a disqualified person) that is prohibited under IRC Sec. 4975. For IRAs, these actions include taking a loan from the Traditional IRA, Roth IRA, or SIMPLE IRA, pledging or assigning the Traditional IRA, Roth IRA, or SIMPLE IRA as security for a debt, investing Traditional IRA, Roth IRA, or SIMPLE IRA funds in collectibles, etc. For a qualified retirement plan or 403(b) plan, prohibited transactions include use of plan assets for the benefit of a disqualified person.
Projected Earnings Growth Rate
The estimated compounded annualized rate of growth of a company's net income over the next three to five years, based on projections from a set of external financial analysts, each using their own methodology.
The official document used to describe a mutual fund to prospective shareholders. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees.
A Roth IRA distribution is a qualified distribution if the distribution represents assets that satisfy the five-year waiting period (beginning with the first taxable year for which the Roth IRA shareholder made a contribution) and one of the following events occurs: attainment of age 59½, disability, the purchase of a first home, or death.
Qualified Retirement Plan
A qualified retirement plan is one that has been approved by the IRS and generally gets preferential tax treatment. For example, employers can deduct plan contributions made on behalf of eligible employees on the business' tax return.
REITs (Real Estate Investment Trust)
REITs invest in real estate or loans secured by real estate and issue shares in such investments. A REIT is similar to a closed-end mutual fund.
A recharacterization occurs when an individual makes a contribution to a Roth or Traditional IRA, and later moves either all or a portion of the original contribution or conversion amount, plus net income attributable (NIA), to another IRA on or before the individual's tax return due date (plus extensions) for the year for which the contribution/conversion was made. Recharacterizations are not taxable but are reported to the IRS.
A reconversion is a conversion of an amount from a Traditional IRA to a Roth IRA, where such amount had previously been converted and recharacterized.
The date a shareholder must officially own shares in order to be entitled to a dividend.
Fee charged to shareholders by a mutual fund when they sell shares within a specified period. The time limit and size of fee vary among funds. The fee is paid to the fund, not the fund's investment adviser. Its purpose is to protect long-term shareholders from short-term traders.
Redesignation (aka Carry-forward)
An individual who makes an excess contribution to a Traditional IRA for a given tax year may in some cases apply the contribution to the next tax year by means of redesignation. Redesignation does not dismiss the penalty, but allows the funds to be left in the IRA.
Repurchase Agreement (Repo)
A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to shareholders, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future), it is a repo. For the party on the other end of the transaction (buying the security and agreeing to sell in the future), it is a reverse repurchase agreement.
Required Beginning Date (RBD)
The required beginning date is generally April 1 following the year a Traditional IRA shareholder reaches age 72.
Required Minimum Distribution (RMD)
After a Traditional IRA shareholder reaches 72 a minimum amount must be distributed from the IRA every year. The mandatory distribution is called required minimum distribution (RMD). An IRA shareholder must begin taking their RMD in the year they attain 72. The IRA shareholder has the ability to delay the first year's RMD until April 1 following the year in which age 72 is attained. This date is called the required beginning date, or RBD. All RMDs in subsequent years must be taken by December 31. If an IRA shareholder defers his/her first RMD, he/she is required to take two withdrawals in the same year to satisfy the first and second year's required minimum distributions.
To determine the RMD amount for 2019, divide the year end account balance of the IRA as of December 31, 2019 by the applicable distribution period. The applicable distribution period for each IRA shareholder is a number that represents the average life expectancy remaining for an individual based on age and is determined by using IRS life expectancy tables.
Return on Equity
The amount of net income as a percentage of shareholders' equity. A measure of a company's profitability by revealing how much profit a company generates with the money shareholders have invested.
Risk/Reward (or Return)
The relationship between the degree of risk associated with an investment and its return potential. Typically, the higher the potential return of an investment, the greater the risk.
A rollover is a tax-free, reportable movement of cash or other assets between IRAs, between retirement plans, or between IRAs and eligible employer-sponsored plans.
A type of IRA that can only receive nondeductible contributions. A Roth IRA shareholder may be entitled to tax-and penalty-free distributions, provided certain rules are met.
For 2017 and 2018, the maximum you can contribute to all of your traditional and Roth IRAs is the lesser of:
$5,500 ($6,500 if you're age 50 or older), or
100% of earned income or compensation
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. The Act pushed back the age requirement for individuals that need to take an RMD from 70 ½ to 72. Additionally, the Act repeals the maximum age for traditional IRA contributions. Previously, this age limit was 70 ½ years old.
Saver's Tax Credit
The saver's credit is a nonrefundable income tax credit for certain taxpayers with a limited amount of adjusted gross income. The credit is equal to a specific percentage of certain employee contributions made to employer-sponsored retirement plans and to IRAs for taxable years 2002 and beyond. Created by EGTRRA, the saver's credit is governed by IRC Sec. 25B.
Simplified Employee Pension (SEP)
A Simplified Employee Pension plan (SEP) lets a self-employed person or business owner contribute a percentage of annual earnings (up to a maximum contribution limit per year) for each eligible employee. Contributions are tax deductible and earnings are tax deferred.
The maximum a self-employed person or business owner can contribute to an employee's SEP IRA is the lesser of:
25% of the employee's compensation,
or $54,000 for tax year 2017 and $55,000 for tax year 2018
When IRA shareholders wish to name someone other than or in addition to his or her spouse as primary beneficiary of the IRA, spousal consent is generally required in states maintaining community or marital property laws.
Spousal IRA Contribution
Spousal contributions are limited to the lesser of the annual maximum contribution limit or the couple's combined earned income less the amount contributed for the compensated spouse. To make a spousal contribution to a Traditional IRA, the IRA shareholder must be under age 72, file a joint tax return with spouse and between the IRA shareholder and spouse have earned income. To make a spousal contribution to a Roth IRA , the IRA shareholder must file a joint tax return with spouse, have earned income between the IRA shareholder and spouse, and together with spouse have MAGI within the income limits.
Statement of Additional Information (SAI)
A document used to supplement a prospectus that contains more detailed information about a mutual fund, known as "Part B" of the Registration Statement.
Substantially Equal Periodic Payment
Substantially equal periodic payments are a series of IRA or qualified retirement plan distributions that are established according to the requirements of IRC Sec. 72(t), Notice 89-25 and Revenue Ruling 2002-62. If all requirements are satisfied, an IRA shareholder or plan participant who receives substantially equal periodic payments from his or her plan before reaching age 59½ will not be subject to the usual early distribution penalty tax, which is equal to 10 percent of the value of the amount distributed.
A term used to describe a forward mortgage-backed securities trade. Pass-through securities issued by Freddie Mac, Fannie Mae and Ginnie Mae trade in the TBA market. The term TBA is derived from the fact that the actual mortgage-backed security that will be delivered to fulfill a TBA trade is not designated at the time the trade is made. The securities are "to be announced" 48 hours prior to the established trade settlement date.
Top-Down Equity Management Style
Investment style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries.
Total return, when measuring performance, is the actual rate of return of an investment or pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time.
The movement of a retirement account from one custodian directly to another. An asset transfer is not a distribution and is not taxable or reportable to the IRS.
Treasury Inflation-Protected Securities (TIPS)
Treasury inflation-protected securities (TIPS) provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.
A measure of the trading activity in a fund's investment portfolio (how often securities are bought and sold by a fund). An indication of a fund's trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to shareholders).
Weighted Average Duration
Duration is a time measure of a bond's interest-rate sensitivity, based on the weighted average of the time periods over which a bond's cash flows accrue to the bondholder. Time periods are weighted by multiplying by the present value of its cash flow divided by the bond's price. A bond's cash flows consist of coupon payments and repayment of capital. A bond's duration will almost always be shorter than its maturity, with the exception of zero-coupon bonds, for which maturity and duration are equal.
Weighted Average Life
The average length of time each dollar of unpaid principal on a loan remains outstanding.
Weighted Average Market Cap
Market Capitalization for a company is calculated by multiplying the current market price for the company’s stock by the number of shares outstanding. To determine the Weighted Average Market Cap for a portfolio we average the Market Caps for each holding in the portfolio based on what portion of the portfolio that holding represents. It is a way to characterize the size of the companies within a fund's portfolio.
Weighted Average Maturity
The average length of time until a bond's principal must be repaid for all bonds in a mutual fund portfolio.
A measure of net income (dividends and interest) earned by the securities in the fund's portfolio less fund 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.
Yield to Maturity
The term used to describe the rate of return a shareholder will receive if a long-term, interest-bearing security, such as a bond, is held to its maturity date. Yield to maturity is greater than the coupon rate if the bond is selling at a discount and less than the coupon rate if it is selling at a premium.