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Glossary

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back-end load: see contingent deferred sales charge.

balanced fund: a mutual fund which seeks to preserve capital and provide income to shareholders by holding a mix of bonds, common stocks, preferred stocks and short-term securities. Long-term growth of capital and income is also an objective of a balanced fund. American Funds offers the following balanced funds: American Balanced Fund® and American Funds Global Balanced FundSM.

basis point: a unit used to measure changes in interest rates and bond yields. One basis point equals .01%, or 1/100 of 1%; 100 basis points equal 1%. A bond’s yield that increased from 8.00% to 8.50% would be said to have risen 50 basis points.

bear market: a prolonged period of falling prices, typically defined as a 20% or greater drop from a market peak. A bear market in stocks is usually prompted by investors anticipating a decline in economic activity, while a bear market in bonds typically is caused by rising interest rates.

benchmark: an index or group of funds used to measure the performance of a mutual fund. Widely used benchmarks include Standard & Poor’s 500 Composite IndexSM (for large-company funds), the Russell 2000® Index (small-company funds), the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) and World indexes (international and global funds) and the Lehman Brothers® Aggregate Bond Index (bond funds).

beneficiary: the person or entity entitled to receive an account after the death of the owner (or, in the case of a retirement plan account, the participant). Primary beneficiaries are the individuals chosen to first receive proceeds from an account or plan. Contingent, or secondary, beneficiaries receive proceeds if there are no surviving primary beneficiaries.

blue chip: the stock of a nationally known company with a long record of profit growth and steady dividend payments, and a reputation for high-quality management, products and services. Examples of blue chip stocks include IBM®, General Electric® and Ford®.

board of directors: a group of individuals elected by the shareholders of a mutual fund empowered to carry out certain tasks defined in the fund’s charter, such as appointing senior management, issuing additional shares and declaring dividends. Also called board of trustees.

bond:  a debt instrument (IOU) issued by a corporation or government agency. In return for the use of the lender’s money, the bond issuer promises to pay regular interest payments and return the principal (usually $1,000) upon maturity. A secured bond is backed by collateral which may be sold by the bondholder to satisfy a claim if the bond issuer fails to pay interest and principal. An unsecured bond, or debenture, is backed by the full faith and credit of the issuer but not by any specific collateral. Bondholders do not have any of the corporate ownership privileges of stockholders. Bonds are offered in a number of different forms, including convertible bonds, high-yield bonds, mortgage-backed bonds, municipal bonds and zero-coupon bonds.

bond fund: a mutual fund that primarily invests in bonds. Some bond funds specialize in a particular kind of bond, while others will diversify across categories. Bond funds are an important part of a diversified investment portfolio and generally pay regular distributions, making them particularly appropriate for investors seeking current income. American Funds offers the following taxable bond funds — American Funds Mortgage Fund®, American High-Income Trust®, The Bond Fund of America®, Capital World Bond Fund®, Intermediate Bond Fund of America®, Short-Term Bond Fund of America® and U.S. Government Securities Fund®. American Funds also offers municipal bond funds.

bond rating: ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies, such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer's creditworthiness. Bonds rated BBB or above are considered investment grade. If ratings are not available, they are assigned by the fund's investment adviser.

breakpoint: refers to the total value of your American Funds accounts, which affects the amount of sales charges applied to your investments. As long as the value of all of your accounts with American Funds (excluding money market funds) exceeds a particular breakpoint, all subsequent investments will receive the reduced sales charge.

broker: a person who acts as an intermediary between the buyer and seller of a security, usually for commission. Also, a financial professional who helps investors formulate financial plans with specific objectives and designs an investment program to help meet their needs and objectives (see financial professional). Since many brokerage firms operate both as brokers and as dealers, the term broker-dealer is often used.

bull market: a prolonged period of rising prices of stocks, bonds or commodities, generally prompted by investor optimism about company earnings and economic growth.

buy-and-hold: an investing strategy that calls for buying shares of a mutual fund and holding them for a long period. This allows the investor to participate in the long-term growth of companies and pay favorable capital gain tax rates.


Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.