EAFE: see MSCI EAFE Index.
earnings: the single most important factor in determining a stock’s price, earnings represent a company’s revenues minus cost of sales, operating expenses and taxes. Earnings per share are the portion of a company’s profit allocated to each outstanding share of common stock. See also price-to-earnings ratio.
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA): legislation that introduced a number of significant retirement and education savings provisions intended to give investors more opportunities to reach their financial goals.
emerging markets: also known as developing markets, emerging markets are defined by the July 2007 World Bank Country Classification report as having a per-capita income of $11,115 or less in 2006, and as countries in the process of developing existing or newly created market-based economies.
Employee Retirement Income Security Act (ERISA): the 1974 federal law governing the operation of most private pension and benefit plans. The law eased pension eligibility rules and established guidelines for the management of pension funds.
equity-income fund: a mutual fund that invests in a mixture of dividend-paying stocks and bonds to provide shareholders with current income and, as a secondary goal, growth of capital. American Funds offers two equity-income funds: Capital Income Builder and The Income Fund of America.
euro: the single currency adopted by 15 European countries as of January 1, 2008. Since January 1, 1999, the trading of securities and goods has been conducted only in euros. The European Central Bank oversees monetary policy.
exchange: see stock exchange.
exchange privilege: the right of a shareholder to switch from one mutual fund to another in the same family, usually at no additional charge. The IRS treats an exchange as a sale and subsequent purchase for tax purposes.
exchange-traded fund (ETF): an investment company that, like a security, is traded on an exchange and offers continuous reporting of net asset value throughout the day. Many exchange-traded funds are linked to indexes, such as Standard & Poor’s 500 Composite IndexSM, while others are tied to a particular country, market capitalization or industry. A key difference between an ETF and a mutual fund is that a mutual fund is redeemed (sold) back to the issuer at the next determined net asset value. ETF shares typically are sold on the exchange on which the ETF is traded. American Funds does not offer ETFs.
expense ratio: the amount that shareholders pay annually for mutual fund expenses. Includes management fees, distribution or 12b-1 fees, administrative fees and operating costs. Expense ratios tend to vary with the fund category; for example, a money market fund will generally have a lower expense ratio than a global equity fund, which has higher costs.