par value: the value of a bond, note, mortgage or other security at the time it is issued. Generally, corporate bonds are issued with a par value of $1,000, municipal bonds with a par value of $5,000 and federal government bonds with a par value of $10,000. Bonds fluctuate in price after they are issued, but the par value (or principal ) is returned to the bondholder at maturity. Also known as face value.
pass-through security: a security representing pooled debt obligations that passes income from debtors to its investors. The most common type is a mortgage-backed security; pass-throughs can also represent other assets such as student, credit card or automobile loans.
plan sponsor: an organization or entity that offers a retirement plan to an employee group. For example, in the case of a plan maintained by a single employer, the plan sponsor is the employer. In the case of a plan maintained by one or more employers or organizations, the plan sponsor is the association, committee, joint board of trustees or other similar group of representatives of the parties involved.
portfolio manager: an investment professional such as those at Capital Research and Management CompanySM who invest the assets of American Funds shareholders. Under a unique investment management approach known as the The Capital SystemSM, portfolio managers manage their individual portions of fund assets as if they were an entire fund; this allows them to act on their own convictions. The system provides consistency, continuity, diversity and flexibility to the management of the fund.
portfolio turnover rate: the volume of a mutual fund’s holdings that is sold and replaced with new securities annually, usually expressed as a percentage of the fund’s total assets. A fund with a portfolio turnover of 25%, for example, holds assets for an average of about four years, while a fund with a portfolio turnover of 100% holds assets for an average of one year. The American Funds have unusually low turnover rates.
preferred stock: a type of stock which provides a specific dividend that is paid before dividends are paid to holders of common stock, and which takes precedence over common stock in the event of a company liquidation. Preferred stockholders do not usually have the voting rights that common stockholders do.
price-to-earnings (P/E) ratio: the current price of a stock divided by its earnings per share. The ratio reflects the cost of a given stock per dollar of current annual earnings and is the most common measure of a stock’s expense. The higher the P/E, the more investors are paying, and therefore the more earnings growth they are expecting. High P/E stocks are typically young, fast-growing companies (growth stocks) that pay few or no dividends; while low P/E stocks tend to be low-growth, out-of-favor or blue chip companies with long records of stable earnings and dividends. See also valuation.
private placement: the sale of securities directly to institutional investors, such as banks, mutual funds, insurance companies and pension funds. Unlike a public offering, a private placement does not have to be registered with the Securities and Exchange Commission, provided the securities are bought for investment purposes rather than for resale.
profit-sharing plan: a type of defined contribution plan funded with discretionary employer contributions and often tied to company profits.
prospectus: a legal document describing the objectives of a mutual fund, the background of fund managers, and key financial data, such as expenses and fund results. A prospectus is designed to provide investors with the information they need to make an informed decision about investing in a mutual fund.
public offering: the sale of new securities to public investors through an underwriting. All public offerings must meet the registration requirements of the Securities and Exchange Commission. Distinct from a private placement of new securities.
purchasing power: the value of money, as measured by the quantity and quality of products and services it can buy. As prices tend to move upwards, the purchasing power of individuals erodes over time. Purchasing power is frequently measured through the Consumer Price Index. Also called buying power. See also inflation.