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Glossary

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sales charge: see load

Securities and Exchange Commission (SEC): a federal regulatory agency responsible for promoting full disclosure in the securities industry and protecting investors against fraudulent and manipulative practices. All issues of securities must be registered with the SEC, and all national securities exchanges, investment firms, investment companies, financial professionals and over-the-counter brokers and dealers are supervised by the SEC. The SEC is responsible for enforcing federal laws regulating the securities industry, including the Investment Company Act of 1940.

SEC yield: a 30-day annualized yield calculated by the SEC that reflects income a fund holding bonds expects to earn based on the fund’s current holdings.

security: a debt or equity instrument issued by a corporation, government or other organization, including stocks, bonds, notes, Treasuries and debentures.

share: a unit of ownership in a mutual fund or corporation. See also investment company and stock.

shareholder: an owner of shares of a mutual fund or corporation. Mutual fund shareholders have the right to vote in the election of fund directors and other business conducted at shareholder meetings, often by proxy.

shareholder of record: the individual or entity registered as the owner of shares in a mutual fund or corporation. Shareholders generally hold accounts in their own name or in the name of their brokerage firm.

shares outstanding: shares of a mutual fund or company authorized in the charter and sold to shareholders. Shares that have been issued and subsequently repurchased by the fund or company are called treasury stock.

short-term securities: securities with a maturity of one year or less, such as money market instruments.

signature guarantee: a stamp or seal from a member firm of a domestic stock exchange or FINRATM, bank, savings association or credit union that is an eligible guarantor to authenticate a signature. A signature guarantee is typically required by a transfer agent to conduct certain transactions, such as an account ownership change. A notary public is not an acceptable signature guarantor.

SIMPLE IRA: a plan for small organizations that allows employees to contribute on a pretax basis, and requires the employer to make either matching contributions or a nonelective contribution for all eligible employees. These contributions are held in a special Individual Retirement Account (IRA) known as a SIMPLE IRA.

Simplified Employee Pension (SEP) IRA: a pension plan for owners of small companies in which the employer contributes to an Individual Retirement Account (IRA) on behalf of the employee. Employees do not benefit from making pretax contributions.

small cap: defined by SmartMoney.com as a company with a market capitalization below $1 billion. See also large cap and mid cap.

Standard & Poor’s 500SM (S&P 500®): Standard & Poor’s 500 Composite Index measures the change in value of 500 of the most widely held stocks on U.S. stock exchanges, which encompass a small number of companies headquartered abroad. The S&P 500 is weighted by market capitalization, which means larger companies have more of an impact than smaller ones when determining overall price movement of the index.

statement of additional information: contains detailed information about various fund policies; officers, directors and others who manage the fund; investment services; brokerage commissions and tax issues. Also known as “Part B” of the prospectus.

statement of assets and liabilities: the portion of a mutual fund’s financial statement that details the fund’s net assets, equal to the assets minus the liabilities of the fund. The net asset value of a share is calculated by dividing net assets by the number of shares outstanding.

statement of changes in net assets: the portion of a mutual fund’s financial statement that shows the change in value of the fund’s net assets from the previous year. Includes a summary of the Statement of Operations, dividends paid to shareholders and fund shares sold and repurchased by the fund during the fiscal year.

statement of intention: a nonbinding agreement to invest a certain amount in the American Funds (excluding money market funds) over a 13-month period. This allows shareholders to take advantage of a reduced sales charge based on the total amount they intend to invest. If shareholders haven’t invested the amount intended at the end of the 13-month period, the applicable sales charge must be paid.

statement of operations: the portion of a mutual fund’s financial statement that shows the change in the fund’s assets resulting from operations during the fiscal year. Includes a list of investment income received from dividends and interest, a breakdown of fund expenses, and a statement of realized gain and unrealized appreciation on investments.

stock: a security representing shares of ownership in a corporation, as distinct from a bond, which represents a loan to the issuer. Owners of common stock receive dividends and are generally entitled to vote on the selection of directors and other important matters. Holders of preferred stock receive a specific dividend that is paid before any dividends are paid to holders of common stock, but they do not have voting rights. See also equity.

stock exchange: a central location where securities are bought and sold. Brokers and dealers meet on the floor of the exchange to execute orders from investors to buy and sell securities. Each stock exchange sets its own requirements for membership. See New York Stock Exchange®.

stock fund: a mutual fund holding stocks. Many stock funds are designed to meet certain financial objectives, such as capital growth and dividend income. Some funds specialize in a category of stocks, such as large cap or international companies. American Funds offers seven growth funds and six growth-and-income funds, as well as two balanced funds and two equity-income funds, which hold stocks as well as bonds in a diversified portfolio.

stock market: general term for the organized trading of securities through stock exchanges and over-the-counter. In the U.S., “the market” generally refers to the Dow Jones Industrial AverageSM.

stock split: an increase in the number of shares outstanding of a company’s stock. For example, if a stock with a par value of $200 splits 2-for-1, the price per share drops by half, to $100. At the same time, investors are given twice as many shares, so that the proportionate equity of each shareholder remains the same. The overall market capitalization of the company remains the same (in this example, $5 billion: 25 million x $200, or 50 million x $100). A stock with a very high share price is often split to make it more accessible to small investors.

stock symbol: a system of letters used to identify a stock or mutual fund. Symbols with up to three letters are used for stocks which trade on an exchange. Symbols with four and five letters are used for Nasdaq stocks. Symbols with five letters ending in X are used for mutual funds. Also called ticker symbol. See also CUSIP number.

summary prospectus: a legal document that provides a summary of a fund’s prospectus. The summary prospectus includes information such as fund investment objectives, strategies, risks, costs, investment results and other information to help investors make an informed decision about investing in a mutual fund.


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.