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Glossary

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target date fund: a fund portfolio designed to help investors choose a single portfolio aligned with the year closest to their expected distribution date.

taxable distribution rate: the portion of dividends or capital gains paid out by a mutual fund that is subject to individual taxation.

tax-deferred: term used to describe an investment on which earned income (interest, dividends and capital gains) is free from taxation until the investor begins to tap into the account. Examples include IRAs, 401(k)s and annuities.

tax-equivalent yield: the yield before taxes that a taxable bond would have to pay to be equal to the tax-free yield of a municipal bond. The tax-equivalent yield depends on an investor’s tax bracket. The higher the tax bracket, the more attractive the tax-free income of a municipal bond becomes. For example, a tax-free yield of 7% is equivalent to a taxable yield of 9.3% for an investor in the 25% tax bracket and to a taxable yield of 10.4% for an investor in the 33% tax bracket.

tax-exempt fund: a mutual fund which invests in municipal bonds and is free from federal and/or state taxation. American Funds offers the following tax-exempt funds: American Funds Tax-Exempt Fund of New York®, American Funds Short-Term Tax-Exempt Bond Fund®, American High-Income Municipal Bond Fund®, Limited Term Tax-Exempt Bond Fund of America®, The Tax-Exempt Bond Fund of America®, The Tax-Exempt Fund of California®, The Tax-Exempt Fund of Maryland® and The Tax-Exempt Fund of Virginia®.

tax-free distribution rate: the portion of dividends or capital gains paid out by a mutual fund that is free from individual taxation.

10-year Treasury note: the 10-year Treasury is widely recognized as the benchmark bond in determining interest rate trends.

ticker 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 stock symbol. See also CUSIP number.

total return: the gain or loss made on an investment over a certain time period, expressed as a percentage of the total amount invested. For stock mutual funds, the total return is determined by the level of dividends and capital appreciation of the holdings in the fund’s portfolio. For bonds, total return represents the present value of all future coupon payments and the principal due back at maturity. See also return and real rate of return.

Traditional IRA: an Individual Retirement Account in which funds grow tax-deferred until they are withdrawn at age 59-1/2 or later. Mandatory distributions from a traditional IRA begin by age 70-1/2. Contributions are deductible against earned income under certain circumstances, depending on income levels and retirement plan participation. See also Roth IRA and SEP IRA.

transaction-based fee: a fee charged by a broker-dealer based on the dollar amount of a mutual fund transaction. This fee is typically charged instead of an asset-based fee.

transfer agent: an agent employed by a corporation or mutual fund to maintain shareholder records, including purchases, sales and account balances. American Funds Service Company serves as the transfer agent for the American Funds.

Treasuries: debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes. See Treasury bill, Treasury bond and Treasury note.

Treasury bill: a short-term debt security with a maturity of one year or less issued by the U.S. government and secured by its full faith and credit. Treasury bills are issued at a discount from face value, usually $10,000, and do not pay interest. Their yields are watched closely by investors as a signal of interest rate trends. Also known as T-bills.

Treasury bond: a long-term debt security with a maturity of seven years or more issued by the U.S. government and secured by its full faith and credit. Treasury bonds are issued in minimum denominations of $1,000, pay interest semi-annually, and are exempt from state and local taxes.

Treasury note: an intermediate-term debt security with a maturity of one to seven years issued by the U.S. government and secured by its full faith and credit. Treasury notes are issued in denominations ranging from $1,000 to $1 million or more and, like other Treasuries, are exempt from state and local taxes.

treasury stock: shares that have been issued and subsequently repurchased by a mutual fund or company. They are known as treasury stock because the shares are held in the corporate treasury until they are reissued or retired. Treasury shares are not considered outstanding for the purposes of voting, dividends or earnings per share calculations.

trust: a legal arrangement in which an individual gives fiduciary control of assets to an individual or entity (the trustee) for the benefit of other individuals, called beneficiaries. A trust is often used when the assets involved are substantial, and when the creator of the trust wants to establish guidelines over how beneficiaries can use the assets.

trustee: an individual or entity holding assets in trust for the benefit of another person, called a beneficiary.

turnover rate: see portfolio turnover rate.


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.