DefaultWith regard to a bond or promissory note, the failure to make a payment either of principal or interest as or when due.

Defective Trust A trust designed that income taxes are paid outside of the trust by the grantor.  The most commonly used provision allows the grantor the power to substitute property he or she owns for equally valued trust property.

Defeasement A type of municipal debt financing which enables the issuing government entity to reduce the amount of interest it pays on existing outstanding bonds. As an example, an entity that has high-rate outstanding bonds issues new debt at a lower rate. The proceeds are used to buy Treasuries, which pay enough interest to pay the interest on the old outstanding bonds. The Treasuries can be sold when the old bonds reach their call date, providing a source of funds to retire the old debt. The net effect is the government entity pays less on a current basis.

Deferred Payment Swap A swap that requires payments to be made at a later date than the date at which the payments are determined.

Defined Benefit Plan A pension plan which guarantees the payment of a specified benefit at retirement age and provides annual contributions equal to an actuarially determined amount sufficient to produce the specified benefit.

Defined Contribution Plan A pension plan which provides for an individual account for each participant and for benefits based upon the amount contributed to the participant's account including any income, expenses, gains, or losses. See also Individual Account Plan, Money Purchase Plans, Profit Sharing Plans, Target Plans, and Employee Stock Ownership Plans (ESOP's).

DEFRA Deficit Reduction Act of 1984. One part of this act was the Tax Reform Act of 1984. Another part was the Spending Reduction Act of 1984.

Depletion The consumption or exhaustion of wasting property - such as, royalties, patent rights, mines, oil and gas wells, quarries, timberlands, and other things that are consumed or worn out in the sing.

Deposit Administration Contract A funding contract with an insurance company in which an unallocated account is kept for active participants. Annuities are purchased for employees when they retire.

Depositary One who receives a deposit of money, securities, instruments, or other property; to be distinguished from depository, which is the place of deposit.

Depository A place where something is deposited, such as a safe deposit vault. See Securities Depository.

Derivative A financial contract whose value is designed to track the return on stocks, bonds, currencies, or some other benchmark. Generally, derivatives fall into two broad categories: forward-type contracts and option-type contracts. They may be traded on exchanges or traded privately. See also Contractual Derivatives, Security-Based Derivatives, and Synthetic Derivatives.

Determination Letter A letter issued by the District office of the Internal Revenue Service which states whether a plan meets the qualification requirements under the Internal Revenue Code. Requesting an IRS Determination Letter is not an IRS requirement and is optional with the plan sponsor.

Devise A gift of real property by will; to be distinguished from bequest.

Devisee A person to whom a devise is given.

Directed Trust One under which a trustee has less then full managerial authority because another party or parties has the power to control some of the trustee's actions. Normally, this involves the investments of an employee benefit plan. Often, this direction is provided by an outside investment manager, a "named fiduciary", or the individual participant.

Disbursement Money paid out in discharge of a debt or an expense; to be distinguished from distribution.

Disqualified Person Term defined in Section 4975(e)(2) of the Internal Revenue Code that is roughly equivalent to ERISA's party in interest, but also includes highly-compensated employees. See Party in Interest.

Distribution The apportionment of personal property (or its proceeds) among those entitled to receive the property according to the applicable statute of distribution or under the terms of the will or trust agreement; to be distinguished from disbursement.

DOL Department of Labor.

Domicile The place which a person regards as his permanent home and principal establishment; the place to which, whenever he is absent, he has the intention of returning. A person's domicile may or may not be the same as his residence at a given time. See also Residence.

Donor One who makes a gift.

DTC Depository Trust Company, New York City. A noninsured limited-purpose state chartered trust company which is a member of the Federal Reserve System. Securities certificates belonging to a variety of financial institutions (banks, trust companies, broker-dealers, mutual funds, etc.) are kept at DTC, with transfers between "depositors" accomplished by bookkeeping entry. This greatly reduces the volume of physical transfers which must be made within the securities industry.

DRP Dividend Reinvestment Plan.

Duration A numerical measure of the price change of a bond due to a change in its yield to maturity. Duration summarizes the various characteristics that cause bond prices to fluctuate in response to interest rate changes. The lower the duration number, the less change that can be expected in a bond's price.

Eleemosynary Pertaining or devoted to legal charity; as an eleemosynary institution.

Embedded Derivatives Derivatives that are part of another financial instrument. For example, a callable bond consists of the bond and a call option. The call option is the embedded derivative.

Employee Benefit Security Administration  This office was formerly known as the Pension and Welfare Benefits Administration, PWBA, and is a part of the U. S. Department of Labor.

Employee Benefit Plan A plan established or maintained by an employer or employee organization, or both, for the purpose of providing employees a certain benefit, such as pension profit-sharing, stock bonus, thrift medical, sickness, accident, or disability benefits.

Employee Stock Ownership Plan An employee benefit account in which employees may become stockholders of the employer. These plans are qualified under the Internal Revenue Code and are not subject to the 10% ERISA limits on holdings of employer stock. Typically, an employer's contributions to an ESOP are used to purchase existing or new shares of the employer's stock, thus providing a means for the employer to raise new capital while, at the same time, getting a tax deduction for the annual contributions. When such purchases are from insiders, the IRS has special requirements concerning the valuation of the stock's price. Often, ESOP's involve borrowing funds by the ESOP with which to purchase employer stock; such plans are termed "leveraged" ESOP's. When speaking of the trust account, ESOP's are sometimes called ESOT's: Employee Stock Ownership Trusts. See also CESOP, CHESOP, PAYSOP, and TRASOP.

En Ventre Sa Mere "In mother's womb" - a child conceived but not yet born.

Enrolled Actuary A person who performs actuarial services for an employee benefit plan which is subject to ERISA and who is enrolled with the federal Joint Board for Enrolling Actuaries. ERISA plans may use only Enrolled Actuaries to perform services for the plan.

ERISA An acronym for the Employee Retirement Income Security Act of 1974 which set up federal minimum standards for employee benefit plans, including standards regulating the conduct of plan fiduciaries and trustees. The Act also established an insurance program designed to guarantee workers receipt of pension benefits if their defined benefit pension plan should terminate.

ERTA Economic Recovery Tax Act of 1981. Expanded IRA and Keogh plan availability. Covered specific areas of employee compensation, including incentive stock options, deductible voluntary employee contributions, tax credit ESOP's, and withdrawal provisions in savings/thrift plans.

Escheat The reversion of property to the state (in the United States) in case there are no devisees, legatees, heirs, or next of kin; originally applicable only to real property but now applicable to all kinds of property.

Escrow Money, securities, instruments, or other property or evidences of property deposited by two or more persons with a third person, to be delivered on a certain contingency or on the happening of a certain event. The subject matter of the transaction (the money, securities, instruments, or other property) is the escrow; the terms upon which it is deposited with the third person constitute the escrow agreement; and the third person is termed the escrow agent.

Escrow Agent See Escrow.

ESOP See Employee Stock Ownership Plan.

ESOT See Employee Stock Ownership Plan (Trust).

Estate (1) The right, title, or interest which a person has in any property; to be distinguished from the property itself, which is the subject matter of the interest. (2) The property of a decedent.

Estate Tax A tax imposed on a decedent's estate as such and not on the distributive shares of the estate or on the right to receive the shares; to be distinguished from an inheritance tax.

Estimated Loss For FDIC Trust Examinations: an estimate by the examiner of the amount of loss which appears certain to be sustained by the institution as a result of its fiduciary activities.

ETI Acronym used by the Labor Department in ERISA Interpretive Bulletin (IB) 94-1 for Economically Targeted Investment. See Social Investing.

Eurobond A bond denominated in U.S. dollars (or another currency) and sold to investors outside the country whose currency is used. An example might be a bond denominated in German Deutsche Mark but issued by a Dutch company and sold to Swiss investors.

Eurodollar Certificate of Deposit A certificate of deposit issued by banks outside the U.S., primarily in Europe, with interest and principal paid in dollars. Such CDs usually have minimum denominations of $100,000 and short-term maturities of less than two years. Interest rates are usually pegged to LIBOR.

European Option An option that can only be exercised on the expiration date.

Event of Default The non-occurrence or non-performance of something called for in a bond indenture. Examples of events of default are: (1) nonpayment of interest, (2) nonpayment of principal, (3) failure to make payments into a sinking fund, (4) filing of bankruptcy or reorganization, (5) nonpayment of a prior lien obligation, (6) failure to perform any obligation called for in the indenture (such as provide financial statements, insurance, proof of tax payments, etc.).

Excess Benefit Plan A non-qualified plan maintained by an employer solely for the purpose of providing benefits for certain employees in excess of those which, because of Internal Revenue Code limitations on contributions and benefits, can be provided by the employer's qualified plan.

Exculpatory Provision A provision in a will or trust instrument relieving or attempting to relieve an executor or trustee from liability for breach of trust; sometimes called an immunity provision.

Executor An individual or a trust institution nominated in a will and appointed by a court to settle the estate of the testator. If a woman, she is an executrix.

Executor De Bonis Non The individual or corporation named in the will to take over and complete the settlement of an estate in those cases in which the original executor, for one reason or another, has failed or been unable to do so. Unless the testator himself names such a successor executor, the court appoints an administrator de bonis non.

Executrix See Executor.

Exercise Period The period of time during which an option may be exercised.

Expiration Date The last day an option can be exercised.

Express Trust A trust stated orally or in writing, with the terms of the trust definitely prescribed; to be distinguished from a resulting trust and a constructive trust.

FAS Financial Accounting Standard. Authoritative accounting pronouncement on handling different specific accounting situations. Issued by FASB.

FAS 87 Statement issued by FASB covering employer accounting for pensions.

FAS 106 Statement issued by FASB requiring employers to record on their balance sheets the future financial liability they incur by promising health benefits to retirees.

FASB Financial Accounting Standards Board. Non-governmental authority for establishing accounting standards in the United States.

Fee (1) Fixed amount which a trust institution receives as compensation for its services; to be distinguished from allowance, charge, and commission. (2) An estate of inheritance in real property, sometimes referred to as an estate in fee or fee simple estate.

Fee Simple An estate of inheritance without limitation to any particular class of heirs and with no restrictions upon alienation; sometimes known as fee simple absolute; the largest interest or estate in real property a person may own.

Fiduciary An individual or a trust institution charged with the duty of acting for the benefit of another party as to matters coming within the scope of the relationship between them. The relationship between a guardian and his ward, an agent and his principal, an attorney and his client, one partner and another partner, a trustee and a beneficiary, each is an example of fiduciary relationship, See also ERISA Section 3(21)(A).

FINS Acronym for Financial Industry Number Standard. Standardized numbering system for identifying individual institutions (brokers, banks, transfer agents) in the securities industry in the United States and Canada to facilitate compatible automated processing in multiple organizations. FINS Numbers issued by Depository Trust Company, New York City. See also CUSIP.

Fiscal Agent (1) An agent for a corporation to handle specified matters relating to taxes in connection with an issue of bonds. (2) An agent for a national, state, or municipal government or government body to pay its bonds and coupons or to perform certain other duties related to financial matters.

Flexible Benefit Plan/Flexible Compensation See Cafeteria Plan.

Flexible Spending Accounts or Arrangements Employee benefit which gives employees a choice between taxable cash and nontaxable compensation in the form of payment or reimbursement of eligible, tax-favored benefits. FSAs can be funded through salary reduction, employer contributions, or a combination of the two. Employees can purchase additional benefits, pay health insurance deductibles, and copayments, or pay for child care benefits with FSAs.

Floater A floating rate instrument that pays interest at a rate that adjusts periodically, relative to a spread over a specific benchmark or index.

Floor An option contract that protects the holder against a decline in interest rates or some other underlying below a certain point.

Forward Contract A cash market transaction in which two parties agree to the purchase and sale of a commodity at some future time under such conditions as the two agree. In contrast to futures contracts, the terms of forward contracts are not standardized. A forward contract is not transferable and usually can be cancelled only with the consent of the other party, which often must be obtained for consideration and under penalty. Forward contracts are not traded in federally designated contract markets.

Forward-Start Swaps An agreement that includes a deferred start date before the swaps' interest payments are exchanged.

Fourth Market The trading of securities directly from one institutional investor to another without the services of a brokerage firm.

Freddie Mac Trade name for the Federal Home Loan Mortgage Corporation.

Front-End Receipt Swaps Also known as off-market swaps. A swap in which one party receives an amount equal to the present value of a future fixed rate swap payment now rather than at the respective periodic payment dates.

Front Running A practice where an investment manager purchases securities for his/her own personal interest prior to an anticipated purchase of the same securities by the accounts for which he/she acts as investment manager.

Funded Insurance Trust An insurance trust in which, in addition to life insurance policies, cash and securities have been placed in trust to provide sufficient income for the payment of premiums and other charges on or assessments against the insurance policies.

Futures Contract A transferable agreement to make or take delivery of standardized minimum quality grades, during a specific month, under terms and conditions established by a federally designated contract market upon which trading is conducted.

General Account An undivided fund maintained by an insurance company that commingles plan assets with other assets of the insurance company for investment purposes. Funds held by an insurance company that are not maintained in a separate account are in its general account.

General Obligation (GO) Bond A type of municipal bond that is backed by the full faith, credit and taxing power of the issuer for payment of interest and principal. Its sale finances public improvements. It is repaid by taxes.

General Partner A person who usually is actively engaged in the trade or business of the partnership and has unlimited personal liability in the partnership.

General Partnership A form of business whose partners include only general partners. Profits, losses and deductions are passed through to the individual partners involved in the business.

Generally Accepted Accounting Principles(GAAP) Uniform minimum standards of and guidelines to financial accounting and reporting, which govern the form and content of financial statements. GAAP encompass principles necessary to define accepted accounting practice at a particular time and include detailed procedures as well as broad guidelines.

Generation-Skipping Tax A tax imposed on any testamentary generation-skipping transfer, with the intention that this tax be substantially equal to the transfer tax which would have been payable if the property had actually been transferred outright to each generation.

Generation-Skipping Trust Any trust having beneficiaries who belong to two or more generations younger than the grantor.

GIC A "GIC" is a guaranteed investment contract, normally offered by insurance companies. It is similar to a financial institution's certificate of deposit in that it provides a guaranteed rate of return over a specified period. GIC's are normally used by institutional investors, such as employee benefit plans. GIC's are dependent upon the financial soundness of the issuing insurance company for their repayment. See also "BIC", "SLIC", "Synthetic GIC", "Bullets", and "Windows".

Gift Causa Mortis A gift of personal property made by a person in expectation of death, completed by actual delivery of the property, and effective only if the donor dies; to be distinguished from gift inter vivos.

Gift Tax A tax imposed by the Federal Government since 1932 and by some states on transfers of property by gift during the donor's lifetime. Gifts, under this law, may include irrevocable living trusts.

Ginnie Mae Colloquial for Government National Mortgage Association.

Going Concern Value A valuation approach used by appraisers. It implies that a company is actively and profitably in business and, therefore, should be valued on that basis rather than on the liquidation of its assets.

Government National Mortgage Association (GNMA) A wholly-owned government corporation within the Department of Housing and Urban Development (HUD). Also known colloquially as Ginnie Mae.

Governmental Plan An employee benefit plan established or maintained by the employees of the U.S. government or any state or political subdivision thereof or by any agency or instrumentality of the foregoing.

Grantor A person who transfers property by deed or who grants property rights by means of a trust instrument or some other document. See also Settlor.

GRIT Acronym for a grantor retained income trust, which is an irrevocable trust to which a residence is transferred for a term of years, with the grantor retaining the use of the residence for that term. At the end of the term, the residence becomes the property of the remainder beneficiary. The present value of the retained interest is not taxed for transfer tax purposes. The present value of the retained interest is the sum of: (1) the value of an income interest for the specified term, and (2) the present value of the contingent right to receive the value if the grantor dies during the specified term.

Guardian Ad Litem A person appointed by a court to represent and defend a minor or an incompetent person in connection with court proceedings; sometimes called a special guardian.

Hard Dollars Goods or services purchased with cash are said to be purchased with "hard" dollars. Purchases made with brokerage commissions are said to be made with "soft" dollars.

Health Stock Ownership Plan (HSOP) Combination of an employee stock ownership plan (ESOP) and a 401(h) account. HSOPs allow the sponsor to provide for retiree medical benefits for its current employees without having to accrue such future liabilities currently for financial accounting purposes.

Hedging The temporary purchase and sale of a contract calling for future delivery of a specific quantity of a particular commodity at an agreed-upon price to offset a present (or anticipated) position in the cash market. An operation intended to protect against loss in another operation.

Heir A person who inherits real property; to be distinguished from next of kin and from distributee. An heir of the body is an heir in the direct line of the decedent. A son, for example, is the heir of the body of his father or mother. See also Collateral Heir; Direct Heir; Next of Kin.

Hereditament Any kind of property that is capable of being inherited. If the property is visible and tangible, it is a corporeal hereditament; of it is not, it is an incorporeal hereditament -- for example, a right to rent or a promise to pay money.

HH Bonds Effective August 31, 2004. Series HH bonds are no longer offered. HH bonds issued prior to that date pay a fixed rate of interest based on market rates at the time of issuance. Interest is paid semi-annually and the bonds have a maturity of 20 years after date of issuance.

Highly Compensated Individual For purposes of IRC § 105(h), (1) one of the five highest paid officers, (2) a 10% owner or (3) an employee who is among the highest 25% of all employees (other than the 10% owners who are not participants).

Highly Compensation Participant Under IRC § 125(e), an officer, a more-than-5% shareholder, a highly compensated employee, or a spouse or dependent of one of the former.

Holographic Will A will entirely in the handwriting of the testator.

Hours Worked Standard hours worked in a year is 2,080 (52 weeks x 40 hours per week).

HR 10 Plan See Keogh Plan.

HSOP See Health Stock Ownership Plan.

Hurdle Rate A minimum standard rate of return for acceptability as an investment.

Hybrid Pension Plan A qualified retirement plan that has characteristics typical of both defined benefit and defined contribution plans.

Immunization The design of a bond portfolio to achieve a target level of return in the face of changing reinvestment rates and price levels. It is the combining of short- and long-term bonds in the same portfolio to produce a predictable rate of return regardless of movements in interest rates.

Income The return from property, such as rent, interest, dividends, profits, and royalties; opposed to principal or capital.

Income Beneficiary The beneficiary of a trust who is entitled to receive the income from it.

Incorporeal Hereditament See Hereditament.

Indemnity Protection or exemption from loss or damage.

Indenture (1) A mutual agreement in writing between or among two or more parties whereof usually each party has a counterpart or duplicate; originally so called because the parts were indented by a notched cut or line so that the two parts could be fitted together. (2) A legal document prepared in connection with a bond issue describing the terms of the issue, such as a security, maturity date, interest rate, and remedies in case of default.

Index Amortizing Swaps Swaps that operate as basic swaps for an initial period, after which time the notional principal balance is amortized or extended based on a schedule linked to interest rate changes or some other index during the interim period.

Individual Account Plan A defined contribution plan that allows participants to choose, from a broad range of investment options, how their own accounts will be invested. See also Defined Contributions Plan and Money Purchase Plan.

Individual Retirement Account (IRA) A retirement savings program for individuals to which yearly tax deductible contributions up to a specified limit can be made. The amounts contributed are not taxed until withdrawal. Withdrawal is not permitted, without penalty, until the individual reaches age 59 1/2.

Infant A person not of legal age, which at common law was 21 years but which in some states has been changed by statue; the same as a minor.

Inheritance Tax A tax on the right to receive property by inheritance; to be distinguished from an estate tax.

Initial Margin In futures and forwards, the amount of cash that must be deposited with a broker when a futures position is initiated.

Initial Public Offering (IPO) The original sale of a company's securities to the public.

Insurance Guaranty Fund A fund maintained by a state guaranty association which pay claims of insolvent insurance companies. The fund is financed by contributions from insurance companies.

Insurance Trust A trust composed partly or wholly of life insurance policy contracts.

Insured Pension Plans Retirement and other employee benefit plans the source of the benefits of which is life insurance paid for wholly or partially by the employer.

Interest Assumption The expected rate of investment return on a plan's assets. It includes interest on debt securities, dividends on equity securities, rentals on real estate, and gains or losses on fund investments.

Interest Rate Futures A transferable agreement to make or take delivery of a fixed income security at a specific time, under terms and conditions established by the federally designated market upon which futures trading is conducted.

Interest Rate Risk One of the three types of investment risk. When interest rates rise, the market value of fixed income contracts (such as bonds) declines. Similarly, when interest rates decline, the market value of fixed income contracts increases. Interest rate risk is the risk associated with these fluctuations. See also Credit Risk and Market Risk.

Internal Revenue Code (IRC) This is the basic federal tax law.

Inter Vivos Between living persons.

Inter Vivos Trust A trust created during the settlor's lifetime; the same as a living trust; to be distinguished from trust under will or testamentary trust.

Intestacy The condition resulting from a person's dying without leaving a valid will.

Intestate (Adjective): (1) Without having made and left a valid will. (2) Not devised or bequeathed; not disposed of by will. (Noun): A person who dies intestate.

In The Money Option A call option whose exercise price is lower than the spot price of the underlying or a put option whose exercise price is greater than the spot price of the underlying instrument.

Intrinsic Value The value of an option were it to be exercised. Only in-the-money options have intrinsic value.

Inverse Floater A floating rate instrument that adjusts inversely with changes in the benchmark index.

Investment Advisor Agent An agency account in which the trust department provides investment recommendations on various types of assets, without actually having custody or safekeeping of those assets.

Investment Management Agent An agency account in which the trust department contracts to analyze and review the various assets, to make recommendations for changes in existing investments, and to make recommendations for new investments. The department also performs safekeeping and custodial functions for the assets of the account.

Investment Company Legal term for a mutual fund. The Investment Company Act of 1940 provides the framework for SEC regulatory authority over mutual fund operations.

Investment Powers The powers of a fiduciary regarding the investments in the account.

IO (Interest Only) The holder of this derivative instrument receives interest payments from a specific regular interest class or from a piece of the collateral. The holder receives no interest payments.

IPO See Initial Public Offering.

IRA See Individual Retirement Account.

IRC Internal Revenue Code. This is the basic federal tax law.

Irrevocable Trust A trust which by its terms (1) cannot be revoked by the settlor or (2) can be terminated by him only with the consent of someone who has an adverse interest in the trust -- that is, someone to whose interest it would be for the trust not to be terminated, such as a beneficiary; to be distinguished from a revocable trust with consented approval.

ISN A securities identification numbering system similar to CUSIP but used in some countries outside the United States.

Issue All persons who have descended from a common ancestor; a broader term than children.

Item A Registered Transfer Agent term defined in SEC Rule 17Ad-1(a)(1), as follows: (i) A certificate or certificates of the same issue of securities covered by one ticket (or, if there is no ticket, presented by one presentor) presented for transfer, or an instruction to a transfer agent which holds securities registered in the name of the presentor to transfer or to make available all or a portion of those securities; (ii) Each line on a "deposit shipment control list" or a "withdrawal shipment control list"; or (iii) In the case of an outside registrar, each certificate to be countersigned.

Joint and Several Liability Used when compensation for liability may be obtained from one or more parties either individually or jointly, whichever may be most advantageous. Example: Partners are responsible for their own and other partners' actions.

Joint and Survivor Annuity A contract that provides income periodically during the longer lifetime of two persons. The benefit amount may be adjusted to account for the extended life expectancy of the couple, and the benefit amount may decrease when one or the other dies. The contingent annuitant is usually the spouse.

Joint Tenancy The holding of property by two or more persons in such a manner that, upon the death of one joint owner, the survivor or survivors take the entire property; to be distinguished from tenancy in common and tenancy by the entirety.

Junk Bonds Bonds that are issued by organizations which often are encountering financial setbacks. A junk bond may be issued as a low quality security, or its issuer may encounter setbacks so that a quality bond is reduced to junk level. They offer high interest and high risk. Assurance of interest and principal payments in the future is limited; repayment often depends on asset sales rather than the ongoing profitability of the business. Junk bonds are often issued in conjunction with takeovers, leveraged buyouts and restructurings.

KEOGH Plan A retirement plan for self-employed persons and their employees to which yearly tax deductible contributions up to a specified limit can be made, if the plan meets certain requirements of the Internal Revenue Code.

KSOP 401(k) Employee Stock Ownership Plan.

Laches Neglect to do a thing at the proper time; such as undue delay in asserting a right or asking for a privilege.

Last Will and Testament A legally enforceable declaration of a person's wishes regarding matters to be attended to after his death and not operative until his death; usually but not always relating to property; revocable (or amendable by means of a codicil) up to the time of his death or loss of mental capacity to make a valid will. Originally, "will" related to real property; "testament", to personal property; but at the present time, "will" is equally applicable to real and personal property.

Legacy A gift of personal property by will; the same as a bequest. A person receiving such a gift is called a legatee.

Legal Investment An investment that conforms to the requirements of the statutes. A term used principally with reference to investments by trustees and other fiduciaries and by savings banks; often abbreviated to "legals"; to be distinguished from an authorized investment.

Legal List A list of securities legal for fiduciary investments, as compiled and promulgated by a state agency (such as the state banking department) for the use and guidance of fiduciaries, lawyers, trustees, savings banks. Used infrequently now, as most states have adopted either the Prudent Man or Prudent Investor Rules.

Legatee See Legacy.

Letters of Administration A certificate of authority to settle a particular estate issued to an administrator by the appointing court; to be distinguished from letters testamentary.

Letters of Conservatorship A certificate of authority issued by the court to an individual or corporate fiduciary to serve as conservator of the property of a person; corresponds with letters of guardianship.

Letter Ruling A private ruling issued by the IRS in response to a request from a taxpayer about the tax consequences of a proposed or completed transaction. Private letter rulings are not considered to be precedents for use by taxpayers other than the one who requested the ruling, but they do give an indication of the current IRS attitude towards the transaction in question.

Letters Testamentary A certificate of authority to settle a particular estate issued by the appointing court to the executor named in the will; to be distinguished from letters of administration.

Leveraged Buyout The purchase of assets or stock of a privately owned company, a public company, or a subsidiary thereof, in which the acquirer uses a significant amount of debt and very little (or no) capital. This is accomplished primarily by utilizing the purchased assets for collateral and the acquired earnings stream to amortize the debt.

Leveraged ESOP An employee stock ownership plan (ESOP) in which money is borrowed by the ESOP trust for the purpose of buying stock of the employer. The stock is normally held as security by the lender and is released for allocation to participant accounts as the loan is paid off.

LIBOR London InterBank Offered Rate (of interest).

Life Beneficiary The beneficiary of a trust usually for the term of his own life, but it may be for the life of some other person.

Life Estate Either an estate for the life of the life tenant alone or an estate for the life or lives of some other person or persons. If the estate is for the life of a person other than the life tenant, it is known as an estate pour autre vie.

Life Insurance Trust See Insurance Trust.

Life Interest The estate or interest that a person has in property that will endure only during his own or someone else's lifetime.

Listed Stock The stock of a company that is traded on a recognized securities exchange. The various stock exchanges have different standards for listings. The New York Stock Exchange, for instance, includes national interest in the company, at least 1 million shares publicly held by at least 2,000 round lot shareholders, $16 million in market value, more than $2.5 million pre-tax income in the most recent year, and $2 million in pre-tax income in each of the preceding two years.

Lives in Being Lives in existence at a given time. See Rule Against Perpetuities.

Living Trust A trust that becomes operative during the lifetime of the settlor; opposed to a trust under will. The same as an inter vivos trust.

Living Will A document that allows a person to state in advance his/her wishes regarding the use or removal of life-sustaining or death-delaying procedures in the event of illness or injury.

Load A sales charge paid when purchasing or selling mutual fund shares. A "front end" load is assessed when money is initially invested. A "back end" load is assessed when shares are sold or funds withdrawn, and may be levied as a percentage of the withdrawn amount or at a flat rate. Back end loads may also be known as a redemption or exit fee. Loads may also be charged when dividends are reinvested.

Lookback Option One type of an option contract which confers the retroactive right to buy a given financial instrument at its minimum price, or sell at its maximum price, during a specific "lookback" period.

Lump Sum Distribution With respect to pension plans, the distribution of an individual's benefits in the form of one payment rather than in equal installments over a specified period of time or the individual's lifetime. The Internal Revenue Code imposes certain requirements in order for the distribution to qualify for special tax treatment.

LUST Acronym for leaking underground storage tank. Covered by Recourse Conservation and Recovery Act (RCRA).

Maintenance Margin In futures and forwards, the level to which a margin account may fall before the holder of the contract is required to bring the balance back up to the initial margin level.

Managing Agency Accounts An agency account concerning which the agent has managerial duties and responsibilities appropriate to the kind of property and in conformity with the terms of the agency; to be distinguished from a safekeeping or custody account.

Marital Deduction The portion of a decedent's estate that may be given to the surviving wife or husband without its becoming subject to the Federal estate tax levied against the decedent's estate; a term that came into general use under the Internal Revenue Act of 1954.

MarketabilityThe degree of investment or speculative interest that underlies any security; the ease with which it can be sold. Synonymous with "saleability."

Market Maker A dealer that stands prepared to buy or sell at the bid and offer prices that it quotes. The market is maintained when the dealer continues to quote bids and offerings over a period of time. See also Specialist.

Market Risk One of three types of investment risk. Deals with the day-to-day fluctuations at which a security can be bought or sold. See also Interest Rate Risk and Credit Risk.

Massachusetts Rule A term frequently applied to a rule for the investment of trust funds enunciated by the Supreme Judicial Court of Massachusetts in 1830; now commonly referred to as the prudent man rule. See Prudent Man Rule.

Master-Feeder Mutual Fund A two-tiered mutual fund arrangement in which one or more mutual funds (the feeder funds) invest solely in the securities of another mutual fund (the master fund). Master-feeder funds are authorized, without prior SEC approval, under SEC Rule 18f-3. A multiple-class fund is different from a multiple-class mutual fund.

Master Plan A defined benefit or defined contribution employee benefit plan that has been prepared by a sponsoring organization and provides a single trust account in which all adopting employers must invest their plan contributions; the sponsoring organization must have the plan approved by the Internal Revenue Service. See also Prototype Plan.

Master Trust An arrangement designating the custodianship and accounting for all employee benefit assets of a corporation or a controlled group of corporations to a single trustee, facilitating uniform administration of the assets of multiple plans and multiple investment managers.

Material Information Anything of material fact that could affect an investor's decision to buy a certain security.

Matched Swap An interest rate swap in which an asset or liability of the counterparty has interest payment terms similar to those of the swap.

MBIA Municipal Bond Insurance Association.

MEWA A Multiple Employer Welfare Arrangement. A means whereby small employers can pool contributions to purchase health insurance at a lower cost. Suppliers of MEWA's may offer insurance-like products, but normally are not insurance companies. These suppliers generally are not subject to state insurance regulation or reserve requirements.

Mezzanine FinancingG Use of preferred stock or convertible subordinated debentures to finance a takeover. This type of financing expands the resulting company's equity capital instead of its debt.

MGIC Mortgage Guaranty Insurance Corporation.

Money Market Instruments Fixed income securities that mature in less than one year. Also known as cash equivalents since their marketability and characteristics provide easy liquidity. Included are U.S. government securities, negotiable certificates of deposit, commercial paper, STIF accounts, bankers acceptances and mutual funds.

Money Purchase Plan The basic type of a defined contribution employee benefit plan. The employer or plan sponsor's contribution to the plan is specified for each employee in terms of a flat dollar amount ($100 per month of employment), or in terms of a percentage (10% of compensation), or on the basis of a point system. Unlike a profit sharing plan, forfeitures are not added to participants' accounts; they are used to reduce employer contributions. See also Individual Account Plan.

Mortgage Banker An organization that originates mortgages and then sells them to investors, usually retaining servicing rights. Income is derived from origination and servicing fees. Funding for the mortgages is usually from borrowings, which are paid off when the loan is sold.

Mortgage Pass-Through Securities A security consisting of a pool of residential mortgages, with monthly distribution of 100% of the interest and principal to the investor. There are both government (Freddie Mac and Ginnie Mae) and commercial versions of these instruments.

MPPAA Multiemployer Pension Plan Amendments Act of 1980

Multi-Employer Plan For purposes of ERISA, a pension plan maintained pursuant to one or more collective bargaining agreements to which more than one employer is required to contribute.

Multiple-Class Mutual Fund A mutual fund which has multiple classes of shares. Each class participates in the same portfolio of investments and is identical to other classes of shares except that each class has different sales charges and/or other expenses. In some cases, there may also be a difference in the services rendered to different classes of the fund. Multiple-class funds are authorized, without prior SEC approval, under SEC Rule 18f-3. A multiple-class fund is different from a master-feeder mutual fund.

Multiple Employer Welfare Arrangement (MEWA) See MEWA.

Municipal Bonds Debt issues of state and local governments, and their agencies. In general, interest paid on municipal bonds is exempt from federal income taxes and from state and local income taxes within the state of issue.

Negligence Failure, through omission or commission, to act as an ordinary, reasonable and prudent person would act. Consideration must be given to the particular situation, circumstances involved, and knowledge of the parties.

Nominee The partnership in whose name registered securities are held. This facilitates the making of "good" delivery of securities to brokers at the time of sale or exchange. Nominee names are usually registered with the American Society of Corporate Secretaries, to preclude the possibility of more than one nominee with the same name.

Non Compos Mentis (Not of sound mind): A term that includes all forms of mental unsoundness.

Nonlegal Investment An investment that does not conform to the requirements of the statutes; a term used principally with references to trust investments; to be distinguished from unauthorized investment.

Notional Principal Amount In an interest rate swap, the contractual amount on which interest payments are calculated.

Nuncupative Will An oral will made by a person on his deathbed or by one who is c