Glossary
A | B | C | D | E | F | H | I | J | L | M | N | O| P | Q | R | S | T | U | V | W | Y | Z | #
A
Alpha — The measure of a mutual fund's risk-adjusted return relative to a benchmark index. Generally expressed as either positive or negative, alpha represents the difference between the fund's actual return and its expected return based on the level of risk the manager has taken. (see Benchmark Index)
Amana — Trust, possession of.
Appreciation — The increase in an asset's value over a period of time.
Asset — Generally, anything of value that is owned by an individual or company (Examples: currency, real estate, equipment and precious metals).
Asset Allocation — Strategic apportionment of capital across various investment types and opportunities, taking into account certain factors such as investment objectives, time horizon and tolerance of risk.
Average Annual Total Return — The average of previous years' annual percentage returns, calculated by adding the total percentage return for each year divided by the number of years contributing to the average.
B
Bear Market — A prolonged period in the stock market in which prices are generally falling that is characterized by pessimism and the mass selling of stocks. (See Bull Market)
Benchmark Index — A market index chosen as an appropriate indicator for a particular fund's specific market segment to serve as a point of reference against which the mutual fund's performance is measured over time. (See Market Index)
Beta — A ratio (often encountered as "beta coefficient") that expresses the volatility (risk) of a security or portfolio relative to the volatility of the overall market. A security with a volatility that very closely matches the overall market's volatility will have a beta of 1. A more volatile (higher risk) security will have a beta above 1, while a beta below 1 indicates greater stability (lower risk) relative to the market. (See Volatility)
Bull Market — A prolonged period in the stock market in which prices are generally rising that is characterized by optimism and the mass purchase of stocks. (See Bear Market)
C
Capital Gain — The realized appreciation of a capital asset, or the profit earned when an asset is sold at a higher value than its purchase price. (See Capital Loss)
Capital Loss — The loss incurred when an asset is sold at a lower value than its purchase price. (See Capital Gain)
Capital Loss Carryforward — A tax-saving accounting tactic in which capital losses from one tax year are applied (or carried forward) to offset the tax liability of a profitable future year.
Closed-end Fund — A mutual fund whose shares are publicly traded in the secondary securities market. Unlike traditional mutual funds, closed-end funds establish a finite number of shares whose value is determined through trade on the open market. (See Open-end fund)
Custodian — An individual (or institution) designated as responsible for an account on behalf of another party (or parties) and who manages the account in that party's best interest. Example: A mutual fund custodian is an institution, such as a bank or trust company, responsible for the physical guardianship of a fund's security holdings. Although individual custodians may or may not have control of assets, institutional custodians have possession of the assets but no control over them.
Custody Credits — A waiver of fees by a fund's custodian. The Amana Mutual Funds Trust receives custody credits in lieu of custodial interest payments to the fund on its cash reserves. To maintain sharia compliance, the Amana Mutual Funds may not receive the interest payments that would normally be generated from cash holdings. The Amana Funds' custodian has therefore agreed to waive its usual custodial fees and pays no interest to the funds.
D
Debt Ratio — The amount of a company's debt (liabilities) expressed as a percentage of its assets. Debt ratio is a critical component of Amana Funds' sharia compliance screening process, because only companies with debt less than 33% of assets are considered for investment.
Depreciation — A decrease in value typically expressed as (1) a non-cash accounting transaction that reduces the book value of an asset over time or (2) a decrease in the value of one currency relative to another.
Distribution Fees — Also called 12b-1 fees, the dollar amount collected as a percentage (usually between .25% and 1%) of a mutual fund's average net assets per year to cover operating expenses associated with sales, marketing, and advertising. (See 12b-1 Fees)
Dividend — The distribution of a corporation's earnings to its shareowners in the form of cash, additional stock or real property.
E
Early Redemption Penalty — To discourage the frequent trading of fund shares, the imposition of a fee on redeemed shares held less than a set amount of time (for Saturna's funds, currently 2% of share redemption value on shares held less than 90 days).
Expenses — Operating costs paid from fund assets.
F
Fractional Share — A partial share of a mutual fund.
Fraud — Deliberate, wrongful deception of another party for material or financial gain.
G
Gain — An increase in value.
Gharar — Arabic term for risk. Islamic principles prohibit excessive or unnecessary gharar.
H
Halal — Arabic term used to reference anything that is permitted according to sharia, or Islamic law. (See Haram)
Haram — The Arabic term used to reference anything that is unacceptable or forbidden according to sharia, or Islamic law. (See Halal)
Holding Period — The duration of time between an investor's purchase and sale of a security.
I
Index — A portfolio of characteristically similar securities considered to be representative of a particular market segment (or the market as a whole) that may be used as a performance benchmark. (See Benchmark Index and Market Index)
Institutional Investor — An entity trading very large volumes of securities (Examples: mutual funds, pension funds, investment banks, insurance companies and brokerages).
Interest Income — The money paid by a borrower to a lender, usually a percentage of the principal debt owed, generating a source of income for the lender. Islamic law forbids investment in securities that pay interest, such as bonds, and companies earning their income from interest.
Intrinsic Value — The actual (vs. market) value of a company as determined through various, non-standardized techniques of financial analysis. Intrinsic value may be higher or lower than current market value. Value investors seek to invest in companies whose intrinsic value is estimated to be higher than current market value.
J
Jurisdiction — The authority to make and apply the law. Also, the territory within which this authority applies.
L
Liability — A debt or financial obligation. (See also Debt Ratio)
Long-term Capital Gain — The realized appreciation of a capital asset held longer than 12 months. (See Capital Gain and compare with Short-Term Capital Gain)
M
Market Index — A collection of securities systematically and deliberately assembled to mirror the attributes and overall performance of a market or market sector (Examples: Dow Jones Industrial Average, NYSE Composite Index, S&P 500 Index, Nasdaq-100 Index).
Mutual Fund — A collective investment vehicle comprised of an actively managed portfolio of securities selected according to a stated investment objective and offered as an open-ended quantity of equity shares that may be purchased or redeemed at the fund's current Net Asset Value per share.
N
Net Asset Value (NAV) — The offering and redemption price per share of a mutual fund, calculated by subtracting fund liabilities from fund assets and dividing by the total number of outstanding shares. A fund's NAV is calculated each business day based on the aggregate closing market values of the fund's portfolio of securities.
Net Realized Gain/Loss — The difference in value between the purchase and redemption prices of a redeemed mutual fund share. If the redemption price is higher than the purchase price, a gain is realized; whereas if the redemption price is lower than the purchase price, a loss is realized. Realized gains and losses must be reported to the IRS for tax purposes.
Net Unrealized Gain/Loss — The difference in value between the purchase price and current Net Asset Value per share of a mutual fund. Prior to redemption the corresponding gain or loss is unrealized and is therefore not subject to taxation.
Nisab — The Arabic term referring to the level of income needed to support one's family for a year. Muslims calculate their yearly charitable obligation (zakah) as a percentage of their annual income above nisab. (See Zakah)
O
Open-end Fund — A mutual fund offering a continuous, unlimited number of shares, whose value is determined by the collective market value of fund's portfolio. (See Closed-end and Net Asset Value)
Ordinary Income — Income from operations, specifically excluding capital gains.
P
Portfolio — A collection of securities (Example: A mutual fund is a selective and actively managed portfolio of securities).
Proxy — The limited power of attorney authorizing a designated party to act on a stockholder's behalf.
Q
Qualified Dividend — A category of dividend that, as a result of meeting certain eligibility criteria established by the Jobs and Growth Tax Relief Reconciliation Act of 2003, is taxed at the lower rate for capital gains rather than as dividend income.
R
R-Squared — A statistical measure that explains the percentage of a fund's volatility that can be attributed to the volatility of its benchmark index. The R-squared statistic attempts to reveal what portion of a fund's risk is not unique to that fund, but rather is characteristic of the fund's overall market segment. (See Volatility and Benchmark Index)
Realize — In the financial realm, generally the gain or loss through the sale of securities or redemption of shares can be described as "realized."
Riba — Arabic term often equated to income from usury or interest, although its comprehensive meaning broadly refers to any monetary gain from an unequal trade. Riba is explicitly forbidden by the Quran.
S
Security — Any investment in which investors are entitled to profit through the efforts of another, such as a corporation, government or organization.
Sharia — Islamic law.
Short-term Capital Gain — The realized appreciation of a capital asset held 12 months or less. (See Capital Gain and Long-Term Capital Gain)
Standard Deviation — The measure of how closely a set of data matches the mean (average) value of that data. The higher the standard deviation, the more spread out (or variable) the data points are. The lower the standard deviation, the more closely each data point matches the mean value of the group. Standard deviation can be used to measure the historical variability of a mutual fund's annual return.
T
Takaful — Arabic term referring to a collective arrangement among a group of individual parties whereby pooled donations serve to protect or indemnify the pool's participants against loss or damage, thus providing a sharia-compliant alternative to traditional insurance.
Trustee — An individual or organization legally appointed to manage and invest assets on behalf of and in the best interest of another party.
U
Unrealized — A change in asset value (gain or loss) that has not been fulfilled by means of sale or redemption.
V
Value Investment Style — An investment strategy driven by the systematic identification and purchase of securities determined to be as yet undervalued in the current market. The profitability of the value investment style relies on the assumption that market forces act to eventually bring a security's market value in line with its intrinsic value. (See Intrinsic Value)
Volatility — The measure of how widely and how frequently a security's price changes in a given period of time. Volatility is an indicator of risk, with low volatility associated with low risk, and high volatility associated with high risk.
W
Weighted Average —The calculated average of some given values in which certain values are assigned more influence (greater weight) over the outcome than the other values.
Y
Yield — The rate of return on a security expressed as a percentage.
Z
Zakah — The Arabic term referring to the yearly amount that Muslims are obligated to pay to charitable causes, calculated as a percentage of annual income above basic living expenses or nisab. (See Nisab)
#
12b-1 fees — Named after the SEC rule authorizing them, fees that are deducted as a percentage of a mutual fund's net assets (generally to an allowable maximum of 0.75%) to cover distribution and marketing expenses.
