A salary reduction plan allows you to contribute pretax income to a retirement account in your name and to accumulate tax-deductible earnings on those contributions. Your employer may also match some or all of your contributionaccording to a formula that applies equally to all participating employees. Each type of salary reduction plan has an annual contribution cap that's set by Congress.

The sales charge may be imposed as a front-end load when you buy (also known as a Class A share), as a back-end load when you sell (also known as a Class B share), or as a level load each year you own the fund (also known as a Class C share).

Sallie Mae guarantees repayment of the bonds and notes, and uses the money it raises through the sale of these securities to provide additional loan money for post-secondary-school students. Sallie Mae also arranges financing for state student loan agencies. Its shares trade on the New York Stock Exchange (NYSE).

Series EE bonds, which you buy for a percentage of their face value and typically hold at least until they reach full value at maturity, are probably the best known. Series I bonds are sold at face value and are indexed for inflation, which means the interest you earn fluctuates with changes in the Consumer Price Index (CPI). Series HH bonds are also sold at face value and pay regular interest, but you can't pay cash for them. You must exchange Series EE bonds to buy them.

The biggest difference between savings bonds and US Treasury bills, notes, and bonds is that there is no secondary market for savings bonds since they can not be traded among investors. You buy them in your own name or as a gift for someone else and redeem them by turning them back to the government, usually through a bank or other financial intermediary.

For example, you might screen for stocks that meet a certain environmentally or socially responsible standard, or for those with current price-to-earnings ratios (P/E) less than the current market average.

Secondary offerings can also originate with the issuing companies themselves. In these cases, a company issues shares of its stock over and above those sold in its initial public offering (IPO), usually in order to raise additional capital. However, because an increase in the number of shares devalues those that have already been issued, many companies make a secondary offering only if their stock prices are high.

Mutual funds that concentrate on the stocks of a specific sector are known as sector funds. These funds can be more volatile than other funds, reflecting the current strength or weakness of that sector in the overall economy. Technology stocks or health care stocks, for example, might be hot in some periods and in the doldrums in others.

Sector funds tend to be more volatile and erratic than more broadly diversified funds, and often dominate both the top and bottom of annual mutual fund performance charts. A sector that thrives in one economic climate may wither in another one.

A mortgage-backed bond is an example of a secured security, since the underlying mortgages can be foreclosed and the properties sold to recover some or all of the amount of the bond. Holders of secured bonds are at the top of the pecking order if an issuer misses an interest payment or defaults on repayment of principal.

Established by Congress in 1934, the SEC sets high standards for disclosure about publicly traded securities, including stocks, bonds, and mutual funds, and works to protect investors from misleading or fraudulent practices, including insider trading.

The SEC has also helped to establish a competitive national market system known as Intermarket Trading System (ITS) for trading securities, and set up a system for clearing and settling securities transactions.

All brokers and dealers registered with the Securities and Exchange Commission (SEC) are required to be SIPC members.

Traditionally, securities were physical documents, such as stock or bond certificates. But with the advent of electronic recordkeeping, paper certificates have increasingly been replaced by electronic documentation.

Self-amortizing loans can be bundled together and offered for sale as debt securities, such as those available through the Government National Mortgage Association (GNMA). If you buy GNMA or similar bonds, you get back part of your principal as well as the interest you've earned each time you receive an interest payment. There is no lump-sum repayment of principal when the bond matures.

These bodies establish the standards under which their members conduct business, monitor the way that business is conducted, and enforce their own rules. For example, the New York Stock Exchange (NYSE) requires that client orders delivered to the floor of the exchange be filled before orders that originate with traders on the floor, who buy and sell for their own accounts.

Suppose, for example, you sell short 100 shares of stock priced at $10 a share. When the price drops, you buy 100 shares at $7.50 a share, give them back to your broker, and keep the $2.50-per-share profit (minus commission). Of course, if the share price rises instead of falls, you may have to buy back the shares at a higher price and suffer the loss.

For stocks and bonds, the settlement date is three business days after the trade date, or what's referred to as T+3. For options and government securities, the settlement date is one day, or T+1, after the trade date. In figuring long- and short-term capital gains on your tax return, you use the trade date-the date you buy or sell a security-rather than the settlement date as the date of record.

In the case of mutual funds, class designations indicate the way that sales charges, or loads, are levied. Class A shares have front-end loads, Class B shares have back-end loads, also called contingent deferred sales charges, and Class C shares have level loads.

In practice, however, it is possible to gain control by owning less than 51% of the shares, especially if there are a large number of shareholders.

Short interest is often considered an indicator of pessimism in the market and a sign that prices will decline. However, some analysts see short interest as a positive sign, pointing out that short sales have to be covered, and that the need to repurchase can trigger higher prices.

In contrast, if you had been earning compound interest, you'd have $1,276.29 at the end of five years, since the interest you earned each year, as well as your principal, would have earned interest.

The SOES, which is designed to give individual investors open access to trading in a volatile market, was mandated by the Securities and Exchange Commission (SEC) after the stock market crash of 1987, when many small investors found themselves unable to sell their stocks as prices plummeted because they could not reach their brokers by telephone.

Small-cap stocks, which are tracked by the Russell 2000 Index, tend to be volatile, since they are issued by young, potentially fast-growing companies whose successes can't be guaranteed. Over the long term-though not in every period-small-cap stocks as a group have produced stronger returns than any other investment category. Mutual funds that invest in this type of stock are known as small-cap funds.

For example, a socially responsible fund might not buy shares of a manufacturing company that operates factories that fund managers consider sweat shops. Or the fund might not buy shares of a food company that sells out-of-date products in emerging markets. Since the priorities of these funds vary, you may need to do some investigating to find one that matches your values.

In some cases, the fact that a stock is identified as a special situation creates a flurry of investor interest and actually helps drive the price up even before the change has had time to take effect. A stock that is extremely volatile over the short term because of important recent news about the company, such as a takeover or spin-off, is also described as a special situation.

As principal, the specialist buys for his or her own account to help maintain a stable market in a security. For example, if the spread, or difference, between the bid and ask (the highest price offered by a buyer and the lowest price asked by a seller) gets too wide, and trading in the security hits a lull, the specialist might buy, sell, or sell short shares to narrow the spread and stimulate trading.

In contrast, hedgers buy futures and options to protect their financial interests. For example, a baker who buys a wheat futures contract in order to protect the cost of producing bread is a hedger. But someone who buys the same contract on the chance that contract will increase in value is a speculator.

The motives for spinoffs vary. In some cases, a company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up an Internet company to capitalize on investor interest. In other cases, a corporation may face regulatory hurdles in expanding its business and spin off a unit to be in compliance.

In some cases, a group of employees will assume control of the new entity through a buyout, an employee stock ownership plan (ESOP), as the result of negotiation.

Here's how spoofing works. Traders who own shares of a certain stock place an anonymous buy order for a large number of shares of the stock through an electronic communications network (ECN). Then they cancel, or withdraw, the order seconds later. As soon as the order is placed, however, the price jumps. Thats because investors following the market closely enter their own orders to buy what seems to be a hot stock and drive up the price.

When the price rises, the spoofer sells shares at the higher price, and gets out of the market in that stock. Investors who bought what they thought was a hot stock may be left with a substantial loss if the price quickly drops back to its prespoof price.

A cash sale, whether arranged in person, over the telephone, or electronically, is the opposite of a forward contract, where delivery and settlement are set for a date in the future, or a futures contract, which is an agreement to trade a commodity for a set price on a specific date in the future.

With fixed-income securities, such as bonds, the spread is the difference between the yields on securities having the same investment grade but different maturity dates. For example, if the yield on a long-term Treasury bond is 6%, and the yield on a Treasury bill is 4%, the spread is 2%.

The spread is also the difference in yields on securities that have the same maturity date but are of different investment quality. For example, there is a 3% spread between a high-yield bond paying 9% and a Treasury bond paying 6% that both come due on the same date.

Each quarter you receive a distribution based on the dividends paid on the stocks in the underlying portfolio, after trust expenses are deducted. If you choose, you can reinvest those distributions to buy additional shares.

Like an index mutual fund that tracks the S&P 500, SPDRs provide a way to diversify your investment portfolio without having to own shares in all the S&P 500 companies yourself. However, while the net asset value (NAV) of an index fund is set only once a day, at the end of trading, the price of SPDRs, which are listed on the American Stock Exchange (AMEX), changes throughout the day, reflecting the constant changes in the index.

To create the indexes, about half the 1,500 companies tracked in the S&P equity indexes are assigned to the value index and about half to the growth index, based on book-to-price ratio, or the book value of a stock divided by its market capitalization.

The value index includes companies with higher book-to-price (B/E) ratios, and the growth index includes companies with lower B/E ratios. Both indexes are rebalanced and adjusted on a regular schedule to reflect changes in the stocks' market capitalizations and in the underlying S&P indexes.

Some analysts use standard deviation to predict how a particular investment or portfolio will perform. They calculate the range of the investment's possible future performances based on a history of past performance, and then estimate the probability of meeting each performance level within that range.

For example, if you owned 100 shares, and there were three candidates, you could cast 100 votes for each of them. That means the shareholders owning greater numbers of shares have greater influence on the outcome of the election.

In cumulative voting, on the other hand, a shareholder may cast the total number of his or her votes-one vote for every share of stock multiplied by the number of candidates for the board-for or against a single nominee, divide them between two nominees, or cast an equal number of shares for each of them.

For example, if you owned 100 shares, and there were three candidates, you could cast 300 votes for one of them and ignore the others. With this system, people owning a smaller number of shares can concentrate on one or two candidates. So they may have a better chance of influencing the makeup of the board.

For example, if your father bought 200 shares of stock for $40 a share in 1965, and you inherited them in 2001 when they were selling for $95 a share, they would have been valued at $95 a share. If you had sold them for $95 a share, your cost basis would have been $95, not the $40 your father paid for them originally. You would not have had a capital gain and would have owed no tax on the amount you received in the sale.

In contrast, if your father had given you the same stocks as a gift, your basis would have been $40 a share. So if you sold at $95 a share, you would have had a taxable capital gain of $55 a share (minus commissions).

In the past, as a shareholder you received a paper stock certificate-called a security-verifying the shares you owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.

Stock certificates are being phased out, however, and replaced by electronic records. That means you don't have to safeguard the certificates, and can sell them by giving an order over the phone or on the Internet. The chief objection that's been raised to the new system is largely nostalgic and esthetic, since the certificates, with their finely engraved borders and images, are distinctive and often beautiful.

Stock options are also a form of employee compensation that gives employees-often corporate executives-the right to buy shares in the company at or below market price. Often, these options are restricted, which means there are certain conditions, such as particular time periods, under which employees can exercise their options and sell the stock. If the stock price rises enough, and an employee has a substantial number of options, the rewards can be extremely handsome.

A 2-for-1 stock split, for example, doubles the number of outstanding shares. So if you own 100 shares of a stock priced at $50 a share, for a total value of $5,000, and the company's directors authorize a 2-for-1 stock split, you would own 200 shares priced at $25, with the same total value of $5,000.If the stock again increases in value, and the price moves back up to its presplit price, you would own 200 shares valued at $50 a share, for a total value of $10,000.

Announcements of stock splits, or anticipated stock splits, often generate a great deal of interest in a stock, since it becomes attractive to buyers who want to take advantage of the lower share price or believe that the split stock will soon increase in value.

While 2-for-1 splits are the most common, stocks can be also be split 3-to-1, 10-to-1, or in any other combination. In addition, a company can reverse the process and consolidate shares to reduce the number of shares outstanding in a reverse stock split.

Once the stop price is reached, your order becomes a market order. If the price dropped very quickly, and other orders had been placed before yours, the stock could actually end up selling for less than $30. You can give a stop order as a day order or as a good-till- canceled (GTC) order.

In either case, once the stop price has been reached, your broker will execute the order even if a flurry of trading drives the stock's price up or down quickly. That might mean you end up paying more than the stop price if you're buying or get less than your stop price if you're selling.

A stop-limit order can protect you from a rapid run-up in price-such as those that sometimes occur when there's an initial public offering (IPO) in a hot stock-but you also run the risk that your order won't be executed because the stock's price leapfrogs your limit.

To use a straddle, you buy an equal number of put options (to sell a particular underlying investment) and call options (to buy the same underlying investment) at the same strike price. On or before the expiration date, at a point at which your potential profit on one half of the straddle outweighs your potential loss on the other half, you can exercise, or offset, the options, making more on one than you lose on the other. That spread, or difference in price, minus what the options cost you, is your profit.

Although straddling costs more than buying puts or calls alone, you may increase your chance of making money (and reduce your chances of losing money) by hedging your investment in this way.

A strangle is essentially a bet that the stock will be valued between these two strike prices so you can exercise your options before they expire, realizing a greater profit on one of them than you lose on the other. For example, if a stock is selling at $100 a share, you might strangle it by buying call options at a higher strike price (say $110 a share) and put options at a lower strike price (say $90 a share). If the value of the underlying investment moves dramatically toward either strike price, you stand to benefit. If not, the strategy has not paid off. A strangle costs less than a straddle, but because both options are out of the money, the likelihood of making a profit is also smaller.

In addition, having your broker hold your stocks in street name is often safer because it reduces the risk of losing or misplacing the certificates.

As a result, the underlying investment might be selling at a price that would make buying at the strike price a good deal, or it might not. If not, you simply let the option expire.

The issuing company's financial instability makes stub stock a volatile investment. But if the company regains its strength, stub stock can increase dramatically in value.

Rights are transferable, and may be bought and sold on the secondary market. They expire quickly-generally within a month-so you typically must act promptly to take advantage of them.

More complex swaps, including interest rate swaps and currency swaps, are used by corporations doing business in more than one country toprotect themselves against sudden, dramatic shifts in currency exchange rates or interest rates.

For example, the prices of existing bonds characteristically drop when interest rates go up. So a systematic or market risk of owning bonds is that you would probably realize less than the par value of a bond if you sold it in the secondary market after a jump in interest rates. That loss of value, however, would not reflect whether or not the individual bond was a good credit risk.