You can choose a fixed immediate annuity, which guarantees the amount of income as well as the terms of the contract, or a variable immediate annuity, where the income generated is based on the performance of the investment portfolios, or subaccounts, that underlie the contract.

For example, if you have a call option with a strike price of $50, and the current market price of the stock is $52, you're in the money, since you could buy the stock at $50 and sell it at $52. In-the-money options are generally among the most actively traded, especially as the expiration date approaches.

If, after exercising the options, participating executives keep the shares they receive for the required period, any earnings on these shares are taxed at the capital gains rate. However, stock option transactions may make sellers vulnerable to the alternative minimum tax (AMT).

You might buy an income annuity with assets from your 401(k) plan, or your plan may buy an income annuity on your behalf. The annuity provider guarantees an income that will satisfy your minimum required distribution.

Another reason two indexes seem to produce different results is that some indexes are weighted and others are not. Weighting means giving more significance to some elements in the index than to others. For example, a market capitalization index weighs larger companies more than smaller companies.

Stock market indexes
Index	Exchange	Net Chg	Pct Chg
Nikkei Average	Tokyo	-32.0	-0.16
Topic Index	Tokyo	+6.55	+0.40
FT30- share	London	-6.3	-0.28
100- share	London	-2.4	-0.08
Gold Mines	London	-9.8	-4.10
DAX	Frankfurt	+63.94	+3.72
Swiss Market	Zurich	+24.9	+1.05
CAC 40	Paris	+36.64	+1.89
Stock Index	Milan	+22.0	+1.87
ANP-CBS General	Amsterdam	+2.2	+0.96
Affars- varlden	Stockholm	+8.7	+0.79
Bel-20 Index	Brussels	+8.89	+0.70
All Ordinaries	Australia	+8.7	+0.49
Hang Seng	Hong Kong	-18.72	-0.26
Straits Times	Singapore	-0.21	-0.01
J'burg Gold	Johannes- burg	-121.0	-5.78
General Index	Madrid	+1.11	+0.43
I.P.C.	Mexico	+37.11	+2.24
300 Composite	Toronto	-51.86	-1.81
MCSI	Euro, Aust, Far East	-2.5	-0.28

Each index fund aims to keep pace with an index, not to outperform it. This strategy can be successful during a bull market, when an index reflects increasing prices. But it may produce disappointing returns during economic downturns, when an actively managed fund might take advantage of investment opportunities where and when they arise.

Because the typical index fund's broadbased portfolio is not actively managed, most index funds have lower-than-average management costs and smaller expense ratios. That means less of the fund's growth goes to pay expenses, and more can be returned to the fund's investors. However, not all index funds provide the same level of performance.

The current components are the average work week, average initial claims for unemployment benefits, manufacturers' new orders for consumer goods and materials, vendor performance (how quickly companies receive deliveries from suppliers), plant and equipment orders, building permits, stock prices of 500 common stocks, the M2 money supply, the interest rate spread, and the index of consumer expectations.

However, since changes in an index are difficult to predict, index options tend to be very volatile. And the further out the expiration date for exercising an index option, the more volatile the option tends to be. Most trading in index options takes place on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Chicago Board Options Exchange (CBOE).

There are two types of retirement IRAs, traditional and Roth, which have different qualification, contribution, and withdrawal rules. For example, you can contribute to a traditional IRA regardless of your income, and some people, depending on their income and participation in an employer-sponsored retirement plan, can deduct all or part of their annual contribution on their tax returns as well.

Withdrawals from traditional IRAs must begin by age 70 1/2, and all earnings (plus any deductible contributions) are taxed at your current tax rate as they are withdrawn. Withdrawals from Roth IRAs are tax-free after you reach age 59 1/2, provided the account has been open at least five years. In addition, Roth IRAs have no required withdrawals.

An inefficient market is the opposite of an efficient one, where it's assumed that investors know everything there is to know about the securities they are buying.

Among the more obvious methods used by the Fed are raising the federal discount rate (the rate the Fed charges member banks on loans) and/or the federal funds rate (the rate that banks charge to lend money to other banks overnight). That reduces the money available for investment and spending, since the banks, in turn, raise the rates they charge borrowers.

Hyperinflation, when prices rise by 100% or more annually, can destroy economic, and sometimes political, stability by driving the price of necessities higher than people can afford.

Since inflation diminishes the buying power of your money, it's important that the rate of return on your overall investment portfolio be greater than the rate of inflation. That way, your money grows rather than shrinks in value over time.

For example, inflation-indexed Treasury notes pay a fixed interest rate but offset the effects of inflation by adjusting your principal periodically, based on the Consumer Price Index for all Urban Consumers (CPI-U). If you buy a $1,000 inflation-indexed Treasury, the interest will be calculated and paid twice a year on the inflation-adjusted principal, which will increase over time.

You owe federal income tax on these inflation adjustments each year, as well as on the interest, even though you don't receive the increases until the security matures. These securities also provide a safeguard against deflation since they guarantee that you'll get back no less than par, or face value, at maturity.

If a small company experiencing rapid growth goes public, it usually means good news for the company's original investors, since the market value of their holdings tends to increase substantially. Any company planning an IPO must register with the Securities and Exchange Commission (SEC).

This type of trading is perfectly legal, provided it's based on information available to the public. But insider trading is illegal if the buy or sell decision is based on knowledge of corporate developments-such as an executive change, an earnings report, or an acquisition or a takeover-that has not yet been made public.

It is also illegal for people who are not part of the company, but who gain access to private corporate information-such as lawyers, investment bankers, or relatives of company officials-to trade the company's stock based on this inside information.

Using Instinet's sophisticated electronic network, these investors can trade directly and anonymously with each other in more than 40 global markets. Or, using Instinet brokers, the investors can place orders on all US exchanges and many overseas exchanges, including those that aren't automated.

If you're married, you may set up an insurance trust to buy a second-to-die policy, which pays face value at the death of the second spouse. That allows either you or your spouse to leave all assets to the other, postponing potential estate tax until the second one of you dies. At that point, the insurance benefit is available to pay any tax that might be due.

Interest also refers to the income, figured as a percentage of your principal, that you receive for buying a bond, putting money into a bank, or making other fixed-income investments. Interest is also a share or right in a property or asset. For example, if you are part-owner of a vacation home, you have an interest in it.

But if you paid either more or less than the face value, the rate and the yield will be different. For example, if you paid $1,100 for a bond with a face value of $1,000 paying 6% interest, you'd receive an annual yield of 5.45% ($60 ÷ $1,100 = .0545, or 5.45%).

Similarly, the percentage of the principal you pay on a loan is also called the interest rate.

INTEREST RATE
Rate x Face value   Annual interest
6% x $1,000   $60 Per year

It connects National Association of Securities Dealers (NASD) market makers, and New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and regional exchange specialists who make a market in the same security. The electronic system displays bid and ask prices for securities in each of the markets so that brokers are able to trade in the market where they can get the best price.

Intermediate bonds work well in an investment strategy known as laddering, which involves buying bonds with staggered maturity dates so that portions of your total investment mature in different years.

Some international funds focus on countries with established economies, some on emerging markets, and some on a mix of the two. US investors, for example, buy funds that invest in other markets to diversify their portfolios, since owning a fund is usually simpler than investing in individual securities abroad. A different group of funds, called global or world funds, also invest in overseas markets but typically keep a substantial portion of their portfolios in US securities.

Investment banks are also responsible for preparing the company prospectus, which presents important data about the company to potential investors. In addition, investment banks handle the sales of large blocks of previously issued securities, including sales to institutional investors, such as mutual fund companies. Unlike a commercial bank or a savings and loan company, an investment bank doesn't provide retail banking services to individuals.

In addition, clubs may pay lower commissions than individual investors, as a result of arrangements they make with a brokerage firm or through the National Association of Investors Corporation (NAIC). NAIC also provides information on how to get an investment club started and supplies support services to existing groups.

For example, an open-end investment company might offer an aggressive-growth fund, a growth and income fund, a US Treasury bond fund, and a money market fund. Or a closed-end investment company might offer an international fund focused on a single country, such as Ireland, or a region, such as Latin America. The term investment company is often used to describe a mutual fund company to distinguish the company from the funds that it offers.

The highest quality bonds-rated BBB and higher by S&P or Baa and higher by Moody's-are considered investment grade. That means their issuers are likely to meet their obligations by paying the interest due and paying off the bonds when they mature.

If you don't, you risk owing tax on any amounts you haven't deposited, as well as owing a penalty for making an early withdrawal. You can generally avoid this problem by arranging a direct transfer from your plan to the IRA.

If you're moving the money in an employer's retirement plan to an IRA yourself, the plan administrator is required to withhold 20% of the total. That amount is refunded after you file your income tax return, provided you've deposited the full amount into the new account on time, including the 20% that's been withheld.

In this case, too, any amount you don't deposit is considered a withdrawal, and you'll have to pay tax on it, and possibly a penalty for early withdrawal as well. Again, you can avoid this problem by arranging a direct transfer from your old plan to the new IRA rollover. That way, nothing is withheld.

IRA rollover

PROS

- Make investment decisions at your own pace

- Enjoy tax-deferred or tax-free growth

CONS

- Responsible for your investment decisions

- May have to begin withdrawals by 70 1/2