A mutual fund that focuses on the distribution of income and capital gains to fund holders. These funds are becoming more popular as our population ages because they are aimed at income replacement, something that is crucial as traditional employer-sponsored pension plans disappear.

Also known as "Open-End Managed-Payout Funds."

Different features are offered depending on the structure of the fund. Some funds specify a specific monthly payout, while for others the payment is variable and based on portfolio performance. Some funds will deplete the investors principle, while others will maintain it.

No matter the structure of the fund, it is very important to note that the payments and principle depletion or retention is not contracted - unlike annuities. Although the fund may plan to have a specific inflation-adjusted payout and principle retention strategy, if portfolio performance does not allow for it, there is no obligation by the fund managers to adhere.