|
|
 |
 |
 |
 |
 |
 |
|
|
Glossary of Financial Terms |
 |
 |
 |
 |
|
|
|
ABCDEFGHIJKLMNOPQRSTUVWXYZ
AAA/AaA high grade assigned to a debt instrument (bond) by a rating agency. Such a rating indicates a very strong capacity to pay interest and repay principal. AAAThe highest grade assigned to a debt obligation (bond) by a rating agency. Such a rating indicates an unusually strong capacity to pay interest and repay principal. Above parDesignating a security that sells at greater than face value or par value. Also premium. Accrued interestInterest that has accumulated on a bond between the last payment and the current date. Important when selling a bond; the buyer pays the price of the bond plus any interest that has accrued. AccumulationThe purchase of shares based on a regular schedule. Accumulation UnitA variable annuity owner buys this when building up a separate account. Subsequently, the account balance is annuitized. To calculate an accumulation unit\'s purchase price or value, divide the total assets in the separate account by the outstanding number of accumulation units. Actual Net Investment Return (ANIR)The actual return of a separate account for a given year. This investment result is capital gains (both realized and unrealized) and current income. ANIR is compared to the AIR for both variable life insurance and variable annuity contracts to determine benefits adjustments. Additional voluntary contributionsAfter-tax contributions an employee makes to a 401(k) plan beyond what the employer will match, and often beyond the maximum pretax investment. Adjusted gross incomeAmount of income which is subject to federal income tax. In addition to any other tax credits, contributions to IRAs and 401(k) plans are subtracted from the total, so that the adjusted gross income will be lower, as will the amount of tax paid. AggressiveRelating or referring to an investment philosophy that seeks above-average returns by accepting above-average risk. American Depository Receipts (ADR)Foreign stocks, denominated in American dollars, that are traded on a U.S. stock exchange. American Stock Exchange (AMEX)The second largest exchange in the U.S., specializing in small-to-medium size companies. Annualized returnsReturns that reflect a security\'s yearly rate of return. See cumulative returns. AnnuitantPerson who receives annuity benefit payments. AnnuityContract issued by a life insurance company, which promises to make periodic payments to the buyer over a set period of time. Payments are made to individuals, referred to as annuitants. Annuity PeriodAlso referred to as the payout or liquidation period. This is the period during which assets supporting the annuity are sold to make payments to annuitants. AppreciationAn increase in value of an asset. Asset allocationThe assignment of investment funds to a broad category of assets. Asset allocatorManagers who capitalize on the cyclical behavior of the economy and of market price trends by altering the level of equity or fixed income exposure in anticipation of these cycles. Assumed Interest Rate (AIR)The AIR, or assumed investment rate, is an estimate of expected investment results for separate account assets supporting a variable annuity or variable life insurance product. Return to top
BBB/BaA higher speculative grade assigned to a debt obligation (bond) by a rating agency. Such a rating indicates significant speculative elements and moderate ability to pay interest and repay principal. BBB/BaaA medium-grade assigned to a debt obligation (bond) by a rating agency. Such a rating indicates an adequate ability to pay interest and repay principal. This is the lowest level to be considered investment grade. BackdatingPermitting a mutual fund shareholder to use previous purchases of a fund\'s shares to qualify for reduced commission charges on subsequent purchases. Balanced fundA type of mutual fund that spreads its investments among stocks and bonds. Essentially, a balanced fund is a middle-of-the road fund that balances its portfolio to achieve both moderate income and moderate capital growth. Bank trust departmentDepartment of a bank that handles estate planning, guardianships and trusts for individuals or families with a high net worth. Trust funds are typically conservative investors, but are highly influential because of the large amounts of money they manage. Banker\'s acceptanceA short-term credit instrument created by a non-financial firm and guaranteed by a bank as to payment. These instruments are commonly found in money market funds. Basis pointOne one-hundredth of a percent (1/100 of 1%). Commonly expressed as 0.01. BearAn investor who believes a security or the security market in general will follow a general downward path. Bearer bondA debt instrument having no owner\'s name on the issuer\'s books and no name inscribed on the certificate. Bear marketAn extended period of general price declines in the securities market. BellwetherA stock whose performance is indicative of the overall market direction. Below parDesignating a security that sells at less than face value or par value. Also discount. BetaA measure indicating the sensitivity of the rates of return on a portfolio or a security compared to the rates of return on the market as a whole. Blanket recommendationPurchase recommendation sent to all customers of a brokerage firm regardless each customer\'s investment objectives. Blue chipA very high quality investment involving a lower-than-average risk of loss of principal or reduction in income. Blue sky lawsSecurities regulations issued by states. These laws vary from state to state and are often more extensive than the laws enforced by the Securities and Exchange Commission. Board of directorsThe body of people responsible for supervising the affairs of the corporation. Boiler roomCold-calling operation in which hard-sell salespeople peddle questionable stocks. Often illegal, and always frowned on by the National Association of Securities Dealers, solicitations from these companies should be avoided. BondA long-term promissory note that obligates the borrower to make specified payments over a specific period of time. Bonds vary widely in maturity, security and type of issuer, although most are sold in $1,000 denominations. Bond dividendA dividend paid in the dividend payer\'s bonds. Bond ratingThe grading of a debt security with respect to the issuer\'s ability to meet interest and principal payments in a timely manner. See AAA, AA/Aa, BBB/Baa, BB/Ba. Book valueThe net dollar value at which an asset is carried on a firm\'s balance sheet. BullAn investor who believes the price of a security or the security market will follow a broad upward trend. Bull marketAn extended period of general price increases in the securities market. Return to top
CCallable bondA bond that is subject to the redemption by its issuer before maturity. Capital gainThe excess by which proceeds from the sale of a capital asset exceeds the cost. Capital gains distributionPayment to investment company (mutual funds) shareholders based on gains from securities in the firm\'s portfolio that have been sold. CapitalizationThe company\'s stock price per share multiplied by the total number of shares outstanding. - Small cap: less than $1.5 billion
- Mid cap: between $1.5 billion and $10 billion
- Large cap: over $10 billion
CashBalance sheet asset that includes paper money, bank balances and highly liquid securities such as money markets and U.S. government securities. Mutual funds tend to maintain a cash position of 5% to 10% Cash dividendDividend paid in cash to holders of a firm\'s stock. Certficate of deposit (CD)A receipt for a deposit of funds in a financial institution that permits the holder to receive interest plus the deposit at maturity. Clone fundA mutual fund started by another mutual fund having grown so large that its management feels the fund is limited as to the investments it can make. Closed-end investment company (closed-end mutual fund)An investment company (mutual fund) that issues a limited number of shares and does not redeem those that are outstanding. Purchase of shares of a closed-end investment company must occur on the exchanges or over-the-counter-market. Commercial paperA short-term unsecured promissory note issued by a finance company or a large industrial firm. Commonly found in money market funds. Common stockA class of stock that has no preference to dividends or any distribution of assets. Common stock fundA mutual fund that limits its investment to shares of common stocks. Also equity funds, stock funds. Compound interestInterest paid on interest from previous periods in addition to principal. Consumer price index (CPI)A measure of the average change over time in the prices paid by urban consumers for a fixed "market basket" of day-to-day expenses (including food, automobile registration, clothing, etc.). ContrarianAn investor who decides which securities to buy and sell by going against the crowd. Convertible securityA security that, at the option of the holder, may be exchanged for another asset, generally a bond for a fixed number of shares of common stock. Corporate bond fundAn investment company (mutual fund) that invests in long-term corporate bonds and passes the income on these securities to its shareholders. CorrectionReverse movement in the price of an individual stock, bond, commodity or index after any long-term move. Can be a movement up or down, but usually refers to a fall in the price. Correlation coefficientStatistical measure of the relationship between the movements of two variables. Often used to describe similar movements in prices of two stocks. CouponThe annual interest paid on a debt instrument. CovarianceCorrelation between two securities multiplied by the standard deviation for each. Credit ratingA grading of a borrower\'s ability to meet financial obligations in a timely manner. Current maturityThe length of time before a security matures. Current yieldThe annual rate of return received from an investment\'s current market value. Calculated by dividing the coupon rate by the current value of the bond. CustodianFinancial institution -- usually a bank -- that keeps custody of stock certificates and other assets of a mutual fund, individual or corporate client. Cyclical stockCommon stock of a firm whose profits are heavily influenced by cyclical changes in general economic activities. Return to top
DDebentureA corporate bond that is not secured by specific property. Debt securityA security representing borrowed funds that must be repaid. Also bond, liability. Deep discount bondBond selling at more than 20% off its face value. Default riskRisk that a particular debtor will fail to make timely payments of interest and principal. Interest rates on a debt instrument rise as the default risk increases. Risk is usually determined by a ratings agency such as Moody\'s or Standard and Poor\'s. Defensive stockA stock that tends to resist general stock market declines. Defined benefit pension planRetirement plan in which a fixed amount is paid to the employee after a certain number of years of service. Contributions are usually made by the employer. Defined contribution pension planRetirement plan -- including 401(k), 403(b) and 457 plans -- in which the employee makes a fixed contribution but is paid out according to the performance of the investments. DerivativeA contract whose value is based on the performance of an underlying security. Discount bondA bond that is selling at less than its par value. Discount brokerBrokerage house that executes trades at significantly lower commission rates than those offered by full-service brokerages. DiversificationMinimizing risk by investing in a wide range of securities invested in many industries. DividendA share of a company\'s net profits distributed by the company to a class of its stock holders. Dividend yieldAn equity characteristic commonly used as a value indicator. Calculated by dividing the indicated dividend rate for the next 12 months by the current price. Dollar-cost averagingInvestment of an equal amount of money at regular intervals resulting in the purchase of more shares during market downturns and fewer shares during market upturns. Dow Jones Industrial Average (DJIA)A widely quoted measure of stock market price movements of 30 large, seasoned industrial firms. Downside riskChance that a security will decline, and estimate of how much the decline might be, given factors affecting its performance. DurationA risk measure for a bond or bond portfolio which indicates its price sensitivity to a percentage change in interest rates. The longer the duration, the more interest-rate sensitive the bond. Return to top
EEarly withdrawal penaltyCharge levied on a person who withdraws from an investment before the agreed withdrawal time. EarningsIncome of a business, typically, after-tax income but may refer to before-tax income or revenues. Earnings per shareThe amount a stock will pay in income or dividends. Economic indicatorsStatistics such as unemployment, inflation and factory utilization that analysts use to predict the direction of the overall economy. Efficient frontierA graph representing a set of portfolios that maximizes expected return at each level of portfolio risk. Efficient marketA market in which security price reflect all available information and adjust instantly to any new information. Efficient portfolioA combination of investments offering the highest possible yield at a given level of risk or the minimum possible risk at a given yield level. Emerging growth stockThe common stock of a relatively young firm operating in an industry with very good growth prospects. This kind of stock offers unusually high returns, it is also very risky because the expected growth may not occur. Emerging marketMarket in a country which does not have a fully developed economy. Mexico is the nearest example. Investments in these markets are usually characterized by a high level of risk and possibility of a high return. Emerging Market stocksStock of companies located in developing nations. Emerging markets share certain characteristics. Politically and economically, these countries are not considered to have reached the degree of stability associated with developed nations, and are considered to have a lesser degree of economic sophistication. The benchmark for this asset class is the Morgan Stanley EAFE Emerging Markets. Employee Retirement Income Security Act (ERISA)A 1974 act that protects the retirement income of pension funds participating by setting standards for eligibility, performance, investment selection, funding and vesting. Employee Stock Ownership Plan (ESOP)A qualified retirement plan in which employees receive shares of the company stock Energy stockThe stock of a company engaged in an energy-related business such as coal-mining, oil-refining, or electric power generation. EquitySee stock Equivalent taxable yieldThe taxable return that must be achieved in order to equal, on an after-tax basis, a given tax-exempt return. Estimated taxAn estimate of tax that will be owed by a corporation or individual in the coming year. EurobondA bond issued and traded in countries other than the one in which the bond is denominated. EurodollarDollar-denominated deposits in foreign banks or foreign branches of U.S. banks. European Community (EC)A group of Western European countries joined together to promoted trade and economic and political operation. Formerly European Economic Community (EEC). Ex-dividend dateThe first day of trading when the seller, rather than the buyer, of a security will be entitled to the most recently announced dividend payment. Expected rate of returnThe rate of return expected on an asset or a portfolio. Expense ratioThe proportion of assets required to pay annual operating expenses and management fees of a mutual fund. Return to top
FFamily of fundsA group of mutual funds operated by the same investment management (mutual fund) company. Fannie Mae1. Federal National Mortgage Association (FNMA). A privately owned profit seeking corporation that adds liquidity to the mortgage market by purchasing loans from lenders. 2. A security issued by FNMA that is back by insured and conventional mortgages. Federal Deposit Insurance Corporation (FDIC)The federal agency that insures deposits at a commercial bank to a limit of $100,000 per depositor. Federal fundsReserve balances above those required that are maintained by commercial banks in the Federal Reserve System. Federal funds rateThe rate of interest, determined by the Federal Reserve, on overnight loans of excess reserves among commercial banks. A declining federal fund rate may indicate the Federal Reserve has decided to stimulate the economy by making it cheaper for one bank to borrow from another. Freddie Mac1. Federal Home Loan Mortgage Corporation (FHLMC). A government organization established in 1970 to create a secondary market in conventional mortgages. The FHLMC purchases mortgages from federally insured financial institutions and resells them in the form of mortgage-backed, pass-through certificates. 2. A security issued by the FHLMC secured by pools of conventional home mortgages. Federal Reserve BoardThe seven governing members of the Federal Reserve System who determine the country\'s monetary policy. Federal Reserve SystemThe independent central bank that influences the U.S.\'s supply of money and credit through its control of bank reserves. FiduciaryA person who has discretionary authority or control over a qualified plan trust, its assets, or its administration, or who for compensation provides investment advice regarding plan assets. Financial plannerInvestment professional who performs an analysis of an individual\'s circumstances and prepares a program to meet the investor\'s objectives. Fixed annuityAnnuity that guarantees fixed payments to the annuitant, either for life or for a set period of time. Fixed-income securityA security, such as a bond or preferred stock, that pays a constant income each period. 401(k) planPlan in which employees elect to contribute pretax dollars to a qualified tax-deferred investment plan. 403(b) planA type of individual retirement account offered to employees of non-profit organizations. Fourth marketDirect trading of large blocks of securities between institutional investors. This allows the big money managers to avoid brokerage fees. Full coupon bondBond whose coupon is at or above current interest rates. Full service brokerA broker who, in addition to executing trades, offers investment advice, tax shelters, asset management, financial planning and other services. Fund of fundsA mutual fund that invests in other mutual funds. They offer more diversification than a single fund, but also have a higher expense ratio because of the fees for the underlying funds. Following the scandal over the IOS Fund of Funds in the1970s, funds of funds fell out of favor and were severely limited by the Securities and Exchange Commission. They are now becoming more popular, and the SEC has been flexible in allowing them to be created. Fund switchingSelling shares in one mutual fund and re-investing the proceeds in another mutual fund. Futures contractContract to buy or sell a security or commodity at a predetermined price at some future date. Return to top
GGeneral obligation bond (GO)A municipal debt obligation in which interest and principal payments are guaranteed by the full financial resources and taxing power of the issuer. Ginnie Mae1. Government National Mortgage Organization (GNMA). A government owned corporation that acquires, packages, and resells mortgages in the form of mortgage-backed securities. 2. A security backed by the Federal Housing Administration (FHA), Veterans Administration (VA) and Farmers Home Administration (FHA). Global fundA mutual fund that includes at least 25% foreign securities in its portfolio. Go longPurchase a security for investment, hoping that its price will rise. Go shortBorrow and sell a security one does not own, hoping its price will fall. GovernmentsSecurities such as Treasury bills and bonds issued by the U.S. government. The most creditworthy of all debt instruments. Gross earningsTotal amount of pretax earnings before deductions are made. Gross national product (GNP)The dollar output of final goods and services in the economy during a period of time. Growth stockThe stock of a firm that is expected to have above-average increases in revenues and earnings. These firms normally retain most of their earnings for reinvestment and therefore pay small dividends. Growth stocks tend to have dividend yields below that of the market average, valuation levels above the market average, and volatility above the market average. A growth fund will tend to have a greater amount of portfolio turnover (purchases and sales). Guaranteed Insurance Contracts (GIC)Contracts issued by an insurance company or bank promising a stated nominal interest rate over a specified period of time. Return to top
HHaircutFormula to evaluate a security\'s worth in order to determine a broker-dealers net worth. Hedge fundA very specialized, volative investment company (mutual fund) that permits the manager to use a variety of investment techniques normally prohibited in other types of funds. These techniques are borrowing money, selling short and utilizing options. These funds offer extraordinary gains with above-average risk. Hidden loadSales charge that is not immediately apparent to the investor. Hidden valuesAssets, such as real estate, that are owned by a company but not reflected in the balance sheet. HighsStocks that have hit their highest price for a 52-week period. High-technology stockThe stock of a company involved in sophisticated technology such as electronics, computer software, robotics or life sciences. Historical yieldYield produced by a mutual fund such as a money market fund over a period of time. HoldOwn a security for an extended period of time. The buy-and-hold strategy maintains that stocks\' value will increase over time. Return to top
IIlliquidNot easily sold. Incentive stock optionProgram in which qualifying options are free of tax at the date of grant and the date of exercise. Income fundAn investment company (mutual fund) whose main objective is to achieve current income for its owners typically purchasing bonds, preferred stocks and common stocks paying high dividends. Income stockA stock with a relatively high dividend yield. IndexStatistical composite that measures changes in the economy or in financial markets, can be expressed in percent changes from a base year or from the previous month. Most common are the S&P500 and the Dow Jones Industrial Average. Index fundA mutual fund that keeps a portfolio of securities designed to match the performance of a certain market as a whole. IndustrialTerm for any company that produces goods or services and is not a utility. InflationA general increase in the price level of goods and services. Initial Public Offering (IPO)The first sale of a corporation\'s stock to the investing public. Insider tradingBuying or selling stocks by a company\'s management or large shareholders based on information that has not yet been made public. Institutional investorOrganization that trades large volumes of securities. Insured accountBank, savings and loan or other account that is insured by a federal or private insurance corporation. InterestPayment for the use of borrowed money. Interest-sensitive stockA stock that tends to move in the opposite direction from that of interest rates. Intermediate term bondsDebt securities with maturities of one to ten years. The benchmark for this asset class is the Lehman Brothers Intermediate Bond Index. International bondsDebt securities of any country. The benchmark for this asset class is the JP Morgan Global Bond Index. International developed country stocksStock of companies located in developed nations. Developed nations are defined by the World Bank having a minimum gross national product of about $10,000 per person. Their markets share certain characteristics, such as having been in operation a long time, having reached a certain size and stability, and having attained a degree of sophistication. The benchmarks for this asset class are Morgan Stanley Asia Ex-Japan, Morgan Stanley Europe 14, and Morgan Stanley Japan. International fundA mutual fund that invests only outside the country in which it is located, i.e. an international mutual fund based in the U.S. would only invest in stocks outside of the U.S. Inverse floaterDerivative whose coupon rate moves in an inverse manner to the market interest rate. Investment companyA firm in which investors pool their funds for the sake of diversification and professional management. Also mutual fund. See closed-end fund, open-end fund. Investment Company act of 1940Legislation establishing general regulations and investment standards for mutual funds. Investment gradeDesignating a bond suitable for purchase by institutions under the prudent man rule. Typically BBB from S&P or Baa from Moody\'s. Investment objectiveFinancial goal of an investor used to determine appropriate investments. Individual Retirement Account (IRA)A custodial account or trust in which individuals may set aside earned income in a tax-deferred retirement plan. IRA RolloverReinvestment of a lump-sum distribution from an IRA or 401(k) plan when physical receipt of funds has been taken by the investor. Investment strategyAllocating assets among stocks, bonds, cash and cash equivalents and other securities. Return to top
JJunior securityA security with a lower claim to assets and income than a senior security. Important in determining who gets what in a bankruptcy. Junk bondsDebt issued by a company whose credit rating is below investment grade (BBB for S&P and Baa for Moody\'s). Because there is a considerable amount of risk, the company must offer a high coupon to make the bond attractive to investor. The risk of default is much greater than that with investment grade bonds. Justified priceFair market price for a security, commodity, piece of real estate or other asset, based on all available knowledge about the asset. Return to top
KKeogh planA federally approved retirement program that permits self-employed people to set aside for savings up to $30,000 or up to 25% of their income, whichever is lower. Key industryIndustry, such as automobile production, that is central to a nation\'s economic health. Keynesian economicsThe economic philosophy espoused by John Maynard Keynes that advocated an active government role in maintaining the economy. KitingCollusion between buyer and seller to drive up a stock\'s price through trading. Any manipulative trading practice designed to inflate stock prices. Know Your CustomerEthical guideline recognized by most regulatory authorities that states a broker-dealer must ascertain certain basic information about a client prior to opening an account. Return to top
LLadder portfolioA bond portfolio with bonds that mature in equal amounts each year or over a specific period of time. Lagging economic indicatorAn economic or financial variable, the movements of which tend to follow the movement of overall economic activity. Large-capitalization stockThe stock of a big company that has considerable retained earnings and a large amount of common stock outstanding. Typically, a market capitalization of over $3 billion. Large-cap growth stocksStock of companies with market capitalization between $10 and 100 billion, with a growth bias. The benchmark for this asset class is S&P BARRA Growth. Large-Cap value stocksStock of companies with market capitalization between $10 and 100 billion, with a value bias. The benchmark for this asset class is S&P BARRA Value. Leading economic indicatorAn economic or financial variable that tends to move ahead of and in the same direction as general economic activity. Leveraged buyoutTakeover of a company that is financed with debt. Leveraged stockStock that is purchased with credit, as in a margin account. Life annuityAnnuity that makes a fixed payment for the life of the annuitant. Life cycle fundAlso called a lifestyle fund. A mutual fund that seeks to tailor investments to the changing needs of the investor. Life expectancyAge to which a person is expected to live, as determined by an actuary. Limited partnershipCorporation made up of a general partner and several limited partners, investors who have limited liability and do not take an active role in management. Liquid assetA security that can easily be sold for cash. LiquidityMeasurement of how easily an asset can be sold without affecting its price. Listed securityStock or bond that is accepted for public trading on one of the major exchanges or marketplaces. Listing requirementsCriteria that a security must meet in order to be listed on an exchange. LoadThe sales fee that the buyer pays in order to acquire a security, typically a mutual fund. Load fundA mutual fund with shares sold at a price including a sales charge of the net amount invested. Long positionOwnership of a security, with attendant rights to income, dividends, etc. Long-term bondsDebt securities with maturities of 10 to 30 years. The benchmark for this asset class is the Lehman Government Long Bond Index. Long-term goalsFinancial goals set by an investor for a period of five years or more. Long-term investorInvestor who sets investment goals of five years or more. Loss leaderIn discount brokerage, a security sold at less than its real value in order to attract business. LowBottom price at which a security was sold for the preceding 52-week period. Lump sumLarge payment of money received at one time, for example upon retirement. Lump-sum distributionWith retirement plans, the disbursement of an individual\'s benefits in a single payment. Return to top
MM1A measure of domestic money supply accounting for currency, checking account balances and traveler\'s checks. M2A measure of domestic money supply accounting for M1 plus savings and time deposits, repurchase agreementsand money market accounts. M3A measure of money supply that includes M2 plus large time deposits and money market fund balances held by institutions. Majority shareholderOne of a group of shareholders who together control more than half of the shares of a corporation Make a marketEstablish firm prices for a security by buying and selling large lots at market price. Managed accountInvestment account consisting of money that one or more clients entrust to a manager, who decides when and where to invest it. Clients are then charged a management fee, usually a fixed percentage of the fund\'s asset value. Management feeThe money paid to the managers of an investment company (mutual fund). Margin accountBrokerage account that allows the investor to buy securities with money borrowed from the broker. Margin callDemand that an investor deposit enough money in a margin account to bring it up to the margin limits. Market capitalizationThe total value of all of a firm\'s outstanding shares, calculated by multiplying the market price per share times the total number of shares outstanding. Market timingThe purchase and sale of securities based on short-term price patterns as well as on asset values. MaturityThe date on which payment of a financial obligation is due. May Day RevolutionThe end of fixed brokerage fees on May 1, 1975. Misery indexIndex that considers both inflation and unemployment rates. Money market fundA mutual fund that purchases short-term, high quality securities such as Treasury Bills, negotiable CDs and commercial paper. Money market securitiesLow-risk, very liquid securities with maturities of one year or less. Other short-term debt that is scheduled to mature within one year may also be classified as money market securities. The benchmark for this asset class is the Salomon 91-Day T-Bill Index. Money supplyThe amount of money in the economy. See M1, M2, M3. MoodysA company rating service issuing ratings denoting the relative investment quality of corporate and municipal bonds. MortgageA pledge of a specific property as security for a loan. Mortgage-backed securitiesOwnership claim in a pool of mortgages or an obligation that is secured by such a pool. Also called a pass-through. Municipal bondThe debt issued by a city, county, state or other political entity. Interest paid by most municipal bonds is exempt from federal income tax and often from state and local taxes as well. Municipal bond fundA mutual fund that invests in tax-exempt securities and passes through tax-free current income to its shareholders. Mutual fundAn investment company that continually offers new shares and stands ready to redeem existing shares from the owners. Also investment company. Return to top
NNational Association of Securities DealersSelf-regulatory organization of broker-dealers operating under the auspices of the Securities and Exchange Commission. NASDAQThe NASD\'s Automated Quotation marketplace, which trades shares electronically. Companies traded on the NASDAQ include many small-to-medium size firms and many technology companies. Net Asset Value (NAV)The market value of an investment company\'s (mutual fund) asset less any liabilities divided by the number of shares outstanding. This is the value of the each share if the fund sold all of its assets at their current market value and paid off any outstanding debts. Net incomeIncome after all expenses and taxes have been deducted. New listingCompany that has just begun to trade on an exchange or marketplace. New York Stock ExchangeThe oldest and most established stock exchange in the U.S., located at 11 Wall Street in New York City. Companies traded on the NYSE are typically the largest in the U.S. No-load fundAn open-end investment company (mutual fund), shares of which are sold without a sales charge. Return to top
OOffshoreAny organization with headquarters outside the U.S. Open-ended investment companySee mutual fund. OptionA contract that permits the owner, depending on the contract, to purchase or sell a security at a fixed price until a specific date. Option-growth fundA mutual fund that invests at least 5% of its portfolio of securities in options. Options-income fundA mutual fund that attempts to increase current income by writing covered options on securities held in the fund\'s portfolio. Over-the-counter stockStock that is traded outside of an organized exchange, usually through telephone or electronic connections. OvervaluedStock whose current price is higher than its actual value or price/earnings ratio. Return to top
PPar valueThe stated value of a security printed on its certificate. Pass-through securityA security that passes through payments from debtors to investors. Penny stockStock that sells for less than $1 a share. Usually an investment in a highly speculative corporation with an erratic revenue history. Portfolio betaThe relative volatility of returns earned from holding a specific portfolio of securities. Portfolio managerA person who is paid a fee to supervise the investment decisions of others. Preferred stockA security that shows ownership in a corporation and gives the holder a claim prior to the claim of common stockholders on earnings and also generally on assets in the event of liquidation. Price/earnings ratioPrice of a stock divided by its earnings per share. Primary marketMarket for the initial sale of a corporation\'s securities to the underwriting community. Profits from the primary market go to the company issuing the securities. Later sales to investors are made in the secondary market. PrincipalThe amount of outstanding debt or balance of a loan (bond). Profit sharing planAn agreement that allows employees to share in the corporation\'s profit. The company makes annual contributions to a profit-sharing fund, which is invested in stocks, bonds are cash, and generally accumulate tax-free until the employee retires or leaves the company. Do not confuse this plan with investments of 401(k) money in your company\'s stock. If you want share in the company\'s profits, do it through a profit-sharing agreement. ProspectusA formal written document relating to a new securities offering that delineates the proposed business plan or the data relevant to an existing business plan - information necessary to make an educated decision to purchase a security or not. Prudent man ruleA federal and state regulation requiring trustees and portfolio managers to make financial decisions in the manner of a prudent man, e.g., with intelligence and discretion. Return to top
QQualified planTax-deferred plan set up by an employer for employees. Can be funded by contributions from employer, employee or both. Savings are paid out at retirement, which is the only time taxes are paid. Quantitative analysisAnalysis of a security or corporation based on measurable factors rather than on subjective factors such as the company\'s "story" or the skill of its managers. QuarterA period of three months. Public companies report earnings on a quarterly basis. Quoted pricePrice at which the last sale and purchase of particular security or commodity took place. Return to top
RRate of returnThe return on an investment. RecordkeeperThe institution that puts a 401(k) plan together. The recordkeeper is responsible for maintaining participant accounts and providing communications. Insurance companies dominated the recordkeeping business until recently, but mutual fund companies have now taken the majority of the market. Right of accumulationThe term used when an investor qualifies for reduced sales charges for a purchase based on the total number of shares accumulated at the time of the purchase. Return to top
SSecondary marketExchanges and over-the-counter markets where securities are bought and sold between investors after the primary issue. Profits in the secondary market go to the selling dealers and investors, not to the issuing companies. SectorA group of securities that share certain common characteristics. Sector fundAn investment company that concentrates its holdings among securities or other assets sharing a common interest. Sell shortSell borrowed securities, usually in the hope that the price will decline and a profit can be made on the difference. Separate accountInvestment accounts kept separate from an insurance company\'s general investment account. Used for both variable life insurance and annuity contracts. Insurers are allowed to invest separate account assets under different guidelines than those applicable to the insurer\'s general account assets. Short positionStock shares that a trader has sold short and not covered by a given date. Short term bondsDebt securities with maturities of one to three years. The benchmark for this asset class is the Lehman Government 1-3 Year Index. Small cap stocksThe stock of a relatively small firm with little equity and few shares of common stock outstanding. Small-capitalization stocks tend to be subject to large fluctuations; therefore, the potential for short-term gains and losses is great. Small-cap value stocksStock of companies with market capitalization between $250 million and $1.5 billion, with a value bias. The benchmark for this asset class is the Wilshire Small Cap Value. Small-cap growth stocksStock of companies with market capitalization between $250 million and $1.5 billion, with a growth bias. The benchmark for this asset class is the Wilshire Small Cap Growth. Socially responsible fundA mutual fund that limits investment alternatives to securities of firms meeting certain social standards. Typically, these mutual funds avoid purchase stocks in cigarette manufacturers, alcohol manufacturers, etc. Also ethical fund. Standard & Poor\'s 500 (S&P500)An inclusive index of 500 stocks including 400 industrial stocks, 40 utilities, 20 transportation and 40 financial stocks. Standard deviationA statistical measure of the variability of securities returns. The hgiher the standard deviation, the risker the security. StockAn ownership share(s) in a corporation
also equity, common stock. SupermarketA program offered by brokerage firms that makes funds from many different families available on a no-load, fee-only basis. Charles Schwab & Co.\'s OneSource supermarket initiated the trend in 1992, and most major brokerages have since offered their own programs. Return to top
TTax deferralThe delay of a tax liability until a future date as applicable in IRAs and 401(k) plans. Tax Reform Act of 1986Tax legislation that effected major changes in tax laws. Among other things, the act restricted the deductibility of contributions to IRA accounts, eliminated preferential tax treatment for capital games and put a cap on the maximum an employee can contribute to a 401(k) plan. Third marketThe universe of non-exchange member broker dealers who trade exchange-listed securities over the counter. Time horizonThe time interval over which an investment program is to be completed. An investor\'s time horizon is important in the selection of appropriate securities. Transfer agentAgent appointed by a corporation to maintain records of all stock and bond holders, cancel and issue certificates and resolve problems arising from lost or stolen certificates. Mutual fund transfer agents perform these functions for fund share owners. TreasuriesAll bonds backed by the U.S. government that are issued through the Department of the Treasury. Treasury BillA short-term debt security of the U.S. government that is sold in minimum amounts of $10,000 increments and multiples of $5,000 above this. 12-bCharges levied from a fund\'s assets to cover marketing and distribution costs of the fund. Return to top
UUndervaluedStocks that are selling for less than their value according to analysts. Fundamental analysts try to find undervalued stocks. Takeover specialists often try to buy them. UnderwriterInvestment banker who purchases a new issue of securities (such as company stock or bonds) and distributes it to investors. Most underwriting is done through a group or syndicate of companies. Unfunded pension planPension plan funded by the employer out of current income. Unlike a 401(k) plan, in which the employee contributes money on a regular basis. Unit investment trustInvestment company that buys a fixed portfolio of stocks, bonds or other securities. Unit holders receive interest in both the principal and income of the portfolio in proportion to the amount they have invested. Utility bondA long-term debt security issued by a utility. Return to top
VValue investingManagers who invest in companies believed to be undervalued on an absolute basis or relative to the market and/or historic basis. Value stocks or portfolios tend to have lower than average per share growth, low debt, and be of higher quality. Value portfolios have a lower than average portfolio turnover (purchases and sales). Return to top
WWrap accountAn investment consulting relationship in which the client\'s money is allocated among funds from different money managers. Return to top
XX or XDNewspaper listings symbol indicating that a stock is traded without dividend. Return to top
YYear-To-Date (YTD)Period from the beginning of the calendar year to the reporting date. Corporate profits are reported on a quarterly and year-to-date basis. YieldThe percentage return on an investment. Yield curveInterest rates available for each maturity from today out to 30 years. This is an easy way to look at the relationship between yield and maturity. Normally, the longer the time to the maturity of a security, the higher its yield - this gives the yield an "upward slope." Yield to maturityThe total return an investor will get by holding a long-term, interest-bearing instrument (usually a bond) until it matures. Yo-Yo StockA volatile stock that rises and falls quickly. Return to top
ZZero-coupon bondA bond that provides no periodic interest payments to its owner but does pay principal upon maturity.
Return to top
 The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company\'s benefits representative for rules specific to your plan. |
|
|
|
|
|
Home
