| Baby
Bond |
Bond
with a face value of less than $1,000. |
| Back
End Load |
One
of three possible sales charge schedules imposed
by funds that charge fees. A back end load,
or "deferred sales charge," is a fee charged
when fund's shares are sold. The amount of the
fee usually varies depending on how long the
investment is held--generally the longer the
time period, the smaller the fee. Funds sold
under several sales charge options usually refer
to the shares sold with a back end load as class
B shares. |
| Backdating |
Backdating
is used in relation to funds that offer declining
proportional sales charges of larger purchases.
This permits investors to count previous purchases
of the fund's shares in qualifying for reduced
loads or sales charges on subsequent purchases. |
| Balance
Sheet |
An
accounting statement reflecting the firm's financial
condition in terms of assets, liabilities, and
net worth (ownership). In a balance sheet, Assets
= Liabilities + Net Worth |
| Balanced
Fund |
A
fund with an investment objective of both long-term
growth and income, through investment in both
stocks and bonds. Typically, the stock/bond
ratio ranges around 60%/40%. This broader diversification
across asset classes tends to further reduce
risk. |
| Balanced
Mutual Fund |
A
mutual fund that has a primary investment objective
of purchasing a combination of stocks and bonds.
Such funds tend to be less volatile than stock-only
funds. |
| Balanced
Target Maturity Funds |
A
fund that invests to provide a guaranteed return
of investment at maturity (targeted periods).
In order to achieve its investment objective,
a balanced target maturity fund invests a portion
of its assets in zero coupon U.S. Treasury securities
while the remainder is invested in stocks that
the manager believes will provide long-term
growth of capital and income. |
| Bank
Account |
Normally
a cheque account with a clearing bank that allows
the account holder to write cheques against
cash held in his or her account. Proof of identity
is required for individuals (see: money laundering
regulations) and a certificate of incorporation
for a company. Cash can only be withdrawn equivalent
to the cash on the account unless an overdraft
has been agreed in writing. |
| Barbell |
A
bond management strategy where the portfolio
is invested primarily in short-term and long-term
bonds, but in few bonds with intermediate maturities.
In theory, this approach allows one portion
of the portfolio to take advantage of high yields,
while the other portion tempers risk. |
| Base
Period |
The
time used as the reference point in calculating
comparative index values. Normally, the base
period is allocated the number 100 (as in: 1992
= 100), and all other periods' values are measured
with reference to the values at that time. |
| Basis
Point (bp) |
The
smallest measure used in quoting yields on fixed
income securities. One basis point equals one
percent of one percent, or 0.01%. |
| Basis
Price |
A
method of pricing municipal bonds, T bills,
and certain other instruments. It is an expression
of yield to maturity. |
| Bear
Market |
A
market in which prices are generally declining. |
| Bearer
Stocks/Shares |
Securities
for which no register of ownership is kept by
the company. A bearer certificate has an intrinsic
value. Dividends are not received automatically
from the company but must be claimed by removing
and returning "coupons" attached to the certificate. |
| Benchmark
Index |
Indicators
used to provide a point of reference for evaluating
a fund's performance. The most common benchmark
for equity-oriented funds is the S&P 500
Index. For fixed-income funds it is the Lehman
Brothers Aggregate Bond Index. |
| Beneficial
Owner |
The
owner of a security who is entitled to all the
benefits associated with ownership. Customers'
securities are often registered not in the name
of the customer but rather in the name of the
brokerage firm or central depository. Even so,
the customer remains the real or beneficial
owner. |
| Beneficiary |
The
person designated to receive the proceeds from
a life insurance policy or the person designated
to receive annuity benefits in case of the owner's
or annuitant's death; also, the person who is
to receive the benefits of a trust or estate.
A beneficiary can be an individual, a company,
or an organization. |
| Beta |
A
measure of a fund's risk, or volatility, compared
to the market which is represented as 1.0. A
fund with a beta of 1.20 is 20% more volatile
than the market, while a fund with a beta of
0.80 would be 20% less volatile than the market. |
| Bid
/ Bid Price |
The
highest price anyone has declared that they
want to pay for a security at a given time.
Also known as the "sell" price, the bid price
is the price at which a fund's shares are bought
back by the fund. |
| Blue
Chip |
A
term used to describe the common stocks of a
nationally known company that has increased
its earnings and paid dividends over a long
period and developed a reputation for high-quality
management, products and services. (In poker,
the blue chip is usually assigned the highest
money value.) |
| Blue
Sky Laws |
A
body of state laws governing registration and
distribution of mutual fund shares. For example,
Blue Sky Laws require sellers of mutual funds
to register the funds, and provide financial
details so that investors can base their judgment
on relevant data. All 50 states and the District
of Columbia regulate mutual funds. |
| Bond |
An
evidence of debt on which the issuer promises
to pay the bondholders a specified amount of
interest and to repay the principal at maturity.
This security represents the debt of a corporation,
a municipality of the federal government, or
any other entity. A bond is usually long-term
in nature (10 to 30 years) and is usually issued
in multiples of $1,000. |
| Bond
Fund |
A
fund that invests primarily in bonds, whether
they are issued by corporations, municipalities,
or the U.S. government and related agencies.
Bond funds generally emphasize income over growth,
and are based around the idea of providing a
stable income with a minimum of risk. |
| Book
Entry |
Electronic
record of ownership of Treasury and agency securities
as opposed to receipt of a security's certificate. |
| Book
Value |
A
value computed by subtracting the total liabilities
from the value of all assets on the balance
sheet, then dividing by the number of common
shares. This is an accounting term that has
no relation to the securities market value. |
| Bottom-Up |
An
investment strategy that first seeks individual
companies with attractive investment potential,
then proceeds to consider the larger economic
and industry trends affecting those companies. |
| Breadth
of the Market |
A
measurement of the number of issues that advance
or decline on a particular trading day. |
| Breakpoint |
A
purchase of shares in an open-end investment
company mutual fund that is large enough to
entitle the buyer to a lower sales charge. A
series of breakpoints is established by the
fund, at each of which the charge is reduced.
The purchases may either be made in a lump sum
or by accumulating shares. |
| Broker |
(1)
An individual who buys or sells securities for
customers (a stockbroker).
(2) On an exchange, one who executes public
orders on an agency basis (a floor broker or
commission house broker).
(3) As a slang term, a firm that executes orders
for others (a brokerage firm). |
| Brokerage
Firm |
A
partnership or corporation that is in business
to provide security services for a general marketplace. |
| Bull
Market |
A
market in which prices are generally rising. |
| Bullish |
Term
used to describe an environment of rising security
prices. |
| Business
Day |
A
day on which the exchanges are open for business. |
| Buy-In |
When
the seller of a security fails to deliver the
security, the buyer purchases the security on
the open market and charges any loss to the
seller's account. |
| Buy/Write |
An
advanced option order that combines the purchase
of an equity and the sale of a call option on
the same underlying security. |
| Buyer's
Option (Contract) |
A
settlement that calls for delivery and payment
according to the number of days specified by
the buyer. |
| Buying
Power |
In
a margin account, the maximum dollar amount
of securities that the client can purchase or
sell short without having to deposit additional
funds.<br></div><!-- End Index--><DL> |
| Call
(Option) |
An
option that permits the owner to buy a contracted
amount of underlying security at a set price
(strike or exercise) for a predetermined period
of time (up to the expiration date). |
| Call
Date |
The
date on which and after which selected issues
of Treasury bonds can be redeemed before maturity. |
| Call
Protection |
The
degree of security that an investor has against
a bond being redeemed. Practically, the number
of years between today and the call date. |
| Call
Risk |
The
possibility that bonds will be re-paid (or "called")
prior to maturity. This possibility increases
during periods of falling interest rates. |
| Call
Spread |
Client
buys a call and sells a call on the same security
but with different expiration dates, different
exercise prices, or both. |
| Callable |
A
securities feature that allows the issuer to
retire the issue when desired. Should the issue
be called, the issuer usually pays a premium. |
| Callable
Bonds |
Treasury
bonds that can be redeemed by Uncle Sam five
years before maturity. |
| Capital |
Money. |
| Capital
Appreciation |
The
profit made on an investment, measured by the
increase in a fund share's value from the time
of purchase to the time of sale. |
| Capital
Appreciation Funds |
A
fund that invests primarily in common stocks
the manager believes will provide maximum capital
appreciation. Capital appreciation funds often
resort to aggressive investment techniques,
such as rapid portfolio turnover, leveraging,
and investing in unregistered securities in
order to achieve their objectives. |
| Capital
Gain |
The
difference between the adjusted cost of an asset
and the selling price when the difference is
positive. Capital gains tax is normally due
on the sale of an appreciated asset. |
| Capital
Gain |
A
trading profit. Trading gains that occur in
one year or less are short-term capital gains;
those that occur in periods longer than one
year are long-term capital gains. Short-term
and long-term capital gains are treated differently
for tax purposes. |
| Capital
Gain Distributions |
A
distribution to shareholders of profits realized
from the sale of securities in a fund's portfolio.
Capital gain distributions are usually paid
yearly, and are currently taxable at a rate
up to 28%. |
| Capital
Growth |
Also
called capital appreciation, capital growth
is an investment objective of many stock funds.
Capital growth is achieved when the market values
of a fund's holdings increase, causing the fund's
net asset value per share to increase. |
| Capital
Loss |
A
trading loss. Losses are long- or short-term
as are gains. See Capital Gain. |
| Capital
Reserve Fund |
Money
that is earmarked for a long-term purpose requiring
the accumulation of capital. For example, money
can be kept in a reserve fund to pay for possible
risks that cannot be covered by insurance. |
| Capital
Stock |
The
common and preferred stock of a company. |
| Capitalization |
The
total dollar value of all common stock, preferred
stock, and bonds issued by a corporation. |
| Cash
Account |
A
customer account in which all securities purchased
must be paid for in full. |
| Cash
Dividend |
Dividends
that corporations pay on a per-share basis to
stockholders from their earnings. |
| Cash
Flow |
Amount
of total payments, interest and occasionally
principal received as current income from Treasury
and agency securities. |
| Cash
Reserve |
Money
that is readily available to meet expenses that
were not planned for in a budget. Commonly,
the suggested level of cash reserve equals three
to six months of cash uses. But the size of
a cash reserve can vary based on family income,
job stability, current level of debt, number
of income earners, amount of insurance deductibles
and risk tolerance. |
| Cash
Transaction |
A
settlement on the same day as the trade date. |
| Cashiering
Department |
Brokerage
firm department that is responsible for receiving
and delivering securities and money to and from
other firms and clients. |
| Contingent
deferred sales charge (CDSC) |
A
type of back end load sales charge, a contingent
deferred sales charge is a fee charged when
shares are redeemed within a specific period
following their purchase. These charges are
usually assessed on a sliding scale, with the
fee reduced each year the shares are held. |
| Certificate |
1)
The physical document evidencing ownership (a
share of stock) or debt (a bond).
2) An investment available from a financial
institution that pays a fixed rate of return
for a specified period of time. |
| Certificate
Of Deposit (CD) |
A
negotiable certificate that evidences a time
deposit of funds with a bank. |
| Charitable
Gift |
Money
or property given to qualified charitable organizations.
Individuals may give an unlimited amount to
qualified charitable organizations free of federal
gift and estate taxes. (Some limitations apply
to charitable deductions for federal income
tax purposes.) |
| Charitable
Lead Trust |
An
irrevocable trust that provides income to a
charity for a set number of years or for a person's
lifetime. After the income interest ends, the
trust assets are returned to the donor or the
donor's designated heirs. This type of trust
may reduce estate taxes and allow the heirs
to retain control of the assets. |
| Charitable
Remainder Trust |
An
irrevocable trust that provides income to the
donor or to a named beneficiary for a set number
of years or for a person's lifetime. After the
income interest ends, the trust assets pass
to the charity. Generally, the portion of the
trust assets representing the charitable gift
provides both income and estate tax charitable
deductions. If the property placed in the trust
was an appreciated capital asset, capital gains
tax may be avoided. |
| Class |
Options
of the same type - all calls or all puts on
the same security. |
| Classes
of Shares |
Various
classes of a single portfolio are distinguished
by the type of sales charge they levy. In general:
-- Class A shares carry a front-end load. --
Class B shares carry a back-end load (also known
as a contingent deferred sales charge). -- Class
C shares carry an ongoing charge (usually in
the form of an annual 12b-1 charge). |
| Clearing
Corporations |
A
central reception and distribution center operated
for its members who are made up of various brokerage
firms. Many offer automated systems that expedite
comparison procedures. Among these are NSCC
(National Securities Clearing Corp.) and OCC
(Options Clearing Corporation). |
| Clearing
House Comparison (CHC) |
A
form used to submit trades to NSCC that have
missed the normal entry methods. Such trades
enter the system on the third business day of
the trade cycle. |
| Cliffing |
A
strategy for arranging bonds so that they all
mature in the same year. |
| Clone
Fund |
A
fund launched to mirror a closed fund. For example,
fund managers may decide to close a fund that
has grown so large it is no longer able to establish
positions in smaller securities. They could
then launch a new fund in the closed fund's
image. While both funds would have the same
investment objective, they would generally be
run by different managers and would invest in
different securities. |
| Close |
Price
of the last transaction of a security on a particular
trading day. |
| Closed
End Fund |
A
fund whose offering of shares is closed. That
is, once the initial offering is completed,
the fund stops offering its shares. The value
of the shares is then determined by supply and
demand, rather than by calculation of net asset
value. |
| Closed
to New Investors |
Occasionally
a manager may declare a fund "closed to new
investors" which means that no new investments
will be accepted. This is often a temporary
designation, prompted by a tremendous amount
of money invested in the fund in a short period
of time. The portfolio manager may be concerned
about finding enough appropriate securities
to add to the fund's portfolio. |
| Closing
Transaction |
The
transaction executed to close an option contract.
The holder would sell to close while the writer
would buy to close. |
| Co-Partnership
Account |
An
account in which the individuals may act on
behalf of the partnership as a whole. |
| Codicil |
A
supplement or addition to a will that may explain,
modify, qualify or alter provisions in an existing
will. The same formalities, requiring signatures
by witnesses, must be observed as in creating
a new will. |
| Collateral |
An
asset pledged to support a loan. |
| Collateral
Trust Bond |
A
debt instrument issued by one corporation and
backed by the securities of another corporation. |
| Collateralized
Mortgage Obligation (CMO) |
A
security collateralized with mortgages or mortgage-backed
securities. Many CMOs backed by a U.S. government
agency are rated AAA. Non-agency CMOs may be
lower rated. |
| Combination |
A
position long or short different types of options
on the same stock with different strike prices
and/or expiration dates. |
| Combination
Order |
In
listed options trading, an order to simultaneously
buy a call and sell a put or to buy a put and
sell a call on the same underlying security.
Also called a Combo Order. |
| Commercial
Paper |
A
short-term debt instrument issued by an established
corporation to meet short term financing needs.
Such instruments are unsecured and have maturities
ranging from 2 to 270 days. Its rate of interest
is set at issuance and can be realized only
if held to maturity. |
| Commission |
A
fee imposed when funds are bought or sold to
compensate the broker for his or her role in
the transaction. |
| Commission
House Broker |
A
floor broker who is employed by a brokerage
house to execute orders on the exchange floor
for the firm and its customers. |
| Committed
Expenses |
Living
expenses that are necessary to maintain your
lifestyle including housing, food, clothing,
transportation, education and insurance. |
| Common
Stock |
A
security, issued in shares, that represents
ownership of a corporation. Common stockholders
may vote for the management and receive dividends
after all other obligations of the corporation
are satisfied. |
| Common
Stock Fund |
A
fund that invests primarily in common stocks.
The investment objectives of common stock funds
may vary greatly. |
| Community
Property |
Property
acquired during a marriage and considered to
be owned equally by husband and wife under the
laws of a state providing for such ownership. |
| Comparison |
The
process by which two contra brokerage firms
in a trade agree to the terms of the transaction.
Comparison can be either through a clearing
corporation or on a trade-for-trade basis (that
is, ex the clearing corporation). |
| Competitive
Tender |
A
method of purchasing new issues of Treasury
bills, notes, and bonds in which the investor
specifies the yield, and accordingly the price,
he or she requires to purchase the security. |
| Compound
Interest |
Interest
that is computed on the principal and on the
interest accrued during the preceding period.
Compound interest may be computed daily, monthly,
quarterly, semiannually or annually. |
| Compounding |
Interest
earned on interest previously earned and reinvested.
For example, if a security paid a fixed interest
rate of 10% annually and an investor invested
$500, by the end of the first year the investor
would have earned $50 in interest. If that interest
was reinvested, the investor would enter the
second year with $550 invested. At the end of
the second year, the investor would have earned
$55 in interestearning an extra $5 in interest
thanks to the reinvestment of the first year's
interest. |
| Confirmation |
A
trade notice, issued to customers of brokerage
firms, that serves as written notice of the
trade, giving price, security description, settlement
money, trade and settlement dates, plus other
pertinent information. |
| Consent
To Loan Agreement |
An
agreement margin customers must sign to authorize
the brokerage firm to lend the customer's securities
to itself or other firms. |
| Conservative
Risk Tolerance |
The
capacity to invest for a low expected rate of
return in exchange for increased assurances
of maintaining a stable principal and maintaining
the expected rate of return. See Risk tolerance. |
| Consideration |
The
money value of a transaction (number of shares
multiplied by the price) before adding commission. |
| Constant-Dollar
Investment |
Securities
such as savings accounts and money market funds
that do not fluctuate in price. |
| Consumer
Liability |
A
debt on which the interest payments are not
deductible for income tax purposes, such as
credit cards and auto loans. |
| Contingent
Deferred Sales Charge (CDSC) |
A
type of back end load sales charge, a contingent
deferred sales charge is a fee charged when
shares are redeemed within a specific period
following their purchase. These charges are
usually assessed on a sliding scale, with the
fee reduced each year the shares are held. |
| Contractual
Plan |
A
program in which a legal vehicle (plan company
or participating unit investment trust) agrees
to invest a fixed amount in a fund at regular
intervals for 10 or 15 years. In exchange, investors
in these plans commonly receive other benefits,
such as decreasing term life insurance. |
| Control
Persons |
A
director, officer or other affiliate of the
issuer or a stockholder who owns at least 10%
of any class of outstanding stock. |
| Control
Securities |
Securities
owned by one of those parties mentioned in Control
Person |
| Convertible
Issue (Bond) |
A
securities feature that permits the issue holder
to convert to another issue, usually common
stock. This privilege can be used only once.
The preferred stock or bond holder can convert
from that issue to another, but not back. |
| Convertible
Preferred Stock |
A
preferred stock that may be converted into common
stock of the same company at specific prices
or rates. |
| Convertible
Securities Funds |
A
fund that invests primarily in convertible bonds
and/or convertible preferred stocks. |
| Convertible
Security |
Corporate
securities (usually preferred shares or stock
or bonds) that are exchangeable for a set number
of another form of security (usually common
stock) at a prestated price. |
| Convertible
Zero |
As
it applies to the Treasury sector, a stripped
Treasury zero that converts into a current income
obligation five years before maturity. |
| Cooling-Off
Period |
The
period, usually 20 days, between the filing
of the registration statement on a new issue
with the SEC and the effective date of the offering. |
| Corporate
Bond Funds |
A
fund that invests primarily in corporate bonds.
In general, corporate bond funds seek income
over capital growth. |
| Corporate
Resolution |
A
document stating that the corporation's board
of directors has authorized a particular individual
to act on behalf of the corporation. This document
is necessary when the corporation opens a cash
or margin account. |
| Corporation |
A
business organization under the law with certain
rights and responsibilities in which the worth
is divided into shares of stock. |
| Country
Funds |
A
fund that invests primarily in the securities
of a single country. In some cases, country
funds also invest in securities outside the
single country if those securities are expected
to benefit by growth in that country. |
| Country
Risk |
The
potential for price fluctuations in stocks sold
in foreign countries due to events (political,
financial, etc.) in these countries. |
| Coupon |
(1)
On Bearer Stocks, the detachable part of the
certificate exchangeable for dividends.
(2) Denotes the rate of interest on a fixed
interest security - a 10% coupon pays interest
of 10% a year on the nominal value of the stock. |
| Coupon
Yield |
Also
called nominal yield. A bond's coupon payment
divided by par value. |
| Cover |
The
total net profit a company has available for
distribution as dividend, divided by the amount
actually paid gives the number of times that
the dividend is covered. |
| Covered
Call |
A
call option that is sold against stock owned
by the writer of the call. |
| Covered
Put |
A
put option that is sold by the owner of a put
of the same class with an equal or longer expiration
date and an equal or higher exercise price. |
| Credit
Agreement |
Outlines
the conditions of credit arrangement between
the broker and customer concerning a margin
account. |
| Credit
Balance |
The
funds available to a client in a cash or margin
account. In a short sale, this balance represents
the customer's liability. |
| CUSIP |
Committee
on Uniform Securities Identification Procedures |
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