GLOSSARY

GLOSSARY

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12b-1 Fee

An annual fee, expressed as a percentage of NAV, specifically designated for marketing expenses for a given mutual fund. This fee is included in the expense ratio.

401(k) Plan

A 401(k) plan is a qualified profit-sharing plan under which employees have the option of taking the employer's contribution as taxable cash or leaving it in the plan where the income tax is deferred. In some plans, both employees and employers contribute to the plan. The employee's contribution is always fully bested, but the employer's contribution may vest over a period of time.

403(b) Plan

A 403(b) plan is a retirement plan for tax-exempt organizations.

Account Type

When placing an order through this site, you must be sure to select the proper Account Type for the position you wish to trade. If a particular position resides in you cash account, for example, this site will automatically reject a sell order that specifies your margin account, and vice versa.

Accounts

A collection of investments, either taxable or tax-deferred. An account can be real (containing investments actually owned) or model (hypothetical). Account type can be brokerage, mutual fund, or other (a mutual fund can be an account if the fund is purchased directly from a fund company or it can be an investment within an account, if purchased through a broker). Legally, accounts are set up as taxable or tax-deferred. The legal owner of an account can be an individual, joint, corporate, custodian, estate, or trust. See Real Taxable Accounts, Joint Accounts, and Real Tax-Deferred Accounts.

Accounts Payable

The amount a company owes to creditors and/or suppliers for goods and services.

Accounts Receivable

Part of a company's current assets consisting of money owed to the company for services or goods sold to customers.

Accrued Interest

The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.

Accumulation Period

The accumulation period begins with the first premium payment for the annuity contract and it ends with the annuization of the contract. During the accumulation period, the contract owner may be making premium payments, and the premiums are invested in separate accounts to earn income, dividends, and capital gains.

Accumulation Privilege

The accumulation privilege, or right of accumulation, permits an investor to qualify for reduced sales charges based upon the total number of shares the investor has accumulated up to the time of purchase.

Accumulation Program

With an accumulation program, the investor makes purchases of shares on a regular basis.

Accumulation Unit

The accumulation unit is what a variable annuity investor buys when building up his or her separate account balance. Subsequently, that account balance is annuitized. The value purchase price for an accumulation unit is equal to the value of the total assets in the separate account divided by the number of accumulation units outstanding.

Acquisition

The process of one firm or company buying another firm or company.

Ad Valorem Tax

A tax based on the value (or assessed value) of property.

Advances/Declines

Advances are the number of issues on the New York Stock Exchange that have risen in price since the previous trading day's closing price. Declines represent those that have fallen in price. Sometimes the advances and declines are expressed as a ratio and plotted as a line graph. A rising A/D line indicates that the market has good breadth (a majority of issues are rising in price) and that a rising trend is more likely to be sustainable.

Advertisements

Under the FINRA Rules of Fair Practice, advertisements are any solicitations by published material, spoken promotion, or other medium to be distributed to the public in the mass media, such as radio, television, newspaper, magazine, or billboard.

Affiliated Persons

Under the Investment Company Act of 1940, affiliated persons are officers, directors, employees, owners of 5% of the voting stock, and controlling persons.

Agent

An agent is a person authorized to act on behalf of another person. The person who authorizes an agent to act is called a principal. A broker acts as an agent for the customer in a securities transaction. The broker is the intermediary for the customer with the specialist. A dealer acting for himself or herself is a principal.

Allocation

The process of deciding which investment choices best fit your goals.

All-Or-None Commitment

An all-or-none commitment is an underwriting in which no securities are issued unless the entire issue is sold. The underwriter is acting as agent in this transaction. See: Best Efforts

American Depository Receipts (ADRs)

ADRs allow foreign companies to list their shares for regular trading on U.S. stock exchanges. They are essentially negotiable receipts issued by American banks.

American Stock Exchange (AMEX)

Located at 86 trinity place, New York; a major stock and option exchange.

Amortization

An accounting term indicating the appointment of an incurred expense over the life of an asset. For example, rather than paying for a three-year magazine subscription (an expense) in the first year, one could "amortize" (or "spread out") the expense over the three-year life of the subscription (the asset).

Annual Report

Written report to shareholders summarizing the past fiscal year's financial results and new items of importance about products, law suits, board members, etc. Prospective shareholders should also review the annual report because it provides important balance sheet information.

Annualized Return

Projects the year to date return over a full 12 month calendar year. Most useful for projecting return for money market funds, CDs, and bonds. Annualized return for equities can be misleading if YTD return is high and covers a short period of time. See Total Return. See: Total Return

Annuitant

An annuitant is the person who receives the annuity benefit payments during the payout period.

Annuity

An annuity is a contract issued by a life insurance company in which the insurer promises to make periodic payments. The payments are made to on or more individuals referred to as annuitants. See also variable annuity, life annuity, period certain, fixed amount annuity, fixed annuity, and fixed periodic annuity.

Annuity Period

During the annuity or payout period, the insurer makes the payments of benefits to the annuitant. The annuity period is also called the liquidation period, because the assets supporting the annuity are sold to make the payments.

Annuity Unit

When an annuity enters the annuity period, the accumulation units are converted to annuity units. The insurer will then pay the annuitant the same number of annuity units in each periodic payment. With a variable annuity, the value of the annuity units will vary with the investment result of the separate accounts, so the payments will vary.

Appreciation

The increase in value of capital asset.

Arbitrage

Dealing in differences. example: buying on one exchange while simultaneously selling short on another at a higher price. Often it is a full hedge, and therefore, a risk-free transaction.

Arbitration

A method of settling a dispute by utilizing an impartial individual or individuals. All exchanges and securities associations have adopted a Code of Arbitration through which all disputes between firms, employees and firms, and firms and clearing corporations are settled.

Ask (Ask Price)

The lowest round lot price at which a broker will offer for sale a security on an exchange or over-the-counter market.

Assessed Valuation

The value of real estate that is used for tax purposes.

Asset Allocation Fund

An asset allocation fund is a mutual fund that invests in a variety of assets such as foreign securities, domestic U.S. securities (common stocks, preferred stocks, and bonds), real estate, gold, and other precious metals. The fund manager may be given discretion as to the allocation of assets, or the fund may specify in its investment policies and restrictions the percentage of assets to be allocated to each type of investment.

Assets

Everything a corporation owns or is due to it. Cash, investments, accounts receivable, and materials and inventories are called current assets. Buildings, machinery, and furniture and fixtures are known as fixed assets. Patents and good will are called intangible assets.

At The Close Order

An order to be executed as close to the closing price as possible. There is no guarantee that the execution price will be the closing price.

At The Opening Order

An order to buy or sell at the opening price. if not executed at the opening, it will be cancelled.

At-The-Money

An option in which the underlying stock is trading precisely at the exercise price of the option.

Auction Market

The system of trading securities through brokers or agents on an exchange such as the New York Stock Exchange. Buyers compete with other sellers for the most advantageous price.

Authorized Stock

The total number of shares of stock authorized for issue by a company's shareholders.

Automated Order Entry System

Computerized systems designed to by-pass floor brokers and speed executions of routing orders on an exchange. These systems have limits as to the size of order permitted. Examples include AUTO EX, DOT, OSS, PACE, SOES, and SOREX.

Automatic Reinvestment

With automatic reinvestment, an investor buys additional shares of a fund with dividends and capital gain distributions. Usually, funds permit reinvestment without sales charges. The maximum permitted sales charge is reduced if a fund does not offer the reinvestment of dividends at net asset value, i.e., without sales charge.

Average Cost

The average price plus commission.

Average Daily Volume

The consolidated trading volume for all exchanges averaged for the last 20 trading days.

Average Price

The total cost less total commission of all lots you own of a particular security divided by the total number of shares owned.

Away From The Market

The expression used when the bid on a limit order is lower (or the offer price is higher) than the current market price for the security.

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Baby Bond

One sold at face amount less than $1,000 to make it attractive to smaller investors. See: Bond.

Balance Sheet

A listing of all assets and liabilities for an individual or a business. The surplus of assets over liabilities is the net worth, or what is owned free of debt.

Balanced Equities

A mutual fund whose holdings are split fairly evenly between stocks and bonds. Balanced funds can change their asset allocation according to market conditions. Balanced funds seek a relatively steady return.

Balanced Portfolio

A balanced portfolio is one which contains both common stock and bonds. This portfolio represents a conservative attempt to diversify types of securities.

Bankers Acceptances

A bankers acceptance is a money market instrument used to finance imports and exports.

Bankruptcy

A state of insolvency of an individual or an organization; the inability to pay debts.

Basis

An accounting term that refers to the cost of an asset including all adjustments and improvements. For tax purposes, it is the amount you subtract from the net sale price to determine the realized gain or loss. For example, if you paid $150,000 for your home but added a porch for 25,000, your basis is now $175,000. You have stepped up the basis.

Basis Point

The smallest measure used in quoting yields and interest rates. Basis points are used in corporate bond pricing. One basis point is said to be the equivalent of one one-hundredth (1/100) of a point. When interest rates rise from 6.25% to 6.75%, the change is 50 basis points.

Bear Market

A market in which prices are generally declining.

Best Effort Underwriting

A best effort underwriting is and underwriting in which the investment banker commits itself only as a selling agent. Therefore, the banker assumes no risk. The banker merely makes its best effort to sell all of the new issue.

Best Efforts

An offering in which the investment banker agrees to distribute as much of the offering as possible and return to the issuer any unsold shares. See: All or None.

Beta

A statistical measure of the price volatility of a security in relation to the entire stock market's volatility. For example, if the stock market should increase 10%, the price of a stock with a Beta of 2 would increase 20%. A Beta of 2 indicates a stock which is twice as volatile as the market as a whole.

Bid Price

The price at which shares may be liquidated. usually represents the net asset value per share.

Bid/Ask Size

Bid size is the number of units offered in the most recent request to sell a security. Ask size is the number of units sought in the most recent request to purchase a security.

Block

A large holding or transaction of stock (popularly considered to be 10,000 shares or more).

Blue Chip

A term used to describe the common stocks of corporations with the strongest of reputations. (In poker, the blue chip is usually assigned the highest money value).

Blue List

A daily trade publication that lists current dealer to dealer municipal bond offerings.

Blue Sky Laws

A popular name for laws that various states have enacted to protect the public against securities frauds. The term is believed to have originated when a judge ruled that a particular stock had about the same value as a patch of blue sky.

Bond

Basically an IOU or promissory note of a corporation, municipality, or the U.S. government. They are usually issued in multiples of $1,000 or $5,000. A bond is evidence of a debt on which the issuer usually promises to pay the bond holder a specified amount of interest for a specified length of time and to repay the loan on the expiration date. In every case, a bond represents debt. Its holder is a creditor of the issuer. See: Baby Bond.

Book Entry

A method of registering securities. There is no physical certificate since ownership is solely reflected by an entry in the books of the issuer.

Book Value

Book vale of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities, and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security may have little relationship to market value.

Breakpoint

The point at which the sales charge is reduced for a quantity purchase. Typically used in relation to a mutual fund.

Broker

Under the Securities Exchange Act of 1934, a broker is a person who brings together buyers and sellers and receives commissions. A broker is an agent for investors.

Bull Market

A market in which prices are generally rising.

By-laws

By-laws are corporate rules adopted by a particular corporation to govern its own workings. By-laws establish rules for shareholder voting and for meetings of the board of directors. Each corporation adopts its own set of by-laws at the time it is formed.

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Call Option

A call option gives the owner the right, but not the obligation, to buy the underlying stock at a given price (the strike price) by a given time (the expiration date). The owner of the call is speculating that the underlying stock will go up in value, hence, increasing the value of the option. The purpose can be to speculate with the option (hope it goes up and sell for a profit), to invest in the underlying stock at a locked in price if the stock price goes high enough, or to generate income. Each option contract equals 100 shares of stock. For example, an AAA MAR 65 call, would give the owner the right to buy 100 shares of AAA at $65 (strike price) per share between now and the third Friday in March (the expiration date).

Call Price

The price at which an issuer may redeem a bond prior to maturity, usually at a slight premium to par.

Callability

The feature of a bond whereby the corporation that has issued it can redeem the bond before it matures.

Callable Bonds

Bonds which are redeemable by the issuer prior to the specified maturity date at a specified price at or above par.

Calls

Calls are stock options allowing the owner to buy 100 shares of a particular stock at a specified price for a certain period of time.

Canceled Order

A buy or sell order that is canceled before it has been executed. In most cases, a Limit Order may only be canceled if the order is placed after market hours and is then canceled before the market opens the following day.

Capital

The total amount of money invested in a firm, or the total amount of personal money available for investing.

Capital Gain

When capital assets such as securities sold, the capital gain or loss is determined by subtracting the original purchase price for the asset (including any transaction costs) from the final sale price.

Capital Gains

The buying and selling of a security or other appreciating asset that has increased in value during the time you owned it. It is subject to capital gains tax, as listed on IRS Form 1040, Schedule D.

Capitalization

The total dollar value of all common stock, and bonds issued by a corporation. Commonly, a company's capitalization is simply the share price times the number of outstanding shares.

Cash

The total value of assets that can be converted into cash immediately, as reported by a company.

Cash Account

A brokerage account in which the client pays in full for any purchases See: Margin Account.

Cash Flow

Net income plus depreciation an other non-cash charges. A strong cash flow is important for covering interest payments, particularly for highly leveraged companies.

Cash Trade

A cash trade is a trade in which the buyer pays cash and receives immediate delivery of the securities on the transaction date.

CD Rate

The current interest rate for a given CD (certificate of deposit).

Certificate

The actual piece of paper which is evidence of ownership of a security (vs. book entry). Certificates may be issued in registered or bearer form. See bearer, book entry, registered.

Certificate of Deposit

Certificates issued by banks that pay a fixed interest for a specific amount of time.

Chicago Board Options Exchange (CBOE)

Listed option trading was originated by this marketplace on April 26, 1973.

Churning

Churning is the practice of engaging in excessive trading in a customer's account and is prohibited by the FINRA Rules of Fair Practice.

Close

Price of the last transaction of a security on a particular trading day.

Closed-End Investment Company

A closed-end investment company is a management company that issues a fixed number of shares to investors in a one-time offering. These shares are not redeemable with the issuing company, but are traded on exchanges like a stock.

Closing Price

The market price you receive when you sell or buy-to-cover your security.

Commercial Paper

A short-term obligation with maturities ranging form two to 270 days. Issued by banks, corporations, and other borrowers to investors with temporarily idle cash.

Common Stock

Common stock is an equity security which represents partial ownership in a corporation. The holder is entitled to share in the profits of the company, to vote, and to share in the liquidation value of the assets. See: Stock

Common Stock Fund

A common stock fund is a mutual fund that invests primarily in common stocks rather than preferred stocks or bonds. A common stock fund may have an investment objective of growth or of income or a combination of the two.

Confirmation

A written notification from a broker to a client specifying the details of a securities transaction.

Contra Broker

The opposing broker in a dealer-to-dealer securities transaction.

Control Person

Any officer, director, or 10% stock holder of a corporation (and immediate family). also known as affiliates. See: insider.

Control Stock

Registered stock owned by a control person. See: control person.

Conversion Privilege

The conversion privilege with variable life insurance permits the owner to convert the policy to a whole life policy during the first two years after the policy is issued. The conversion privilege or exchange privilege offered by a family of mutual funds allows an investor to exchange shares of one fund for shares of another fund within the family funds. The investor does not need to pay sales charges when making the exchange of shares.

Conversion Ratio

The conversion ratio is the number of shares of stock that will be received for a $1,000 convertible bond. It is the par value of the bond ($1,000) divided by the conversion price.

Convertibility

The degree of existing freedom to exchange a currency without restrictions or controls imposed by the government.

Convertible

A bond, debenture or preferred stock which may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the same terms of the issue.

Convertible Bonds

A convertible bond allows the holder to exchange the bond for a specific number of common shares at a set price.

Convertible Preferred Stock

Convertible preferred stock is preferred stock which may be exchanged for common stock at the owner's option according to a specified formula set at the issuance date.

Cooling-off period

The cooling-off period is the 20-day period after registration is filed, and before the registration for the security becomes effective. The security may not be offered for sale during this period, but indications of interest may be taken.

Corporate Bonds

Debt obligations issued by corporations.

Corporation

A corporation is a form of business organization in which the business is owned by shareholders. The shareholders elect a board of directors to run the corporation, and the board of directors appoint officers to handle the day-to-day operation of the business. The shareholders invest in the shares of stock issued by the corporation, and they are protected from losing more than their investment by limited liability.

Coupon Rate

The coupon rate, also called the nominal rate, is a stated percentage of the face value of a bond. It is the debtor's interest obligation.

Covered Calls

A covered call seller or writer is an investor who owns a stock and sells a call option against it to generate additional income, which comes from the premium received for selling the option. If things work out right for the writer, the stock price will stay below the strike price and the writer will retain both the premium and the stock.

Cumulative Dividends

A feature of preferred stocks whereby owners are still entitled to their dividends (before common stock holders) after a pay period has been skipped due to poor company performance. The dividend amount that was skipped is made up cumulatively during the following dividend pay period.

Current Assets

Value of cash, inventories, marketable securities, and accounts payable available for conversion into cash in less than one year.

Current Liabilities

Amount owed for salaries, accounts payable, interests, and other debts due within one year.

Current Ratio

A company's current assets divided by its current liabilities.

Current Yield-Bond

Current yield is a bond's annual interest divided by its current price. A measure in percentage terms of how much income you can derive form the security. Of great importance to fixed income investors and of minimal importance to growth investors. See Yield to Maturity.

Current Yield-Mutual Fund

For a mutual fund, current yield is the amount of the current dividend distribution divided by the net asset value. The mutual fund current yield may or may not be annualized.

Current Yield-Stock

For stock, the annual dividend divided by the current price per share.

CUSIP

Customer uniform security identification program. (CUSIP) Used to identify specific securities established by the Committee on Uniform Securities Identification Procedures.

Custodian account

Custodian accounts are required for gifts to minors under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). The custodian may be an adult or a trust company. Only one adult is appointed custodian for each custodial account, and a separate account is required for each minor. A custodian account must be a cash account; no margin transactions are permitted. See: Uniform Gift to Minors Act.

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Day Order

An order to buy or sell securities that expire unless it is executed or canceled the day it is placed.

Dealer's Concession

The amount of the sales charge allowed by the underwriter to the dealer as his commission for selling shares of the fund.

Debenture

A bond issued by a corporation which is secured by the general credit or promise to pay the issuer. It is not backed by a collateral such as tangible assets. Debentures are unsecured debt. The lender must rely entirely upon the credit-worthiness of the firm for repayment.

Deduction

A deduction is an expense or loss allowed by the Internal Revenue Code to reduce a taxpayer's taxable income. A capital loss is an allowable deduction against a taxpayer's gross income up to $3,000 per year.

Default

Failure to pay principal or interest promptly when due.

Defensive Investment

A defensive investment is an attempt to preserve principal and provide stable income with minimal exposure to a down turn in the market cycle.

Defensive Stocks

Stock whose prices stay stable when the market declines.

Deferred Annuity

A deferred annuity is an annuity whose first payout check is deferred more than one payment period. Deferred annuities may be purchased either with a single premium or with a single premium or with a series of periodic installment premiums. Deferral of payout can extend for many years. However, deferral cannot be used to avoid income taxes.

Deferred Compensation Plan

A deferred compensation plan is a retirement plan that enables employees to defer receipt of a portion of their income tax until retirement. Deferred compensation plans may be qualified or nonqualified, but in the Series 6 examination, deferred compensation plans are generally treated as nonqualified unless otherwise indicated. If the deferred compensation plan is set up so the employee does not have a right to the income until retirement, the income is not taxed to the employee until actually paid after the retirement.

Defined-Benefit Retirement Plan

A defined-contribution retirement plan is a retirement plan that specifies an annual contribution rate for the employer. The employer's contribution rate is typically some percentage (for example, 8%) of each employee's annual earnings. The annual contribution is defined, but the employee's retirement benefit will depend on the investment results, years of service, age at retirement, and other factors as well.

Depreciation

Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets. A non-cash expense that provides a source of free cash flow.

Dilution

The effect on earnings per share and book value per share if all convertible securities were converted, or all warrants or stock options were exercised.

Discount Rate

The lending rate that the Federal Reserve Bank charges on loans made to other banks and financial institutions. Changes in this rate tend to have large ripple effects on the rates banks in turn charge their customers. The discount rate is one of the monetary policy tools of the Federal Reserve. It is the rate of interest charged by the Fed to borrowing member banks.

Discretionary Account

In a discretionary account, the customer gives a registered representative or the representative's firm authorization to buy and sell securities or commodities including selection, timing, amount, and price to be paid or received.

Discretionary Income Discretionary income is what is left over out of total income once total expenses have been deducted.

Disintermediation

The withdrawal of monies from a low yielding financial intermediary, such as a bank saving account, and the reinvestment into other higher yielding securities.

Diversification

Diversification is an attempt to reduce the investment risk for a portfolio by including a variety of assets and/or maturities.

Dividend

The periodic, usually quarterly, payment made by a corporation to its shareholders, generally expressed as dividend per share. Dividends represent earnings that are not reinvested by the corporation. Some stocks pay no dividends and others, such as utility companies pay substantial ones that represent a large portion of the total return a shareholder will get from his investment. Dividends are a type of distribution and are usually taxable in year received.

Dividend Reinvestment

Automatic reinvestment of shareholder dividends into more shares of a company's stock. This is often done without having to pay commissions.

Dollar Bond

Bonds that is quoted and traded in dollar prices rather than in terms of yield.

Dollar Cost Averaging

A dollar cost averaging (DCA) is an investment technique requiring an investor to invest fixed sums at regular intervals. The investor's fixed sums will buy more shares when the stock price is low and will buy fewer shares when the price is high, so over time, the investor will acquire the securities below their average price per share in the same time period.

Down-Tick

A down-Tick or Minus-Tick, is a term used to designate a transaction make at price lower than the preceding transaction.

Dow Jones Industrial Average (DJIA)

The best-known and most widely accepted U.S. index of stocks, containing 30 stocks that trade on the New York Stock Exchange and the NASDAQ. Also known as the Dow, it is a barometer of how shares of the largest U.S. companies are performing. Throughout the world there are thousands of investment indexes for currencies, commodities, stocks, and bonds.

Due Diligence (Meeting)

A meeting conducted by the underwriter of a new offering at which brokers can ask representatives of the issues/questions about the issuer's background and financial reliability and the intended use of the proceeds. Brokers who recommend investment in new offerings without very careful due diligence work may face lawsuits if the investment should go sour later.

DVP/RVP Account

If you have not taken special steps to establish a DVP/RVP account with us, you must not select this account type. DVP/RVP accounts relate mainly to institutional trading accounts.

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Earnings Before Interest And Taxes (Ebit)

A financial measure defined as revenues less the cost of goods sold and selling, general, and administrative expenses.

Earnings Per Share (EPS)

Net income divided by the number of shares of common stock outstanding.

Economic Risk

Economic risk arises from a company's susceptibility to changes in the general economic environment. A company that is very susceptible is called cyclical; a less susceptible company is called defensive.

Employee stock ownership plan (ESOP)

A plan that encourages employees to buy the stock of their employer.

Equity

The generic term for ownership interest in an asset. In real estate, it is often used to describe the net of the current value and the mortgage balance. It is also used to describe stock and mutual funds, that is, investments that issue ownership shares.

ERISA

The Employee Retirement Income Security Act of 1974 or ERISA is the major federal law governing retirement plans. ERISA establishes the standards for "qualified" retirement plans. Some ERISA standards also apply to "nonqualified" plans. ERISA created the Pension Benefit Guaranty Corporation to insure pension plans.

Exchange

The principal exchange in which the stock is traded: NYSE= New York Stock Exchange; AMEX= American Stock Exchange; and OTC= Over The Counter. The OTC, unlike the other two, does not have a physical location. It is a network of security dealers, most of whom are connected by a computer link called NASDAQ (National Association of Securities Dealers Automated Quotation System). OTC stocks are found under the NASDAQ listings of your newspaper.

Exchange Privilege

An exchange privilege, also called a conversion privilege, permits an investor to liquidate an investment in one mutual fund and reinvest the money in another mutual fund within a family of funds without payment of sales charges. Such exchanges are considered a sale and purchase for tax purposes.

Ex-dividend Date

The ex-dividend date is the date on and after which the buyer of a security is no longer entitled to receive a declared dividend. For corporate stock, the ex-dividend date is two business days before the record date. For mutual funds, the ex-dividend date is the day after the record date.

Execution

The process of completing an order to buy or sell securities. Once a trade is executed, it is considered final. Settlement (payment and transfer of ownership) usually occurs three business days after an order is executed.

Expense Ratio

The ratio of total expenses of the fund to the total average net assets of the fund.

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Face Amount

The par value (i.e. principal or maturity value) of a security appearing on the face of the instrument.

Face Value

The stated value of a bond certificate when issued and when that are redeemed at maturity. Same as par value or principal. The face value never changes but the current value does. Current value for a bond is (face value x price) divided by 100. Bonds are purchased as units of face value. For example, you by a $10,000 bond where the current value can be more or less than $10,000, depending on market conditions.

Fast Market

A market where orders enter faster than the brokers and specialists can handle them effectively. These situations are often created by the announcement of unexpected news. Fast Markets can occur as the stock moves up or down.

Federal Funds

The overnight borrowing of reserves by one bank from another bank.

Federal Home Loan Banks (FHLB)

Operate as a credit reserve system for savings-related institutions in the U.S. They are supervised by the Federal Home Loan Bank Board.

Federal Home Loan Banks (FHLMC)

Freddie Mac: Provides a secondary market for conventional residential mortgages. It issues a number of mortgage backed securities.

Federal Open Market Committee (FOMC)

The FOMC is comprised of seven governors of the Fed and five regional Federal Reserve Bank presidents. Four of the presidents serve on a rotating basis. The committee implements the policy determined by the Fed, called monetary policy.

Federal Reserve System (the FED)

The Federal Reserve System is comprised of 12 regional Federal Reserve banks and a Board of Governors in Washington, D.C. The Fed uses monetary policy to accomplish its primary goals of stable prices, economic growth, and full employment.

Fiduciary

A fiduciary is a person having a duty to act primarily for another's benefit in the manner of a trustee. People place such a high degree of trust and confidence in fiduciaries to act for them that fiduciaries must act only in the best interests of the beneficiaries and must conform to a high standard of conduct. Trustees, guardians, and executors are all fiduciaries.

Firm commitment

A firm commitment obligates the underwriter to buy the entire issue at a set price. All of the risk falls upon the underwriter as dealer. The underwriter acts as a principal in this transaction.

Fixed Annuity

A fixed annuity promises to pay the annuitant a fixed number of dollars each month or year (or other time period) for the duration of the payout period. Under a fixed annuity, the mortality factor, the investment yield, and the expense factor are guaranteed by the issuer.

Floor

Trading area where stocks and bonds are bought and sold on an exchange.

Floor Broker

A member of an exchange who executes orders on the floor of the exchange to buy and sell any listed securities. O an exchange member who is permitted to conduct business on the exchange floor.

Foreign Currency Options

Foreign currency options give investors the right to buy or sell a specified amount of currency. These options are used to hedge foreign currency exposure and to generate extra income.

Forward Pricing

The method in which the price of a mutual fund transaction is determined. Orders for the purchase of mutual fund shares will be executed at the next calculated NAV (plus sales charge, if any). Likewise for shares being redeemed by the fund.

Fourth Market

Direct trading of stock between institutional investors to avoid brokerage commissions. In some cases, this is done through the "Instanet" system.

Front-End Load

A front-end load refers to sales charges imposed at the time of the initial purchase of mutual fund shares.

Fund Family

A group of individual mutual funds managed by a single company. Investing within a fund family can mean lower costs and less paperwork.

Fund Manager

The person who determines how mutual fund assets are invested.

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General Obligation Bond

A bond secured by the pledge of the issuer's full faith, credit and, usually, taxing power.

Ginnie Mae Fund

A Ginnie Mae fund or GNMA fund is a mutual fund that invests in mortgage-backed securities guaranteed by GNMA. See: GNMA.

GNMA

GNMA (Government National Mortgage Association) is the name of the agency which issues and guarantees GNMA securities which are mortgage-backed certificates. Monthly payments of principal and interest from homeowners are passed through to the investors who owns GNMA's.

Good 'Til Canceled (GTC)

An order that does not expire at the end of the day it is entered. Instead, it remains in force until it is either executed or canceled.

Goodwill

Generally understood to represent the value of a well respected business name, good customer relations, high employee morale, and other such factors expected to translate into greater-than-normal earning power.

Gross Profit

Net sales less the cost of goods sold. Also called gross margin.

Growth Stock

Growth stock refers to the common stock of a company that is expected to experience rapid growth in earnings. Typically, earnings are retained for further expansion, so dividends are generally low. Investors anticipate greater risk and capital appreciation from their growth stock investments.

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Hedging

An investment strategy of lowering risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower return since there is a cost involved in hedging. For example, a portfolio manager could short a futures contract which will perfectly offset any decrease in the value of the portfolio. Options and short selling stock can also be used for hedging. Hedge funds are investment pools that are free to use any hedging techniques they desire and they often make large bets in a relatively small number of different holdings.

High-yield-bond

A bond with a speculative credit rating is a high-yield bond. Two agencies, Standard & Poor's and Moody's, provide the ratings systems for companies' credit.

Hot Issue

When a new stock issue trades at an immediate premium (secondary market price on the effective date is above the new issue offering price). Purchase of shares of a hot issue by employees of brokerage firms, their immediate families, and other individuals is either prohibited or restricted.

House Call

A brokerage firm's notice to the client that the equity in a margin account is below the firm's maintenance level and needs additional funds immediately.

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Immediate Annuity

An immediate annuity is an annuity whose first payout check is deferred only one payment period. An immediate annuity is always purchased with a single premium. Under a monthly benefit annuity, the annuitant must wait one month after paying the single premium before receiving his or her first monthly benefit payment.

Income Bond

Generally income bonds promise to repay principal but to pay interest only when earned. In some cases unpaid interest on an income bond may accumulate as a claim against the corporation when the bond becomes due. An income bond may also be issued in lieu of preferred stock. Also called an Adjustment Bond.

Income Fund

A type of mutual fund whose portfolio consists of income producing securities such as bonds and preferred stock.

Income Stock

A stock which pays a relatively high dividend.

Index Fund

A mutual fund whose portfolio matches that of a broad-based index such as Standard and Poor's 500 Index, and whose performance therefore mirrors the market as a whole.

Individual Retirement Account (IRA)

An IRA is a retirement plan for individuals with earned income. If the individual is a participant in an employer's qualified retirement plan, he or she may establish an IRA, but contributions are deductible only if adjusted gross income is below a prescribed maximum. The maximum deduction is $2,000 for an individual and $4,000 if a spousal IRA is established by a married couple.

Inflation

Inflation is a general rise in prices causing a loss in purchasing power. Increased income and an increase in the value of invested assets may help to offset this loss.

Initial Public Offering (IPO)

An IPO is a company's first offering (sale) of securities to the general public.

Interest

The cost of borrowing money expressed as a percentage rate over a specified amount of time. Also, a share or title in property.

In-The-Money

Refers to an option with intrinsic value. For example: A call option in which the underlying security is selling above the strike price, or a put option in which the underlying security is selling below the strike price.

Intrinsic value

The amount that the market price of a stock is above the strike price of a call option or below the strike price of a put option on that stock (the in-the-money amount).

Investment

The purchase of an asset with the expectation that a profit or income will be realized.

Investment Adviser

An investment adviser or manager for a mutual fund acts pursuant to a contract to furnish advice as to buying and selling securities. The adviser usually has responsibility for effecting transactions in accordance with the fund's investment objective and restrictions. Like other persons who are compensated for investment, a fund's investment objective and restrictions. Like other persons who are compensated for investment advice, a fund's investment adviser must register under the Investment Advisers Act of 1940. Investment advisers who register under the 1940 Act are not restricted to advising mutual funds. Generally, a person who offers advice on securities and receives a fee for such advice must register as an investment adviser.

Investment Company

An investment company is a company that is engaged primarily in the business of investing in securities or that has more than 40% of its total assets in investment securities. To register as an investment company under the 1940 Act, a company must have a net worth of $100,000, and it must have 100 shareholders or propose a public offering.

IRA (Individual Retirement Account)

A tax-deferred retirement account for individuals. Individuals may hold several types of investments in an IRA account, but may not contribute more than $2,000 a year to their IRA.

Issuer

Under the Securities Act of 1933, an issuer is any person who issues or proposes to issue a security. Generally, the issuer is the company that offers a security for sale to the public in order to raise capital for its business. In the case of mutual fund shares, the issuer is the fund. A state, political subdivision, agency or authority which borrows money through the sale of bonds or notes can also be considered an issuer.

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Joint Account

A bank or brokerage account that two or more people own jointly. Some joint accounts are set up so that all owners of the account must sign checks and approve all withdrawals or brokerage transactions. In others, any one party can take these actions on his or her own. Joint accounts usually include rights of survivorship (upon the death of one party, the other gets complete ownership) or with tenants in common (the ownership of the deceased party's half goes to his estate, not the other party).

Joint and Last Survivor Annuity

With a joint and last survivor annuity, the insurer will pay as long as either of two annuitants is alive. This annuity is usually attractive to a married couple, because payments will continue to the surviving spouse after one spouse dies.

Joint and Survivor Annuity

An annuity that pays two or more beneficiaries. When one of them dies, the payments continue to the survivors but the deceased's share is no longer paid.

Joint Tenancy With Right of Survivorship

Securities held in joint tenancy with right of survivorship (JTWROS) are owned by two or more individuals equally, and their interests are undivided. At the death of one of the joint owners, the securities pass to the survivor(s).

Junk Bond

A junk bond (or high-yield bond) is one with a S&P credit rating of BB or lower and that carries higher risk of interest of principal default than better rated investment grade bonds. Junk bonds are issued in leveraged buyouts and other takeovers by companies without long track records of sales and earnings, or by those with questionable credit strength.

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Keogh Plan

Tax-deferred pension account designated for employees of unincorporated businesses or for persons who are self-employed, either full- time or part-time.

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Large Cap Stocks

Stocks issued by companies with a market capitalization of over $5 billion. Large-cap stocks generally offer better dividends, but less growth potential, than small-cap stocks.

Last

The price at which a security last traded.

Letter of Intent

A Letter of Intent (LOI) is an investor's signed statement of the intent to purchase a large enough quantity of mutual fund shares within a 13- month period to qualify the purchases for discounts according to the fund's schedule of breakpoints. The LOI is not binding on the investor, but failure to complete the purchases required under the LOI will means loss of power.

Life Annuity

A life annuity is an annuity contract that promises to pay the periodic payment for as long as the annuitant lives. Life annuities may have a 10-, 15-, or 20- year period certain. This means that payments continue for the duration of the period certain whether the annuitant lives or not. If the life annuity has no period certain, it is known as a pure or straight life annuity.

Life Annuity With Period Certain

A life annuity with period certain means the insurer promises to pay the annuity for a specified period even if the annuitant dies before the end of that period. If the life annuity has a period certain of 10 years, and the annuitant dies after only 5 years, the insurer will continue to make payments for an additional 5 years.

Limit Order

An order to buy or sell a security at a specific price or better.

Limited Partnership

A business or investment where limited partners provide capital, share in profits, have limited legal liability, and leave the management of the business to general partners. Can be tradable and listed on an exchange, packaged and sold by brokers and not exchange tradable, or tradable to other partners only. REITS (real estate investment trusts) are popular LPs. Most LPs provide both income and appreciation. Some are highly liquid and others not.

Limited Tax Bond

A bond secured by a pledge of a tax or category of taxes limited as to rate or amount.

Listed Securities

Listed securities are stocks, bonds, or options which are sold on exchanges and which meet certain exchange requirements.

Listed Stock

The stock of a company which is traded on a securities exchange. The various stock exchanges have different standards for listing.

Load

The sales charge imposed on the purchase or sale of shares in certain mutual funds.

Long Position

Securities owned by the client and held in the client's account at the brokerage firm.

Long-term Bond

Bonds that mature in more than ten years.

Long-term Debt

An obligation having a maturity of more than one year from the date it was issued. Also called funded debt.

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Maintenance Requirement

The level of equity that must be maintained in a client's margin account. When the market value of a margined security is less than maintenance levels, a margin call is issued for the investor to increase equity.

Margin Account

An investment account which allows you to purchase securities with funds borrowed from the broker at a specified interest rate. See: Cash Account

Margin Call

A firm's demand of a client for additional equity in order to meet maintenance requirements. If a client fails to deliver more equity in the account, positions in the account may be liquidated. There are three types of margin calls: House, Exchange, and Federal. See House Call, Exchange Call, Federal Call.

Margin Requirement

The margin requirement on common stock purchases is set by the Fed according to Regulation T. It is based on a percentage of the value of the securities traded. Securities firms may require a higher percentage than that set by the Fed.

Market Order

An order to buy or sell a security at the best available price.

Market Price

Relative to securities, the market price is usually considered the last reported price at which the stock or bond sold.

Market Risk

Market risk is the possibility that the overall market will decline since most securities tend to move in the same general direction.

Market Value

The number of outstanding common shares of a given corporation times latest price per share. It is also referred to as a market capitalization. Note: ADRs and ADSs do not display Market Value.

Marketable Securities

U.S. government bonds or securities that can be easily traded.

Maturity

Date on which a loan or a debenture comes due and is to be paid in full.

Maturity

The date a given bond will mature and pay off its principal in full. A bond issued for $1,000 will pay off the $1,000 at maturity. A single company can issue more than one series of bonds. These bond series can be differentiated by their maturities.

Member Firm

A securities brokerage firm organized as a partnership or corporation and owning at least one seat on the exchange.

Mid-Cap Socks

Stocks issued by companies with a market capitalization of more than $1.5 billion. Mid-cap stocks offer a mix of growth potential and stability.

Minority Interest

An outside ownership interest in a subsidiary that is consolidated with the parent for financial reporting purposes.

Money Market

The money market deals in securities with original maturities of one year or less, or long-term debt scheduled to mature within one year.

Money Market Fund

A type of mutual fund that specializes in securities of the money market, such as t-bills and commercial paper.

Municipal Bond

A long-term debt instrument issued by a state or local government. It usually carries a fixed rate of interest, which is paid semiannually.

Mutual Fund

A pooling of many investors' money for specific investment purposes. The fund is managed by a management company, which is responsible for adhering to the purpose of the fund.

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FINRA

The FINRA is the Financial Industry Regulatory Authorityand is the only national self-regulatory organization for securities dealers under the Maloney Act. See: Finanical Industry Regulatory Authority.

NASDAQ

The Financial Industry Regulatory AuthorityAutomated Quotation system is a computerized quotation system offering three levels of service for selected OTC securities.

NASDAQ Composite Index

A market value weighted index comprised of about 3,500 stocks traded on the NASDAQ exchange. Large technology stocks have a major effect on this index value. NASDAQ represents the top tier of the over-the-counter (OTC) market.

Negotiable

The property of a security that allows ownership to pass from one person to another (transferable).

Net Asset Value (Nav)

The total value of a fund's underlying assets divided by the fund's number of shares outstanding.

Net Assets

The total assets of the fund less the liabilities.

Net Income

A company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes, and other expenses.

New York Stock Exchange (NYSE)

Located at 11 wall street, New York; a primary market for buying and selling the securities of major corporations.

No Load Fund

A mutual fund that charges no sales commission on the purchase of its shares.

Nominal Yield

The nominal yield is the coupon interest rate stated in the bond. It is expressed as a percentage of par. A $1,000 bond with a 10% nominal yield will pay $100 annual interest. It is also known as the coupon, coupon rate, and interest rate.

Non-callable Bond

Bonds which cannot be taken back by the issuer before maturity. Most U.S. Treasury issues are non-callable. This is an advantage to the lender since there is no interest rate risk. With callable bonds, there is the risk of having to reinvest before maturity at a potentially lower interest rate.

Non-Cumulative

A preferred stock on which unpaid dividends do not accrue. omitted dividends are as a rule, gone forever.

Non-Qualified Retirement Plan

Under ERISA, retirement plans are generally "qualified" if they meet the many standards established by ERISA. Such plans are eligible for many tax advantages. "Nonqualified" plans meet fewer of the ERISA standards and are eligible for fewer tax advantages. With qualified plans, the employer may take a current income tax deduction for contributions, but with a nonqualified plan, the employer is not able to deduct contributions until the benefits are paid out to the employee. See: Qualified Plan.

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Odd Lot

A quantity of securities that is smaller than the standard unit of trading (usually 100 shares), known as a round lot.

Offer

The price at which a person is ready to sell. opposite of bid, the price at which one is ready to buy.

Offering Price

Same as asking price.

Official Statement

Document prepared by or for the issuer that gives in some detail security and financial information about the issue.

Open Market Operations

Open market operations are a monetary policy tool involving the buying and selling of government securities by the Federal Reserve.

Open Order

Orders that have been placed with the broker but have yet been executed or canceled.

Option

A right to buy or sell specific securities or properties at a specified price within a specified time.

Over-The-Counter-Market (OTC)

Comprised of network of telephone and telecommunication systems over which unlisted securities and other issues trade.

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P/E (Price To Earnings Ratio)

The current share price divided by the last published earnings per share.

Paper Profit

An unrealized profit on a security still held. Paper profits become realized profits only when the security is sold.

Par

The nominal or face value of a security. A bond selling at par is worth the same dollar amount as it was issued for, or at which it will be redeemed at maturity, usually $1,000. For common stock, par value is set by the company issuing the stock. Par value is an assigned amount (usually $1) that is used in computing the dollar value of the company's shares for accounting and reporting purposes. See Bond.

Parity Price

The parity price is the market price of a convertible bond divided by the number of shares of common stock into which it can be converted. If the market price of the common stock is above the parity price, the bondholder would be inclined to convert.

Penny stocks

Low-priced issues, often highly speculative, selling at less than $5 a share.

Pension Fund

A fund established for the payment of retirement benefits.

Period Certain

A period certain is the period of time for which payments are guaranteed under a life annuity contract, even if the annuitant dies before the end of the period certain.

Pink Sheets

The daily listing of stocks, prices, and market makers for over- the-counter (OTC) stocks too small in capitalization to be listed in the NASDAQ system.

Preemptive Rights

Preemptive rights allow common shareholders to retain their proportionate ownership in the firm should a rights offering occur.

Preferred Stock

Stock that represents ownership in the issuing corporation and has prior claim on dividends. In the case of bankruptcy, preferred stockholders have a claim on assets ahead of common stock holders. The expected dividend is part of the issue's description.

Preliminary Prospectus ("red herring")

A preliminary prospectus is sent to prospective purchasers of a new securities issue during the "cooling-off" period. A security may not be sold with a preliminary prospectus, but indications of interest may be taken. Offerings may only be made with the final prospectus.

Primary Distribution

May be called primary offering. The original sale of a company's securities.

Primary Offering

The offering of new securities to the public by a corporation seeking to raise new capital.

Prime Rate

The lowest interest rate charged by commercial banks to their most credit-worthy and largest corporate customers. Other interest rates, such as personal, automobile, commercial and financing loans are often pegged to the prime.

Profit-Sharing Plan

A profit sharing plan is a type of defined contribution retirement plan under which the employer's annual contribution is some percentage of profits for that year. The employer's contribution is typically allocated among the participating employees according to each employee's percentage of the employer's total payroll.

Prospectus

A prospectus contains a summary of information presented in a registration statement and discloses important facts about a security and about the issuing company, so investors may make an informed decision before investing. Both the registration statement and the prospectus are filed with the SEC. The prospectus must be delivered to investors before or at the time of any solicitation for a new offering of a security. The prospectus explains the terms of a new security offering, the officers, the outside public accounting firms, the legal opinion, and description of the core business. See: Read Herring

Proxy

A proxy is a written authorization given by a shareholder to another person to vote the shareholder's shares at a shareholders' meeting. By means of proxies, shareholders can vote at meetings without actually appearing.

Public Offering Price (POP)

The public offering price for a mutual fund is the net asset value per share, plus the sales charge. The POP is the price at which the fund sells shares to the public and is also called the asked price.

Purchase Price

The market price you receive when you buy or sell short a security. Same as opening price.

Purchasing Power Risk

Purchasing power risk is the possibility that inflation can erode the purchasing power of investment income and the market value of the assets.

Puts

Puts are stock options that allow the owner to sell 100 shares of a particular stock at a specific price for a certain period of time.

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Qualified Retirement Plan

A qualified plan is a retirement plan that meets the government's minimum requirements for qualification for special federal income tax benefits for the sponsoring employer and the participating employees. See: Non-Qualified Plan

Quarterly Report

A report submitted on a quarterly basis fulfilling an SEC requirement stating that all public companies must report relevant information about themselves on a timely basis to all interested parties. Also known as a 10Q.

Quotation

The highest bid to buy and the lowest offer to sell a security in a given market at a given time.

Quick Assets

Assets that can be converted into cash very quickly. Defined as current assets less inventory.

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Rally

A brisk rise following a decline in the general price level of the market, or in an individual stock.

Real-time Quote

A real-time stock or bond quote is one that states the price most recently offered to buy or sell a security. A delayed quote shows the same bid and ask prices 15 or 20 minutes after a trade takes place.

Record Date

The record date is the date which establishes who will receive a dividend. All stockholders who are on record as owning the stock on the record date will receive the declared dividends.

Red Herring

A preliminary prospectus used to obtain indications of interest from prospective buyers of a new issue. See: Prospectus

Registered Investment Company

An investment company that has qualified under the investment company act of 1940.

Registrar

Usually a trust company or bank charged with the responsibility of keeping a record of the owners of a corporation's securities and preventing the issuance of more than the authorized amount. The registrar maintains the shareholder list with current names and addresses.

Regulation T

Regulation T was adopted by the Federal Reserve Board and establishes the extent to which broker-dealers may extend credit. It sets the initial margin requirement and defines eligible, ineligible, and exempt securities.

Regulation U

A U.S. government regulation that covers the lending of money by banks to their customers including brokerage firms.

Reinvest Distributions

In brokerage, feature where user requests that mutual fund distributions be reinvested in more shares, or instead paid in cash.

Repurchase Agreement (Repo)

A repo is a money market instrument used for the secured borrowing and lending of short-term funds.

Restricted Securities

Restricted securities or letter stock are not registered with the SEC and are not offered to the general public. Such stock is typically purchased at a discount by means of an investment letter. Resale of the stock is restricted for two years.

Retained Earnings

Net profits kept to accumulate in a business after dividends are paid.

Return

Often referred to as yield.

Return on Equity (ROE)

The current fiscal years estimated earnings per share (EPS) divided by the book value per share. Result is shown as a percentage. Investors use ROE as a measure of how a company is using it's money.

Revenues

The amount a company earned selling it's products and/or services.

Right of Accumulation

The right of accumulation entitles an investor to reduced sales charges taking into account all shares already owned by the investor. Sales charges are reduced only on the new purchases, not on the shares already owned.

Rights Offering A rights offering is an opportunity given to existing shareholders to buy additional shares of stock in the corporation. The rights offering may precede an offering of stock to the general public. The rights can be sold by the shareholders who do not want to exercise these rights.

Rollover

A rollover is a distribution of funds from a qualified plan or from an individual retirement account and the funds are reinvested within 60 days in an individual retirement account. Such a transfer from one retirement plan to another is tax-free.

Roth IRA

Senator Roth gave his name to this IRA which offers income tax free distributions during retirement. Contributions (up to $2,000) are not deductible but can continue after age 70-1/2. The investment build-up is never subject to tax as long as the taxpayer takes qualified distributions. Qualified distributions cannot begin until the Roth IRA has been in existence for five years. Rollover of regular IRAs to Roth IRAs requires payment of income tax on the IRA funds but not the penalty for premature distributions.

Round Lot

A standard trading unit. In common stocks, 100 shares make up a round lot. A round lot of bonds in the over-the-counter market is five bonds.

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S&P 500

The basket of 500 widely held stocks which are thought to measure changes in stock-market conditions. The S&P 500 index is a service of Standard & Poor's corporation, a financial advisory, securities rating, and publishing firm. The index tracks industrial, transportation, financial and utility stocks.

Sales Charge

The percent of your investment capital that is subtracted immediately to cover sales and promotion costs when purchasing mutual funds. For example, if you invest $10,000 in a fund with an 8% sales charge, a sales fee of $800 is subtracted and your initial investment principal is $9,200. Also called Front Load and Initial Load.

Seat

A traditional figure of speech for a membership on an exchange. price and admission requirements vary.

SEC

The SEC is the Securities and Exchange Commission. The SEC was authorized by the Securities and Exchange Act of 1934. See: Securities and Exchange Commission

Secondary Markets

Exchanges and over-the-counter markets where securities are bought and sold subsequent to their original issuance, which took place in the primary market.

Secondary Offerings

When a company sells more stock to the market, after it's Initial Public Offering, to raise additional capital to finance it's operations.

Securities And Exchange Commission (SEC)

The federal agency responsible for the enforcement of laws governing the securities industry. See: SEC

Selling Group

A selling group includes additional investment banking firms brought in to help sell a large underwriting. Because of the lower level of responsibility, the selling group members receive only commission for sales.

Selling Short

Sale of a security or commodity future contract not owned by the seller; a technique used to take advantage of an anticipated decline in the price or to protect a profit in a long position.

Separate Accounts

Separate accounts are investment accounts kept separate from an insurance company's general investment account. The government permits an insurer to invest separate account assets under a different set of guidelines than those applicable to the insurer's general account assets. Separate accounts are used for both variable life insurance and variable annuity contracts. The government requires that separate accounts must be registered as investment companies under the Investment Company Act of 1940.

Series E Bond

U.S. Government savings bond issued from 1941 to 1979.

Series EE Bond

U.S. Government savings bond with a 10-year maturity and face value of $50 to $10,000. It has properties of a zero coupon bond since it is purchased at a discount to face value.

Series HH Bond

U.S. Government savings bond available in denominations of $500 to $10,000 in exchange for Series E or EE bonds.

Settlement Date

When securities are delivered and payment is made for trade.

Shareholder

A person or entity that owns a share or shares in a corporation.

Short Position

A position in customer's account in which the customer either owes the firm securities or has some other obligation to meet (OR) Any position on a firm's security records having a credit balance.

Short Sale

In a short sale, an investor borrows securities from the broker and sells the securities with the promise to purchase and deliver the same securities at a later date to repay the loan. If the purchase price for securities declines, the investor will make a profit.

Short-Term Bond

Short term bond normally a bond that matures within five years.

Short-Term Government Bond

A government bond that matures within one to five years.

Simplified Employee Pension (SEP)

A SEP is a retirement plan similar to an employer-sponsored IRA. The employer may contribute up to 15% of the employee's compensation to a SEP. The limit on eligible compensation is $160,000, so the maximum contribution is $24,000. Employees are limited to making contributions by way of elective deferrals of 15% of compensation or $9,500. The employer's annual contribution on behalf of an employee is not included in the employee's gross income for federal income tax purposes.

Sinking Fund

A sinking fund is a fund to which a firm makes periodic payments which will ultimately be used to retire a bond issue.

Small-Cap Stocks

Stocks issued by companies with a market capitalization of less than $1.5 billion. Small-cap stocks can offer high-growth opportunities, but often pay small dividends or non at all.

Specialist

The specialist is a member of a stock exchange who assures orderly and continuous markets in certain securities by acting as a broker/dealer in these securities.

Stock

Ownership claims on a corporation's earnings and assets. See: Common Stock, See: Preferred Stock.

Stock Certificate

A certificate that provides physical evidence of stock ownership.

Stock Index Options

Stock index options allow investors to profit from or protect against movements in the broad market indices.

Stock Options

Stock options may be in the form of either puts or calls. Each put allows a buyer to sell 100 shares at a given price during a specified period. Each call allows a buyer to buy 100 shares at a given price during a specified period.

Stock Power

Power of attorney form by which ownership of a security can be transferred from the registered owner to another party.

Stock Split

The division of the outstanding shares of a corporation into a larger number of shares. A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding. Ordinarily splits must be voted by directors and approved by shareholders.

Stock Warrants

Stock warrants allow for the purchase of a specified number of shares of a stock at a specified price over a period of time. They are usually attached to bonds or preferred stock at issuance to make them more attractive to investors.

Stock/Shareholders Equity

Numerical term on an income statement which represents the amount of money invested in the company by shareholders.

Stockholder of Record

A stockholder whose name is registered on the books of the issuing corporation.

Stop Limit Order

An order to a securities broker with instructions to buy or sell a security at a specified price or better, but only after a given stop price has been reached or passed.

Stop Order

An order to a securities broker to buy or sell a security at the market price once that security has traded at a specified price, called the stop price.

Subdivision

Any legal and authorized political entity under a state's jurisdiction (county, city, water district, school district, etc.).

Surrender Charge

A surrender charge is a back-end load that a life insurance policy owner may be required to pay in the form of a reduced policy cash value if the policy cash value of the policy owner surrenders his or her life insurance policy after only a few years. The surrender charge is designed to help the insurer recover some of the acquisition expense that the insurer did not recover from the expense loading because the policy was in effect for such a short duration.

Symbol

A designated letter abbreviation for a publicly traded company. These symbols are usually between one and four letters. Mutual fund abbreviations are five letters.

Syndicate

A syndicate of several investment banking firms is formed in the case of a large underwriting. One or more of the firms are designated as the syndicate managers who "run the books" for the underwriting.

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Tax Base

The total property and resources subject to taxation.

Tax Deferred

Applies to an investment whose accumulated earnings are free from taxation until the investor takes possession of these investments without penalty until you are 59-1/2 years old. Tax-deferred investments are allowed by the IRS to save for retirement.

Tax Deferred Investment

An investment in which the payment of tax is postponed. Some examples are IRAs, annuities and U.S. savings bonds.

Tax Shelter

Any device or investment that provides a legal means to reduce, defer or escape taxation until used.

Taxable Income

Adjusted gross income less allowable deduction; the amount on which income tax is determined.

Tenants By The Entirety

A form of registration of property, usually real estate.

Tenants-In-Common

Tenants in common own an undivided interest in property, but their fractional interests may be unequal, and there is no right of survivorship.

Tender Offer

The offer made by one company or individual for shares of another company. The offer may be in the form of cash or securities.

Third Market

Trading of listed securities on the OTC is called the third market.

Ticker

A digital trading screen display showing information on the current option premium, future prices, and prices of the underlying assets as selected by the trader.

Tips

Supposedly "inside" information on corporation affairs.

Total Return

Price appreciation plus interest, dividends, and capital gain distributions for a given investment or account during a given period. Year- to-date return is for a partial year. Also useful is last quarter, last four quarters, and one month total return, which cover the indicated time periods. Total return is the best way to measure the performance of a similar or different investments. See: Annualized

Trade

Transaction that adds (buy or short sell) or removes a lot (sell or buy-to-cover) to or from open investments. Trade date is the date on which the trade occurs. Settlement date is the date by which the account must be debit or credited for results of the trade and it is normally three business days after trade date.

Trade Confirmation

Written verification and information concerning a transaction that is sent to the customer on or before the first business day following the trade date.

Trader

One who buys and sells for his own account for short-term profit.

Treasury Bills

Obligations issued by the department of the treasury maturing in 13, 26 or 52 weeks.

Treasury Bond

Long-term (10 to 30 years) fixed interest government debt security.

Treasury Note

U.S. government paper, not legally restricted as to interest rates, with maturity from one to five years.

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Uncovered Options

Selling a call option to open in which the seller does not own the underlying security position. Also called naked options.

Underlying Security

The security that must be delivered when another security is exercised. For example, if a call option is exercised, then the underlying stock is delivered to the call owner. Warrants, rights, options, and convertible securities all have underlying securities. For future options, futures are the underlying security.

Underwriter

To purchase a bond or note issue from the issuing body to resell it to the general public.

Uniform Gift to Minors Act (UGMA)

The act which establishes rules governing the purchase of securities for a minor. Each state has adopted the UGMA with few changes. A gift to a minor is irrevocable and securities must be registered in the name of an adult as custodian for the minor.

Unissued Stock

Stock authorized in a company's charter but for some reason, not issued and not outstanding. Contrast with treasury stock, which has been issued and then repurchased and is therefore not outstanding.

Unit Investment Trust (UIT)

A package of investments, usually bonds, sold to investors as a unit which is a fractional ownership of the total package. Unlike a mutual fund, the investments in a unit do not change and are not replaced if they mature or are called. Usually sold by brokers.

Unlisted Security

A stock or bond not listed on an exchange (usually New York or American) which trade in the over-the-counter market.

Up-Tick

Used to designate a transaction made at a price high than the preceding transaction. See: Plus-tick or Zero-Plus-tick

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Valueline Composite Index

An equally weighted index of 1700 stocks on NYSE, AMEX, and OTC exchanges. A broad-based index that is less volatile than the more popular DJIA.

Variable Annuity

A life insurance annuity contract where the annuity premium (a set amount of money) is immediately turned into units of a portfolio of stocks. Upon retirement, the policyholder is paid according to his accumulated units whose dollar value varies according to the performance of the stock portfolio. Its objective is to preserve, through stock investment, the purchasing value of the annuity which otherwise is subject to erosion through inflation.

Variable Interest Rate

Interest rate that is adjusted as market rates change. Can be found in adjustable rate mortgages, bonds, and certificates of deposit.

Vesting

The entitlement to full pension plan benefits. Normally expressed as the number of months and years of employment required to be vested.

Volatility

A characteristic of a security, commodity, or market to rise or fall sharply in price within a short-term period.

Volume

The total number of stock shares, bonds, or commodities futures contracts traded in a particular period.

Voting Right

Most common stock entitles a shareholder to the right to vote in person, or by proxy, on corporate elections and other related matters. Some companies issue both voting and non-voting shares, for example, Class A and Class B.

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Warrants

Similar to long term options, they give the holder the right to convert the warrant at a set price, into a set number of shares of the associated stock. They are often issued as bonuses along with newly issued common stock or bonds, and in combination these are called units. When sold ex-warrant, it is too late to get the warrant that was attached to the stock.

Wash Sale

A wash sale is a purchase of the same security within 30 days before or after a sale of the same security. The IRS disallows any tax loss in a wash sale.

When Issued

A symbol next to the price in a newspaper stock or bond listing which indicates that the price shown is for a security that has been authorized but is not yet trading. Frequently used to show after a split price before a split has occurred.

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X or XD

Symbol used in newspapers to indicate that a stock is trading without a dividend. The symbol X also signifies without interest in bond tables.

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Yield

Also known as return. The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $40 per share paying dividends at the rate of $3.20 is said to return 8 percent ($3.29-: $40.00). May also refer to yield to maturity.

Yield-to-Call

The yield to call is the yield calculated to the earliest date that the debt security can be called.

Yield-to-Maturity

The yield of a bond to maturity takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bond is selling at a discount and less than the current yield when the bond is selling at a premium. Inverse relationship.

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Zero-Coupon Bonds

A bond sold at a substantial discount which does not pay periodic interest.

Zero-Plus-Tick

A zero-plus-tick is a term used for a transaction at the same price as the preceding trade but higher than the preceding different price. See: Up-tick or down-tick.

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