GLOSSARY
a b c
d e f
g h i
j k l m
n o p
q r s
t u v w
x y z |
| a |
| Accounting
Principles Board (APB) |
|
A
board formed to set accounting principles to be followed
by companies and businesses. |
| all
or none (AON) |
|
An
order in which you request that all of the shares in
your order be bought or sold at one time or not at all.
|
| alpha
|
|
This
is a measure of selection risk (also known as residual
risk) of a mutual fund in relation to the market. A
positive alpha is the extra return you get for taking
a risk, rather than accepting the market return.
For example, an alpha of 0.4 means the fund outperformed
the market-based return estimate by 0.4%. An alpha of
-0.6 means a fund's monthly return was 0.6% less than
would have been predicted from the change in the market
alone. |
| Annual
Expense Ratio |
|
This
lists the funds cost of doing business as a percentage
of its assets. It includes expenses like management
and advisory fees, overhead costs and 12b-1 (distribution
and advertising) fees. |
| ask
price |
|
Known
as the "offer," it is the lowest price at
which the market maker or specialist is willing to sell
the security to you. A market order to buy a security
generally executes at the ask price. |
| assets
under management |
|
The
value of the investment holdings and cash owned by all
of the shareholders of the mutual fund. |
| at
the money |
|
An
option is said to be at the money if its strike or exercise
price is equal to the price of the underlying asset
upon which the option is written. This means that its
intrinsic value is zero. |
| auction
market |
|
The
market in which buyers enter competitive bids and sellers
enter competitive offers simultaneously. The NYSE is
one example of an auction market. |
b |
| back
end load |
|
A
fund that charges a fee when you sell shares in the
fund. |
| beta |
|
This
is a measure of the volatility of a portfolio relative
to an underlying index, such as the S&P 500. Beta
values above 1.0 indicate a volatile or aggressive portfolio,
those below 1.0 a more stable, or defensive, fund. A
negative beta indicates that a fund's value moves opposite
the direction of the market.
For example, you would expect a portfolio with a beta
of 1.25 to be 25 percent more volatile than the index.
A beta of 0.7 means the fund's total return is likely
to move up or down 70% of the market change. A beta
of 1.3 means total return is likely to move up or down
30% more than the market. |
| bid
price |
|
If
you are selling, the bid is the highest price at which
the market maker is willing to buy from you. A market
order to sell a security generally executes at the bid
price. |
| bond |
|
Any
interest-bearing or discounted government or corporate
security that obligates the issuer to pay the bondholder
a specified sum of money (i.e., interest), usually at
specified intervals; and repay the principal amount
of the loan, usually at maturity. |
| broker
|
|
|
A
broker acts as your "agent," in effect putting
you in touch with the other half of the trade you want
to make. For that service, the broker charges you a
commission. A broker does not sell you stock or
buy stock from you. Also see dealer. |
| bulletin
board stocks |
|
Also
known as "pink sheet" stocks (due to the pink
paper on which they are printed), refers to a daily
publication of the National Quotation Bureau that tracks
certain stocks not specifically authorized to trade
within NASDAQ, as well as the market makers who trade
them. Because of the type of stocks they are, the prices
and quotes given for bulletin board stocks may not accurately
reflect the most current market conditions for the stock
that interests you. For this reason, you may want to
place your order through a live broker. |
c |
| call
option |
|
A
contract that gives the holder of the option the right
(but not the obligation) to purchase a single unit of
the underlying asset at a specified price, called the
exercise or strike price, at a certain time or during
a certain period. |
| capital
gains |
|
The
profit between what you originally paid for the stock
and the higher price you sell it for. |
| common
stock |
|
Units
of ownership of a public corporation. Owners of common
stock are entitled to vote on the selection of directors
and other important matter, to receive dividends on
their holdings (if declared by the corporation), and
residual rights. |
| cost
basis method |
|
The
original price of an asset, used to determine the capital
gains. |
| covered
call |
|
Writing
(selling) an option while holding a long position in
the underlying stock. |
| current
ratio |
|
The
ratio of current assets to current liabilities. |
d |
| day
order |
|
An
order that remains valid for only the remainder of the
trading day on which it is entered. Day orders entered
after the market closes are valid for the following
trading day only. |
| dealer |
|
A
dealer can and does act as a "principal,"
actually taking stock out of its own dealer inventory
and selling it to you. Normally in this transaction,
the dealer charges an investor a net price which includes
a "markup" on shares purchased or a "markdown"
on shares sold. In any given trade, the dealer can charge
a commission on a markup or markdown, but never both. |
| derivative |
|
A
contract or security whose value is determined
in whole or in part by the price of one or more underlying
instruments or markets. |
| dividend |
|
The
number of shares or dollar amount distributed to shareholders,
declared by the board of directors. |
e |
| ex-date |
|
The
first date on which a security is traded without entitling
the buyer to receive dividends previously declared.
Also called the ex-dividend date. |
| exchange
market |
|
A
specific place or institution where stocks and related
financial contracts are bought and sold. They includes
the New York Stock Exchange, the American Stock Exchange
as well as the various "regional" exchanges
such as the Philadelphia Stock Exchange and the Pacific
Stock Exchange. Stocks trading on any of these exchanges
are said to be "listed" on those exchanges.
That means the stocks meet the various requirements
imposed by the exchanges. |
| expense
ratio |
|
This
is the fund's cost of doing business as a percentage
of its assets. That is, it is the amount you pay (as
a percentage of your assets) to the fund company for
managing your assets. It includes expenses like management
and advisory fees, overhead costs and 12b-1 (distribution
and advertising) fees.
The expense ratio does not include brokerage costs for
trading the portfolio. Each fund reports brokerage costs
as a percentage of assets to the SEC in a Statement
of Additional Information (SAI). The expense ratio and
the SAI do not include the transaction costs of spreads,
normally incurred in unlisted securities and foreign
stocks.
These two costs can significantly increase the reported
expenses of a fund. |
f |
| Financial
Accounting Standards Board (FASB) |
|
The
Financial Accounting Standards Board sets the accounting
standards followed by public companies. One area where
the effect of these standards is significant for shareholders
is the accounting treatment of compensation in
the form of options. |
| FIFO
(First In First Out) |
|
A
method of accounting where the inventory of shares are
assumed to be sold in the chronological order in which
they were purchased. |
| foreign
taxes |
|
Taxes
charged to investors who are citizens of another country
and taxes place on earnings received by Americans in
another country. |
| front-end
load |
|
A
type of fund that charges a fee when you buy shares.
|
| fund
objective |
|
The
fund's investment strategy category as stated in the
prospectus, such as "growth" or "income".
There are more than 20 standardized categories. |
fund symbol
|
|
Each
fund has a specific five-character abbreviation to identify
it. |
g |
| gifts
tax |
|
A
graduated tax, levied on the donor of a gift by the
federal government and most state governments when assets
are passed from one person to another. Please consult
a tax advisor to determine if donor/recipient must pay
taxes. |
| good
for day order |
|
An
order to buy or sell a particular stock or asset that
expires if it hasn't been executed by the close of trading
on the same day it was entered. |
| good-till-canceled
(GTC) order |
|
An
order that remains valid until executed or canceled
by the customer. |
h |
| high |
|
The
highest price at which a security has traded during
the current trading session. |
i |
| in
the money |
|
A
call option is said to be in the money if its strike
or exercise price exceeds the price of the underlying
asset upon which it is written. A put option is
said to be in the money if its strike or exercise price
is less than the price of the underlying asset upon
which it is written. |
| inception
date |
|
The
year when a financial contract such an option is entered
into. It is also the year a fund started. |
| initial
public offering (IPO) |
|
A
first offering of stock in a company as it becomes a
public company. |
| intrinsic
value |
|
The
intrinsic value of an option is the amount that would
be received, if any, if the option was exercised immediately.
For a call option it is the greater of 0 and the difference
between the underlying asset price and the strike price.
When an option is at the money, its intrinsic value
is 0. |
j |
| Java |
|
A
programming language specifically designed for writing
programs that can be safely downloaded from the Internet
and immediately run without fear of viruses or other
harm to your computer or files. |
l |
| LEAPS
(long-term equity anticipation securities) |
|
Stock
options traded on certain exchanges with expiration
dates up to three years in the future. |
| leverage |
|
A
general term describing the possible increased possible
return of an investment without increasing the amount
of the investment. Options contracts and buying securities
on margin are examples of leverage. Calculation of the
leverage of options is included in Valuesoft
investment software. |
| limit
order |
|
An
order to buy or sell a security at a specified price
or better. A limit order to buy sets a maximum purchase
price. A limit order to sell sets a minimum sale price.
|
| listed
security |
|
A
security traded in an auction-market environment on
a registered exchange. Registered U.S. exchanges
for stocks are the American, Boston, Cincinnati, Chicago,
New York, Pacific, and Philadelphia Stock Exchanges.
Registered U.S. exchanges for options are the American,
Chicago Board of Options Exchange (CBOE), New York,
Pacific, and Philadelphia Exchanges. Listed stock symbols
are generally one to three letters. Listed option symbols
include the underlying security symbol or a derivative
symbol plus two characters indicating the month and
strike price. |
| load |
|
A
transaction fee charged when you buy or sell a fund.
|
| long
|
|
A
position in which you own a security or contract. |
| low
|
|
The
lowest price at which a security is traded during the
current trading session. |
m |
| maintenance
call |
|
A
call for additional funds or securities when the equity
in a margin account falls below the minimum margin account
requirements. |
| maintenance
requirement |
|
The
minimum amount of equity that must be maintained in
a margin account at all times. |
| management
fee |
|
A
fee charged by the financial advisor for the fund for
managing the fund portfolio, based on the fund's average
assets. The fund may set the management fee on a sliding
scale that goes down as the dollar value of the fund
goes up. |
| margin
account |
|
An
account that allows investors to buy securities by borrowing
part of the purchase price from the broker-dealer. |
| market
indexes |
|
Weighted
averages of a number of underlying securities that measure
price changes and/or returns in stock markets, fixed-income
markets, currencies, or futures markets. The purpose
of the index calculation is to provide a single number
whose behavior is representative of the movements of
a variety of prices or rates and indicative of general
behavior in a market. The two most well-known indices
are the Dow Jones Industrial Index (DJIA) and the Standard
and Poor's 500 index (S&P 500). |
| market
makers |
|
Any
dealer who regularly quotes both bids and offers and
is ready to make a two-sided market on a listed exchange.
|
| market
order |
|
An
order to buy or sell a security at the best price available
at the time the order is received by the specialist
or market maker. |
| money
market fund |
|
A
specific type of mutual fund investing in short-term,
highly liquid securities and paying money market rates
of interest. A money market fund's share price is designed
to stay at $1. The income received from the investments
within the fund is paid to the fund holder as dividends.
|
| Morningstar
rating |
|
A
measurement tool published by Morningstar, Inc., of
Chicago, that focuses on a fund's potential for losses.
This is shown by a number of stars: a five-star rating
means the fund has a low potential for losses;
a one-star rating means the fund has a high potential
for losses. |
| mutual
fund |
|
A
mutual fund, or simply a fund, is an Investment vehicle
that groups monies from a number of shareholders and
invests in stocks, bonds, money market funds, and other
investments. Individual mutual funds are tailored to
a specific investment philosophy, for example, growth,
income, gold stocks, or certain industries. |
n |
| naked
(uncovered) call |
|
When
a you write (sell) an option on a stock or asset that
you do not own. |
| NASDAQ |
|
The
National Association of Securities Dealers Automated
Quotation system is a network run by the National
Association of Securities Dealers. This network is connected
by telephone and computer linkages and is not located
in one physical place. See OTC. |
| net
asset value (NAV) |
|
The
dollar value of one share of a mutual fund at a given
point in time, which is calculated by adding up the
value of all of the fund's holdings and dividing by
the number of outstanding shares. |
| no-load |
|
The
fund does not charge a transaction fee. |
o |
| odd
lot |
|
A
trade involving less than the number of shares in a
round lot which is usually 100. |
| option
|
|
A
contract giving you a right or obligation to buy or
sell the underlying security at a specified price (the
strike price) on a certain date (European options) or
before a certain date (American options). |
| out
of the money |
|
An
call option is said to be out of the money if its strike
or exercise price is less than the price of the underlying
asset upon which it is written. A put option is said
to be out of the money if its strike or exercise
price exceeds the price of the underlying asset upon
which it is written. |
| over-the-counter
(OTC) |
|
A
security that is not listed on a registered exchange
but that is bought directly from a bank or a network
of securities dealers (such as NASDAQ). Over-the-counter
security symbols usually contain four or more letters.
|
p |
| P/E
ratio |
|
The
ratio obtained by dividing the current price by current
earnings per share (adjusted for stock splits).
Earnings per share is calculated by dividing earnings
for past 12 months by the number of common shares outstanding.
A higher p/e ratio means investors have higher expectations
for future growth, and have bid up the stock's price.
|
| payout
ratio |
|
Calculated
by dividing the annual dividend payment by the annual
earnings per share. |
| preferred
stock |
|
Units
of ownership of a public corporation which pay dividends
at a specified rate and which have preference over common
stock in the payment of dividends and the liquidation
of assets. |
| premium
|
|
The
dollar amount the buyer of an option pays to the seller
for the rights conveyed by the options contract. |
| price
book |
|
A
comparison of a fund's market value to the value of
total assets less total liabilities (book). To figure
the Price Book, divide the current price by common stockholder
equity per share (book value), adjusted for stock splits.
This is also referred to as Market-to-Book. |
| primary
market |
|
For
securities that are traded in more than one market,
the primary market is the exchange where trading volume
in that security is the highest. For listed stocks,
the primary market is usually the NYSE or AMEX. |
| prospectus
|
|
The
document required to be furnished to purchasers of newly
registered securities, which provides detailed information
about the company issuing the securities and about that
particular offering. In the case of mutual funds, the
prospectus contains information on the fund's objectives
and strategies, risks and expenses. |
| put
option |
|
A
contract that gives the holder of the option the right
(but not the obligation) to sell a single unit of the
underlying asset at a specified price, called the exercise
or strike price, at a certain time or during a certain
period. |
q |
| quick
ratio |
|
The
ratio of current assets minus inventory to current liabilities.
This ratio focuses on those current assets that can
be 'quickly' converted to cash. |
r |
| R
Squared |
|
A
statistical measure used to determine how diversified
a set of numbers is. For example, it is used by fund
analysts to determine how well diversified a portfolio
is. R-squared values close to 1.0 indicate a high degree
of diversification. Numbers near 0.0 indicate that the
fund is not very diversified. A high R-squared also
tells you that you can have more confidence in a portfolio's
beta coefficient. |
| Real
Estate Investment Trust (REIT) |
|
A
company, usually traded publicly, that manages a portfolio
of real estate. |
| round
lot |
|
Usually,
a trade of 100 shares. Some preferred stocks or stocks
with very large values may trade in round lots of 10
or 50 shares. The round lot for Berkshire Hathaway is
5. |
s |
| secondary
market |
|
The
market where previously issued securities are traded,
usually on exchanges or in the over-the-counter market.
|
| settlement
date |
|
The
date an executed order must be settled. For purchases,
it's the date the buyer must pay for the securities.
For sales, it's the date the seller must deliver the
securities and receive the proceeds of the sale for
them. The settlement date varies depending on the type
of security. |
| SFAS
No 123 |
|
This
statement by the Financial Accounting Standards Board
defines a fair value based method of accounting for
an employee stock option or similar equity instrument
and encourages all companies to adopt this method. Under
this method, compensation cost is measured using an
option-pricing model such as the Black-Scholes model.
The alternative is to use the intrinsic value based
method. |
| Sharpe
ratio |
|
A
measure of a portfolio's excess return relative to the
total variability of the portfolio. |
| short
sale |
|
The
sale of a borrowed stock, generally with the expectation
of buying back shares at a lower price and returning
them to the owner at some point in the future. Short
sales generally require a margin account with a broker. |
| spread |
|
A
spread involves purchasing one option and selling another
on the same underlying stock or index. The options differ
only in terms of either exercise price and/or expiration
date. |
| statement
of financial accounting standards (SFAS)
|
|
Statements
by the Financial Accounting Standards Board regarding
particular accounting standards. |
| stock
|
|
Ownership
of a corporation represented by shares that are a claim
on the corporation's earnings and assets. |
| stock
and options exchanges |
|
In
the U.S.A. the stock and options exchanges are
| AMEX |
AMEX
American Stock Exchange |
| Boston |
Boston
Stock Exchange |
| CBOE |
Chicago
Board of Options Exchange |
| Cincinnati |
Cincinnati
Stock Exchange |
| Chicago |
Chicago
Stock Exchange |
| NASDAQ |
National
Association of Securities Dealers Automated Quotations
system |
| NYSE |
New
York Stock Exchange |
| OTC |
Over-the-counter
network |
| PSE |
Pacific
Stock Exchange |
| PBW |
Philadelphia
Stock Exchange |
|
| stock
dividends |
|
Distribution
of cash earnings in shares of stock to shareholders. |
| stock
split |
|
An
increase or decrease in the number of outstanding shares
in a corporation, usually brought about by multiplying
existing shares. A reverse stock split brings about
a decrease in the number of shares in a corporation.
|
| stop
limit order |
|
An
order to buy or sell at a specified price or better
once the security has reached or passed the stop price.
It is a combination of a stop order and a limit order.
|
| stop
order |
|
An
order to buy or sell at the market price once the security
has traded at a specified price (called the stop price).
|
t |
| third
market |
|
An
out-growth of the main OTC market in which broker/dealers,
registered to do so with the NASD, trade over the counter
in exchange listed securities. Any listed security can
be traded in the third market. Each trade must be reported
to the Consolidated Tape (the combined tapes of the
NYSE and the AMEX) within 90 seconds. Third market trades
closely reflect the trading activity of any given stock
on its primary exchange. |
| transaction
fee or transaction cost |
|
An
amount of money that a broker/dealer charges for
transacting orders an order. |
| 12b-1 |
|
The
costs of selling, advertising, and marketing shares,
an arrangement allowed by the SEC's Rule 12b-1 (passed
in 1980), that the fund passes on to shareholders. A
12b-1 mutual fund assesses shareholders to cover the
costs of selling and marketing shares, an arrangement
allowed by the SEC's Rule 12b-I (passed in 1980). |
u |
| uniform
resource locator (URL) |
|
It
is a description of the location and access method of
a resource on the Internet. Each Web page has a unique
URL. |
w |
| warrants
|
|
A
security that gives you the right to buy a specific
amount of a company's common stock at a specific price
for a specific period of time – often for five
or ten years or longer. Warrants and the common
shares that support them trade in the same market. You
can see warrants identified by the designation "wt"
after the company's name in the daily stock tables published
in the financial press. |
| wash
sale |
|
The
purchase and sale of a security either simultaneously
or within a short period of time. It may be done by
a single investor or by two or more parties conspiring
to create artificial market activity in order to profit
from a rise in the security’s price. Wash sales
taking place within 30 days of the underlying purchase
do not qualify as tax losses under IRS rules. |
y |
| YTD
Total Return |
|
the
percentage return on an investment since the start of
the calendar year. |
|
|
