ALPHA
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 awarded to
the investor for taking a risk, instead of accepting the market return.
For example, an alpha of 0.4 means the fund outperformed the market-based
return estimate by 0.4 %. -0.6 means a fund's monthly return was 0.6 %
less than would have been predicted from the change in the market alone.
ALPHA EQUATION
The alpha of a fund is determined as follows:
[ (sum of y) - ((b)(sum of x)) ] / n
where: n =number of observations (36 mos)
b = beta of the fund
x = rate of return for the S&P 500
y = rate of return for the fund
AMERICAN DEPOSITARY RECEIPTS
Certificates issued by a U.S. Depositary Bank, representing foreign shares
held by the bank, usually by a branch or correspondent in the country of
issue. One ADR may represent a portion of a foreign share, one share or a
bundle of shares of a foreign corporation. If the ADR's are
"sponsored," the corporation provides financial information and
other assistance to the bank and may subsidize the administration of the
ADR's. "Unsponsored" ADR's do not receive such assistance. ADR's
carry the same currency, political and economic risks as the underlying
foreign share; the prices of the two, adjusted for the SDR/ordinary ratio,
are kept essentially identical by arbitrage. American Depositary Shares
(ADS) are a similar form of certification.
AMERICAN-STYLE OPTION
An option contract that can be exercised at any time between the date of
purchase and the expiration date. Most exchange-traded options are
American style.
ANALYST
Employee of a brokerage or fund management house who studies companies and
makes buy and sell recommendations on their stocks. Most specialize in a
specific industry.
ANNUAL REPORT
Yearly record of a publicly held company's financial condition. It
includes a description of the firm's operations, its balance sheet and
income statement. SEC rules require that it be distributed to all
shareholders. A more detailed version is called a 10-K.
ARBITRAGE
Profiting from differences in the price of a single security that is
traded on more than one market.
ARMS INDEX
Also known as TRading INdex (TRIN):= #advancing issues/#declining issues
Total up volume/total down volume
An advance/decline market indicator. Less than 1.0 indicates bullish
demand, while above 1.0 is bearish. The index often is smoothed with a
simple moving average.
ASSIGNMENT
The receipt of an exercise notice by an options writer that requires him
to sell (in the case of a call) or purchase (in the case of a put) the
underlying security at the specified strike price.
AT THE MONEY
An option is at-the-money if the strike price of the option is equal to
the market price of the underlying security. For example, if xyz stock is
trading at 54, then the xyz 54 option is at-the-money.
AUTOREGRESSIVE
Using previous data to predict future data.
AVERAGE
An arithmetic mean of selected stocks intended to represent the behavior
of the market or some component of it. One good example is the widely
quoted Dow Jones Industrial Average, which adds the current prices of the
30 DJIA's stocks, and divides the results by a predetermined number, the
divisor.
AVERAGE MATURITY
The average time to maturity of securities held by a mutual fund. Changes
in interest rates have greater impact on funds with longer average life.
BACK OFFICE
Brokerage house clerical operations that support, but do not include, the
trading of stocks and other securities. Includes all written confirmation
and settlement of trades, record keeping and regulatory compliance.
BANKER'S ACCEPTANCE
A short-term credit investment created by a non-financial firm and
guaranteed by a bank as to payment. Acceptances are traded at discounts
from face value in the secondary market. These instruments have been a
popular investment for money market funds.
BASIS
The price an investor pays for a security plus any out-of-pocket expenses.
It is used to determine capital gains or losses for tax purposes when the
stock is sold.
BASIS POINTS
Refers to yield on bonds. Each percentage point of yield in bonds equals
100 basis points. If a bond yield changes from 7.25 % to 7.39 %, that's a
rise of 14 basis points.
BEAR
An investor who believes a stock or the overall market will decline. A
bear market isa prolonged period of falling stock prices, usually by 20%
or more.
BEAR RAID
A situation in which large traders sell positions with the intention of
driving prices down.
BETA (STOCKS)
Measure of a stock's risk in relation to the market. 0.7 means a stock
price is likely to move up or down 70 % of the market change; 1.3 means
the stock is likely to move up or down 30 % more than the market.
BETA EQUATION (STOCKS)
The beta of a stock is determined as follows:
[(n) (sum of (xy)) ]-[(sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[(sum of x) (sum of x)]
where: n = # of observations (24-60 months)
x = rate of return for the S&P 500 Index
y = rate of return for the stock
BETA (MUTUAL FUNDS)
The measure of a fund's risk in relation to the market. 0.7 means the
fund's total return is likely to move up or down 70 % of the market
change; 1.3 means total return is likely to move up or down 30 % more than
the market.
BETA EQUATION (MUTUAL FUNDS)
The beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the S&P 500 Index
y = rate of return for the fund
BLOW-OFF TOP
A steep and rapid increase in price followed by a steep and rapid drop in
price. This is an indicator seen in charts and used in technical analysis
of stock price and market trends.
BREAKOUT
A rise in a security's price above a resistance level (commonly its
previous high price) or drop below a level of support (commonly the former
lowest price.) A breakout is taken to signify a continuing move in the
same direction. Can be used by technical analysts as a buy or sell
indication.
BULL
An investor who thinks the market will rise.
BULL MARKET
A market which is on a consistent upward trend.
BUYOUT
Purchase of a controlling interest (or percent of shares) of a company's
stock. A leveraged buyout is done with borrowed money.
CALL OPTION
An option contract that gives the holder of the option the right (but not
the obligation) to purchase, and obligates the writer to sell, a specified
number of shares of the underlying stock at the given strike price, on or
before the expiration date of the contract.
CAPITAL EXPENDITURES
Amount used during a particular period to acquire or improve long term
assets such as property, plant, or equipment.
CAPITAL GAIN
When a stock is sold for a profit, it's the difference between the net
sales price of securities and their net cost, or original basis. If a
stock is sold below cost, the difference is a capital loss.
CAPITAL LOSS
The difference between the net cost of a security and the net sale price,
if that security is sold at a loss.
CASH DIVIDEND
A dividend paid in cash to a company's shareholders. The amount is
normally based on profitability and is taxable as income. A cash
distribution may include capital gains and return of capital in addition
to the dividend.
CASH AND EQUIVALENTS
The value of assets that can be converted into cash immediately, as
reported by a company. Usually includes bank accounts and marketable
securities, such as government bonds and Bankers' Acceptances. Cash
equivalents on balance sheets include securities (e.g., notes) that mature
within ninety days.
CASH FLOW
In investments, it represents earnings before depreciation amortization
and non-cash charges. Sometimes called cash earnoings. Cash Flow from
operations (called Funds From Operations (FFO) by real estate and other
investment trusts, is important because it indicates the ability to pay
dividends.
CHANGES IN FINANCIAL POSITION
Sources of funds internally provided from operations which alter a
company's cash flow position: depreciation, deferred taxes, other sources,
and capital expenditures.
CHURNING
Excessive trading of a client's account in order to increase the broker's
commissions.
CLOSING PURCHASE
A transaction in which the purchaser's intention is to reduce or eliminate
a short position in a stock, or in a given series of options.
CLOSING SALE
A transaction in which the seller's intention is to reduce or eliminate
his long position in a stock, or a given series of options.
COMISSION
Te fee paid to a broker to execute a trade, based on number of shares,
bonds, options and/or their dollar value. In 1975, deregulation led to the
creation of discount brokers, who charge lower commissions than full
service brokers. Full service brokers offer advice and usually have a full
staff of analysts who follow specific industries. Discount brokers simply
execute a client's order--and usually do not offer an opinion on a stock.
COMMON STOCK/OTHER EQUITY
Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.
CONFIDENCE INDICATOR
A measure of investors' faith in the economy and the securities market. A
low or deteriorating level of confidence is considered by many technical
analysts as a bearish sign.
CONFIDENCE LEVEL
The degree of assurance that a specified failure rate is not exceeded.
CONFIRMATION
The written statement that follows any "trade" in the securities
markets. Confirmation is issued immediately after a trade is executed. It
spells out settlement date, terms, commission, etc.
CONVERGENCE
The movement of the price of a futures contract toward the price of the
underlying cash commodity. At the start, the contract price is higher
because of the time value. But as the contract nears expiration, the
futures price and the cash price converge.
CORNER A MARKET
To purchase enough of the available supply of a commodity or stock in
order to manipulate its price.
COUPON RATE
In bonds, notes or other fixed income securities, the stated percentage
rate of nterest, usually paid twice a year.
COVERED CALL
A short call option position in which the writer owns the number of shares
of the underlying stock represented by the option contracts. Covered calls
generally limit the risk the writer takes because the stock does not have
to be bought at the market price, if the holder of that option decides to
exercise it.
COVERED PUT
A put option position in which the option riter also is short the
corresponding stock or has deposited, in a cash account, cash or cash
equivalents equal to the exercise of the option. This limits the option
writer's risk because money or stock is already set aside. In the event
that the holder of the put option decides to exercise the option, the
writer's risk is more limited than it would be on an uncovered or naked
put option.
CURRENT ASSETS
Value of cash, accounts receivable, inventories, marketable securities and
other assets that could be converted to cash in less than 1 year.
CURRENT LIABILITIES
Amount owed for salaries, interest, accounts ayable and other debts due
within 1 year.
CURRENT RATIO
Indicator of short-term debt paying ability. Determined by dividing
current assets by current liabilities. The higher the ratio, the more
liquid the company.
CURRENT YIELD
For bonds or notes, the coupon rate divided by the market price of the
bond.
DAY ORDER
An order to buy or sell stock that automatically expires if it can't be
executed on the day it is entered.
DEBT/EQUITY RATIO
Indicator of financial leverage. Compares assets provided by creditors to
assets provided by shareholders. Determined by dividing long term debt by
common stockholders' equity.
DECILE RANK
Performance over time, rated on a scale of 1-10. 1 indicates that a mutual
fund's return was in the top 10 % of funds being compared, while 3 means
the return was in the top 30 %. Objective Rank compares all funds in the
same investment strategy category. All Rank compares all funds.
DECLARATION DATE
The date on which a firm's directors meet and announce the date and amount
of the next dividend.
DEFERRED TAXES
A non-cash expense that provides a source of free cash flow. Amount
allocated during the period to cover tax liabilities that have not yet
been paid.
DEPRECIATION
A non-cash expense that provides a source of free cash flow. Amount
allocated during the period to amortize the cost of acquiring long term
assets over the useful life of the assets.
DERIVATIVE SECURITY
A financial security, such as an option, or future, whose value is derived
in part from the value and characteristics of another security, the
underlying security.
DETREND
To remove the general drift, tendency or bent of a set of statistical data
as related to time.
DIFFERENCE FROM S&P
A mutual fund's return minus the change in the Standard & Poors 500
Index for the same time period. A notation of -5.00 means the fund return
was 5 percentage points less than the gain in the S&P, while 0.00
means that the fund and the S&P had the same return.
DISTRIBUTIONS
Payments from fund or corporate cash flow. May include dividends from
earnings, capital gains from sale of portfolio holdings and return of
capital. Fund distributions can be made by check or by investing in
additional shares. Funds are required to distribute capital gains (if any)
to shareholders at least once per year. Some Corporations offer Dividend
ReinvestmentPlans (DRP).
DIVIDEND REINVESTMENT PLANS (DRP)
Plans offered by many corporations for the reivestment of dividends,
sometimes at a discount from market price, on the dividend payment date.
Many DRP's also allow the investment of additional cash from the
shareholder. The DRP is usually administered by the company without
charges to the holder.
DIVERGENCE
When two or more averages or indices fail to show confirming trends.
DIVIDEND
Distribution of a portion of a company's earnings, cash flow or capital to
shareholders, in cash or additional stock.
DIVIDEND YIELD (STOCKS)
Indicated Yield represents annual dividends divided by current stock
price.
DIVIDEND YIELD (FUNDS)
Indicated Yield represents return on a share of a mutual fund held over
the past 12 months. Assumes fund was purchased 1 year ago. Reflects effect
of sales charges (at current rates), but ot redemption charges.
DIVIDENDS PER SHARE
Dividends paid for the past 12 months divided by the number of common
shares outstanding, as reported by a company. The number of shares often
is determined by a weighted average of shares outstanding over the
reporting term.
DIVIDEND REINVESTMENT PLAN
Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the
purchase of additional shares at a deiscount to market price. Dividend
reinvestment plans allow shareholders to accumulate stock over the long
term using dollar cost averaging.
DOWNGRADE
A classic negative change in ratings for a stock, and or other rated
security.
EARNINGS
Net income for the company during the period.
EARNINGS PER SHARE (EPS)
Also referred to as Primary Earnings Per Share. Net income for the past 12
months divided by the number of common shares outstanding, as reported by
a company. The company often uses a weighted average of shares outstanding
over reporting term.
EARNINGS YIELD
The ratio of Earnings Per Share after allowing for tax and interest
payments on fixed interest debt, to the current share price. The inverse
of the Price/Earnings ratio. It's the Total Twelve Months Earnings divided
by number of outstanding shares, divided by the recent price, multiplied
by 100. The end result is shown in percentage.
EQUITY
The value of the common stockholders' equity in a company as listed on the
balance sheet.
EQUITY OPTIONS
Securities that give the holder the right to buy or sell a specified
number of shares of stock, at a specified price for a certain (limited)
time period. Typically one option equals 100 shares of stock.
EUROPEAN-STYLE OPTION
An option contract that can only be exercised on the expiration date.
EXCHANGE
The marketplace in which shares, options and futures on stocks, bonds,
commodities and indices are traded. Principal US stock exchanges are: New
York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the
National Association of Securities Dealers (NASDAQ)
EX-DIVIDEND DATE
The first day of trading when the seller, rather than the buyer, of a
stock will be entitled to the most recently announced dividend payment.
This date set by the NYSE (and generally followed on other US exchanges)
is currently two business days before the record date. A stock that has
gone ex-dividend is marked with an x in newspaper listings on that date.
EXECUTION
The process of completing an order to buy or sell securities. Once a trade
is executed, it is reported by a Confirmation Report; settlement (payment
and transfer of ownership) occurs in the U.S. between 1 (mutual funds) and
5 (stocks) days after an order is executed. Settlement times for exchange
listed stocks are in the process of being reduced to three days in the
U.S.
EXERCISE
To implement the right of the holder of an option to buy (in the case of a
call) or sell (in the case of a put) the underlying security.
EXPENSE RATIO
The percentage of the assets that were spent to run a mutual fund (as of
the last annual statement). This includes expenses such as 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, although these are reported as a percentage of assets to the
SEC by the funds in a Statement of Additional Information (SAI). the SAI
is available to shareholders on request. Neither the expense ratio or the
SAI includes the transaction costs of spreads, normally incurred in
unlisted securities and foreign stocks. These two costs can add
significantly to the reported expenses of a fund. The expense ratio is
often termed an Operating Expense Ratio (OER).
EXPIRATION CYCLE
An expiration cycle relates to the dates on which options on a particular
security expire. A given option will be placed in 1 of 3 cycles, the
January cycle, the February cycle, or the March cycle. At any point in
time, an option will have contracts with 4 expiration dates outstanding, 2
in near-term months and 2 in far-term months.
EXPIRATION DATE
The last day (in the case of American-style) or the only day (in the case
of European- style) on which an option may be exercised. For stock
options, this date is the Saturday immediately following the 3d Friday of
the expiration month; however, brokerage firms may set an earlier deadline
for notification of an option holder's intention to exercise. If Friday is
a holiday, the last trading day will be the preceding Thursday.
FUND FAMILY
The management company that runs and/or sells shares of the fund. Fund
families often offer several funds with different investment objectives.
FUNDS FROM OPERATIONS (FFO)
Used by real estate and other investment trusts to define the cash flow
from trust operations. It is earnings with depreciation and amortization
added back. A similar term increasingly used is Funds Available for
Distribution (FAD), which is FFO less capital investments in trust
property and the amortization of mortgages.
FUTURES CONTRACT
Agreement to buy or sell a set number of shares of a specific stock in a
designated future month at a price agreed upon by the buyer and seller.
The contracts themselves are often traded on the futures market. A futures
contract differs from an option because an option is the right to buy or
sell, whereas a futures contract is the promise to actually make a
transaction.
GOOD 'TIL CANCELED
Sometimes simply called "GTC", it means an order to buy or sell
stock that is good until you cancel it. Brokerages usually set a limit of
30-60 days, at which the GTC expires if not restated.
GROWTH RATES
Compound annual growth rate for the number of full fiscal years shown. If
there is a negative or zero value for the first or last year, the growth
is NM (not meaningful).
HEAD & SHOULDERS
In technical analysis, a chart formation in which a stock price reaches a
peak and declines, rises above its former peak and again declines and
rises again but not to the second peak and then again declines. The first
and third peaks are shoulders, while the second peak is the formation's
head. Technical analysts generally consider a head and shoulders formation
to be a very bearish indication.
HEDGING
A strategy designed to reduce investment risk using "call"
options, "put" options, "short" selling, or futures
contracts. A hedge can help lock in existing profits. Its purpose is to
reduce the potential volatility of a portfolio, by reducing the risk of
loss.
HIGH PRICE
The highest (intraday) price of a stock over the past 52 weeks, adjusted
for any stock splits.
HOLDING COMPANY
A corporation that owns enough voting stock in another firm to control
management and operations by influencing or electing its board of
directors.
INDICATED DIVIDEND
Total amount of dividends that would be paid on a share of stock over the
next 12 months if each dividend were the same amount as the most recent
dividend. Usually represent by the letter e in stock tables
INDICATED YIELD
The yield, based on the most recent quarterly rate times four. To
determine the yield, divide the annual dividend by the price of the stock.
The resulting number is represented as a percentage.
INDUSTRY
The category describing a company's primary business activity. This
usually is determined by the largest portion of revenue.
INITIAL PUBLIC OFFERING (IPO)
A company's first sale of stock to the public. Securities offered in an
IPO are often, but not always, those of young, small companies seeking
outside equity capital and a public market for their stock. Investors
purchasing stock in IPOs generally must be prepared to accept very large
risks for the possibility of large gains. IPO's by investment companies
(closed end funds) usually contain underwriting fees which represent a
load to buyers.
INSIDER INFORMATION
Relevant information about a company that has not yet been made public. It
is illegal for holders of this information to make trades based on it,
however received.
IN-THE-MONEY
A "call" option is in-the-money if the strike price is less than
the market price of the underlying security. A "put" option is
in-the-money if the strike price is greater than the market price of the
underlying security. For example, an xyz "call" option with a 52
strike price is in-the-money when xyz trades at 52 1/8 or higher. An xyz
"put" option with a 52 strike price is in-the-money when xyz is
trading at 51 7/8 or lower.
INVENTORY
For companies: Raw materials, items available for sale or in the process
of being made ready for sale. They can be individually valued by several
different means, including cost or current market value, and collectively
by FIFO, LIFO or other techniques. The lower value of alternatives is
usually used to preclude overstating earnings and assets. For security
firms: securities bought and held by a broker or dealer for resale.
INVENTORY TURNOVER
The ratio of annual sales to inventory. Low turnover is an unhealthy sign,
indicating excess stocks and/or poor sales.
INVESTMENT TRUST
A closed-end fund regulated by the Investment Company Act of 1940. These
funds have a fixed number of shares which are traded on the secondary
markets similarly to corporate stocks. The market price may exceed the net
asset value per share, in which case it is considered at a
"premium." When the market price falls below the NAV/share, it
is at a "discount." Many closed end funds are of a specialized
nature, with the portfolio representing a particular industry, country,
etc. These funds are usually listed on US and foreign exchanges.
IRA/KEOGH ACCOUNTS
Special accounts where you can save and invest, and the taxes are deferred
until money is withdrawn. These plans are subject to frequent changes in
law with respect to the deductibility of contributions. Withdrawals of tax
deferred contributuons are taxed as income, including the capital gains
from such accounts.
LAST SPLIT
After a stock split, the number of shares distributed for each share held
and the date of the distribution.
LIMIT ORDER
An order to buy a stock at or below a specified price or to sell a stock
at or above a specified price. For instance, you could tell a broker
"Buy me 100 shares of xyz Corp at $8 or less" or to "sell
100 shares of xyz at $10 or better."
LOAD FUND
A mutual fund with shares sold at a price including a sales
charge--typically 4 % to 8% of the net amount indicated. Some
"no-load" funds have distribution fees permitted by article 12b1
of the Investment Company Act; these are typically 0.25%. A "true
no-load" fund has neither a sales charge not 12b1 fee. A load implies
that the fund purchaser receives some investment advice or other service
worthy of the charge.
LONG POSITION
Occurs when an individual owns securities. An owner of 1000 shares of
stock is said to be "Long the Stock."
LONG POSITION (OPTIONS)
An options position where a person has executed one or more options trades
where the net result is that they are an "owner" or holder of
options (i.e. the number of contracts bought exceeds the number of
contracts sold).
LONG TERM ASSETS
Value of property, equipment and other capital assets minus the
depreciation. This is an entry in the bookkeeping records of a company,
usually on a "cost" basis and thus does not necessarily reflect
the market value of the assets.
LONG TERM DEBT
Value of obligations of over 1 year that require that interest be paid.
LONG TERM DEBT/CAPITALIZATION
Indicator of financial leverage. Shows long term debt as a proportion of
the capital available. Determined by dividing long term debt by the sum of
long term debt, preferred stock and common stockholders' equity.
LONG TERM LIABILITIES
Amount owed for leases, bond repayment and other items due after 1 year.
LOW PRICE
The lowest (intraday) price of a stock over a certain period of time.
MANAGEMENT/CLOSELY HELD SHARES
Percentage of shares held by persons closely related to a company, as
defined by the Securities and Exchange Commission. Part of these
percentages often is included in Institutional Holdings--making the
combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to
be closely allied to the company.
MARGIN ACCOUNT (STOCKS)
A leverageable account in which stocks can be purchased for a combination
of cash and a loan. The loan in the margin account is collateralized by
the stock and, if the value of the stock drops sufficiently, the owner
will be asked to either put in more cash, or sell a portion of the stock.
Margin rules are federally regulated, but margin requirements and interest
may vary among broker/dealers.
MARGIN REQUIREMENT (OPTIONS)
The amount of cash an uncovered (naked) option writer is required to
deposit and maintain to cover his daily position valuation and reasonably
foreseeable intra- day price changes.
MARKET CAPITALIZATION
The total dollar value of all outstanding shares. Computed as shares times
current market price. It is a measure of corporate size.
MARKET CYCLE
The period between the 2 latest highs or lows of the S&P 500, showing
net performance of a fund through both an up and a down market. A market
cycle is complete when the S&P is 15 % below the highest point or 15 %
above the lowest point (ending a down market). The dates of the last
market cycle are: 12/04/87 to 10/11/90 (low to low).
MARKET ORDER
An order to buy or sell a stock at the going price.
MINIMUM PURCHASES
For mutual funds, the amount required to open a new account (Minimum
Initial Purchase) or to deposit into an existing account (Minimum
Additional Purchase). These minima may be lowered for buyers participating
in an automatic purchase plan
MONEY MARKET FUND
A mutual fund that invests only in short term securities, such as bankers'
acceptances, commercial paper, repurchase agreements and government bills.
The net asset value per share is maintained at $1.00. Such funds are not
federally insured, although the portfolio may consist of guaranteed
securities and/or the fund may have private insurance protection.
MOVING AVERAGE
Used in charts and technical analysis, the average of security or
commodity prices constructed in a period as short as a few days or as long
as several years and showing trends for the latest interval. As each new
variable is included in calculating the average, the last variable of the
series is deleted.
MUTUAL FUND
An open end investment company that pools investors' money to invest in a
variety of stocks, bonds, or other securities. A mutual fund issues and
redeems shares to meet demand, and the redemption value per share is the
net asset value per share, less in some cases a redemption fee which
represents a rear-end load. A closed end fund, often incorrectly called a
mutual fund, is instead an investment trust. Both are investment companies
regulated by the Investment Company Act of 1940.
NET ASSET VALUE (NAV)
The value of a fund's investments. For a mutual fund, the net asset value
per share usually represents the fund's market price, subject to a
possible sales or redemption charge. For a closed end fund, the market
price may vary significantly from the net asset value.
NET INCOME
The company's total earnings, reflecting revenues adjusted for costs of
doing business, depreciation, interest, taxes and other expenses
NOISE
Price and volume fluctuations that can confuse interpretation of market
direction.
NO LOAD MUTUAL FUND An open-end investment company, shares of which are
sold without a sales charge. There can be other distribution charges,
however, such as Article 12b-1 fees. A true "no load" fund will
have neither a sales charge nor a distribution fee.
NM
Abbreviation for Not Meaningful.
OBJECTIVE (MUTUAL FUNDS)
The fund's investment strategy category as stated in the prospectus. There
are more than 20 standardized categories.
OPENING PURCHASE
A transaction in which the purchaser's intention is to create or increase
a long position in a given series of options.
OPENING SALE
A transaction in which the seller's intention is to create or increase a
short position in a given series of options.
OPEN INTEREST
The number of outstanding option contracts in the exchange market or in a
particular class or series.
OPTION
Gives the buyer the right, but not the obligation, to buy or sell stock at
a set price on or before a given date. Investors, not companies, issue
options. Investors who purchase call options bet the stock will be worth
more than the price set by the option (the strike price), plus the price
they paid for the option itself. Buyers of put options bet the stock's
price will go down below the price set by the option.
OTHER CURRENT ASSETS
Value of non-cash assets, including prepaid expenses and accounts
receivable, due within 1 year.
OTHER LONG TERM LIABILITIES
value of leases, future employee benefits, deferred taxes and other
obligations not requiring interest payments that must be paid over a
period of more than 1 year.
OTHER SOURCES
Amount of funds generated during the period from operations by sources
other than depreciation or deferred taxes. Part of Free Cash Flow
calculation.
OUT OF THE MONEY
A call option is out-of-the-money if the strike price is greater than the
market price of the underlying security. A put option is out-of-the-money
if the strike price is less than the market price of the underlying
security.
OVERBOUGHT\OVERSOLD INDICATOR
An indicator that attempts to define when prices have moved too far and
too fast in either direction and thus are vulnerable to reaction.
PAYMENT DATE
Date on which a declared stock dividend or a bond interest payment is
scheduled to be made.
PHONE SWITCHING
In mutual funds, the ability to transfer shares between funds in the same
family by telephone request. There may be a charge associated with these
transfers. Phone switching is also possible among different fund families
if the funds are held in street name by a particpating broker/dealer.
PIVOT
Price level established as being significant by market's failure to
penetrate or as being significant when a sudden increase in volume
accompanies the move through the price level.
POINT AND FIGURE CHART
A price-only chart that takes into account only whole integer changes in
price, i.e., a 2-point change. Point and figure charting disregards the
element of time and is solely used to record changes in price.
PREFERRED STOCK
A security that shows ownership in a corporation and gives the holder a
claim, prior to the claim of common stockholders, on earnings and also
generally on assets in the event of liquidation. Most preferred stock pays
a fixed dividend, stated in a dollar amount or as a percentage of par
value. This stock does not usually carry voting rights.
PREMIUM
The price of an option contract, determined on the exchange, which the
buyer of the option pays to the option writer for the rights to the option
contract.
PRICES
Price of a share of common stock on the date shown. Highs and lows are
based on the highest and lowest intraday trading price.
PRICE/BOOK RATIO
Compares a stock's market value to the value of total assets less total
liabilities (book). Determined by dividing current price by common
stockholders' equity per share (book value), adjusted for stock splits.
Also called Market-to-Book.
PRICE/EARNINGS RATIO
Shows the "multiple" of earnings at which a stock sells.
Determined by dividing current price by current earnings per share
(adjusted for stock splits). Earnings per share for the P/E ratio is
determined by dividing earnings for past 12 months by the number of common
shares outstanding. Higher "multiple" means investors have
higher expectations for future growth, and have bid up the stock's price.
P/E RATIO EQUATION
Assume XYZ Co sells for $25.50 per share and has earned $2.55 per share
this year
$25.50 = 10 times $2.55
XYZ stock sells for 10 times earnings.
PRICE/SALES RATIO
Determined by dividing stock's current price by revenue per share
(adjusted for stock splits). Revenue per share for the P/S ratio is
determined by dividing revenue for past 12 months by number of shares
outstanding.
PRIMARY MARKET
The first buyer of a newly issued security buys that security in the
primary market. All subsequent trading of those securities is done in the
secondary market.
PROFIT MARGIN
Indicator of profitability. Determined by dividing net income by revenue
for the same 12-month period. Result is shown as a percentage.
PROGRAM TRADING
Trades based on signals from computer programs, usually entered directly
from the trader's computer to the market's computer system and executed
automatically.
PROSPECTUS
Formal written document to sell securities that describes the plan for a
proposed business enterprise, or the facts concerning an existing one,
that an investor needs to make an informed decision. Prospectuses are used
by Mutual Funds to describe the fund objectives, risks and other essential
information.
PROXY
Document intended to provide shareholders with information necessary to
vote in an informed manner on matters to be brought up at a stockholders'
meeting. Includes information on closely held shares. Shareholders can and
often do give management their proxy, representing the right and
responsibility to vote their shares as specified in the proxy statement.
PUT OPTION
An option contract that gives the holder the right to sell (or
"put"), and places upon the writer the obligation to purchase, a
specified number of shares of the underlying stock at the given strike
price on or before the expiration date of the contract.
QUICK RATIO
Indicator of a company's financial strength (or weakness). Calculated by
taking current assets less inventories, divided by current liabilities.
Also called Acid Test.
RANGE
The difference between the high and low price during a given period.
RETURN
The percentage gain or loss for a mutual fund in a specific time period.
This number assumes that all distributions are reinvested.
RECORD DATE
Date by which a shareholder must officially own shares in order to be
entitled to a dividend. For example, a firm might declare a dividend on
Nov 1, payable Dec 1 to holders of record Nov 15. Once a trade is executed
an investor becomes the "owner of record" on settlement, which
currently takes 5 business days for securities, and one business day for
mutual funds. Stocks trade ex-dividend the fourth day before the record
date, since the seller will still be the owner of record and is thus
entitled to the dividend.
REDEMPTION CHARGE
The commission charged by a mutual fund when redeeming shares. For
example, a 2 % redemption charge (also called a "back end load")
on the sale of shares valued at $1000 will result in payment of $980 (or
98 % of the value) to the investor. This charge may decrease or be
eliminated as shares are held for longer time periods.
RELATIVE STRENGTH
A stock's price movement over the past year as compared to a market index
(the S&P 500). Value below 1.0 means the stock shows relative weakness
in price movement (underperformed the market); a value above 1.0 means the
stock shows relative strength over the 1-year period. Equation for
Relative Strength: [current stock price/year-ago stock price] [current
S&P 500/year-ago S&P 500]
RETRACEMENT
A price movement in the opposite direction of the previous trend.
RETURN ON ASSETS (ROA)
Indicator of profitability. Determined by dividing net income for the past
12 months by total assets. Result is shown as a percentage.
RETURN ON EQUITY (ROE)
Indicator of profitability. Determined by dividing net income for the past
12 months by common stockholders' equity (adjusted for stock splits).
Result is shown as a percentage.
REVERSE STOCK SPLIT
A proportionate decrease in the number of shares, but not the value of
shares of stock held by shareholders. Shareholders maintain the same
percentage of equity as before the split. For example, a 1-for-3 split
would result in stockholders owning 1 share for every 3 shares owned
before the split. A firm generally institutes a reverse split to boost its
stock's market price and attract investors.
RIGHTS OFFERING
Issuance of "rights" to current shareholders allowing them to
purchase additional shares, usually at a discount to market price.
Shareholders who do not exercise these rights are usually diluted by the
offering. Rights are often transferrable, allowing the holder to sell them
on the open market to others who may wish to exercise them. Rights
offerings are particularly common to closed end funds, which cannot
otherwise issue additional common stock.
SALES CHARGE
The fee charged by a mutual fund when purchasing shares, usually payable
as a commission to amarketing agent, such as a financial advisor, who is
thus compensated for his assistance to a purchaser. It epresents the
difference, if any, between the share purchase price and the share net
asset value.
SEC
The Securities and Exchange Commission, the primary federal regulatory
agency of the securities industry.
SECONDARY MARKET
A market that provides for the purchase or sale of previously owned
securities. Most trading is done in the secondary market. The New York
Stock Exchange, as well as all other stock exchanges, the bond markets,
etc., are secondary markets.
SELLING SHORT
If an investor thinks the price of a stock is going down, the investor
could borrow the stock from a broker and sell it. Eventually, s/he must
buy the stock back on the open market. For instance, you borrow 1000
shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you
purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less
commissions and other fees) by selling short.
SERIES
Options: All option contracts of the same class that also have the same
unit of trade, expiration date, and exercise price.Stocks: shares which
have common characteristics, such as rights to ownership and voting,
dividends, par value, etc. In the case of many foreign shares, one series
may be owned only by citizens of the country in which the stock is
registered.
SETTLEMENT DATE
The date on which payment is made to settle a trade. For stocks traded on
US exchanges, settlement is currently 5 business days after the trade, but
this will be reduced to 3 days in 1995. For mutual funds, settlement
usually occurs in the U.S. the day following the trade. In some regional
markets, foreign shares may require months to settle.
SHARES
Certificates or book entries representing ownership in a corporation or
similar entity
SHARE REPURCHASE
Program by which a corporation buys back its own shares in the open
market. It is usually done when shares are undervalued. Since it reduces
the number of shares outstanding and thus increases earnings per share, it
tends to elevate the market value of the remaining shares held by
stockholders.
SHORT POSITION (OPTIONS)
A position wherein a person's interest in a particular series of options
is as a net writer (ie, the number of contracts sold exceeds the number of
contracts bought).
SHORT POSITION (STOCKS)
Occurs when a person sells stocks s/he does not yet own. Shares must be
borrowed, before the sale, to make "good delivery" to the buyer.
Eventually, the shares must be bought to close out the transaction.
Technique is used when an investor believes the stock price is going down.
SHORT SALE
Selling a security that the seller does not own but is committed to
repurchasing eventually. It is used to capitalize on an expected decline
in the security's price.
SLIPPAGE
The difference between estimated transaction costs and actual transaction
costs. The difference is usually composed of revisions to price difference
or spread and commission costs.
SIC
Abbreviation for Standard Industrial Classification. Each 4-digit code
represents a unique business activity.
STOCK DIVIDEND
Payment of a corporate dividend in the form of stock rather than cash. The
stock dividend may be additional shares in the company, or it may be
shares in a subsidiary being spun off to shareholders. Stock dividends are
often used to conserve cash needed to operate the business. Unlike a cash
dividend, stock dividends are not taxed until sold.
STOP (-LOSS) ORDER
An order to sell a stock when the price falls to a specified level.
STRIKE PRICE
The stated price per share for which underlying stock may be purchased (in
the case of a call) or sold (in the case of a put) by the option holder
upon exercise of the option contract.
10-K
Annual report required by the SEC each year. Provides a comprehensive
overview of a company's state of business. Must be filed within 90 days
after fiscal year end. A 10Q report is filed quarterly.
TICK INDICATOR
A market indicator based on the number of stocks whose last trade was an
uptick or a downtick. Used as an indicator of market sentiment or
psychology to try to predict the market's trend.
TIME VALUE
The portion of the premium that is based on the amount of time remaining
until the expiration date of the option contract, and that the underlying
components that determine the value of the option may change during that
time. Time value is generally equal to the difference between the premium
and the intrinsic value.
TOTAL REVENUE
Total sales and other revenue for the period shown. Known as
"turnover" in the UK.
TRADE
A verbal (or electronic) transaction involving one party buying a security
from another party. Once a trade is consummated, it is considered
"done" or final. Settlement occurs 1-5 business days later.
TRADE DATE
The date on which a trade occurs. Trades generally settle (are paid for)
1-5 business days after a trade date. With stocks, settlement is generally
5 business days after the trade. TRADING RANGE
The difference between the high and low prices traded during a period of
time; with commodities, the high/low price limit established by the
exchange for a specific commodity for any one day's trading.
TURNOVER
Mutual Funds: A measure of trading activity during the previous year,
expressed as a percentage of the average total assets of the fund. A
turnover ratio of 25 % means that the value of trades represented
one-fourth of the assets of the fund. Finance: The number of times a given
asset, such as inventory, is replaced during the accounting period,
usually a year. Corporate: The ratio of annual sales to net worth,
representing the extent to which a company can growth without outside
capital. Markets: The volume of shares traded as a percent of total shares
listed during a specified period, usually a day or a year. Great Britain:
Total revenue
12B-1 FEES
The percent of a mutual fund's assets used to defray marketing and
distribution expenses. The amount of the fee is stated in the fund's
prospectus. The SEC has recently proposed that 12b1 fees in excess of
0.25% be classed as a load. A true "no load" fund has neither a
sales charge nor 12b1 fee.
TYPE The classification of an option contract as either a put or a
call.
UNCOVERED CALL
A short call option position in which the writer does not own shares of
underlying stock represented by his option contracts. Also called a
"naked" call, it is much riskier for the writer than a covered
call, where the writer owns the underlying stock. If the buyer of a call
exercises the option to call, the writer would be forced to buy the stock
at market price.
UNCOVERED PUT
A short put option position in which the writer does not have a
corresponding short stock position or has not deposited, in a cash
account, cash or cash equivalents equal to the exercise value of the put.
Also called "naked" puts, the writer has pledged to buy the
stock at a certain price if the buyer of the options chooses to exercise
it. The nature of uncovered options means the writer's risk is unlimited.
UNDERLYING SECURITY
Options: the security subject to being purchased or sold upon exercise of
an option contract. For example, IBM stock is the underlying security to
IBM options. Depositary receipts: The class, series and number of the
foreign shares represented by the depaositary receipt.
VOLATILITY
A measure of risk based on standard deviation in fund performance over 3
years. Scale is 1-9; higher rating indicates higher risk.
