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 Cash can only be withdrawn equivalent to the cash on the account unless an overdraft has been agreed in writing.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