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8-K |
A current report required to be filed with the SEC if a
certain specified event occurs, such as: a change in control
of the registrant, acquisition or disposition of assets,
bankruptcy or receivership, or other material event. Form 8-K
is required to be filed within 15 days of the event. |
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10-K |
The designation of the official audited financial report and
narrative which publicly owned companies must file with the
SEC. It shows assets, liabilities, equity revenues, expenses,
and so forth. It is a reflection of the corporation's
condition at the close of the business year, and the results
of operations for that year. |
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10-Q |
Quarterly reports containing interim information that is
"material"--important for investors to know. These must be
filed with the SEC. |
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A |
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Accredited Investor |
An investor who has: a net worth of at least $1,000,000, or
annual income of at least $200,000 for each of the last two
years, or a couple with a joint income of $300,000 and a
reasonable expectation that this income level will be
maintained, or an officer or director of the issuer, or a
financial institution with assets over $5,000,000, or a
non-profit institutional investor with assets over $5,000,000.
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Active Participation |
For tax purposes, active participation, or "an active
investment" is one in which the investor materially
participates, or has some level of decision-making authority.
A person who is making or receiving contributions in an
employer-sponsored retirement plan. |
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Aggressive Growth |
Agressive growth funds are focused on an objective of capital
appreciation, with little or no regard for generating current
income. Aggressive growth funds invest almost exclusively in
US stocks. Portfolio appreciation in an aggressive growth fund
will usually supercede the performance of the market as a
whole, however, they will also suffer greater losses than the
overall market in a downturn. |
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All Weather Fund |
A type of mutual fund that manages its portfolio in an attempt
to keep up with the high returns associated with a bull
market, yet manage to minimize losses when the market turns. |
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All or None |
All or none is a stock order stipulating that the entire order
is filled or the order is not to be executed. The trader may
make numerous attempts at filling that order until the order
is canceled. |
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All or None Underwriting |
A form of IPO underwriting typically used with start-up
companies, the all or none underwriting is a variation on the
"best efforts" transaction. The deal is contingent upon the
entire issue being sold. If any portion of the issue is left
unsold, the deal is canceled and prospective investors receive
their money back. |
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Allocation |
The amount of stock attributed to syndicate members and
selling group members at the time of an IPO. These brokerage
firms then allocate the shares to their respective customers. |
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Alpha |
A measure of the vertical distance of a portfolio's
performance above or below the security market line at that
individual security's (or mutual fund's) respective level of
risk. Portfolios with positive alphas as said to have provided
returns greater than their risk levels would have predicted.
Negative alphas imply the converse. |
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Alternative Order |
An order that instructs the floor broker to do one of two
different executions. It is possible that only one of the
alternatives will be completely filled, or that both options
may be partially filled. |
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American Exchange (AMEX) |
Started in 1973, the AMEX reflects the aggregate market values
of stocks and warrants traded on the American exchange. The
AMEX also includes ADRs. Changes in the AMEX reflects the
weighted average of price changes of each of the underlying
issues weighted by the original number of shares outstanding;
therefore, the AMEX is not affected by stock splits or
dividends.
Unlike other indicators, the AMEX allows for cash dividends
paid on the stocks giving measure to total return reflecting a
change in market price and current income. There is a greater
concentration of large blue chips in the AMEX than will be
found in the S&P; however, a significant inclusion of small,
speculative stocks make the AMEX more volatile. |
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Ask |
The lowest price a broker asks customers to pay for a
security. |
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Asset Classes |
Groupings of investments that reflect varying degrees of risk
tolerance. |
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Asset Mix |
The allocation of your investment dollars between different
classes of assets (i.e., stocks, bonds, treasury bills). |
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Average Cost Method |
This method of calculating capital gains on a mutual fund sale
blends the cost of all the shares owned by simply calculating
the total cost of purchasing the shares and dividing by the
number of shares purchased. This eliminates the need for the
investor to specifically identify specific shares being sold
and the dates they were acquired along with price. |
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Close (At the Close) |
The trade is executed as close to market close as possible.
"At the close" does not guarantee closing price, only a price
close to closing. |
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Open (At the Open) |
This stock order is to be filled at the opening of the market.
If the order cannot be filled, then the order is canceled. |
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B |
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Balanced Fund |
Sometimes referred to as "total return funds," a balanced fund
seeks a blend of growth and income by investing in stocks,
bonds and convertible securities.
In terms of performance, a balanced fund is generally
considered a more conservative approach to investing, and is
not known to achieve the highest highs, or suffer from the
lowest lows of the market. |
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Banker's Acceptance |
A draft or bill of exchange accepted by a bank or trust
company. If an American business needed an amount of
short-term financing to import a quantity of furniture from
Japan, the American business may give the Japanese exporter a
"bill of exchange" as a promissory note for payment. The
Japanese exporter may require that the American business have
the note "guaranteed" by a bank to ensure payment. A bill of
exchange that is "accepted" by a bank is unconditionally
guaranteed by that institution and is then known as a banker's
acceptance. Banker's acceptances are negotiable securities
that are traded in the secondary market. Maturities range from
30 to 270 days, with most maturing in fewer than 180 days. |
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Best Efforts Underwriting |
The IPO underwriter agrees to act only as "agent" in the
transaction. The underwriter will use its best efforts to sell
the issue, however, will not accept any financial liability
related to placement of the issue. Any unsold portion remains
with the issuer. |
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Beta |
A statistically derived measure of risk---or price
volatility---relative to the overall market. The beta or "beta
coefficient" of individual securities are derived from past
price behavior relative to past market movements. Beta
measures the volatility of a stock or mutual fund portfolio in
relation to the overall equity market, which is usually
defined as the S&P 500 composite index.
Betas are scaled such that the overall market is defined to
have a beta of 1.0. Stocks with lower exposure to market risk
would have betas below 1.0, and stocks with greater market
risk would have betas above 1.0. For most common stocks, betas
usually range between 0.5 and 1.5.
A well diversified portfolio with a beta of 1.3, for
example, would tend to be up or down 30% more in a given
period than the market (S&P 500). Likewise, a well diversified
portfolio with a beta of 0.8 would tend to be up or down 20%
less than the market.
While beta has limited predictive reliability for any one
security over short time periods, it has been found by
experience to be highly useful as a forecasting tool over
longer periods for well diversified portfolios, like most
mutual funds. |
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Bid |
The highest price a broker is willing to pay for a security. |
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Bond |
Government or business debt that pays a set rate of interest
and returns the face value on maturity. |
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Bond Fund |
Bond funds, as the name implies, invest primarily in bonds,
with an investment objective of current income. Unless
otherwise stated, a bond fund is defined as one investing in
taxable corporate bonds. Those income funds investing in other
types of debt instruments usually indicate so in their name,
such as tax-free municipal bond fund, GNMA fund, government
securities fund, etc. |
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Breakpoint |
In mutual fund investing, the breakpoint is a reduced sales
charge in consideration for a large investment in the fund.
For example, Fund ABC may charge a 5% front-end charge for
investments up to $50,000, however, an investment made of
$50,000 - $100,000 would only be charged perhaps 4.5%.
Breakpoints are volume discounts designed to entice the larger
investor. |
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Brokerage |
A company that brokers (deals directly with financial markets
to buy and sell) stocks and bonds for investors. A
full-service brokerage offers specialized consulting services.
A discount brokerage buys and sells with all decision making
up to the investor; it assesses reduced fees and commissions
for each investor transaction. |
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Business Risk |
Also known as credit risk, business risk is the investor's
risk of losing money because of business reverses experienced
by the company or industry invested in. Some of the causes of
this could include: poor management, competition, over-supply,
bad pricing or economic downturns. |
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Buy Minus |
An order to buy a stock just after a "down tick." (a price
decrease from the last trade). |
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Buy and Hold Strategy |
A buy-and-hold strategy employs a philosophy of long term
investment, in contrast to an investment strategy relying on
market timing for short term profits. Once an investment is
selected and purchased, it is "held" for the long term,
ignoring short term market movement. Some strategists argue
that this is the most reliable method for long term success in
the market. |
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C |
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Call |
The right in options contracts to buy underlying securities at
a specified price at a specified time. Also refers to
provisions in bond contracts that allows issuers to buy back
bonds prior to their stated maturity. |
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Capital Appreciation |
An increase in the price of an investment. |
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Capital Gain (or Loss) |
The difference between an investment's purchase price and
selling price. |
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Capital Gains Distribution |
Payments to mutual fund shareholders of gains from the sale of
securities within the fund; generally made at least once a
year. |
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Cash Account |
A type of account with a broker-dealer in which the customer
agrees to pay the full amount due for the purchase of
securities within a short period of time, usually five
business days. |
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Certificate of Deposit |
A certificate issued by a depository institution representing
a fixed dollar amount that has been deposited for a fixed
period at an established interest rate. |
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Closed End Fund |
A type of fund company that is capitalized with a fixed number
of shares and whose securities are traded on the open market
(rather than being redeemed by the issuing company). |
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Commercial Paper |
Commercial paper is a short term promissory note issued by a
corporation and backed by the faith and credit of that
company. Because the financial backing of the issuing company
is the only thing standing behind it, only the largest and
most sound corporations are in a position to become viable
issuers of commercial paper. Maturities on commercial paper
normally last from 3 to 270 days. |
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Commission |
The fee charged by a broker-dealer for services performed in
buying or selling securities on behalf of a customer. |
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Common Stock |
Common stock is the residual ownership in a corporation that
is entitled to the assets and earnings of the company after
all other claims against the company have been made. Common
stock ownership also grants basic voting control within the
company. The more shares of common stock owned, the greater
the shareholder's voting power and control over decisions
directing the company. |
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Compound Returns |
By re-investing investment profits and earning an additional
return, you will experience the benefits of compounding. Over
the long-term, compounding can generate significant capital
growth. |
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Constant Dollar Investing |
Considered a defensive investment strategy, "constant dollar
averaging" maintains a constant dollar amount in the
portfolio. If the value of the portfolio increases,
investments are sold, if it decreases, then additional
investments are made. Constant dollar averaging is best
employed in a fluctuating market. A long term upward trend in
the market could precipitate excessive selling, and eliminate
some potential investment opportunities. |
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Constant Ratio Investing |
A defensive portfolio management strategy that requires the
investor to maintain the portfolio's ratio of aggressive to
defensive holdings in a constant position. |
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Contingent Deferred Sales Charge |
Sales charge taken if and when the investor redeems shares
with the fund. Usually stated as a percentage of the amount
withdrawn, and charged on a declining scale over a number of
years, typically five to seven. Also known as a "back-load."
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Contrarian Investing |
An investment strategy employed by some money managers, "contrarian"
investing involves a strategy of selecting those securities
currently "out of favor" with the market as a whole. The
strategy is supported by the thinking that securities or
industries whose prices are currently depressed offer valuable
opportunities for those willing to buy now, and wait until the
securities or industries move back into favor with the general
market. |
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Contributions |
>Dollars deposited into a retirement plan. |
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Cooling Off Period |
After registration for a new issue is filed with the
Securities Exchange Commission (SEC), the issue falls into a
20-day cooling off period. Sales of the issue are prohibited
during this period until the final prospectus is filed.
Indications of interest may be accepted during this period
under the preliminary prospectus.
During this period, the underwriting syndicate meets
periodically to evaluate interest in the issue and to make
changes to the public offering price based on the demand,
prior to the effective date. |
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Corporate Account |
A corporate account is established in the name of the
corporation for the investment of the assets of the
corporation. A corporate resolution is required to open the
account in order to document the individual(s) within the
corporation having trading authority on the account, and to
set investment policy limits for those individuals. |
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Corporate Bond Fund |
A mutual fund investing primarily in taxable corporate bonds,
most commonly with an investment objective of current income.
Risk and return associated with corporate bond funds is in
direct relation to the quality of the corporate securities
within the fund. |
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Credit Risk |
Also known as business risk, credit risk is the investor's
risk of losing money because of business reverses experienced
by the company or industry invested in. Some of the causes of
this could include: poor management, competition, over-supply,
bad pricing or economic downturns.
If expected earnings don't materialize, or if those
earnings don't perform to projected levels, the value of the
investment will decline. Equities, corporate bonds and some
municipal bonds are subject to business risk. Credit risk
becomes most apparent when an independent rating companies
like Standard & Poor's or Moody's downgrade their ratings on a
particular security giving it less value in the market.
For corporations issuing stocks and bonds the downgrade is
usually due to a business set-back. For municipalities and
state governments, it is generally related to fiscal trouble.
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Currency Risk |
In addition to the political risk an investor faces when
investing abroad, currency risk is also a significant factor
for the overseas investor. Instruments held in the currency of
the foreign country are at the mercy of the value of that
currency against the dollar. Currency risk is independent of
political risk and will occur regardless of the relative
political stability of the foreign country. |
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Custodial Account |
A custodial account is one in which an individual acts on
behalf of another individual. Custodial accounts are most
commonly used with accounts for the benefit of minor children.
An adult may establish an account for a minor child, such as
Bob Jones, Custodian for the benefit of Jimmy Jones, a minor
child. This allows Mr. Jones the opportunity to manage the
money in the account for his son, however, the assets in the
account remain the property of the child and will pass to him
at age of majority (18-21 years of age varying by state). |
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Custodian |
A custodian holds the physical assets of a mutual fund, mainly
in the form of investment securities and guards them against
physical loss. |
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Correlation Coefficient |
Correlation refers to the extent to which the market price
behavior of one asset, or class of assets, corresponds to the
market price behavior of another asset or class of assets. Two
assets are said to be perfectly correlated if their prices
move up and down in perfect tandem. Two assets are said to be
"perfectly negatively correlated" if they move in opposite
directions and to the same extent.
Correlation Coefficient is a numerical value anywhere
between, and including, -2.0 and +1.0. This value indicates
the degree to which the two assets are correlated. A -2.0
correlation coefficient is perfectly negatively correlated,
+1.0 is perfectly correlated, and 0.0 indicates there is no
correlation between the assets.
Many investors use correlation coefficients as a means to
manage portfolio risk. If a portfolio is perfectly correlated,
then the portfolio as a whole will move up or down in tandem;
however, a portfolio built with a degree of negative
correlation will afford the investor a degree of protection
since, when one security goes down in value, its negatively
correlated partner goes up. |
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D |
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Day Order |
Day orders are good for the day the trade is placed and are
canceled at the close of the trading day if left unfilled.
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Deductibility |
Refers to whether or not a contribution is deductible on an
individual's income tax return. |
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Depressed Industry Investing |
An investment strategy seeking select "comeback" stocks in
depressed, or recessed industries. Depressed industry
investing generally focuses on purchasing the highest grade
stocks within a depressed industry. Successful selection is
dependent upon the investor's ability to choose an industry
that is both viable and has the ability to rebound out of its
current recession. |
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Discretionary Account |
A type of account with a broker-dealer in which the investor
authorizes the broker to buy and sell securities, selected by
the broker, at a price, amount, and time the broker believes
to be best. |
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Distribution |
A withdrawal from a retirement plan; also a payment to mutual
fund shareholders reflecting net investment income of
dividends and capital gains. |
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Diversification |
Spreading investment dollars across several asset classes or
among many securities within an asset class to reduce risk. |
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Diversified Fund |
As defined by the SEC, a diversified fund must keep 75% of its
assets invested so that no more than 5% of the total holdings
in the fund are in the securities of any one company. |
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Dividend |
A share of profits distributed to stockholders. |
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Dividend Distribution Rate |
Dividend distribution rate is the amount that has been paid in
dividends by a mutual fund. This number is usually historical,
and can be quoted one of two ways. The dividend distribution
rate may be quoted as an annual percentage, which would be the
last dividend payout annualized; or it may be quoted as a per
share pay out, such as .0456 per share. |
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Dividend Yield |
The annual dividends paid by a stock or mutual fund
represented as an annual yield (or return). Some dividend
yields are calculated using just past performance actual
returns, providing the investor with a "rear view" of yield
performance, while others use dividend yield as a projection
by using the most recent dividend payout and projecting it
forward as an assumed annual yield. |
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Documented Discount Notes |
Also known as bank guaranteed letters of credit, and are used
by businesses as a means to raise short-term capital through
the sale of promissory notes guaranteed by a bank. Documented
discount notes generally carry a highter yield than other
traditional bank issued investments. |
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Dollar Cost Averaging |
A defensive investment strategy that simply dictates the same
amount of money be invested at regular intervals without
regard to the market price of the security. Many small
investors employ a monthly dollar cost averaging strategy
through systematic investing. When prices increase, a fewer
number of shares are purchased for that period. Likewise, when
prices fall, a greater number of shares is purchased.
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Dollar Value Averaging |
Dollar value averaging is a variation on dollar cost
averaging. Instead of investing the same dollar amount at
different intervals, in dollar value averaging, the investor
invests different dollar amounts to achieve the same increase
in portfolio value for each time period. |
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Dow Jones Industrial Average (DJIA) |
The Dow Jones Industrial Average (DJIA) is regarded as the
most widely known and popularly used market measure. The Dow
consists of 30 highly capitalized, blue chip issues, all of
which are well known by name. All the stocks in the Dow tend
to center around heavy industry. Dow Jones also publishes
transportation, utility and composite indexes. |
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Due Diligence |
The process of fully researching the background and finances
of the company issuing stock. Due diligence in an IPO is the
responsibility of the syndicate manager, and is required by
the SEC Act of 1933, requiring full and fair disclosure in
order for investors to make informed investment decisions.
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E |
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Earned Income |
Income that is eligible to be counted for an IRA contribution
(wages, tips, commissions, net business income, alimony or
bonuses). |
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Effective Date |
The date when the new issue is "effective" and available for
sale to the public. The effective date is typically one day
after the final price amendment is filed by the syndicate
manager with the SEC. |
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Equities |
Securities such as stocks that represent ownership in a
corporation. |
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Equity Fund |
A mutual fund that invests in stocks. |
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Equity REIT |
A real estate investment trust primarily engaged in property
ownership, as opposed to mortgage lending. Equity REITs
generally hold properties in the portfolio for a period of
time since they are not permitted to speculate in property for
quick profits. |
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Europe Asia Far East Index (EAFE) |
The Europe, Asia, Far East Index, known as EAFE, includes 900
stocks and is used as the benchmark for measurement of
international portfolios. The index is capitalization weighted
and is computed as an arithmetic average of the individual
indexes of the component countries. |
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Exchange Privileges |
Exchange privileges give the mutual fund or variable annuity
investor the ability to exchange one fund, or sub-account, for
another within the same family, without incurring a sales
charge. This allows the investor to make necessary portfolio
changes at will without undue expense. Because each "exchange"
involves the sale of one fund and the purchase of another, it
does create a taxable event for the investor in the year the
exchange is made. |
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F |
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Fiduciary Account |
A fiduciary account is established to define an individual's
legally defined position of trust in relation to the account.
This includes accounts established in the name of a trust,
estate, court appointed guardian, etc. The individual named as
the responsible party on a fiduciary account is bound to a
higher level of care in relation to the investment policies
pursued by the trustee. Legal documentation, such as a trust
document is required to define the trustee's scope and limits
of r esponsibility. |
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Fill or Kill Order (FOK) |
This type of order states fill the entire order on the first
try or cancel the entire order. No further attempts to fill
this order may be made (see also: All or Nothing Order).
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Financial Times-Stock Exchange 100 (FT-SE 100) |
The Financial Times-Stock Exchange 100 is based on the
performance of 100 of the largest and most liquid issues
traded on the London stock market. It is abbreviated as the
FT-SE 100. |
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Firm Commitment Underwriting |
In an IPO the underwriter of the issue agrees to act as
principal in the deal, buying the issue outright and then
reselling it to the public, earning the underwriter's
discount. The underwriter in a full commitmentunderwriting
assumes full financial responsibility for the issue. If any
part of the issue is unsold, or if market conditions cause
prices to drop, the underwriter is committed to buying the
entire issue. |
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First In-First Out |
This method of calculating capital gains on a mutual fund sale
identifies the fund shares sold as those that were purchased
first. If the customer has held the mutual fund for some time,
this method will result in the highest amount of capital gains
payable, since the oldest shares are being sold. |
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Fixed Annuity |
An insurance contract that allows interest to grow on a
tax-deferred basis. The flexible withdrawal options of the
Fixed Annuity can help to create a retirement income stream. |
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Fixed Income Orientation |
A conservative investment philosophy by which fund managers
manage bond funds to maximize returns and minimize risk to
principal. The appropriate fixed-income vehicle will depend on
the investor's time horizon and risk tolerance. |
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Fixed Repurchase Agreement |
A fixed repurchase agreement includes a set maturity date for
repurchase, normally from two to seven days. |
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Flipping |
Buying shares of IPOs for the express purpose of "flipping"
them by immediately selling the position back into the market
after the issue begins trading. |
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Fractional Discretion Order |
An order that gives the floor broker a limited amount of
discretion when trading the stock. A fractional discretion
order gives the broker a 1/4 or 1/2 point margin within which
they may execute the trade. |
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Front Load |
In reference to a mutual fund, it is a sales charge levied on
the investor at the time of investment. It is restricted by
law to a maximum limit of 8.5%, however, most mutual funds
with a front load charge less than 5% to invest. |
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Fund Family |
Fund family is the term used to describe a group of mutual
funds operated by the same investment company, but with
differing investment objectives. One fund family may have
70-200 individual funds, each with its own unique investment
objective and management style. The investor may exchange
shares of one fund for shares in another fund within the
family without incurring additional sales charges when making
the exchange. |
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Mutual Fund Dividends |
Dividends are the earnings of the fund. They result from the
stocks inside the fund paying dividends, and bonds inside the
fund paying interest to the fund. From this, expenses are
deducted and the net amount of dividend earnings is then
distributed to the investor based on the number of shares
owned. |
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G |
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Going Public |
When a corporation decides to issue stock through an initial
public offering, it is said to be "going public." This can
also be done through a reverse merger into an existing
publicly traded shell, or through a 504 (Regulation D) private
placement offering, followed by the filing of a registration
statement for the market makers. |
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Good Til Cancel (GTC / GTW / GTM) |
If an order is entered Good Til Canceled (GTC) then the order
will remain open until it is canceled by the customer. Orders
may also be entered Good Thru the Week (GTW) and Good Thru the
Month (GTM). |
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Government Bond Funds |
Government bond funds are generally considered to be extremely
conservative since they only invest in direct or indirect
obligations of the United States government. These funds buy
in Treasury Bills, Notes, and Bonds as well as GNMAs, and
FNMAs. |
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Green Fund |
Terminology commonly used in reference to socially conscious
funds. |
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Growth Fund |
Growth funds are interested in capital appreciation with
current income as a secondary, usually distant, concern.
Growth funds invest primarily in US stocks, and assume a more
conservative approach relative to their "aggressive growth"
counterparts. A growth fund will generally not get involved in
speculative issues or risky trading techniques to generate
returns. |
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Growth Investing Orientation |
An investment philosophy that seeks stocks that will generate
above-average growth while maintaining risk at or below market
levels. The emphasis is on long-term (three to five year)
results. |
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Growth and Income Fund |
A growth and income fund attempts to achieve both capital
appreciation and current income. Growth and income funds are
generally most interested in the growth potential of the
stock. These funds generally seek well established, high
dividend-paying stocks as a primary target.
Portfolios typically consist of US common and convertible
preferred stock. Utility stocks are known favorite investments
of many growth and income fund managers. |
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H |
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High Yield Fund |
Also known as "junk bond funds," high-yield funds invest in
lower-graded, higher-yielding corporate bonds, usually those
with an Standard and Poor's rating below BBB or below a
Moody's Baa. Junk bond funds generate significantly more
income than their higher graded counterparts, but also
experience much greater price volatility in response to
changing market conditions. |
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Hybrid REIT |
A real estate investment trust that engages in a number of
different real estate investment activities, including both
property ownership and mortgage lending. |
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I |
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Identifiable Cost Method |
This method of calculating capital gains on a mutual fund sale
allows the investor to connect the sale of certain shares to
specific purchases on clearly identifiable dates. Obviously,
this method requires the most significant amount of
record-keeping on the investors' part. The shares being sold
must be identified, in writing, at or prior to the date of
sale. |
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Immediate or Cancel (IOC) |
IOC is a stock order indicating that the customer wants as
much of the order filled on the first try with the unfilled
portion canceled. The customer will accept whatever portion of
the order that was able to be filled on that first try, but no
other attempts may be made to fill the remainder of the order.
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Income Fund |
An income fund is one seeking current income as its primary
objective. This may be achieved by investing in bonds, high
dividend-paying stocks or a combination of both. |
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Index |
To regulate through indexation, a system of regulatory control
whereby factors such as wages or interest are linked to the
cost-of-living index in an attempt to eliminate the effects of
inflation. |
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Index Fund |
Index funds invest only in the stocks that comprise a
particular index, such as the S&P 500, with the intention that
the performance of the fund will track with the performance of
the index. These funds have been very popular with investors,
and as a result, more and more indexes are being replicated as
mutual fund investments to meet investor demand. |
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Indications of Interest |
In an IPO, members of the syndicate, including the selling
group of the IPO, assemble a list of potential investors by
taking "indications of interest." Indications of interest are
used to gauge market interest in the issue prior to the
effective date, and are not considered a firm commitment on
the part of the investor, the broker, or the underwriter of
the issue. |
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Individual Account |
An account established in the name of one individual. Sole
Proprietorship business accounts may be established as
individual accounts and supplemented with a sole
proprietorship agreement. |
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Individual Retirement Account (IRA) |
An account between an individual and a depository institution
which allows tax-advantaged saving for retirement. |
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Inflation |
An increase in the cost of goods and services that decreases
the purchasing power of each dollar. |
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Inflation Risk |
Inflation robs you of your money’s purchasing power. As an
investor, you should be wary of inflation’s effect on your
investment returns especially over the long term. Your
investment returns should always outperform inflation (see
rate of return). |
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Initial Public Offering (IPO) |
The first time a corporation offers stock to the public in
order to raise capital. |
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Institutional Account |
An investment account established for an institution, such as
a mutual fund, pension fund or other institution. |
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International Bond Fund |
Also known as "foreign" or "global" bond funds, international
bond funds purchase foreign securities in the currency of the
issuing country, such as the German Mark or Japanese Yen. Most
international funds seek to avoid countries that are known to
be politically or economically unstable, however, their
objective is usually to seek greater income over what is
available in the domestic market. |
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International Equity Fund |
These funds are more commonly called "foreign" funds, and only
invest in the stocks of companies in foreign countries. Global
stock funds may invest in the stock of both US and foreign
issuers. Some fund families go to great lengths to let
investors know that many foreign stocks come from companies
that manufacture well-known products, including Burger King
(UK), Fox Television (Australia) and Ragu Spaghetti Sauce
(Netherlands). |
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Investment Company |
As stated in the Investment Company Act of 1940, an investment
company is a corporation or trust in which a group of
investors pool their money in a single investment account in
order to obtain diversification under continuous professional
management. |
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J |
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K |
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L |
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Last In-First Out |
This method of calculating capital gains on a mutual fund sale
allows the investor to calculate gains based on the last (most
recent) shares purchased in the fund. This will result in the
lowest tax bill now, but is simply putting off the tax bill
that will ultimately confront the investor later as the older
shares are sold after longer holding periods. |
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Limit Order |
A limit order specifies the price at which to buy or sell a
stock. Buy limit orders are entered below the current market
price, and sell limit orders are entered above the current
market price. If the limit price is "hit" then the trade is
executed. If the limit price is never reached, then the order
cancels according to original instructions, either at the end
of the day, or "good til canceled." |
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Liquidation |
The process of converting an investment (asset) into cash.
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Liquidity |
A measure of the ease of converting an investment (asset) to
cash. |
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Load |
A sales commission assessed by some mutual funds to compensate
the broker or financial planner who sells them; commissions
typically range from 2 to 6 percent. Front-end loads are
assessed at time of purchase; back-end loads are assessed at
time of sale. |
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M |
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Management Fee |
Fee paid by a mutual fund to the investment advisor for its
services; fees typically range from 0.50% to 1.00% of the
fund's total assets. |
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Margin Account |
A type of account with a broker-dealer, in which the broker
agrees to lend the customer part of the amount due for the
purchase of securities |
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Market Order |
Market orders are filled immediately at prevailing market
price, unless marked "not held". Market orders do not carry
over to the next day. |
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Market Risk |
Market risk is the risk of being involved in the market where
prices and performance fluctuates on a daily basis in response
to many factors including macro and micro economic forecasts
and the overall optimism or pessimism of those invested in the
market. Many market shifts are due to perception and
speculation as to where the market is going. All of these
factors create the potential for loss or gain for those
invested in the securities traded there. |
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Market Timing |
An investment strategy based on the old adage of "buy low-sell
high." It is the art and science of knowing what and when to
buy, and what and when to sell, in order to maximize profits
in the portfolio. Although attempted by many, both
professional and amateur, long term successful market timing
has eluded most investors and money managers. |
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Maturity |
The date on which a bond issuer must return the principal
amount. |
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Money Market Fund |
Mutual funds that trade in short-term, negotiable investment
vehicles such as certificates of deposit or U.S. Treasury
securities. |
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Morningstar Ratings |
Proprietary ratings that reflect historical risk-adjusted
performances of mutual funds. Morningstar ratings are
calculated from the funds' three-, five-, and ten-year returns
(with fee adjustments) in excess of 90-day Treasury bill
returns, and a risk factor that reflects fund performance
below 90-day T-bill returns. The one-year rating is calculated
using the same methodology, but is not a component of the
overall rating. Ten percent of the funds in a rating category
receive 5 stars, the next 22.5% receive 4 stars, the next 35%
receive 3 stars, the next 22.5% receive 2 stars, and the final
10% receive 1 star. |
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Mortgage REIT |
A real estate investment trust primarily engaged in mortgage
lending as opposed to outright property ownership. In addition
to receiving interest payments on the mortgage, most mortgage
REITs maintain contingent rights to obtain some ownership
position in the underlying property. The interest rate charged
by the REIT on the mortgage is dependent on a number of
factors, including prevailing interest rates, risk of the
underlying investment and the type of mortgage loan granted.
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Municipal Bond Fund |
Municipal bond funds invest in bonds issued by municipalities,
political subdivisions and US territories, with a primary
investment objective of tax-free income. If properly managed,
a "muni" bond fund will enjoy federal tax-free status. Its
income may also be free of state and local income tax if the
fund invests exclusive in the issues of a particular state,
and the investor is a resident of that state. These funds are
said to be "double tax free." |
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Mutual Fund |
A professionally managed portfolio of stocks and/or bonds.
Money is pooled and then invested in various types of
securities within the fund. |
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Mutual Fund Yield |
A mutual fund's yield is the income paid to the shareholders,
generated from dividends and interest paid on the underlying
assets in the portfolio, over a specified period of time. The
yield is expressed as a percent of the current public offering
price per share. |
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N |
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NAREIT |
NAREIT, the National Association of Real Estate Investment
Trusts, based in Washington, D.C., publishes performance and
property data on all publicly traded REITs in the United
States. The data provided by NAREIT includes a listing of all
the properties owned by each REIT along with a list of firms
that follow that particular issue. |
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NASDAQ |
National Association of Securities Dealers Automated
Quotation. The NASDAQ index was created by the NASD and is a
market value weighted index designed to reflect price
movements in the OTC market. NASDAQ publishes a composite
index made up of 2400 common stocks and seven sub-indexes. The
NASDAQ does not include any issue listed on an exchange or one
with only one market maker. |
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Net Asset Value |
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. |
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Nikkei 225-share Average |
The Nikkei 225-Share Average is an unweighted arithmetic
average of 225 Japanese stocks. It is the most commonly quoted
Japanese market index. The Nikkei is similar to the Dow in its
calculation, and like the Dow, is price-weighted. |
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No-Load |
Describes mutual funds that do not assess a sales commission. |
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Non-Diversified Fund |
A non-diversified fund earns such distinction from the SEC. A
non-diversified fund is one that may keep 50% of its assets
such that no more than 5% of the fund's total holdings are
invested in the securities of any one company; and up to 25%
of the net assets may be in a single company. |
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O |
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Odd Lot |
An order for a number of shares that is not a round lot (100
shares of stock). |
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Open-end Fund |
A type of investment company which continuously offers shares
to the public and stands ready to buy back such shares
whenever an investor wishes to sell. |
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Open Repurchase Agreement |
An open repurchase agreement is one in which the parties
decide to extend the transaction on an indefinite basis. Open
"repos" are only terminated when one of the parties chooses to
do so. |
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Option |
A contract providing the right to buy or sell something--often
100 shares of corporate stock--at a fixed price, within a
specified period of time. |
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Over the Counter (OTC) |
A market for buying and selling stock between broker-dealers
over the telephone rather than by going through a stock
exchange. |
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P |
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Passive Investment |
For tax purposes, a passive investment is one in which the
investor does not materially participate. Direct ownership of
real estate can be deemed active income, however, share
ownership of a REIT or other limited partnership is generally
regarded as a passive investment. |
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Portfolio |
A combination of securities or investment funds. |
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Precious Metals Fund |
Precious metals funds invest in metals either through the
purchase of gold bullion, South African gold stocks, and
Non-South African mining stocks. The main producers of
precious metals outside of South Africa are the United States,
Canada, and Australia. These funds are known to be excellent
inflation hedges, but experience sometimes wild price
fluctuation, placing them in the category of higher risk. |
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Preferred Stock |
After common stock has been issued in a corporation, the Board
of Directors, may choose to issue preferred stock as well. As
the name implies, preferred stockholders receive preferential
treatment to common shareholders in a number of ways.
Corporate dividends are distributed to the preferred
shareholders before any remaining dividends are shared with
the common shareholders. In addition, the preferred
shareholders would receive the return of the investment before
the common shareholders in the event of a corporate
liquidation. |
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Primary Market |
The "primary market" is the market in which new, previously
unissued securities are traded. After initial issue, existing
securities are then traded in the "secondary market."
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Principal |
The original investment dollar amount. |
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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. |
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Proxy |
A written authorization given by shareholders for someone else
to cast their votes on such corporate issues as election of
directors. |
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Proxy Statement |
A document which the SEC requires a company to send to its
shareholders (owners of record) that provides material facts
concerning matters on which the shareholders will vote.
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Public Offering Price |
In a mutual fund, the public offering price is the price at
which new investors may buy into the fund. The public offering
price begins with the net asset value and includes any sales
charge applicable at time of purchase. the public offering
price is also commonly referred to as POP. |
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Put |
The right, in an options contract, to sell underlying
securities at a specified price at a specified time.
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Q |
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R |
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Rate of Return |
The rate at which your investment grows is called the rate of
return. Usually expressed as a percentage. |
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REIT Mutual Fund |
A REIT mutual fund, as the name implies, is a mutual made up
of REITs or other real estate-related investments.
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Real Estate Investment Trust (REIT) |
A form of investment company created by Congress in 1960, that
manages a portfolio of real estate investments in order to
earn profits for REIT shareholders. REITs may invest in real
estate through property ownership, mortgage lending, or a
combination of the two. |
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Real Rate of Return |
Inflation robs you of your money’s purchasing power, and you
should consider the effect of inflation on the rate of return
you are earning. By taking inflation into account, you can
accurately calculate the real growth of your investment.
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Redemption Fees |
Redemption fees, also known as "surrender charges" or
"withdrawal fees" are charged on some mutual funds and
annuities to make withdrawals from the investment or contract.
Most redemption fees are set up on a descending scale,
gradually reducing to zero over a period of time. |
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Repurchase Agreement |
A repurchase agreement, more commonly known as a "repo," is an
agreement to sell a money market instrument with the
understanding that the instrument would be "bought back" at
some agreed upon future date. Repos can be established for any
money market instrument, however, are most commonly used in
conjunction government and agency securities. Maturities on
repos are usually seven days or less. |
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Restricted Securities |
Stocks or bonds which were issued in a private sale or other
transaction not registered with the SEC. |
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Rollover |
When a distribution is taken from a retirement plan and
reinvested by the account holder in another tax-qualified
plan. |
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Round Lot |
100 shares of stock or multiples of 100. |
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S |
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Salary Deferral Option or Salary Deferral SEP (SARSEP) |
A Simplified Employee Pension (SEP) plan which also allows
employers to defer a pre-tax portion of their pay into a
SEP-IRA and defer paying taxes until the funds are withdrawn.
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Security |
An investment vehicle such as a stock, bond, annuity or other
interest-bearing contract. |
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Sell Plus Order |
An order to sell a stock after an "up tick." (a price increase
from the last trade). |
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Settlement Date |
The date on which a trade "settles." Settlement date is the
date when funds are due to pay for securities that have been
purchased, and also the date on which the securities must be
delivered for transfer in the event of a sale. |
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Share Class |
In reference to mutual funds, different fund families offer
different "classes" of shares in the fund, reflecting
different pricing structures to suit different investor needs.
For example, "Class A" shares will typically carry a front-end
sales charge, "Class B" shares will charge a contingent
deferred sales charge, etc. There are many different classes
of shares now available to investors, each individually
defined by the fund itself.
Each share class will also have its own expense structure
and different total returns as well. The investor should
always read the prospectus carefully before selecting a
particular class of mutual fund shares to purchase.
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Simplified Employee Pension (SEP) Plan |
An employer-sponsored retirement program . Employers
contribute to employee IRAs and receive tax deductions on
those contributions. |
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Sophisticated Investor |
An individual wishing to invest in an IPO, private placement,
or bridge financing who does not meet the definition of
"accredited investor", must be deemed a "sophisticated
investor" by the issuer in order to participate in the private
placement. |
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Special Block |
An order that is too large for execution as part of the normal
trading process. "Special blocks" must be approved by the NYSE
prior to trading. |
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Standard & Poor's 500 Index (S&P 500) |
The S&P is generally regarded as the second best known
indicator behind the Dow Jones. It comprises 500 common
stocks, including some not listed on the NYSE. The S&P is
value-weighted and is calculated by aggregating the market
values of the component stocks, dividing by a base value and
multiplying that result by 10. Stock splits do not need to be
adjusted for, however, changes in capitalization are accounted
for in a proportionate base value change. |
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Stated Percentage |
An order to be executed after a certain number of shares
(volume) has already traded in a particular issue.
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Stock |
An investment that represents ownership in a corporation.
Investment gains and/or losses are tied to the corporation's
performance. Stocks are issued in classes known as common or
preferred. |
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Stop-Limit |
Stop-Limit orders, as the name implies, combine the features
of stop orders and limit orders. If a stop order is entered
and the stop price is hit, the order then becomes a market
order and will be filled at current market price. A stop limit
tells the trader that once the "stop" price is triggered, the
trader is to fill the order at limit price or better.
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Stop Order |
Stop orders are entered for investors interested in limiting
losses. For example, if a customer owns a stock and wants to
limit losses, he/she can enter a sell stop order that tells
the trader to sell if the stock falls to a certain price. Sell
stop orders are always entered below the current market price
of the stock. |
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Swap |
An order that instruct the broker to buy or sell a stock after
another stock order to buy or sell is executed first. For
example, sell 500 AT&T at the market, then buy 500 Microsoft
at the market. |
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T |
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Tax-deferred |
Income that is sheltered from taxes until the time of
withdrawal. |
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Total Return |
A measure of a mutual fund's performance; share price
appreciation plus reinvestment of dividends and capital gains,
if any. |
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Transfer |
When an Individual Retirement Account (IRA) or retirement plan
is transferred directly from one institution to another
without passing to the individual. |
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Transfer Agent |
The transfer agent handles the transfer of share ownership of
securites. It is responsible to make sure that the securities
delivered for settlement are genuine and in good condition.
The transfer agent's certification appears on the face of all
securities. |
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Turnover Ratio |
The Turnover Ratio indicates the percentage of the mutual
fund's portfolio holdings that are bought and sold in a given
year. |
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U |
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U.S. Treasury Obligations |
Negotiable debt obligations issued and backed by the U.S.
government. Treasury bills mature in one year or less;
treasury notes mature in one to 10 years; treasury bonds
mature in 10 years or more. |
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V |
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Value Investing |
Value investors seek stocks with low expectations and low
valuations that exhibit above-average growth potential over
time. Value investing is considered a lower risk strategy that
has advantages under most market conditions. |
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Variable Annuity |
An insurance contract that allows tax-deferral on income from
investments in professionally managed investment portfolios.
Returns are based on performance of those investments. The
flexible withdrawal options of the Variable Annuity can help
to create a retirement income stream. |
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Variable Ratio Investing |
A defensive portfolio management strategy that requires the
investor to make variable adjustments in the portfolio's ratio
of aggressive to defensive positions as market conditions
dictate. |
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W |
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Wilshire 5000 |
The Wilshire 5000 Equity Index, published by Wilshire
Associates located in Santa Monica, CA is by far the most
comprehensive of all the indicators. It comprises all the
stocks on the NYSE and the AMEX as well as the most actively
traded OTC issues. |
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X |
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Y |
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Yield |
The rate of return (usually dividend or interest payments) on
an investment, expressed as a percentage of market price.
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Z |