Glossary

This is not an official set of definitions. Our goal is to provide accurate and clear information, but we have not attempted to define terms with absolute legal precision.

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ABA (American Banking Association) Number - Routing number used to wire funds to any bank account.

ACAT (Automated Customer Account Transfer) - Process of transferring accounts between different broker dealers.

ACH (Automated Clearing House) - An electronic transmission of money from one institution to another. Can be established for the purpose of automatic investment or SWP.

Acquisition - The acquiring of control of one corporation by another. In "unfriendly" takeover attempts, the potential buying company may offer a price well above current market values, new securities and other inducements to stockholders. The management of the subject company might ask for a better price or try to join up with a third company. (See: Merger, Proxy)

Active Return - Return relative to a benchmark. If the portfolio's return is 8%, and the benchmark's return is 5%, then the portfolio's active return is 3%.

Active Risk - The risk (annualized standard deviation) of the active return. Also known as Tracking Error.

Account Executive - (See: Financial Advisor).

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

Address of Record - Address on account registration. Address to which all formal correspondence and statements are mailed.

Adviser - (See: Investment Advisor).

Adjustable Rate Mortgages (ARM) - Is a loan which has a coupon or interest rate that is subject to change on predetermined reset dates. These loans use interest rate indices as the benchmark rate. Adjustable Rate Mortgages come in many variations. Typically, the reset dates recur every 1, 3, or 5 years; but there are other periods used as well. These loans may have cap and floor features which constrain each reset change in interest rates. There may also be lifetime cap and floor features. Adjustable Rate Mortgages may be strictly amortizing though some have negative amortization features.

ADV form - Form on file with the Securities and Exchange Commission that contains important financial information about a registered investment advisor.

Agency - Is a security issued by a government organization but not the treasury. These organizations include: the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the Federal National Mortgage Association (FNMA or Fannie Mae), the Government National Mortgage Association (GNMA or Ginnie Mae).

Agent - Is a party who acts on the behalf of another. This occurs when a broker executes a trade for the benefit of the customer. Here, the broker receives a commission. This compares to a dealer transaction.

Aggressive Growth - Type of mutual funds that seek maximum capital gains.

Alpha - The term used to describe the risk adjusted outperformance of an investment. A large alpha indicates good performance relative to the market.

American Depositary Receipt (ADR) - a security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.

American Stock Exchange (AMEX) - The second largest stock exchange in the United States, located in the financial district of New York City. (Formerly known as the Curb Exchange from its origin on a Manhattan street.)

Amortization - Accounting for expenses or charges as applicable rather than as paid. Includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses and deferred charges.

Annual report - The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, expenses and earnings - how the company stood at the close of the business year, how it fared profit-wise during the year, as well as other information of interest to shareowners.

Annual and Semi-Annual Reports - Summaries that a mutual fund sends to its shareholders which discuss the fund's performance over a defined period and identify the securities currently in the fund's portfolio.

Annual return - The percentage of change in a mutual fund's net asset value over a year's time, factoring in income dividend payments, capital gains, and reinvestment of these distributions.

Arbitrage - A technique employed to take advantage of differences in price. If, for example, ABC stock can be bought in New York for $10 a share and sold in London at $10.50, an arbitrageur may simultaneously purchase ABC stock here and sell the same amount in London, making a profit of $.50 a share, less expenses. Arbitrage may also involve the purchase of rights to subscribe to a security, or the purchase of a convertible security - and the sale at or about the same time of the security obtainable through exercise of the rights or of the security obtainable through conversion. (See: Convertible, Rights)

Ask Price - The price at which a mutual fund's shares can be purchased. The ask price means the current NAV per share plus sales charge, if any. Is also referred to as offering price.

Asset Allocation - Apportioning of investment funds among categories of assets, such as Cash Equivalents, Stock, Fixed-Income Investments, and such tangible assets as real estate and precious metals. Also applies to subcategories such as government, municipal and corporate bonds. Asset allocation affects both risk and return and is a central concept in personal financial planning and investment management.

Asset Backed Securities (ABS) - Is a security backed by notes or receivables against assets other than real estate. Some examples are autos, credit cards, and royalties.

Assets - The investment holdings and cash owned by a mutual fund.

Asset Mix - The percentage breakdown between different asset types in a portfolio including cash and equivalents, fixed income and equities.

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

Auditor's report - Often called the accountant's opinion, it is the statement of the accounting firm's work and its opinion of the corporation's financial statements, especially if they conform to the normal and generally accepted practices of accountancy.

Automatic Investment - Method of investing in which funds are drafted from any bank account and wired to a mutual fund on a set schedule for the purpose of purchasing shares in a mutual fund account (See: SIP, PIP).

Automatic Reinvestment - Account is set up to automatically use dividend and/or capital gains distributions to purchase additional shares.

Average Annual Return - Average Annual Return is used to compare returns over different periods on a consistent basis with the unit being years.

Average Maturity - the remaining lifetime of all bonds in a fund's investment portfolio, weighted by the amount of money invested in each bond. (See: Bond)

Averages - Various ways of measuring the trend of securities prices, one of the most popular of which is the Dow Jones Industrial Average of 30 industrial stocks listed on the New York Stock Exchange. The prices of the 30 stocks are totaled and then divided by a divisor that is intended to compensate for past stock splits and stock dividends, and that is changed from time to time. As a result, point changes in the average have only the vaguest relationship to dollar-price changes in stocks included in the average. (See: NYSE Composite Index)

Averaging - (See: Dollar-cost-averaging)