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Investment Terms (A to C)

(D to H)   (I to O)   (P to R)   (S to Y)

ALPHA A measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4 %. -0.6 means a fund's monthly return was 0.6 % less than would have been predicted from the change in the market alone.

ALPHA EQUATION The alpha of a fund is determined as follows: [ (sum of y) - ((b)(sum of x)) ] / n where: n =number of observations (36 mos) b = beta of the fund x = rate of return for the S&P 500 y = rate of return for the fund

AMERICAN DEPOSITARY RECEIPTS Certificates issued by a U.S. Depositary Bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR"s are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR's. "Unsponsored" ADR's do not receive such assistance. ADR's carry the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American Depositary Shares (ADS) are a similar form of certification.

AMERICAN STOCK EXCHANGE (AMEX) The second-oldest U.S. stock exchange, located on Wall Street in New York City. Started as an alternative to the NYSE, the AMEX originating on the curb outside the NYSE, where brokers traded stocks that failed to meet the Big Board's listing requirements. Considerably smaller in market capitalization and trading volume than NASDAQ and the NYSE, the AMEX conducts trading through a centralized specialist system and is home primarily to small and medium-sized companies.

AMERICAN-STYLE OPTION An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

ANALYST Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

ANNUAL REPORT Yearly record of a publicly held company's financial condition. It includes a description of the firm"s operations, its balance sheet and income statement.

ARBITRAGE Profiting from differences in the price of a single security that is traded on more than one market.

ARMS INDEX Also known as TRading INdex (TRIN):= #advancing issues/#declining issues Total up volume/total down volume. An advance/decline market indicator. Less than 1.0 indicates bullish demand, while above 1.0 is bearish. The index often is smoothed with a simple moving average.

ASSIGNMENT The receipt of an exercise notice by an options writer that requires him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

AT THE MONEY An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

AUTOREGRESSIVE Using previous data to predict future data.

AVERAGE An arithmetic mean of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA's stocks, and divides the results by a predetermined number, the divisor.

AVERAGE MATURITY The average time to maturity of securities held by a mutual fund. Changes in interest rates have greater impact on funds with longer average life.

BACK OFFICE Brokerage house clerical operations that support, but do not include, the trading of stocks and other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory compliance.

BANKER'S ACCEPTANCE A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market. These instruments have been a popular investment for money market funds.

BASIS The price an investor pays for a security plus any out-of-pocket expenses. It is used to determine capital gains or losses for tax purposes when the stock is sold.

BASIS POINTS Refers to yield on bonds. Each percentage point of yield in bonds equals 100 basis points. If a bond yield changes from 7.25 % to 7.39 %, that's a rise of 14 basis points.

BEAR An investor who believes a stock or the overall market will decline. A bear market isa prolonged period of falling stock prices, usually by 20% or more.

BEAR RAID A situation in which large traders sell positions with the intention of driving prices down.

BETA (STOCKS) Measure of a stock's risk in relation to the market. 0.7 means a stock price is likely to move up or down 70 % of the market change; 1.3 means the stock is likely to move up or down 30 % more than the market.

BETA EQUATION (STOCKS) The beta of a stock is determined as follows: [(n) (sum of (xy)) ]-[(sum of x) (sum of y)] [(n) (sum of (xx)) ]-[(sum of x) (sum of x)] where: n = # of observations (24-60 months) x = rate of return for the S&P 500 Index y = rate of return for the stock.

BETA (MUTUAL FUNDS) The measure of a fund's risk in relation to the market. 0.7 means the fund's total return is likely to move up or down 70 % of the market change; 1.3 means total return is likely to move up or down 30 % more than the market.

BETA EQUATION (MUTUAL FUNDS) The beta of a fund is determined as follows: [(n) (sum of (xy)) ]-[ (sum of x) (sum of y)] [(n) (sum of (xx))]-[ (sum of x) (sum of x)] where: n = # of observations (36 months) x = rate of return for the S&P 500 Index y = rate of return for the fund.

BLOW-OFF TOP A steep and rapid increase in price followed by a steep and rapid drop in price. This is an indicator seen in charts and used in technical analysis of stock price and market trends.

BREAKOUT A rise in a security's price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price.) A breakout is taken to signify a continuing move in the same direction. Can be used by technical analysts as a buy or sell indication.

BULL An investor who thinks the market will rise.

BULL MARKET A market which is on a consistent upward trend.

BUYOUT Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buyout is done with borrowed money.

CALL OPTION An option contract that gives the holder of the option the right (but not the obligation) to purchase, and obligates the writer to sell, a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

CAPITAL EXPENDITURES Amount used during a particular period to acquire or improve long term assets such as property, plant, or equipment.

CAPITAL GAIN When a stock is sold for a profit, it's the difference between the net sales price of securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

CAPITAL LOSS The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

CASH DIVIDEND A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.

CASH AND EQUIVALENTS The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Bankers Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within ninety days.

CASH FLOW In investments, it represents earnings before depreciation amortization and non-cash charges. Sometimes called cash earnoings. Cash Flow from operations (called Funds From Operations (FFO) by real estate and other investment trusts, is important because it indicates the ability to pay dividends.

CHANGES IN FINANCIAL POSITION Sources of funds internally provided from operations which alter a company's cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

CHURNING Excessive trading of a client's account in order to increase the broker's commissions.

CLOSING PURCHASE A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options.

CLOSING SALE A transaction in which the seller's intention is to reduce or eliminate his long position in a stock, or a given series of options.

COMISSION The fee paid to a broker to execute a trade, based on number of shares, bonds, options and/or their dollar value. Full service brokers offer advice and usually have a full staff of analysts who follow specific industries. Discount brokers simply execute a client"s order.

COMMON STOCK/OTHER EQUITY Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders equity.

CONFIDENCE INDICATOR A measure of investors faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.

CONFIDENCE LEVEL The degree of assurance that a specified failure rate is not exceeded.

CONFIRMATION The written statement that follows any "trade" in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

CONSENSUS RATING The average of analysts recommendations for a single entity. As many brokers have different ratings systems, their recommendations must be standardized so that a consensus can be calculated. The I/B/E/S ratings are calculated using a standard set of recommendations, maintained by I/B/E/S, each with an assigned numeric value: 1. Strong Buy 2. Buy 3. Hold 4. Underperform 5. Sell Each recommendation received from the analysts is mapped to one of the I/B/E/S standard ratings. Assigning a numeric value to the broker text enables I/B/E/S to calculate a consensus recommendation. This consensus recommendation appears as the mean (average) of the assigned values.

CONVERGENCE The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of the time value. But as the contract nears expiration, the futures price and the cash price converge.

CORNER A MARKET To purchase enough of the available supply of a commodity or stock in order to manipulate its price.

COUPON RATE In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.

COVERED CALL A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

COVERED PUT A put option position in which the option riter also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.

CURRENT ASSETS Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.

CURRENT LIABILITIES Amount owed for salaries, interest, accounts payable and other debts due within 1 year.

CURRENT RATIO Indicator of short-term debt paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.

CURRENT YIELD For bonds or notes, the coupon rate divided by the market price of the bond.

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