Chapter 2, Part 2

Front 1

Yield

Back 1

the income a security produces

Front 2

Equity

Back 2

ownership, e.g., common and preferred stock in a public company

Front 3

Common Stock

Back 3

an equity or ownership position that allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions, authorizing more shares.

Front 4

Statutory voting

Back 4

method of voting whereby the shareholder may cast no more than the number of shares owned per candidate/item

Front 5

cummulative voting

Back 5

method of voting whereby the shareholder may take the total votes and split them up any way he chooses. Said to benefit minority over majority shareholders. Total votes are found by multiplying the number of shares owned by the number of seats up for election

Front 6

pre-emptive right

Back 6

the right of common stockholders to maintain their proportional ownership if the company offers more shares of stock

Front 7

dilution of equity

Back 7

a reduction in the earnings per share of common stock, often due to convertible bonds or preferred stock being converted to common stock

Front 8

residual claim

Back 8

the right of common stock holders to claim assets after the claims of all creditors and preferred stockholders have been satisfied

Front 9

limited liability

Back 9

an investor's ability to limit losses to no more than the amount invested. Holders of common stock and limited partnership interests enjoy "limited liability," which means they can only lose 100% of what they invested

Front 10

declaration date

Back 10

the date the Board declares a dividend

Front 11

payable date

Back 11

date that a dividend check is paid to investors

Front 12

record date

Back 12

date determined by the Board of Directors on which the investor must be the holder "of record" in order to receive the upcoming dividend. Settlement of a trade must occur by the record date for the buyer to receive the dividend

Front 13

trade date

Back 13

date that a trade is executed

Front 14

regular way settlment

Back 14

The typical time frame for purchasing and settling securities transactions.

"T + 3". Trade date plus 3 business days for common stock.

"T + 1", Trade date plus one day for trades in US Treasury securities

Front 15

ex-date or ex-dividend date

Back 15

the date upon which the buyer is not entitled to the upcoming dividend

Front 16

authorized stock

Back 16

the number of shares a company is allowed to issue by its corporate charter. Can be changed by a majority vote of the outstanding shares

Front 17

issued shares

Back 17

the number of shares that have been issued by a corporation, a number usually lower than the number of shares authorized by the dealer.

Front 18

treasury stock

Back 18

shares that have been issued and repurchased by the corporation. Has nothing to do with US Treasury

Front 19

shares outstanding

Back 19

number of shares a corporation has outstanding. Used to calculate EPS

Front 20

earnings per share (EPS)

Back 20

the amount of earnings or "net income" available for each share of common stock. A major driver of the stock's price on the secondary market. Found by taking "earnings available to common" divided by the shares outstanding.

Front 21

outstanding shares =

Back 21

issued shares - treasury shares

Front 22

transfer agent

Back 22

party that maintains an issuer's shareholder records

Front 23

registrar

Back 23

party that audits the transfer agent to make sure the number of authorized shares is never exceeded

Front 24

transfer and hold in safekeeping

Back 24

buy order for securities in which securities are bought and transferred to the customer's name, but held by the broker-dealer

Front 25

street name

Back 25

securities held in the name of a broker-dealer on behalf of customers

Front 26

Depository Trust Company (DTC)

Back 26

a subsidiary of the DTCC, the holder of physical stock certificates

Front 27

stock splits

Back 27

a change in the number of outstanding shares designed to change the price-per-share; not a taxable event

Front 28

stock dividends

Back 28

payment of a dividend in the form of more shares of stock; not a taxable event

Front 29

American Depository Receipt (ADRs)

Back 29

a foreign stock on a domestic market. Toyota and Nokia are two examples of foreign companies whose ADRs trade on the American stock markets denominated in dollars

Front 30

warrant

Back 30

long-term equity security giving the owner the right to purchase stock at a set price. Often attached as a "sweetener" that makes the other security more attractive

Front 31

rights

Back 31

for every share owned, an investor receives a "right", an equity security with a very short life span.

Works like a coupon, allowing the current shareholders the chance to purchase the stock below the market price - called the subscription price.

Front 32

preferred stock

Back 32

a fixed-income equity security whose stated dividends must be paid before common stock can receive any dividend payment. Also gets preference ahead of common stock in a liquidation (but behind all bonds and general creditors)

Front 33

straight preferred stock

Back 33

preferred stock whose missed dividends do not go into arrears, a.k.a., "non-cumulative preferred"

Front 34

cumulative preferred stock

Back 34

preferred stock where missed dividends go into arrears and must be paid before the issuer may pay dividends to other preferred stock and/or common stock

Front 35

participating preferred stock

Back 35

preferred stock whose dividend is often raised above the stated rate

Front 36

adjustable rate preferred stock

Back 36

preferred stock whose dividend is tied to another rate, often the rate paid on T-bills.

Front 37

callable preferred stock

Back 37

preferred stock that may be purchased by the issuer as of a certain date

Front 38

convertible preferred stock

Back 38

preferred stock allowing the investor to use the par value to "buy" shares of the company's common stock at a set price.

Front 39

parity

Back 39

when a convertible bond's or convertible preferred stock's market price is exactly equal to the value of the shares to which it converts

Front 40

maturity date

Back 40

the date that a bond pays out the principal, and interest payments cease, a.k.a. "redemption"

Front 41

total return

Back 41

measuring growth in share price plus dividend and capital gains distribution

Front 42

Dividend Yield =

Back 42

Annual Dividend / Market Price

Front 43

pooled investment

Back 43

investment products that combine the capital of many investors, e.g., mutual funds

Front 44

net asset value (NAV)

Back 44

the net asset value of a mutual fund share. (Assets - liabilities) / outstanding shares

Front 45

diversified fund

Back 45

an open- or closed-end fund that complies with an SEC rule so that no more than 5% of assets are invested in a particular stock or bond and so that the fund does not own more than 10% of any issuer's outstanding stock. Associated with the "75-5-10" rule

Front 46

non-diversified fund

Back 46

a fund that doesn't meet the 75-5-10 rule, preferring to concentrate more heavily in certain issues

Front 47

1099-DIV

Back 47

tax form sent to investors showing dividends and capital gains distributions from a mutual fund for the tax year

Front 48

equity funds

Back 48

mutual funds that primarily invest in equity securities

Front 49

Growth funds

Back 49

mutual funds investing in stocks expected to grow faster than the overall market and trading at high price-to-earnings multiples

Front 50

value funds

Back 50

mutual funds investing in stock currently out of favor with investors trading at low multiples

Front 51

blend funds

Back 51

a fund that does not stock to just growth or just value stocks

Front 52

equity income fund

Back 52

a mutual fund that purchases common stocks whose issuers pay consistent and, perhaps, increasing dividends. The fund has less volatility than an equity fund with "growth" as a objective

Front 53

specialty/specialized funds

Back 53

a type of mutual fund devoted to a particular strategy or tactic, e.g., sector funds, asset allocation funds

Front 54

sector funds

Back 54

fund that concentrates heavily in a particular industry, e.g., the "Technology Fund." Higher risk/reward than funds invested in many industries

Front 55

asset allocation

Back 55

maintaining a percentage mix of equity, debt, and money market investments, based either on the investor's age (strategic) or market expectations (tactical)

Front 56

balanced fund

Back 56

mutual fund that maintains a mix of stocks and bonds at all times.

Front 57

age-based portfolio

Back 57

Lifecycle or target funds. A mutual fund or other portfolio adjusting asset allocation to match the needs of a beneficiary in a 529 plan or an adult in a retirement account

Front 58

target funds

Back 58

an age-based mutual fund that shifts asset allocation in line with the retirement target date of the investors in the fund.

Front 59

global funds

Back 59

mutual funds investing in companies located and doing business all across the globe, including the US

Front 60

international fund

Back 60

a mutual fund investing in companies established OUTSIDE the US

Front 61

precious metals funds

Back 61

a mutual fund that typically holds shares of mining companies (gold, silver, copper, etc)

Front 62

index fund

Back 62

a mutual fund or ETF designed to track a particular index

Front 63

management fees

Back 63

the % of assets charged to a mutual fund portfolio to cover the cost of portfolio management services provided by the investment adviser to the fund.

Front 64

Dow Jones Industrial Average (DJIA)

Back 64

an index comprised of 30 large-cap companies

Front 65

NASDAQ 100

Back 65

a large-cap index comprised of 100 non-financial companies trading on the NASDAQ

Front 66

Russell 2,000

Back 66

small cap index

Front 67

investment adviser

Back 67

a business professional compensated for advising others as to the cvalue of or advisability of investing in securities

Front 68

operating expenses

Back 68

expenses that a mutual fund deducts from the assets of the fund, including board of director salaries, custodial and transfer agent services, management fees, 12b-1 fees, etc. More generally, operating expenses are shown on a company's income statement to indicate expenses beyond COGs, e.g., administrative salaries, office supplies, office rent.

Front 69

turnover ratio

Back 69

the frequency of trading that a mutual fund portfolio engages in

Front 70

sales charges

Back 70

one-time deduction from an investor's check that goes to the distributors/sellers of the fund. Deducted from investor's check, either when she buys (A-shares) or sell (B-shares)

Front 71

distributor

Back 71

a FINRA member firm that bears distribution costs of a fund, profiting from the sales charges paid by the investors; a.k.a. "sponsor," "underwriter," "wholesaler."

Front 72

public offering price (POP)

Back 72

the price an investor pays for a mutual fund or an intial public offering.

For a mutual fund, POP = NAV + Sales Charge

Front 73

front-end load

Back 73

a mutual fund commission or sales fee charged when shares are purchased (A-shares). The amount of the load is added to the NAV to determine the public offering price (POP)

Front 74

back-end load

Back 74

commissions/sales charge added when mutual fund or variable contracts are redeemed. The back-end load declines gradually, as described in the prospectus. Associated with B-shares

Front 75

A-shares

Back 75

Mutual fund shares sold with a front-end sales load/charge. Lower annual expenses than B- and C- shares

Front 76

B-shares

Back 76

mutual fund shares charging a load only when the investor redeems/sells the shares. Associated with "contingent deferred sales charges." B-shares have higher operating expenses than A-shares

Front 77

C-shares

Back 77

a type of mutual fund share often called "level load" because of the high 12b-1 fee. Appropriate for shorter term investing only

Front 78

contingent deferred sales charge

Back 78

associate with B-sahres, the sales charge is deducted from the investor's check when she redeems.sells her shares. The charge is deferred until she sells and is contingent upon when she sells- the sales charges decline over time, eventually disappearing after 7 years, at which point the B-shares become A-shares

Front 79

12b-1 fee

Back 79

fee deducted from a mutual fund's assets to cover distribution costs, e.g., selling, mailing, printing, advertising. An operating expense, unlike the sales charge that is deducted from the investor's check.

Front 80

no-load funds

Back 80

mutual fund sold without a sales charge, but one which may charge an ongoing 12b-1 fee or "asset-based sales charge" up to 0.25% of net assets

Front 81

level load

Back 81

ongoing asset-based sales charge (12b-1) fee associated with mutual fund C-shares

Front 82

statement of additional information (SAI)

Back 82

detailed and long-form disclosure document for a mutual fund.

Front 83

expense ratio

Back 83

a fund's operating expenses divided by/compared to average net assets. Represents operating efficiency of a mutual fund, where the lower the number the more efficient the fund

Front 84

forward pricing

Back 84

the method of valuing mutual fund shares, whereby a purchase or redemption order is executed at the next calculated price. Mutual fund shares are bought and sold at the next computed price, not yesterday's sale prices.

Front 85

redemption

Back 85

for mutual funds, redemption involves the sale of mutual fund shares back to the fund at the NAV (less any redemption fees, back-end loads). For bonds, the date that principal is returned to the investor.

Front 86

breakpoint selling

Back 86

preventing an investor from achieving a breakpoint. A violation

Front 87

breakpoints

Back 87

a discounted sales charge or "volume discount" on mutual fund purchases offered on A-shares at various levels of investment.

Front 88

letter of intent

Back 88

feature of many mutual funds whereby an investor may submit a letter of form expressing the intent to invest enough money over 13 months to achieve a breakpoint. May be back-dated 90 days

Front 89

rights of accumulation

Back 89

feature of many mutual funds whereby a rise in account value is counted the same as new money for purposes of achieving a breakpoint

Front 90

combination privilege

Back 90

feature that allows investors to combine purchases of many funds within the mutual fund family to reach a breakpoint/reduced sales charge

Front 91

conversion/exchange privilege

Back 91

a feature offered by many loaded mutual funds whereby the investor may sell shares of one fund in the family and use the proceeds to buy another fund in the family at the NAV (avoiding the sales load). All gains/losses are recognized on the date of sale conversion for tax purposes.

Front 92

board of directors

Back 92

the group elected by shareholders to run a mutual fund or a public company and establish corporate management policies

Front 93

custodian

Back 93

party that maintains custody of a mutual fund's securities and cash. Performs payable/receivable functions for portfolio purchases and sales. In an UGMA, the custodian is the adult named on the account who is responsible for the investment decisions and tax reporting

Front 94

shareholder voting in mutual funds

Back 94

- changes in investment policies and objectives

- approval of investment adviser contract

- approval of changes in fees

- election of board members

- ratification of independent auditors

Front 95

management company

Back 95

one of three types of Investment Companies, including both open- and closed-end funds

Front 96

open-end fund

Back 96

investment company that sells an unlimited number of shares to an unlimited number of investors on a continuous basis. Shares are redeemed by the company rather than traded among investors.

Front 97

closed-end funds

Back 97

an investment company that offers a fixed number of shares that are NOT redeemable. Shares are traded on the secondary market at a price that could be higher or lower than NAV (or even the same as NAV). Also "closed-end management company."

Front 98

Unit Investment Trusts (UITs)

Back 98

type of investment company where investments are selected, not traded/managed. No management fee is charged. Shares are redeemable.

Front 99

face-amount certificate

Back 99

a debt security bought in a lump-sum or through installments that promises to pay out the stated face amount, which is higher than the investor's purchase price

Front 100

Exchange Traded Fund (ETFs)

Back 100

a fund that trades on an exchange, typically an index fund tracking the S&P 500, the Dow Jones Industrial Average, etc. Unlike an open-end fund, the ETF allows investors to sell short, trade throughout the day, and even purchase shares on margin

Front 101

Real Estate Investment Trusts (REITs)

Back 101

a corporation or trust that uses the pooled capital of investors to invest in ownership of either income or property or mortgage loans. 90% of net income is paid out to shareholders

Front 102

Equity REIT

Back 102

a real estate investment trust that owns and operates a portfolio of real properties.

Front 103

Mortgage REIT

Back 103

a REIT that buys and/or makes loans for real estate projects

Front 104

Hybrid REIT

Back 104

a REIT that owns and operates a portfolio of real estate as well as provides financing for real estate projects

Front 105

POP =

Back 105

NAV + Sales Charge