Mutual Fund Glossary

Here’s a fairly comprehensivelist of commonly used terms(and their definitions) in thesecurities and financialindustries:Accountant’s Opinion —

(see

Auditor’s Report

)

Accounts Payable —

Money acompany owes for services andsupplies. For example, a recordcompany would list asaccounts payable the bill froma wax company that suppliedthe raw material for makingrecords.

Accrued Interest —

Theinterest due on a bond since thelast interest payment wasmade. The buyer of the bondpays the market price plusaccrued interest.

Acquisition —

Acquiringcontrol of one corporation byanother. In “unfriendly” take-over attempts, the potentialbuying company may offer aprice well above currentmarket values, new securitiesand other inducements tostockholders. The managementof the subject company mightask for a better price or try to join up with a third company.(also see

Merger, Proxy

)

A

ADR —

American DepositaryReceipt

.

Asecurity issued by aU.S. bank in place of theforeign shares held in trust bythat bank, thereby facilitatingthe trading of foreign shares inU.S. markets.

American Stock Exchange —

The second largest stock exchange in New York, locatedin the financial district of NewYork City.

Amortization —

Accountingfor expenses or charges asapplicable rather than as paid.Includes such practices asdepreciation, depletion, write-off of intangibles, prepaid expensesand deferred charges.

Annual Report —

The formalfinancial statement issuedyearly by a publicly ownedcorporation. The report showsassets, liabilities, revenues,expenses and earnings. Thereport also shows thecompany’s financial conditionat the close of the businessyear and other basicinformation of interest toshareholders.

Acc – Ann

1

G

LOSSARY

O

F

T

ERMS

&A

CRONYMS

The world puts its stock in us.

®

New York Stock Exchange

S

Arbitrage —

Atechniqueemployed to take advantage of differences in price. If, forexample, ABC stock can bebought in New York for $10 ashare and sold in London at$10.50, an arbitrageur maysimultaneously purchase ABCstock here and sell the sameamount in London, making aprofit of 50 cents a share, lessexpenses. Arbitrage may alsoinvolve the purchase of rightsto subscribe to a security, orthe purchase of convertiblesecurity – and the sale at orabout the same time of thesecurity obtainable throughexercise of the rights or of thesecurity obtainable throughconversion. (see

Convertible,Rights

)

Arbitration —

Alow-costalternative to settling disputesover securities transactions inthe court system. The NYSEadministers this service.

Asset —

Anything a person,company, or group owns or isowed, including money,investments and property.

Assignment —

Notice to anoption writer that an optionholder has exercised the optionand that the writer will now berequired to deliver (receive)under the terms of the contract.

Auction Market —

The systemof trading securities throughbrokers or agents on anexchange such as the NewYork Stock Exchange. Buyerscompete with other buyerswhile sellers compete withother sellers for the mostadvantageous price.

Auditor’s Report —

Oftencalled the accountant’sopinion, it is the statement of the accounting firm’s work andits opinion of the corporation’sfinancial statements, especiallyif they conform to the normaland generally accepted practices of accountancy.

Averages —

Various ways of measuring the trend of securities prices, one of themost popular of which is theDow Jones average of 30industrial stocks listed on theNew York Stock Exchange.The prices of the 30 stocks aretotaled and then divided by adivisor that is intended tocompensate for past stock splits and stock dividends andthat is changed from time totime. As a result, point changesin the average have only thevaguest relationship to dollarprice changes in stocksincluded in the average. (alsosee

NYSEComposite Index

)

Averaging —

(see

Dollar CostAveraging

)

Balance Sheet —

Acondensedfinancial statement showing thenature and amount of acompany’s assets, liabilitiesand capital on a given date. Indollar amounts the balancesheet shows what the companyowned, what it owed, and theownership interest in thecompany of its stockholders.(see

Assets, Earnings Report

)

Basis Point —

One gradationon a 100-point scale represent-ing one percent; usedespecially in expressingvariations in the yields of bonds. Fixed income yieldsvary often and slightly withinone percent and the basis pointscale easily expresses thesechanges in hundredths of onepercent. For example, thedifference between 12.83% and12.88% is 5 basis points.

Bear —

Someone who believesthe market will decline. (see

Bull

)

Bear Market —

Acondition of the stock market when pricesof stocks are generallydeclining.

B

Bearer Bond —

Abond thatdoes not have the owner’sname registered on the booksof the issuer. Interest and prin-cipal, when due, are payable tothe owner (see

Coupon Bond,Registered Bond

)

Bid and Asked —

Oftenreferred to as a quotation orquote. The bid is the highestprice anyone wants to pay for asecurity at a given time, theasked is the lowest priceanyone will take at the sametime. (see

Quote

)

Block —

Alarge holding ortransaction of stock

—

popularly considered to be 10,000 shares ormore.

Blue-Chip Stock —

Stock in acompany with a nationalreputation for quality,reliability and the ability tooperate profitably in good andbad times.

Blue Sky Laws —

Apopularname for laws various stateshave enacted to protect thepublic against securities fraud.The term is believed to haveoriginated when a judge ruledthat a particular stock hadabout the same value as apatch of blue sky.

Bal– BluArb – Ave

23

Bond —

Basically an I.O.U. orpromissory note of a corpora-tion or municipality, usuallyissued in multiples of $1,000or $5,000. Abond is anevidence of debt on which theissuing company usuallypromises to pay the bondholdera specified amount of interestfor a specified length of time,and to repay the loan on theexpiration date. Abondholder is a creditor of the corporation,not a part owner as is theshareholder.While the interestpaid on corporate bonds isfully taxable, the interest onmunicipal bonds is usuallyexempt from federal incometax and state and local taxeswithin the state of the issue.

Book Value —

An accountingterm. Book value of a stock isdetermined from a company’srecords, by adding all assetsthen deducting all debts andother liabilities, plus theliquidation price of anypreferred issues. The sumarrived at is divided by thenumber of common sharesoutstanding and the result isbook value per common share.Book value of the assets of acompany or a security mayhave little relationship tomarket value.

Booths —

About 1,400workspaces, each equippedwith a computer system,around the perimeter of theTrading Floor where memberfirms and independent brokersreceive orders.

Borrowing —

Away of acquiring necessary capital.One form of borrowing iswhen an individual or acompany asks a bank to loanthem a certain amount of money, over a certain periodof time, and agrees to pay acertain amount of interest.

Broker —

An agent whohandles the public’s orders tobuy and sell securities,commodities or otherproperty. For this service acommission is charged.

Broker Booth Support System(BBSS) —

Astate-of-the-artorder-management systemdesigned exclusively forNYSE members. BBSS en-ables member firms to quick-ly and efficiently process andmanage their orders andselectively route orders viaSuperDot directly to eitherthe trading post or the boothson the NYSE Trading Floor.

Brokers’ Loan —

Moneyborrowed by brokers frombanks or other brokers for avariety of uses. It may beused by specialists to helpfinance investments of stock they deal in; by brokeragefirms to finance theunderwriting of new issues of corporate and municipalsecurities; to help finance af irm’s own investments;and to help finance the purchaseof securities for customerswho prefer to use thebroker’s credit when they buysecurities. (see

Margin

)

Bull —

One who believes themarket will rise. (see

Bear

)

Bull Market —

Acondition of the stock market when prices of stocks are generally rising.

Buttonwood Agreement —

A1792 trade agreement bandingthe original 24 brokers in NewYork together into an invest-ment community.Theagreement was named for aButtonwood tree that served astheir informal meeting place onWall Street.

Buy Side —

An institution whobuys services from abroker/dealer, i.e., pays acommission on the executionof an order.

Call —

(see

Option

)

Callable —

Abond issue, all orparts of which may beredeemed by the issuingcorporation under specif ied conditions before maturity. Theterm also applies to preferredshares that may be redeemed bythe issuing corporation.

Capital Gain —

Profit made onsecurities, either throughdividends or by selling thesecurities for a higher price thanthey originally cost.

Capital Stock —

All sharesrepresenting ownership of abusiness, including preferred

C

and common. (see

CommonStock, Preferred Stock

)

Capitalization —

Total amountof various securities issued bya corporation. Capitalizationmay include bonds, debentures,preferred and common stock, andsurplus.

Cash Flow —

Reported netincome of a corporation plusamounts charged fordepreciation, depletion,amortization, extraordinarycharges to reserves, which arebookkeeping deductions andnot paid out in actual dollarsand cents. (see

Amortization,Depreciation

)

Cash Sale —

Atransaction onthe floor of the Stock Exchange that calls fordelivery of the securities thesame day. In “regular way”trades, the seller is to deliveron the third business day,except for bonds, which are thenext day. (see

Regular WayDelivery

)

Certificate —

The actual pieceof paper that is evidence of ownership of stock in acorporation. Watermarkedpaper is finely engraved withdelicate etchings to discourageforgery.

Certificate of Deposit (CD) —

An agreement with a bank thatyou will leave your money ondeposit for a specified periodof time in return for a specificamount of interest.

Bul – CerBon – Bro

45

Category:	How-To Guides/Manuals
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Upload Date:	12/30/2009
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Tags:	mutual fund glossary mutual fund glossary (fewer)

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