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6.0 Using PFROI You should now be familiar with the mechanics of operating PFROI. This section is intended to give you the information needed to get useful results. 6.1 Return on Investment Return on investment (ROI) is one of the most common measures of investment performance. It is computed by PFROI using the internal rate of return method. If not familiar with using or computing ROI, it is easiest to think of it as the effective annual interest rate on an investment. The effective annual interest rate you receive on a savings account or money market fund is in fact the ROI on that account or fund. PFROI computes the return on investment on a port- folio by determining the annual interest rate which would generate an identical ending value in a savings account with the same history of deposit and with- drawal of funds as the portfolio. The ROI on an individual security is computed in a similar fashion except that in lieu of deposits and withdrawals, security transactions are reduced to "cash flows" and the resulting cash flows (plus start valuation and ending valuation) are used to compute the ROI. In reviewing ROI results you should be aware that over short periods (e.g. a day, week, or month), seemingly small price movements (e.g. $2 on a $20 stock) can result in a large absolute ROI values when annualized. The lowest possible ROI is -100% (loss of all your investment). You should also note that a meaningful ROI cannot be computed for individual securities involved in short sale transactions, and may result in a "Convergence failure" message. This is because short transactions have open-ended investment risk. Short transactions generally however will not impede portfolio ROI computations. 6.2 Defining the Portfolio Before starting a portfolio file, you should define the portfolio to yourself. This will help to prevent errors in determining the correct entries to make to the portfolio file. The transactions most susceptible to error in this regard are "deposit" and "withdraw" transactions. 2-23 _ 6.2 Defining the Portfolio (cont'd.) To define the portfolio, first consider it as a separate financial entity from yourself. Now define which of your assets are to be included in the portfolio. It may include a single brokerage account or may include several types of accounts. Some possibilities include: a) Securities (stocks, bonds, T-bills, etc) and funds held in an account with a broker. b) Securities held in a safe deposit box. c) A money market account. d) A mutual fund account/holdings. e) A stock subscription account (e.g., a dividend reinvestment plan). f) A savings account or C.D. g) Partnership interests or real estate holdings. 6.3 Deposit/Withdrawal Rules Once the portfolio is defined, you can determine what transactions involve "deposit" or "withdrawal" of funds to or from the portfolio. The basic rules to follow are: a) Enter a "deposit" transaction whenever the portfolio owner (you) adds funds to a portfolio account. b) Enter a "withdraw" transaction whenever the portfolio owner (you) removes funds from a portfolio account. Note that if funds are transferred from one account within the portfolio to another account within the portfolio, it is good practice to enter a "withdraw" transaction from the first account and a "deposit" transaction to the second account. This may seem unnecessary because the value of the overall portfolio remains unchanged. However it ensures accurate recording of any time lag that might occur between the withdrawal and deposit transaction. It also facilitates any later reconciliation with account statements. 2-24 _ 6.3 Deposit/Withdrawal Rules (cont'd.) As an example, assume that the portfolio is defined to consist of a brokerage account, securities in a safe deposit box, and a money market account (separate from the brokerage account). Some possible "deposit" and "withdraw" transactions with this portfolio are as follows: a) You send a $2000 personal check to your broker to credit to your account. This is a "deposit" transaction because new funds are being added to the portfolio. Note: This is a "deposit" transaction even if the $2000 is to pay for 100 shares of "XYZ " you just bought. In this case you must also enter a "buy" transaction. The "buy" transaction will debit the portfolio for the $2000 and credit it for the 100 shares. The net effect is that the $2000 credit of the "deposit" offsets the $2000 debit of the "buy" leaving the portfolio with a net gain of 100 shares. b) Your broker sends you $3000 from your account. This is a "withdraw" transaction because funds are being withdrawn from the portfolio. Note: This is a "withdraw" transaction even if the $3000 are proceeds from the sale of 100 shares of "XYZ". In this case you must also enter a "sell" transaction. The "sell" trans- action credits the portfolio for the $3000 received from the sale, and debits the portfolio for the shares sold. The net effect is that the $3000 debit of the "withdraw" transaction offsets the $3000 credit of the "sell" transaction. The cash balance is unchanged, but the portfolio now has 100 fewer shares of "XYZ". c) You send a check for $7000 from your money market fund to your broker to credit your brokerage account. This is a "withdraw" transaction from the money market fund (enter fund name in security field) and a "deposit" transaction to the brokerage account (enter broker name in security field). 2-25 _ 6.3 Deposit/Withdrawal Rules (cont'd.) d) You receive a $60 quarterly dividend check from AT&T for the 200 shares you hold in your safe deposit box. You deposit the check in your checking account (not part of your portfolio!). Ordinarily two transaction entries would be needed: 1) A "dividend earned" (DV+) transaction to indicate that the dividend was received. 2) A "withdraw" (WDF) transaction to indicate that the funds were removed from the portfolio. However, since this situation occurs frequently, a transaction code, "DV$" is provided which combines both of these transactions. A similar code, "IN$", is also provided for interest payments (e.g. on bonds) which are not retained in your portfolio. Note, however, that if the stock in this example was in your brokerage account and the dividend was received and retained in your brokerage account, only a "DV+" transaction would be required. 6.4 Starting the Portfolio To start the portfolio file, gather records of portfolio transactions you've made to date. Old tax schedules B and D are good sources for these if your cannot find all of your old broker statements or transaction slips. Use "Load Portfolio" on PFROI's main menu to create the new portfolio, then select "Transactions" to input your transaction records. The first transaction entered generally should be a "deposit" or "receive" transaction to initialize the portfolio at a positive value. Enter subsequent transactions until the portfolio is up to date. Refer to section 6.5.2 if uncertain about the proper transaction code to use, or to section 6.8 if you have a special situation such as inherited stock. 2-26 _ 6.4 Starting the Portfolio (cont'd.) When done entering transactions, use the "Sort" command (Alt+S) to sort the transactions in case some were entered out of date order. It is possible to simplify the startup process if you are willing to dispense with portfolio history. To do this, however, you must still establish your current portfolio position and the purchase dates and costs associated with securities currently held. The process is as follows: 1) Determine the "buy" date and purchase cost of all securities currently in the portfolio. (This is not redundant effort, you will need this information for the IRS when you sell). Enter the data using the "RCV" (Receive) transaction. 2) Enter your portfolio's latest reported cash position as a "deposit" transaction using the date on which the cash position was reported as the transaction date. On completion of initial portfolio data entry, go to the "Valuation" screen and do an "add valuation". Check the results versus your latest broker state- ments or other records. If you find a valuation discrepancy, check to see that prices in the valuation are the same as on the broker statement being used for comparison. If there is a discrepancy in share position, a share transaction such as a buy, sell or split was probably inadvertently omitted. 6.5 Transactions 6.5.1 Update Frequency The normal frequency for PFROI portfolio updates is monthly, when you receive your broker statement. The typical investor should not require much more than five to fifteen transactions per month, involving no more than ten to fifteen minutes per month. More time will be required if you have several brokers, multiple portfolios or are a heavy trader. 2-27 _ 6.5.2 Transaction Codes (TAC) Valid transaction codes and their use are as follows: DPF DePosit Funds - Use whenever portfolio owner adds funds to a portfolio account. Example: You send a $3500 check to your broker to credit to your account: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 7/ 8/84 DPF Chk #345 3500.00 WDF WithDraw Funds - Use whenever portfolio owner removes funds from a portfolio account. Example: You have your broker send you a check for $5000 for a down payment on a new auto: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 12/ 7/83 WDF brkr acct -5000.00 IN+ INterest earned - Use whenever interest is credited to and retained in a portfolio account. Example: Your broker credits $33.18 interest to your account for the cash balance in your account, and you receive a $77.25 interest payment on an AT&T bond held in your account. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 8/19/82 IN+ ML MLynch 33.18 9/ 2/82 IN+ ATT AT&T 3/90 77.25 IN- INterest charged - Use whenever a portfolio account is debited for interest. Example: Your broker charges your margin account for $29.48 interest on margin borrowing: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 3/31/79 IN- ML MLynch -29.48 2-28 _ 6.5.2 Transaction Codes (TAC) (cont'd) IN$ INterest ca$hed - Interest earned, but cashed rather than retained in portfolio. Example: You receive a semi-annual interest payment on a T-bill in your portfolio and deposit it in your checking account, which is not part of your portfolio. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 3/31/90 IN$ TB-1 T-Bill #1 300.00 BUY BUY security - Use whenever a security (stock, bond, T-bill, option, etc) is purchased into the portfolio. Example: 100 shares of IBM is purchased at $120. The broker charge plus local transaction taxes is $180.25. This is your first purchase of IBM: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 9/14/84 BUY IBM 1 IBM 100 -12180.25 SLL SelL security held Long - Use whenever a security is sold from the portfolio. Example: The 100 shares of IBM in the previous example are sold at 137. The broker charge plus local transaction taxes are $210.35: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 1/29/85 SLL IBM 1 IBM -100 13489.65 DV+ cash DiVidend earned - Use whenever the port- folio is credited with a dividend. Example: A quarterly dividend of $58.50 on 225 shares of RCA in the portfolio is received: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 1/ 1/83 DV+ RCA RCA 58.50 2-29 _ 6.5.2 Transaction Codes (TAC) (cont'd) DV- cash DiVidend charged - Use whenever the port- folio is debited for a dividend on a stock held short. Example: The portfolio is charged for the $40 quarterly dividend on 100 shares of ABC held short: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 10/15/84 DV- ABC ABC -40.00 DV$ DiVidend ca$hed - Dividend earned, but cashed rather than retained in portfolio. Example: You receive a dividend payment on AT&T stock you hold in your deposit box. You deposit the payment in a bank account which is not part of your portfolio. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 3/15/82 DV$ ATT AT&T div 73.25 SP+ SPlit Long - Use whenever stock held long in the portfolio splits or has a stock dividend. Fractional shares may be entered up to 4 decimal places. If given cash in lieu of a fractional share, the cash amount should be entered as a dividend transaction, with a manual "est. tax" entry of zero, if you determine the payment is tax free under current law. Example: The portfolio receives 112 shares plus cash in lieu of .5 shares from RCA as a result of a 3 for 2 stock split on your holding of 200 shares: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 8/15/85 SP+ RCA RCA 112 8/15/85 DV+ RCA RCA 15.25 0m 2-30 _ 6.5.2 Transaction Codes (TAC) (cont'd) SP- SPlit short - Use whenever stock held short in the portfolio splits or has a stock dividend. Example: Your broker debits your portfolio 100 shares of ABC as a result of a 100% stock dividend declared while the portfolio holds a 100 share short position: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 6/15/78 SP- ABC AmBroad -100 SLS SelL Short - Use whenever security sold short. Example: 100 shares of ABC is sold short at $75/share. The broker charge plus transaction taxes is $125.50. This is the third short sale transaction in ABC: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 1/27/85 SLS ABC 3 AmBroad -100 7374.50 BYC BuY to Cover - Use whenever a security is pur- chased to cover a short position. Example: The short sale in the above example is covered at 61 with a broker charge of $134.00. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 2/25/85 BYC ABC 3 AmBroad 100 6134.00 CGD Capital Gains Distribution - Use when a capital gains distribution is received, such as from a mutual fund. Capital gains distributions are taxed at capital gains rates. Use "SGD" for short term capital gains distributions. Example: You receive $640 year-end capital gains distribution from your mutual fund. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 12/31/85 CGD MFUND Mut. Fund 640.00 2-31 _ 6.5.2 Transaction Codes (TAC) (cont'd) DRI Dividend ReInvestment - Use for dividend rein- vestment. This combines both a "DV+" and "BUY" transaction and thus requires lot number, quantity and amount inputs. For a long position the amount value is positive. Example: Your mutual fund reinvests quarterly dividends of $345.34 for 31.45 shares: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 4/02/85 DRI MFUND 15 Mut. Fund 31.45 345.34 Note that eventually each "DRI" transaction must be closed with a corresponding "SLL" transaction. See section 6.5.4 for examples of use of lot numbers with "DRI" type transactions. IRI Interest ReInvestment - Use for interest rein- vestment. Like the DRI transaction this requires lot number, quantity and amount inputs. Lots must also be eventually closed. Example: A tax exempt bond fund reinvests interests payments: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 5/22/85 IRI BF 2 Bond Fund 11.135 1285.25 0m CGR Capital Gains Reinvestment - Similar to the "DRI" transaction except gets capital gains distri- bution tax treatment. Use "SGR" for short term gains reinvestment. Example: Your mutual fund reinvests capital gains: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 12/31/85 CGR MFUND 19 Mut. Fund 869.3841 9867.51 2-32 _ 6.5.2 Transaction Codes (TAC) (cont'd) ROC Return Of Capital - Use for return of capital. Cost bases are automatically readjusted in capital gains and position reports for this transaction. Example: A utility in which you own shares pays a dividend of $100 of which they advise you 45% is return of capital: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 6/15/85 ROC UTIL Util. ROC 45.00 0m 6/15/85 DV+ UTIL Util. Div. 55.00 FEE Management FEE - Use for charge to portfolio for managment fee or other maintenance expense. Example: You manage several portfolios for which you charge a monthly fee of $100: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 3/31/84 FEE monthly fee -100.00 RCV ReCeiVe shares - Use to indicate shares received at no cost, such as in an inheritance. Both quantity and amount entries are made, with the amount entry the value at the time received. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 6/ 1/85 RCV USBC 1 US Bancorp 300 7500.00 The acquisition date and cost basis of the stock may be specified in the description field using the format "&&5/25/84 $5400.25". If not so specified, the acquistion date and cost basis are assumed to be the transaction date and amount entries. SLL transactions may be matched with RCV transaction occuring up to one month later to account for delivery of shares to a broker after sale. 2-33 _ 6.5.2 Transaction Codes (TAC) (cont'd) DLV DeLiVer shares - Use to indicate shares delivered out of the portfolio. Both quantity and amount entries are made, with the amount entry the value on delivery date. If a a tax-free gift, a manual tax entry of zero is made. Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 12/ 1/85 DLV ATT 4 Char. Gift -300 -6125.00 0m PIN Phantom INterest - Use for imputed interest earned on zero coupon ("original issue discount") bonds. This entry is required to get correct tax reporting, but does not affect valuations. PFROI automatically adds phantom interest on the bond to its cost basis in order to generate correct capital gains. See section 6.8.8 for example of PIN code usage. DPR DePReciation - Use for depreciation on an asset. DPR transactions do not affect portfolio value, cash balances or before-tax ROI, but a negative amount decreases an asset's cost basis and positively affects after-tax ROI. A positive DPR transaction increases an asset's cost basis and may be used to reflect capital improvements. See section 6.8.11 for example of DPR usage. BRW BoRroW - Use for transactions involving borrowing of funds, such as for a mortgage. The BRW and repay (see RPY below) transactions are similar to SLS and BYC transactions. See section 6.8.11 for example of BRW usage. RPY RePaY - Use to close out a BRW transaction. In the case of a mortgage, RPY is used whenever principal is paid off. A RPY transaction requires a lot number which matches the associated BRW transaction. See section 6.8.11 for example of RPY usage. RNT ReNT - Use to indicate rent receipts from an asset. It functions similar to a DV+ or IN+ transaction. See section 6.8.11 for example of RNT usage. Appears on Misc. Inc. report. 2-34 _ 6.5.2 Transaction Codes (TAC) (cont'd) EXP EXPense - Use to indicate expenses associated with an asset. See section 6.8.11 for example of EXP usage. DST DiSTribution - Use for cash distributions from partnerships. Appears with rent on Misc. income report. TAX TAX adjustment - Use whenever a tax adjustment at year-end is needed to force total taxes in the "Est Tax" field for the year to equal Schedule D taxes on portfolio capital gains. Entries in the "Est Tax" field only affect the "After Tax ROI" and do not affect portfolio valuation or the "Income Summaries". SCO Short term loss CarryOver - Use whenever tax schedule D indicates a short term loss carryover. LCO Long term loss CarryOver - Use whenever tax schedule D indicates a long term loss carryover. TAX, SCO, and LCO records are automatically inserted by "AutoTax" so normally there should be no need for manual entries. However, if a manual entry is needed, the date 1/2/Yr must be used since 1/1/Yr is reserved for autotax generated carryovers. Note that the loss carryover amount is placed in the "Quantity" field of the transaction record. Note also that you may disable automatically generated "TAX" transac- tions in PFROI's "Configure" module. This may be desired to prevent the year-end adjustment from "distorting" after-tax ROI on performance reports. 6.5.3 Security Symbol (Symbol) PFROI uses the security symbol in the transaction record to uniquely identify a security. In general, the trading symbol of a security should be used in this field. If you are using CAPTOOL's communica- tions to download prices, symbols used must be compatible with those used by your pricing service. 2-35 _ 6.5.4 Tax Lot Number (L#) PFROI uses the tax lot number, along with the stock symbol, to match buy and sell transactions and short sale and cover transactions in order to compute capital gains. Depending on tax lot assignments, cost bases are computed on a "first-in, first-out" (FIFO), average cost, or lot specific basis. FIFO Cost Basis - Cost bases are computed on a FIFO basis if the same tax lot number is reused for multiple BUY, SLS, DRI, IRI or CGR transactions. The I.R.S. generally requires this approach when you didn't specify acquisition dates to your broker when you sell a security. This situation typically may occur when you've reinvested dividends and thus have many acquistion dates. For example: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 2/ 4/81 BUY XYZ 1 XYZ 2000 -110000.00 4/02/81 DRI XYZ 1 XYZ dri 25.503 1279.25 7/02/81 DRI XYZ 1 XYZ dri 27.824 1301.20 10/02/81 DRI XYZ 1 XYZ dri 30.120 1912.34 1/02/82 DRI XYZ 1 XYZ dri 33.225 2000.30 4/02/82 DRI XYZ 1 XYZ dri 27.780 1722.36 6/01/83 SLL XYZ 1 XYZ 2100 126400.00 The cost basis of the sale in this example will be the cost of the original 2000 shares plus the cost of the first 100 shares purchased through dividend reinvestment ($115489.36). Average Cost Basis - An average cost basis may be generated in two ways. The first is by omitting use of tax lot numbers altogther. This results in a "running average" cost such as required by Canandian tax law. A second method is to consolidate acquisitions into a single tax lot using deliver and receive transactions: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 2/ 4/81 BUY XYZ 1 XYZ 2000 -110000.00 4/02/81 DRI XYZ 1 XYZ dri 25.503 1279.25 7/02/81 DRI XYZ 1 XYZ dri 27.824 1301.20 10/02/81 DRI XYZ 1 XYZ dri 30.120 1912.34 1/02/82 DRI XYZ 1 XYZ dri 33.225 2000.30 4/02/82 DRI XYZ 1 XYZ dri 27.780 1722.36 4/03/82 DLV XYZ 1 Consol XYZ -2144.452 -118215.45 0m 4/03/82 RCV XYZ 2 2144.452 118215.45 6/01/83 SLL XYZ 2 XYZ 2100 126400.00 2-36 _ 6.5.4 Tax Lot Number (L#) (cont'd) The cost basis of the sale in this case will be the average cost of all shares acquired ($115764.97), resulting in a more favorable tax result. Lot-Specific Cost Basis - Lot-specific cost bases may be generated by assigning a new lot number to each acquisition transaction as follows: Mo/Dy/Yr TAC Symbol L# Description Quantity Amount Est. Tax == == == === ====== == =============== =========== ============ ======== 2/ 4/81 BUY XYZ 1 XYZ 2000 -110000.00 4/02/81 DRI XYZ 2 XYZ dri 25.503 1279.25 7/02/81 DRI XYZ 3 XYZ dri 27.824 1301.20 10/02/81 DRI XYZ 4 XYZ dri 30.120 1912.34 1/02/82 DRI XYZ 5 XYZ dri 33.225 2000.30 4/02/82 DRI XYZ 6 XYZ dri 27.780 1722.36 6/01/83 SLL XYZ 1 XYZ 2000 120380.95 6/01/83 SLL XYZ 2 XYZ 8.875 534.19 6/01/83 SLL XYZ 4 XYZ 30.120 1812.94 6/01/83 SLL XYZ 5 XYZ 33.225 1999.82 6/01/83 SLL XYZ 6 XYZ 27.780 1672.09 The cost basis in this case is $116080.18, providing the most favorable tax result for the example. Note however that use of lot-specific cost bases requires documentation of acquisition dates on your broker trade notices for the I.R.S.. Tax lots which have been closed-out may be re-used. 6.5.5 Transaction Charges Commission charges and transaction taxes should be included in the "Amount" entry for "Buy", "Sell", "Buy to Cover", and "Sell Short" transactions. 6.5.6 Manual Tax Input Most PFROI users will not need to manually input estimated taxes for transactions. Occasionally, however, there are special situations due to the complexity of our tax laws which require manual tax input. One of these, for example, involves a tax exemption on dividend reinvestment in public utilities (now expired). You may have other special tax situations where a manual tax input is required to produce the correct estimated tax. Note that a manual tax entry of "zero" may be entered to 2-37 _ 6.5.6 Manual Tax Input (cont'd) designate a transaction as tax free. These "tax free" transactions will not be reported on the dividend, interest, or capital gains reports. 6.6 Tax Rates Before you start using PFROI's "AutoTax" feature, you should update PFROI's initial default tax rate records (Alt+R from transaction screen) to reflect your own marginal tax rates. Since your personal tax rate may vary from year to year, you should insert a tax rate record for each year in which your portfolio is active. The date of this record should be January 1st. The reason for this is that whenever AutoTax is invoked, PFROI searches for the first tax rate record chronologically prior to the transaction. Setting the record date to 1/1 thus ensures that the record applies for the whole year. An exception to this rule is whenever there is a mid-year tax law change, as occurred in 1984. 6.7 Valuations PFROI stores a total of 64 valuations. It is recommended that valuations be kept on a yearly basis except for the current year, for which you may wish to keep more frequent valuations. Use the "Delete" valuation command to delete old valuations. Valuations are normally computed from the valuation indicated by the "Base Date" displayed in the display header. The base date accordingly must preceed any new valuation added using the "Add" valuation command (Alt+A). The base date may be changed by using the Alt+B command. The default base date may be selected from the "Configure" menu as either the last valua- tion date or the day before the first transaction date. ******************** Important ******************** Whenever a transaction is modified or a new transaction inserted, all subsequent valuations must be regenerated using the "Add" command to incorporate the change. This is a good reason to be careful to not overlook transactions or make entry errors when inputting original transaction data. Fortunately, when valuations must be regenerated, market prices in the original valuation are retained and thus do not need to be re-keyed. 2-38 _ 6.8 Special Situations (included with licensed disk) 6.8.1 IRA's and Keogh Accounts 6.8.2 Mutual Funds 6.8.3 Stock Options (Puts and Calls) 6.8.4 Employee Stock Options 6.8.5 Gifts/Inheritance 6.8.6 Wash and Short Sale Tax Rules 6.8.7 Exchanges of Securities (Mergers/Divestitures) 6.8.8 Money Market Funds 6.8.9 Zero Coupon Bonds 6.8.10 Premium Amortization 6.8.11 Split Shares Received After Sale 6.8.12 Depreciable Assets 2-39 _ 7.0 Update Order Information New users may obtain licensed PFROI (V3.x), or other Techserve, inc. software (described below) using order form contained in shareware program. Add $3 for 3 1/2" disk. Prices subject to change. PFPRO - Professional/Institutional Client & Portfolio mgmt STOCKPRO - Risk-adjusted DCF Stock valuation (a.k.a. STOCKPAR) BONDPRO - Bond swap evaluation. CAPTOOL - Integrated PFROI(V3.x)/STOCKPRO/ BONDPRO plus communications including Dow Jones, Compuserve, Genie updates, batch operations, multiple portfolio ROI, client mgmt. and other features. Send payment with name and address to: Techserve, inc., POBox 70056, Bellevue, WA 98007, USA or call (206) 747 5598. (Chk, VISA or MC accepted). Licensed (registered) users may obtain PFROI (or CAPTOOL, if applicable) update disks for $7, ($15 for OS/2 protected mode version, when available). Notice of updates and update software which may be unlocked by registrant's keycode may also be available on Compuserve's Investors Forum or other electronic media. Inquire also about foreign language versions. 8.0 Purchase Terms and Limited Warranty Purchase of diskettes containing software described above licenses purchaser to use software and make multiple backup copies provided only one copy is used at any one time. "Shareware" or "demo" versions may be copied and transferred provided they are unaltered and provided any charges to recipient are limited to cost of media and handling. Software contained on diskettes purchased is provided "as is". Purchasers should ascertain to their own satisfaction that software produces acceptable results and performs to expectations. If not satisfied, return diskettes and manuals (if included) in original condition to dealer, or to Techserve, Inc., if purchased direct, within guarantee period for refund of purchase price. Refund excludes shipping and handling charges, is subject to a 10% restocking charge and voids user license. This warranty is in lieu of all others, express or implied. Refund does not apply to shareware. 2-40 _ Appendix A-1 Record Structure PFROI version 2.20 and higher use the following record structure (70 bytes): Field # bytes Description ------ ------- ------------------------- RecType 1 Record Type (0=Tax;1=TA;2=Pos/Prc;3=Val) Month 1 Month Day 1 Day Year 2 Year TAC 1 Transaction code index Symbol 7 Security symbol (6 char string) Remainder of record depends on type: RecType=0 RecType=1 RecType=2 RecType=3 --------- --------- --------- --------- Tax Type 1 Lot 2 Cost Base 6 Val Cost 6 Flags 1 Quantity 6 Position 6 Valuation 6 HldReqt 6 Amount 6 Price 6 Fill 6 CGrate 6 Tax 6 Flags 2 Cash 6 LossLim 6 Decimal 1 IC code 1 Fill 6 TaxRate 6 Flags 2 Sec Type 1 Fill 6 Filler 31 Descrip. 34 Descrip. 23 Fill 6 Beta 6 Flags 2 Valuation 6 Fill 13 ******************* IMPORTANT! ******************** Portfolio data files formed using pre-2.20 versions of PFROI must be converted using the program "PFRUTIL" which may be accessed by selecting "Utilities" in the "Configuration" menu (or the program "CONVERT.COM") The maximum number of records (of all types) which can be contained in one portfolio is dependent upon your PC's installed memory. About 2000 records can be handled with 256K-bytes RAM, and about 5000 records with 640K-bytes RAM. Old records may be archived using the "Archive" command (Alt+A) from the transaction screen. A-2 Merging Portfolio Files Some users may find it convenient to keep trans- actions from separate accounts in separate portfolio files. The utility program "PFRUTIL.CHN" accessed through the "Utility" option in the "Configure" module permits you to merge these separate files into a single file for income reporting and ROI calculation. Prior to "merging" check to be sure there is sufficient space for the resulting output file. After merging you should check valuations for consistancy versus those in the two input files. 2-41 _ A-3 Error Check List (Common PFROI mistakes) --------------------------------------------------- Symptom : Valuation doesn't include some transactions. Possible Causes : 1) You failed to re-do the "Add" (Alt+A) valuation command after entering or modifying the transaction(s). Portfolio positions are only recomputed by doing an "Add" command; they are NOT re-computed with a "Review" (Alt+R) command. 2) Transaction(s) are incomplete (missing data). Incomplete transactions are excluded from portfolio position calculations. Check for incomplete transactions by sorting (Alt+S), they will go to the bottom of the transaction list. 3) Transactions are out of date order. This can occur when editing dates or when inserting or editing transactions with the "Symbol Mask" set "On". Set the mask to "ALL***", sort, then try the "Add" valuation command. 4) The "Base Date" when doing an "Add Valuation" was set AFTER transactions which where inserted or modified. The "Base Date" must be set to a date before a transaction for that transaction to be picked up by an "Add Valuation" calculation. ---------------------------------------------------- Symptom : Valuation appears to have reversed signs in summing some transactions. Possible Cause : You changed transaction codes (e.g. a BUY to a SLL) without re-entering quantity or amount. As a result signs are reverse of what they should be. Recheck transactions for proper signs. 2-42 _ A-3 Error Check List (Cont'd) ---------------------------------------------------- Symptom : Very large ROI result. Possible Causes: 1) The result may be real if a security experienced a large jump in value over a short period of time. For example, a 10% rise in one week generates an annualized ROI of about 13700%. In general, drawing conclusions from ROI results over short periods is meaningless. 2) You are trying to compute ROI for a short sale type of transaction on an individual security. There is no meaningful ROI for such a transaction because there is no amount initially "invested". 3) You are doing an ROI without specifying a start or end date for which there is a valuation. In such case PFROI attempts to computed an estimated valuation, but results are unpredictable. ----------------------------------------------------- Symptom : Reports won't print. Possible Causes : 1) You haven't specified "Base" or "Close" dates for which the portfolio has valuations. 2) Invalid portfolio name. Portfolio filename must consist of a prefix of no more than 8 characters and an extension of no more than 3 characters, with no spaces. (Path may preceed filename). 3) You are trying to print valuation graphics and your printer is not set on "Program". ----------------------------------------------------- Symptom : Reports are missing transactions. Possible Cause : Transactions are out of date order. Sort them. 2-43 _ Shareware Support Required! --------------------------- If you've gotten this far, chances are that you are going to give this program a serious try. This message is for you. Most useful shareware, with few exceptions, represent the effort of one or a few individuals who've forsaken secure employment to perfect a software idea they feel has not been adequately addressed in the commercial market. Besides bare minimum living expenses, expenses involved in this kind of effort easily can easily run well into five figures (telephone, office, printing, postage, equipment, supplies, advertising) annually, even before the developer starts receiving any returns. Many promising shareware efforts have foundered or ceased to progress beyond initial versions due to inability to cover these expenses. With the advent of a new PC operating system (OS/2) and a new generation of hardware (386 machines), you the shareware user, through your support (or lack thereof) have a say in determining whether the shareware you use will also make the next step up in capability. If your collective support is forthcoming through registrations, this author is certain that reasonably priced upgrades will be available, including from this author. If not, welcome back to expensive, buy-before-you-try, no-money-back computing! Robert N. Hobbs Techserve, Inc. Bellevue, WA 12/87 P.S. Please don't telephone us if you are not a registered user unless you intend to register with the call. This just hinders development of new products and increases costs to those who do register. Written inquiries for information, however will be responded to promptly.