Monster Media 1996 #15

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WHAT TO LOOK FOR IN A MUTUAL FUND PROSPECTUS ------------------------------------------------------------------------------- Federal law requires that all mutual funds provide a prospectus to potential buyers. The prospectus must disclose certain important information to enable the potential investor to make an informed decision. Here are the more relevant points to examine, according to the Institute of Certified Financial Planners: 1. The date of issue. A prospectus is issued annually, with semi-annual and sometimes quarterly updates. Make sure you have the most recent issue. 2. The minimum investment. If you can't afford a mutual fund's minimum, read no further in the prospectus. 3. Investment objectives and methods. What does the fund strive for. Current income, income and growth, long-term price appreciation? Does it try to accomplish this primarily through stocks, bonds, short-term instruments or a combination? What type of stocks or bonds? Does it include foreign investments? Read this section carefully, since some funds may be categorized incorrectly in investment publications. Make sure the fund's objectives fit yours. 4. Investment restrictions. A mutual fund prospectus should indicate what type of things the fund won't invest in, or restrictions on what percentage it can invest in certain sectors. 5. Risk factors. The description of risk factors such as volatility and interest-rate sensitivity should give you a good idea of the riskiness of the fund. 6. Fund performance. The prospectus includes a 10-year (or the life of the fund, if shorter) financial statement from which you can calculate the fund's performance history. 7. Taxes. A mutual fund prospectus should explain the tax consequences of the investment for the shareholder. 8. Fees and operating expenses. Are there fees for purchasing, exchanging or redeeming shares? Marketing (12b-1) fees? How high are transaction costs and management fees? Measure these costs against those of comparable funds. Consistently high fees can hurt performance. 9. Fund management. Who's running the show? What's their experience? You may need to ask for a Statement of Additional Information to find out. 10. Services. Does the fund offer automatic investing or check writing? How do you open and close an account? Are there trading or exchange restrictions? A prospectus may be dry reading, but it's invaluable for making the right decision. Proposed SEC rules would allow summary prospectuses to be printed in fund advertisements in lieu of providing a full prospectus. Don't be tempted. Get the full document before investing. =============================================================================== TERMS DEFINED =============================================================================== 10-K INVENTORY 12B-1 FEES IRA/KEOGH ACCOUNTS ALPHA LAST SPLIT ALPHA EQUATION LIMIT ORDER AMERICAN-STYLE OPTION LOAD MUTUAL FUND ANALYST LONG POSITION ANNUAL REPORT LONG POSITION (OPTIONS) ARBITRAGE LONG TERM ASSETS ARMS INDEX LONG TERM DEBT ASSIGNMENT LONG TERM DEBT/CAPITALIZATION AT-THE-MONEY LONG TERM LIABILITIES AUTOREGRESSIVE LOW PRICE AVERAGE MANAGEMENT/CLOSELY HELD SHARES AVERAGE MATURITY MARGIN ACCOUNT (STOCKS) AVERAGE WEEKLY VOLUME MARGIN REQUIREMENT (OPTIONS) BACK OFFICE MARKET CAP BANKER'S ACCEPTANCE MARKET CYCLE BASIS MARKET ORDER BASIS POINTS MINIMUM PURCHASES BEAR MONEY MARKET FUND BEAR RAID MOVING AVERAGE BETA (MUTUAL FUNDS) MUTUAL FUND BETA EQUATION (MUTUAL FUNDS) MUTUAL FUND TRACKER BETA (STOCKS) NET ASSET VALUE (NAV) BETA EQUATION (STOCKS) NET INCOME BLOW-OFF TOP NM BREAKOUT NO LOAD MUTUAL FUND BULL NOISE BULL MARKET OBJECTIVE (MUTUAL FUNDS) BUYOUT OPEN INTEREST CALL OPTION OPENING PURCHASE CAPITAL EXPENDITURES OPENING SALE CAPITAL GAIN OPTION CAPITAL LOSS OTHER CURRENT ASSETS CASH AND EQUIVALENTS OTHER LONG TERM LIABILITIES CASH DIVIDEND OUT-OF-THE-MONEY CHANGES IN FINANCIAL POSITION OVERBOUGHT\OVERSOLD INDICATOR CHURNING PAYMENT DATE CLOSING PURCHASE PHONE SWITCHING CLOSING SALE PIVOT COMMISSION POINT AND FIGURE CHART COMMON STOCK/OTHER EQUITY PREFERRED STOCK CONFIDENCE INDICATOR PREMIUM CONFIDENCE LEVEL PRICE/BOOK RATIO CONFIRMATION PRICE/EARNINGS RATIO CONVERGENCE P/E RATIO CORNER A MARKET PRICE/SALES RATIO COUPON RATE PRICES COVERED CALL PRIMARY MARKET COVERED PUT PROFIT MARGIN CURRENT ASSETS PROGRAM TRADING CURRENT LIABILITIES PROSPECTUS CURRENT RATIO PROXY CURRENT YIELD PUT OPTION DAY ORDER QUICK RATIO DEBT/EQUITY RATIO RANGE DECILE RANK RATE OF RETURN DECLARATION DATE RECORD DATE DEFERRED TAXES REDEMPTION CHARGE DEPRECIATION RELATIVE STRENGTH DERIVATIVE SECURITY RETRACEMENT DETREND RETURN ON ASSETS (ROA) DIFFERENCE FROM S&P RETURN ON EQUITY (ROE) DISTRIBUTIONS REVERSE STOCK SPLIT DIVERGENCE RIGHTS OFFERING DIVIDEND SALES CHARGE DIVIDEND REINVESTMENT PLAN SEC DIVIDEND YIELD (MUTUAL FUNDS) SECONDARY MARKET DIVIDEND YIELD (STOCKS) SELLING SHORT DIVIDENDS PER SHARE SERIES DOWNGRADE SETTLEMENT DATE EARNINGS SHARE REPURCHASE EARNINGS PER SHARE (EPS) SHORT POSITION (OPTIONS) EARNINGS YIELD SHORT POSITION (STOCKS) EQUITY SHORT SALE EQUITY OPTIONS SIC EUROPEAN-STYLE OPTION SLIPPAGE EX-DIVIDEND DATE STOCK DIVIDEND EXCHANGE STOP ORDER EXECUTION STRIKE PRICE EXERCISE TICK INDICATOR EXPENSE RATIO TIME VALUE EXPIRATION CYCLE TOTAL REVENUE EXPIRATION DATE TRADE FREE CASH FLOW TRADE DATE FREE CASH FLOW PER SHARE TRADING RANGE FUND FAMILY TURNOVER RATIO FUND MANAGER TYPE FUTURES CONTRACT UNCOVERED CALL GOOD 'TIL CANCELED UNCOVERED PUT GROWTH RATES UNDERLYING SECURITY HEAD AND SHOULDERS VOLATILITY (MUTUAL FUNDS) HEDGING WALL STREET TRACKER HIGH PRICE W-TYPE BOTTOM HOLDING COMPANY WARRANT IN-THE-MONEY WASTING ASSET INDICATED DIVIDEND WITHDRAWAL PLAN INDICATED YIELD WRITER INDUSTRY YIELD INITIAL PUBLIC OFFERING (IPO) YIELD TO CALL INSIDE INFORMATION YIELD TO MATURITY INSTITUTIONAL HOLDINGS =============================================================================== DEFINITIONS =============================================================================== 10-K Annual report required by the SEC each year. Provides a comprehensive overview of a company's state of business. Must be filed within 90 days after fiscal year end. 12B-1 FEES The predetermined percent of a mutual fund's assets used to defray marketing expenses. The amount of the fee is stated in the fund's prospectus. Marketing fees are included in the expense ratio when there are no 12b-1 fees. 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 0.40%. A -0.6 means a fund's monthly return was 0.60% 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 months) b = beta of the fund x = rate of return for the S&P 500 y = rate of return for the fund 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. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K. 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. AVERAGE WEEKLY VOLUME This indicator is determined by adding the number of shares traded for the past week and dividing by the number of trading days in that week. 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 is a prolonged period of falling stock prices. BEAR RAID A situation in which large traders sell positions with the intention of driving prices down. BETA (MUTUAL FUNDS) The measure of a fund's risk in relation to the market. A 0.7 beta 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 BETA (STOCKS) Measure of a stock's risk in relation to the market. A 0.7 beta 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 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 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 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 DIVIDEND A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. 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. COMMISSION The fee paid to a broker to execute a trade, based on number of shares, bonds, options and their dollar value. In 1975, deregulation led to the creation of discount brokers, who charge lower commissions than full service brokers. 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--and do not offer an opinion on a stock. 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. 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 writer 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. DAY ORDER An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered. DEBT/EQUITY RATIO Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long term debt by common stockholders' equity. DECILE RANK Performance over time, rated on a scale of 1-10. A 1 indicates that a mutual fund's return was in the top 10% of funds being compared, while a 3 means the return was in the top 30%. Objective Rank compares all funds in the same investment strategy category. All Rank compares all funds. DECLARATION DATE The date on which a firm's directors meet and announce the date and amount of the next dividend. DEFERRED TAXES A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid. DEPRECIATION A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long term assets over the useful life of the assets. DERIVATIVE SECURITY A financial security, such as an option, or future, whose value is derived in part from the value and characteristics of another security, the underlying security. DETREND To remove the general drift, tendency or bent of a set of statistical data as related to time. DIFFERENCE FROM S&P A mutual fund's return minus the change in the Standard & Poors 500 Index for the same time period. A notation of -5.00 means the fund return was 5 percentage points less than the gain in the S&P, while 0.00 means that the fund and the S&P had the same return. DISTRIBUTIONS Payments of fund earnings (dividends) or gains (capital gains). Distributions can be made by check or by investing in additional shares. Funds are required to distribute gains (if any) to shareholders at least once per year. Technical analysts look on a pattern of distribution as a tipoff that the stock will soon fall in price. DIVERGENCE When two or more averages or indices fail to show confirming trends. DIVIDEND Distribution of a portion of a company's earnings to shareholders, in cash or additional stock. DIVIDEND REINVESTMENT PLAN Automatic reinvestment of shareholder dividends in more shares of a company's stock. Dividend reinvestment plans allow shareholders to accumulate capital over the long term using dollar cost averaging. DIVIDEND YIELD (MUTUAL FUNDS) Indicated Yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not redemption charges. DIVIDEND YIELD (STOCKS) Indicated Yield represents annual dividends divided by current stock price. DIVIDENDS PER SHARE Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term. DOWNGRADE A classic negative change in ratings for a stock, and or other rated security. EARNINGS Net income for the company during the period. EARNINGS PER SHARE (EPS) Also referred to as Primary Earnings Per Share. Net income for the past 12 months divided by the number of common shares outstanding, as reported by a company. The company often uses a weighted average of shares outstanding over reporting term. EARNINGS YIELD The ratio of Earnings Per Share after allowing for tax and interest payments on fixed interest debt, to the current share price. The inverse of the Price/Earnings ratio. It's the Total Twelve Months Earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage. EQUITY The value of the common stockholders' equity in a company as listed on the balance sheet. EQUITY OPTIONS Securities that give the holder the right to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock. EUROPEAN-STYLE OPTION An option contract that can only be exercised on the expiration date. EX-DIVIDEND DATE The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. The length of time ensuing between the ex-dividend date and the date of actual payment may be up to a month. A stock that has gone Ex-Dividend is marked with an x in newspaper listings. EXCHANGE The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal US stock exchanges are: New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and the National Association of Securities Dealers (NASDAQ). EXECUTION The process of completing an order to buy or sell securities. Once a trade is executed, it is considered final. Settlement (payment and transfer of ownership) occurs between 1 and 5 days after an order is executed. EXERCISE To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security. EXPENSE RATIO The percentage of the assets that were spent to run a mutual fund (as of the last quarterly fund report). This includes expenses such as brokerage commissions, management fees, and overhead costs. Excludes 12b-1 fees. EXPIRATION CYCLE An expiration cycle relates to the dates on which options on a particular security expire. A given option will be placed in 1 of 3 cycles, the January cycle, the February cycle, or the March cycle. At any point in time, an option will have contracts with 4 expiration dates outstanding, 2 in near-term months and 2 in far-term months. EXPIRATION DATE The last day (in the case of American-style) or the only day (in the case of European-style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the 3rd Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday. FREE CASH FLOW Indicator of liquidity. Amount of cash produced or consumed by a company for a specific period. Useful in determining the company's ability to meet obligations, pay dividends and fund business expansion. FREE CASH FLOW PER SHARE Free cash flow divided by the number of common shares outstanding. FUND FAMILY The management company that runs and/or sells shares of the fund. Fund families often offer several funds with different investment objectives. FUND MANAGER The person who determines how mutual fund assets are invested. FUTURES CONTRACT Agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction. GOOD 'TIL CANCELED Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it. GROWTH RATES The amount a company grows, year by year. HEAD AND SHOULDERS In technical analysis, a chart formation in which a stock price reaches a peak and declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication. HEDGING A strategy designed to reduce investment risk using "call" options, "put" options, "short" selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the potential volatility of a portfolio, by reducing the risk of loss. HIGH PRICE The highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits. HOLDING COMPANY A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors. IN-THE-MONEY A "call" option is in-the-money if the strike price is less than the market price of the underlying security. A "put" option is in-the-money if the strike price is greater than the market price of the underlying security. For example, an XYZ "call" option with a 52 strike price is in-the-money when XYZ trades at 52 1/8 or higher. An XYZ "put" option with a 52 strike price is in-the-money when XYZ is trading at 51 7/8 or lower. INDICATED DIVIDEND Total amount of dividends that would be paid on a share of stock over the next 12 months if each dividend were the same amount as the most recent dividend. INDICATED YIELD The yield, based on the most recent quarterly rate times four. To determine the yield, divide the annual dividend by the price of the stock. The resulting number is represented as a percentage. INDUSTRY The category describing a company's primary business activity. This usually is determined by the largest portion of revenue. INITIAL PUBLIC OFFERING (IPO) A company's first sale of stock to the public. Securities offered in an IPO are often but not always those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. INSIDE INFORMATION Relevant information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it. INSTITUTIONAL HOLDINGS Institutional Holdings are those holdings or ownership of a company held by other companies or institutions. INVENTORY Value of items available for sale and in the process of being made ready for sale. IRA/KEOGH ACCOUNTS Special accounts where you can save and invest, and the taxes are deferred until money is withdrawn. LAST SPLIT After a stock split, the number of shares distributed for each share held and the date of the distribution. LIMIT ORDER An order to buy a stock below a specified price or to sell a stock at above a specified price. For instance, you could tell a broker "Buy me 100 shares of XYZ Corp at $8 or less" or to "sell 100 shares of XYZ at $10 or better." LOAD MUTUAL FUND A mutual fund with shares sold at a price including a sales charge--typically 4% to 9.3% of the net amount indicated. LONG POSITION Occurs when an individual owns securities. An owner of 100 shares of stock is said to be "Long the Stock." LONG POSITION (OPTIONS) An options position where a person has executed one or more options trades where the net result is that they are an "owner" or holder of options (i.e. the number of contracts bought exceeds the number of contracts sold). LONG TERM ASSETS Value of property, equipment and other capital assets minus the depreciation. This is an entry in the bookkeeping records of a company and does not necessarily reflect the market value of the assets. LONG TERM DEBT Value of obligations of over 1 year that require that interest be paid. LONG TERM DEBT/CAPITALIZATION Indicator of financial leverage. Shows long term debt as a proportion of the capital available. Determined by dividing long term debt by the sum of long term debt, preferred stock and common stockholders' equity. LONG TERM LIABILITIES Amount owed for leases, bond repayment and other items due after 1 year. LOW PRICE The lowest (intraday) price of a stock over a certain period of time. MANAGEMENT/CLOSELY HELD SHARES Percentage of shares held by persons closely related to a company, as defined by the Securities and Exchange Commission. Part of these percentages often is included in Institutional Holdings--making the combined total of these percentages over 100. There is overlap as institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company. MARGIN ACCOUNT (STOCKS) A leveraged account where stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops, the owner will be asked to either put in more cash, or sell a portion of the stock. This is all federally regulated. MARGIN REQUIREMENT (OPTIONS) The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intraday price changes. MARKET CAP Also known as Market Capitalization. The dollar value of outstanding shares. Computed as shares times price. MARKET CYCLE The period between the 2 latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market). The dates of the last market cycle are: 12/04/87 to 10/11/90 (low to low). MARKET ORDER An order to buy or sell a stock at the going price. MINIMUM PURCHASES For mutual funds, the amount required to open a new account or to deposit into an existing account. Some funds are closed to new investors, but allow deposits to existing accounts. MONEY MARKET FUND A mutual fund that specializes in making short-term investments such as 30-day Treasury bills, Banker's Acceptances, Certificates of Deposit and other short-term instruments. MOVING AVERAGE Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted. MUTUAL FUND An investment company that pools investors' money to invest in a variety of stocks, bonds, or other securities. MUTUAL FUND TRACKER A very sophisticated and professional computer program to track and chart mutual funds. The Mutual Fund Tracker works using technical analysis and a Mutual Fund Composite Average, in conjunction with other key indices, to determine when to get into and out of mutual funds. The program compares three moving averages against each other, and then compares each moving average to the current price. You can even change the moving averages, used by the program, to look at different "what if" calculations based on your investment objectives. Features: easy to understand documentation; graphs; period and individual reports; select TREND or access actual BUY, SELL, and HOLD signals; ability to write graph pictures to disk for later review with The Graph Tracker; optional auto-update of data; data subscriptions; and more. Write to: Watkins Enterprises, P.O. Box 33280, Suite 195, Austin, Texas, 78764-0280 for more information. NET ASSET VALUE (NAV) The value of a mutual fund's investments. NET INCOME The company's total earnings after expenses. NM Abbreviation for Not Meaningful. Used when a value cannot be calculated because 1 of more parts of the calculation are unknown or the result would be a negative value and therefore not meaningful. NO LOAD MUTUAL FUND An open-end investment company, shares of which are sold without a sales charge. There can be other charges, however, such as management fees, expense fees or 12b-1 fees. NOISE Price and volume fluctuations that can confuse interpretation of market direction. OBJECTIVE (MUTUAL FUNDS) The fund's investment strategy category as stated in the prospectus. There are more than 20 standardized categories. See the Objective section in Mutual Fund Analyst's "About the Analyst" for a printable list of categories and their meanings. OPEN INTEREST The number of outstanding option contracts in the exchange market or in a particular class or series. OPENING PURCHASE A transaction in which the purchaser's intention is to create or increase a long position in a given series of options. OPENING SALE A transaction in which the seller's intention is to create or increase a short position in a given series of options. OPTION Gives the buyer the right, but not the obligation, to buy or sell stock at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option. OTHER CURRENT ASSETS Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year. OTHER LONG TERM LIABILITIES Value of leases, future employee benefits, deferred taxes and other obligations not requiring interest payments that must be paid over a period of more than 1 year. OUT-OF-THE-MONEY A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security. OVERBOUGHT\OVERSOLD INDICATOR An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction. PAYMENT DATE Date on which a declared stock dividend or a bond interest payment is scheduled to be made. PHONE SWITCHING In mutual funds, the ability to transfer shares between funds in the same family by telephone request. There may be a charge associated with these transfers. PIVOT Price level established as being significant by market's failure to penetrate or as being significant when a sudden increase in volume accompanies the move through the price level. POINT AND FIGURE CHART A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is solely used to record changes in price. PREFERRED STOCK A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights. PREMIUM The price of an option contract, determined on the exchange, which the buyer of the option pays to the option writer for the rights to the option contract. PRICE/BOOK RATIO Compares a stock's market value to the value of total assets less total liabilities (book). Determined by dividing current price by common stockholders' equity per share (book value), adjusted for stock splits. Also called Market-to-Book. PRICE/EARNINGS RATIO Shows the "multiple" of earnings at which a stock sells. Determined by dividing current price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio is determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price. P/E RATIO The ratio represents the sum of the market value (price multiplied by the number of shares) divided by the sum of the earnings of that company. A A negative P/E is considered undefined and is shown as NM (not meaningful). The industry average represents the sum of the market value (price multiplied by the number of shares) for all companies within the same industry divided by the sum of the earnings for those companies. PRICE/SALES RATIO Determined by dividing stock's current price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding. The industry average is the sum of market value (price multiplied by the number of shares) for all companies within the same industry divided by sum of revenue for those firms. PRICES Price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest trading price of the stock and may reflect an intraday (as opposed to end-of-day) price. To find the current price or quote check your local newspaper. PRIMARY MARKET The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market. PROFIT MARGIN Indicator of profitability. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. The industry average represents the sum of earnings for all companies within the same industry divided by the sum of the revenue for those companies. PROGRAM TRADING Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically. PROSPECTUS Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are also used by mutual funds, describing the holdings, background of managers, fund objectives, a financial statement and other essential data. PROXY Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy--and the right to vote their shares. PUT OPTION An option contract that gives the holder the right to sell (or "put"), and places upon the writer the obligation to purchase, a specified number of shares of the underlying stock at the given strike price on or before the expiration date of the contract. QUICK RATIO Indicator of a company's financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. Also called Acid Test. The industry average represents the sum of the current assets less inventories for all companies within the same industry, divided by the sum of the current liabilities for those companies. RANGE The difference between the high and low price during a given period. RATE OF RETURN The percentage gain or loss for a mutual fund in a specific time period. This number assumes that all distributions are reinvested at the current rate of return. Annualized return is a compounded yearly rate. RECORD DATE Date by which a shareholder must officially own shares in order to be entitled to a dividend. For example, a firm might declare a dividend on November 1st, payable December 1st, to holders of record, November 15th. Once a trade is executed an investor "owns" the stock, but is not "owner of record" until the settlement, which typically takes 5 business days. After the record date, a stock is said to be EX-DIVIDEND. REDEMPTION CHARGE The maximum commission charged by a mutual fund when redeeming shares. For example, a 2% redemption charge (also called a "back end load") on the sale of shares valued at $1000 will result in payment of $980 (or 98% of the value) to the investor. This charge may decrease as shares are held for longer time periods. RELATIVE STRENGTH A stock's price movement over the past year as compared to a market index (the S&P 500). Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative Strength: [current stock price/year-ago stock price] [current S&P 500/year-ago S&P 500] RETRACEMENT A price movement in the opposite direction of the previous trend. RETURN ON ASSETS (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total assets. Result is shown as a percentage. The industry average ROA represents the sum of the earnings for all companies, within the same industry, divided by the sum of the total assets for those companies. RETURN ON EQUITY (ROE) Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholders' equity (adjusted for stock splits). Result is shown as a percentage. The industry average ROE represents the sum of the earnings for all companies, within the same industry, divided by the sum of the stockholders' equity for those companies. REVERSE STOCK SPLIT A proportionate decrease in the number of shares, but not the value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a 1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. A firm generally institutes a reverse split in order to boost its stock's market price because it thinks the price is too low to woo investors. RIGHTS OFFERING Offering of common stock to existing shareholders who hold rights that entitle them to buy newly issued shares at a discount from the price at which shares will later be offered to the public. SALES CHARGE The maximum commission charged by a mutual fund when purchasing shares. A 4% sales charge (also called a load) on a $1000 purchase will buy $960 worth of fund shares. No Load funds do not carry sales charges, but may have management fees, expenses and 12b-1 fees. SEC The Securities and Exchange Commission, the primary federal regulatory agency of the securities industry. SECONDARY MARKET A market that provides for the purchase or sale of previously owned securities. Most trading is done in the secondary market. The New York Stock Exchange, as well as all other stock exchanges, the bond markets, etc., are secondary markets. SELLING SHORT If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, s/he must buy the stock back on the open market. For instance, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on August 1st, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 by selling short. SERIES All option contracts of the same class that also have the same unit of trade, expiration date, and exercise price. SETTLEMENT DATE The date on which payment is made to settle a trade. Settlement is generally made 1-5 business days after a trade is executed. In stocks, settlement is generally 5 business days after the trade. SHARE REPURCHASE Program by which a corporation buys back its own shares in the open market. It is usually done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings per share, it tends to elevate the market value of the remaining shares held by stockholders. SHORT POSITION (OPTIONS) A position wherein a person's interest in a particular series of options is as a net writer (for example, the number of contracts sold exceeds the number of contracts bought.) SHORT POSITION (STOCKS) Occurs when a person sells stocks s/he does not yet own. Shares must be borrowed, before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the transaction. Technique is used when an investor believes the stock price is going down. SHORT SALE Selling a security that the seller does not own but is committed to buying eventually. It is used to capitalize on an expected decline in price. SIC Abbreviation for Standard Industrial Classification. Each 4-digit code represents a unique business activity. SLIPPAGE The difference between estimated transaction costs and actual transaction costs. The difference is usually composed of a price difference and commission costs. STOCK DIVIDEND Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold. STOP ORDER An order to sell a stock when the price falls to a specified level. STRIKE PRICE The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract. TICK INDICATOR A market indicator based on the number of stocks whose last trade was an uptick or a downtick. Used as an indicator of market sentiment or psychology to try to predict the market's trend. TIME VALUE The portion of the premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value. TOTAL REVENUE Total sales and other revenue for the period shown. TRADE A verbal (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered "done" or final. Settlement occurs 1-5 business days later. TRADE DATE The date on which a trade occurs. Trades generally settle (are paid for) 1-5 business days after a trade date. With stocks, settlement is generally 5 business days after the trade. TRADING RANGE The difference between the high and low prices traded during a period of time; with commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading. TURNOVER RATIO A measure of a mutual fund manager's trading activity during the previous year. This is expressed as a percentage of the average total assets of the fund. A turnover ratio of 25% means that the value of trades represented one-fourth of the assets of the fund. TYPE The classification of an option contract as either a put or a call. UNCOVERED CALL A short call option position in which the writer does not own shares of underlying stock represented by his option contracts. Also called a "naked" call, it is much riskier for the writer than a covered call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer would be forced to buy the stock at market price. UNCOVERED PUT A short put option position in which the writer does not have a corresponding short stock position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put. Also called "naked" puts, the writer has pledged to buy the stock at a certain price if the buyer of the options chooses to exercise it. The nature of uncovered options means the writer's risk is unlimited. UNDERLYING SECURITY The security subject to being purchased or sold upon exercise of an option contract. For example, IBM stock is the underlying security to IBM options. VOLATILITY (MUTUAL FUNDS) A measure of risk based on standard deviation in fund performance over 3 years. Scale is 1-9; higher rating indicates higher risk. Standard Deviation Rating Standard Deviation Rating up to 7.99 1 20.00-22.99 6 8.00-10.99 2 23.00-25.99 7 11.00-13.99 3 26.00-28.99 8 14.00-16.99 4 29.00 and up 9 17.00-19.99 5 WALL STREET TRACKER A very sophisticated and professional computer program to track and chart stocks. The Wall Street Tracker works using technical analysis and market momentum to determine when to buy, sell, or hold stocks. The program compares three moving averages, and then compares each moving average to the current price. You can even change the moving averages, used by the program, to look at different "what if" results based on your criteria. Features: easy menu navigation; easy selection of graphs; period and individual reports; access actual BUY, SELL, and HOLD signals; select TREND signals; optional auto-update of data; easy to understand documentation; data file subscriptions; plus much more. Write to: Watkins Enterprises, P.O. Box 33280, Suite 195, Austin, Texas, 78764-0280 for more information. W-TYPE BOTTOM A double bottom where the price or indicator chart has the appearance of a W. WARRANT A promise by a company to sell stock for a fixed price at a later date. For example, if XYZ intends to issue new stock next year, it can issue $1 warrants agreeing to sell you the stock at $8 a share when it is issued. When the warrants are due, investors then buy the stock at $8 a share. They pay a total of $9 ($1 for the warrant plus $8 a share) for the stock. WASTING ASSET An asset which has a limited life and tends to decrease in value over time. WITHDRAWAL PLAN The ability to establish automatic periodic mutual fund redemptions and have proceeds mailed directly to the investor. WRITER The seller of an option contract. YIELD The percentage rate of return paid on a stock in the form of dividends, or the rate of interest paid on a bond or note. YIELD TO CALL The percentage rate of a bond or note, if your were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price. YIELD TO MATURITY The percentage rate of return paid on a bond, note or other fixed income security if you buy and hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.