Financial Glossary

Financial Glossary


In macroeconomic theory, the accelerator (also: accelerator coefficient) refers to the amount of investment induced by a change in output. Investment and output are linked by the accelerator and the multiplier together these effects are thought to produce a cyclical pattern of economic growth.

The difference between par value of a zero coupon security and purchase price. Also called original issue discount. Yearly accreted interest is the amount of accreted interest “earned” each year that you hold a zero coupon investment.

The amount of interest that the buyer owes the seller on transactions involving fixed income securities, such as most bonds and notes.

Accumulation UnitsNormally applied to unit trusts or unit-linked life assurance funds where interest and dividends are rolled up or automatically reinvested to increase the unit value. In the case of some long-term unit linked life assurance policies, units may be divided between initial units, from which the life assurance company takes charges, and accumulation units, where only fund management and not initial charges are taken. Accumulation untis are invariably available without penalty.

Automated Clearing House. A method of transferring funds. Member banks wire instructions to the Automated Clearing House which then wires to the appropriate receiving bank.

Ongoing supervision of a portfolio and its holdings to achieve maximum results. Active management is one of the main benefits of investing in a mutual fund.

A bonus that may be added when your product is cashed in.

A computation used in calculating income taxes, computed by subtracting allowable deductions from gross income.

The willingness to risk losing some or all of your principal in exchange for the possibility of receiving a higher return. See Risk tolerance.

A fund with an investment objective of rapid growth of capital. Aggressive growth funds usually include funds that invest in smaller companies, funds that invest heavily in a single industry, and funds that employ riskier investment techniques such as leveraging and short selling.

The willingness to risk losing some or all of your principal in exchange for the possibility of receiving a higher return. See Risk tolerance.

A type of order where the client wants the entire order executed or none of it.

Where there is a new offer of shares, either by new issue or otherwise, they are issued on the basis of a prospectus so that shares can be allocated at a fixed price (see: flotation). Where demand for shares exceeds the shares available, allotment is either made on a random or proportional basis. Allocation of these shares is made by means of a letter of allotment. This entitles the recipient to a certain number of shares as stated in this letter subject to payment.

An accounting term indicating the appointment of an incurred expense over the life of an asset. For example, if a three-year magazine subscription (an expense) is paid in year one, it should be “amortized” (or “spread out”) over the three-year life of the subscription (the asset).

Reports issued twice a year to a fund’s shareholders detailing the fund’s performance, portfolio holdings and current investment strategy.

A formal presentation of the corporation’s financial statements that is sent to its registered stockholders. If shares are registered in the nominee name (in the care of the brokerage firm), the proxy department has to obtain copies of the report and mail them to the beneficial owners (clients).

The act of changing a deferred annuity into an annuity that provides regular payments. An occasional withdrawal may be made from a deferred annuity without annuitizing it. See Annuity and Deferred annuity.

The act of changing a deferred annuity into an annuity that provides regular payments. An occasional withdrawal may be made from a deferred annuity without annuitizing it. See Annuity and Deferred annuity.

A contract with an insurance company in which the individual makes either lump-sum or periodic payments to the insurance company and in return receives a lifetime income (usually guaranteed).

An increase in a fund’s value.

Annual Percentage Rate. A rate of interest used by all lenders. This means you can compare the cost of different loans on the market. When quoted with a mortgage, it takes account of the set up and continuing costs of the mortgage amongst other things.

A method of settling a dispute by utilizing an impartial individual or individuals. All exchanges and securities associations have adopted a Code of Arbitration through which all disputes between firms, employees and firms, and firms and clearing corporations are settled

A term used to describe any trade processed not on the actual trade date, but “as of” the actual trade date.

A fund that invests primarily in the stocks of companies located in Asia. These funds appeal to investors who believe that Asia potentially represents a growth area, and want to capitalize on that growth..

Also known as the offer price, the ask price is the amount at which a mutual fund or other security’s shares can be purchased. To calculate the ask price of a fund, add a it’s current net asset value per share to its sales charge, if any.

Anything owned that has monetary value. Goods available to pay debts. Anything owned by an individual or corporation

The process of determining what proportions of your portfolio holdings are to be invested in the various asset classes.

A standard term that broadly defines a category of potential investments.

A service that entitles an investor to fixed payments, every month or quarter. The payment comes from the dividends, income and/or realized capital gains on securities held by the fund. This service is often chosen by retirees who want to receive a regular income supplement.

A standard measurement of fund performance that includes dividends, gains, and changes in share price.

An accounting statement reflecting the firm’s financial condition in terms of assets, liabilities, and net worth (ownership). In a balance sheet, Assets = Liabilities + Net Worth

A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds. Typically, the stock/bond ratio ranges around 60%/40%. This broader diversification across asset classes tends to further reduce risk.

A mutual fund that has a primary investment objective of purchasing a combination of stocks and bonds. Such funds tend to be less volatile than stock-only funds.

A bond management strategy where the portfolio is invested primarily in short-term and long-term bonds, but in few bonds with intermediate maturities. In theory, this approach allows one portion of the portfolio to take advantage of high yields, while the other portion tempers risk.

The time used as the reference point in calculating comparative index values. Normally, the base period is allocated the number 100 (as in: 1992 = 100), and all other periods’ values are measured with reference to the values at that time..

The smallest measure used in quoting yields on fixed income securities. One basis point equals one percent of one percent, or 0.01%.

A market in which prices are generally declining.

Securities for which no register of ownership is kept by the company. A bearer certificate has an intrinsic value. Dividends are not received automatically from the company but must be claimed by removing and returning “coupons” attached to the certificate.

Indicators used to provide a point of reference for evaluating a fund’s performance. The most common benchmark for equity-oriented funds is the S&P 500 Index or the FTSE-250.

The person designated to receive the proceeds from a life insurance policy or the person designated to receive annuity benefits in case of the owner’s or annuitant’s death; also, the person who is to receive the benefits of a trust or estate. A beneficiary can be an individual, a company, or an organization.

A measure of a fund’s risk, or volatility, compared to the market which is represented as 1.0. A fund with a beta of 1.20 is 20% more volatile than the market, while a fund with a beta of 0.80 would be 20% less volatile than the market.

The highest price anyone has declared that they want to pay for a security at a given time. Also known as the “sell” price, the bid price is the price at which a fund’s shares are bought back by the fund.

A term used to describe the common stocks of a nationally known company that has increased its earnings and paid dividends over a long period and developed a reputation for high-quality management, products and services. (In poker, the blue chip is usually assigned the highest money value.).

An evidence of debt on which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity.

A fund that invests primarily in bonds, whether they are issued by corporations, municipalities, or government and related agencies. Bond funds generally emphasize income over growth, and are based around the idea of providing a stable income with a minimum of risk.

A value computed by subtracting the total liabilities from the value of all assets on the balance sheet, then dividing by the number of common shares. This is an accounting term that has no relation to the securities market value.

An investment strategy that first seeks individual companies with attractive investment potential, then proceeds to consider the larger economic and industry trends affecting those companies.

(1) An individual who buys or sells securities for customers (a stockbroker). (2) On an exchange, one who executes public orders on an agency basis (a floor broker or commission house broker). (3) As a slang term, a firm that executes orders for others (a brokerage firm).

A partnership or corporation that is in business to provide security services for a general marketplace.

A market in which prices are generally rising.

Term used to describe an environment of rising security prices.

A day on which the exchanges are open for business.

An option that permits the owner to buy a contracted amount of a security at a set price for a predetermined period of time (up to the expiration date).


The profit made on an investment, measured by the increase in a fund share’s value from the time of purchase to the time of sale.

A fund that invests primarily in common stocks the manager believes will provide maximum capital appreciation. Capital appreciation funds often resort to aggressive investment techniques, such as rapid portfolio turnover, leveraging, and investing in unregistered securities in order to achieve their objectives.

Capital GainThe trading gain between an asset’s purchase price and selling price.

Also called capital appreciation, capital growth is an investment objective of many stock funds. Capital growth is achieved when the market values of a fund’s holdings increase, causing the fund’s net asset value per share to increase.

The total value of all common stock, preferred stock, and bonds issued by a corporation.

Cash DividendDividends that corporations pay on a per-share basis to stockholders from their earnings.

A central reception and distribution center operated for its members who are made up of various brokerage firms. Many offer automated systems that expedite comparison procedures. Among these are NSCC (National Securities Clearing Corp.) and OCC (Options Clearing Corporation).

A strategy for arranging bonds so that they all mature in the same year.

A fund launched to mirror a closed fund. For example, fund managers may decide to close a fund that has grown so large it is no longer able to establish positions in smaller securities. They could then launch a new fund in the closed fund’s image. While both funds would have the same investment objective, they would generally be run by different managers and would invest in different securities.

Price of the last transaction of a security on a particular trading day.

A fund whose offering of shares is closed. That is, once the initial offering is completed, the fund stops offering its shares. The value of the shares is then determined by supply and demand, rather than by calculation of net asset value.

Occasionally a manager may declare a fund “closed to new investors” which means that no new investments will be accepted. This is often a temporary designation, prompted by a tremendous amount of money invested in the fund in a short period of time. The portfolio manager may be concerned about finding enough appropriate securities to add to the fund’s portfolio.

A supplement or addition to a will that may explain, modify, qualify or alter provisions in an existing will. The same formalities, requiring signatures by witnesses, must be observed as in creating a new will.

An asset pledged to support a loan.

A position long or short different types of options on the same stock with different strike prices and/or expiration dates.

A fee compensating the broker for his or her role in the transaction. Most offshore plans have commission included within the product charges.

The giving up of part or all of the pension payable at retirement for an immediate lump sum.

An adviser who can only advise on his or her company’s products.

Interest that is computed on the principal and on the interest accrued during the preceding period. Compound interest may be computed daily, monthly, quarterly, semiannually or annually.

Interest earned on interest previously earned and reinvested. For example, if a security paid a fixed interest rate of 10% annually and an investor invested $500, by the end of the first year the investor would have earned $50 in interest. If that interest was reinvested, the investor would enter the second year with $550 invested. At the end of the second year, the investor would have earned $55 in interest earning an extra $5 in interest thanks to the reinvestment of the first year’s interest.

An annuity specifically designed to provide income after retirement from the proceeds of a pension fund.

The capacity to invest for a low expected rate of return in exchange for increased assurances of maintaining a stable principal and maintaining the expected rate of return. See Risk tolerance.

Constant-Dollar InvestmentSecurities such as savings accounts and money market funds that do not fluctuate in price.

Paying your National Insurance Contributions into a pension scheme other than the State Earnings Related Pension Scheme (SERPS).

A legally binding confirmation of each portfolio transaction showing the date of each transaction, description of the security and the amount bought or sold. A contract note is sent after each transaction.

A program in which a one agrees to invest an amount in a plan at regular intervals for a number of years. In exchange, investors in these plans commonly receive other benefits, such as decreasing term life insurance and tax benefits.

A securities feature that permits the issue holder to convert to another issue, usually common stock. This privilege can be used only once. The preferred stock or bond holder can convert from that issue to another, but not back.

A preferred stock that may be converted into common stock of the same company at specific prices or rates.

A fund that invests primarily in convertible bonds and/or convertible preferred stocks.

Corporate securities (usually preferred shares or stock or bonds) that are exchangeable for a set number of another form of security (usually common stock) at a prestated price.

As it applies to the Treasury sector, a stripped Treasury zero that converts into a current income obligation five years before maturity.

The legal aspects of buying and selling title to land and property.

A fund that invests primarily in corporate bonds. In general, corporate bond funds seek income over capital growth.

A method of investing that calls for the investment of a set amount at regular intervals, regardless of the fund’s share price. As a result, more fund shares are bought when prices are low than at high prices, usually bringing down an investor’s average cost per share over time.

A fund that invests primarily in the securities of a single country. In some cases, country funds also invest in securities outside the single country if those securities are expected to benefit by growth in that country.

The potential for price fluctuations in stocks sold in foreign countries due to events (political, financial, etc.) in these countries.

1) On Bearer Stocks, the detachable part of the certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security – a 10% coupon pays interest of 10% a year on the nominal value of the stock.

The total net profit a company has available for distribution as dividend, divided by the amount actually paid gives the number of times that the dividend is covered.

A call option that is sold against stock owned by the writer of the call.

A put option that is sold by the owner of a put of the same class with an equal or longer expiration date and an equal or higher exercise price.

If you are diagnosed with any one of certain severe illnesses (specified in the insurance policy), this cover will pay you a fixed amount – usually as a lump sum.

A regular bonus that is added each day.

Artificial volume created by market manipulators that gives the appearance of activity in shares so as to lure genuine investors.

The first day that interest starts to accrue on newly issued bonds.

An order that, if not executed on the day it is entered, expires at the close of that day’s trading.

The buying and selling of the same security on the same day.

A firm that functions as a market maker and that, as such, positions the security to buy and sell versus the public and/or brokerage community.

Taxes incurred at death, including estate and inheritance taxes.

A debt that is issued by a corporation and that is backed or secured by the good name of the issuing company.

A person who has died.

Some life insurance policies are for a fixed length of time (term), and pay you a fixed lump sum if you die during that time. With a Decreasing Term policy, the amount paid out reduces during the term. So the earlier in the term you die, the larger the amount paid to your dependants. This is often used as mortgage cover.

A legally binding document that has been signed, sealed, witnessed and delivered and that sets out the terms of and confirms an agreement between two or more parties.

The trust agreement drawn up when a corporation plans to issue bonds or other debt securities. It includes such items as assets, interest payments, maturity dates, etc.

A contract purchased from an insurance company that offers tax-deferred growth of the contract owner’s investment until earnings are withdrawn. It can be tailored to meet the specific needs of the individual during retirement. See Annuity.

An employee in a pension scheme who leaves before retirement is entitled to a deferred or preserved pension. This is calculated in the same way as a normal pension by multiplying the number of years of service by a fraction (usually 1/60th). The purchase money in a deferred pension should not normally be less than the member’s total contributions

1). The face value of a security, i.e. the sum to be paid on its redemption or its par value. 2). Nominating the currency used by the parties to a contract

1). The regulation of an industry by private bodies rather than by statute. This often increases the form of regulation but allows all the rules to be enforced by the industry’s elected governing body rather than civil servants. The government can provide broad outlines within which the regulatory bodies can operate and supervise their effectiveness. 2). Deregulation of an economy involves, for example, privatisation of public industry, making provisions for greater competition, removal of exchange rate controls, removal of state subsidies, and leaving interest rates to market forces.

A financial security whose value is based on, or “derived” from, a traditional security, asset, or market index.

A spread of the same class of options but with different exercise prices and different expiration dates.

The fraction of a point added to the purchase price or subtracted from the sale price of odd lot orders. The charge represents compensation to the dealer/specialist for executing the odd lot order.

A guaranteed reduction in the standard variable rate of interest charged on a mortgage. The reduction lasts for a set time, then returns to the standard variable rate. Sometimes this type of deal also involves paying a penalty if the mortgage is redeemed (paid off) during or at the end of the discounted period or for a given period of time after.

The element of the primary money market dominated by banks, discount houses and bill brokers. By borrowing money at short notice from commercial banks or discount houses, bill brokers can profitably discount bills of exchange, especially Treasury bills, and trade them in the discount market.

A client account in which the account executive is permitted to buy and sell securities for the client without the client’s prior permission. The opening of such an account requires the special permission of the firm’s management.

The difference between your income and expenses. It is money you have available to invest to help reach your financial goals.

The payment of dividends and capital gains to shareholders.

The organisation arranging for the sale of fund shares either directly to the public or through intermediaries, such as financial advisers.

The practice of spreading investments among different securities to reduce risk. Diversification works best when the returns of the securities are varied, so that losses incurred by securities falling in price are offset by gains of those rising in price. By nature, mutual funds and portfolio bonds are diversified investments. Diversification may also mean the participation of a large corporation in a wide range of business activities.

Earnings paid by a corporation to its stockholders.

A widely quoted stock market index. The DJIA reflects a price-weighted average of 30 actively traded blue chip stocks. These 30 securities represent between 15-20% of the market value of the New York Stock Exchange traded stocks.

Income received as compensation for work, such as salary, wages and self-employment income. By contrast, unearned income includes income from investments. This distinction is used for certain income tax purposes.

Net income divided by the number of shares of common stock outstanding.

A corporate financial statement that reports and nets out all earning and expenses to a profit or loss. It is also referred to as the profit and loss (P&L) statement.

The risk created by changes in the economy. Business cycles affect businesses and industries differently. For example, some prosper during an economic expansion and do poorly during an economic contraction, while others are largely unaffected by business cycles. See Investment risk.

Emerging Markets FundsA fund that invests primarily in the stocks of companies in, or doing business in, developing countries and emerging markets. Emerging market funds usually have an investment objective of long-term growth and are generally considered aggressive stock funds.

An endowment policy is a life assurance policy which also helps you save. It pays you a fixed amount, plus any bonuses that may have been added, on a set date or if you die before that date. Endowments linked to mortgages are used to pay off an interest-only mortgage at the end of its term, but they cannot guarantee to do this.

A fund that invests primarily in the stocks of companies in the energy business.

A fund that invests primarily in securities issued by environmental-related companies. These include companies involved in hazardous waste treatment, waste recycling, and other related areas.

The portion in an account that reflects the customer’s ownership interest.

Assets that represent ownership, such as common stocks, in contrast to assets that represent debt, such as bonds. Equity assets fluctuate in value and provide opportunities for growth.

A fund that seeks to provide relatively high current income and growth of income by investing a large portion of its assets in stocks.

All assets owned and liabilities owed at the time of a person’s death.

Expenses incurred in distributing assets and paying off debts and taxes as a result of a person’s death, including probate costs, administrative expenses, mortgages, personal debts, funeral expenses, state death taxes and federal estate taxes.

A fund that only invests in the securities of firms meeting certain social standards. For example, an ethical fund might exclude securities of companies that are known to practice discrimination, that operate in certain countries, or that produce specific products such as alcohol, tobacco, or nuclear weapons.

A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.

A fund that invests primarily in the stock of Western European companies.

A person appointed by the last will of the deceased to carry out the provisions of the will.

A fund’s cost of doing business. All of a fund’s expenses are disclosed in the prospectus as a percentage of assets.

A fund’s operating expenses, expressed as a percentage of its average net assets. Funds with lower expense ratios are able to distribute a higher percentage of gross income returns to shareholders.

An investment management company offering funds with many investment objectives. Fund families often allow investors to transfer money between funds for either a nominal charge or no charge at all. Thus, an investor with shares in a growth fund could transfer all or part of his or her assets into another fund without paying a new sales charge if each of these funds is managed by a single investment firm. Portfolio bonds offer the ability to select funds from numerous investment houses at greatly discounted rates.

The dividend paid by a company at the end of its financial year, recommended by the directors but authorized by the shareholders at the company’s annual general meeting.

A professional who helps individuals and businesses in an ongoing process to arrange and coordinate their personal and business financial affairs to enable them to achieve their objectives.

A Government body which will protect investors by regulating all investment businesses in the UK. The FSA took over from the Personal Investment Authority and other regulators in 2000 when the Financial Services and Markets Bill was enacted.

A fund that invests primarily in the stocks of companies engaged in providing financial services, including banks, finance companies, insurance and securities or brokerage firms.

The twelve-month period during which a business maintains its financial records. Since this cycle does not have to coincide with the calendar year, it is known as the fiscal year.

Fixed AssetsAssets that generate fixed income, including investment certificates, certificates of deposit, fixed annuities and most bonds.

Income that is paid at the same rate until the investment (typically bonds) matures or is sold.

A security that pays a fixed rate of return. This term is usually used in reference to government, corporate or municipal bonds, which pay a fixed rate of interest until the bonds mature, and to preferred stock, which pay a fixed dividend. Fixed income securities offer the guarantee of a fixed return, but do not offer an investor much, if any, potential for growth.

Usually a term used for the income received from certain types of bonds. The income or yield does not change over the lifetime of the bond.

A set rate of interest charged on a mortgage or other loan. At the start of a loan it is normally set just below the lender’s usual rate and guaranteed for a certain length of time. Whether the usual rate falls below or rises above the fixed rate, you will still have to pay the same amount – so you could lose, or gain. At the end of the guarantee period, you will start paying the lender’s usual rate. Sometimes this type of deal also involves paying a penalty if the mortgage or loan is redeemed (paid off) during or at the end of the discounted period.

A bond trading without accrued interest is said to be trading “flat.”

A mortgage which allows you to change the amount you pay each month, or how often you pay (subject to certain restrictions).

A fund that can invest in stocks, bonds and cash in whatever proportion the manager deems appropriate, providing the manager total flexibility to achieve maximum returns. Flexible portfolio funds are sometimes called asset allocation funds.

The occasion on which a company’s shares are offered on the market for the first time.

Refers to the Financial Times Industrial Ordinary Share Index, also known as the “30 Share Index.” This started in 1935 at 100, and is based on the prices of 30 leading industrial and commercial shares. They are chosen to be representative of British industry, rather than of the Exchange. Government stocks, banks and insurance companies are not included. The Index is calculated hourly during the day with a “closing index” at 4:30 p.m.

Popularly known as “Footsie”; an index of 100 leading UK shares listed on the London Stock Exchange providing a minute-by-minute picture of how share prices are moving. It started on January 3, 1984 with the base number of 1,000. Also forms the basis of a contract in the London Traded Options Market (LTOM) and the London International Financial Futures Exchange (LIFFE).

Denominated in ECUs, this comprises the stocks of the FT-SE 100 Index plus the constituents of the FT-SE Eurotrack 100 Index. The UK component is weighted to ensure that the 200 Index closely tracks the major benchmark indices. It started on Monday, February 25, 1991 with a base value of 1,000 as at close of business on Friday, October 26, 1990.

The investment of nearly all available assets in securities other than short-term securities (such as savings and money market accounts). When a fund is said to be “fully invested,” it usually implies that the fund’s manager is confident that the securities markets will be improving.

Applied to new issues, when the total amount payable in relation to the new shares has been paid to the company.

Ability to shift a mutual fund investment from one fund to another sponsored by the same mutual fund family.

An investment management company that offers several types of mutual funds.

A fund manager invests money which people have paid into, for example, unit trusts and investment trusts. The fund manager is paid out of the charges made, so the charges you pay will be higher for a fund which is actively managed than for one (such as an index tracker) which is not – though the returns may be higher, too.

A fund that invests only in the shares of other open-end funds. Fund of funds were popular during the 1960s but have subsequently fallen out of favor with most investors.

A company’s debts expressed as a percentage of its equity capital. High gearing means debts are high in relation to equity capital.

A fund that invests in bonds without any quality or maturity restrictions.

General insurance, includes home and contents, motor, travel and business.

A fund that invests primarily in securities associated with gold, including gold mining, refining and production concerns. Gold funds are also sometimes referred to as precious metals funds.

Debt (such as bonds, bills or notes) sold by a government or its agencies to raise money.

A person who transfers property to another person or into a trust.

As the starting point in calculating income tax liability, gross income includes all potentially taxable income received from any source, such as wages, salary, dividends, interest, profit from self-employment, retirement plan distributions and so forth.

Usually shortened to GNP. The market value of the goods and services produced by a country in a year. The GNP of the major economies are normally reported quarterly and these figures are carefully examined by the market. Formerly called Gross Domestic Product.

An investment objective of many stock funds. Current income, if considered at all, is a secondary concern for these funds. Capital growth is achieved when the market value of a fund’s holdings increases, causing the fund’s net asset value per share to increase.

A fund that seeks to provide both growth of capital and a stream of income. This is done by investing primarily in the common stock of companies that have had not only increasing share value, but also a solid record of paying dividends.

A fund that invests primarily in the stocks of companies whose long-term earnings are expected to grow significantly faster than the earnings of the market in general (as represented by the S&P/FTSE indices). In general, growth funds seek to provide capital gains, rather than dividend income.

A fund that invests primarily in growth stocks included in one of the major unmanaged stock indices. Growth index funds generally seek to match or exceed the investment performance of the targeted index.

An investment strategy to increase capital by buying stocks the manager believes will go up in price, regardless of the stock’s current price relative to its underlying value. Growth investing is often discussed in contrast to value investing.

Stock of a company in a new industry or of a company participating in an emerging industry.

Invest a lump sum for a fixed term (usually 3-5 years) in a guaranteed growth bond, and you will be guaranteed a minimum return.

Invest a lump sum for a fixed term (usually 3-5 years) in a guaranteed income bond and you will be guaranteed an income of a specified amount for the length of the term.

A policy provision that prohibits an insurance company from canceling a policy for any reason other than failure to pay premiums when they are due; also prohibits increasing premiums unless there is a rate increase for all policyholders in a particular group.

A fund that invests primarily in the stocks of companies in the medical industry.

To reduce the risk in one security by taking an offsetting position in a related security.

A fund that uses futures to offset investment risk. For example, a fund manager concerned about declining stock prices might hedge his or her holdings by buying a put option of some stocks. Put options, call options and selling short are widely used hedging tools for stock fund managers. Hedging is also used extensively in international funds that attempt to minimize currency risks. The fund’s prospectus discloses whether or not a fund engages in hedging.

A fund that seeks to provide a relatively high current yield. High current yield funds tend to invest primarily in lower grade fixed income securities without any quality or maturity restrictions.

A fund that invests primarily in high yield bonds, also referred to as junk bonds. High yield bond funds generally seek high returns and tend to be one of the riskier bond fund investments.

Yield provided by a fund (typically a money market fund) over a specific time period.

A loan that uses the equity in one’s home as collateral. In most cases, the interest paid on the loan is deductible.

This shows you an estimate of what you might expect to get back from an investment. It is worked out based on standard growth rates, and includes any charges you have to pay. The amount you actually get back may be higher or lower than the illustration. Sometimes called a quotation.

The date a fund was first made available to investors.

Payments of dividends, interest, and/or short term capital gains earned by securities held by a fund. Income dividends are paid after deducting operating expenses.

A strategy of arranging bonds so that they produce a consistent series of payments.

1). In the case of damages or losses suffered by a party, an indemnity is the assurance that the situation will be rectified by another party by way of repair or monetary payments. That other party is mostly an insurance company in which the policyholder who has suffered damages has indemnity insurance. 2). A guarantee by a client to their bank (usually in the form of a ‘letter of indemnity’) that the bank will not be held liable for continuing to serve the interests of that client as a result of the client’s loss of documents.

A fund that invests in a collection of securities intended to match that of a broad-based index (NOTE: It is not possible for investors to actually invest in the actual index, such as the S&P 500). In general, index funds seek the same or a slightly better return that the index they mirror. Index funds tend to charge low administrative expenses.

An increase in the prices of products and services over time, representing the decreased purchasing power of money.

The value of income or an asset that is measured in terms of purchasing power.

The possibility that the value of assets or income will be eroded by inflation (the rising cost of goods and services). Inflation risk is often mentioned in relation to conservative fixed income funds. While these types of fixed income funds may minimize the possibility of losing principal, they expose an investor to inflation risk.

Person with nonpublic information on a corporation. Directors, officers and stockholders owning more than 10% of any one class of stock are usually considered insiders.

The purchase or sale of shares by someone who possesses “inside” information about the company; i.e., information on the company’s performance and prospects which has not yet been made available to the market as a whole and which, if available, might affect the share price.

A savings account that you can draw your money out of at any time, without giving the bank or building society any warning (notice), and without being penalised by losing interest.

Very advantageous dealing prices in unit trusts which are not available to the general public on a direct basis. Institutional prices are usually the net asset value of a unit trust plus a small percentage difference of around 0.5%. Private clients usually pay retail prices that are often the net asset value plus as much as 5%. Portfolio bonds allow access to institutional prices.

A guarantee on a municipal bond that interest and principal will be paid timely and in full. Insured bonds tend to carry a high credit rating but to pay a lower return than comparably rated uninsured bonds. The largest municipal bond insurers include: The Municipal Bond Investment Assurance Corp. (MBIA), Federal Guarantee Insurance Corp. (FGIC), and AMBAC Indemnity Corp. (AMBAC).

The cost of borrowing money.

There are two ways to pay off a mortgage: interest only and repayment. With the interest only method, your monthly payments pay off only the interest you owe on the amount borrowed. At the end of your mortgage term you will need to pay off the actual amount you borrowed, which most people plan for by using a pension or endowment. With a repayment mortgage you repay part of the money you have borrowed each month together with interest. At the end of the mortgage term you will have repaid the money you borrowed.

The risk created by changes in market interest rates. For example, the value of bonds usually falls when interest rates rise. See Investment Risk.

A dividend declared part way through a company’s financial year, authorised solely by the directors

A fund that invests primarily in the securities of companies located outside of the United States. In general, international investing not only offers diversification and the potential for high returns, but also involves special risks, such as currency concerns, and rapidly changing political scenarios.

To die without a valid will.

Assets that are intended to achieve long-term objectives, such as accumulating money for education or retirement. Investment assets generally include stocks, bonds, mutual funds, annuities, certificates of deposit, real estate, limited partnerships, business interests and similar long-term investments.

An investment company invests the pooled funds of investors in securities appropriate for its stated investment objectives. For a fee, the investment company provides more diversification, liquidity, and professional management service than is normally available to individual investors.

Income from investments such as interest and dividends.

The regulator responsible for the ways in which companies invest money. Now replaced by Financial Services Authority FSA.

A fund’s investment goal. For example, a growth fund typically has an investment objective of providing long-term growth of capital.

The unpredictability of investment returns. The chance that the actual return from an investment will be different from its expected return. Investment risk is measured statistically using standard deviation. Investment risks include economic risk, inflation risk, interest rate risk, market risk and specific risk.

A description of a fund’s investment strategy. For example, a growth fund might have a growth oriented style, a value-oriented style, or a blend of the two. Fixed-income funds tend to be managed with either an interest-rate sensitive style or a credit-sensitive style.

Company whose sole business consists of buying, selling and holding shares.

(1) The process by which a new security is brought to market. (2) Any security.

Month and day that a security is initially issued.

Stock sold to the public.

An account with two or more individuals acting as co-owners.

Bonds rated BB or below by Standard & Poor’s Corporation and Ba or below by Moody’s Investor Service. Junk bonds tend to be more volatile and higher yielding than bonds with higher quality ratings.

A fund that invests primarily in junk bonds. These funds generally seek high returns and tend to be one of the riskier bond fund investments.

The country where your investment is held – i.e. the Isle of Man, used due to its stability and tax-free growth.

An insurance policy businesses take out to cover the inevitable financial losses involved in the unfortunate early death or serious illness of a key worker.

A fixed income investment strategy that seeks to reduce interest rate risk by investing in fixed income securities with a wide variety of maturities. Though this strategy assures continuous cash flow, there may be some sacrifice of total return, since shorter-term bonds tend to have lower yields than longer-term bonds.

Stocks of companies with market capitalizations of more than $1 billion. Large-caps tend to be well established companies, so that their stocks entail less risk than smaller-caps, but which also offer less potential for dramatic growth.

A fund that invests primarily in the securities of companies in Latin American countries.

The simplest type of life insurance. If you die during the time you are covered, it pays out money to your dependants.

Debts or anything owed to another person or party. Liabilities include credit card balances, loans secured by investment or personal assets, such as an automobile, or loans secured by a home.

An insurance policy that pays a fixed amount of money if you die during the time it covers.

Cash or cash equivalents, such as money market funds or certificates of deposit.

For purposes of the premature death analysis, refers to any assets that are assumed to be liquidated at the death of a principal client and made available for immediate survivor capital needs.

Securities that trade on a national exchange.

Stock that has qualified for trading on an exchange.

A sales charge assessed by certain mutual funds (load funds) to cover selling costs. A front-end load is charged at the time of purchase. A back-end load is charged at the time of sale.

(1) In a customer’s account, securities that are either fully paid for (a cash account) or partially paid for (a margin account). (2) Any position on the firm’s security records that has a debit balance.

Bonds that mature in more than ten years.

All funds other than short-term funds (i.e., money market funds).

A way of saving, which includes life assurance. It pays out at the end of a fixed term, and also if you die during the term. It is usually used to pay off an interest only mortgage but doesn’t guarantee to pay it off.

The amount a fund pays to its investment adviser for its services. The average annual fee industry wide is about one half of one percent of fund assets. A fund’s management fee must be listed in its prospectus.

The Firm that provides the fund with investment research and portfolio management services.

How long the portfolio manager has been responsible for a fund’s management.

Also referred to as “market cap.” Market capitalization is a measure of a corporation’s value, calculated by multiplying the number of outstanding shares of common stock by the current market price per share. Market capitalization is usually grouped into four main categories: large-cap, mid-cap, small-cap, and micro-cap.

Another term for dealer or specialist. In the interest of maintaining orderly trading, a market maker stands ready to trade against the public and therefore to make a market in an issue.

Type of market order usually for a sizable amount of stock that gives the floor broker discretion with respect to price and/or timing on execution.

An order to be executed at the current market price. Buy market orders accept the current offer, and sell market orders accept the current bid.

The value of an asset based on the price it would fetch if sold now.

The risk created by market conditions that affect all investments of a similar class. For example, the value of a particular common stock may fall based on a decrease in the values of a large group of common stocks. See Investment risk.

Attempting to time the purchase and sale of securities to coincide with ideal market conditions. Mutual fund investors may switch from stock funds to bond funds to money market funds as the strength of the economy and interest rate directions change.

The date on which a loan becomes due and payable when bonds and other debt instruments must be repaid.

The date on which the principal amount of a bond is to be paid in full.

The combination of two or more companies into one through the exchange of stock.

A subset of small-caps. Stocks of companies with a market capitalization of less that $50 million are “micro caps.” Micro-caps tend to be new, relatively untested corporations that can offer greater growth potential than larger caps, but also entail greater risk.

A fund that invests primarily in the stocks of companies with a medium market capitalization (mid caps).

Stocks of companies with a medium market capitalization, usually defined as between $500 million and $3-5 billion. Mid-caps are often considered to offer more growth potential than larger-caps (but less than small caps) and less risk than small-caps (but more than large-caps).

The smallest investment amount a fund will accept to establish a new account. Most fund groups also impose a minimum for additional purchases to an existing account.

Tax relief on your UK mortgage. MIRAS ended in April 2000.

The capacity to reduce assurances regarding the expected rate of return and assurances of maintaining a stable principal in exchange for the possibility of earning a higher return.

Money market funds seek to maintain a stable net asset value by investing in the short-term, high-grade securities sold in the money market.

Short-term debt instruments that reflect current interest rates and that, because of their short life, do not respond to interest rate changes as longer-term instruments do.

Short-term debt, usually issued for 90 days or less.

A loan commonly used to buy a house. The house is used as security until you’ve paid off the loan (usually after a fixed length of time). There are three main types of mortgage: Repayment – you make payments, usually monthly, which go towards paying off both the capital (the amount you borrowed) and the interest. At the end of the agreed length of time, you will have paid off the whole of the loan. Interest only – you pay only the interest on your mortgage. You make arrangements to pay the capital at the end of the agreed length of the mortgage. Endowment policies, ISAs or pensions can be used to repay the capital. Flexible – you can repay more capital when you want to, and can take a break from payments for an agreed length of time.

A debt instrument issued by a corporation and secured by real estate owned by the corporation (such as factories or office buildings).

A collection of mortgages bundled into a single security and retailed to private or institutional investors as a single security.

The legal document you sign giving the lender the legal right to use your property as security for a loan.

A premium paid for insurance to cover the lender in case your property is repossessed and sold and the lender cannot get their money back from the sale proceeds. It does not give you cover.

An open-end investment company that combines the money of thousands of people and invests it in a variety of securities in an effort to achieve a specific objective over time. Mutual funds offer the benefits of portfolio diversification (which provides greater safety and reduced volatility), professional management, and stand ready to buy back its shares at the current net asset value. Every fund’s prospectus details information on the fund’s objectives, fees, the management company, and more. Mutual funds, known as open-end investment companies, have portfolios that can grow or be reduced, based upon market conditions and investor investment/redemption patterns.

Acronynm for the National Association of Securities Dealers Automated Quote System. A communication network used to store and access quotations for qualified over-the-counter securities in the US.

National Insurance Contributions

A range of savings products sold by the UK Government. You can usually buy them at Post Offices.

A fund that invests primarily in securities of companies that own, process, transport, or market natural resources, which can include metals, minerals, and forest products.

A feature of a security that enables the owner to transfer ownership or title. A non-negotiable instrument has no value.

The current market worth of a mutual fund’s share. A fund’s net asset value is calculated daily by taking the funds total assets, securities, cash and any accrued earnings, deducting liabilities, and dividing the remainder by the number of shares outstanding. In an open-end fund quote, the OFS is the bid side; the offer side is the OFS plus the sales charge.

Interest received from a bank or building society account after basic rate tax has been taken off. Higher rate taxpayers have to pay more tax.

The difference between the total value of assets and the total amount of liabilities.

A company coming to the market for the first time or issuing additional shares.

Shares newly issued by a company; these shares can usually be transferred on Renounceable Documents.

The general name for a Treasury or agency security with an initial maturity of fewer than 10 years.

A fund’s investment objective states the financial goals it is aiming for, such as “growth,” or “income.”

A pension scheme set up by an employer for employees. It usually provides life insurance as well as pension benefits. The pension it pays out is usually based on a proportion of the employee’s final salary, or on the amount paid in. There are two kinds of occupational pension: contributory (employees pay into the pension fund as well as their employer) or non-contributory (only the employer pays into the fund).

The price at which the market maker will sell shares to investors.

An investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds, and money market instruments. They offer growth, income, or both, and the opportunity to invest in everything from a country or industry to the movements of the markets themselves. A mutual fund continually sells new shares to investors and redeems those that are tendered by shareholders. (Also known as “mutual fund.”)

The normal costs a mutual fund incurs in conducting business, such as the expenses associated with maintaining offices, staff, and equipment. There are also expenses related to maintaining the fund’s portfolio of securities. These expenses are paid from the fund’s assets before any earnings are distributed.

A contract that entitles the buyer to buy (call) or sell (put) a predetermined quantity of an underlying securities for a specific period of time at a pre-established price.

Changes made in the terms of an option contract on ex-dividend date when the underlying stock pays a cash or stock dividend or when there is a stock split, etc.

The agreement the customer must sign to trade options in which the customer agrees to abide by the rules of the listed option exchanges.

The group of options, put or call, with the same underlying security.

A fund which trades options to increase the value of its shares. The fund may either be conservative or aggressive. A conservative fund, commonly called an “option income fund,” may buy stocks and increase shareholders’ income through the premium earned by writing options on the stocks within the portfolio. An aggressive fund, commonly called an “option growth fund,” may buy options in securities that the fund manager thinks will fall or rise sharply in the near term.

The most common form of share. Holders receive dividends which vary in amount in accordance with the profitability of the company and recommendations of the directors. The holders are the owners of the company. Also known as Common Stock.

A fund that invests primarily in the stocks of companies located in the Pacific Basin, which includes Australia, Hong Kong, Japan, Malaysia, New Zealand, Singapore, and Taiwan.

A fund that invests primarily in the stocks of companies whose primary trading markets or operations are concentrated in the Pacific region (including Asian countries), and which specifically does not invest in Japan.

Extremely low-priced securities that trade over the counter.

These allow investment in a number of shares and carry various tax benefits, including the receipt of dividends without paying income tax on the income and sales free from capital gains tax on the profit.

A method of dividing an estate that gives one equal share to each person in a class of people who are all related in the same degree of relationship to the deceased person. For example, all grandchildren take equal shares regardless of how many children the deceased person had.

A method of dividing an estate among a class of people based on representation at a closer degree of relationship to the deceased person than the degree of the class itself. For example, grandchildren take only the shares that their respective parents would have taken.

A measure of how well a fund is doing. Two commonly used mutual fund performance measures are yield (which measures dividends) and total return (which measures dividends plus changes in net asset value).

Insurance which pays you an income if you become ill for a long period or become disabled and can’t work.

A plan in which an investor agrees to make monthly or quarterly investments in a mutual fund as a method of accumulating shares over a period of years. Fixed periodic contributions result in cost averaging.

A tax efficient way of saving which was replaced by the ISA in April 1999. If you already have a PEP, you cannot invest new money into it, but you can continue to hold it, or transfer it to a new provider.

The industry regulator which was replaced by the FSA

A tax efficient way to save for your retirement. When you retire you get a fixed lump sum, of which at least 75% has to be used to buy an annuity to give you an income for the rest of your life.

Pooling is the basic concept behind mutual funds. A fund pools the money of thousands of individual and institutional investors who share common financial goals. The fund uses this pool to buy a diversified portfolio of investments.

A collection of securities owned by an individual or an institution (like a mutual fund). A fund’s portfolio may include a combination of stocks, bonds, and money market securities.

The individual who is responsible for managing a mutual fund’s assets.

The management of a portfolio based on quantitative analysis, where the selection of securities in a portfolio is made as a result of a mathematical assessment of the risk and return against the market as a whole and/or by reference to the risks or returns determined by the client for the portfolio. Portfolio theory will assess risk-free returns and the likelihood of returns made by market timing, determining the benefits of investments by their volatility (beta coefficient) or dispersion (risk) and the capital asset pricing model.

A measure of the trading activity in the fund’s portfolio of investments. In other words, how often securities are bought and sold.

A fund that seeks an increase in the value of its holdings by investing at least two-thirds of its portfolio in securities associated with gold, silver, and other precious metals. Also known as “gold funds.”

A right, sometimes required by the issuer’s corporate charter, by which current owners must be given the opportunity to maintain their percentage ownership if additional shares of the same class are issued. Additional shares of the soon-to-be issued security are offered to current owners in proportion to their holders before the issue can be offered to others. Usually one right is issued for each outstanding share. The rights are used to subscribe to the additional shares at a predetermined cash amount.

These are normally fixed-income shares whose holders have the right to receive dividends before ordinary shareholders but after debenture and loan stockholders have received their interest.

Stock that represents ownership in the issuing corporation and that has prior claim on dividends. In the case of bankruptcy, preferred stock has a claim on assets ahead of common stockholders. The expected dividend is part of the issue’s description.

The amount paid into an investment, either by lump sum or regular payment.

A note or bond selling at a price above par.

An agreement entered into by prospective spouses before marriage, in which the property rights of one or both are determined.

A spread in which the two options have the same expiration date but have different exercise or strike price.

The current share price divided by the last published earnings per share, where earnings per share is net profit divided by the number of ordinary shares.

(1) The initial offering of certain debt issues. (2) The main exchanges for equity trading.

A policy which will pay for some or all of the cost of private medical treatment, as long as the condition is covered by the policy.

An issue that is offered to a single or a few investors as opposed to being publicly offered.

Conversion of a state run company to public limited company status often accompanied by a sale of its shares to the public.

Proceedings involving a court of law that pertain to the administration and distribution of an estate. This includes determination of the validity of a will, appointment of an executor or administrator, and settlement of the estate.

The pool of shareholder money invested in a fund is managed by full-time, experienced professionals who decide which securities to hold, when to buy, and when to sell.

How legal title to property is held (for example, sole ownership, joint tenancy, tenancy by the entirety, tenancy in common, or in trust).

The official document that describes a mutual fund. It contains information required on subjects such as the fund’s investment objectives, policies, services and fees. A prospectus must be given to every investor.

A form and a process for voting via the mail, permitting stockholders to vote on key corporate issues without having to attend the actual meeting.

An attempt by a dissident group to take over the management of a corporation. The group sends proxies electing them to the board; the current management sends proxies favoring them. The shareholders cast their votes by selecting one proxy or the other.

A public company limited by shares and having a share capital, and which may offer shares for purchase by the general public. Only PLC’s may qualify for listing or trading on the USM on the London Stock Exchange.

Purchasing power parity between two currencies exists when their exchange rates are in equilibrium with each other, i.e. their domestic purchasing powers at that exchange rate are equivalent (‘at parity’). For instance, the exchange rate of £1 = $1.80 would be in equilibrium if £1 could buy the same amount of goods and services in the UK as $1.80 would buy in the US. If indeed they are equivalent in terms of purchasing power at that exchange rate, one says that PPP holds. Otherwise one currency is overvalued with respect to the other. PPP theory is important in international economics and finance. The basic underlying idea is that arbitrage forces will come into play if one currency is overvalued relative to the other, and these will eventually lead to the equalisation of goods and services prices internationally (taking into account the exchange rate). As such, PPP theory is a ‘law of one price’. In reality, PPP theory seems to hold relatively well in the long-run, but is quite unreliable in the short-run. It is especially deficient as a theory in that it cannot explain the high volatility in exchange rates and prolonged divergences from PPP. Other theories that build on PPP have been introduced which are slightly more satisfactory – overshooting for example. Probably a major reason for the unsatisfactory performance of PPP theory is that international comparisons and estimates of the price of equivalent baskets of goods and services are extremely difficult to make accurately.

An option that permits the owner to sell a standard amount of an underlying security at a set price for a predetermined period.

A document showing you the cost and anticipated return of a particular product

The highest bid and lowest offer on a given security at a particular time.

The high and low prices for the day for a security.

A measure of the amount an investment earns, usually expressed as an annual percentage. For example, if an investment of $100 earns $5 in one year, the rate of return is 5%. Frequently shortened to the “return” on an investment.

The alphabetical designation attesting to the investment quality of a bond or company.

A fund that invests primarily in stocks of companies that participate in the real estate industry, such as mortgages and real estate investment trusts, but not real estate itself.

The actual return earned on an investment after factoring in the rate of inflation.

The preliminary prospectus. The name comes from the advisory that is printed on the face of the prospectus in red ink.

To cash in shares by selling them back to the mutual fund. Mutual fund shares are redeemable on any business day.

The retiring of a debt instrument by paying cash.

The date on which a security (usually a fixed interest stock), is due to be repaid by the issuer at its full face value. The year is included in the title of the security; the actual redemption date is that on which the last interest is due to be paid.

A fee charged by some funds when shares are sold (redeemed).

The price at which a mutual fund’s shares are redeemed (bought back) by the fund. The value of the shares depends on the market value of the fund’s portfolio of securities at the time. This value is the same as “net asset value per share.” In the newspaper, this amount is shown as the “bid” price.

If you decide to change your lender (perhaps your mortgage lender) within a set time period, you may have to pay a penalty. For example, if you have a discount rate mortgage and move it at the end of the discount rate period, you may be charged a penalty.

If you change your mortgage lender but keep the same house under mortgage, you have remortgaged.

A service that allows the periodic withdrawal of a specified amount from the contributor’s bank account to be invested in his or her savings plan account. (See also “cost averaging.”)

Life insurance which pays out if you die during the time you are covered. If you want to, you can renew the cover at the end of the term, usually without proof of good health.

There are two ways to pay off a mortgage: repayment or interest only (see above). With the repayment method, your monthly payments pay off the interest you owe and also some of the amount you have borrowed. At the end of your mortgage term, you will have paid off the interest and the amount you borrowed, in full.

Income received from a retirement plan. This does not include earnings that accrue within a retirement plan but are not yet distributed.

A regular bonus that is added each year.

A certificate showing that the stockholder has the privilege of purchasing new securities in proportion to the number of shares he owns before the general public.

An invitation to existing shareholders to purchase additional shares in the company.

An offering that gives each shareholder a chance to exercise his preemptive rights.

The unpredictability of investment returns. The chance that the actual return from an investment will be different from its expected return. Investment risk is measured statistically using standard deviation. Investment risks include economic risk, inflation risk, interest rate risk, market risk and specific risk.

The capacity to accept investment risk. This includes psychological factors relating to your willingness and financial factors relating to your financial need. These factors include your willingness to take chances, experience and understanding of financial markets and investment risks, investment time frame, access to other sources of income and capital, ability to make additional investments in the future, total value of your investment portfolio, proportion of your total portfolio that the particular investment represents and the extent to which you need to maximize return to meet specific investment goals.

The reinvestment of funds into another, often similar, investment. Often used when securities are maturing, or when moving an Individual Retirement Account.

A commonly cited index of small-cap stocks.

An unmanaged group of stocks often considered representative of the stock market in general. This index is composed of 400 industrial, 20 transportation, 40 utility, and 40 financial companies.

A broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. Performance figures assume that all dividends are reinvested.

An amount charged to purchase shares in many mutual funds sold by brokers or other sales agents. The maximum allowable charge is 8.5% of the initial investment.

A fund that invests primarily in the stocks of companies engaged in science and technology industries.

A fund that invests primarily in securities of companies engaged in a specific investment segment. Sector funds entail more risk, but may offer greater potential returns than funds that diversify their portfolios. For example, a sector fund may limit its holdings to securities from a particular country or geographic region, or it may specialize in the securities of energy-related firms, or in companies that produce precious metals.

General name for all stocks and shares of all types. In common usage, stocks are fixed interest securities and shares are the rest, though strictly speaking, the distinction is that stocks are denominated in money terms.

An issue of bonds that matures over a period of years.

Type of bond maturity in which part of the issue matures at different times until the whole issue has matured.

Refers to options with the same underlying security, same expiration date, same exercise price and the same type.

Funds that are organized with separate portfolios of securities, each with its own investment objective.

If you’re employed in the UK, some of your National Insurance contributions go towards SERPS. This is an earnings related pension which is paid to you when you retire, on top of your basic state pension. If you decide to ‘contract out’ of SERPS, the Government will pay the money you would have contributed, into a personal pension of your choice.

An investor. The shareholder is the owner of shares of a mutual fund.

(1) A position in a customer’s account in which the customer either owes the firm securities or has some other obligation to meet. (2) Any position on the firm’s security records having a credit balance.

A fund that seeks aggressive growth of capital by investing primarily in stocks of relatively small companies with the potential for rapid growth.

Shorthand for small capitalization stocks, small-caps usually have a market capitalization of $500 million or less. In general, small caps tend to be less established companies that offer more growth potential than larger capitalized companies, but which also entail greater risk.

The risk created by management, labor or business problems that affect just one company. For example, the value of a particular common stock may fall if the products produced by the company fall out of favor with consumers. See Investment risk.

The difference between the bid and offer prices.

The tax a buyer pays on the value of a UK property if it costs over £60,000.

A measure of the degree to which a fund’s return varies from the average of all similar funds.

This is paid to everyone. How much you will get depends on how much you have paid or have been credited in National Insurance contributions by the time you retire.

A security that represents ownership in a corporation and that is issued in “shares”.

A dividend paid by corporations from retained earnings in the form of stock. The corporation declares the dividend as a percentage of shares outstanding.

A fund that invests primarily in stocks.

Company’s net worth. Total liabilities are subtracted from the total assets to arrive at this figure.

A memorandum order that becomes a market order when the price is reached or passed. Buy stops are entered above the current market price; sell stops are entered below it.

To cancel an investment or policy. If you cancel an investment or policy, you will usually get less money back (the ‘surrender value’) than if you kept it until the end of the agreed term. This is because earlier in the term more of the money goes in charges.

The movement of assets from one fund to another. An investor will switch mutual funds when their investment objectives change or because of market conditions. This is usually done within a family of funds, but can be done between different fund families. There usually is no charge for a certain number of transactions per year, after which a transaction fee may apply.

The identifier code assigned to each publically traded investment by the exchange it is traded on. This code is used to identify the correct fund in all transactions. This symbol may only loosely resemble the newspaper listing – these tend to be phonetic abbreviations of fund names.

Not to be confused with evasion. A planned strategy to structure your investments to pay the least amount of tax legally possible.

Until April 2004, an ISA or PEP fund manager could claim a 10% tax credit attaching to UK share dividends from the UK Inland Revenue. Now no longer available.

Tax treatment of certain products and investments that results in income taxation only upon maturity or withdrawal of funds.

A fund that invests primarily in the stocks of companies engaged in the technology industry.

The offer made by one company or individual for shares of another company. The offer may be in the form of cash or securities.

The length of time during which a policy runs, or, in the case of a mortgage, the period by the end of which you must have repaid your borrowings (e.g. a mortgage).

Life insurance that provides financial protection for a specified period of time. If death occurs during this period, the face amount of the policy is paid to the beneficiary. If the insured person survives through the period of coverage, no payment is made.

A bonus that may be added when your product is cashed in.

Bonds of an issue all mature on the same date.

A UK savings account, in which the interest is paid to you tax free. Since April 1999, no new TESSAs have been available, but when an existing TESSA matures (reaches the end of its term), the money can be paid into a TESSA-only ISA.

A person who dies leaving a will. The female form is Testatrix.

An investment approach that first seeks to define major economic and industry trends, and then proceeds to identify specific companies that are likely to benefit from those trends. (See also “bottom-up.”)

All income received during a year including taxable income and tax-exempt income. It does not include tax-deferred income.

A measure of a fund’s performance that takes three factors into account: income dividends, capital gains distributions, and share price appreciation/depreciation.

Transferable Options with the right to buy and sell a standardized amount of a security at a fixed price within a specified period.

A form of property ownership under which the legal title to property is held by one person (“trustee”) for the benefit of another person (“beneficiary”).

A trust which may not be terminated after its creation by the grantor.

A trust created by a person during his or her lifetime.

A trust in which the grantor reserves the right to terminate the trust.

The rate at which the fund buys and sells securities each year. For example, if a fund’s assets total $100 million and the fund bought and sold $100 million of securities that year, its portfolio turnover rate would be 100%.

The security on which options are being bought or sold.

Working out how likely it is that you will make a claim on an insurance policy, based on information such as your age, sex and health. When this has been decided, the underwriters can decide how much your insurance premiums should be. Also the process by which investment bankers bring new issues to the market.

A fund made up of a group of individual securities specifically linked to either a geographical area or business sector.

A fund that invests primarily in securities issued by companies in the utilities industry.

Document showing the value of an investment or a professional inspection of a property to determine its worth.

The investment style of attempting to buy underpriced stocks that have the potential to perform well and increase in price.

An interest rate that can move up or down at any time usually when there are movements in the Bank of England Base Rate.

A type of permanent life insurance that permits the owner to vary the amount of protection and premiums and also builds cash value that can be invested in a variety of investment portfolios. Investment earnings on the cash value accumulate tax-deferred and the policy owner can transfer funds among investment portfolios with varying objectives.

The amount by which the price of a security fluctuates as market conditions change.

A security that allows the owner to purchase the issuing corporation’s stock for a certain price over stated period. That period could be 10 or 20 years, and the price of the conversion is much higher than the current price of stock issue. A warrant is usually issued with another security, such as one warranty plus one bond, both of which form one unit.

The arithmetic mean of maturities of securities held by a mutual fund.

A company that rescues another in financial difficulty, especially one which saves a company from an unwelcome takeover bid.

Life assurance that you pay premiums into for the whole of your life, and which pays out whenever you die. Because it also builds up a cash value, it can be used as an investment by your beneficiaries.

A document that directs how a person’s property is to be distributed after death. It may also be used to nominate a person to serve as the guardian of minor children and the executor of the estate.

A program in which shareholders receive payments from their mutual fund investments at regular intervals.

A type of life insurance policy, which gives you a share of the profits of a life fund, as well as giving you life insurance cover. Premiums are higher than for a straightforward life insurance policy.

A type of investment which lasts for a fixed period of time, and includes life insurance protection. The sum insured is guaranteed and also increased by bonuses, based on a share of the profits of the life fund.

A term from microeconomics describing the difference between the actual output cost of one unit of production and the minimum attainable cost of one unit of that product. This difference may be the result of management shortcomings, inefficient use of resources, bureaucratic rigidities, motivation of employees etc.

The rate of return on an investment. There are as many computations as there are different yields, such as current yield and yield to maturity. For example, bonds provide income in the form of interest, and stocks in the form of dividends.

The additional income an investor will receive on purchasing a convertible security instead of the ordinary share of the same company assuming that the security can be converted into those same ordinary shares. For the calculation to be meaningful, allowance must be made for the conversion costs, reflected in the differential between the conversion price and the current market price.

A graph depicting yield as it relates to maturity. If short-term rates are lower than long-term rates, it is called a positive yield curve. If short-term rates are higher, it is called a negative, or inverted, yield curve. If there is little difference, it is called a flat yield curve.

The point on the yield curve that indicates the year at which the economy’s highest interest rates occur.

The percentage a bond will yield to the date at which it is eligible to be redeemed by its issuer.

The effective annual rate of return earned by a bond if held to maturity. This rate takes into account the amount paid for the bond, the length of time to maturity, and assumes coupon payments can be reinvested at the yield to maturity.

Bond issued at a discount which accrues interest that is paid in full at maturity.

A certificate of deposit that pays interest only upon maturity.