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Financial Glossary

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Accrued Interest:
The amount of interest due the seller, from the buyer, upon settlement of a bond trade.Prorated interest due since the last interest payment date. Agency Transaction (Principal Transaction). See As Agent.

American Depository Receipt (ADR):
A receipt showing evidence that shares of a foreign corporation are held on deposit or are under the control of a US banking institution. Used to facilitate transactions and expedite transfer of beneficial ownership for a foreign security in the United States.

As Agent:
The role of a broker/dealer firm when it acts as an intermediary, or broker, between its customer and another customer, a market maker or a contrabroker. For this service the firm receives a stated commission or fee. This is an "agency transaction."

As Principal:
The role of a broker/dealer firm when it buys and sells for its own account. In a typical transaction, it buys from a market maker or contrabroker and sells to a customer at a fair and reasonable markup. If it buys from a customer and sells to the market maker at a higher price, the trade is called a markdown.

Amortization:
A generic term including depreciation, depletion and write-offs of intangibles, prepaid expenses and deferred charges.

Annual Report:
A formal statement issued yearly by a corporation to its shareowners. It shows assets, liabilities, equity, revenues, expenses and so forth. It is a reflection of the corporation's condition at the close of the business year and the results of operations for that year.

Annuity:
A contract between an insurance company and an individual whereby the insurance company agrees to make periodic payment to the individual for a certain period or for the life of the individual.

Asset Allocation:
The apportionment of one's securities among three classifications: stocks, bonds and cash items.

Asset Management Account:
An account at a bank, savings and loan institution, or brokerage house that can combine banking services like checking accounts, credit cards and debit cards with brokerage features, such as buying and selling securities on margin. One monthly statement combines all financial transactions.

Average Life:
In mortgage-backed securities, the weighted average time to principal repayment. It is used as an approximate single maturity, where the mean or average maturity is used to describe the life of the instrument. See Duration.

For whole loans, average life is calculated to produce a single value to measure the time-weighting of principal repayments. Average life reflects the average time the original investment dollars are outstanding; it is not a measure of price volatility.

Balanced Funds:
Investment companies that strive to minimize market risks while at the same time earn reasonable current income with varying percentages of bonds and preferred and common stocks.

Balance Sheet:
A condensed statement showing the nature and amount of a company's assets, liabilities and capital on a given date. It shows in dollar amounts what the company owns, what it owes and the ownership interest (shareholders' equity).

Basis Point:
One one-hundredth of a percentage point. For example, if a Treasury bill yielding 7.17% changes in price so that it now yields 7.10%, it is said to have declined seven basis points.

Bearer Bond:
A bond that does not have the owner's name registered on the books of the issuing corporation and that is payable to the bearer or the person in possession of that bond.

Bearish:
An adjective used to describe an opinion or outlook where one anticipates decline in price of the general market, of an underlying stock or of both. See Bullish.

Beta:
A measurement that quantifies the correlation between the movement of a stock and the movement of the stock market as a whole. Not to be mistaken with volatility.

Bid-and-Asked Quote:
The bid is the highest price anyone has declared that he/she wants to pay for a security at a given time. The asked is the lowest price anyone will accept at the same time.

Big Board:
A popular slang term for the New York Stock Exchange.

Blue Chip Stocks:
Common stocks of well known companies with histories of profit growth and dividend payment, as well as quality management, products, and services. Blue chip stocks are usually high priced and low yielding. The term blue chip comes from the game of poker in which the blue chip holds the highest value.

Blue Sky Laws:
State securities laws pertaining to registration requirements and procedures for issuers, broker/dealers, their employees and other associated persons of those entities.

Bond:
A certificate representing creditorship in a corporation and issued by the corporation to raise capital. The company pays interest on a bond issue at specified dates and eventually redeems it at maturity, paying principal plus interest due. See
Bearer Bond; Collateral Trust Bond; Equipment Trust Bond; Income Bond; Mortgage Bond; Receiver's Certificate; Registered Bond; Serial Bond; Tax-Exempt Securities; United States Government Securities.

Bond Fund:
An investment company with a diversified portfolio of corporate bonds or municipal securities. Units or shares in the investment company are sold to investors. Unit investment trusts (UIT) and managed funds are the two basic types of bond funds.

Book Value:
The net tangible asset value per share of common stock. It is total assets less intangibles, minus total liabilities, minus the redemption value of preferred stock outstanding, divided by the common shares outstanding.

Borrowing Power of Securities:
The money invested in securities on margin, shown in the customer's monthly statement. The margin limit is usually 50% of their stock values, 30% of their bond values and full value of their cash equivalent assets.

The securities pledged to a lender as collateral for a loan.

Breakpoint:
The dollar level of investment necessary to qualify a purchaser for a discounted sales charge on a quantity purchase of shares of an open-end management company.

Bullish:
Describing an opinion or outlook that a rise in price is expected either in the general market or in an individual security. See Bearish.

Call Feature:
A feature of preferred stock through which it may be retired at the corporation's option by paying a price equal to or slightly higher than either the par or market value.

A bond feature by which all or part of an issue may be redeemed by the corporation before maturity and under certain specified conditions.

Call Option:
An option giving its holder (buyer) the right to demand the purchase of 100 shares of stock at a fixed price any time within a specified period (the lifetime of the option). Also sometimes referred to as a buyer's option. See Put Option.

Call Protection:
A term used to describe a bond or preferred stock without a call feature or with a call feature that cannot be activated for a period of time.

Capital Gain (Loss):
The difference between an asset's purchase price and selling price including any transaction costs. This can also be stated as the profit (or loss) resulting from the sale of a security, adjusted for commissions.

Capital Markets:
The markets in which corporate securities (equity and debt) are traded, as opposed to money markets in which short-term debt instruments are traded.

Capitalization:
The aggregate value of a corporation's long-term debt, preferred and common stock accounts or, put another way, funded debt plus shareholders' equity.

Cash & Cash Equivalents:
Cash and cashlike items such as short-term investments that can be quickly converted to cash. Typical items include: cash, bullion (except for gold- and silver-making companies), certificates of deposit, commercial paper, short-term investments, temporary cash investments and time deposits.

Cash Flow:
Reported net income of a corporation plus amounts charged off for depreciation, depletion, amortization and other noncash expenses.

Certificates of Accrual on Treasury Securities (CATS):
Issues from the US Treasury sold at a deep discount from their face value. They are called zero coupon securities because they require no interest payments during their lifetime, but they return the full face value at maturity. They cannot be called away.

Certificate of Deposit (CD):
A negotiable money market instrument issued by commercial banks against money deposited with them for a specified period of time. CDs vary in size according to the amount of the deposit and the maturity period, and they may be redeemed before maturity only by sale in a secondary market.

Change (Net Change):
For stocks, the change is the difference between the last-traded price and the prior day's close. For mutual funds, the change is the difference between the current net asset value (NAV) and the previous day's NAV. Note: Current NAV is updated after the market close each trading day at approximately 5pm ET.

Closed-end Investment Company:
Legally known as a closed-end company, a closed-end fund is one of three basic types of investment company. The two other types are mutual funds (open-end investment companies) and unit investments trusts.

Closed-end funds generally do not offer their shares for sale continuously but sell a fixed number of shares in an initial public offering, after which the shares typically trade on a secondary market, such as the New York Stock Exchange or the NASDAQ. The price of closed-end fund shares on a secondary market is determined by supply and demand and may be greater or less than the shares' net asset value.

Closed-end funds do not have to buy shares back from investors, but some closed-end funds, known as interval funds, repurchase their shares at specified intervals.

Closed-end fund portfolios are managed by investment advisers registered with the SEC.

Closing Price:
The last price at which an issue traded prior to the market close. For issues with asked and bid quotations such as over-the-counter issues, the average of bid/ask is used to determine the closing price. Note: For New York and American Stock Exchange issues, the close represents the composite of all exchange-traded prices.

Collateralized Mortgage Obligation (CMO):
A pooled mortgage loan that is identified by issuer. CMOs are not assigned by pool numbers, but rather by a series designator, which differentiates each issue and the individual classes within the series. Each class (tranche) has a different coupon, maturity and price. Each class can also have a different underlying collateral (GNMA I or II, GPM, FNMA, FHLMC or conventional). Principal and interest payments are allocated to investors semiannually. While interest is paid semiannually to each class, principal payments are paid to one class at a time in maturity order.

A mortgage-backed corporate bond (also known as fast-pay/slow-pay bonds and serialized mortgage-backed securities), is characterized by multiple prioritized classes or tranches. Classes of these issues are ranked by which bonds are redeemed. A given class is not redeemed until all bonds of an earlier priority have been redeemed, thus creating a series of bonds with distinct expected maturities.

Commercial Paper:
Unsecured, short-term (usually a maximum of nine months) bearer obligations in denominations from $100,000 to $1 million, issued principally by industrial corporations, finance companies and commercial factors at a discount from face value.

Common Stock:
A unit of equity ownership in a corporation. Owners of this kind of stock exercise control over corporate affairs and enjoy any capital appreciation. They are paid dividends only after preferred stock dividends are paid. Their interest in the assets, in the event of liquidation, is junior to all others.

Common Stockholder Equity:
The amount of shareholders' equity attributable to common stock, common stock equity generally consists of the following items: common stock (all issues), capital surplus or additional paid in capital, and retained earnings or earned surplus (net of foreign exchange gains/losses).

Convertible (Security):
Any security that can be converted into another security. For example, a convertible bond or convertible preferred stock may be converted into the underlying stock of the same corporation at a fixed rate. The rate at which the shares of the bond or preferred stock are converted into the common is called the conversion ratio.

Corporate Bonds:
Corporate bonds (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 or $5,000. Companies use the funds they raise for a variety of purposes, from building facilities to purchasing equipment to expanding the business.

When you buy a bond, you are lending money to the corporation that issued it, which promises to return your money, or principal, on a specified maturity date. Until that time, it also pays you a fixed rate of interest, usually semiannually. The interest payments you receive from corporate bonds are taxable. Unlike stocks, bonds do not give you an ownership interest in the issuing corporation.

Cost of Goods Sold (CGS):
Annual CGS includes all expenses directly associated with the production of goods or services the company sells (such as material, labor and overhead) — excluding depreciation, depletion, amortization, and selling, general and administrative expense — over the past three months. For software companies, the CGS is derived by adding direct costs to amortization of capitalized software development costs then subtracting depreciation and amortization on the consolidated statements of cash flows.

Coupon Bond:
A bond with interest coupons attached. The coupons are clipped as they come due and are presented by the holders to their bank for payment.

Credit:
Time allowed for the payment of goods and services.

Power to buy or borrow on trust.

In bookkeeping, the right-hand side of an account, as opposed to a debit. It is all monies received in an account. A credit transaction is made when the net sale proceeds are larger than the net buy proceeds (cost), thereby bringing money into the account.

A deposit against which one may draw.

Current Market Value:
According to Regulation T of the Federal Reserve Board, the latest closing price (or quotation, if no sale occurred). According to NYSE rules, the up-to-the-minute last sale price of a security.

Current Ratio:
The total current assets divided by total current liabilities, both as of the latest reported quarter. This ratio is a measure of a company's ability to pay its total current liabilities from its total current assets.

Current Yield:
The annual dollar interest paid by a bond divided by its market price. It is the actual return rate, not the coupon rate. Example: Any bond carrying a 6% coupon and trading at 95 is said to offer a current yield of 6.3% ($60 coupon ÷ $950 market price = 6.3%). Also sometimes referred to as current yield to maturity.

Day's High:
During trading hours, the highest price at which an issue has traded. During nontrading hours, the highest price at which an issue traded during the most recent trading day.

Day's Low:
During trading hours, the lowest price at which an issue has traded. During nontrading hours, the lowest price at which an issue traded during the most recent trading day.

Day Order:
An order that remains valid only for the remainder of the trading day on which it is entered. Open Order: An order to buy or sell that remains valid until executed or canceled by the customer.

Debenture:
An unsecured debt offering by a corporation, promising only the general assets as protection for creditors. Sometimes the so-called "general assets" are only goodwill and reputation.

Debit:
Money paid out of an account. In a debit transaction, the net cost is greater than the net sale proceeds.

Debit Balance:
The balance owed by a customer in his or her account as reflected on the brokerage firm's ledger statement of settled transactions.

Debt Security:
Any security reflecting the loan of money that must be paid back to the lender in the future, such as a bill, note, or bond.

Deep Discount Bond:
A bond, although issued at par, that is currently selling below 80% of its par value. This does not apply to a bond sold at an original issue discount.

Default:
The failure of a corporation to pay principal and/or interest on outstanding bonds or dividends on its preferred stock.

Discount:
Term used to describe an option trading for less than its intrinsic value.

A term used to describe debt instruments trading at a price below their face values. For example, trading at 99 would mean that for $990 one could purchase a bond that would pay $1,000 principal at maturity.

Discount Bond:
A bond that sells in the marketplace at a price below its face value.

Discount Rate:
A rate of interest associated with borrowing reserves from a central bank by member banks in the Federal Reserve district. The rate is set by the officials of that central bank.

Discretionary Account:
An account in which an employee of an exchange-member firm can make investment decisions on the client's behalf.

Distributions:
The cash amount per share or split rate of each dividend listed.

Diversification:
Spreading investment and contingent risks among different companies in different fields of endeavor.

Investing in the securities of one company that owns or has holdings in other companies.

Investing in a fund with a portfolio containing many securities.

Dividends:
Distributions of money or securities to a company's shareholders declared by a company's board of directors.

Dividend Yield:
The latest indicated dividend rate divided by the latest closing price. The dividend yield is important to common stockholders because it indicates the percentage of the latest closing price that was received as a dividend payment.

Dollar Cost Averaging:
A long-term investment plan based on investing fixed dollar amounts at periodic intervals, regardless of fluctuations in the prices of securities.

Dow Jones Averages:
Market average indicators consisting (individually) of: (1) 30 industrial; (2) 20 transportation; and (3) 15 public utility common stocks. The composite average includes these 65 stocks collectively.

Duration:
A measure of price volatility. In mortgage-backed securities trading, a measure of an instrument's price sensitivity to changes in yields. To calculate it, take a weighted average of the periods to receipt of the cash flows (present value). For whole loans, duration is calculated as the present value, time-weighted measure of all cash flows scheduled or expected to be received from an asset or paid on a liability.

Earnings Per Share (EPS):
The amount of new profit attributable to each share of common stock outstanding.

Earnings Report:
A financial statement issued by a company showing its revenues and expenses over a given period.

EPS from Net Income (Fully Diluted):
The earnings for the most recent fiscal year from total operations as reported by the company (continuing operations + discontinued operations) ÷ the fully diluted shares outstanding - shares outstanding given any dilutive effects of convertible debentures, warrants, etc. This excludes income from extraordinary gains/losses.

EPS from Net Income (Primary):
The primary EPS from continuing operations plus the primary EPS from discontinued operations as taken from the annual income statement.

Exchange Funds:
Exchange funds allow investors to pool their low-cost-basis stocks in a fund tax-free. In exchange, each investor owns a pro-rata share of the fund. After a set period of time — generally seven years — investors can redeem their interest in the fund. The value of this nontaxable distribution is equal to the net asset value of their pro-rata interest in the fund.

Exchange/Market:
A one-letter code identifying the exchange where the issue is traded. For issues listed on two or more exchanges, the exchange code is that of the primary exchange (as determined by SunGard) even if the pricing information is available on a consolidated basis.

Ex-dividend (Without Dividend) Date:
A date set by the Uniform Practice Committee or by the appropriate stock exchange, upon which a given stock will begin trading in the marketplace without the value of a pending dividend included in the contract price. It is closely related to and dependent on the date of record. It is often represented as "X" in the stock listing tables in the newspapers.

Expense Ratio:
For a mutual fund, the expense ratio is the annual operating expenses (including management fees) divided by average annual set assets. In some cases, the management company may reimburse the mutual fund should the ratio exceed a certain percentage.

50-day Moving Average:
A rolling average of the latest 50 days of closing prices for a security.

52-week High:
For stocks, the 52-week high is the highest composite traded price for the issue in the latest 52 weeks, including the current trading day, adjusted for any stock splits or stock dividends. For mutual funds, the 52-week high is the highest offer in the most recent 52-week period, including the current day's Offer. Note: Current NAV is updated after the market close each trading day at approximately 5pm ET.

52-week Low:
For stocks, the 52-week low is the lowest composite traded price for the issue in the latest 52 weeks, including the current trading day, adjusted for any stock splits or stock dividends. For mutual funds, the 52-week low is the lowest net asset value (NAV) in the most recent 52-week period, including the current day's NAV. Note: Current NAV is updated after the market close each trading day at approximately 5pm ET.

Face Value (Face):
The redemption value of a bond or preferred stock appearing on the face of the certificate, unless that value is otherwise specified by the issuing corporation. Also sometimes referred to as par value.

Federal Funds:
The excess reserve balances of a member bank on deposit at a central bank in the Federal Reserve System. This money may be made available to eligible borrowers on a short-term basis.

Funds used for settlement of money market instruments and US government securities transactions.

A term used to mean "same-day availability" of money.

Federal Funds Rate:
A rate of interest associated with borrowing a member bank's excess reserves. The rate is determined by the forces of supply and demand.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac):
A private corporation authorized by Congress that sells participation certificates and collateralized mortgage obligations backed by pools of conventional mortgage loans. FHLMC is a secondary market facility of the Federal Home Loan Bank system. It sells participation sales certificates secured by pools of conventional mortgage loans whose principal and interest are guaranteed by the Federal Government. It also sold GNMA bonds to raise funds to finance the purchase of mortgages.

Federal National Mortgage Association (FNMA):
A publicly owned, government-sponsored corporation that purchases and sells mortgages insured by the Federal Housing Administration (FHA) or Farmers Home Administration (FHA), or guaranteed by the Veterans' Administration (VA). Interest on these bonds, called Fannie Maes, is fully taxable.

Fiduciary:
A person or institution to whom property is entrusted for the benefit of another.

Fixed-income Securities:
Investments that pay a nonchanging dividend or interest rate — typically bonds and preferred stocks.

Free Cash Flow per Share:
The cash generated by a company, less the cash required to maintain the firm at its current level divided by the total number of common shares outstanding. This is a year-to-date figure based on a company's fiscal year. For example, if a company has reported data for its third fiscal quarter, the cash flow figure would include cash flow from the first, second and third quarters for the company.

Front-end Plan:
A contractual investment plan in which most of the sales charges are applied to payments made in the early years.

Fundamental Analysis:
A method of analyzing the prospects of a security through the observation of accepted accounting measures such as earnings, sales, assets and so on.

Futures:
Short for futures contract, which is an agreement to make or take delivery of a commodity at a specified future time and price. The contract is transferable and can therefore be traded like a security. Although futures contracts were once limited to commodities, they are now available on financial instruments, currencies and indexes. Noncommodity futures contracts often differ from their predecessors in important respects; for example, "delivery" on an index is irrelevant.

General Obligation (GO) Bond:
A tax-exempt bond whose pledge is the issuer's good faith and full taxing power.

Ginnie Maes (GNMA):
The GNMA security holder is protected by the full faith and credit of the US government. The securities are backed by FHA, VA or FMHA mortgages. The term "pass-throughs" is often used to describe Ginnie Maes.

When Congress partitioned FNMA into two corporate entities, GNMA took responsibility for the special assistance loan program and the management and liquidation functions of the older FNMA. GNMA also administers and guarantees mortgage-backed securities that channel new sources of funds into residential financing through the sale of privately issued mortgage-backed securities.

Going Public:
A privately owned company is "going public" when it first offers its shares to the investing public.

Gross Profit Margin:
Profit margin after cost of goods sold = revenues - cost of sales (gross margin) ÷ revenues, expressed as a percentage. The percentage represents the amount of each dollar of revenues that results in gross profit.

Growth Company (Stock):
A company or its stock in which the revenue and/or earnings are growing faster than the industry or overall market will most likely provide long-term growth of capital. Growth stocks may be more volatile than the market as a whole. There may be times when growth stocks are doing well and times when they are not doing well. A growth stock is not a growth stock forever.

High-yield Bonds:
Bonds that have a high rate of interest to make up for their relative risk.

Index Fund:
A mutual fund portfolio containing most of the securities in a broad-based index, such as the S&P 500 Index. The securities are present in the same proportion as they are included in the index. Its performance, according to the efficient market theory, should mirror the market as a whole.

Indicated Annual Dividend (IAD):
IAD, accurate to 1/10 of a cent, applies only to common or preferred stock, or mutual funds. IAD data is provided by Standard & Poor's to the data source each Wednesday. S&P bases its IAD calculations upon fixed dividend distribution schedules established by companies for the upcoming year. When dividend rates are variable (i.e., distributions for the entire year are not declared in advance), S&P uses the dividend payments during the most recent four quarters to calculate the IAD. If a revised IAD value is not provided on the ex-date of a stock split or stock dividend, SunGard will automatically adjust the value.

Indication of Interest (IOI):
An expression of consideration by an underwriter's circle of customers for investment in a new security expected to be offered soon. It is not a binding commitment on the customer or the underwriter.

Institutional Holdings:
Shares held by institutions, including banks, investment firms or mutual funds with equity assets of more than $100 million.

Interest:
Regular payments constituting a charge for borrowing money — the "cost" of money.

In the Money:
An expression used to denote a securities option with a strike price that is profitable in comparison with the current market value of the underlying stock, that is, an option with intrinsic value. A call option is considered in the money if the underlying stock is higher than the striking price of the call. A put option is considered in the money if the stock is below the strike price.

Inventories:
Merchandise bought for resale or supplies and raw materials purchased for use in revenue-producing operations. Typical inventory accounts include: inventory, materials and supplies, raw materials, work in progress, finished goods, merchandise, etc.

Inventory Turnover:
A measure of inventory management efficiency, inventory turnover = the cost of goods sold as of the latest reported quarter ÷ the average inventory from the past two quarterly balance sheets.

Investment Advisor:
A person, company or institution registered with the SEC under the Investment Advisors Act of 1940 to manage the investments of third parties.

Individual Retirement Account (IRA):
A type of investment account to provide retirement security for the individual; created in 1974 by the Employee Retirement Income Security Act. Contributions to your IRA may be deductible, and generally, investments in your IRA, including earnings and gains are not taxed until distributed to you.

IRA Rollover:
A tax law provision permitting a person who terminates employment and who receives a lump-sum distribution of pension benefits 60 days to reinvest that money in an IRA.

Irrevocable Trust:
A trust that cannot be altered or terminated by its creator without the beneficiary's consent.

Issuer Name:
A name up to 28 characters that identifies the corporate, municipal or governmental issuer of an issue.

Keogh Plan:
Initiated under the provisions of the Self-Employed Individuals Tax Retirement Act of 1962, this term applies to programs that enable an individual to defer payment of any income taxes on a percentage of annual earned income up to $30,000 until the individual retires and begins to withdraw funds from this accumulated pool of capital.

Large Capitalization Stocks:
Of relatively large and established US companies, these stocks are often found in the S&P 500 or the Dow Jones Industrial Average.

Last Price:
Last price indicates the price for the most recently reported trade for the security. If the security has not traded on the current trading day, the prior day's close is reported.

Latest Capital Change:
Shows the ex-dividend date and amount or ratio of the most recent stock dividend or stock split paid by the company.

Letter of Intent:
A statement of intent by a mutual fund investor announcing his or her desire to invest over a period of 13 months a large enough sum of money to qualify for a load discount.

Level Load Voluntary Accumulation Plan:
A method of selling mutual fund shares by which sales commission per dollar of investment is the same throughout the plan and future investments may be stopped without penalty.

Leverage:
In securities, increasing return without increasing investment. Buying stock on margin is an example.

In finance, the relationship of a firm's debt to its equity, as expressed in the debt-to-equity ratio. If the company earns a return on the borrowed money greater than the cost of the debt, it is successfully applying the principle of leverage.

Limit Order:
An order in which the customer sets a maximum price he or she is willing to pay as a buyer and a minimum price he or she is willing to accept as a seller. With a sell limit order, the customer is instructing the broker to make the sale at or above the limit price. With a buy limit order, the customer is instructing the broker to make the purchase at or below the limit price.

Liquidity:
The ability of the market in a particular security to absorb a reasonable amount of trading at reasonable price changes. Liquidity is one of the most important characteristics of a good market.

The relative ease with which investors can convert their securities into cash.

Listed Stock:
The stock of a company traded on a securities exchange and for which a listing application and registration statement have been filed with the SEC and the exchange itself.

Load:
A sales charge or commission, usually expressed as a percentage of the amount purchased, paid by the investor for the purchase or sale of certain mutual fund shares.

Long-term Debt:
The amount of borrowings due one year from the date of the balance sheet. Typical long-term debt accounts include: long-term debt, long-term obligations, noncurrent notes payable, bonds, debentures, mortgages, term obligations, unsecured term notes, mortgages payable, first mortgage bonds, installment notes and long-term leases.

Maintenance Call:
A call issued by a margin clerk requiring the customer to deposit additional funds to avoid account liquidation of an undermargined account.

Managed Account:
An account owned by one or more clients entrusted to a manager who decides when and where to invest it. Clients are charged a management fee for the maintenance of such accounts.

Margin:
The amount of money or securities that a client must deposit with a broker and against which the client can borrow when he or she wants to buy securities. To make such a loan, the broker must follow certain rules prescribed by the Federal Reserve System in Regulation T. The cash deposited with the broker represents the equity in the investor's account.

Example: The "Reg T" requirement is 50%. An investor has $2,500 and wants to buy XYZ common stock, presently trading at $62.375. The investor decides to deposit the $2,500 in an account with a broker as a Reg T requirement and borrow another $2,500 from the broker. With the total of $5,000, the investor buys 80 shares of XYZ common stock ($5,000 divided by $62.375). The investor's equity, or margin, in the account represents the difference between value of the stock (a liability) and the cash deposit (an asset): $5,000 - $2,500 = $2,500 margin.

In futures, the amount of money deposited with the broker to protect both the seller and the buyer against default. To establish a position in commodities, a client must deposit cash with the broker; the amount, or rate of margin, depends on exchange regulations and other factors. If a price change causes a contract to lose dollar value, the broker must require additional cash for the price variation; this is variation margin. If the client cannot meet the requirement, the broker may liquidate the contract, using the cash as necessary to offset the losses.

Example: The rate of margin is $1,000. The client deposits this amount of cash with the broker and buys a contract of soybeans (5,000 bushels). The market price drops 6 cents a bushel, or $300 for the contract (5,000 bushels x 6 cents). The client's equity also drops $300 (from $1,000 to $700). The variation call is for $300 to restore the equity, or margin, to $1,000. Similarly, a market price rise will increase the amount of margin in the account.

Market Capitalization/Market Value:
The number of common shares outstanding multiplied by the closing price, both as of the latest reported quarter.

Market Order:
An order to be executed immediately at the best available price.

Mark to the Market:
As the market value of a borrowed security fluctuates, the lender may demand more in cash collateral for a rise in value, or the borrower may demand a partial refund of collateral for a decline. The written notice for either demand is a "mark" to the market.

Maturity Date:
The date on which a loan, bond or debenture comes due; both principal and any accrued interest due must be paid.

Maturity Value:
The amount an investor receives when a security is redeemed at maturity, not including any periodic interest payments. This value usually equals the par value, although on zero coupon, compound interest and multiplier bonds, the principal amount of the security at issuance plus the accumulated investment return on the security is included.

Monetary Policy:
The actions of the Federal Reserve System to affect the money supply, banking system and, ultimately, the economy as a whole.

Money Market Fund:
Name for an open-ended investment company whose portfolio consists of money market securities.

Money Market Instruments:
Short-term debt (of less than one year to maturity) usually issued at a discount and not bearing interest. For example, Treasury bills, commercial paper or banker's acceptances.

Mortgage-backed Securities (MBS):
A security backed by loans on real estate property issued by mortgage bankers, commercial banks, serving banks and other institutions. The majority of these issues are backed by the full faith and credit of the US government. They serve as a conveyance of interest in real property given as security for the payment of a debt. In some states, a deed of trust.

Municipal Bond (Securities):
Issued by a state or local government, a debt obligation whose funds either may support a government's general financing needs or may be spent on special projects. Municipal bonds are free from federal tax on the accrued interest and also free from state and local taxes if issued in the state of residence.

Mutual Fund:
An investment company that puts investors' money in a variety of areas, usually securities, and that must redeem the shares at net asset value upon demand.

NASD:
An association of broker/dealers in over-the-counter (OTC) securities organized on a nonprofit, non-stock-issuing basis. Its general aim is to protect investors in the OTC market. OTC securities are not traded on an exchange.

Nasdaq:
A computerized quotations network by which NASD members can communicate bids and offers.

Level 1 Provides only the arithmetic mean of the bids and offers entered by members.

Level 2 Provides the individual bids and offers next to the name of the member entering the information.

Level 3 Available to NASD members only, enables the member to enter bids and offers and receive Level 2 service.

Net Asset Value (NAV):
Net assets divided by the number of outstanding shares. For an open-end investment company, often the net redemption price per share.

For a no-load, open-end investment company, both the net redemption price per share and the offering price per share.

Net Income:
The income of a company after deducting all expenses from all revenues. Also called net earnings.

No-load Mutual Funds:
Mutual Funds offered directly to the public at net asset value with no sales charge. Service and distribution fees commonly referred to as "12b-1 fees" may also be charged by these funds.

Nonpurpose Loan:
A loan involving securities as collateral that is arranged for any purpose other than to purchase, carry or trade margin securities.

Note:
A debenture generally with a maturity of one to five years.

Offer:
For mutual funds, the offer price is equal to the fund's net asset value (NAV) plus the maximum front-end sales load, if applicable. For mutual funds without a front-end sales load, the offer and the NAV will be identical.

Open:
During trading hours, the first price at which an issue starts trading at the beginning of the current trading day. During nontrading hours, the first price at which an issue began trading during the most recent trading day.

Operating Income:
The annual revenue/sales less cost of sales, other operating expenses (before depreciation), and selling, general and administrative expenses.

Option:
A contract wherein one party (the option writer) grants another party (buyer) the right to demand that the writer perform a certain transaction.

Over-the-Counter (OTC):
A market for securities that, in most cases, are not listed on one of the major stock exchanges. These securities are traded by dealers who act as principals rather than as agents. The over-the-counter market is the principal market for US government and municipal bonds.

Par Value:
The face or nominal value of a security.

A dollar amount assigned to a share of common stock by the corporation's charter. At one time, it reflected the value of the original investment behind each share, but today it has little significance except for bookkeeping purposes. Many corporations do not assign a par value to new issues. For preferred shares or bonds, par value has importance insofar as it signifies the dollar value on which the dividend/interest is figured and the amount to be repaid upon redemption.

Preferred dividends are usually expressed as a percentage of the stock's par value.

The interest on bonds is expressed as a percentage of the bond's par value.

Payment Date:
The date on which payment is due for a customer who has purchased securities in a cash or a margin account.

Payout Ratio:
Dividend payout (five-year average) is the sum of the actual dividends paid per share as reported from the annual report divided by the total primary earnings per share from the annual report divided by five.

Penny Stocks:
Colloquial term for, but not limited to, low priced, high-risk stocks that usually sell for less than $1 per share. These shares usually require a special margin maintenance requirement, and purchases are often limited to unsolicited orders.

Point:
For stocks, $1.

For bonds, since a bond is quoted as a percentage of $1,000, one point equals $10. For example, a municipal security discounted at 3 1/2 points equals $35; it is quoted at 96 1/2 or $965 per $1,000.

Portfolio:
Holdings of securities by an individual or institution. A portfolio may include preferred and common stocks, as well as bonds, of various enterprises.

Portfolio CreditLinesm:
An efficient, low cost way to borrow against the value of the eligible securities you hold in your account. You can use your Portfolio CreditLine for any personal, business or investment purpose. For more information, speak with your Financial Advisor advisor or request our brochure on Portfolio CreditLine. (Borrowing against securities involves risks if your securities decline in value. These risks, as well as the suitability of this strategy, should be carefully considered before utilizing your Portfolio CreditLine.)

Power of Attorney:
The legal right conferred by a person or institution upon another to act in the former's stead.

In the securities industry, a limited power of attorney is given by a customer to a representative of a broker/dealer who would normally give a registered representative trading discretion over the customer's account. The power is limited in that neither securities nor funds may be withdrawn from the account.

In the securities industry, an unlimited power of attorney given by a customer to a representative of a broker/dealer would normally give a registered representative full discretion over the conduct of the customer's account.

Preferred Stock:
Owners of this kind of stock are entitled to a fixed dividend to be paid regularly before dividends can be paid on common stock. They also exercise claims to assets, in the event of liquidation, senior to holders of common stock but junior to bondholders. Holders of preferred stock normally do not have a voice in management.

Preliminary (Offering Statement) Prospectus:
See Preliminary Official Statement (POS).

Preliminary Official Statement (POS):
Also known as the preliminary prospectus, the preliminary version or draft of an official statement, as issued by the underwriters or issuers and subject to change prior to the confirmation of offering prices or interest rates. It is the only form of communication allowed between a broker and prospective buyer before the effective date, usually to gauge the interest of underwriters. Offers of sale or acceptance are not accepted on the basis of a preliminary statement. A statement to that effect, printed in red, appears vertically on the face of the document. This caveat, required by the Securities Act of 1933, is what gives the document its nickname, "red herring."

Price to Book:
The closing price divided by the book value per share, both as of the latest reported quarter.

Price/Earnings Ratio:
A ratio used by some investors to gauge the relative value of a security in light of current market conditions. Ratio = Market Price ÷ Earnings per Share.

Prime Rate:
The interest rate charged by a bank on loans made to its most creditworthy customers.

Principal Balance:
The amount of a debt investment minus the interest. For a mortgage-backed security, the amortized value of the security multiplied by the price of the trade.

Principal Prepayment:
Any payment or other recovery of principal on a mortgage loan that is received in advance of its scheduled due date, including any prepayment penalty or premium, and not accompanied by any interest coming due on or after the month prepayment.

Prior Day's Close:
Prior Day's Close is the price at which an issue traded just prior to the previous trading day's market close. For issues with only bid and ask quotations, such as OTC issues, the close price is populated with the bid price.

Profit Taking:
A drop-off in general market prices after a sharp increase. In the absence of any adverse socio-economic influence, traders are assumed to be taking short-term profits.

Prospectus:
A document that contains material information for an impending offer of securities (containing most of the information included in the registration statement) and that is used for solicitation purposes by the issuer and underwriters.

Proxy:
A formal authorization (power of attorney) from a stockholder that empowers someone to vote on his or her behalf.

Put Option:
A privilege giving its holder the right to demand acceptance of his or her delivery of 100 shares of stock at a fixed price any time within a specified lifetime. Sometimes referred to as a seller's option. See Call Option.

Quick Ratio:
The Total Current Assets minus the Total Current Inventory, divided by the Total Current Liabilities. All figures are of the latest reported quarter. This ratio is a measure of a company's short-term liquidity.

Ratings:
See Security Ratings.

Real Estate Investment Trust (REIT):
A closed-end investment company investing in various ventures related to real estate.

A REIT allows smaller investors to invest in commercial real estate. Traded on a public stock exchange, REIT shares are subject to market fluctuations similar to common stocks, but REITs typically do not pay corporate income tax to the IRS. Instead, the REIT distributes 95% of its income to shareholders.

To qualify as a REIT, a corporation, business trust or similar association must be managed by a board of directors or trustees; have shares that are fully transferable; have a minimum of 100 shareholders; have no more than 50% of the shares held by five or fewer individuals; invest at least 75% of its total assets in real estate assets; derive at least 75% of gross income from rents or interest on real estate; and derive no more than 30% of gross income from sales of property held for less than four years.

Record Date:
The date on which you must be registered as a shareholder of a company in order to receive a declared dividend or, among other things, to vote on company affairs.

Refunding:
The issuance of a new debt security, using the proceeds to redeem either older bonds at maturity or outstanding bonds issued under less favorable terms and conditions.

Registered Bond:
An outstanding bond whose owner's name is recorded on the books of the issuing corporation. Legal title may be transferred only when the bond is endorsed by the registered owner.

Registered Security:
A certificate (stock or bond) clearly inscribed with the owner's name. A stock or bond that is registered with the SEC at the time of its sale. If such an initial registration does not take place, then the term also includes any security sold publicly and in accordance with SEC's rules.

Reg T Call:
A notice to a customer of a broker/dealer that additional equity is needed in his or her account to meet the minimum standards set by Regulation T of the Federal Reserve.

Reported Net Income:
The net income reported for total operations (continued + discontinued), after taxes and minority interest and before extraordinary gains/losses. Net Income = Revenues - Expenses.

Return on Assets (ROA):
The trailing four quarters of net income before extras divided by the assets as of the latest reported quarter. A measure of profitability, ROA provides the amount earned on each dollar invested in assets.

Return on Equity (ROE):
The trailing four quarters of net income before extras divided by common stockholders' equity as of the latest reported quarter. This ratio measures the return of each dollar invested by the common stockholders in a company.

Return on Sales (ROS):
The trailing four quarters of net income before extras divided by the trailing four quarters of revenue. A measure of profitability, ROS provides the amount earned on each dollar generated from revenue. ROS can vary widely from industry to industry.

Revenue Bonds:
Tax-exempt bonds whose interest payments are dependent upon, secured by and redeemable from the income generated by a particular project financed by their issuance.

Revocable Trust:
An agreement that gives income-producing property to an heir and that may be altered as often as the creator pleases. The entire trust can even be canceled or revoked.

Right:
See Subscription Right.

Round Lot:
A unit of trading or a multiple thereof. On the NYSE, stocks are traded in round lots of 100 shares for active stocks and 10 shares for inactive ones. Bonds are traded in units of $1,000.

Safekeeping:
A protected condition maintained as a service by a brokerage firm for its customers' fully paid securities registered in the customers' own names. The practice entails use of vault space to store those certificates until they are withdrawn or sold.

Sales/Revenues:
Annual operating revenue/sales includes all net sales of the corporation plus any other revenues associated with the main operations of the business (or those labeled as operating revenues). It does not include dividends, interest income or nonoperating income. For financial companies (banks, insurance companies, etc.), all revenue items, regardless of size, are included in operating revenue.

Seat:
A membership in an exchange. A seat must be owned by an individual who is a US citizen and at least 21 years of age. It may be sold at auction to the highest bidder or transferred for a nominal consideration, subject to approval by the exchange's board of directors.

Secondary Distribution:
A public sale of previously issued securities usually held by large investors in corporations or affiliates of the company. Note: It can be combined with a Primary Distribution, i.e., a public offering of 2 million shares could be made up of 2 million Primary shares and 3 million, 2 million and 1 million Secondary shares.

Secondary Offering:
See Secondary Distribution.

Securities and Exchange Commission (SEC):
A government agency responsible for the supervision and regulation of the securities industry.

Securities Investor Protection Corporation (SIPC):
Formed by the Securities Investors Protection Act of 1970, a government-sponsored, private, nonprofit corporation that guarantees repayment of money and securities to customers in amounts up to $500,000 per customer in the event of a broker/dealer bankruptcy. SIPC covers up to a maximum of $500,000, only $100,000 of which may be for cash. If you have, for example, $100,000 in cash and $100,000 in securities in your account, you are covered for $200,000 ($100,000 of which is cash). If you have $200,000 in securities and $200,000 in cash, you are covered for $300,000 ($200,000 in securities plus $100,000 in cash). If you have $500,000 in securities and $100,000 in cash, you are covered for $500,000, the maximum.

Security:
A transferable instrument evidencing ownership or creditorship, such as a note, stock or bond, evidence of debt, interest or participation in a profit-sharing agreement, investment contract, voting trust certificate, fractional undivided interest in oil, gas, or other mineral rights, or any warrant to subscribe to, or purchase, any of the foregoing or other similar instruments.

Security Ratings:
Ratings set by rating services, such as Moody's, Standard & Poor's or Fitch, denoting evaluations of the investment and credit risk attached to securities.

Sell Short:
To sell securities that one does not own. Typically, the seller's brokerage firm arranges to borrow stock to make delivery to the buyer, until the seller "closes" the position by purchasing stock and turning it over to the brokerage firm.

Settlement (Delivery) Date:
The day on which certificates or payments involved in a transaction are due at the purchaser's office.

Settlement of index option exercises between brokers takes place on the business day immediately following the day of exercise.

For Fannie Mae, the settlement date is the date of delivery of the guaranteed mortgage pass-through certificates associated with any pool purchase transaction to the lender.

Share:
A stock certificate, a unit of measurement of the equity ownership of a corporation.

Shares Outstanding (SHO):
The Shares Outstanding (SHO) value contains the number of shares of outstanding stock held by shareholders. The SHO value represents the number of shares outstanding on a security basis; multiple classes of a company's stock are not combined. If the data vendor on the ex-date of a stock split or stock dividend does not provide a revised SHO value, the adjustment factor associated with the stock split or stock dividend is automatically applied to the SHO.

Short-against-the-Box:
A situation in which a person is both long and short in the same security at the same time in his/her account, a practice usually employed to defer tax liability on capital gains. Although the customer sells the stock short, he/she actually owns the security, which is held in the broker's "box." The aim is to protect a capital gain in owned shares, while deferring the taxes due if the shares were actually sold and the capital gain reported. This way, the investor can wait until he or she is in a more favorable tax situation to sell the securities.

Short-term Debt:
The amount of borrowings (principal and interest) which must be paid in the near future (usually one year). Typical short-term accounts include: current portion of long-term debt, portion of long-term debt payable within one year, current bank notes payable, current notes payable (nontrade), short-term debt, current commercial paper owed and interim debt.

Small Capitalization Stocks:
Of relatively small US companies, these stocks are often found in the NASDAQ Composite or the Russell 2000. Small Cap Stocks tend to involve more risk than Large Cap Stocks.

Speculation:
The employment of funds in high-risk transactions for relatively large and immediate gains in which the safety of principal or current income is of secondary importance.

Split:
A division of outstanding shares of a corporation into a stated number of shares by which each outstanding share entitles its owner to a fixed number of new shares. In a reverse split, a stock owner receives less shares at a correspondingly higher price. In a forward split, a stock owner receives more shares at a correspondingly lower price. In both reverse and forward splits, the total equity (number of shares multiplied by the stock price) remains the same. For example, in a two-for-one forward split, the owner of 100 shares, each worth $100, would be given 200 shares, each worth $50.

Stock Power:
A legal document, either on the back of registered stocks and bonds or attached to them, by which the owner assigns the interest in the corporation to a third party, allowing that party the right to substitute another name on the company records in place of the original owner's.

Stocks:
Certificates representing ownership in a corporation and a claim on the firm's earnings and assets. They may yield dividends and can appreciate or decline in value.

Each share of common stock represents a share of ownership in a company. Different types of stocks include Large Capitalization Stocks, Small Capitalization Stocks, International Stocks, Blue Chip Stocks and Growth Stocks. Stocks are not FDIC-insured and involve risk, including possible loss of the invested amount.

Stop Order:
An order to buy or sell a security as soon as the security's price hits a specific level. Buy Stop Orders are "elected" or "triggered" when the NBBO equals or exceeds the stop price. Buys stop orders are used to purchase securities that you belive are going to trade above a specific price level and then higher (break out of a trading range). A buys stop price is usually placed above the National Best Offer. (If, when the order is received, the stop price is equal to or less than the National Best Offer, the order may be triggered immediately upon its receipt.) Sell Stop Orders are "elected" or "triggered" when the National Best Bid or Offer (NBBO) equals or falls below the stop price. Sell Stop Orders are used to limit a loss (or protect a profit) on stocks you own. A stop price is usually placed below the National Best Bid. (if, when the order is received, the stop price is equal to or greater than the National Best Bid, the order may be triggered immediately upon its receipt.) Note: Options relate to the last sale in the security, not the NBBO.

Street Name:
When securities have been bought on margin or when the customer wishes the security to be held by the broker/dealer, the securities are registered and held in the broker/dealer's own firm (or "street") name.

Strike (Striking, Exercise) Price:
The price at which an option may be exercised. That is, when the underlying stock reaches the strike price, an option holder may require the writer to perform the transaction as agreed upon in the original privilege.

Subscription Right:
A privilege granted to owners of certain stocks to purchase newly issued securities in proportion to their holdings, usually at values below the current market price. Rights have a market value of their own and are actively traded. They differ from warrants in that they must be exercised within a relatively short period of time.

Suitability:
The appropriateness of a strategy or transaction, in light of an investor's financial means and investment objectives.

Interest rate swaps usually exchange floating-rate payments for fixed-rate payments, although other types of swaps are done.

Currency swaps are agreements to deliver one currency against another at certain intervals.

Syndicate:
A group of investment bankers who purchase securities from the issuer and then reoffer them to the public at a fixed price. The syndicate is usually lead by a syndicate manager, who insures the successful offering of a corporation's securities.

200-day Moving Average:
A rolling average of the latest 200 days of closing prices for a security.

Tax-exempt Securities:
Obligations issued by a state or municipality, or a state or local agency, whose interest payments (but not profits from purchase or sale) are exempt from federal taxation. The interest payment may be exempt from local taxation, too, if purchased by a resident of the issuing state. Treasury securities are taxable on a federal level but exempted from state taxes.

Technical Analysis:
An approach to market theory stating that previous price movements, properly interpreted, can indicate future price patterns.

Tender Offer:
A formal proposition to stockholders to sell their shares in response to a large purchase bid. The buyer customarily agrees to assume all costs and reserves the right to accept all, none or a specific number of the shares presented for acceptance.

Ticker Symbol:
A one- to six-character code that identifies the issue. The ticker symbol has one or two parts: a primary identification symbol and, in some cases, an extended identification code.

Total Assets:
Total Current Assets + Total Noncurrent Assets + Intangibles.

Total Debt:
Calculated by adding the short-term and long-term debt figures, both as of the latest reported quarter.

Total Liabilities:
Total Current Liabilities + Total Noncurrent Liabilities.

Total Return:
A cumulative monthly comparison of the total return of the security, the Standard & Poor's 500 index and the Industry Index, expressed in percent. Total return includes capital gains (or losses) and all dividends paid over a given period.

Total Return Concept:
A strategy in covered call writing where the writer views the potential profit of the strategy as the sum of capital gains, dividends and option premium income, rather than viewing each one of the three separately.

Total Stockholder Equity:
Preferred Equity + Common Equity + Retained Earnings.

Trade Date:
The date a trade was entered, as opposed to settlement date.

Treasury Bill:
A federal bearer obligation issued in denominations of $10,000 to $1 million with a maturity date usually of three months to one year. It is fully marketable at a discount from face value (which determines the interest rate).

Treasury Bond:
A federal registered or bearer obligation issued in denominations of $500 to $1 million with maturities ranging from five to 35 years, carrying a fixed interest rate and issued, quoted and traded as a percentage of its face value.

Treasury Note:
A federal registered or bearer obligation issued in denominations of $1,000 to $500 million for maturities of one to 10 years, carrying a fixed rate of interest. These notes are issued, quoted and traded at a percentage of their face value.

Underwriter:
Also known as an "investment banker" or "distributor," a middleman between an issuing corporation and the public. The underwriter usually forms an underwriting group, called a syndicate, to limit risk and commitment of capital. He or she may also contract with selling groups to help distribute the issue for a concession. In the distribution of mutual funds, the underwriter may also be known as a "sponsor," "distributor" or even "wholesaler." Investment bankers also offer other services, such as advice and counsel on the raising and investment of capital.

Uniform Gift to Minors Act (UGMA):
A simplified law that enables minors to own property or securities in a beneficial fashion without need of trust instruments or other legal documents. In the securities industry, the term describes securities bought and sold under the provisions of this law that allow someone of legal age to serve as custodian for the minor's assets.

Unit Investment Trust:
A closed end investment company, which consists of a professionally selected basket of securities — either stocks or bonds. These securities are packaged into a single investment portfolio that generally remains fixed over the life of the trust. The total ownership of the portfolio is divided into a fixed number of units, each representing a partial ownership of the underlying portfolio.

Value of $1,000:
A comparison of the returns of $1,000 invested in a security to the returns of $1,000 invested in the Standard & Poor's 500 index and the Industry Index. The five investment periods include: three months, year to date, one year, three years and five years. Dividends are reinvested for the security, the Standard & Poor's 500 index, and the Industry Index.

Variable Annuity:
An investment contract issued by a life insurance company designed to offer continuous income through participation in a mutual fund portfolio. The life insurance aspect of the contract provides tax benefits as well as a death benefit as an additional attraction.

Variable Rate:
Interest rate on a security that is subject to change, commonly in connection with the rates paid on selected issues of Treasury certificates. Also called floating rate.

Voume:
During trading hours, it's the cumulative number of shares that have traded during the current trading day. During nontrading hours, it's the cumulative number of shares which traded during the most recent trading day.

Yield (Rate of Return):
The percentage return on an investor's money in terms of current prices. It is the annual dividend/interest per share or bond, divided by the current market price of that security.

Yield Curve:
Graph depicting the relation of interest rates to time: time is plotted on the x-axis, and yields on the y-axis. The curve shows whether short-term interest rates are higher or lower than long-term rates. A positive yield curve results if short-term rates are lower, and a negative yield curve results if short-term rates are higher. A flat yield curve results if long- and short-term rates do not differ greatly. Generally, the yield curve is positive because investors tie up their money for longer periods and are rewarded with better yields.

Yield to Maturity:
The calculation of an average rate of return on a bond (with a maturity over one year) if it is held to its maturity date and if all cash flows are reinvested at the same rate of interest. It includes an adjustment for any premium paid or discount received. It is a calculation used to compare relative values of bonds.

Zero Coupon Bonds:
Zero coupon bonds do not pay interest during their lifetime. Investors buy zero coupon bonds at a deep discount from their face value, which is the amount a bond will be worth when it "matures" or comes due. When a zero coupon bond matures, the investor receives the initial investment plus interest.

Investors can purchase different kinds of zero coupon bonds in the secondary markets that have been issued from a variety of sources, including the US Treasury, corporations, and state and local government entities.

Because zero coupon bonds pay no interest until maturity, their prices fluctuate more than other types of bonds in the secondary market. In addition, although zero coupon bonds do not pay any interest until they mature, investors may have to pay federal, state and local income taxes on the imputed or "phantom" interest that accrues each year. Some municipalities issue zero coupon bonds that are federal- and state-tax free. Zero coupon bonds can be purchased in a tax deferred account such as an IRA.