Glossary of Insurance Terms

Account Executive – An individual who is employed by a Broker/Dealer to handle customer accounts and to advice about investing and securities. Also known as a broker or Registered Representative (RR). Must be appropriately licensed and registered with the proper Self Regulatory Organization (SRO).

Accredited Investor – A purchaser of a Private Placement (Regulation D) who has a high net worth. The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

  1. a bank, insurance company, registered investment company, business development company, or small business investment company;
  2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of five (5) million;
  3. a charitable organization, corporation, or partnership with assets exceeding five (5) million;
  4. a director, executive officer, or general partner of the company selling the securities;
  5. a business in which all the equity owners are accredited investors;
  6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds one (1) million at the time of the purchase;
  7. a natural person with income exceeding two (2) hundred thousand in each of the two (2) most recent years or joint income with a spouse exceeding three (3) hundred thousand for those years and a reasonable expectation of the same income level in the current year; or
  8. a trust with assets in excess of five (5) million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Active Asset Management – An asset/money management approach that seeks to surpass the specific index return. Active Asset Managers believe that undervalued stocks exist in the market and that investing in them can allow them to exceed returns of similar index funds.

Active Return – The excess return achieved by an asset manager above the specified benchmark.

Administrator – The person designated to enforce the provisions of the Uniform Securities Act. Typically is the State Securities Commission, State Securities Commissioner or the Secretary of State.

Affiliated Person – A definition under Rule 144. An individual who is in a position to influence the actions of a corporation. This includes people such as directors, executives, and owners.

After Tax Rate of Return – The yield provided by an investment after taxes have been paid.

Agency Transaction – A trade where the executing member acts as a middleman. The middleman attempts to find the highest price for the seller and the lowest price for the buyer. The executing member earns a commission for finding the “best value” for the customer.

Agent – A registered person who makes a transaction on behalf of his or her employer or client. A broker, Registered Representative, or Account Executive is typically an agent.

Agreement Among Underwriters – More often called the Syndicate Agreement. This is a legal agreement among the members of the syndicate which defines the members’ proportionate liability and responsibility in the underwriting of a new issue security.

Alpha – A measure of performance on a risk-adjusted basis. Alpha is a measure of a security’s price movement relative to the securities in its industry. A high alpha means the security moves faster than the average in its group. A low alpha means the security moves slower than the average in its group.

American Stock Exchange (AMEX) – The AMEX has now merged with the NASDAQ. It was the third-largest stock exchange by trading volume in the United States and handled approximately ten (10) percent of all securities traded in the U.S.

Annualized Rate of Return – The rate of return for a time period shorter than a year is annualized to make a valid comparison with other investments. For example, if an investment has a 6 month return of 2%, the annualized return would be 4%.

Annuity – An investment contract, typically issued by insurance companies, in which the purchaser makes periodic or lump-sum payments for a period of time and begins receiving distributions at a fixed date in the future, typically at retirement. There are fixed annuities where the payment distribution is fixed and there are variable annuities, where the distribution payment is dependent upon the value of the securities underlying the contract.

Arbitrage – The simultaneous purchase and sale of an asset in order to profit from a difference in the price. This usually takes place on different exchanges or marketplaces.

Arbitrage Account – An account in which an investor performs arbitrage transactions or sells short against the box (selling securities that you already own). One side exactly offsets the other, so these accounts are said to have no credit risk.

Arbitration – A binding, non-appeal-able process in which a disagreement between two or more parties is resolved by impartial individuals, called arbitrators, in order to avoid costly and lengthy litigation. Intra-industry disputes and disputed between a member firm and a customer are typically handled in this way.

Asset Allocation – The systematic and thoughtful placement of investment dollars into various classes of investments such as stocks, bonds, and cash equivalents. The aim is to optimize the risk/reward tradeoff based on an individual’s or institution’s specific situation and goals. A key concept in financial planning and money management.

Asset Class – The categorization of investments into groupings with similar risk and return characteristics. Examples are stocks, bonds, and cash.

Balanced Fund – A management company that invests in common stocks for growth and preferred stocks and bonds for income with the aim to achieve a balance for both.

Bank Note – A non-interest-bearing promissory note of a Federal Reserve Bank which is payable to the bearer on demand and can be used as cash.

Best Efforts Underwriting – A type of underwriting agreement in which the underwriter agrees to use all efforts to sell as much of an issue as possible to the public. Any amount of the securities that remains unsold is returned. The underwriter is not responsible for any unsold inventory.

Beta – A quantitative measure of the volatility of a given security relative to the overall index/market, usually the S&P 500. A beta of one (1) indicates the price of the security rises and falls in direct relationship to the movement of the index. A beta above one (1) is more volatile than the overall market, while a beta below one (1) is less volatile. A negative (-) beta indicated the security’s price moves in the opposite direction to the market as a whole.

Block – A large amount of securities being held or traded, typically at least ten (10) thousand shares or more of stock in the same issue or bonds with a face value of two (2) hundred thousand or more.

Blue Chip Stock – Stock of a well-established and financially sound company that has demonstrated its ability to pay dividends in both good and bad times.

Blue Sky Laws – State regulations designed to protect investors against securities fraud by requiring broker/dealers, securities, and agents to register in each state and provide financial details. Commonly used name for the Uniform Securities Laws (state laws as opposed to federal laws).

Bond – A long-term debt investment or IOU in which an investor loans money to a corporate, municipal, or governmental entity that borrows the funds for a defined period of time at a fixed interest rate. Traditionally most bonds pay interest semi-annually. Bonds are used by companies, municipalities, states, and U.S. and foreign governments to finance a variety of projects and activities.

Bottom Up Approach – A method of investing that looks for specific companies/investments that are likely to have exceptional performance, regardless of overall economic conditions. Once these companies are selected then, the potential impact of overall economic conditions would be considered prior to making an investment.

Brochure – Form AVD Part II which gives descriptive information about the Advisory Firm and must be given to customers at least forty-eight (48) hours prior to entering into an advisory contract.

Brochure Rule – Under the Investment Advisor’s Act of 1940, the Brochure Rule requires federally registered investment advisors to provide a written disclosure statement to their clients at specified times during the advisory process.

Broker – Any person or firm engaged in effecting transactions in securities for the account of others. Brokers are usually licensed professionals in fields where specialized knowledge is required, such as finance, insurance, and real estate.

Broker/Dealer – Any person or firm engaged in effecting transactions in securities for its own account or the accounts of others.

Brokered CD – A large-denomination CD sold by a bank to a brokerage, which then divides it into smaller pieces for sale to its customers.

Business Risk – The risk that an issuer’s business declines, often due to technological change, bad business decisions, and law changes. This causes the value of that issuer’s securities to decline.

C- Corporation – Taxable entities that can have an unlimited number of shareholders. C Corporations that have excess funds to invest can take advantage of a tax benefit called the corporate dividend exclusion. If they invest in dividend paying stocks then seventy (70) percent of the cash dividends received from investments made in other corporate common and preferred stocks are excluded from tax.

Call Option – A contract that gives an investor the right (but not the obligation) to buy a fixed amount of securities at a specified price within a specific time period.

Call Risk – The risk that an issuer will call outstanding bond or preferred stock issues prior to their maturity date in periods of falling interest rates.

Callable Bond – A bond that the issuer has the option to call before the maturity date. Usually the bond is called at a premium.
Chicago Board Options

Exchange (CBOE) – An exchange where stock options, equity LEAPS, index options, and interest rate options are traded.

Certificate of Deposit (CD) – A short-term money market instrument issued by a bank at par that repays principal and interest at maturity.
Securities offered through Registered Representatives of NFP Securities, Inc., a Broker/Dealer and
Member FINRA/SIPC. Investment Advisory Services offered through Investment Advisory
Representatives of NFP Securities, Inc. a Federally Registered Investment Advisor. 8/08

Closed-End Fund – A type of management company with a fixed number of shares outstanding that does not redeem shares the way a typical mutual fund does. Closed-end funds behave more like stock than open-end funds because they issue a fixed number of shares to the public in an initial public offering, after which time, shares in the fund are bought and sold on a stock exchange. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value (“at a discount”) or above it (“at a premium”). Also called closed-end investment company or publicly-traded fund.

Collateral Trust Certificate – A bond issued by a corporation where the shares of a wholly-owned subsidiary are deposited with the trustee, and are the collateral backing the bond. If the issuer defaults, then the bondholders own the stock of the subsidiary company.
Collateralized Mortgage

Obligation (CMO) – A derivative debt security collateralized by a portfolio of mortgage backed pass-through certificates. The payments from the certificates are allocated into streams of differing maturities called tranches.

Commercial Paper – An unsecured short-term money market debt instrument issued by a corporation with a maximum maturity of two (2) hundred seventy (70) days. Commercial paper is issued at a discount and matures at face value.

Commingling Funds – Mixing up customer funds and securities with broker-dealer funds and securities. This is prohibited by broker-dealers and investment advisors.

Commodity – A physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts. The price of the commodity is subject to supply and demand. These are not defined as securities as they do not meet the basic definition of such.

Common Stock – An equity security that gives the owner the right to receive dividends, vote on company issues, and vote for the Board of Directors. The common stockholder is the last person in line whose claims are satisfies should a corporation go bankrupt.

Corporate Bond – A bond issued by a corporation. Corporate bonds often pay higher rates than government or municipal bonds, because they tend to be riskier.

Counter Cyclical Stock – A stock that moves in the opposite direction of the overall economic cycle. It rises when the economy is weakening, and falls when the economy is strengthening.

Coupon Rate – The interest rate stated on a bond, note, or other fixed income security, expressed as a percentage of the principal (face value). Also called coupon yield and nominal yield.

Coverdell Education Savings Account – Previously called an Education IRA. A type of tax-deferred investment account that allows a maximum aggregate of two (2) thousand dollars non-deductible contribution to be made for the purpose of paying for a child’s education expenses.

Credit Balance – The amount remaining in a cash account or margin account after all securities have been paid for.

Credit Risk – The risk that the issuer of a bond or preferred stock may default on interest and principal payments.

Currency(Exchange) Risk – The risk that a business’ operations or an investment’s value will be affected by changes in exchange rates due to any of a variety of factors such as government policy changes, inflation level changes, economic performance, etc.

Current Yield – The return that a dividend on a stock, or interest on a bond, provides to the security’s current market price. The formula for computing the current yield for a stock is the annual dividend divided by the stock’s current market price. For a bond, the current yield is the annual interest divided by the bond’s current market price. Also known as bond yield or dividend yield for stocks.

Cyclical Stock – A stock whose market vale and performance changes/moves directly with the phases of the business/economic cycle.

DECLARATION Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its location and description, the policy period, premiums, and supplemental information. Referred to as the ìdec page.

DEDUCTIBLE The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

DEFERRED ANNUITY An annuity contract that is purchased either with a single tax-deferred premium or with periodic tax-deferred premiums over time. Payments begin at a predetermined point in time, such as retirement.

DEFINED BENEFIT PLAN A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percentage of wages, usually average earnings over that period or highest average earnings over the final years with the company.

DEFINED CONTRIBUTION PLAN An employee benefit plan under which the employer sets up benefit accounts and contributions are made to it by the employer and by the employee. The employer usually matches the employee’s contribution up to a stated limit.

DEMAND DEPOSIT Customer assets that are held in a checking account. Funds can be readily withdrawn by check, ìon demand.î

UTUALIZATION The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.

DEPOSITORY INSTITUTION Financial institution that obtains its funds mainly through deposits from the public. Includes commercial banks, savings and loan associations, savings banks, and credit unions.

DEREGULATION In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been deregulated in many states.

DERIVATIVES Contracts that derive their value from an underlying financial asset, such as publicly-traded securities and foreign currencies. Often used as a hedge against changes in value.

DIMINUTION OF VALUE The idea that a vehicle loses value after it has been damaged in an accident and repaired.

DIRECT PREMIUMS Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.

DIRECT SALES/ DIRECT RESPONSE Method of selling insurance directly to the insured through an insurance companyís own employees, through the mail, or via the Internet. This is in lieu of using captive or exclusive agents.

DIRECT WRITERS Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, or via Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.

DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O Covers directors and officers of a company for negligent acts or omissions, and for misleading statements that result in suits against the company, often by shareholders. Directors and officers insurance policies usually contain two coverages: personal coverage for individual directors and officers who are not indemnified by the corporation for their legal expenses or judgments against them ñ some corporations are not required by their corporate or state charters to provide indemnification; and corporate reimbursement coverage for indemnifying directors and officers. Entity coverage for claims made specifically against the company may also be available.

DIVIDENDS Money returned to policyholders from an insurance companyís earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the difference between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called participating policies.

DOMESTIC INSURANCE COMPANY Term used by a state to refer to any company incorporated there.

EARLY WARNING SYSTEM A system of measuring insurersí financial stability set up by insurance industry regulators. An example is the Insurance Regulatory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.

EARNED PREMIUM The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

EARTHQUAKE INSURANCE Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes are not covered by standard homeowners or most business policies.

ECONOMIC LOSS Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.

ELECTRONIC COMMERCE / E-COMMERCE The sale of products such as insurance over the Internet.

ELIMINATION PERIOD A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.

EMPLOYEE DISHONESTY COVERAGE Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See FIDELITY BOND)

EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.

EMPLOYER’S LIABILITY Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law. (See EXCLUSIVE REMEDY)

EMPLOYMENT PRACTICES LIABILITY COVERAGE Liability insurance for employers that covers wrongful termination, discrimination, or sexual harassment toward the insuredís employees or former employees.

ENDORSEMENT A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.

ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.

EQUITY In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.

EQUITY INDEXED ANNUITY Non-traditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance departments.

ERRORS AND OMISSIONS COVERAGE / E&O A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.

ESCROW ACCOUNT Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.

EXCESS AND SURPLUS LINES Property/casualty coverage that isnít available from insurers licensed by the state (called admitted insurers) and must be purchased from a non-admitted carrier.

EXCESS OF LOSS REINSURANCE A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.

EXCLUSION A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

EXCLUSIVE AGENT A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agentís company. (See Captive agent)

EXCLUSIVE REMEDY Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related injury and disease, regardless of whether is was the employeeís fault and in return the injured employee gives up the right to sue when the employerís negligence causes the harm.

EXPENSE RATIO Percentage of each premium dollar that goes to insurersí expenses including overhead, marketing, and commissions.

EXPERIENCE Record of losses.

EXPOSURE Possibility of loss.

EXTENDED COVERAGE An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.

EXTENDED REPLACEMENT COST COVERAGE Pays a certain amount above the policy limit to replace a damaged home, generally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can push up the normal cost of reconstruction.

Face Amount Certificate – One of the three (3) types of investment companies defined in the Investment Company Act of 1940. The debt holder makes payments periodically to the issuer, and the issuer agrees to pay to the holder the face value at maturity.

Family Limited Partnership – A partnership used for estate tax planning and designed to centralize family business or investment accounts. The family’s assets are pulled into one (1) single family-owned business partnership that family members own shares of. Shares in the FLP can be transferred between generations, at lower taxation rates than those applied directly to the partnership’s holdings.

Corporation FDIC – The corporation that insures customer bank accounts up to one (1) hundred thousand dollars against bank failure.

Federal Covered Security – Most of the stocks trading in the United States are federally covered. A federally covered security is one issued by a company listed on a major stock exchange and those issued by a registered company. Federal covered securities must be registered with the Securities and Exchange Commission (SEC) and cannot be required to register with the state.

Federal Funds – This is the shortest term money market instrument. An overnight, unsecured loan between bank members of the Federal Reserve System designed to enable banks temporarily short of their reserve requirement to borrow reserves from banks having excess reserves.

Federal Funds Rate – The interest rate charged on borrowing between Federal Reserve System member banks for overnight loans on reserves and is the lowest interest rate in the economy. This rate changes daily in response to borrowing needs.

Federal Reserve Board (FRB) – Also known as “The Fed”. The governing board of the Federal Reserve System which sets the policies that affect the money supply and monitors the economic health of the country.

Fee Only Adviser – An advisor whose only compensation comes from the charges paid by the customer and does not receive payments from third parties for customer referrals or trade executions.

Fiduciary – A person legally appointed to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person, usually a beneficiary and must always act in the best interest of the other person.

Fiduciary Account – A company, trust, or person who holds or invests funds for someone else and acts in the best interest of the account owner. Trust accounts are an example of a fiduciary account.

Firm Commitment Underwriting – A type of underwriting commitment in which the underwriter agrees to buy all of the issuer’s new securities and then resell them to the public. The issuer is granted its funds and the underwriter assumes full financial liability if the issue is not sold to the public.

First Market – Trading of exchange listed securities on the exchange floor.

Fixed Annuity – An annuity that pays the annuitant a fixed amount for life, or for a fixed time period. This is considered an insurance product and not a security because the insurance company bears all the investment risk.

Floor Broker – Also called a “pit broker” and a commission house broker. This is an employee of a member firm who executes trades on the exchange floor on behalf of the firm’s clients.

Form ADV – A form filed with the Securities and Exchange Commission (SEC) that contains information about a Registered Investment Advisor (RIA) such as the investment advisors name, location, fiscal year of business, type of business, names of the officers, number of employees, total assets under management, states in which the advisor is registered etc.

Form 10-K – A comprehensive summary of a company’s performance that includes information such as company history, organizational structure, equity, holdings, earnings per share, subsidiaries, etc. and must be submitted annually to the Securities and Exchange Commission (SEC).

Form 10-Q – Required by the Securities and Exchange Commission (SEC) for all United States (US) public companies on a quarterly basis. This form must contain financial information for the quarter and must note any relative changes or events such as a stock split or acquisition in the quarter.

Fourth Market – The direct trading of large blocks of securities between institutional investors through a computer network called INSTINET rather than on an exchange.

Free Credit Balance – In a cash account, the amount of money that remains after all purchases and can be withdrawn by the customer without restrictions. In a margin account, the free credit balance is the total remaining money after margin requirements, short sale proceeds, and special miscellaneous accounts are taken into consideration.

Future Value – The original principal amount of an investment plus any interest during a specified time period. The future value is dependent upon the amount of time the investment is held and the interest rate earned over the investment’s life.

Futures – Contracts to buy of sell commodities at a pre-determined future date. These are not considered securities and are not regulated by the Securities and Exchange Commission (SEC).

General Obligation (GO) Bond – A municipal debt security backed by the full faith, credit, taxing and borrowing power of the municipality issuing it.

General Partner – In a Direct Participation Program (DPP) or limited partnership, the individual who manages the venture and has unlimited financial liability should the DPP fail.

Grantor – The person donating assets into a trust.

Growth Fund – A management company that buys common stocks and equivalent securities that have above average potential with the principal objective of achieving capital gains with little or no dividend payouts.

Growth Investing – Selection of equity investments based solely on the earnings or stock price over time.

Growth Stock – Stock of new and expanding companies which values are expected to grow rapidly. Such companies usually pay little or no dividends, preferring to use the income instead to finance further expansion.

Holding Period Return/Yield – The return earned for holding an investment for a period other than one (1) year. It is calculated as the sum of all income and capital growth divided by the value at the beginning of the period being measured. To make a valid comparison to other investment, the holding period return must be annualized.

Hypothecation – A customer’s pledging of securities or other assets, typically to a broker/dealer as collateral for a margin loan.

Income Bond – A debt security that promises to pay interest only when earned by the issuer; failure to pay interest does not result in default. This type of bond is usually issued by a corporation trying to reorganize its capitalization in order to avoid bankruptcy.

Index Fund – A mutual fund that invests in a group of securities chosen to match the composition and weighting of a particular stock market index such as the Standard and Poor’s 500 Index (S&P 500). These funds track the performance of an index.

Individual Investor – A person who buys or sells securities for his/her own account and is also called a retail investor.
Individual Retirement

Account (IRA) – A personal retirement plan that allows individuals with earned income to deposit an annual amount of money for the purpose of using the funds during retirement. The earnings on the account accrue on a tax-deferred basis.

Inflation – A rise in the prices of goods and services that results when customer demand increases relative to the supply of goods or services available. It is most likely to happen when the economy is in a period of rapid expansion.

Inflation Risk – The risk that inflation will erode the value of the money earned from investments. This is also known as purchasing power risk. Long-term bonds have the greatest inflation risk.

Initial Public Offering (IPO) – The first time a company issues or sells stocks to the public. IPOs must comply with the provisions of the Securities Act of 1933.

Inside Information – Non-public information of material nature that can affect the market value of the issuer’s securities when the news is announced.

Institutional Network (INSTINET) – The electronic system that permits direct trades between institutions.

Institutional Investor – Investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks, and endowment funds that trade securities in large volumes as they have large amounts to invest. Institutional investors are covered by fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves.

Insurance Policy – A contract where a premium is paid to an insurance company in return for a specific death or annuity amount to the purchaser of the policy.

Interest Rate Risk – The risk that results from rising interest rates and is the possibility of a reduction in the value of a security, especially a bond, due to the rise of interest rates. It is also know as market risk.

Internal Rate of Return – In a Direct Participation Program (DPP) offering , the discount rate often used that makes the net present value of all cash flows from a particular project equal to zero.

Investment Advisor (IA) – The financial professional who manages investment portfolios for investment companies and individual investors charging a management fee for the services rendered. Investment Advisors must be registered with the Securities and Exchange Commission (SEC) or with the state(s) in which they operate. Also called a portfolio manager.

Investment Advisor Representative (IAR) – An individual who provides investment advice to clients and who is properly licensed to do so.

Investment Company – The generic name for one of the companies formed under the Investment Company Act of 1940 whose primary business is investing and reinvesting in securities. These companies include mutual funds, closed-end funds, variable annuities, unit investment trusts, etc.

Investment Grade Bond – Any bond rated in the top four (4) grades by Standard and Poor’s or rated Aaa to Bbb in the Moody’s. The ratings indicate high quality bonds and low risk of default.

Investment Policy Statement – A summary of the chosen investments and asset allocation percentages that have been decided upon taking risk tolerance and investment time horizon in order to help meet the investor’s financial goals and objectives.

Investor – A person who trades securities for his/her own account or for the account of others.
Irrevocable Trust – A trust which cannot be changed or cancelled once it is set up without the consent of the beneficiary(ies) which allows a person to give money and assets even before death. The assets are typically excluded from the person’s estate and taxed at the rates scheduled for trusts.

Issuer – A corporation, trust, partnership, governmental unit, or other legal entity that issues securities.

Junk Bond – A bond with a high default risk and rated BB or lower by Standard and Poor’s and Ba or lower by Moody’s. Also known as a high-yield bond or speculative bond.

Keogh Plan – A tax-deferred pension/retirement plan for self-employed individuals. Also called an HR-10 plan. Contributions are fully deductible by the employer’s gross income.

L-SHARE VARIABLE ANNUITIES A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges than standard A share annuities.

LADDERING A technique that consists of staggering the maturity dates and the mix of different types of bonds.

LAW OF LARGE NUMBERS The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.

LIABILITY INSURANCE Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.

LIFE INSURANCE See Ordinary life insurance; Term insurance; Variable life insurance; Whole life insurance

LIMITS Maximum amount of insurance that can be paid for a covered loss.

LINE Type or kind of insurance, such as personal lines.

LIQUIDATION Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance companyís affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.

LIQUIDITY The ability and speed with which an asset can be a security can be converted into cash.

LIQUOR LIABILITY Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.

LLOYD’S OF LONDON A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

LLOYDS Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.

LONG-TERM CARE INSURANCE Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in a nursing facility or his or her residence following an injury.

LOSS A reduction in the quality or value of a property, or a legal liability.

LOSS ADJUSTMENT EXPENSES The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.

LOSS COSTS The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

LOSS OF USE A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

LOSS RATIO Percentage of each premium dollar an insurer spends on claims.

LOSS RESERVES The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet

Management Company – An investment company that is organized as a corporation and employs an investment advisor to manage portfolio securities against which it issues shares to the public. There are two (2) types – open-end and closed-end.

Market Maker – A FINRA member that gives bid and ask prices at which it stands ready to buy or sell securities from its inventory at its own risk in the over-the-counter market.

Market Risk – The risk that a security has based on the overall market. Also known as systematic risk or un-diversifiable risk. For equity securities it is the risk that the stocks will drop due to a sell-off in the market. For bonds, it is the risk that interest rates will cause market bond prices to go down.

Marketability Risk – Also known as liquidity risk. The risk that a security will be difficult to liquidate/sell.

Maturity Date – The date on which the borrower must repay the principal on an outstanding debt security.

Micro Cap – A company whose market capitalization is less than three (3) hundred million.

Mid Cap – A company whose outstanding market capitalization is between two (2) billion and ten (10) billion.

Money Purchase Pension Plan – A defined contribution retirement plan that specifies a fixed percentage of income or fixed dollars to be contributed to the plan annually regardless of profitability.

Money Supply – The total amount of money that is available in the economy.

Monte Carlo Simulation – A computer simulation used to approximate the impact of changes in multiple variables simultaneously on the expected performance of an investment over a specified time frame.

Mortgage – A loan made on real property where the lender has a lien on the property until the mortgage is paid off. This is not a security.

Mortgage-Backed Pass – Through Certificate – A certificate that represents an undivided interest in a pool of mortgage payments. The monthly mortgage payments made into the pool are passed-through to the certificate holders. This is a security.

Mortgage-Backed Securities – A type of security that is backed by a mortgage or collection of mortgages.

Mortgage Bond – A secured corporate bond backed by specific real estate the company owns. Mortgage bonds are backed by real estate or physical equipment that can be liquidated.

Municipal Securities Rulemaking Board (MSRB) – The primary rulemaking authority for the municipal market participants which include bank dealers and broker/dealers.
Municipal Bond – A debt security issued by a municipality, state, political subdivision, authority, or territory of the United States (US) to raise capital for projects or their day-to-day activities.

Mutual Fund – The common name for an open-end management company that establishes a diversified portfolio of investments that is actively managed, continuously issues new share, and redeems (buys back) old shares representing ownership in the portfolio.

National Association of Securities Dealers Automated Quotation System (NASDAQ) – An inter-dealer computer system that provides brokers, traders, and market makers current bid and ask quotes for Over the Counter (OTC) securities.

NASDAQ Stock Market – Also known as the Over the Counter (OTC) market. It is a negotiated trading market using a network of market makers located throughout the United States (US) to trade mainly smaller and high technology issues.

National Securities Clearing Corporation (NSCC) – Securities clearing organization in which financial institutions settle trades/accounts and provide information to one another.

Net Asset Value (NAV) – The value of each share of a management company, computed daily at market close, which is computed by totaling the current market value of each security held in the fund portfolio, subtracting it by the fund’s liabilities (Total Net Assets) and dividing by the total number of outstanding shares.

Net Present Value (NPV) – Net Present Value compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. It is the difference between the present value of cash inflows and the present value of cash outflows.

Net Worth – Total assets minus total liabilities for an individual or company.

New Issue – An issue of securities being offered to the public for the first time.

No-Load Fund – A mutual fund that has no sales charge added to its public offering price (POP).

Nominal Yield – The stated yield or coupon rate (interest) paid to the purchaser of a bond.

Non-Diversified Fund – An investment fund that does not have at least seventy-five (75) percent of its assets invested in securities, with no more than five (5) percent of these assets invested in any one company’s securities and no holdings exceeding ten (10) percent of the voting stock of any one company.

Non-Systematic Risk – The risk (company or industry specific) that is inherent in each investment. The amount of unsystematic risk can be diversified away through diversification.

Non-Tax Qualified Plan – A pension/retirement plan in which the contributions are not deductible against the contributor’s taxable income. Earnings are still tax-deferred and when distributions begin only the earnings are taxed.

Offering Price – The asking price for a security.

Office of Supervisory Jurisdiction (OSJ) – A financial business office where activities of registered persons are supervised, customer funds or securities are held, new accounts are approved, orders are reviewed, endorsed and executed, and/or marketing materials are approved for use.

Open-End Fund/Open End Management Company – Also known as a mutual fund. It is a type of company that establishes a diversified portfolio of securities and then continuously issues new shares and redeems (buys back) its own shares representing ownership in the portfolio. The shares on non-negotiable and do not trade.

Opportunity Cost – The opportunity cost is the risk that you could achieve greater benefits (be they monetary or otherwise) with another option.

Options Clearing Corporation (OCC) – The organization that regulates the listing of options and handles clearing of options trades for the various options exchanges.

Option/Option Contract – A contract of stocks, stock indexes, interest rates, or foreign currencies that gives the holder the right to either buy or sell securities at a specified price for a specified period of time. There are two (2) types of options- call options and put options.

Overbought Market – Typically indicates future price decline. It is a term used to describe stocks or the market whose value has risen quickly and unexpectedly well above its actual worth.

Oversold Market – Typically indicates future price increase. It is a term used to describe stocks or the market whose value has declined quickly and sharply far below its actual worth.

Over-The-Counter Bulletin Board (OTCBB) – A regulated electronic trading service that shows real-time quotes, last-sale prices, and volume information for over-the-counter (OTC) equity securities. There are no listing requirements as those found on the NASDAQ or New York Stock Exchange.

Over The Counter (OTC) Securities – A security that is not traded on a formal exchange such as the NYSE, AMEX, etc.

Price-Earnings (P/E) Ratio – The most common measure of how expensive a stock is. It is calculated by taking the current market price of a security and dividing it by its annual earnings.

Passive Asset Management – Passive Management is the opposite of Active Management. It is a style of management where the manager believes the market is efficient and investing in index funds is favored because they have historically outperformed the majority of actively managed funds. Passive managers believe there are no undervalued funds in the marketplace and that they can only match the performance of a similar index fund.

Passive Income – Income realized from investments in real estate or limited partnership investments.

Passive Investment – An investment in real estate or in a limited partnership (Direct Participation Program (DPP).

Pass-Through Certificate – A security representing the holder’s participation in a pool of securities such as mortgages. Payments from the underlying securities are passed-through to the certificate holders.

Payroll Deduction Savings Plan 401K plan – A corporate pension plan to which an employee contributes a percentage of his or her salary in pre-tax dollars via payroll deduction for the purpose of saving for retirement.

Philadelphia Stock Exchange (PHLX) – A regional stock exchange that trades stocks, options, and foreign currency options.

Pink Sheets – A daily listing of bid and ask prices published by the National Quotation Bureau and used by financial institutions to obtain financial information for Over The Counter (OTC) stocks not included in the daily NASDAQ OTC listings.

Political Risk – The risk of actions of a foreign government affecting that country’s debt securities and currency value.

Portfolio Income – Income earned from investments, including dividends, interest, royalties and capital gains.

Portfolio Rebalancing /Rebalancing – The process of realigning the weightings of one’s portfolio of assets to return the percentage allocations back to the original intended allocations. Usually done annually.

Preferred Stock – An equity security that is senior to the common stock. It pays a fixed dividend rate and usually has no voting rights. It has preference over common shares as to dividend distributions and in the case of a liquidation.

Premium Bond – A bond whose market price is greater than its par value.

Primary Market – The market in which the issuer first offers and sells its securities to the public with the sales proceeds going to the issuing corporation.

Primary Offering – The issuance of new securities by a company to the public under a prospectus as required by the Securities Act of 1933.

Prime Rate – A short-term interest rate that commercial banks charge their most credit-worthy business customers which are usually large corporations.

Principal – A partner, officer, or senior manager of a business such as a broker/dealer or investment advisor.

Principal Transaction – A trade where a member firm acts as a dealer selling the security to the customer out of the firm’s inventory or buying the security from the customer for the firm’s own inventory.

Private Placement – An exempt transaction under Regulation D that can be sold without a prospectus to an unlimited number of accredited investors and a maximum of thirty-five (35) non-accredited investors.

Prospectus – A formal legal document containing detailed information that an investor needs to make an informed investment decision about a security and is required by, and filed, with the Securities and Exchange Commission (SEC).

Public Offering Price – The price at which new securities are sold to the public.

Publicly Traded Fund – A closed-end management company commonly known as a publicly traded or exchange traded fund that issues a fixed number of negotiable shares to the public. These shares are not redeemable back to the company.

Purchasing Power Risk – The risk that inflation will erode the value of the money earned from investments. It is also called inflation risk.

Put Feature – A provision of a bond contract or a preferred stock contract that permits the holder to sell (put) the securities back to the issuer at a pre-established price prior to maturity.

Put Option – A contract that gives the holder the right, but not the obligation, to sell a fixed amount of securities at a specified price for a fixed time period.

Puttable Bond – A bond that can be redeemed at face value by the holder at a specified time before maturity. This is typically used when interest rates are rising, allowing the holder to receive the par value of the bond which can be re-invested by the holder at higher interest rates.

Qualified Custodian – An FDIC insured bank/financial institution or a registered broker/dealer that has the legal responsibility for managing and safekeeping customer’s securities.

Qualified Institutional Investor – Must have at least one (1) hundred million under management. An institutional investor is allowed to trade private placement securities with other qualified institutional investors.

Real Estate Investment Trust (REIT) – A security on the exchanges or the over the counter (OTC) market which purchases different kinds of real estate investments such as buildings, mortgages, and short term construction loans.

Real Interest Rate – The yield to maturity of a long term bond minus the inflation rate.

Real Rate of Return – The actual rate of return achieved by an investment reduced by the inflation rate.

Recession – A decline in the Gross Domestic Product (GDP) for a period of at least two (2) consecutive quarters.

Redeemable Security – A security that can only be bought back from and sold to the issuer and is not negotiable.

Redemption – The issuer buying back a security as with a mutual fund or when the issuer of a debt security or preferred stock repays the principal or face value to the holder at maturity.

Registered Investment Advisor (RIA) – A business who gives advice about investing in securities for a fee and must register with the Securities and Exchange Commission (SEC) and/or with the state.

Registered Representative (RR) – A registered individual who is employed by a broker/dealer to handle customer accounts and to advise the public about investing in securities.

Registrar – Typically a commercial bank, trust company, or organization that is responsible for maintaining the integrity of the list of the names and addresses of a company’s shareholders. The registrar ensures that the transfer agent does not over or under issue shares.

Registration Statement – The disclosure document that must be filed by all companies who offer non-exempt securities to the general public. It is filed with the Securities and Exchange Commission (SEC) as required by the Securities Act of 1933.

Regulation D – A private placement of securities without filing a registration statement with the Securities and Exchange Commission (SEC). The private placement can be sold to an unlimited number of accredited investors but only 35 unaccredited investors.

Regulation T – The Federal Reserve Board regulation which governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities.

Regulatory Risk – The risk that new laws, especially tax laws, will result in the decline in the value of a security. Also known as legislative risk.

Reinvestment Risk – The risk that the dividends, interest, and principal will have to be reinvested at a lower potential interest rate.

Restricted Stock – Unregistered stock (private placement), usually issued directly to the officers or directors of a corporation. Re-sales of restricted stock must be traded in compliance with special Securities and Exchange Commission (SEC) regulations (Rule 144).

Return on Investment (ROI) – A measure of how effective a firm uses its capital to generate profit and is considered a measure of a company’s profitability. Also, the percentage return given by an investment computed by taking the annual cash flows generated by the investment, taking their average, and then dividing the average by the initial investment amount.

Revenue Bond – A municipal bond whose proceeds will be used to build a revenue-producing facility such as a sports area, a toll bridge, highway, hospital, or local stadium.

Revocable Trust – A trust that may be changed or canceled by its grantor or by another person. This type of trust does not avoid estate taxes as an irrevocable trust. Income is taxed at the grantor’s tax bracket as he/she retains control of the assets.

Risk Adjusted Rate Of Return/Risk Free Rate of Return/Risk Premium – The excess return that can be achieved by investing in a chosen asset class above that which can be achieved by investing in an asset class that has no risk such as treasury bills.

Roth IRA – A type of Individual Retirement Account that allows an individual to make non-deductible contributions for the purpose of saving for retirement. If the account is held for at least five (5) years, the distributions will not be taxable.

Rule 144 – A Securities and Exchange Commission (SEC) rule that limits the amount of restricted stock that can be sold, and places limitations on the timing of the sale of such stock.

Russell 2000 Index – Serves as a benchmark for the small cap stocks in the United States. A small cap index measuring the performance of the two (2) thousand companies in the Russell three (3) thousand index.

S- Corporation – A non-taxable business with one (1) hundred or fewer stockholders. Income is taxed at the individual stockholder’s tax rates instead of the corporate tax rate.

Sale – The completed contract to sell/dispose of a security for value.

Sales Charge – The percentage of the public offering price (POP) that an investor pays to buy mutual fund shares. They can be up-front or upon redemption (back-end sales charge).

Securities and Exchange Commission (SEC) – The regulatory authority of the securities industry which is responsible for interpreting, supervising, and enforcing compliance with the provisions of the securities acts.

Second/Secondary Market – Consists of the first, second, third, and fourth markets. It is a collective term for the exchange and over-the-counter markets in which securities trade after they are issued to the public.

Secondary Offering – Also called secondary distribution. The sale of previously issued securities in which the proceeds go to the selling shareholders and not to the issuer.

Securities Act of 1933 – The federal regulation aimed to help avoid manipulation and fraud of new issues. It requires new issues to be registered with the Securities and Exchange Commission (SEC) and sold with a prospectus.

Securities and Exchange Act of 1934 – The federal regulation aimed to help avoid manipulation and fraud in the trading (secondary) market. Among other provisions, it requires registration and self-regulation of exchanges under Securities and Exchange Commission (SEC) oversight, member firms, and their employees.

Securities Investor Protection Corporation (SIPC) – A non-profit organization created by Congress that insures customer accounts against loss if a broker/dealer fails. Coverage is limited to five (5) hundred thousand dollars with $100,000 for claims for cash. Explanatory brochure available upon request or at

Security – An investment in a common enterprise for profit with management provided by a third party. A contract that can be assigned value and traded.

Share Certificate – A certificate showing an equity ownership of a company.

Sharp Ratio – A risk measurement that compares the extra return achieved for the extra risk assumed by choosing a given investment.

Short Sale – The sale of borrowed securities with the intention to buy the securities at a later date for a lower price and replacing the borrowed securities.

Small Cap – Any company whose outstanding market capitalization is typically between (3) hundred million and two (2) billion.

Sole Proprietorship – An unincorporated business that is owned by only one (1) individual.

Solicitor – An individual used by a business such as an investment advisor for soliciting new clients.

Spread – The difference between any two (2) prices, mainly the current bid and the current ask prices for securities.

Standard and Poor’s 400 Index – An index that measures the performance of four (4) hundred companies with market capitalization between two (2) billion and ten (10) billion. Also known as the mid-cap index.

Standard and Poor’s 500 Index – A weighted index that includes the largest issues that trade on the New York Stock Exchange. It is one of the most commonly used benchmarks for the overall United States (US) stock market.

Standard Deviation – A statistical measure of the variability of returns from an investment.

Stated Yield – The stated rate of interest as a percentage of face value that is paid on a fixed income security. Also known as coupon rate or nominal yield.

Stock – A negotiable security representing ownership of a company and entitling the owner to receive dividends.

Stock Dividend – Additional Shares of stock instead of cash given as a dividend to shareholders.

Stock Index Fund – A mutual fund that invests in a group of securities chosen to match the composition and weighting of a particular stock market index such as the Standard and Poor’s 500 Index.

Stock Specific Risk – Referred to as “putting to many eggs in one basket”. The risk that comes with investing too much money in a single security. This is also known as non-systematic risk.

Stock Split – The typical result when a stock’s price increases to a very high level. The price of the stock is split to bring the price down to a more accessible level and the current shares are increased. Thus, the current shareholders end up with more shares at a lower price per share. The value of the shareholder’s holding remains the same.

Syndicate – A group of investment banking firms that share responsibility and liability for offering and selling new issues to the public.

Syndicate Agreement – Also called the agreement among underwriters. It is a legal agreement between the syndicate manager and each syndicate member that details the selling responsibility and liability of each syndicate member in the underwriting of a new issue security.

Systematic Risk – The risk that a decline in the overall market will adversely affect the value of an investment/portfolio. Also known as market risk and cannot be diversified away.

Tax Qualified Plan – A pension/retirement plan in which contributions are deductible against the contributor’s taxable income (per-tax dollars). When distributions are taken, the entire amount is taxed.

Tax Shelter – A commonly known name for a Direct Participation Program (DPP).

Third Market – The market in which over the counter firms trade exchange listed securities.

Time Horizon – The length of time based on the investor’s investment objectives over which an investment is held.

Time Value of Money – The potential earning capacity of money which can affect its future value.

Top Down Approach – A method of investing that looks at the overall economy to identify sectors that appear to have the best growth potential and invest in those sectors hoping to achieve the greatest potential return.

Total Return – The actual rate of return including dividends and capital appreciation of an investment over a given time period.

Transfer Agent – Usually a commercial bank or trust company appointed by an issuer of a security to issue new certificates, cancel old ones, and mail dividends and/or other important information and documents to shareholders.

Treasury Bill (T-Bill) – A short-term money market instrument that is sold at a discount to a minimum face value.

Treasury Bond – A negotiable, long-term fixed-interest United States (US) government debt security with a maturity of ten (10) to thirty (30) years. Treasury bonds make interest payments semi-annually.

Treasury Note – A negotiable, long-term fixed-interest U.S. government debt security with a maturity of two (2) to ten (10) years. Treasury bonds make interest payments semi-annually.

Treasury Separate Trading Of Registered Interest and Principal Securities (STRIPS) – Treasury STRIPS are fixed-income securities sold at a discount to face value and offer no interest payments because they mature at par.

Trust Account – A fiduciary account in which the trustee makes investment decisions for a person based on the terms of the trust.

Trust Indenture – An agreement made between a bond issuer and a trustee highlighting the rules and responsibilities of each party. It may also indicate from where the income stream for the bond is derived.

Trustee – An individual or organization which holds and/or manages assets for the benefit of another as in a trust account or fiduciary account.

United States (US) Government Agency Issues – Securities issued by agencies of the United States (US) Government such as Government National Mortgage Association (GNMA). These securities are not required to register per the Securities Act of 1933.

Underwriter – An institution that helps an issuer of new securities settle and market the offering of the new security to the public.

Underwriting Agreement – A formal written agreement between the issuer and underwriter that includes details of the new issue and the selling provisions of the security to the public.

Uniform Securities Act – Also known as the Blue Sky laws. The Uniform Securities Act requires the registration of securities, broker/dealers, and employees of broker/dealers in the state.

Unit Investment Trust – An investment company organized as a trust designed to provide capital appreciation and/or dividend income and offers a fixed, unmanaged portfolio of stocks and bonds, as redeemable “units” to investors for a specific period of time.

Value Investing – Selection of equity investments by finding undervalued issues with the intent that they will grow and create higher returns as they were purchased when they were undervalued.

Value Line Index – A weighted index consisting of seventeen (17) hundred selected issues from the NYSE, AMEX, and NASDAQ markets.

Variable Annuity – A life insurance contract which provides future payments based on the performance of the underlying securities to the holder of the contract and is usually paid at retirement.

Vesting – A period of time over which an employer’s contributions to a pension/retirement plan become the property of the employee.

Volatility – The amount of uncertainty or risk about the size of changes in a security’s value. Usually measured by the standard deviation.

Voting Trust Certificate – A negotiable certificate that trades in the secondary market issued by a trustee representing the deposit of the securities in the trust and giving up all voting rights. The investor continues to receive all other benefits such as dividends and ownership.

Warrant – Associated with bond offerings, a warrant gives the holder the right to buy a stated amount of common stock at a specified price. Warrants trade separately from the security to which they were originally attached.

Wash Trades – The illegal practice of buying and selling a security with the purpose of increasing the price of that security or achieve a loss in the investment for tax purposes.

Wilshire Index – One of the broadest indexes designed to track the overall performance of the American stock markets. It consists of more than (six) thousand (7) hundred publicly-traded companies that trade on the NYSE, AMEX, and on the NASDAQ and is a market capitalization weighted index. This index over-weights companies with higher firm value and under-weights firms with lower firm value.

Wrap Account – A brokerage account where all customer services are wrapped into one (1) account with an overall fee which covers administrative costs, commissions, and management expenses. Also known as a managed account and is considered an Investment Advisory product.

There are currently no terms beginning with this letter.

Yield to Maturity – The rate of return a bond would provide if the investor holds it to maturity.

Yield to Put – The rate of return a bond would provide if the investor holds it to the first date the put feature can be exercised.

Zero-Coupon Bond – A bond that makes no semi-annual interest payments over its life. It is issued at a deep discount instead and matures at face value.