This
is a glossary of terms that are, for the most part, unique
to the world of financial investigations, or terms that have
a different meaning than that which is commonly understood
when they are used in this context.
IARD (Investment Advisor
Registration Depository): On September 12, 2000,
the SEC adopted amendments to Form ADV and new rules requiring
all investment advisers registered with the SEC to begin filing
Form ADV electronically through the Investment Adviser Registration
Depository (IARD) system. Beginning January 1, 2001, SEC-registered
advisers must use IARD and State-registered advisers will
also submit filings electronically through IARD. Like the
Central Registration Depository or CRD, the IARD will give
investors access to information about investment advisers
and persons who work for investment advisers.
IBC (International Business
Company): A corporation formed (incorporated) under
a "Company Act" of a tax haven, but not authorized
to do business within that country of incorporation; intended
to be used for global operations. Owned by member(s)/shareholder(s).
Has the usual corporate attributes.
ICI (Investment Company
Institute): The U.S. trade association for the mutual
fund industry. Investment companies create and maintain mutual
funds and investment trusts.
Illegal Dividend: Dividend declared by the
board of directors of a corporation that is in violation of
its corporate charter or the state laws in which it is incorporated.
Illiquid: Said
of investments such as a stock, bond or commodity that cannot
be readily converted into cash. A security becomes illiquid
when a lack of trading activity in the security makes it hard
to sell without taking a large loss. Other assets such as
real estate can also be considered to be illiquid because
there is not a ready market and they may take time to sell.
Imbalance Of Orders:
Too many buy orders without matching sell orders or vice versa.
An imbalance of orders can occur because of extraordinary
corporate events such as a takeover, loss of a lawsuit that
was expected to be won, or the death of a key executive. If
the imbalance occurs before the market opens, the stock may
have a delayed opening. However, if it occurs during the trading
day, trading may be suspended until the specialist can make
an orderly market.
Immediate Family:
As defined in the NASD Rules Of Fair Practice, an immediate
family member includes parents, brothers, sisters, children,
father-in-law, mother-in-law, sister-in-law, brother-in-law,
and any other relatives who are financially supported. The
Rules of Fair Practice use this definition when dealing with
practices such as freeriding and withholding. The rules prohibit
the sale of hot issues to members of a broker-dealer's immediate
family or to persons trading for institutional accounts and
their families.
Immediate-Or-Cancel Order
(IOC): A limit order to buy or sell a security that
requires all or part of the order to be executed immediately.
Any part of the order that is not executed, is automatically
canceled. An IOC order is usually for a significant share
quantity.
Immediate Payment Annuity: Annuity contract purchased with
a single payment and a pay-out plan that starts immediately.
Payments, usually on a monthly basis, are either for a specified
time or until the annuitant passes away.
Impaired Capital:
Total capital that is less than the par value of the corporation's
capital stock.
Imputed Income:
Income calculated according to identifiable expenses and known
guidelines.
Imputed Interest:
Interest that is considered to have been paid although no
actual payment was made. A zero coupon bond, for instance,
has imputed annual interest that the IRS requires the bondholder
to report.
Inactive Asset:
Assets that are not continuously productive, such as a computer
used only when the main system is not working.
Inactive Post:
New York Stock Exchange trading post where inactive stocks
are traded in 10-share lots instead of the regular 100 share
round lots.
Inactive Stock/Bond:
Security that trades infrequently and has such a low volume
that it makes the security illiquid.
In-And-Out Trader: Person
who buys and sells the same security in the same day in hopes
of profiting from steep price.
Inbound: Coming into the U.S.; onshore; such as funds being
paid to a U.S. person from an offshore entity.
Incentive Stock Option: Plan
created by the Economic Recovery Tax Act of 1981 (ERTA) whereby
qualifying options are free of taxes when granted and when
exercised. Profits on exercised shares sold are taxed as ordinary
income--until 1987, it was subject to capital gains tax if
the shares were held at least one year.
Income Bond: A bond that
only pays interest if the corporation has sufficient earnings.
These bonds are usually traded flat (without accrued interest)
and are an alternative to bankruptcy.
Income Mutual Fund: A mutual
fund that invests in income producing securities such as bonds,
preferred stocks, high dividend yielding common stock, or
covered call stock options.
Income Limited Partnership:
A limited partnership, such as real estate, whose objective
is to generate high taxable income. These types of partnerships
are usually designed for tax sheltered accounts such as IRAs
and pension plans.
Income Property: Real estate
bought specifically to generate income. The property may be
bought by individuals, corporations or income limited partnership.
When selling the property, the owners also hope to sell at
a profit.
Income Shares: A class of
capital stock that is issued by a split investment company
or a dual purpose mutual fund. Owners receive dividends and
interest generated from the income shares and from capital
shares, another class of capital stock. Owners of capital
shares receive capital gain generated from both classes.
Income Statement: A quarterly
or annual financial statement that shows a corporation's business
results. It specifically shows all revenues, earnings, expenses,
costs and taxes.
Income Stock: A stock that
pays a relatively high dividend.
Incomplete Gift: Where the
settlor has reserved the right to add or delete beneficiaries
to the trust, it is construed as an incomplete gift.
moves.
Incorporation: The process
by which a company receives a state's permission to function
as a corporation. After incorporation, the company will show
that it is incorporated by adding the word "incorporated"
into its name. "Inc." or other acceptable abbreviations
may be used.
Incremental Cash Flow: Net
of cash inflows and outflows that arise from a corporate investment
project.
Indemnify: An agreement by
one party to compensate another party for losses or damages
that are incurred if specific actions or events occur.
Indenture: A written contract,
also known as a "Deed of Trust", under which bonds
and debentures are issued, setting forth maturity date, interest
rate, redemption rights, call privileges and other terms.
Under the rules of the Trust Indenture Act of 1939, the contract
is executed by the issuer and a trustee who acts on behalf
of the bondholders.
Independent Broker: NYSE
member who executes orders for other floor brokers who currently
have more business than they can manage themselves, or for
firms whose floor brokers are not on the floor. Previously
known as "Two-Dollar Brokers", these brokers used
to receive $2 per hundred shares for executing such orders.
These fees, paid by the commission brokers, were once fixed
but are now negotiable.
Independent Trustee: A trustee
who is independent of the settlor. Independence is generally
defined as not being related to the settlor by blood, through
marriage, by adoption or in an employer/employee relationship.
Index: 1) A statistical yardstick
that measures the economy. It is usually expressed as a percentage
change from a base year or from the previous month. An example
of an economy index is the Consumer Price Index . Using 1967
as its base year, the index consists of key consumer goods
and services that measures price movements to changes in inflation
rates. 2) Statistical measurement of groups of securities,
industries or markets that reflect market prices and the number
of shares outstanding for the companies in the index. Indexes
may either be broad-based (a wide range of firms in many industries
aiming to mirror the overall market) or narrow-based (consisting
of securities from a specific industry). Stock indexes are
used as a base for trading index options.
Index Arbitrage: A trading
technique in which baskets of stocks and stock futures contracts
are bought and/or sold according to their conformity and deviation
from a stock index. To keep the position fully hedged, the
stocks are bought and the futures are usually sold and vice
versa. In doing this, the arbitrageur is locking in a profit
(or loss).
Index Fund: A mutual fund
that buys securities to match that of a broad-based index
such as the Standard & Poor's Index. The fund aims to
achieve the same return as the general market.
Indexing: An investor who
buys individual securities or index funds to mirror a broad-based
index such as the S & P 500. The investor aims to match
the index's performance.
Index Option: Call and put
option contracts traded on an underlying index, such as the
S & P 100, and not a specific security. Investors who
trade index options invest in a particular market or industry
group without having to buy all the underlying securities.
A narrow-based index allows an investor to trade in a particular
industry while a broad-based index will scope many industries.
Indicated Yield: The dividend
or coupon rate stated as a percentage of the security's present
market price. The type of security determines how the indicated
yield is calculated. The indicated yield for common stock
is calculated by dividing its annual dividend by its market
price . For preferred stocks, the contractual dividend is
divided by the market price. And, for fixed rate bonds, the
indicated yield is the same as the current yield.
Indication: Estimation of what a security's bid and offer
prices will be when trading resumes after a delayed opening
or trading halt--also called "indicated market".
Indication of Interest: Underwriting
term meaning a non-binding indication of a client's interest
in purchasing securities that are in registration (awaiting
effectiveness by the Securities and Exchange Commission).
The broker is required to provide the client with a preliminary
prospectus on the securities. The indication of interest is
non-binding because it is illegal to sell a security that
is in the registration process.
Indicators: 1) Measures of
economic activity utilized by economists to forecast the general
direction of the economy. 2) Measurement utilized by technical
analysts to make forecasts regarding the direction of the
overall market or the movement of a particular stock.
Individual Investor: A person
who buys or sells securities for his or her own account. The
individual investor is also called a retail investor or retail
shareholder.
Individual Retirement Account (IRA):
A personal savings plan that offers tax advantages to save
and invest for retirement. Contributions are often tax deductible
in whole or in part, depending on individual circumstances,
including compensation levels and participation in an employer
sponsored qualified retirement plan. Income derived from investments
in a traditional deductible or nondeductible IRA is tax deferred
until withdrawn. Under certain circumstances, withdrawals
from a Roth IRA are tax-free. Tax penalties may apply to IRA
distributions taken before age 59 ½. The most you can
contribute to your traditional IRA for 2002 has been increased
to $3,000 or if you are 50 or older, $3,500. Keep in mind
that contributions on your behalf to a traditional IRA reduce
your limit for contributions to a 'Roth IRA'.
Industrial: Stock market
lingo that is a catch-all category that includes all firms
that have businesses that are not classified as utility, transportation,
or financial companies.
Industrial Development Bond (IDB):
A bond issued by a municipality to finance fixed assets that
are secured by a lease agreement with a corporation whose
payments amortize the debt. IDBs used to be tax-exempt to
holders. However, under current tax laws, they are no longer
tax-exempt.
Industrial Production: A
key economic indicator that is a released monthly by the Federal
Reserve Board. The indicater relates the total output of all
US factories and mines.
Industry Support Information Services
(ISIS): The ISIS system supports all NASD regulatory
activities set forth in its charter and the Securities Exchange
Act of 1934. The system includes information applications
for securities industry personnel and issuer companies, including
databases on registered personnel, issues, members, and market
data users.
Inefficiency In The Market: An
investor's failure to ascertain that a security may be having
difficulties or has good prospects. Some analysts believe
that investors who identify a security first can profit by
exploiting that information--with corporate stocks that have
substantial growth opportunities reflecting most clearly the
market's inefficiency. However, followers of the Efficient
Market Theory believe current prices already reflect all knowledge
about a security.
Inflation: The persistent
and appreciable rise in the prices of goods and services.
Moderate inflation is normally associated with periods of
expansion and high employment--increasing dollars chasing
a dwindling supply of goods. Hyperinflation, when prices rise
100% or more a year, causes people to lose confidence in the
currency. During inflationary times, people often divert their
investments into real estate and gold because they usually
retain their value.
Inflation Rate: Rate of price
changes usually calculated on a monthly or annual basis. The
Consumer Price Index and the Producer Price Index are two
principle US indicators of inflation rates. They track changes
in prices paid by consumers and producers.
Ingot: A bar of metal. Gold
reserves of the Federal Reserve are stored in ingot form.
Investors who purchase a precious metal may take delivery
of an ingot.
Initial Margin Requirement:
Initial dollar amount or marginable securities that a brokerage
client is required to deposit with a broker before placing
margin transactions--one in which the broker extends credit
to the client in a margin account. The initial margin requirement,
according to the Federal Reserve Board's Regulation T, is
presently 50% of the purchase price (or $2000--whichever is
higher) when buying marginable securities or 50% of the proceeds
of a short sale.
Initial Public Offering (IPO):
A company's first sale of stock to the public. Companies making
an IPO are seeking outside equity capital and a public market
for their stock.
In Play: A security whose
price fluctuates because of takeover rumors or activities.
Inside Information: Material
corporate information that has not yet been made public in
a widely used medium. Use of this information would influence
the purchase or sale of a company's security. An example of
inside information is a company who has a large quarterly
loss and this fact has not yet been made public. If this information
was used to trade the security, under SEC rules, it may be
deemed as illegal.
Inside Market: Bid and asked
quotes at which one dealer will buy from or sell to another--also
called "wholesale" or "inter-dealer market".
In contrast, retail market quotes are the prices that customers
pay to dealers to buy or sell a security.
Inside Quote: The highest
bid to buy and the lowest offer to sell a security at a given
time. If one asks for a "quote" on a stock, you
will receive something like "15 1/4 to 15 1/2."
This means that $15.25 is the highest price any buyer willing
to pay and that $15.50 is the lowest price any seller will
accept.
Insider: Anyone who is either
an officer, director or key employee of a corporation, a person
owning 10% of the company's stock (and their families), or
anyone with inside (non-public) information.
Insider Trading: A term that
most investors associate with crime, but the term actually
includes both legal and illegal conduct. The legal version
is when corporate insiders—officers, directors, and
employees—buy and sell stock in their own companies.
When corporate insiders trade in their own securities, they
must report their trades to the SEC. Illegal insider trading
refers generally to buying or selling a security, in breach
of a fiduciary duty or other relationship of trust and confidence,
while in possession of material, nonpublic information about
the security. Insider trading violations may also include
"tipping" such information, securities trading by
the person "tipped," and securities trading by those
who misappropriate such information.
Insider Trading Bounty Program:
Section 21A(e) of the Securities Exchange Act of 1934 ("Exchange
Act") [15 U.S.C. 78u-l(e)] authorizes the Securities
and Exchange Commission ("Commission") to award
a bounty to a person who provides information leading to the
recovery of a civil penalty from an insider trader, from a
person who "tipped" information to an insider trader,
or from a person who directly or indirectly controlled an
insider trader.
Insolvency: The inability
of an individual or entity to pay its debts when they are
due.
Installment Sale: A transaction
that has a set contract price and is usually paid in monthly
installments over a specified period.
Instinet: Abbreviation for
the Institutional Networks Corporation.
Institutional Broker: Broker
who trades securities for institutional clients such as banks,
mutual funds, pension funds and insurance companies.
Institutional Broker's Estimate System
(IBES): A service provided by Lynch, Jones and Ryan.
The brokerage firm gathers analysts' future earnings estimates
on publicly traded companies and determines which companies'
estimates have changed substantially.
Institutional Investor: A
mutual fund, bank, pension fund, insurance company, university
or other institution. Institutional investors usually invest
large volumes in the securities markets.
Instrument: A legal document
that states a contractual relationship or that specific rights
are granted such as notes, agreements or contracts.
Instrumentality: Obligations
of government agencies that are backed by the full faith and
credit of the government. However, these obligations are not
direct obligations of the government. Examples of such instumentalities
are the Student Loan Marketing Association, Federal Intermediate
Credit and Federal Land Banks.
Insurance: Plan in which
individuals and organization who are concerned about potential
risks will pay premiums to an insurance company, who in return,
will reimburse them if there is loss. To generate a profit,
the insurer will invest the premiums it receives. Examples
of the different types of insurance available are automobile,
home, health and worker's compensation. Whereas in most cases
the insured is paid for their loss, with life insurance a
beneficiary is paid when the insured person passes away.
Insured Account: Account
at a brokerage firm, bank, savings and loan association or
credit union that is insured either by a federal or private
insurance organization. If the institution becomes insolvent,
it protects depositors against losses. Brokerage accounts
are insured by the Securities Investor Protection Corporation
(SIPC). SIPC does not protect the investor from market declines.
The Federal Deposit Insurance Corporation (FDIC) administers
the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF)--insurance for bank and for savings
and loan accounts.
Insured Bonds: Municipal
bonds covered by an insurance policy. The policy guarantees
that should the issuer default in making payments, the insurance
company will pay all interest and principal due. Insured bonds
usually are rated very high as the risk to the investor is
minimal.
Intangible Assets: Assets
of a corporation that are not physical. They are considered
to enhance the company's position in the marketplace. Such
assets include goodwill, trademarks, patents, copyrights,
franchises, leases, licenses, and permits.
Intercommodity Spread: A
spread that includes a long position and a short position
in related commodities--for instance, a long position in silver
futures and a short position in gold futures. The investor
aims to profit from the changing price relationship between
the commodities.
Interdelivery Spread: Technique
used in trading options or futures. Contracts expiring in
one month are bought and the same contracts expiring in a
different month are sold--for example, buying a May cotton
contract and simultaneously selling an August cotton contract.
The investor aims to profit when the price between the two
contracts narrows or widens.
Interest: Dollar cost that
a borrower pays a lender for the use of the lender's money.
Interest Rate Options: Option
contracts that are based upon underlying debt instruments.
Interest Sensitive Stock:
A corporation's stock whose earnings change when interest
rates change. Upon news of rate increases or decreases, the
stock will go up or down in price. Examples of interest-sensitive
stocks include bank and utility companies.
Interim Dividend: A dividend
that is declared and paid before annual earnings are determined.
Most companies plan quarterly dividends they know they can
afford.
Interim Statement: A report
that presents a corporation's income statement for the period
and, sometimes the balance sheet. A corporation usually issues
three interim reports (quarterly) and one annual report.
Interlocking Directorate:
An individual who is on the board of directors for more than
one corporation.
Intermarket Surveillance Group (ISG):
A group that coordinates surveillance and investigations among
NASD and other U.S. and foreign exchanges trading in securities,
options, and futures and foreign securities.
Intermarket Trading System (ITS):
An electronic communications network that links the posts
of specialists who are market makers for the same securities
at the floors of seven registered exchanges to foster competition
among them. Quotes are displayed and are firm (good) for at
least one round lot (100 shares). Through ITS, a broker at
one exchange may direct an order to another exchange where
the quote is better.
Intermediary: Individual
or entity that is sanctioned to make investment decisions
for others--also called "financial intermediary".
An intermediary is used because they are investment specialists
that usually can obtain higher returns than the average investor.
Moreover, because they deal in large dollar volumes, they
can easily diversify the assets. Examples of some intermediaries
are brokerage firms, mutual funds, banks, and insurance companies.
Intermediate Term: Time between
short and long term with the length dependent on the context.
A bond analyst, for instance, usually considers an intermediate
term to be between 3 to 10 years. A stock analyst would consider
it to mean 6 to 12 months.
Intermediation: Money deposited
with financial intermediaries--such as brokerage firms, banks,
insurance companies--which invest in stock, bonds, money market
securities, government obligations and/or mortgages to obtain
a targeted return. In contrast, disintermediation is the withdrawal
of money from an intermediary.
Internal Control: An organization's
procedures that are designed to increase its efficiency, ensure
its policies are implemented, and its assets are safeguarded.
Internal Expansion: Growth
of an organization's assets through cash generated internally
from either internal financing, appreciation or accretion.
Internal Financing: Funds
generated through a corporation's normal business operations.
International Business Company (IBC):
A corporation formed (incorporated) under a "Company
Act" of a tax haven, but not authorized to do business
within that country of incorporation; intended to be used
for global operations. Owned by member(s)/shareholder(s).
Has the usual corporate attributes.
International Fiscal Police (INTERFIPOL):
The tax crime counterpart to INTERPOL.
International Financial and Banking
Centre (IFC): A country identified as being a tax
haven.
International Mutual Funds:
A mutual fund that invests in nondomestic securities markets
throughout the world. If investments are chosen carefully,
this type of fund may be profitable when some markets are
rising and others are declining. However, fund managers must
watch foreign currencies as well as world markets--profitable
investments in a rising market can lose money if the foreign
currency rises against the dollar.
International Organization of Securities
Commissions (IOSCO): IOSCO attempts to harmonize
international securities regulation, and supports the development
of securities markets around the world.
International Trust: A Cook
Islands term for a special type of an Asset Protection Trust
(APT). Governed by the laws of the Cook Islands.
INTERPOL (International Criminal Police
Organization): The net-work of multinational law
enforcement authorities established to exchange information
regarding money laundering and other criminal activities.
More than 125 member nations.
Inter Vivos Trust: A trust
established between two or more individuals that are alive--also
called "living trust". The opposite is a testamentary
trust, which is effective when the individual who established
the trust dies.
In The Money: Expression
used for any option series with intrinsic value--the option's
strike (exercise) price and market price of the underlying
security are such that the holder can exercise the option
at a profit. For example, if a call option with a strike price
of 30 and the underlying stock's market price is currently
33, the call is in the money. A put option is considered in
the money when the underlying stock is selling below the strike
price. Premiums and other transaction costs are not considered
in determining whether the option is in the money or out of
the money.
In The Tank: Lingo meaning
that market prices are plummeting.
Intraday: Within the day.
The term is often used when stating high and low prices of
a security. When stating, for example, that a stock hit a
new intraday low, it means that during the day the stock reached
an all-time low price but rose back to a higher price by the
end of the day.
Intra-State Offering: A new
securities' issue that will only be sold to investors in one
state and who are residents of that state. An intra-state
offering is exempt from filing provisions of the Securities
Exchange Act of 1933 under Rule 147.
Intrinsic Value: The amount
whereby an underlying security's current market price is above
the call option's strike (exercise) price or below the put
option's strike price. If the strike price of a call option,
for example, is $40 and the stock is $43, the option's intrinsic
value is $3. An option that has intrinsic value is "in
the money." If the option is at or out of the money,
it does not have an intrinsic value.
Inventory Turnover: It is
a company's cost of goods sold (from the income statement)
divided by the year-end inventory (from the balance sheet).
The number is used by fundamental analysts when examining
a company's financial statement.
Inverted Scale: Serial bond
issue in which earlier maturities have higher yields than
later maturities.
Investment: The use of money
through various vehicles, or an individual's time and effort,
to make more income or increase capital, or both. The term
"investment" infers that the safety of principal
is important. On the other hand, speculation connotes that
risking principal is acceptable.
Investment Advisor: Individual
or organization who provides investment advice for a fee.
In most cases, investment advisors with more than 15 clients
must register with the SEC and abide by the Investment Advisors
Act of 1940. Brokers, banks and general circulation periodicals
are exempted from registration with SEC. Most states require
an investment advisor to pass an examination.
Investment Advisors Act:
Act passed by Congress in 1940 that requires investment advisers
to register with the SEC. The intent of the Act is to protect
investors from fraud or misrepresentation by investment advisors.
Investment Advisor Registration Depository
(IARD): On September 12, 2000, the SEC adopted amendments
to Form ADV and new rules requiring all investment advisers
registered with the SEC to begin filing Form ADV electronically
through the Investment Adviser Registration Depository (IARD)
system. Beginning January 1, 2001, SEC-registered advisers
must use IARD and State-registered advisers will also submit
filings electronically through IARD. Like the Central Registration
Depository or CRD, the IARD will give investors access to
information about investment advisers and persons who work
for investment advisers.
Investment Banker: A firm,
acting as an underwriter or an agent, who serves as intermediary
between an issuer of new securities and the investing public.
The usual practice is for one or more investment bankers to
form a syndicate to buy a corporation's new issue and then
sell the issue to individuals and institutions--commonly called
a "firm commitment underwriting". In a provisional
arrangement--called "best effort"--the investment
banker acts as an agent rather than principal and markets
a new issue without underwriting it. Under another provisional
arrangement--called "standby commitment"--the investment
banker agrees to buy for resale any securities not taken by
existing holders of rights.
If a client relationship exists, the investment
banker's role starts with pre-underwriting counseling and
continues after the distribution of securities is completed
by offering ongoing advice and guidance. Some underwriting
responsibilities include preparing the SEC registration statement,
pricing the securities, forming and managing the syndicate,
and pegging (stabilizing) the price of the issue during the
offering and distribution period.
Besides new securities offerings, investment
bankers manage the distribution of secondary offerings, maintain
markets for already distributed securities and act as finders
for private placements. Most investment bankers also maintain
broker-dealer operations that serve wholesale and retail clients
in brokerage and advisory capacities.
Investment Certificate: Certificate
that evidences investment in a savings and loan association
and states the dollar amount invested. The certificates do
not involve shareholder responsibility nor do they have voting
rights.
Investment Club: Individuals
who pool their funds to make joint investments. Each member
of the club contributes a certain dollar amount periodically,
with the additional money usually invested in growth stocks
using a dollar cost averaging approach. Dividends and capital
gains are reinvested in most cases. Security purchases are
determined by a vote of the members. The clubs permit investors
with small dollar amounts to participate in larger investments
and thus pay lower commissions. It also assists the club member
in becoming more knowledgeable about investing. There are
approximately 28,000 investment clubs in US today with about
7000 belonging to the National Association of Investment Clubs
(NAIC), a nonprofit organization that provides guidance and
literature to its membership. For information about establishing
an investment club, the NAIC can be contacted by calling (313)
543-0612 or by writing 1515 E. Eleven Mile Rd. Royal Oak,
Michigan 48067.
Investment Company: A company
or trust, such as unit investment trusts and management companies,
engaged in the business of investing the pooled funds of small
investors in securities appropriate for stated investment
objectives. For a fee, it provides investors with more diversification,
liquidity, and professional management service than would
normally be available to them as individuals.
There are two types of management companies--closed-end
and open-end mutual funds. Closed-end investment companies
are traded in the open market and are bought and sold like
any other stock. The capitalization of a closed-end fund usually
remains constant and has a fixed number of outstanding shares.
Open-end mutual funds sell their shares directly to investors,
are ready to buy back their old shares at their current net
asset value, and are not listed. The capitalization is open-end
funds are not fixed--they issue more shares as investors want
them.
Open-end management companies may either be
"load" or "no-load" mutual funds. Load
funds are sold by broker-dealers who receive a percentage
that is added into the net asset value. The percentage is
determined by the amount of the client's investment into the
fund. Load funds often can be redeemed free of any charges
from the fund. No-load funds are usually bought from the mutual
fund and do not charge a loading fee. However, small redemption
fees are not uncommon.
Every investment company states its specific
investment objectives in its registration statement and prospectus.
An investment company usually falls within one of the following
categories:
- Diversified common stock funds;
- Balanced funds that mix bonds and preferred
and common stocks;
- Bond and preferred stock funds that feature
fixed income;
- Specialized funds by industry, groups
of industries, geography or size of company;
- Income funds--income generated from high-yield
securities;
- Performance funds (growth stocks);
- Dual-purpose funds--a closed-end investment
company that offers a choice between dividend shares or
capital gain shares and;
- Money market funds (money market instruments).
Investment Banking, Securities Business:
The business carried on by a broker or dealer; a business
that deals in government or municipal securities; a business
that underwrites or distributes securities issues; a business
that buys or sells securities for itself or on the account
of others. The definition does not include banks or bank departments.
Investment Company Act Of 1940:
Federal law that regulates investment companies. The Act regulates
how mutual funds and other investment vehicles of investment
companies operate.
Investment Company Institute (ICI):
The U.S. trade association for the mutual fund industry. Investment
companies create and maintain mutual funds and investment
trusts.
Investment Counsel: Person whose principal business consists
of acting as investment adviser and providing investment supervisory
services.
Investment Grade: A bond
that is rated within the top four categories by Moody's or
Standard & Poor's.
Investment Income: Income,
such as dividends, interest and capital gains amongst other
sources, that is generated from securities and other investments.
Under current tax regulations, an investor's interest charges
from a margin account can be used to offset investment income.
Investment Letter: A letter
that is an agreement between a seller and a buyer who is purchasing
private placement securities (unregistered securities under
Regulation D). The investor affirms that the purchase is a
long-term investment and not for resale. The securities are
also called "letter stock".
Investment Strategy: Strategy
used to allocate funds among such vehicles as stocks, bonds,
cash equivalents and commodities. An investor's strategy should
be based on their view of the direction of economic factors
such as economic growth, interest rates and inflation. At
the same time, the investor may also take into account their
age, tolerance for risk, funds available for investment and
future needs.
Investment Strategy Committee: Committee
in a brokerage firm's research department that sets the investment
strategy that the firm recommends to its clients. The committee
typically consists of the firm's research director, chief
economist, and top analysts. The group recommends industry
groups and individual securities that appear especially attractive.
They will also advise how much money should be invested into
stocks, bonds, or cash equivalents.
Investment Value Of A Convertible
Security: The estimated price at which a convertible
security would be valued if it did not have a stock conversion
feature. A convertibles' investment value is determined by
investment advisory services. Theoretically, it should not
fall lower than the related stock's price. It is set by estimating
the price at which a non-convertible bond or preferred stock
of the same issuing company would sell.
Investor Relations Department:
A department within a listed corporation that is responsible
for investor relations. Some of the department's functions
may include:
- Assuring that a company's activities and
objectives are understood and are regarded favorably by
the investment community.
- Ensuring full and timely disclosure of
material information, and assisting the legal staff with
compliance of SEC rules and industry regulations.
- Responding to requests from shareholders,
institutional investors, brokers and the media for information
and written material such as its quarterly and annual reports.
Investors Service Bureau:
A service of the New York Stock Exchange that answers written
inquiries regarding securities investments.
IOC (Immediate Or Cancel):
A limit order to buy or sell a security that requires all
or part of the order to be executed immediately. Any part
of the order that is not executed, is automatically canceled.
An IOC order is usually for a significant share quantity.
IOSCO (International Organization
of Securities Commissions): IOSCO attempts to harmonize
international securities regulation, and supports the development
of securities markets around the world.
IPO (Initial Public Offering):
The first public issuance of stock from a company that has
not been publicly traded before.
IRA (Individual Retirement Account):
A personal savings plan that offers tax advantages to save
and invest for retirement. Contributions are often tax deductible
in whole or in part, depending upon individual circumstances,
including compensation levels and participation in an employer
sponsored qualified retirement plan. Income derived from investments
in a traditional deductible or nondeductible IRA are tax deferred
until withdrawn. Under certain circumstances, withdrawals
from a Roth IRA are tax free. Tax penalties may apply to IRA
distributions taken before age 59 1/2. Contributions to an
IRA may not exceed $2,000 per year. Individuals with earned
income may contribute up to $2,000 to the IRA of an unemployed
spouse.
IRA Rollover: An individual's
reinvestment of assets received as a lump-sum distribution
from a qualified tax-deferred retirement plan such as a corporate
pension plan. The assets must have been received because of
either the individual's retirement or employment termination.
If the assets are deposited in an IRA within 60 days from
the time they are withdrawn, the individual will not have
any tax consequences and the assets will continue to accumulate
on a tax-deferred basis.
Irredeemable Bond: A bond
that does not have a call feature or a redemption privilege.
A call feature allows an issuer to redeem the bond before
its maturity and a redemption privilege allows a bondholder
to redeem the bond before its maturity.
ISG (Intermarket Surveillance Group):
A group that coordinates surveillance and investigations among
NASD and other U.S. and foreign exchanges trading in securities,
options, and futures and foreign securities.
ISIS (Industry Support Information
Services): The ISIS system supports all NASD regulatory
activities set forth in its charter and the Securities Exchange
Act of 1934. The system includes information applications
for securities industry personnel and issuer companies, including
databases on registered personnel, issues, members, and market
data users.
Issue: A process by which
new securities of an entity, such as a corporation or a municipality,
are sold and distributed. The securities are distributed through
an underwriter or by a private placement.
Issued And Outstanding: Corporate
shares that have been authorized within the corporate charter
and have already been issued. The share may represent all
or only part of the number of shares authorized. Authorized
shares not yet issued are called "unissued stock".
Issued shares repurchased by the corporation are called "treasury
stock". Treasury stock is held in the corporate treasury
pending reissue or retirement. Although these shares are issued,
when making calculations such as earnings per share and dividends,
they are not considered to be outstanding. Authorized, issued
and outstanding, and treasury shares are usually noted in
a corporation's annual reports.
Issued Shares: Amount of
common shares that a corporation has issued (sold).
Issuer: Entities, such as
corporations, municipalities, governments and investment trusts,
that may issue and distribute securities. Stock issuers are
required to report corporate developments to its shareholders
and, if declared, pay dividends. Bond issuers must make timely
payments of interest and principal to its bondholders.
ITS (Intermarket Trading System):
An electronic communications network that links the posts
of specialists who are market makers for the same securities
at the floors of seven registered exchanges to foster competition
among them. Quotes are displayed and are firm (good) for at
least one round lot (100 shares). Through ITS, a broker at
one exchange may direct an order to another exchange where
the quote is better.
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