This glossary concentrates on terms used on the QuantumOnline website and which are involved with income investing. No glossary is ever complete and we will be adding terms and improving and updating definitions on a constant basis. Please let us know if there are any particular terms that are missing or about terms that need to be better defined. The many security name acronyms (QUIPS, TOPrS, MITTS, PINES, etc.) are explained separately on our Explanations of Security Acronyms page. This glossary concentrates on income investing terms. At the bottom of this page you will find links to additional glossaries from the stock exchanges that would provide better coverage of general and exchange specific investment terms.
15% Tax Rate - The 15% tax rate refers to the maximum income tax rate applicable to the dividends paid by the securities eligible for this tax rate as specified in the 2003 tax legislation. See our 15% Tax Rate on Dividends page which is listed under the Information menu at the top of any page.
Accrued Interest - Accrued Interest is the interest due on a bond or other fixed-income security since the last interest payment was made. The buyer of a bond pays the market price plus accrued interest. Buyers of preferred stocks and exchange-traded debt securities do not pay accrued dividends or interest and these securities are said to trade flat (see definition below).
Acronym - An acronym is a word formed from the first (or first few) letters of a series of words that is used as an abbreviation to refer to that series of words. A few examples of acronyms are NYSE is the acronym for the New York Stock Exchange, DRIP is the acronym for Dividend ReInvestment Program, and QUIPS is the acronym for QUarterly Interest Preferred Securities.
Adjustable Rate - An adjustable rate means that the distribution rate of the security is adjusted by a specified formula generally in accordance with the variance in some U.S. Treasury rates or other interest indicators. The adjustment may occur every quarter, each year, every five years, etc. You must determine the specific adjustment formula for each individual adjustable rate security as the adjustable provisions will vary even between adjustable rate securities of the same issuer. An example of an adjustable rate formula is: The adjustable rate dividend is set quarterly and is equal to 81% of the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate with a minimum rate of 4 1/2% per annum and maximum rate of 10 1/2% per annum.
ADR - See American Depositary Receipts below.
ADS - See American Depositary Shares below.
American Depositary Receipts - American Depositary Receipt (ADR) is a receipt that is issued by a U.S. Depositary Bank which represents shares of a foreign corporation held by the bank. Because ADRs are quoted in U.S. dollars and trade just like any other stock, they make it simple for investors to diversify their holdings internationally.
American Depositary Shares - American Depositary Shares are shares issued by a depositary under an American Depositary Receipt (ADR) program. An ADS represents a specific number of underlying shares issued by a non-US issuer that are held by the depositary or its custodian for the benefit of the holders. Typically, an ADS can be exchanged for the underlying shares and dividends are paid in US dollars rather than in the currency of the non-US country in which the issuer is organized. ADS shares typically trade on a US exchange and are priced in US dollars.
AMEX - AMEX is the acronym for the former American Stock Exchange which is now the NYSE Amex and can be found on the Internet at http://www.nyse.com/. The Amex equities business has been renamed NYSE MKT in 2012.
Ann Amt - Ann Amt is the QOL table; column heading abbreviation for annual amount or the dollar value of the annual dividend that a security pays. The annual amount can be calculated by multiplying the liquidation preference (i.e. $25) by the coupon rate (i.e. 8.50%) to get the annual amount (i.e. $25 times 0.085 equals $2.125 per year dividend payment).
Arca - Arca is short for the NYSE Arca, a subsidiary market of the NYSE.
ASE - ASE is another acronym for the former American Stock Exchange which has merged into the NYSE as the NYSE Amex and which can be found on the Internet at http://www.nyse.com/. The Amex equities business has been renamed NYSE MKT in 2012.
Asset-Backed Income Securities - See Third Party Trust Preferreds below.
Auction Rate Preferreds - Auction Rate Preferreds are investment vehicles designed for institutional investors whose interest or dividend rate is periodically reset through a Dutch auction process offering investors an opportunity to buy, hold or sell securities at the time of the auction. Consequently, this process can facilitate shorter term holding periods even though the auction rate preferreds are generally perpetual securities. Auction rate preferreds are generally issued by closed-end funds and have share prices of $25,000 per share or more. The dividend usually resets weekly or monthly via a Dutch Auction with the new yield generally reflecting current market conditions. Rates may differ depending on the underlying assets, market conditions, as well as supply and demand. A Dutch Auction is a bidding process in which the lowest yield becomes the level at which the entire offering is sold. Auction rate preferreds are not listed on QuantumOnline as these securities are not exchanged-traded and they are not securities that are suitable for individual investors.
Bankruptcy - See Chapter 11 Bankruptcy and Chapter 7 Bankruptcy below.
Basis Point - One basis point equals 0.01%, with each full percentage point equaling 100 basis points.
Beta - Beta is a measure of the volatility (or the market price movement) of an individual stock relative to whatever comparison the source of beta numbers is using as a base value for volatility. A beta of less than one should indicate that the market price movement of a stock will fluctuate less than the base comparison value over the same time period; a beta of more than one should indicate that the market price movement of a stock will fluctuate more than the base comparison value over the same time period. The Nasdaq stock market uses the S&P 500 Index as the base value to measure the overall stock market for beta so that the beta of the S&P 500 Index would be 1.0 when looking at the Nasdaq beta numbers. Other sources providing beta numbers may use other comparisons for their beta numbers.
Bond - Bonds are promissory notes issued by a corporation or government to its lenders. They are usually issued in multiples of $1,000 or $5,000, although $100 and $500 denominations are available. A bond is evidence of a debt on which the issuing company usually promises to pay the bondholder a specified amount of interest at intervals over a specified length of time, and to repay the original loan on the expiration date. A bond represents debt, therefore its holder is a creditor of the corporation and not a part owner, as the stockholder is.
Book-Entry - In essence, book-entry form means that no physical stock certificates are issued for a security. All records of the beneficial owners of the individual shares of the security are kept on the "books" by a trustee. In this day and age the books, of course, are computer records. When a security is issued in book-entry form, the security issuer issues a global security to the trustee who in turn maintains the records of who is the beneficial owners of the individual shares or certificates of the security. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive (stock certificate) form which means that those purchaser are unable to buy securities issued only in book-entry form. For the individual purchaser, securities in book-entry form are essentially no different than keeping your securities in street name and not taking delivery of actual stock certificates.
Business Development Companies - Business development company (BDC) regulation was created in 1980 by Congress to encourage the flow of public equity capital to private businesses in the United States. BDCs, like all mutual funds and closed-end funds, are regulated by the Investment Company Act of 1940. However, BDCs are unique because they focus on investing in private companies, rather than publicly traded companies. BDCs report to shareholders like traditional operating companies and file regular quarterly and annual reports with the Securities and Exchange Commission. BDCs are required to make available significant managerial assistance to their portfolio companies. By investing in a BDC, shareholders enjoy the liquidity of a publicly traded stock, while participating in the private equity industry. Private company investing has traditionally only been available to "accredited investors" - generally, large institutional investment funds and other sophisticated professional investors. Apart from the opportunity that BDCs offer to the general investing public, individual investors have few other opportunities to invest in private companies, particularly on a "pooled" basis, which diversifies the risk of any one investment across the whole portfolio. For further information on business development companies, see the Business Development Companies description on the Income Investments page which is listed on the Information menu at the top of any page. To examine the available business development companies, go to our Business Development Companies List.
Call Date - See Redemption Date below.
Callable - Callable means the security in question may be called or redeemed prior to its maturity date under the terms established in the IPO prospectus. Most recently issued securities are callable after five years from the date of issue and are callable at the liquidation preference amount (which is normally equal to the original issue price).
CallPrice - CallPrice is the QOL table; column heading abbreviation for Call Price or the Redemption Price. See Redemption Price below.
CBTCs (Corporate Backed Trust Certificates) - See our explanation of CBTCs on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
CEF - The acronym or abbreviation for Closed-End Fund (see below).
Chapter 11 Bankruptcy - Chapter 11 bankruptcy is the section of the US Bankruptcy Code that allows a company or individual to declare bankruptcy and remain in possession of its assets while it reorganizes. In Chapter 11, the debtor is allowed a certain degree of flexibility in debt restructuring and in working with creditors to negotiate payment schedules. For further information on what happens to income securities in a bankruptcy, see our "What Happens in a Bankruptcy?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
Chapter 7 Bankruptcy - Chapter 7 bankruptcy is the section of the US Bankruptcy Code providing for a court-appointed interim trustee to run the business in a way that prevents further losses. For further information on what happens to income securities in a bankruptcy, see our "What Happens in a Bankruptcy?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
Closed-End Funds - Closed-End Funds (or Closed-End ETFs or Closed-End Funds) (CEF) are a mutual fund that have a fixed number of shares outstanding. Following an initial public offering, their shares are traded on a stock exchange between investors. Transactions in shares of closed-end funds are based on their market price as determined by the forces of supply and demand in the marketplace. The price of a CEF may be above (at a premium to) or below (at a discount to) it's Net Asset Value (NAV). The transaction price will also include a customary brokerage charge. The invested capital in a closed-end fund is fixed and will change only at the direction of management. Capital can be increased through the issuance of shares in conjunction with a rights offering or through the reinvestment of certain dividend payments. Capital can be reduced when shares of the fund are repurchased in conjunction with a stock repurchase program or tender offer. For further information on closed-end funds, see the Closed-End Funds description on the Income Investments page which is listed on the Information menu at the top of any page. To examine the available closed-end funds, go to our Closed-end Funds List.
Closed-end Management Investment Company - Closed-end Management Investment Company is the official name used in prospectuses for closed-end funds (see above).
CMT Rate - CMT Rate is the abbreviation for Constant Maturity Treasury Rate which refers to reference interest rates published by The Federal Reserve Board on a daily basis. See Constant Maturity Treasury Rate below.
Common Stock - Common stock are securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater award in the form of dividends and capital appreciation.
Constant Maturity Treasury Rate - Yields on Treasury nominal securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve for non-inflation-indexed Treasury securities. This curve, which relates the yield on a security to its time to maturity, is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The constant maturity yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10 and 20 years. This method provides a yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. The current release of CMT Rates may be found at http://www.federalreserve.gov/releases/h15/Current/.
Conv - Conv is the QOL table; column heading abbreviation for convertible which refers to securities convertible into common stock under specified conditions. See Convertible below.
Convertible - The term convertible means that the security involved may be exchanged by the holder for a fixed number of (generally) common shares or other securities usually of the same company, in accordance with the terms specified in the IPO prospectus of the convertible security. See Convertible Securities below.
Convertible Securities - Convertible securities are generally preferred securities and sometimes exchange-traded debt securities that are convertible into common stock of the company at a fixed conversion ratio of a specified number of shares of common stock for each share of preferred stock. The conversion ratio can also be specified as a fixed price per common share in comparison to the liquidation preference value of the preferred shares. The conversion can generally take place any time at the holder's option. The company generally has the right to force conversion of the preferred shares into common shares when the market price of the common shares exceeds the conversion price by a specified amount. The initial conversion ratio is adjusted to account stock splits, stock dividends, etc. For further information on convertible securities, see the Convertible Preferreds description on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available convertible securities, go to our Traditional Convertible Securities table.
CorTS (Corporate-backed Trust Securities) - CorTS are a third party trust preferred security issued by Structured Products Corp.. See our Third Party Trust Preferreds definition below for a further definition of this type of preferred. Also see our explanation of CorTS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Coupon Rate - The coupon rate is referred to by investors but generally the term is not used in the prospectus of a security. Instead, the prospectus will generally use the term distribution rate. In either case the terms refer to the payout per annum expressed in a percentage and/or dollar amount in relationship to the Liquidation Preference of the security (i.e. A coupon rate of 7.50% per annum of $25 liquidation preference pays $1.875 per year). Also see the Yield definition below.
Cpn Rate - Cpn Rate is the table column abbreviation for Coupon Rate. See Coupon Rate above.
Credit Ratings - Credit ratings are published by Moody's, Standard & Poor, Fitches and others. Credit ratings for a specific security issuer and their securities represent the rating company's evaluation of the credit worthiness of the issuing company. Moody's says the following about credit ratings: "The first thing you should know is that ratings are not investment recommendations. A bond rated Aaa is not necessarily "better" or "worse" than a bond rated Baa1, for example. Ratings are only one input you might consider in making your investment decision." For further information on credit ratings, see the QuantumOnline Credit Ratings page which is listed under the "Information" menu at the top of any page.
Cumulative - The term cumulative refers to preferred stock dividends. When a dividend is cumulative, if the payment of any dividend is omitted, the omitted or unpaid dividend(s) is accrued and must be paid to the preferred holders before any dividends may be paid on the company's common stock. The accrued cumulative dividends also must be paid prior to or at the maturity date of the preferred or at the time the preferred is called. Also see Non-cumulative below.
Current Yield - The current yield for fixed income securities such as preferred stocks and bonds is calculated by comparing the fixed annual dividend or interest payment of a security to the current market price of the security and is expressed as a percentage of the current market price. Fixed income securities such as preferred stocks and bonds pay a fixed payment per year which can be calculated by multiplying the coupon rate of the security in percent divided by 100 times the liquidation preference (issue price) of the security. For example, if a preferred stock has a liquidation preference (issue price) of $25 and pays a coupon rate of 9% per year, the fixed annual payment for the security will be $2.25 ($25 times 9 and divided by 100, or $25 times 0.09). The current yield for a fixed income security (in percent) is the fixed annual distribution amount divided by the current market price of the security times 100. If our $25 liquidation value preferred is now selling on the NYSE for $27, the current yield would be 8.333% ($2.25 divided by $27 multiplied by 100). If the preferred is selling for $23, the current yield would be 9.783% ($2.25 divided by $23 times 100).
Calculating current yield for common stocks such as REITs, royalty trusts, closed-end funds, MLPs, etc. has an additional complication. The quarterly and annual payments are not fixed and vary with the fortunes of the company. Therefore, the person doing the calculating must decide what annual payment to use in their calculation of current yield. For example, take a company that has paid quarterly dividends of $0.18, $0.18, $0.20 and $0.20 for the previous four quarters and that we are guessing will pay $0.20, $0.20, $0.22 and $0.22 for the next four quarters. Now what annual payment should we use in our current yield calculation? If we use the dividend payment for the last four quarters, the annual payment is $0.76. If we take the latest dividend payment and multiply by 4, the annual payment is $0.80. If we use our guess of the next four quarterly dividend payments, the annual payment is $0.84. Using these three annual payments and a current market price of $10.00, the current yield in this case can be 7.6% ($0.76 divided by $10 times 100), 8.0% ($0.80 divided by $10 times 100), or 8.4% ($0.84 divided by $10 times 100) depending on which annual payment we select. And there is no right answer as to which value is correct. The person doing the calculating gets to make their own selection of which current yield they prefer when considering common stocks with variable dividend payments. So, when you are looking at the current yield for a common stock provided by a website, your broker, etc., you also need to understand what annual payment that source has used in calculating that current yield. Most current yield calculations will use either the sum of the previous 12 months payments or the latest quarterly dividend multiplied by four.
CUSIP Number - The CUSIP number is a unique nine-character alphanumeric code assigned to a security by Standard & Poor's Corporation, which appears on the face of each security certificate. The primary use of the number is to expedite the clearance and settlement process but CUSIP numbers are also used to identify securities for other purposes, especially securities without a ticker symbol. CUSIP stands for Committee on Uniform Security Identification Procedures.
Debenture - A debenture is a promissory note backed by the general credit of a company and usually not secured by any specific collateral, such as a mortgage or property. Debentures are the underlying securities for most trust preferred securities and are also offered directly as exchange-traded debt securities.
Depositary Shares - Depositary shares are issued so that a company may avoid a restriction in the number of preferred shares they may issue in accordance with their corporate documents. For example, a company might be restricted to issuing a total of 5 million shares of preferred stock. Let's assume that they have already issued 4 million shares and want to issue another 2 million shares at $25 per share. By the use of depositary shares they can bypass the restriction. To do so they might issue 200,000 shares of preferred stock at $250 per share. Then, they sell to the public 2 million depositary shares with a liquidation value of $25 per depositary share, each representing 1/10 of a share of the $250 preferred stock. Using this magic, they have sold $50 million of preferred stock (more correctly $50 million of depositary shares representing preferred stock) and have only issued 200,000 shares of preferred stock against their 5 million share limit. The ethics might be a little questionable but financially it works out well from the company's standpoint. From an investor's standpoint, it does not make much difference unless you are bothered by companies working around legitimate corporate restrictions.
Distribution - The distribution for a security, as used by QuantumOnline, is the periodic payment of dividends or interest, normally on a quarterly or semi-annual basis and sometimes on a monthly or annual basis.
Distribution Dates - The distribution dates shown on QuantumOnline tables and security descriptions are the dates a security holder can expect to have their account credited with the periodic distributions paid on the specific security. For further information on record dates, ex-dividend dates and distribution (payment) dates, see our "What is the ex-dividend date?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
Dividend - Dividends represent the distribution of the company's profits to shareholders and may be paid in cash or shares of stock. The specific amount of common stock dividends is decided by the Board of Directors on a periodic basis and are generally paid quarterly. Preferred stock dividends are paid in the amount and on the schedule specified in the security's IPO prospectus. For further detailed information on the dividend payment process, see the discussion under the What is the ex-dividend date? heading on our What Income Investors Should Know page.
Dividend Received Deduction (DRD) - A corporation (but not individuals) can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Dividends received from trust preferreds and from preferreds issued by REITs are two classes of dividends that are not eligible for the DRD deduction. For further information on this deduction, see IRS Publication 542 on the IRS website www.irs.gov.
Dividend Reinvestment Program (DRIP) - A dividend reinvestment plan (DRIP) is a program offered by companies that allow investors to reinvest their dividends to purchase additional shares of stock in the company. A number of DRIP plans allow investors to buy additional shares of stock directly from the company, without using a brokerage firm. In some plans an investor can purchase their first or original shares directly from the company.
DRD - See Dividend Received Deduction above.
DRIP - See Dividend Reinvestment Program above.
Equity Security Units - See our explanation of Equity Security Units on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
ETF - See Exchange-Traded Funds below.
ETN - See Exchange-Traded Notess below.
Euro - The euro is the official currency of the member states of the European Economic and Monetary Union (the "European Monetary Union"). It was introduced in January 1999 and replaced the national currencies of the then 11 participating countries. Today, the euro is the official currency of 12 nations including: Germany, Belgium, Greece, Luxembourg, Spain, France, Ireland, Italy, the Netherlands, Austria, Portugal and Finland. Other current and future European Monetary Union countries may adopt the euro as their official currency.
Exchange-Traded - This term simply means that a security is traded on a stock exchange such as the NYSE, NYSE Arca, NYSE Amex, Nasdaq, OTCBB, Pink Sheets or Other OTC markets.
Exchange-Traded Debt Securities - Exchange-traded debt securities (ETDS) are company debt securities (i.e. debentures, notes, bonds, PINES, QUIBS, QUIDS, etc.) that are traded on the stock markets rather than the bond markets. ETDSs similar to preferred stocks as they are normally issued in small denominations (generally $25), generally pay quarterly interest distributions and are senior to the company's common stock in terms of interest payments and upon liquidation. For further information on exchange-traded debt securities, see the Exchange-Traded Debt Securities description on the Income Investments page which is listed on the Information menu at the top of any page. To check out these securities, see our Exchange-Traded Debt Securities Table.
Exchange-Traded Funds (ETFs) - The term Exchange-Traded Funds (ETFs) is most often used to refer to exchange-traded index funds (Index ETFs) but is also sometimes used to refer to closed-end funds (Closed-End ETFs). Exchange-traded funds or trusts are listed on an stock exchange such as the NYSE, NYSE Arca, NYSE Amex, Nasdaq, OTCBB, Pink Sheets or Other OTC markets and the fixed number of outstanding shares are purchased and sold between individual investors like a regular common stock and at whatever price dictated by supply and demand of the markets. The charges or brokerage fees for the buy and sell transaction are based on the normal common stock brokerage commissions. The alternative to exchange-traded funds is the normal open-end fund that is sold directly by the mutual fund companies themselves (often through agents such as brokerage firms). Your purchase of an open-end fund is accomplished by the fund company issuing new shares to facilitate your purchase while a sale is accomplished by the mutual fund buying and retiring the shares involved. For further information on Index ETFs, see Index ETFs below. For further information on Closed-End ETFs, see Closed-End Funds above.
Exchange-Traded Notes (ETNs) - The term Exchange-Traded Note (ETN) is used to describe a senior unsecured and unsubordinated note from an issuer whose return is based on the performance of a specified Index less a yearly "management" fee. ETNs do not pay interest, are generally not callable prior to maturity, and make no guarantee of the principal at maturity. ETNs trade on the stock markets like a common stock and can be purchased and sold through any online or full service brokerage firm. The notes have maturity dates of up to 30 years or more. These notes are marketed so that they appear to be similar to an exchange-traded fund (ETF) but they are significantly different. The value of an ETN over time is dependent on both the performance of the related Index (less the management fee) plus, most importantly, the financial strength and credit ratings of the ETN issuer. The ETN issuers suggest that for tax purposes ETNs should be treated as prepaid contracts with an gains or losses during the time an investor holds the notes treated as capital gains or losses for tax purposes but the IRS has yet to issue a ruling on that interpretation. One risk of ETNs for which there is no current answer is what effect a downgrade in an issuer's credit rating would have on the value of an ETN.
Ex-dividend Date - When a company declares a dividend, it sets a record date when the holder must be registered on the company's books as a shareholder to receive the dividend. Once the company sets the record date, the stock exchanges or the National Association of Securities Dealers, Inc. fix the ex-dividend date. The ex-dividend date for stocks is normally set two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend. For further information on record dates, ex-dividend dates and distribution (payment) dates, see our "What is the ex-dividend date?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
FELINE PRIDES - See our explanation of FELINE PRIDES on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Floating Rate - See Adjustable Rate above.
Generally Accepted Accounting Principles (GAAP) - GAAP or Generally Accepted Accounting Principles the the widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board in the US or by equivalent bodies in other countries.
Guaranteed - Trust preferred securities are "guaranteed" by the parent company of the trust. The following is the wording of a typical guarantee for a trust preferred from a Bank One preferred prospectus: "BANK ONE will fully and unconditionally guarantee payment of amounts on the Preferred Securities on a subordinated basis to the extent that the Trust has funds available for payment of those amounts. We refer to this obligation as the "Preferred Securities Guarantee". However, the Preferred Securities Guarantee does not cover payments if the Trust does not have sufficient funds to make the distribution payments, including for example, if BANK ONE has failed to pay the Trust the amounts due under the Junior Subordinated Debt Securities."
The guarantee boils down to if the company actually paid the trust, they guarantee that the trust will pay the security holder but they don't guarantee that they will actually pay the trust. Another way of putting it is that if they have the money they will pay the holders but if they don't have the money (or if they are not in a mood to pay it) then they won't pay the money. The difference between a guaranteed and non-guaranteed preferred is pretty academic.
Hedge - A hedge is an investment made in order to reduce the risk of adverse price movements in a security by taking an offsetting position in a related security, such as an option or a short sale.
Index ETFs - Index ETFs are trusts that are based on a particular stock market index (i.e. the Dow Jones Industrial Average, the S&P 500 Index, etc.). The Index ETF seeks investment results that correspond to the price and yield performance of the target index, before fees and expenses. Essentially, an individual Index ETF attempts to achieve results identical to the related index by purchasing all (or a representative sample) of the securities included in the reference index and in percentages identical to (or similar to) the percentages reflected in the associated index. With Index ETF's, investors can buy or sell shares in the collective performance of an entire diversified stock or bond portfolio as a single security. Index ETFs are available with portfolios reflecting the broad stock markets, stock industry sectors, international stocks, and U.S. Treasury and corporate bond indexes providing a wide array of investment possibilities. For further information on index ETFs, see the Index ETFs description on the Income Investments page which is listed on the Information menu at the top of any page. To check out these funds, see our Exchange-Traded Funds (Index ETFs) List.
Initial Public Offering (IPO) - A security's initial public offering (IPO) is the first offering of that security on the stock markets. The sale must be accomplished in conjunction with a prospectus that defines the provisions of the security and the background and financial condition of the issuer. The new shares are sold via one or more underwriters which then sell the shares to the public.
Interest - Interest is the cost of borrowing money. Because bonds, debentures, notes, etc. represent a loan to a company, they receive interest based on the provisions of the prospectus.
Investment Grade Securities - Investment grade securities are considered to be securities that are rated in one of the four highest rating categories of a nationally recognized rating agency (e.g., between AAA and BBB by Standard & Poor's Corporation and Fitch IBCA, Inc. or between Aaa and Baa by Moody's Investors Service, Inc.), or issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities.
IPO - See Initial Public Offering above.
IPO Date - The IPO Date is the date of the Initial Public Offering or the date that the security was first offered or sold to the public. See Initial Public Offering above.
IPO Prospectus - The issuer of a new security must provide a prospectus in accordance with SEC regulations which represents the official documents to potential purchasers of a new securities issue. It highlights the much longer registration statement filed with the Commission that gives information on the financial well being of the issuer and the specifics of the issue itself. Potential investors of a security should read and understand the provisions of the prospectus before buying.
ISIN Number - ISIN stands for International Securities Identification Number. The ISIN number is the code number used to identify a specific security issue in markets around the world for trading and settlement purposes.
Leverage - The term leverage refers to a closed-end fund borrowing money to buy additional securities in the hope that securities purchased with the borrowed funds will return more profits than they will cost the fund in terms of interest or dividends. Many closed-end funds will issue preferred stock to implement leverage by issuing preferred stock equal to 50% of their invested assets (which will then equal 1/3 of their total assets). The fund's stated purpose for issuing this preferred stock is that it will increase the returns of the fund for their investors. There is no guarantee that this increase will occur. Not stressed in their explanation of leverage is the fact that the fund's management fees are based on total assets. By the use of this sort of leverage, the fund increases their management fees by 50% and this fee increase is guaranteed. To an investor in the fund, the fund's use of leverage may increase the returns of the fund in good markets while at least equally increasing losses in bad markets. The net asset value of funds using leverage will also be more volatile and this volatility will be most likely be reflected in the market price of the fund. The use of leverage by a fund is definitely a two edged sword for investors. When things are going good for the fund they may go very good while when things go bad with the fund they can go very bad. All in all, the use of leverage by an income fund reduces the safety of the fund which is generally bad for investors in the long term. For an income investor looking for a safe and steady income, it would probably be best to stay away from funds using leverage.
LIBOR or LIBOR Rate - The British Banker's Association LIBOR is the most widely used benchmark or reference rate for short term interest rates. LIBOR stands for the London Interbank Offered Rate and is the rate of interest at which banks could borrow funds from other banks, in marketable size, in the London interbank market. Further information on LIBOR may be found on the British Banker's Association BBA LIBOR page.
LiqPref - LiqPref is the QOL table; column heading abbreviation for Liquidation Preference. See Liquidation Preference below.
Liquidation Preference - The liquidation preference of a security is the amount a holder would receive in the event of a liquidation. This amount is nearly always equal to the original issue price of the security. The liquidation preference is also used as the base value in calculating the dollar value of the annual dividend or interest amount to be paid in relationship to the coupon rate. For example, a 7% preferred that was issued at a price of $25 and has a liquidation preference of the same $25 would pay a dividend of 7% times $25 or $1.75 per annum.
Mandatory Convertible Preferred Security - A mandatory convertible preferred security is a term used by the financial industry and media but generally does not appear in the official description of a security in its prospectus. These securities are officially called Equity Security Units, Equity Units, FELINE PRIDES, ACES, DECS, MEDS, PEPS, PIERS, PIES, TRACES, WIRES, etc. They differ from the normal convertible preferred in that they require the purchase a variable number of shares of the common stock of the company on or before a specified date, normally about 3 years from the date of issue. That means that the holder is required to buy the common stock no matter what has happened to the price of the common stock. The provision can result in the holder being required to buy a specified number of shares of common which could be worth considerably less than the original investment. For further information on mandatory convertible securities, see the Mandatory Convertible Securities description on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available mandatory convertible securities, go to our Mandatory Convertible Securities Table.
Market Capitalization - Market capitalization is the market value of a company, determined by multiplying the price of its stock by the number of shares outstanding.
Master Limited Partnerships (MLP) - Master Limited Partnerships (MLP) are businesses that are taxed at the unitholder level and generally are not subject to federal or state income tax themselves. Annual income, gains, losses, deductions or credits of the MLP pass through to its unitholders. Unitholders report their allocated shares of these amounts on their individual tax returns, as though the unitholder had incurred these items directly. For further information on master limited partnerships, see the Master Limited Partnerships description on the Income Investments page which is listed on the Information menu at the top of any page. To check out these securities, see our Master Limited Partnerships List.
Matur Date - Matur Date is the QOL table; column heading abbreviation for Maturity Date. See Maturity Date below.
Maturity or Maturity Date - The maturity date of a security is the date on which the debt will cease and the principal amount or face value of the security will be returned to the holder. Recently issued preferred and debt securities have maturity dates ranging from 30 to 100 years from the date of issue. For further information on waht happens at a security's maturity date, see our "What happens when a preferred stock matures?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
MITTS (Market Index Target-Term Securities) - See our explanation of MITTS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Moody's - Moodys or Moody’s Investors Service is among the world’s most respected, widely utilized sources for credit ratings, research and risk analysis. The firm publishes market-leading credit opinions, deal research and commentary that reach more than 3,000 institutions and 20,000 subscribers around the globe. See moodys.com for further inforamtion. Also see Credit Ratings above.
Moodys/S&P - Moodys/S&P is the QOL table; column heading abbreviation used for the credit ratings column. See Credit Ratings above.
Municipal Bond - Municipal bonds are bonds generally issued by state governments, local governments, and special-purpose agencies of state and local governments. These securities offer interest income that is usually exempt from federal taxes and, in some cases, state and local taxes.
Mutual Fund - A mutual fund is a pool of stocks and/or bonds managed with a specific investment objective and strategy. Investors buy shares in the fund, not the individual securities, and the value of the fund shares goes up and down with the value of the underlying securities. Funds vary enormously in the assets they hold, the strategies they pursue and the management and transaction fees they charge.
NASD - NASD is the abbreviation or acronym for the National Association of Securities Dealers which operates NASDAQ system. NASD is the largest self-regulatory organization for the securities industry in the United States. NASD is responsible for the operation and regulation of Nasdaq and the over-the-counter securities markets; it is the parent company of NASD Regulation, Inc. and The Nasdaq Stock Market, Inc. NASD can be found on the Internet at www.nasd.com.
NASDAQ - The Nasdaq Stock Market (NASDAQ) is a major national and international stock market that uses computers and telecommunications for the trading and surveillance of thousands of securities. The Nasdaq Stock Market is built on a system of competing Market Makers that list specific prices for the sale or purchase of securities. The Nasdaq Stock Market also is unique in its use of a flexible computer-based trading system that enables people to trade by computer from wherever they are located. The NASDAQ Stock Market is comprised of the NASDAQ Global Market (NGM), formerly the Nasdaq National Market (NNM) and the NASDAQ Capital Market (NCM), formerly the NASDAQ Small Cap Market (NSC). The NASDAQ Stock Market may be found on the Internet at www.nasdaq.com.
NASDAQ-CM - NASDAQ-CM is the designation used on the NASDAQ website for the NASDAQ Capital Market (NCM) which is the new name for the Nasdaq Small Cap Market as of September 2005 and includes the smaller companies traded on the NASDAQ Stock Market. See NASDAQ Capital Market below.
NASDAQ-GM - NASDAQ-GM is the designation used on the NASDAQ website for the NASDAQ Global Market (NGM) which is the new name for the second tier of the Nasdaq National Market (NNM) as of 2006 and includes the middle cap group of companies traded on the NASDAQ Stock Market. See NASDAQ Global Market below.
NASDAQ-GS - NASDAQ-GS is the designation used on the NASDAQ website for the NASDAQ Global Select Market (NGS) which is the new name for the top tier of the Nasdaq National Market (NNM) as of 2006 and includes the very largest companies traded on the NASDAQ Stock Market. See NASDAQ Global Select Market below.
NASDAQ Capital Market - The NASDAQ Capital Market (NCM) consists of over 550 of the smaller companies on the NASDAQ that have applied for listing, having met and continued to meet financial and liquidity listing requirements and agreed to meet specific corporate governance standards. This market, previously called The NASDAQ SmallCap Market (NSC), was renamed in 2005 to reflect the core purpose of this market, which is capital raising.
NASDAQ Global Market - The NASDAQ Global Market (NGM) consists of over 1,450 of the mid cap group of the companies on the NASDAQ that have applied for listing, having met and continued to meet financial and liquidity requirements and agreed to meet specific corporate governance standards. Formerly included as the second tier of the NASDAQ National Market (NNM), this market was renamed in 2006 to reflect the global leadership and international reach of this market and the companies whose securities are listed.
NASDAQ Global Select Market - The NASDAQ Global Select Market (NGS) has the highest initial listing standards in the world. The NASDAQ Global Select Market consists of over 1,200 of the very largest companies on the NASDAQ that have applied for listing, having met and continued to meet stringent financial and liquidity requirements and agreed to meet specific corporate governance standards. Formerly part of the NASDAQ National Market (NNM), the top tier of the NASDAQ National Market was renamed in 2006 to reflect the global leadership and international reach of this market and the companies whose securities are listed.
NAV - See Net Asset Value below.
NCM - NCM is the acronym for the NASDAQ Capital Market, formerly the NASDAQ Small Cap Market (NSC), which includes the smaller companies traded on the NASDAQ Stock Market. Issuers in a wide range of capitalization sizes may list on this market. The NASDAQ Capital Market provides companies with the needed capital to grow their businesses and a listing venue which can accomodate the different stages in their corporate life. All companies listed on the NCM must meet certain financial requirements and adhere to NASDAQ's corporate governance standards. The NASDAQ Small Cap Market (NSC) was renamed the NASDAQ Capital Market (NCM) in September 2005. See NASDAQ Capital Market above.
Net Asset Value - Net asset value is usually used in connection with investment companies to mean net asset value per share. An investment company computes its assets daily, or even twice daily, by totaling the market value of all securities owned. All liabilities are deducted, and the balance divided by the number of shares outstanding. The resulting figure is the net asset value per share.
NF - As used by QuantumOnline in our credit ratings column, NF means "Not Found" or simply that the issuer (and the security) was not found in the rating company's listings. The NF listing therefore means that the issuer has not requested a credit rating from the particular rating company and the rating company has not done any research into the financial stability of the issuer.
NGM - NGM is the acronym for the NASDAQ Global Market which is the new name for the second tier of the Nasdaq National Market as of 2006 and includes the mid cap companies traded on the NASDAQ Stock Market. See NASDAQ Global Market above.
NGS - NGS is the acronym for the NASDAQ Global Select Market which is the new name for the top tier of the Nasdaq National Market as of 2006 and includes the largest companies traded on the NASDAQ Stock Market. See NASDAQ Global Select Market above.
NNM - NNM is the acronym for the NASDAQ National Market which includes the largest companies traded on the NASDAQ Stock Market. The NASDAQ National Market was renamed the NASDAQ Global Market (NGM) in 2006. See NASDAQ above.
Non-cumulative - The term non-cumulative refers to the dividends of a preferred stock which the issuer has specified in the prospectus as non-cumulative. When the dividend is declared as non-cumulative, if the preferred issuer's board decides that a scheduled dividend will be omitted, the issuer has no obligation to ever pay the omitted dividend to the preferred holders and the non-cumulative dividend is generally gone forever and will never be paid. Also see Cumulative above.
Notes - The term note originally referred to short-term debt securities, typically with maturities of five years or less. The term is very losely used and there are many notes on the U.S. markets with terms of 30 years and more. So, more generally, the term note simply refers to a debt security and is used interchangeably with the terms bonds, debentures, etc. To really know what a "note" is you must read the IPO prospectus of the "note" to learn specific terms specified for the particular "note" in question.
NR - As used by QuantumOnline in our credit ratings column, NR means "Not Rated" or simply that the issuer is listed in the rating company's listings but the particular security (and probably all securities of the issuer) has not (for whatever reason) been rated by the rating company.
NSC - NSC is the acronym for the NASDAQ Small Cap Market which includes the smaller companies traded on the NASDAQ Stock Market. The NASDAQ Small Cap Market was renamed to the NASDAQ Capital Market (NCM) in September 2005. See NASDAQ above.
NYSE - NYSE is the abbreviation or acronym for the New York Stock Exchange which may be found on the Internet at www.nyse.com.
NYSE Arca - NYSE Arca is the name of a New York Stock Exchange subsidiary market. Quotes for NYSE Arca listed securities are available on the NYSE website at www.nyse.com. The NYSE Arca is a fully electronic exchange featuring Exchange-Traded Funds (ETFs), Exchange-Traded Notes (ETNs) and other special securities.
NYSE MKT - NYSE MKT is the current designation for the renamed American Stock Exchange (AMEX) or NYSE Amex. Quotes for NYSE MKT listed securities are available on the NYSE website at www.nyse.com. NYSE MKT is the NYSE subsidiary for listing and trading of small and microcap companies. Streamlined listing requirements and trading rules are suited to the size and business needs of small- and micro-cap firms.
OID - See Original Issue Discount below.
Original Issue Discount (OID) - Original issue discount (OID) is a form of interest. It is the excess of a debt instrument’s stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Current federal tax law requires the holder of a U.S. Treasury or other fixed income zero-coupon security to accrue as income each year a portion of the discount at which the security was issued, even though the holder receives no interest payment in cash on the security during the year (see IRS Publication 1212 for further information at www.irs.gov).
Another important class of income securities subject to OID accruals are trust preferred securities that defer their distributions. Most trust preferreds reserve the right to defer their distributions for up to five years. This reservation has no practical effect as long as the issuer continues to pay their distributions in a timely manner. However, if the issuer actually defers their distribtuions per this reservation, OID rears its ugly head. Per the OID provisions of most trust preferreds, the holder is required by the IRS to accrue OID accruals equal to the amount of dividends they should be receiving and pay income taxes on these accrued amounts even though they are not receiving any cash. For further information on OID accruals, see the prospectuses of the individual trust preferreds (search the prospectus for "OID" or "original issue discount" to locate the pertinent information).
OTCBB or OTC Bulletin Board - OTCBB is the acronym or abbreviation for the OTC Bulletin Board. The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. The OTCBB is a quotation medium for subscribing members, not an issuer listing service. An OTC equity security generally is any equity that is not listed or traded on Nasdaq or a national securities exchange. There are no minimum standards which must be met by an issuer for its securities to be quoted on the OTCBB; however, the Eligibility Rule limits quotations on the OTCBB to the securities of issuers that are current in their reports filed with the SEC or other regulatory authority. In 2003, the OTC Bulletin Board will be phased out, and replaced by a new, higher quality market, the BBX (Bulletin Board Exchange). The OTCBB can be found on the Internet at www.otcbb.com.
OTOTC or Other OTC - The Other OTC market is the trading vehicle, sometimes known as the "Grey Market", for trading of securities that are not listed on any of the major stock exchanges or the OTCBB. Other OTC trades are reported to the NASD so investors can track price and volume, however bids and offers are not collected in a central spot so best execution of orders is difficult. Securities designated as being on the Other OTC (OTOTC) are generally quoted both on the Nasdaq and on the Pink Sheets.
Over-The-Counter (OTC) Securities - Over-The-Counter (OTC) Securities are securities that are not listed and traded on a national securities exchange (i.e. the NYSE or the NYSE Amex) or on The Nasdaq Stock Market. OTC securities are generally traded on the OTC Bulletin Board (OTCBB), the Pink Sheets (PKSHT), or the Other OTC (OTOTC).
Pari-passu - Pari-passu means that two securities or obligations have equal rights to payment. The term is Latin and translates to "without partiality". For example, a second issue of preferred shares that carry equal rights with existing preferred shares are said to "rank pari passu."
Pay-in-Kind - Pay-in-kind securities generally allow the issuer to pay the holder dividends in additional shares of stock instead of cash. Payment-in-kind securities will give rise to income which is required to be distributed and is taxable even though the holder of the security receives no interest payment in cash on the security during the year.
PEPS (Premium Equity Participating Security Units) - See our explanation of PEPS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Perpetual - Perpetual refers to securities the have no stated maturity date and will remain on the market until redeemed or called under whatever redemption provisions apply to the security.
Pfd and Pfds - Pfd is the abbreviation of preferred and Pfds is the abbreviation for preferreds. These abbreviations are used extensively on the QOL website in security names that require abbreviation.
PERQS (Reset Performance Equity-linked Redemption Quarterly-pay Securities) - See our explanation of PERQS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
PETS - PETS or Preferred Equity Traded (PET) bonds are another name used in the securities industry for what QuantumOnline calls Exchange-Traded Debt Securities. For information on these securities, see Exchange-Traded Debt Securities above.
PIERS (Preferred Income Equity Redeemable Shares) - See our explanation of PIERS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
PIES (Premium Income Equity Securities) - See our explanation of PIES on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
PINES (Public Income NotES) - See our explanation of PINES on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Pink Sheets (PKSHT) - The Pink Sheets LLC is a privately owned company headquartered in New York City whose Electronic Quotation Service provides an Internet-based, real-time quotation service for OTC equities and bonds. The Pink Sheets LLC is the leading provider of pricing and financial information for the over-the-counter (OTC) securities markets. Pink Sheets provides broker/dealers, issuers and investors with electronic and print products and information services designed to improve the transparency of the OTC markets. The Pink Sheets can be found on the Internet at www.pinksheets.com.
PPLUS (PPLUS Trust Certificates) - See our explanation of PPLUS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Preferred - The term preferred is used widely with fixed income securities and generally means that the security has precedence over the company's common stock in both the payment of dividends and upon liquidation. In other words, the company can not pay a common dividend unless all preferred dividends have been paid and are current. In terms of a liquidation or bankruptcy, the preferred shareholders must be completely paid the liquidation preference amount of their securities before any payments can be made to common stock shareholders.
Preference Stock - The term preference stock is generally used to designate a class of preferred stock that, in regards to payment of dividends and upon liquidation of the company, is ranked junior to the company's regular preferred stock but senior to the company's common stock. A company might issue a preference stock when they are unable to issue additional preferred stock due to restrictions in their preferred stock agreements or in their articles of incorporation. For example, a company might not be able to meet required earnings tests to issue additional preferred stock but would have no such restrictions to bar the issuance of a preference stock.
Preferred Equity Traded (PET) Bonds - Preferred Equity Traded (PET) Bonds are another name used in the securities industry for what QuantumOnline calls Exchange-Traded Debt Securities. For information on these securities, see Exchange-Traded Debt Securities above.
Preferred Stock - A preferred stock is a type of stock that pays a fixed dividend regardless of corporate earnings, and which has priority over common stock in the payment of dividends and upon liquidation. However, it generally carries no voting rights unless scheduled dividends have been omitted. The fixed income stream of preferred stock makes it similar in many ways to bonds and other debt securities. For further information on preferred stocks, see the Preferred Stocks description on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available preferred stocks, go to our Preferred Stocks Table.
Price/Earnings Ratio - A popular measure for comparing stocks selling at different prices in order to single out over- or under-valued issues. The P/E ratio is simply the price per share divided by the company's earnings per share. However, P/E is not always an accurate guide to a stock's quality. Some people tend to think that a stock is inflated and drastically overvalued if its price is many times its earnings. Yet that same stock may be quite accurately valued to reflect the company's rapid growth and potential for high future earnings. When comparing P/Es it is therefore important to choose stocks in the same industry that are likely to face the same earnings prospects.
Pro-Rata - The term pro-rata is used to describe a proportionate allocation. For example, if partial call of half of a preferred issue (50% of the issue) was to be redeemed on a pro-rata basis then each holder of the issue would would have 50% of the shares they own redeemed by the call. In another example if an issue was to make only a partial dividend payment on a preferred stock (a very unusual circumstance), the partial payment would be made on a pro-rata basis with each outstanding share of the preferred receiving a equal amount of the partial dividend.
Prospectus - See IPO Prospectus above.
QOL - This is our acronym or abbreviation for QuantumOnLine.
Qualified Dividend - A qualified dividend is a dividend paid by a common or preferred stock that qualifies for the 15% tax rate of the U.S. income tax. The Tax Increase Prevention and Reconciliation Act of 2005 extended the application of the maximum 15% tax rate on net long-term capital gains recognized by non-corporate taxpayers to taxable years beginning before January 1, 2011. Accordingly, net long-term capital gain recognized by a non-corporate U.S. Holder of common or preferred shares in taxable years beginning before January 1, 2011 generally will be subject to tax at a maximum rate of 15%. Dividends received by a non-corporate U.S. Holder in taxable years beginning before January 1, 2011 that constitute “qualified dividend income” generally are subject to tax at the maximum rate of 15% applicable to net long-term capital gains, provided that certain holding period and other requirements are met (including a 61-day holding period requirement during the 121-day period beginning 60 days before the Ex-dividend Date, or, in the case of a dividend attributable to a period or periods aggregating over 366 days, a 91-day holding period during the 181-day period beginning 90 days before the ex-dividend date). To check out the available preferred stocks eligible for the 15% tax rate, go to our Preferreds eligible for the 15% Tax Rate table.
QUIBS (Quarterly Interest Bonds) - See our explanation of QUIBS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
QUICS (Quarterly Income Capital Securities) - See our explanation of QUICS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
QUIDS (Quarterly Income Debt Securities) - See our explanation of QUIDS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
QUIPS (Quarterly Income Preferred Securities) - See our explanation of QUIPS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Ratings - See Credit Ratings above.
Real Estate Investment Trust (REIT) - A real estate investment trust (REIT) is a company dedicated to owning and, in most cases, operating income-producing real estate, such as apartments, shopping centers, offices and warehouses. Some REITs also are engaged in financing real estate. Most importantly, to be a REIT a company is legally required to pay virtually all of its taxable income (90 percent) to its shareholders every year. A REIT may deduct the dividends paid to the shareholders from its corporate tax bill so long as the company's assets are primarily composed of real estate held for the long term, the company's income is mainly derived from real estate, and the company pays out at least 90 percent of its taxable income to shareholders. The main benefit of being a REIT is one level of taxation. The main limitation of being a REIT is a restriction on earnings retained by the company. For a REIT to grow, capital must come from money raised in the investment marketplace as well as money generated internally. For further information on real estate investment trusts, see the Real Estate Investment Trusts description on the Income Investments page which is listed on the Information menu at the top of any page. For additional information on REITs, see the website of the National Association of Real Estate Investment Trusts (NAREIT). To check out the available real estate investment trusts, go to our Real Estate Investment Trusts (REIT) List.
Record Date - When a company declares a dividend, it sets a record date. The record date is the date when you must be registered on the company's books as a shareholder to receive the dividend. If you are registered on the company's books on the record date, you get the dividend. If you have just purchased the security, you must allow for the three business day settlement period before the purchase closes. If you purchase the security two days before the record date, the purchase will not settle for three days and you will not be on the company's books on the record date and the sellers gets the dividend. See the ex-dividend date above for further information. For further information on record dates, ex-dividend dates and distribution (payment) dates, see our "What is the ex-dividend date?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
Redeem or Redemption - An issuer may redeem a security in accordance with the provisions specified in the prospectus that was issued at the time of the initial public offering. To redeem a security, the issuer must pay the holder the redemption price that was specified in the IPO prospectus. Most recently issued preferreds and debt securities have redemption prices equal to the liquidation preference which normally is equal to the original issue price. The older perpetual preferreds generally had voluntary redemption prices that were a few percent above the liquidation preference. Most recently issued securities can not be redeemed for five years from the date of issue. The older preferreds on the market can generally be redeemed any time since even if they had original restrictions on being redeemed they have long since expired.
Redeemable - Redeemable means that a security may be redeemed (called) under whatever provisions are specified in the IPO prospectus. Most recently issued preferred and debt securities are redeemable after 5 years.
Redemption Date - The term redemption date is the official terminology used in IPO prospectuses while the common usage in the security industy is the "call date" which is synonymous to redemption date. The redemption date (or call date) is the first date that a security may be redeemed (called) under normal circumstances. Redemption dates are generally specified as "on or after" the specified date. This means that the issuer can call or redeem the security on or after the specified redemption (call) date but is not required to redeem the stock on that date. After the call date has been passed, the company is allowed to call or redeem the security at any timee at their option. The issuer is not required to redeem the stock until the maturity date, if there is a maturity date specified for the security. For further information on how the redemption or call date works, see our "What is the Call Date (or redemption date)?" discussion on our "What Income Investors Should Know" page which is listed under the Information menu at the top of any page.
Redemption Price - The redemption price of a security is the price the security's issuer must pay to the holder to redeem (call) the security prior to maturity. Most recently issued securities have redemption prices equal to the original price of the security. Older preferreds often have redemption prices that are a few percent higher than the liquidation preference (issue price).
REIT - See Real Estate Investment Trust above.
Reverse Convertibles - A convertible debt security is one that gives the HOLDER the option of converting the debt security to a specified number of shares of the issuer's common stock under specified conditions. In addition to the yield of its interest payments, the convertible debt security offers the holder the possibility of a capital gain if the price of the underlying shares increase over the term of the debt security.
A reverse convertible debt security (bonds, notes, debentures, etc.) is the opposite of a convertible debt security - it gives the ISSUER the option of converting the debt security into specified equities under specified conditions. Reverse convertible debt securities are generally issued by major brokerage firms to hedge their security holdings in a specific company. Reverse convertible debt securities are generally issued with a term of a year or two. They offer a yield considerably higher than normal debt securities to at least somewhat compensate the debt security holder for the investment risk involved in potential stock price declines in the underlying securities. The reverse convertible debt security gives the issuer the option, but not the obligation, to convert the the debt security into a specific number of common shares of a company at the debt security's maturity date. If the underlying shares have declined in price at the maturity date of the debt security, the holder will receive the specified number of shares in the specified company which will be worth less, and possibly significantly less, than the original purchase price of the debt security. If the underlying shares have increased in price at the debt security's maturity date, the holder will receive a cash amount equal to their original purchase price of the debt security. The investor in reverse convertible debt securities needs to consider whether the higher yield available from the reverse convertible debt security is sufficient to balance out the investment risk that can result from a decline in price of the underlying shares over the term of the debt security.
The name reverse convertibles is being used by some sources on Wall Street to refer to the securities that QuantumOnline lists on our SIP - Common Stock Ownership list which you will find under our "Stock Lists" menu at the top of any page. The name reverse convertible does not seem particularly appropriate for these securities and therefore we do not use it in our descriptions on the QuantumOnline website but have included the term here to help identify the securities to which the term refers.
Royalty Trusts - Royalty trusts are established to receive the royalties or net profit interests in a specific group of assets. The specific assets and the specific net profit interest in those assets are specified when the trust is originally established. Trust unitholders are taxed directly on their proportional share of the trust income. In the case of oil and gas royalty trusts, unitholders are entitled to tax depletion deduction and tax credits. Royalty trusts distribute substantially all trust income to unit holders. The trust assets are limited to the net profits interests which have a limited economic life. For further information on royalty trusts, see the Royalty Trusts description on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available royalty trusts, go to our U.S. Royalty Trusts List and our Canadian Royalty Trusts List.
S&P - S&P is the abbreviation for Standard & Poor's, the credit rating and financial information company. See Standard & Poor's below.
SATURNS (Structured Asset Trust Unit Repackagings) - See our explanation of SATURNS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
SEC - SEC is the acronym or abbreviation for the U.S. Securities and Exchange Commission (see below).
SEC EDGAR - EDGAR stands for the Electronic Data Gathering, Analysis, and Retrieval system which performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (SEC). The SEC EDGAR system provides online Internet access to virtually all corporate SEC filings made by public companies. All companies trading on the NYSE, NYSE Arca, NYSE Amex, Nasdaq and the OTCBB are required to file reports with the SEC via the EDGAR system. These filings are available online via the Internet. U.S. companies were phased into filing their reports between 1993 and 1996 while foreign companies were required to file on the EDGAR system starting in November 2002. The SEC EDGAR system may be found on the Internet at http://www.sec.gov/edgar.shtml.
Securities and Exchange Commission - See the U.S. Securities and Exchange Commission (see below).
SEDAR - SEDAR is the abbreviation for System for Electronic Document Analysis and Retrieval (SEDAR) of the Canadian Securities Administrators and is the Canadian equivalent of the SEC EDGAR system. SEDAR may be found on the Internet at www.sedar.com.
SIC Code - The Standard Industrial Classification (SIC) code is a four digit numbering system established by the Office of Management and Budget that identifies companies by industry. It is used to promote the comparability of economic statistics from various facets of the U.S. economy.
Sinking Fund - A sinking fund is money required to be regularly set aside by a company to redeem its bonds, debentures or preferred stock from time to time as specified in the security's prospectus.
SPARQS (Stock Participation Accreting Redemption Quarterly-pay Securities) - See our explanation of SPARQS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Special Investment Products - Special investment products is a term used by QuantumOnline for a variety of Wall Street products. These securities are comprised of a variety of securities that need to be studied carefully by investors before purchasing. Included under this category are securities that require the holder to purchase the company's common stock at a specific date, securities with maturity payments based of indexes and companies, the HOLDRS securities, and the asset-backed securities. For further information on special investment products, see the Special Products based on Market Indexes, Special Products based on Company Stocks, and Special Products with a Stock Purchase descriptions on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available special investment products, go to our Special Investment Products based on Indexes List, Special Investment Products based on Companies List, or Special Investment Products resulting in Common Stock Ownership List.
Standard & Poor's - Standard & Poor's is one of the world's preeminent providers of credit ratings, and and povides such globally recognized financial-market indices as the S&P 500®. They also provide a wide range of other products and services designed to help individuals and institutions around the world make better-informed financial decisions with greater confidence. They can be found on the Internet at http://www.standardandpoors.com.
Stated Maturity - The term stated maturity is most often used in the negative sense as in "the security has no stated maturity". That term is used primarily with normal preferred stocks that are perpetual and will be redeemed only at the option of the issuer in accordance with the terms specified in the IPO prospectus.
Step-Up - The term Step-Up used with an income security means that the dividend or interest distributions will start at a lower level of income and then increase or Step-Up on a specified schedule. For example, a step-up security could start out paying a 5% dividend initially and then Step-Up to a 7% dividend after 5 years (assuming it is not called). The Step-Up or increase in the payout can occur on whatever schedule is specified in the IPO prospectus such as after 3 years, 5 years, 10 years, 15 years, etc. Currently there are only a handful of Step-Up securities on the markets.
Stock Dividend - A stock dividend is a dividend paid in shares of stock rather than cash. The dividend may be additional shares of the issuing company, or in shares of another company (usually a subsidiary) held by the company.
STRIDES (Callable STock Return Income DEbt Securities) - See our explanation of STRIDES on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Symbol - See Ticker Symbol below.
Tax Advantaged Dividends - The term tax-advantaged dividends is generally used by QuantumOnline to refer to dividends that are eligible for the 15% tax rate on dividends which was authorized on congress in 2003. For further information on taz-advantaged dividends, see the "15% Tax Rate on Dividends" page which can be found under the "Information" menu at the top of any page.
Third Party Trust Preferreds - Third Party Trust Preferreds are Wall Street products. To generate third-party trust preferreds, a Wall Street firm buys a group of already existing preferred or debt securities on the open market and then repackages the securities for sale on the stock markets. The underlying securities are generally institutional securities that were issued in private placements and are often large denomination securities. The Wall Street firm then sets up a trust which buys the underlying securities and issues trust certificates to be sold to individual investors generally via the NYSE. The trust certificates are generally issued in $25 denominations, have maturity dates identical to the underlying securities and can pay distributions, generally on a semi-annual basis, that are more than, equal to or less than the underlying securities depending on the purchase price of the underlying securities in relationship to their originally issued price. If the underlying securities were purchased at a premium or discount the certificates will have redemption provisions accounting for those differences. The most common issues of asset-backed securities are the Lehman ABS Corporate Backed Trust Certificates, the Structured Products CorTS, the Merrill Lynch Depositor PreferredPlus (now PPLUS) and the Morgan Stanley SATURNS. For further information on third party trust preferred securities, see the Third Party Trust Preferred Securities description on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available third party trust preferred securities, go to our Third Party Trust Preferreds Table.
Ticker Symbol - A ticker symbol is a series if one to five letters used to identify a security whether on the floor, a TV screen, or a newspaper page. Ticker symbols are part of the lore of Wall Street. They were originally developed in the 1800s by telegraph operators to save bandwidth. One-letter symbols were therefore assigned to the most active stocks. Ticker symbols today are assigned on a first-come, first-served basis. Each marketplace -- the NYSE, the American Stock Exchange, and others -- allocates symbols for companies within its purview, working closely to avoid duplication. A symbol used for one company cannot be used for any other, even in a different marketplace. For a very important discussion of income security ticker symbols, see our Preferred Ticker Symbols & Names page which can be found under the "Information" menu at the top of any page.
TOPrS (Trust Originated Preferred Securities) - See our explanation of TOPrS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Trading Flat - Trading flat is a term used to differentiate the trading procedure used for income securities as compared to bonds. When bonds are traded, the buyer is required to pay accrued interest from the last interest payment date to the date of the trade. The accrued interest is added to the amount the seller receives for the bond and also added to the price that the buyer pays for the bond. When securities trade flat it means that no accrued interest is added to the sale price of the security paid by the buyer or received by the seller. The assumption is that the market price of the security will reflect the amount of accrued interest from the last payment date. The phrase that QuantumOnline uses to indicate income securities subject to this feature is "Units are expected to trade flat, which means accrued interest will be reflected in the trading price and the purchasers will not pay and the sellers will not receive any accrued and unpaid interest." In theory, trading flat means that as the record date for payment of an interest payment approaches, the market price of the security will increase to reflect the accrued interest due. When the record date passes the market price of the security would drop to reflect that a buyer will no longer receive that interest payment. In the real world, there is no guarantee that the market will act that logically.
TRUCs (Trust Certificates) - See our explanation of TRUCs on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
TruPS (Trust Preferred Securities) - See our explanation of TruPS on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
Trust Preferred Security - Trust preferred securities comprise most of the securities currently being issued by U.S. taxable corporations such as industrial and financial companies, utility companies, etc. A trust preferred is a hybrid security comprised of a preferred stock and a debt security. To generate a trust preferred security, a taxable corporation sets up a trust which then sells preferred securities to the public. The trust then uses the proceeds from the sale of the preferred securities to buy debt securities from the company that have terms that are essentially identical to the terms of the preferred securities. The purpose of this process is to make the company's payments on the securities tax deductible since they are paying interest on the debt securities sold to the trust. The companies also seem to be at least partially able to ignore the existance of the debt on their balance sheets since the trust actually sold preferred securities. Trust securities have some troubling aspects for investors. First, the companies reserve the right to defer interest and dividend payments for up to five years on multiple occasions. Next, the company's guarantee is a bad joke. The company's essentially guarantees that they will guarantee that the trust makes the dividend payments on the preferred, but only if the company has made the interest payments on the debt securities. For further information on trust preferred securities, see the Trust Preferred Securities description on the Income Investments page which is listed on the Information menu at the top of any page. To check out the available trust preferred securities, go to our Trust Preferred Securities Table.
U.S. Securities and Exchange Commission (SEC) - The primary mission of the U.S. Securities and Exchange Commission, generally referred to as the Securities and Exchange Commission or the SEC, is to protect investors and maintain the integrity of the securities markets. With the Securities Exchange Act of 1934, Congress created the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation's securities self regulatory organizations (SROs). The various stock exchanges, such as the New York Stock Exchange, and American Stock Exchange are SROs. The National Association of Securities Dealers, which operates the NASDAQ system, is also an SRO. The SEC can be found on the Internet at www.sec.gov and their website provides a vast amount of information the SEC itself, the securities industry and the companies involved in the securities industry.
Unit Investment Trusts - Unit Investment Trusts are sold only by prospectus through individual firms - they are not exchange-traded securities bought and sold on the stock exchanges and are therefore not listed on the QuantumOnline website. A Unit Investment Trust is a trust that holds a fixed portfolio of securities that are offered in "unit" increments. Investors receive a share of the trust’s earned income, if any, and their share of the holdings at the trust’s maturity. Unlike a mutual fund, a UIT is created for a specific length of time and is a fixed portfolio, meaning that the UIT’s securities will not be sold or new ones bought, except in certain limited situations. Each trust is designed to meet a stated investment goal, such as growth or income. Once the securities are selected, they are held until the Trust is terminated and proceeds are distributed to investors. While each trust has a fixed duration or term, investors may redeem their holdings prior to maturity. UIT investors may sell their units anytime. Even in the absence of a secondary market, trusts are required by law to buy back outstanding units at their net asset value (NAV), which is based on the current market value of the underlying securities. Investors should consider the investment objectives, risks, charges and expenses associated with this investment, and should carefully review the prospectus. For trusts with deferred sales charges, investors may be responsible for payment of the remaining deferred sales charges if they choose to sell their holdings prior to the trust’s maturity.
Variable Rate - See Adjustable Rate above. A variable rate is just a different name for an adjustable rate.
Wall Street Products - See Special Investment Products above.
Warrants - A warrant is an option issued by a company to buy a specified number of company shares at a specified exercise price. The exercise price of the warrant is generally set 10 to 20% above the price of the stock at the time the warrant is issued. The term of the warrant is variable and can range from a year or two to a perpetual term.
WIRES (Warrants and Income Redeemable Equity Securities) - See our explanation of WIRES on our "Explanations of Security Acronyms" page which is listed on the Information menu at the top of any page.
WR - As used by QuantumOnline in our credit ratings column, WR means "Withdrawn" or simply that the issuer is listed in the rating company's listings but that for that particular security (and probably all securities of the issuer) the credit ratings have been withdrawn by the rating company for whatever reason.
Yield - Yield is the amount of money returned to investors on their investments and is also known as Rate of Return. At the IPO of a security, the Yield would be equal to the Coupon Rate. After the IPO, the term Yield could be used to mean the Current Yield, the Yield to Call, the Yield to Maturity or the Yield to Worst (see below).
Yield to Call (YTC) - Yield to Call of a security is the yield if you were to buy and hold the security until the call date. This yield is valid only if the security is actually called at the call date. The calculation of yield to call is based on the distribution or coupon amount, the length of time to the call date, and the current market price. The yield to call value is only meaningful prior to the call date of the security. The value is also only meaningful if the market price of the security is above or possibly sightly below the call price of the security.
Yield to Maturity (YTM) - Yield to Maturity is the yield of a security to maturity which takes into account the price discount from or premium over the face amount. It is greater than the current yield when the security is selling at a discount and less than the current yield when the security is selling at a premium.
Yield to Worst (YTW) - Yield to Worst is the worst yield applicable to a security. If maturity is many years away, the yield to worst is generally the yield to call if the market price is above the call price and yield to maturity if the price is below. For a perpetual security with no stated maturity, the yield to worst is the lesser of either yield to call or the current yield.
YTC - See Yield to Call above.
YTM - See Yield to Maturity above.
YTW - See Yield to Worst above.