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Investor Education
An informed investor is a better investor. If an investor knows of the various types of risk or fraud that may take place, that person can make better investment decisions. The following bulletins or press releases offer valuable information to investors. We will continually add pages as certain investor topics emerge.
Also, when investing, it is always important to remember the famous quotation by the American actor and humorist Will Rogers:
"It is not the return ON my investment that I am concerned about;
it's the return OF my investment."
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Investor information from the North American Securities Administrators Association
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Educational and Teaching information regarding Investing and Investor Protection
How Older Americans Can Avoid Investment Fraud And Abuse
Older Americans are the No. 1 targets of investment con artists. Additionally, stockbrokers and financial planners who engage in abusive practices often seek out the elderly. The files of state securities agencies are filled with tragic examples of senior citizens that have been cheated out of savings, windfall insurance payments and even the equity in their homes. Fortunately, such victimization can be avoided by following 10 self-defense tips developed for older Americans by the North American Securities Administrators Association (NASAA) which in the U.S. is the national voice of the 50 state securities agencies responsible for investor protection at the grassroots level.
1. Don’t be a “courtesy victim.” Older Americans are of the generation that was taught to be courteous at all times to phone callers as well as people who visit them at home. Con artists will not hesitate to exploit the “good manners” of a potential victim. Remember that a stranger who calls and asks for your money is to be regarded with the utmost caution. You are under absolutely no obligation to stay on the telephone with a stranger who wants your money. In these circumstances it is not impolite to explain that you are not interested and hang up the phone. Save your good manners for friends and family members, not swindlers!
2. Check out strangers touting “strange” deals. Trusting strangers is a mistake that all too many older Americans make when it comes to their personal finances. Say “no” to any investment professional or con artist who presses you to make an immediate decision, giving you no opportunity to checkout the salesperson, firm and the investment opportunity itself. Extensive background information on investment salespeople and firms is available from your state securities agency or the National Association of Securities Dealers (1-800-289-9999). Almost all investment opportunities must be registered for sale in the state in which you live. Your state securities agency can tell you if the investment opportunity is properly registered. Before you part with your hard-earned savings get written information about the investment opportunity, review it carefully and make sure that you understand all of the risks involved.
A favorite tactic of telemarketing con artists is to develop a false bond of friendship with older Americans. Swindlers know that many senior citizens are eager to have someone to talk to on the phone … even if that someone is a complete stranger. If you are dealing in person with a stockbroker or financial planner do not be swayed by offers of unrelated advice and assistance that are merely efforts to develop a sense of friendship and even dependency. If you are lonely and in need of companionship don’t make the mistake of seeking it from someone whose only real interest is to get his or her hands on your money.
3. Always stay in charge of your money. A stockbroker, financial planner or telemarketing con artist who wants your money will be more than happy to assure you that he or she can handle everything thereby relieving you of the need to watch over and protect your nest egg. Beware of any financial professional who suggests putting your money into something you don’t understand or who urges that you leave everything in his or her hands. Constant vigilance is a necessary part of being an investor. If you understand little about the world of investments take the time to educate yourself or involve a family member or a professional such as your banker before trusting a stranger who wants you to turn over your money and then sit back and wait for results.
4. Never judge a person’s integrity by how they “sound.” All too many older Americans who get wiped out by con artists later explain that the swindler “sounded like such a nice young man (or woman).” Successful con artists sound extremely professional and have the ability to make even the flimsiest investment deal sound as safe and sound as putting money in the bank. Some swindlers combine professional-sounding sales pitches with extremely polite manners knowing that many older Americans are likely to equate good manners with personal integrity. Remember that the sound of a voice (particularly on the phone) has no bearing on the soundness of an investment opportunity.
5. Watch out for salespeople who prey on your fears. Con artists know that many older Americans worry that they will either outlive their savings or see all of their financial resources vanish overnight as the result of a catastrophic event such as a costly hospitalization. As a result, it is common for swindlers and abusive salespeople to pitch their schemes as a way for older Americans to build up their life savings to the point where such fears are no longer necessary. Remember that fear and greed can cloud your good judgment and leave you in a much worse financial posture. An investment that is right for you will make sense because you understand it and feel comfortable with the degree of risk involved.
6. Exercise particular caution if you are an older woman with no experience handling money. Ask a con artist to describe his ideal victim and you are likely to hear the following two words: “elderly widow.” Sadly, many women who are now in their retirement years often received in their youth little or no education about how to handle money. Women of this generation often relied on their husbands to handle most or all major money decisions. As a result, older women (particularly those who have received windfall insurance payments in the wake of the death of a spouse) are prime targets for con artists. Elderly women who are on their own and have little know-how about handling money should always seek the advice of family members or a disinterested professional before deciding what to do with their savings.
7. Monitor your investments and ask tough questions. Too many older Americans not only trust unscrupulous investment professionals and outright con artists to make initial financial decisions for them but compound their error by failing to keep an eye on the progress of the investment. Insist on regular written and oral reports. Do not be swayed by assurances that such practices are routine or in your best interests. Do not permit a false sense of friendship or trust to keep you from demanding a return of your savings. When you suspect that something is amiss and get unsatisfactory explanations call your state securities agency and make a complaint.
8. Look for trouble retrieving your principal or cashing out profits. Many older Americans have little ongoing need for invested funds while others need returns that are paid out to them regularly in order to supplement limited incomes. If a stockbroker, financial planner or other individual with whom you have invested stalls you when you want to pull out your principal, or even just profits, you may have uncovered someone who wants to cheat you. Since unscrupulous investment promoters pocket the funds of their victims they often go to great lengths to explain why an investor’s savings are not readily accessible. In many cases they will pressure the investor to “roll over” nonexistent “profits” into new and even more alluring investments thus further delaying the point at which the fraud will be uncovered. If you are not investing in a vehicle with a fixed term such as a bond you should be able to receive your funds or profits within a reasonable amount of time.
9. Don’t let embarrassment or fear keep you from reporting investment fraud or abuse. Older Americans who fail to report that they have been victimized in financial schemes often hesitate out of embarrassment or the fear that they will be judged incapable of handling their own affairs. Some senior citizens have indicated that they fear that their victimization will be viewed as grounds for forced institutionalization in a nursing home or other facility. Recognize that con artists know about such sensitivities and in fact even count on these fears preventing or delaying the point at which authorities are notified of a scam. While it is true that most money lost to investment fraud is rarely recovered beyond pennies on the dollar there also are many cases in which older Americans who recognize early on that they have been misled about an investment are then able to recover some or all of their funds by being a “squeaky wheel.” A good resource for older Americans who fear that they have been victimized is the securities agency in the state in which they live.
10. Beware of “reload” scams. Younger Americans who are ripped off by swindlers are fortunate to the extent that they have the opportunity to pick themselves up and restore some or all of the losses through new earnings. However, most older Americans are dealing with a finite amount of money that is unlikely to be replenished in the event of fraud or abuse. The result is a panic that is well known to con artists who have developed schemes to take a “second bite” out of senior citizens who already have been victimized. Faced with a loss of funds some senior citizens will go along with another scheme (allowing themselves to, in effect, be reloaded) in which the con artists promises to make good on the original funds that were lost … and possibly even generate new returns beyond those originally promised. Though the desire here to make up lost financial ground is understandable all too often the result is that unwary senior citizens lose whatever savings they have left in the wake of the initial scam.
STATE OF COLORADO
Department of Regulatory Agencies
Division of Securities
1560 Broadway, Suite 900
Denver, CO 80202
303-894-2320
COMMON STOCKBROKER VIOLATIONS
Although a vast majority of stockbrokers operate in an ethical manner, there are certain individuals that put their own self-interests above those of their customers. In some cases, this dishonest and unethical behavior is condoned and encouraged by the brokerage firms that employ them. Below is a listing of common complaints filed against those particular stockbrokers. Any of the following actions violates the securities laws and constitutes fraudulent or unlawful activity.
Suitability
In recommending to a customer the purchase, exchange or sale of a security, the stockbroker and the brokerage firms should have reasonable grounds for believing that the recommendation is suitable for the customer. The recommendation would be based on the customer's financial status, tax status, investment objectives, and other pertinent information.
Churning
This is excessive trading in a customer's account. The purpose of churning is to generate commissions for the stockbroker. Most often, this activity depletes the value of a customer's investment portfolio. Churning constitutes securities fraud.
Unauthorized trading
This is the execution of transactions (buying, selling or exchanging) in a customer's account that were not authorized by the customer. This is also considered to be a fraudulent activity.
Misrepresentation/Omission of Material Facts
If a stockbroker makes untrue statements of material fact or fails to make a statement of material fact in order to induce a customer to buy, sell or exchange a security, this is considered misrepresentation. Because customers frequently rely upon the representations of their stockbrokers, the failure to properly disclose all material facts or investment risks constitutes fraudulent activity by a stockbroker.
Misappropriation of Funds
The unauthorized use or borrowing of a customer's funds or securities is prohibited.
Excessive Markups or Markdowns
Brokerage firms are required to buy or sell customer's securities at fair price. This would take into account relevant circumstances surrounding each transaction including market conditions with respect to such security at the time of the transaction, the expense involved, and entitlement to make a profit.
Failure to Supervise
When a supervisor fails to monitor and correct the unethical activities of a stockbroker, this is known as failure to supervise. Usually the supervisor is financially benefiting, directly or indirectly, from the stockbroker's dishonest actions. If it is determined that this has occurred, securities regulators will most likely take enforcement action against the supervisor as well as the stockbroker.
State securities cop warns about religious "Affinity Fraud"
Denver, CO ////Colorado Securities Commissioner Fred Joseph today issued a warning about con artists who target members of religious groups. The warning follows state regulatory and law enforcement actions in recent months in securities fraud cases in which members of religious groups were targeted by schemers seeking to gain their trust by “preying” on their faith.
“The phrase In God We Trust is printed on our money. Unfortunately, when it comes to investing our money, we can’t afford to blindly trust our fellow man," Joseph said. In the 1970s, Pastor Charles Blair was convicted of 17 counts of fraudulent and other prohibited practices in securities sales for his church, a care facility, and the Charles E. Blair Foundation in Denver. His three corporation’s debts totaled about $20 million at the time they were placed into Chapter 11 bankruptcy. About 3,400 investors, mostly elderly and many from his church, were affected. In the 1980s, James Donahue, the principal of Hedged Investments Associates, conducted the largest investment swindle in Colorado history with investor losses totaling almost $195 million. Investors included members of his church. Donahue pled guilty to one count of fraud, was convicted and sentenced to five years in prison. Commissioner Joseph pointed to recent cases in Pennsylvania, Florida, Alabama, Indiana and elsewhere in which church members were allegedly defrauded by people they thought they could trust because the schemers claimed to share their religious faith. Securities regulators refer to it as "affinity fraud" when con artists target members of their own race, nationality or religious affiliation. Some recent examples:
· In October, trial is scheduled to begin in Florida for seven officials of the Tampa-based Greater Ministries International Church. They are charged in a 20-count federal indictment alleging conspiracy, money laundering and mail fraud. State securities regulators and prosecutors believe Greater Ministries operated a massive Ponzi scheme that may have defrauded more than 17,000 investors nationwide of as much as $200 million. Many of the investors were fundamentalist Christians, including Mennonites in rural Pennsylvania, Ohio and Virginia, according to Michael Byrne, director of enforcement at the Pennsylvania Securities Commission. They were told their money would double in installment payments made over 17 months or less. Investors were quoted Luke 6:38: "Give, and it shall be given unto you." Greater Ministries officials told investors that state and federal securities laws did not apply to them because the investments were "gifts" to the Church and the payments from the church to investors, called "blessings," were not subject to taxes.
· In Texas, a former Sunday school teacher, Renju Malayil Thomas of Missouri City, is being sought by the FBI on charges that he swindled at least 33 people, many of them church members, out of more than $1 million. Thomas, according to Texas Securities Commissioner Denise Voigt Crawford, victimized members of a church in Stafford. The victims, like him, were immigrants from India. Thomas and another man, Thomas Mathew, scheduled to go on trial in mid-September, allegedly got money from investors to buy nationally known stocks and then stashed the cash in their personal bank and brokerage accounts.
· In Illinois, the Illinois Securities Department is investigating an oil and gas investment scheme in which the promoter targeted Christians by claiming he had built a device to find oil based on visions he had received from God. About 150 investors are believed to have lost more than $1 million.
· In Wisconsin, this month (September), Bernell Ross of Milwaukee will go on trial for securities fraud. Ross was allegedly going to create a local minority-owned and operated telephone company. To raise money for this venture, Ross targeted members of the Milwaukee inner city, often going through local churches to reach parishioners. Hundreds of Milwaukee residents are believed to have invested. They were told that they would make money on the operations of the company and through a future public offering. Soon after the money was raised the company, Intra Community Communications, filed for bankruptcy protection.
Religious affinity fraud can also be more of a direct manipulation based on religious faith. In Indiana, for example, state securities regulators say elderly investors were duped into buying bogus promissory notes by three men, two insurance agents and an investment adviser, who often got on their knees and prayed with their victims to gain their trust. In Alabama in late July, Wayne Gregory of Madison was sentenced to 30 years for bilking 30 retirement age investors out of nearly $6 million. At the sentencing hearing, Gregory was greeted with jeers and boos as he tried to apologize to his victims. The judge received many letters about Gregory, a former financial consultant. Many victims, the judge said, were drawn to Gregory because he was charismatic and had "Christian values." In Pennsylvania earlier this year several small Catholic churches were defrauded of about $1 million by an investment adviser-parishioner who had won the trust of parish priests. Unfortunately, there is no shortage of potential victims, says Joseph. "Many people feel like they’ve lost out on the historic bull market on Wall Street and they need to catch up. Also, interest rates are at 20-year lows. Some retirees dependent on interest income are desperate. Con artists are poised to take advantage of the naïve and the gullible." Joseph said: "It may be a investment scam known to regulators in Colorado or elsewhere. Ask for advice from third parties such as lawyers or accountants. To avoid becoming a victim of affinity fraud, before you invest, call the Colorado Division of Securities (303-894-2320) to check out the investment and the person touting it.” Cautions Joseph: "Treat all investment tips—no matter where they come from—with skepticism. Just because someone in your church touts a certain investment, doesn’t necessarily make it a good deal. Be very skeptical of investment returns that sound too good to be true because they are." For more information on affinity fraud, visit the North American Securities Administrator’s Association website (www.nasaa.org) and look under "Investor Education."
Understanding Your Brokerage Account Statements
INTRODUCTION
HOW AM I DOING FINANCIALLY?
The best way to track your brokerage account activity and performance is to carefully review your monthly/quarterly statements.
This document provides a detailed "snapshot" of the value of, and the transactions that have occurred in, your account during the statement period. They are mailed quarterly or monthly, and many firms provide this information online, too.
Once you can interpret the information your statement provides, you will find that checking your statement regularly is a convenient, informative way to track your investments' performance. And, you will have greater confidence when speaking with your financial professional about whether you are on course to meet your investment goals.
WHAT CAN MY STATEMENT TELL ME?
Your brokerage account statement "keeps score" of your investments and reports all transactions during the statement period. For example, you can confirm how many shares of stock or mutual funds are held in your account. You will also see a summary of the income produced by each security, including dividends, interest, and capital gain distributions. Your account statement will also tell you the market value of securities you own - at the beginning and end of the period covered - so you can decide whether to buy more, sell, or simply hold your position.
With the help of your financial adviser, checking your account statement regularly should become as routine as balancing your checkbook.
IT'S EASY TO READ
Although it may seem complicated at first glance, the typical account statement is straightforward. In this guided tour, you will learn step-by-step what information is provided in most statements, and how to make that information a powerful tool in understanding and managing your investment activity.
A checklist follows to help you understand each section of a statement, next, a list of frequently asked questions. The final stop: a glossary of investment terms.
WHAT BROKERAGE ACCOUNT STATEMENTS HAVE IN COMMON
1. ACCOUNT INFORMATION
Here you will find basic information, such as the names of the account owners, the time period covered, and the account number. This section also provides you with useful contact information so that you can report to your financial professional any changes in account ownership or other updates. Although industry standards require firms to issue account statements quarterly, some provide you with statements more frequently, and post the information online (in a confidential password-protected location).
2. STATEMENT/ACCOUNT SUMMARY
This section shows you how your investments are doing as of the statement date by displaying your unrealized and realized (if you have made any sales and kept the proceeds in your account) gains and/or losses. This section summarizes the total value of your stocks, bonds, mutual funds, other investments, and any cash.
3. PORTFOLIO DETAIL
This section identifies individual assets in your account so that you can determine whether the holdings listed are accurate. Also, it shows the value of your investments at the end of the statement period, estimated income and yield, and other information such as bond insurance ratings and stock symbols. In addition, this section's display of unrealized gains and losses may prove useful for investment planning purposes. This information gives you the opportunity to determine whether you should change your strategy. For example, do you need to further diversify your stock holdings because you are invested too heavily in one business sector? By reviewing your investments and then talking with your financial professional about your objectives, you can become an active partner in achieving your goals.
4. INCOME SUMMARY
This section allows you to see the income and dividends earned by your investments for the statement period and the year-to-date. Income earned and its source (dividends, interest, etc.) are important elements in investment planning and in evaluating investment performance.
5. DAILY ACTIVITY
Here you will find detailed information on all account activity during your statement period. You can verify that all securities transactions during the statement period are reflected on your statement. If you have a discretionary account (which means that your broker can execute transactions without first notifying you of each trade first), be sure that the trades reflected on your statement are consistent with the trade confirmations you have received, and fit your investment objectives. If you see any inaccuracies, report them promptly to your firm.
6. DISCLOSURES
These legal and administrative explanations may include fee information, penalty warnings, and a description of some symbols used. You may also find important facts about your statement here or in a separate "messages" section. Other times, important materials may be found in documents included with your account statement, such as newsletters or brochures. It is important that you read and understand this information to best protect your interests.
CHECKLIST:
1. Verify the activity in your account:
Identify the time period covered by the statement.
Find your beginning and ending balances.
Verify withdrawals and additions to your account.
Identify dividends and interest received in your account and understand the source (i.e., the specific security investment) of that income.
Verify all transactions against trade confirmations
2. Confirm basic account data and compare it to previous statements:
Check account numbers.
Verify that any address changes are reflected accurately
Compare the beginning balance of your current statement with the ending balance of the previous statement.
3. Look for a summary of your holdings:
Identify security descriptions, dollar value, the quantity of shares of each investment, and maturity dates, if applicable.
Make sure that the calculated portfolio percentages agree with your diversification and asset allocation objectives.
4. Be sure that you understand performance data.
Review your portfolio's gains and losses.
Determine which securities gained or lost value.
Assess whether the net value reflects an increase or decrease.
Review whether portfolio gains and losses represent investment opportunities.
5. If the account has multiple owners, make sure that all account owners have the opportunity to review the statement.
6. Review the margin activity and interest charges, if applicable.
7. Call and ask questions if you are confused or if your investment situation has changed as to goals, risk tolerances, or time frame.
8. Report any discrepancies promptly. It is extremely important to address any discrepancy quickly after you receive your account statement. Call your investment representative. If he or she is not available, ask for the branch manager.
FREQUENTLY ASKED QUESTIONS (FAQs)
1. Why do I receive an account statement in some months, and not others?
At least quarterly, all investment firms must send out statements that reflect activity in the account. Additionally if your account is active, you may receive monthly statements. Some firms also post this information online, which you can access after registering and receiving a password.
2. What do I do if I don't agree with something on my account statement?
Reviewing your account statements is an integral part of being a good investor. You need to verify that your investment instructions have been carried out properly. Mistakes do not occur very often, but checking your statement is the best way to spot one quickly. When you find something that you don't agree with or don't understand, call your account representative or the firm's branch office manager immediately.
3. If my broker is unavailable, where do I go?
If your broker is not available in a timely manner, or if you want to speak to someone of higher rank, ask to speak with the branch manager. It is part of a branch manager's job to provide oversight of all his or her representatives and the business that occurs in the branch office.
4. Is the information on my account statement sold to any other firms?
Under the privacy provisions of the Gramm-Leach-Bliley Act, investors' personal financial information is protected. Certain account information may be distributed to third parties, but only if you do not object. No later than July 2001, investment firms notified their customers of the firms' policy on disclosure of personal financial information. By law, it is up to you to respond to this notice and advise the firm if you do not want your information shared with third parties.
5. Are my investments insured?
The Securities Investor Protection Corporation (SIPC) is a nonprofit, membership corporation, funded by its member securities brokerage firms. Although it was created by Congress in the Securities Investor Protection Act of 1970, SIPC is neither a government agency nor a regulatory authority. It is not the securities world's equivalent of the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits. SIPC's reserve funds are available to satisfy customer claims up to a maximum of $500,000, including up to $100,000 on claims for cash in the event your brokerage firm fails. Some firms will obtain additional coverage for your account through private insurance companies; this additional coverage is designed to protect your securities in excess of the insured limits. Neither SIPC protection nor additional coverage will safeguard you from a decline in the market value of your securities.
6. Are the "security prices" or "market prices" that appear on my account statement accurate?
The prices on account statements come from a variety of sources, and are believed to be reliable (although most firms do not guarantee their accuracy). Securities prices that appear on your statement are intended to be representative only. For securities listed on a stock exchange, the price on your account statement will be the closing price on the date of settlement. Prices of fixed-income securities may be based on recent transactions or derived from computerized formulas that calculate prices based on institutional "round lot" quantities. Therefore, the prices for smaller quantities of securities may be different. Some inactively traded stocks may not be priced, and may be reflected as "N/A" on the account statement.
7. What is the difference between "capital gains" and "capital gains distributions"?
A "capital gain" is profit derived between a security's adjusted cost basis and the price at which it is sold. An example of a "capital gain distribution" is a mutual fund's distribution to shareholders of the profits derived from the sale of a the fund's underlying securities.
8. Where do I find the commissions that were paid for the purchase or sale of a security on my statement?
This information does not appear on most account statements, but will appear on the separate securities transaction confirmation sent to you after the purchase or sale of a security. You should retain this information for your file.
9. What is all the fine print on the back of the statement about?
The back of your statement informs you of the firm's policies and procedures, and defines many terms mentioned in the statement. It also contains contact information if you have questions.
10. Can I have duplicate copies of my statement sent to others?
Many firms, on their new account application form, will ask if you want duplicate statements sent to a third party. If you elect to do so they will continue to send these statements automatically. It's your responsibility to notify your investment representative of any subsequent changes.
11. Can I have a copy of my year-end tax information sent directly to my tax preparer?
Most firms do not have the capability of sending just one selected statement to your tax professional.
12. Why is the date on my statement not always the end of the month?
Most, though not all, securities firms end their statement period on the last business day of the month. Some firms, however, end their statement period on the last Friday of the month. Be sure to ask your financial professional how your firm handles it.
GLOSSARY
Asset Allocation
An investment strategy that divides assets among major asset categories such as stocks, bonds, or cash, usually balancing risk and creating diversification.
Accrued Interest
The estimated amount of interest that would be received upon a sale. In most cases, it is calculated from the date of the last coupon payment up through the closing date of the account statement.
Bond
A bond is considered a debt instrument - you are lending money to an entity (company or government) that needs funds for a defined period of time at a specified interest rate. In exchange for your money, the entity will issue you a note that states the interest rate to be paid and when your borrowed funds are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually).
Cash Equivalents
These are assets that are cash or can be converted into cash immediately (for example, money market funds).
Confirmation
This written notice provided by a brokerage acknowledges completion of a securities transaction. It includes details such as the date of purchase, price, number of shares, commission, fees, and settlement terms.
Coupon
The interest rate stated on a bond when it's issued. The coupon rate is typically paid semi-annually. (For example, a $1,000 bond with a coupon of 7 percent will pay you $35 every six months).
Discretion
Prior formal authorization, frequently referred to as "trading authority," that permits a broker to make transactions in a client's account without having to first get authorization for each trade. You and your broker should discuss your overall goals and risk tolerance before you decide whether to grant this authority.
Distributions
This term often refers to a corporation's distribution of funds (usually in the form of dividends, interest, and capital gains) as payment of current or past earnings to its shareholders. This term could also mean the dispersal of assets in a brokerage account, as designated by the client (for example, IRA distributions).
Diversification
A risk management technique that mixes a wide variety of investment products and asset classes within a portfolio, minimizing the impact of any one under performing security on overall portfolio performance.
Equity
Another word for "stock." It represents an ownership interest by shareholders in a corporation. In a margin account, equity is the difference between the value of your stock and the amount of money you have borrowed in that account.
Estimated Income And Current Yield
In most cases, estimated income is the amount of dividend and/or interest expected to be received annually. Current yield is the annual interest on a bond divided by the market price.
Margin Debt
The difference between the collateral deposited by the client and the amount borrowed (currently a maximum of 50 percent of the current market value of the securities) represents margin debt. Should the stock decrease in value, the investor must keep the proper maintenance level, either by putting up more money or by selling marginable securities. The use of borrowed money to purchase securities is referred to as "buying on margin." This strategy dramatically increases both upside potential and downside risk.
Mutual Fund
An investment vehicle that allows investors access to a diversified portfolio of equities, bonds, and/or other securities. A mutual fund offers investors the advantages of diversification and professional management. Shares of open-end mutual funds are issued and can be redeemed as needed. Mutual fund shares are redeemable at net asset value by shareholders. The fund's net asset value (NAV) is determined each day at the markets' close. Each shareholder participates in the gains or losses of the fund. Each mutual fund portfolio is invested to match the objective stated in its prospectus.
Options
A privilege sold by one party to another that offers the option holder the right to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.
Realized And Unrealized Gain/Loss
The results of securities transactions are usually categorized into either realized gains or losses upon the sale of security. An unrealized gain or loss is the appreciation or depreciation in the value of an unsold security since the time it was originally acquired (informally know as "paper gains or losses").
Reinvestment
Using dividends, interest, and/or capital gains distributions generated by a mutual fund investment to purchase additional shares, rather than receiving the distributions in cash. With stocks, using dividends to purchase additional shares instead of receiving payments in cash.
Return
The gain or loss for a security over a particular time period, consisting of income plus capital gains relative to investment, usually quoted as a percentage. The real rate of return is the annual return realized on that investment, adjusted for changes in the price due to inflation.
Trade Date v. Settlement Date
The trade date is the day a trade is executed. The settlement date is the agreed upon date when payment must be made and/or securities presented. For purchases of securities, the brokerage firm must receive payment no later than three business days after the trade date (T+3). Currently, the industry is progressing to a T+1 settlement cycle in 2005.
Zero-Coupon Bond
A corporate or municipal debt security sold at a deep discount to its face value that does not pay periodic interest. The profit is realized when the bond is redeemed at maturity for its full face value.
RESOURCES:
Investment Company Institute
1401 H Street, NW
Washington, D.C. 20005
http://www.ici.org (202) 326-5800
Financial Industry Regulatory Authority (FINRA)
1801 K Street, NW
Washington, D.C. 20006
http://www.finra.org (301) 590-6500
New York Stock Exchange
11 Wall Street
New York, N.Y. 10005
http://www.nyse.com (212) 656-3000
North American Securities
Administrators Association
750 First Street, NE, Suite 1140
Washington, D.C. 20002
http://www.nasaa.org (202) 737-0900
Securities and Exchange Commission
Office of Investor Education and
Assistance
450 Fifth Street, NWhttp://www.sec.gov (202) 942-7040
Securities Industry Association
120 Broadway, 35th Floor
New York, N.Y. 10271-0080
http://www.siainvestor.org (212) 608-1500
Connect
Contact
1560 Broadway, Suite 900, Denver, CO 80202 Email
(303) 894-2320 - Phone (303) 861-2126 - Fax
