Glossary Terms The purpose of this Glossary is to provide terms and definitions only. It should not be interpreted as investment advice or as recommendation to buy or sell a security. 

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Active Bond Management

Investment process in which bonds are bought and sold instead of holding them to maturity.

Actual

Calendar used to calculate interest on some short term munis. (Actual number of days in the month, actual number of days in the year.)

Adjustment Date

The date the interest rate can change for an adjustable rate mortgage. To convert to another type of loan, such as a fixed rate mortgage, contact your lender to apply to refinance your loan at least three months before the adjustment date.

Adjustment Period (or Adjustment Interval)

The amount of time between the adjustment dates for an adjustable rate mortgage (ARM). Many ARMs have a one-year adjustment period, meaning that the interest rate will adjust (go up, down, or stay the same) every year. But there are ARMs with monthly and even three-year adjustment periods.

After Tax Yield (ATY)

The rate of return to the investor which takes into account the payment of capital gains on bonds purchased at a market discount. Sometimes also called "True Yield".

Agency

A governmental subdivision incorporated to perform a public service. May or may not have taxing authority. Most bond issuing agencies pledge only specific revenues to the repayment of bonds which they issue. (Such as Tennessee Housing Development Agency bonds which are payable solely from revenues received from their mortgage portfolio.)

Aggressive Growth Funds

Aggressive Growth Funds seek maximum capital appreciation, by investing primarily in common stocks of companies that are believed to offer rapid growth potential. These funds tend to employ greater-than-average risk strategies than a typical growth fund in an attempt to gain a higher rate of return. Aggressive Growth funds have the flexibility to invest in companies with any capitalization.

All Calls Defeased

Indicates that the municipal bond issuer has specifically waived the right to exercise a call feature on a refunded issue. (This language did not appear on issues refunded before about 1995.) This is relevant only on issues that are Escrowed to Maturity or Pre-Refunded to a call date other than the first call date.

All or None/Do Not Increase (AON/DNI)

The term used for a buy or sell order where the entire order must be executed at a specific price, or not at all. In addition, the price is not to be increased as a result of a stock dividend or stock split.

All or None/Do Not Reduce (AON/DNR)

The term used for a buy or sell order where the entire order must be executed at a specific price, or not at all. In addition, the price is not to be reduced on the ex-dividend date as a result of a cash dividend.

Allocation

The quantity of municipal bonds an underwriter, selling group member or customer receives in a primary market offering (typically received within 24 hours of the end of the order period).

Alpha Percentage

A measure of risk adjusted performance used to quantify the difference between the security's actual performance and the performance anticipated in light of the security's risk (beta) and the market's (relative market index) behavior. In short, alpha tells you how much better, or worse, a security did relative to what it was expected to do based on its risk posture. A positive alpha indicates a security's return has been more than commensurate with its risk posture. Higher alpha numbers are better than lower.

AMBAC Assurance Corporation

Subsidiary of Ambac Financial Group, Inc., specializing in municipal bond insurance. AMBAC is publicly owned (NYSE: ABK). Bonds insured by AMBAC are eligible for Triple-A ratings by Moody's, S&P and Fitch.

American Capital Access (ACA)

Municipal bond insurer which opened October 6, 1997. Bonds insured by ACA are eligible for "A" ratings from Duff & Phelps, Standard & Poor's, and Fitch Investors Service. ACA is seeking to create a niche in the municipal bond market for insured bonds which pay more yield than "AAA" insured bonds.

American Stock Exchange (AMEX)

The second-largest stock exchange in the U.S., after the NYSE. Stocks and bonds traded on the AMEX tend to be those of smaller companies than on the NYSE. Some index options and interest rate options trading also occurs on the AMEX.

Amortization

The gradual reduction of your loan balance through scheduled periodic payments. For mortgage balances, payments are generally made every month. A portion of the payment goes to the loan principal and a portion goes to the interest. An amortization schedule shows the balance after each payment is made

Amortization Term

The amount of time you have to repay the mortgage loan. It is usually expressed in months. For example, the amortization term for a 30-year mortgage is "360 months" (12 mo/yr x 30 yrs).

AMT Bonds

Bonds which pay interest that is subject to the alternative minimum tax (AMT). These are 'private activity bonds', meaning that more than a minimum percentage of the bond proceeds benefit a non-public entity. (For instance, certain airport revenue bonds, which benefit an airline.) Under present law, AMT bonds are included in the income tax calculation only if the taxpayer is subject to the AMT. Owning AMT bonds will not make a taxpayer subject to the AMT. Because of the potential tax implications, AMT bonds trade at yields higher than non-AMT bonds. Consult with your CPA or other tax advisor regarding the application of AMT rules to your circumstances.

Annual percentage rate (APR)

"The cost of your mortgage loan expressed as a yearly rate. The components that are used to formulate the APR are:

  • Note Rate
  • Points
  • Per Diem Interest - Daily interest charged on your loan from the day of closing to the end of the month
  • Other Applicable Fees - PMI, etc.
  • The APR does not affect your monthly payment - interest is computed on the note rate"

Annualized Rate of Return

Annualized rate of return, or compounded average annual rate of return, is the average yearly return for periods greater than one year. Annualized rate of return takes into account the reinvestment of dividends and capital gains, and is compounded yearly.

Annuity

A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. Fixed annuities guarantee a certain payment amount, while variable annuities do not, but do have the potential for greater returns. Both are relatively safe, low-yielding investments. All capital in the annuity grows tax-deferred. An early withdrawal penalty often applies.

Appreciation

An increase in the value of your property because of positive events, such as favorable changes in market conditions or enhancements made to the property.

Arbitrage

The simultaneous purchasing and selling of the identical item in different markets to yield profits with zero risk. It is a technique used to take advantage of differences in price.

Ask

Also referred to as an "offer", the price at which an investor can buy from a broker-dealer.

As of

A term used to describe any order executed not on the actual trade date, but "as of" the actual trade date.

Assessed Valuation

Valuation placed on property for purposes of taxation. May or may not be the same as market valuation.

Assessment

A local area tax charged against a property for a specific purpose, such as a sewer or street signage.

Asset

An item of value owned by an individual or corporation. Assets are usually financial or economic and may be converted to, or exchanged for, cash. Examples include stocks, bonds and real estate.

Asset Coverage

The ability of a company's assets to cover a debt obligation.

Asset Guaranty Insurance Company

Asset Guaranty Insurance Company was founded in 1988 as an insurer and reinsurer of financial guaranty insurance and other credit-related insurance lines. Asset Guaranty is rated AA by Standard & Poor's and AAA by Duff & Phelps. Asset Guaranty Insurance Company is a wholly owned subsidiary of Enhance Financial Services, Inc. (NYSE: EFS).

Authority

A governmental entity incorporated to perform a public service, generally to finance, construct, own and/or operate a particular project(s). Most bond issuing authorities are not able to levy taxes, and pledge only specific revenues to the repayment of bonds which they issue.

Automatic Investment Plan

A program that allows you to invest periodically in a mutual fund.

Average Annual Return

A percentage rate of return that includes the effects of sales charges, all cash inflows and outflows, and taxes in a mutual fund.

Average Annual Total Return

The annualized return for the security, averaged over the specified time period.

Average Coupon (Percentage)

The average duration value of all bonds held by the security.

Average Duration (In Years)

The average duration in years for all securities held by the mutual fund or sub-account.

Average Life

On a mortgage security, the average time to receipt of each dollar of principal, weighted by the amount of each principal prepayment, based on prepayment assumptions.

Average Maturity (In Years)

The average maturity in years for all securities held by the mutual fund or sub-account.

Average Price/Book (P/B)

The average Price/Book (P/B) for all equities held by the mutual fund or sub-account. Price/Book (P/B): The market price divided by stock equity. The ratio shows how much investors are willing to pay for each dollar of company equity.

Average Price/Earnings (P/E)

The average P/E for all equities held by the mutual fund or sub-account. See also Price/Earnings (P/E).

Average Quality (Alpha)

The average quality value of all bonds held by the security. Bond Quality: Indicates the likelihood of default by the bond issuer. A ratings method based on the range from AAA (highly unlikely) to D (in default) is used to measure the default probability.

Average Years to Maturity

The average number of years until all negotiable instruments held by a mutual fund or sub-account become due and payable.

Average Yield to Maturity

The average rate of return on a debt security held to maturity, including appreciation and interest, for all debt securities held by the mutual fund or sub-account.