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close this bookLeverage for the Environment - A Guide to the Private Financial Services Industry (WRI, 1998, 108 pages)
View the document(introduction...)
View the documentFOREWORD
View the documentACKNOWLEDGMENTS
View the document1. INTRODUCTION
View the document2. COMMERCIAL BANKS
View the document3. INVESTMENT BANKS
View the document4. MUTUAL FUNDS
View the document5. PENSION FUNDS
View the document7. LIFE INSURANCE
View the document8. VENTURE CAPITAL
View the document9. FOUNDATIONS
View the document10. CONCLUSION
View the documentGLOSSARY*
View the documentABOUT THE AUTHORS


*Reprinted with permission from Dictionary of Finance and Investment Terms. 1995. John Downes, ed. New York: Barron's Educational Series, Inc.

acquisition - one company taking over controlling interest in another company. Investors are always looking for companies that are likely to be acquired, because those who want to acquire such companies are often willing to pay more than the market price for the shares they need to complete the acquisition.

actuary - mathematician employed by an insurance company to calculate premiums, reserves, dividends, and insurance, pension, and annuity rates, using risk factors obtained from experience tables. These tables are based on both the company's history of insurance claims and other industry and general statistical data.

American Depositary Receipts (ADR) - receipt for the shares of a foreign-based corporation held in the vault of a U.S. bank and entitling the shareholder to all dividends and capital gains. Instead of buying shares of foreign-based companies in overseas markets, Americans can buy shares in the U.S. in the form of an ADR. ADRs are available for hundreds of stocks from numerous countries.

analyst - person in a brokerage house, bank trust department, or mutual fund group who studies a number of companies and makes buy or sell recommendations on the securities of particular companies and industry groups .... Some analysts have considerable influence, and can therefore affect the price of a company's stock when they issue a buy or sell recommendation.

bond - any interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity. Bondholders have an IOU from the issuer, but no corporate ownership privileges, as stockholders do.

credit - in general: loans, bonds, charge-account obligations, and open-account balances with commercial firms.

debt - 1. money, goods, or services that one party is obligated to pay to another in accordance with an expressed or implied agreement. Debt may or may not be secured. 2. general name for bonds, notes, mortgages, and other forms of paper evidencing amounts owed and payable on specified dates or on demand.

derivative - short for derivative instrument, a contract whose value is based on the performance of an underlying financial asset, index, or other investment.

disclosure - release by companies of all information, positive or negative, that might bear on an investment decision, as required by the Securities and Exchange Commission and the stock exchanges.

divestiture - disposition of an asset or investment by outright sale, employee purchase, liquidation, and so on.

due diligence - investigation by an underwriter, credit officer, or analyst into all information relevant to the value and risk of a security or loan to meet regulatory or other disclosure guidelines.

† Definition complied from various sources.

equity - ownership interest possessed by shareholders in a corporation - stock as opposed to bonds.

ERISA - The Employee Retirement Income Security Act, 1974 law governing the operation of most private pension and benefit plans. The law eased pension eligibility rules ... and established guidelines for the management of pension funds.

Form 10-K - annual report required by the Securities and Exchange Commission of every issuer of a registered security, every exchange-listed company, and any company with 500 or more shareholders or $1 million or more in gross assets. The form provides for disclosure of total sales, revenue, and pretax operating income .... Form 10-K becomes public information when filed with the SEC.

index fund - mutual fund that has a portfolio matching that of a broad-based portfolio. This may include the Standard & Poor's 500 Index, indexes of mid- and small-capitalization stocks, foreign stock indexes, and bond indexes, to name a few.

initial public offering (IPO) - a corporation's first offering of stock to the public. IPOs are almost invariably an opportunity for the existing investors and participating venture capitalists to make big profits, since for the first time their shares will be given a market value reflecting expectations for the company's future growth.

investment - use of capital to create more money, either through income-producing vehicles or through more risk-oriented ventures designed to result in capital gains.

Investment Advisers Act - legislation passed by Congress in 1940 that requires all investment advisers to register with the Securities and Exchange Commission. The Act is designed to protect the public from fraud or misrepresentation by investment advisers.

Investment Company Act of 1940 - legislation passed by Congress requiring registration and regulation of investment companies by the Securities and Exchange Commission. The Act sets the standards by which mutual funds and other investment vehicles of investment companies operate, in such areas as promotion, reporting requirements, pricing of securities for sale to the public, and allocation of investments within a fund portfolio.

investor - party who puts money at risk; may be an individual or an institutional investor.

limited partnership - organization made up of a general partner who manages a project, and limited partners, who invest money but have limited liability, are not involved in day-to-day management, and usually cannot lose more than their capital contribution. Usually limited partners receive income, capital gains, and tax benefits; the general partner collects fees and a percentage of capital gains and income.

Lipper Mutual Fund Industry Average - average performance level of all mutual funds, as reported by Lipper Analytical Services of New York. The performance of all mutual funds is ranked quarterly and annually, by type of fund, such as aggressive growth fund or income fund. Mutual fund managers try to beat the industry average as well as the other funds in their category.

load - sales charge paid by an investor who buys shares in a load mutual fund or annuity. Loads are usually charged when shares or units are purchased; a charge for withdrawing is called a back-end load. A fund that does not charge this fee is called a no-load fund.

mergers - combination of two or more companies, either through a pooling of interests, where the accounts are combined; a purchase where the amount paid over and above the acquired company's book value is carried on the books of the purchaser as goodwill; or a consolidation, where a new company is forced to acquire the net assets of the combining companies.

money market - market for short-term debt instruments - negotiable certificates of deposit, Eurodollar certificates of deposit, commercial paper, banker's acceptances, treasury bills, and discount notes of the Federal Home Loan Bank, Federal National Mortgage Association, and Federal Farm Credit System, among others. Federal funds borrowings between banks, bank borrowings from the Federal Reserve . . . and various forms of repurchase agreements are also elements of the money market. What these instruments have in common are safety and liquidity.

Morningstar Rating System†† - system for rating open- and closed-end mutual funds and annuities by Morningstar Inc. of Chicago. The system rates funds from one to five stars, using a risk-adjusted performance rating in which performance equals total return of the fund. The system rates funds assessing downside risk, which is linked to the three-month U.S. treasury bill.

†† Definition compiled from various sources.

net asset value (NAV) - in mutual funds, the market value of a fund share, synonymous with bid price. In the case of no-load mutual funds, the NAV, marker price, and offering price are all the same figure, which the public pays to buy shares; load fund market or offer prices are quoted after adding the sales charge to the NAV. The NAV is calculated by most funds after the close of the exchanges each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result by the total number of shares outstanding.

no-load fund - mutual fund offered by an open-end investment company that imposes no sales charge on its shareholders. Investors buy shares in no-load funds directly from the fund companies, rather than through a broker, as is done in load funds.

private placement - sale of stocks, bonds, or other investments directly to an institutional investor like an insurance company. A private lirnited partnership is also considered a private placement A private placement does not have to be registered with the Securities and Exchange Commission , as a public offering does, if the securities are purchased for investment as opposed to resale.

proxy - 1. written power of attorney given by shareholders of a corporation authorizing a specific vote on their behalf at corporate meetings. Such proxies normally pertain to election of the Board of Directors or to various resolutions submitted for shareholders' approval. 2. person authorized to vote on behalf of a stockholder of a corporation.

Prudent-Man (investor) Rule - standard adopted by some U.S. states to guide those with responsibility for investing the money of others. Such fiduciaries must act as a prudent man or woman would be expected to act, with discretion and intelligence, to seek reasonable income, preserve capital, and, in general, avoid speculative investments.

rating - evaluation of securities investment and credit risk by rating services such as Moody's Investors Service and Standard & Poors Corporation.

Safe Harbor - provision in a law that excuses liability if the attempt to comply in good faith can be demonstrated. For example, safe harbor provisions would protect management from liability under Securities and Exchange Commission rules for financial projections made in good faith.

secondary market - exchanges and over-the-counter markets where securities are bought and sold subsequent to original issuance, which took place in the primary market. Proceeds of secondary market sales accrue to the selling dealers and investors, not to the companies that originally issued the securities.

Securities and Exchange Commission (SEC) - federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933. The SEC is made up of five commissioners, appointed by the President of the United States on a rotating basis for five-year terms. The chairman is designated by the President and, to insure its independence, no more than three members of the commission may be of the same political party. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against malpractice in the securities markets.

SEC Rule 144 - public sale of unregistered securities sets forth the conditions under which a holder of unregistered securities may make a public sale without filing a formal registration statement.

securitization - process of distributing risk by aggregating debt instruments in a pool, then issuing new securities backed by the pool.

security - instrument that signifies an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as those represented by an option, subscription right, and subscription warrant.

syndicate - (or purchase group) a group of investment bankers that, operating under the agreement among underwriters, agrees to purchase a new issue of securities from the issuer for resale to the investment public; also called the underwriting group.

underwrite - Investments: to assume the risk of buying a new issue of securities from the issuing corporation or government entity and reselling them to the public, either directly or through dealers. The underwriter makes a profit on the difference between the price paid to the issuer and the public offering price, called the underwriting spread. Insurance: to assume risk in exchange for a premium.