Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
Separate Trading of Registered Interest and Principal of Securities; the practice of separating the principal and interest on a bond creating two tradable products. It was started by the brokerage industry, but is now also performed by others such as the U.S. government.
Sales Charge
Also known as Sales Load. It is the fee charged on an investment, and varies according to the fund and investment. The charge is added to the net asset value when determining the offering price.
Sarbanes-Oxley Act of 2002
A 2002 law mandating a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud. The Act created the Public Company Accounting Oversight Board to oversee the activities of the auditing profession. The Act is named after former U.S. Sen. Paul Sarbanes of Maryland and U.S. Rep. Michael Oxley of Ohio.
Secondary Market
Exchanges and over-the-counter markets where securities and bought and sold after their initial public offering. See Initial Public Offering (IPO).
A group of companies operating within the same general industry. The S&P 500 Index, considered representative of the U.S. stock market as a whole, consists of 10 sectors: consumer discretionary; consumer staples; energy; financials; health care; industrials; information technology; materials; telecommunications services; and utilities. Many mutual fund families offer "sector funds" that invest chiefly or exclusively within a given sector.
Securities and Exchange Commission, U.S. (SEC)

A government agency created in 1933 to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation. The SEC oversees securities exchanges, securities brokers and dealers, investment advisers and mutual funds. The SEC promotes the disclosure of important market-related information, maintaining fair dealing and protecting against fraud. 

Selling Short
A potentially risky investment technique that most commonly involves selling borrowed securities — in the expectation that the price of those securities will decline. An investor who believes the price of a stock (or commodity) will decline can borrow shares from a brokerage firm (for a fee) and then sell the shares in the open market. If the price of the securities fall, the investor purchases the shares in the open market, repays the broker and makes a profit. If the shares rise in price, however, the investor must buy the shares in the open market for more than he sold them, resulting in a loss. Because, in theory, there is no limit how high the price of the securities could rise, the investor's potential loss is unlimited.
Semiannual Report
A report on a mutual fund's operations and holdings over a six-month period. Mutual funds operate on a fiscal year; as a result, individual mutual funds may issue their semiannual reports at different times during the calendar year.
Settlement Date
The date, following a securities trade, by which a buyer must pay for his purchase and a seller must deliver the securities and receive payment. The settlement date typically ranges between one and three days after the trade date. See Trade Date.
Share Class
Different types of mutual fund shares, each representing a similar interest in a fund's portfolio but each of which has its own unique sales charge and expenses, see prospectuses.
Shareholder Equity
For a publicly traded corporation, its total assets minus total liabilities.
Sharpe Ratio
A complex calculation that measures and compares the risk-adjusted performance of mutual funds. The Sharpe ratio is the amount of performance that a mutual fund earned over and above the risk-free rate of return, divided by the standard deviation of returns. The Sharpe ratio indicates whether a fund's returns were due to smart investment decisions or the result of taking on excess risk. While one fund may outperform another, it is only a good investment if its higher returns did not come with too much added risk. A higher Sharpe ratio is better than a lower one; the higher a fund's Sharpe ratio, the better its risk-adjusted performance. See Standard Deviation.
Short-Term Capital Gain
Net profit from the sale of securities realized in the fund. A short-term capital gain (loss) occurs when securities held for one year or less are sold.
Spousal IRA
An individual retirement account where contributions up to the annual limit can be made for a non-compensated spouse of a married couple filing a joint return, as long as the taxable compensation of both spouses is at least equal to the total contributed amounts. A financial advisor and/or tax adviser can explain contribution limits, tax treatment of contributions and other important information. See Individual Retirement Account (IRA).

The difference between a mutual fund's asked price or offered price and its bid price or redemption price. More generally, a spread is the difference between the price someone is willing to pay for a security and the price at which someone is willing to sell it. Spreads change constantly based on the supply of and the demand for a security.

Standard Deviation
Standard deviation is a statistical measure of the range of a mutual fund's past performance. When a fund has a high standard deviation, its performance has varied widely from year to year, indicating a greater potential for volatility — extremely high returns one year and extreme losses the next, for example. When a fund has a low standard deviation, its returns have varied little from year to year and have been relatively consistent.
Stock Split
An action taken by a corporation's board to increase the number of outstanding shares of stock without changing total shareholder equity. For example, a company might decide to double the number of its shares; this proportionately reduces the stock's share price and per-share dividend — but leaves the value of a shareholder's investment unchanged. Companies may undertake a stock split to make their shares more affordable to individual investors. See Reverse Stock Split.
An Investment Adviser or Investment Manager who is appointed by another adviser or manager to help provide advice on, or manage, a portion of a client's assets.
Swap Agreement
An arrangement whereby two parties agree to exchange one stream of payments for another (for example, a fixed interest rate for 3-month LIBOR) for a specified period of time (for 1-20 years.)
A group of investment firms that agree to purchase newly issued securities (either stock or debt) from the issuer for resale to the public. Syndicates allow investment firms to pool their resources while also spreading the risks inherent in a new issue. Once all the shares of the new issue are sold, the syndicate — or purchase group, as it is also called — disbands.