Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
CUSIP Numbers
Identification numbers and codes assigned to securities for trading purposes. CUSIP stands for the Committee on Uniform Securities Identification Procedures.
Callable Bond
A bond that allows the issuer to redeem, or "call" it at a specified price at a predetermined time prior to maturity. If interest rates decline significantly, an issuer may call existing higher yielding bonds and issue new bonds with a lower yield.
Money used to make more money.
Capital Appreciation
  See Capital Growth.
Capital Appreciation Fund
On-hand currency, bank balances and bullion (not counted for mining companies) as reported on a company's most recent quarterly balance sheet.
Capital Gains Distribution
A payment to shareholders when securities in their fund's portfolio are sold at a profit. These payments are made on a regular basis, often near year-end, and are taxable to shareholders unless their funds are held in tax-deferred or tax-free accounts. Most funds allow shareholders to receive capital gains distributions in cash or to use their distributions to buy additional fund shares.
Capital Growth
A rise in the market value of a mutual fund's securities, reflected in its net asset value. This is a specific long-term objective of many mutual funds.
Capital Loss
The difference between an asset's purchase price and its sale price, when the difference is negative. Capital losses can be long term (if a loss is incurred on an investment held at least one year) or short term (if a loss is incurred on an investment held for less than one year.) Long-term capital losses may be used to offset long-term capital gains; short-term capital losses may be used to offset short-term capital gains.
The market value of a company's outstanding securities, excluding current liabilities. Under $250 million is generally considered small cap; $250 million to $10 billion is mid cap; and over $10 billion is large cap.
Cash Equivalent
A short-term money-market instrument, such as a Treasury bill or repurchase agreement, of such high liquidity and safety that it is virtually as good as cash.
Cash Flow
Net earnings before depreciation, amortization and non-cash charges. Sometimes called cash earnings, cash flow is calculated by adding depreciation to net earnings and subtracting preferred dividends. It is useful for determining how solvent a company is.
Cash Reserves
Cash deposits as well as short-term bank deposits, money market instruments, and U.S. Treasury bills.
Cash and Equivalents
On-hand currency, bank balances and bullion (not counted for mining companies) as reported on a company's most recent quarterly balance sheet.
Certificates of Deposit (CDs)
Short-term investments issued by banks. CDs pay fixed principal and interest over a specified period and, unlike mutual funds, are insured by the Federal Deposit Insurance Corporation.
Certified Financial Planner
A person who has passed examinations accredited by the Denver-based Institute of Certified Financial Planners, testing his ability to coordinate a client's banking, estate, insurance, investment and tax affairs.
Certified Investment Management Specialist (CIMS)
Certified Investment Management Specialist (CIMS) pass an exam and meet financial services industry work-experience requirements.
Chapter 11
A plan to reorganize an insolvent business. The reorganization plan allows a debtor to continue to operate his business while negotiating with creditors to restructure and repay his debts.
Chapter 7
A court-supervised plan in which a court-appointed trustee is charged with liquidating an insolvent business.
Chartered Financial Analyst (CFA)
A globally recognized standard for measuring the competence and integrity of investment professionals. CFA® designations are awarded by the non-profit CFA Institute.
Chief Executive Officer (CEO)
The highest ranking executive who manages the day-to-day operations of the firm, updated according to the latest annual report or newswire announcement.
Classes of Shares
(1) Mutual funds can have multiple classes of shares with claims on a single portfolio. Each class permits investors to purchase the portfolio in a different way. Class A shares might give investors the option of paying a front-end sales load while Class B shares give investors the option of paying a contingent deferred sales charge. In a few cases, a fund may have both conventional and exchange-traded share classes. (2) Corporations can have different classes of shares based upon voting rights (Class A shares might have one vote for each share and Class B shares might have one vote for each ten shares) or participate in different components of the company's earnings, as in the case of target stock. See also Target Stock.
Closed-End Management Company
An investment company that manages a mutual fund that offers a fixed number of shares for sale. The shares trade in the public markets, with supply and demand determining their price — as with any listed security. Fund shares are sold to other investors, not redeemed by the investment company, and are quoted at current market price, not at net asset value.
Collateralized Mortgage Obligations (CMO)
A security that represents an interest in an underlying pool of mortgage loans, which has been divided into tranches with varying cash flow characteristics.
Commercial Mortgage-Backed Securities (CMBS)
Securities that are backed by commercial mortgage whole loans, which in turn, are generally secured by first liens on the underlying real estate. Generally speaking, these securities are not backed by Federal agencies, have a maturity of 5, 10 or 15 years and contain prepayment disincentives.
Commercial Paper
Short term debt obligations with maturities ranging from several days to nine months. The debt is usually issued by banks and corporations, and is most often unsecured — although often backed by a bank line of credit. Commercial paper is traded, often at a discount, in the secondary market.
1. Contributing after-tax money to a qualified retirement account consisting of pre-tax contributions. 2. Mixing customer-owned securities with those owned by a firm in its proprietary accounts. Done without the customer's permission, this is a violation of a firm's fiduciary responsibility.
The fee an investor pays a broker to buy or sell a fund, typically assessed on a per-trade basis. No commission is charged for no-load, open-end mutual funds, giving them a cost advantage over exchange-traded funds for investors who trade frequently.
Commission Sharing Arrangement
An arrangement in which a mutual fund pays a brokerage firm higher trading commissions in exchange for additional services, such as research or technology.
A transportable article of trade or commerce that can be sold or bartered. Commodities widely traded on commodities exchanges around the world are agricultural products and raw materials such as oil and copper.
Common Equity
This is the amount of shareholders' equity attributable to common stock. Common stock equity generally consists of the following items: common stock at par value, capital surplus and retained earnings.
Common Stock
A security representing ownership in a company. Because stock holders actually own part of the company, they are entitled to share in its profits and losses. They also have the right to attend annual meetings, voice their opinions on the company's general operations, elect the board of directors and vote on important changes within the organization. Many companies pay annual dividends to shareholders of their common stock. Bond holders, in contrast, are simply creditors with none of these ownership privileges.
Includes salaries, wages, tips, commissions, bonuses, alimony, royalties from creative efforts, and "earned income" in the case of a self-employed individual.
Compound Interest
Interest earned on principal and previously earned interest. For example, consider a hypothetical $1,000 investment earning 6% interest annually. At the end of the first year, the investment's value would be $1,060 &mash; the principal plus $60 in interest. At the end of the second year, the investment's value would total $1,123.60 — another $60 earned on the principal and $3.60 earned on the $60 in interest that was earned the previous year. The $3.60 is compound interest.
The Office of the Comptroller of the Currency is the primary federal regulator for national banks and federal savings associations. The OCC regulates, supervises, and examines a national bank's/federal savings association's collective trust funds.
Confirm Date
The date on which a mutual fund investor's transaction is processed, typically the same day or the day after the trade date.
Confirmation Statement
A written acknowledgment of a security trade. A confirmation lists important details of the trade, such as the date, size of the transaction, price, commission, taxes, etc. A confirmation is generally sent the day after a trade takes place.
Conservative Investments
One end of the risk spectrum. Generally, conservative investments place greater emphasis on protecting principal, reducing volatility and, often, on providing current income than they do on providing significant capital appreciation. Risk-averse investors, or those approaching or already in retirement, may favor conservative investments for their relative stability and security.
Consumer Price Index (CPI)
Commonly used as a measure of inflation, the CPI is the monthly change in consumer prices (e.g., housing costs, food, transportation and utilities) determined by the U.S. Bureau of Labor Statistics. See Inflation.
Contingent Deferred Sales Charge (CDSC)
A sales charge levied by certain mutual funds or classes of funds when shares are redeemed within a specified number of years. Investors purchase the shares/units without paying a commission up front; however, the distributor pays the commission to the dealer at the time of purchase. CDSC charges typically decline for each year that the shareholder remains in the fund. CDSCs are designed to discourage withdrawals and to reimburse the distributor for commissions paid in advance of earning those commissions. Also known as back-end load or deferred contingent sales charge.
Movement of assets from a traditional, SIMPLE or SEP IRA into a Roth IRA account through (1) an amount distributed from an IRA and then redeposited into a Roth IRA by the 60th day after receipt of the distribution; or (2) a trustee-to-trustee transfer from a traditional, SIMPLE or SEP IRA to a Roth IRA.
Corporate Action
An event or resolution approved by a corporation's board of directors that changes the corporate capital structure or financial condition. Examples include full or partial call of securities; maturation and repayment of debt or preferred stock; conversion of debt, exchange, tender or spin-off of securities; split or reverse split of shares; securities offerings; and liquidation or name change.
Corporate Bond
A fixed income debt instrument that is issued by and a direct obligation of a corporation.
A relatively short-term drop in stock prices, usually defined as a decline of 10% or more from the market's high.
Cost Basis
The original price or cost of an asset (usually the purchase price, including commissions) used in determining capital gains and losses for tax purposes.
Cost of Sales
All expenses directly associated with the production of goods or services a company sells (such as material and overhead) excluding depreciation, depletion, amortization and SG&A. Typical accounts: cost of goods sold, materials and production expenses, gas purchased, fuel and power purchased, exploration and well drilling expense, mining expense and oil and gas property abandonments.
Coupon Rate
A fixed income security's interest rate, determined at issuance and expressed as a percentage of the security's face value. For example, a bond selling for $1,000 and paying $55 in interest annually would have a coupon of 5.5%. A bond's coupon is likely to differ from its current yield. See Current Yield.
Coverdell Education Savings Accounts (Coverdell ESA)
A trust or custodial account created exclusively for the purpose of paying the qualified higher education expenses of the designated beneficiary of the account. Contributions are not deductible, but amounts deposited in the account grow tax free until distributed. Earnings used to pay qualified education expenses are tax free. The account is transferable among family members.
Covered Shares
Include shares acquired after the new cost basis effective date (Jan. 1, 2012) and for which Invesco has the cost basis information on record. The cost of these shares will be maintained separately from your noncovered shares. Cost basis information will be reported to you and the IRS for your covered shares.
Creation Unit
The minimum module for issue or redemption of shares in an open exchange-traded fund (ETF), usually between 25,000 and 300,000 fund shares, depending on the fund's policy. Existing ETFs issue their shares in return for portfolio deposits of securities in multiples of the creation unit basket specified by the fund's advisor. With minor exceptions related primarily to accrued dividend payments and cash balancing amounts, creations and redemptions are in kind, not in cash. ETF trading on the secondary market on the exchange is in the individual fund shares issues in the creation, not in Creation Units.
Credit Crunch
A sharp and sudden reduction in the availability of credit and investment capital, even to creditworthy customers. A credit crunch usually occurs during a recession or period of economic difficulty. While it has negative effects for the economy as a whole, a credit crunch can be particularly difficult for small businesses.
Credit Rating
A credit rating is an assessment provided by a nationally recognized statistical rating organization of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Ratings are subject to change without notice. "NR" indicates the issuer was not rated, and should not be interpreted as indicating low quality. See Bond Rating. See Bond Rating.
Credit Risk
The potential for default by an issuer on its obligation to pay interest or principal on debt securities. Most U.S. government securities are considered to have very little credit risk.
Credit Spread
The yield difference between Treasury securities and non-Treasury securities with the same maturity. Treasury securities are considered "risk free" because they are backed by the U.S. government; non-Treasury securities such as corporate or municipal bonds have a variety of risks. Tighter credit spreads generally reflect improving economic conditions, which historically have led investors to be more comfortable with taking risk. Wider credit spreads generally mean that investors demand extra yield from non-Treasuries in the face of, or anticipation of, worsening economic conditions.
Cumulative Discount Privilege
A way for a fund shareholder to qualify for a reduced sales charge by combining investments in different funds made at the same time into a single transaction.
Cumulative Return
An investment's total percentage gain or loss over a given period.
Current Assets
Assets that can be converted to cash within a relatively short period of time, usually 12 months. These include cash and equivalents, receivables, inventories and other current assets.
Current Liabilities
Obligations that must be paid within 12 months. These include accounts payable, short-term debt and interest on long-term debt.
Current Ratio
A measure of a company's abilities to meet its short-term obligations, calculated by dividing its total current assets by its total current liabilities, as found on its most recent quarterly balance sheet.
Current Yield
A security's annual dividend or interest rate divided by the security's current market price. Because a security's price may rise or fall after issuance, its current yield may be higher or lower than its coupon. A bond selling at a premium to its face value would have a current yield below its coupon; a bond selling at a discount to its face value would have a current yield above its coupon.
A bank or other financial institution that keeps custody (or an inventory) of stock certificates and other assets of a mutual fund, individual or corporate client.
Cyclical Stocks
Stocks of companies whose main business experiences regular ebbs and flows in activity due to changes in the economy. The auto, chemical, paper and steel industries, for example, are considered cyclical since their earnings tend to fall when the economy slows. Food and drug stocks are generally considered to be non-cyclical, since food and medical care needs continue no matter what economic conditions are.