Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
SEC Yield
A standardized measure of the current net market yield on a fund's investment portfolio.
SPDRs (or Spiders)
Standard & Poor's 500 Depositary Receipts. A warehouse receipt unit investment trust structure that provides the investor with an interest in the holdings of a trust designed to track the return of the S&P 500 index. SPDRs were introduced by the American Stock Exchange in 1993. They became one of the fastest growing "fund" products in history and launched the open exchange-traded fund (ETF) market. The acronym is also part of the name of other ETFs, the midcap SPDRs and nine Sector SPDRs.
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.
See revenues. See Revenues.
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.
Sector Diversification
Indicates the percentage of a portfolio's total net assets invested in major industry classifications that comprise the market in which the fund invests.
Sector Fund
A specialized fund that invests exclusively in a related group of industries, seeking better opportunities for capital appreciation. Sector funds are often more volatile than funds which invest in a more diversified range of industries.
Securities Lending
A carefully collateralized process of loaning portfolio positions in securities to custodians, dealers, and short sellers who must make physical delivery of fungible positions. Securities lending can reduce custodial costs or enhance annual returns by a full percentage point or more in some markets at some times, although revenue from this source is usually much smaller. Improvements in securities settlement procedures and system to facilitate securities lending have tended to reduce lending premiums over time.
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.
Series Fund
A group of different mutual funds, each a series with its own investment objective and policies, structured as a single corporation or business trust.
Settlement Date
(1) The date on which the exchange of cash, securities, and paperwork involved in a transaction is completed. Usually one day after the trade date (T+1) in conventional funds and fixed-income markets and three days after the trade date (T+3) in exchange-traded funds and equity markets. (2) The date when payment for a wire-order purchase or a wire-order redemption is received. Funds purchased through a dealer firm are normally settled three business days after the trade date. Funds purchased directly by an investor settle on the day payment is due.
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.
Shareholders' Equity
The difference between a company's total assets and total liabilities. Sometimes call net worth or book value, shareholders equity represents the shareholders' ownership of the company. See Price/Book ratio.
Shares Outstanding
Shares of common stock that are currently owned by investors.
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 Interest
A technical analysis tool used in evaluating market sentiment. The short interest ratio is calculated by dividing the total shares sold short of a stock by its average daily trading volume. Shorted shares are those borrowed and sold by investors who think the same shares will be available later for repurchase at a lower price. A short interest ratio of greater than 2.0 is often considered a sign that a stock's price will soon go higher. The rationale is that the large short position must be covered in the future, thereby creating buying pressure and driving the stock price up.
Short Sale
The sale of a security or other financial instrument not previously owned by the seller in the expectation that it will be possible to repurchase that instrument at a lower price some time in the future. The term "short sale" is ordinarily applied only to the sale of securities, but an equivalent synthetic short position can be attained through the sale of an uncovered call option and the purchase of a put or by selling a forward or a futures contract.
Short Sale Rule
A mildly controversial requirement imposed by the SEC requiring that short sales can only be made on a plus tick or zero plus tick (a price higher than the last sale at a different price). Supporters of this rule argue that it prevents bear raiders from selling short to drive a stock down.
Short Term Tax-Free Income
Short-term tax free funds invest in diversified portfolios of quality municipal bonds with a weighted average maturity between 1-7 years.
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.
Signature Guarantee
A stamp or seal by a bank or member of a domestic stock exchange (or other acceptable guarantor) on correspondence that authenticates a signature. A notary public cannot provide a signature guarantee.
Small-Capitalization Stocks
The stocks of companies whose market value is less than $250 million. Small-cap companies tend to grow faster than large-cap companies and typically use any profits for expansion rather than for paying dividends. They also are more volatile than large-cap companies and have a higher failure rate.
A floor member of an exchange who accepts primary responsibility for making a fair market in securities at all times that the exchange is open for business. In general, a specialist will make a two-sided market and provide limited liquidity to other market participants. The specialist may take positions in securities for his own account.
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. See Asked Price/Offering Price.

Standard & Poor's 500 Index
A Daily measure of stock market performance, based on the performance of 500 major companies. Though it does not include transaction or management costs, the S&P 500 is often used as a yardstick for equity fund performance.
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.
Street Name
A reference to securities registered in the name of a broker or a nominee such as a clearing house instead of in the name of the beneficial owner. Street name registration facilitates securities transfers and has grown in popularity since the move to three-business day settlement for stocks.
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.
Often used to refer to investments that are underwritten, sold or distributed by multiple securities dealers, where a group of firms (i.e. a syndicate) guarantees the sale of an issue/loan by purchasing it for subsequent resale to investors at a higher price.
A financial instrument that is composed from other financial instruments. A synthetic instrument may be composed of a single security or a variety of instruments whose combined features are comparable to the instrument it replicates.