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Glossary
Some of the more arcane, but
important terms for income investors branching out into
different areas.
CORTS are Corporate Backed
Trust Securities.
DRIP: Dividend Reinvestment Plan, an
investment program run by a publicly-traded company for its
shareholders. Instead of sending dividend checks to
shareholders enrolled in a company's DRIP, the company
reinvests those dividends by purchasing additional shares
(or fractional shares) in the shareholder's name. A
shareholder usually needs only one share to enroll in a
company's DRIP plan, and most of the time the company will
reinvest a shareholder's dividends without a fee or
commission.
Strides
are Stock Return Income Debt Securities.
ELKS are Equity-LinKed
debt Securities issued by Citigroup Funding Inc. most of
which have a maturity of approximately one year. ELKS pay a fixed
coupon with a yield greater than the underlying stock’s current
dividend yield and the yield that would be payable on a conventional
debt security of the same maturity and issuer. At maturity, ELKS
return either a fixed number of shares of the underlying stock or
the principal amount invested, in cash. If the price of the
underlying stock declines by the pre-determined percentage (e.g.,
25%) or more at any time during the term of the ELKS, the investor
will receive a fixed number of shares of the underlying stock. If,
however, the price of the underlying stock does not decline by the
predetermined percentage (e.g., 25%) or more at any time during the
term of the ELKS, the investor will receive, in cash, the principal
invested. The ELKS therefore have the potential to outperform the
stock on which they are based. ELKS are not principal protected. The
ELKS are a series of unsecured senior debt securities issued by
Citigroup Funding. Any payments due on the ELKS are fully and
unconditionally guaranteed by Citigroup Inc., Citigroup Funding’s
parent company. The ELKS will rank equally with all other unsecured
and unsubordinated debt of Citigroup Funding, and the guarantee of
payments, if any, due under the ELKS will rank equally with all
other unsecured and unsubordinated debt of Citigroup. The return of
the principal amount of your investment in the ELKS at maturity is
not guaranteed.
Form 13F
— Reports Filed by Institutional
Investment Managers Institutional investment managers who exercise
investment discretion over $100 million or more in Section 13(f)
securities must report their holdings on Form 13F with the SEC.
In general, an institutional investment manager
is: (1) an entity that invests in, or buys and sells, securities for
its own account; or (2) a person or an entity that exercises
investment discretion over the account of any other person or
entity. Institutional investment managers can include investment
advisers, banks, insurance companies, broker-dealers, pension funds,
and corporations. Section 13(f) securities generally include equity
securities that trade on an exchange or are quoted on the Nasdaq
National Market, some equity options and warrants, shares of
closed-end investment companies, and some convertible debt
securities. The shares of open-end investment companies (i.e.,
mutual funds) are not Section 13(f) securities.
Form 13F requires disclosure of the names of
institutional investment managers, the names of the securities they
manage and the class of securities, the CUSIP number, the number of
shares owned, and the total market value of each security.
Schedule 13G
An SEC form similar to the Schedule 13D used to
report a party's ownership of stock that is over 5% of the company.
Schedule 13G is shorter and requires less information from the
filing party. Ownership of over 5% in a publicly-traded stock is
considered to be significant ownership, and therefore must be
reported to the public.
To be able to file a 13G instead of a 13D, the
party must own between 5% and 20% in the company. It must also be
clearly understood that the party acquiring the stake in the company
is only a passive investor, and does not intend to exert control. If
these criteria are not met, and if the size in the stake exceeds
20%, a 13D must be filed.
Alt-A loans are
typically given to borrowers with better credit than subprime but
still fall short of the most stringent requirements, such as proof
of income.
Contango:
A condition in which distant
delivery prices for
futures exceed
spot prices, often due to the costs of storing and insuring the
underlying
commodity. opposite of
backwardation.
InterNotes are
corporate, bank or government bonds specifically designed for
individual investors to purchase in an easy and straight-forward
manner.
Junior: an oil and gas company
that produces between 500 and 15,000 barrels of oil equivalent (boe)
per day.
MITTS -- Market Index Target-Term Securities
Naked Short Selling /
Failing to Deliver
Naked short selling occurs when a
seller sells a share of stock, and then fails to deliver it.
In a legitimate short sale, the seller first borrows a share of
stock, and THEN sells it, hoping to buy it at a lower price before
he returns it to the lender, his profit being the difference between
the sale price, and his later buy price. It is a bet on a price
decline, and legal as described. Sell high, buy low.
A naked short sale is a manipulative trading technique. It takes
advantage of a structural deficiency in the system that allows a
transaction to occur, and all moneys to be paid, before delivery
occurs.
So a transaction goes by on the tape - a sale - and it is processed,
and has an effect on the price of the stock, but the delivery
portion of the transaction is left for days later. Meanwhile, the
depressive effect of thousands of these sales extracts it toll on
the price - the naked sales are still sales, and are treated as
legitimate by the system.
At some point after the checks have been cashed and the commissions
distributed and the fees paid, the share never shows up.
PEG Ratio
The PEG
Ratio is simply the P/E (Price divided by Earnings) of a stock
divided by its 5-year projected growth rate.
A company with a P/E Ratio of 20 and a Growth Rate of 10% will have
a PEG Ratio of 2.0 (20 / 10 = 2.0).
While a company with a P/E Ratio of 40 and a Growth Rate of 50% will
have a PEG Ratio of only 0.8 ( 40 / 50 = 0.8)
The stock with the P/E of 40 is actually the better bargain since
its PEG Ratio is lower (0.8) implying it's undervalued with more
upside potential. In general, a PEG value of less than 1 is
considered undervalued while greater than 1 is thought to be fully
valued to overvalued. The lower the PEG, the better the value,
because the investor would be paying less for each unit of earnings
growth.
Premium:
(1) The amount by which a
bond's market price exceeds its par value. (2) The amount by which
an exchange-traded fund's market price exceeds its net asset value.
Record date: The record date is the
date by which an investor must be registered as a shareholder to be
entitled to a dividend.
Ex-dividend:
To receive a declared dividend the shares must be purchased before
the ex-dividend date. If you buy on or after ex-dividend date you
are not entitled to receive the current dividend. (ignore Settlement
and/or Record dates for this purpose)
Payment date:
The date of which the dividend is paid out.
SEPARATELY MANAGED ACCOUNTS: ...
are, broadly speaking, personalized investment vehicles that cover a
wide range of services and styles, most of which offer significant
tax savings and a level of control usually given to the very wealthy
or to institutional investors. Essentially, you own a broad range of
securities managed by a professional, like in a mutual fund, but you
actually own the securities itself, rather than shares in a fund.
These portfolios can be customized and offer discretion over what
goes into them, with a level of service, control and direct
ownership that raises money management to another level.
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