Financial Glossary c-d

GLOSSARY OF FINANCIAL & INVESTMENT TERMS

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Closed-End Fund	A closed-end fund is an SEC-registered investment company with a fixed number of shares. Closed-end shares are sold on stock exchanges at a price that is determined entirely by market demand. As a result, shares can trade either below or above their net asset value.
Commodity	In the world of investment and finance, the term commodity generally refers to a product which trades on a commodity exchange. While most people think of commodities as physical substances such as soybeans, gold or other food, grains and metals, they can also include foreign currencies and financial instruments and indexes
Common Stock	Common stocks are one category stocks, or shares of ownership in a corporation that are available for purchase by the public. Common stock specifically gives the stockholder the right to participate in the election of the company’s board of directors and to vote on other company issues. In the event of the company’s bankruptcy or liquidation, common stock-holders are paid only after bondholders, other debt holders and preferred stockholders.
Convertible Securities	Convertible securities are either debentures or preferred stock that can be converted into common stock at a set ratio. Convertible securities combine the rewards of fixed income (bond) and equity (stock) securities while mitigating some of their inherent risks. The convertible will follow the price actions of the common stock of the issuing company, depending on the conversion premium. With the conversion feature of a convertible security, these defensive investments offer a yield lower than a conventional bond, but higher than a common stock. As a result, the earnings on convertibles rise with the company’s equity—but not as far—and fall with it—though not as much.
Corporate Governance	Corporate governance is generally defined as the rules, policies, laws and cultural dictates that govern the relationship of a company to both its shareholders and the society in which it operates. Those examining a company’s corporate governance policies generally focus on how successfully they promote fairness, transparency and corporate accountability. Increasingly, corporate governance advocates contend that these policies extend beyond corporate headquarters to the role that industry plays in labor, environmental and policy issues around
Credit Ratings	Rating services such as Moody's Investors Service, Inc. and Standard & Poor's Corporation measure a borrower’s ability to repay borrowed funds, generally referred to as credit risk. These rating agencies look at a number of factors—e.g., cash flow, inventory and management—to determine the creditworthiness of the issuer. The premise is that if a company is in a poor or questionable financial position, its ability to make good on its loans and other credit obligations is questionable. Therefore, the lower the credit rating, the riskier the bond investment and the higher the likelihood that the company will default on its obligation to make scheduled interest payments and repay the principal at maturity. Bonds rated Aaa are judged to be of the best quality and carry the smallest degree of investment risk. Bonds rated Baa are considered medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Bonds rated below Baa are generally referred to as high yield bonds or junk bonds and are considered speculative in nature.
Credit Risk	A measure of a bond issuer’s ability to repay borrowed funds based on factors such as the company’s cash flow, inventory and. The premise is that a company that is in a poor or questionable financial position may not be able to make good on its loans and other credit obligations. See also Credit Ratings.
Deferred Annuity	An annuity contract that consists of two phases: an accumulation period during which deposits (premiums) are invested and grow tax-deferred, and a payout period during payments (distributions) are made. You can elect to take a single sum distribution, receive payments over time or convert your deferred annuity into an immediate annuity. Earnings withdrawn from an annuity are subject to taxes and penalties may be applicable to any amounts you withdraw before age 59 1/2. In addition, many deferred annuities levy surrender charges on withdrawals made before the contract has been in force for a specified period of time.