Definition of 12B-1 fees

12B-1 fees

The percent of a mutual fund's assets used to defray marketing and distribution expenses. The
amount of the fee is stated in the fund's prospectus. The SEC has recently proposed that 12b-1 fees in excess
of 0.25% be classed as a load. A true " no load" fund has neither a sales charge nor 12b-1 fee.

Custodial fees Fees

charged by an institution that holds securities in safekeeping for an investor.

Participating fees

The portion of total fees in a syndicated credit that go to the participating banks.

12b-1 funds

Mutual funds that do not charge an upfront or back-end commission, but instead take out up to
1.25% of average daily fund assets each year to cover the costs of selling and marketing shares, an
arrangement allowed by the SEC's Rule 12b-I (passed in 1980).

Front End Fees

fees paid when for example a financial instrument such as a loan is arranged.

Expense ratio

The percentage of the assets that were spent to run a mutual fund (as of the last annual
statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1
(distribution and advertising ) fees. The expense ratio does not include brokerage costs for trading the
portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of
Additional Information (SAI). the SAI is available to shareholders on request. Neither the expense ratio or the
SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign stocks.
These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an
Operating Expense Ratio (OER).

Load fund

A mutual fund with shares sold at a price including a large sales charge -- typically 4% to 8% of
the net amount indicated. Some "no-load" funds have distribution fees permitted by article 12b-1 of the
Investment Company Act; these are typically 0. 25%. A "true no-load" fund has neither a sales charge nor
Freddie Mac program, the aggregation that the fund purchaser receives some investment advice or other
service worthy of the charge.

No load mutual fund

An open-end investment company, shares of which are sold without a sales charge.
There can be other distribution charges, however, such as Article 12b-1 fees. A true "no load" fund will have
neither a sales charge nor a distribution fee.

Participating GIC

A guaranteed investment contract where the policyholder is not guaranteed a crediting
rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.

Non-participating Policy

A type of insurance policy or annuity in which the owner does not receive dividends.

Participating Policy

A policy offers the potential of sharing in the success of an insurance company through the receipt of dividends.

CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

Gordon model

present value of a perpetuity with growth.
The end-ofyear gordon model formula is: 1/(r - g)
and the midyear formula is: SQRT(1 + r)/(r - g).

Abnormal returns

Part of the return that is not due to systematic influences (market wide influences). In
other words, abnormal returns are above those predicted by the market movement alone. Related: excess
returns.

Acquisition of assets

A merger or consolidation in which an acquirer purchases the selling firm's assets.

Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.

Annual percentage rate (APR)

The periodic rate times the number of periods in a year. For example, a 5%
quarterly return has an APR of 20%.

Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).

Asset-backed security

A SECurity that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.

Assets

A firm's productive resources.

Assets requirements

A common element of a financial plan that describes projected capital spending and the
proposed uses of net working capital.

Back fee

The fee paid on the extension date if the buyer wishes to continue the option.

Balanced fund

An investment company that invests in stocks and bonds. The same as a balanced mutual fund.

Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.

Bargain-purchase-price option

Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

Beta (Mutual Funds)

The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
the fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely
to move up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to
general market conditions that cannot be diversified away.

Beta equation (Mutual Funds)

The beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the S&P 500 Index
y = rate of return for the fund

Book-entry securities

The Treasury and federal agencies are moving to a book-entry system in which SECurities are not represented by engraved pieces of paper but are maintained in computerized records at the
Fed in the names of member banks, which in turn keep records of the SECurities they own as well as those they
are holding for customers. In the case of other SECurities where a book-entry has developed, engraved
SECurities do exist somewhere in quite a few cases. These SECurities do not move from holder to holder but are
usually kept in a central clearinghouse or by another agent.

Chicago Mercantile Exchange (CME)

A not-for-profit corporation owned by its members. Its primary
functions are to provide a location for trading futures and options, collect and disseminate market information,
maintain a clearing mechanism and enforce trading rules.

Closed-end fund

An investment company that sells shares like any other corporation and usually does not
redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or
below its net asset value. Related: Open-end fund.

Closing purchase

A transaction in which the purchaser's intention is to reduce or eliminate a short position in
a stock, or in a given series of options.

Commitment fee

A fee paid to a commercial bank in return for its legal commitment to lend funds that have
not yet been advanced.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Consortium banks

A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Consumer credit

credit granted by a firm to consumers for the purchase of goods or services. Also called
retail credit.

Contango

A market condition in which futures prices are higher in the distant delivery months.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Convertible security

A SECurity that can be converted into common stock at the option of the SECurity holder,
including convertible bonds and convertible preferred stock.

Cost of funds

Interest rate associated with borrowing money.

Credit

Money loaned.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

Credit enhancement

Purchase of the financial guarantee of a large insurance company to raise funds.

Credit period

The length of time for which the customer is granted credit.

Credit risk

The risk that an issuer of debt SECurities or a borrower may default on his obligations, or that the
payment may not be made on a negotiable instrument. Related: Default risk

Credit scoring

A statistical technique wherein several financial characteristics are combined to form a single
score to represent a customer's creditworthiness.

Credit spread

Related:Quality spread

Crediting rate

The interest rate offered on an investment type insurance policy.

Creditor

Lender of money.

Cross-sectional approach

A statistical methodology applied to a set of firms at a particular point in time.

Cumulative abnormal return (CAR)

Sum of the differences between the expected return on a stock and the
actual return that comes from the release of news to the market.

Cumulative probability distribution

A function that shows the probability that the random variable will
attain a value less than or equal to each value that the random variable can take on.

Current assets

Value of cash, accounts receivable, inventories, marketable SECurities and other assets that
could be converted to cash in less than 1 year.

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

Days' sales outstanding

Average collection period.

Debt securities

IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Derivative security

A financial SECurity, such as an option, or future, whose value is derived in part from the
value and characteristics of another SECurity, the underlying SECurity.

Direct stock-purchase programs

The purchase by investors of SECurities directly from the issuer.

Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Distributions

Payments from fund or corporate cash flow. May include dividends from earnings, capital
gains from sale of portfolio holdings and return of capital. fund distributions can be made by check or by
investing in additional shares. funds are required to distribute capital gains (if any) to shareholders at least
once per year. Some Corporations offer Dividend Reinvestment Plans (DRP).

Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.

Endowment funds

Investment funds established for the support of institutions such as colleges, private
schools, museums, hospitals, and foundations. The investment income may be used for the operation of the
institution and for capital expenditures.

Eurocredits

Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and
government borrowers.

Evergreen credit

Revolving credit without maturity.

Excess reserves

Any excess of actual reserves above required reserves.

Excess return on the market portfolio

The difference between the return on the market portfolio and the
riskless rate.

Excess returns

Also called abnormal returns, returns in excess of those required by some asset pricing model.

Exchange of assets

Acquisition of another company by purchase of its assets in exchange for cash or stock.

Exchangeable Security

SECurity that grants the SECurity holder the right to exchange the SECurity for the
common stock of a firm other than the issuer of the SECurity.

Exempt securities

Instruments exempt from the registration requirements of the SECurities Act of 1933 or the
margin requirements of the SEC Act of 1934. Such SECurities include government bonds, agencies, munis,
commercial paper, and private placements.

Federal agency securities

SECurities issued by corporations and agencies created by the U.S. government,
such as the Federal Home Loan Bank Board and Ginnie Mae.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal funds

Non-interest bearing deposits held in reserve for depository institutions at their district Federal
Reserve Bank. Also, excess reserves lent by banks to each other.

Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.

Federal funds rate

This is the interest rate that banks with excess reserves at a Federal Reserve district bank
charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction
of U.S. interest rates.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home Loan banks play a role analogous to that played by the Federal Reserve banks vis-à-vis
member commercial banks.

Federally related institutions

Arms of the federal government that are exempt from SEC registration and
whose SECurities are backed by the full faith and credit of the U.S. government (with the exception of the
Tennessee Valley Authority).

Financial assets

Claims on real assets.

Five Cs of credit

Five characteristics that are used to form a judgement about a customer's creditworthiness:
character, capacity, capital, collateral, and conditions.

Fixed-charge coverage ratio

A measure of a firm's ability to meet its fixed-charge obligations: the ratio of
(net earnings before taxes plus interest charges paid plus long-term lease payments) to (interest charges paid
plus long-term lease payments).

Fixed-dollar security

A nonnegotiable debt SECurity that can be redeemed at some fixed price or according to
some schedule of fixed values, e.g., bank deposits and government savings bonds.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Forward Fed funds

Fed funds traded for future delivery.

Frequency distribution

The organization of data to show how often certain values or ranges of values occur.

Front fee

The fee initially paid by the buyer upon entering a split-fee option contract.

Full faith-and-credit obligations

The SECurity pledges for larger municipal bond issuers, such as states and
large cities which have diverse funding sources.

Fund family

Set of funds with different investment objectives offered by one management company. In many
cases, investors may move their assets from one fund to another within the family at little or no cost.

Fundamental analysis

SECurity analysis that seeks to detect misvalued SECurities by an analysis of the firm's
business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future
interest rates, and risk evaluation of the firm.

Fundamental beta

The product of a statistical model to predict the fundamental risk of a SECurity using not
only price data but other market-related and financial data.

Fundamental descriptors

In the model for calculating fundamental beta, ratios in risk indexes other than
market variability, which rely on financial data other than price data.

Funded debt

Debt maturing after more than one year.

Funding ratio

The ratio of a pension plan's assets to its liabilities.

Funding risk

Related: interest rate risk

Funds From Operations (FFO)

used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is funds Available for distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.

Global fund

A mutual fund that can invest anywhere in the world, including the U.S.

Go-around

When the Fed offers to buy SECurities, to sell SECurities, to do repo, or to do reverses, it solicits
competitive bids or offers from all primary dealers.

Going-private transactions

Publicly owned stock in a firm is replaced with complete equity ownership by a
private group. The shares are delisted from stock exchanges and can no longer be purchased in the open
markets.

Gold exchange standard

A system of fixing exchange rates adopted in the Bretton Woods agreement. It
involved the U.S. pegging the dollar to gold and other countries pegging their currencies to the dollar.

Gold standard

An international monetary system in which currencies are defined in terms of their gold
content and payment imbalances between countries are settled in gold. It was in effect from about 1870-1914.

Golden parachute

Compensation paid to top-level management by a target firm if a takeover occurs.

Good delivery

A delivery in which everything - endorsement, any necessary attached legal papers, etc. - is in
order.

Good delivery and settlement procedures

Refers to PSA Uniform Practices such as cutoff times on delivery
of SECurities and notification, allocation, and proper endorsement.

Good 'til canceled

Sometimes simply called "GTC", it means an order to buy or sell stock that is good until
you cancel it. Brokerages usually set a limit of 30-60 days, at which the GTC expires if not restated.

Goodwill

excess of the purchase price over the fair market value of the net assets acquired under purchase
accounting.

Government bond

See: government SECurities.

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