ALPHA

Alpha = A derivative calculation of Beta, used to summarize the
difference between a manager's actual performance and what would have
been predicted given the manager's portfolio Beta.

Basis Point

A basis point equals 0.01%.

BETA

Beta = Regression parameter used to estimate a security's or portfolio's
sensitivity to changes in a broad market index. Betas greater than 1
are theoretically more susceptible to market swings, whereas Betas less
than 1 are less susceptible.

Bonds

Bonds are a way for the government or a company to borrow money. Bonds have two parts: the principal and the coupon. The coupon is a fixed amount that is to be paid to the bondholder periodically over the life of the bond (thus providing “income”). The principal is repaid when the bond matures.

Bonds are traded in an open market, similar to stocks. Changes in interest rates affect the prices of bonds:

• If the current market interest rate is higher than the bond coupon, the bond will sell for less than the face (par) value of the bond.

• If the current market interest rate is less than the bond coupon, the bond will sell for more than face (par) value.

• If the current market interest rate equals the coupon value, the bond will trade at face (par) value.

Bond prices will also vary as confidence in the solvency of the bond issuer changes.

BOOK VALUE

The historical book value growth rate is a measure of the share-weighted cumulative book value growth for all domestic stocks in the fund’s current portfolio; this is more accurate than (and not necessarily the same as) the asset-weighted average book value growth for the individual stocks in the fund’s current portfolio. The share-weighted cumulative book value per share for each fiscal year (e.g. year 2) is calculated by multiplying the book value per share for each stock for that fiscal year by the current number of shares in the portfolio and adding up the results for all stocks in the fund’s portfolio. Then, the growth of the share-weighted cumulative book value is measured from each historical fiscal year to the last fiscal year (e.g. yr 5-yr 1 and yr 4-yr 1 and so on). The fund’s historical book value growth rate is an average of these annualized growth rates for each time period.

CASH FLOW

The historical cash flow growth rate for a fund is a measure of the growth of the share-weighted cumulative cash flow per share for all domestic stocks in the fund’s current portfolio; this is more accurate than (and not necessarily the same as) the asset-weighted average cash flow growth for individual stocks in the fund’s portfolio. The share-weighted cumulative cash flow per share for each fiscal year (e.g. year 2) is calculated by multiplying the cash flow per share from operations for each stock for that fiscal year by the current number of shares in the portfolio and adding up the results for all stocks in the fund’s portfolio. Then, the growth of the share-weighted cumulative cash flow is measured from each historical fiscal year to the last fiscal year (e.g. yr 5-yr 1 and yr 4-yr 1 and so on). The fund’s historical cash flow growth rate is an average of these annualized growth rates for each time period.

DIVIDEND YIELD

Dividend Yield % is the asset-weighted average of the prospective dividend yields of all the domestic stocks in the fund’s portfolio as of the date of the portfolio. A stock’s prospective dividend yield is calculated by dividing estimated annual regular dividends per share for the current fiscal year by the company’s month-end stock price as of the portfolio date. In computing the fund’s average, Morningstar weights each portfolio holding by the percentage of domestic equity assets it represents, so that larger positions have proportionately greater influence on the fund’s dividend yield.

Dow Jones Industrial Average (DJIA) is an unmanaged index of common stocks comprising major industrial companies, and assumes reinvestment of dividends.

You cannot invest directly in an index.

EARNINGS PER SHARE

Total earnings divided by the number of shares outstanding. Companies often use a weighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year ("trailing EPS"), for the current year ("current EPS"), or for the coming year ("forward EPS"). Note that last year's EPS would be actual, while current year and forward year EPS would be estimates.

Fannie Mae

Fannie Mae is the Federal National Mortgage Association, a stockholder-owned corporation chartered by Congress in 1968 as a government sponsored enterprise (GSE). It purchases mortgages from primary lenders and converts them into securities which are sold to investors.

FREE CASH FLOW

Free Cash Flow = Operating cash flows less capital expenditures required
to maintain business. Operating cash flows are derived by adjusting a
company's net income by non-cash items such as depreciation, as well as
the effect of investment/liquidation of working capital.

Gross Domestic Product

(GDP) is the total market value of all goods and services produced within a country in a given period of time (usually a calendar year).

Hedge Funds

Unlike mutual funds, hedge funds are investment pools typically open only to a limited range of professional or wealthy investors. Hedge fund managers are exempt from regulations governing short selling, derivative contracts, leverage, fee structures, and the liquidity of interests in the fund.

Hedge funds dominate certain specialty markets, such as trading within derivatives with high-yield ratings and distressed debt.

HISTORICAL EARNINGS

The historical earnings growth rate is a measure of the share-weighted cumulative earnings growth for all domestic stocks in the fund’s current portfolio; this is more accurate than (and not necessarily the same as) the asset-weighted average EPS growth for the individual stocks in the fund’s current portfolio. The share-weighted cumulative EPS for each fiscal year (e.g. year 2) is calculated by multiplying the EPS for each stock for that fiscal year by the current number of shares in the portfolio and adding up the results for all stocks in the fund’s portfolio. Then, the growth of the share-weighted cumulative EPS is measured from each historical fiscal year to the last fiscal year (e.g. yr 5-yr 1 and yr 4-yr 1 and so on). If projected EPS is available for the current year, growth rates are calculated up to that point in time. The fund’s historical earnings growth rate is an average of these annualized growth rates for each time period.

Leverage

Leverage is borrowing money. It generally refers to using borrowed funds, or debt, to attempt to increase returns on the equity base. Deleveraging is the action of reducing borrowings.

LIBOR

LIBOR is the London Interbank Offered Rate, a daily reference rate based on the interest rates at which banks borrow unsecured funds from banks in the London wholesale money market (or interbank market). It is roughly comparable to the U.S. Federal funds rate.

LONG-TERM EARNINGS

The long-term prospective earnings growth rate is the asset-weighted average of the long-term prospective earnings growth rates of all the domestic stocks in the fund’s portfolio as of the date of the portfolio. In computing the fund’s average, Morningstar weights each portfolio holding by the percentage of domestic equity assets it represents, so that larger positions have proportionately greater influence on the fund’s aggregate long-term earnings growth rate. Long-term prospective earnings growth rates for stocks are provided by a third party stock data vendor.

Mark-to-Market (FASB 157)

is an accounting method of assigning a value to a financial asset based on the current market price for the asset or similar assets.

Mortgage-Backed Security

is an asset-backed security whose cash flows are backed by the principal and interest payments of a group of mortgage loans.

NASDAQ

is a market capitalization-weighted index designed to represent the performance of the National Market System which includes over 5,000 stocks traded only over-the-counter and not on an exchange. You cannot invest directly in an index.

Pension

is an employer-funded qualified plan that must provide definitely determinable benefits for eligible employees. These benefits are determined by a specific formula as stated in the plan document.

Preferred Stock

is a higher ranking stock than voting shares, and its terms are negotiated between the corporation and the investor. Preferred stock usually carries no voting rights. Preferred stockholders will be paid out in assets before common stockholders, and after debt holders in bankruptcy.

PRICE/BOOK

The weighted average of the price/book ratios of all the stocks in a fund’s portfolio. The P/B ratio of a company is calculated by dividing the market price of its stock by the company’s per-share book value. Stocks with negative book values are excluded from this calculation. In theory, a high P/B ratio indicates that the price of the stock exceeds the actual worth of the company's assets, while a low P/B ratio indicates that the stock is a bargain.

PRICE/CASH FLOW

This represents the weighted average of the price/cash-flow ratios of the stocks in a fund's portfolio. Price/cash-flow represents the amount an investor is willing to pay for a dollar generated from a particular company's operations. Price/cash-flow shows the ability of a business to generate cash and acts as a gauge of liquidity and solvency. Because accounting conventions differ among nations, reported earnings (and P/E ratios) may not be comparable across national boundaries. Price/cash-flow attempts to provide an internationally-standard measure of a firm's stock price relative to its financial performance.

PRICE/EARNINGS

The weighted average of the price/earnings ratios of the stocks in a fund’s portfolio. The P/E ratio of a stock is calculated by dividing the current price of the stock by its trailing 12 months’ earnings per share. In computing the average, Morningstar weights each portfolio holding by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the fund’s final P/E.

PRICE/SALES

The sales yield for a fund is the asset-weighted average of the prospective sales yields of all the domestic stocks in the fund’s portfolio as of the date of the portfolio. A stock’s prospective sales yield is calculated by dividing estimated sales per share for the current fiscal year by the company’s month-end stock price as of the portfolio date. In computing the fund’s average, Morningstar weights each portfolio holding by the percentage of domestic equity assets it represents; therefore, larger positions have proportionately greater influence on the fund’s aggregate sales yield. The reciprocal can also be expressed as price/sales.

RETURN ON ASSETS

Return on Assets = Net Income / Total Assets, used as a barometer of
management's ability to efficiently deploy the company's assets.

RETURN ON EQUITY

Return On Equity (ROE) equals Earnings divided by Book Value (BV)
ROE is a company's net income (earnings), divided by the owner's equity in the business (Book Value). This percentage indicates company profitability or how efficiently a company is using its equity capital.

SALES

The historical sales growth rate is a measure of the share-weighted cumulative revenue growth for all domestic stocks in the fund’s current portfolio; this is more accurate than (and not necessarily the same as) the asset-weighted average revenue growth for the individual stocks in the fund’s current portfolio. The share-weighted cumulative revenues per share for each fiscal year (e.g. year 2) is calculated by multiplying the sales per share for each stock for that fiscal year by the current number of shares in the portfolio and adding up the results for all stocks in the fund’s portfolio. Then, the growth of the share-weighted cumulative sales is measured from each historical fiscal year to the last fiscal year (e.g. yr 5-yr 1 and yr 4-yr 1 and so on). The fund’s historical sales growth rate is an average of these annualized growth rates for each time period.

S&P 500 Index

The S&P 500 Index is a widely recognized, unmanaged index of common stock prices. One cannot invest directly in an index.

Velocity of Money

Velocity of money is the average frequency with which a unit of money is spent in a specific period of time. Velocity affects the amount of economic activity associated with a given money supply.

Irving Fisher, an American economist, developed the equation:

Where M = money supply; V = the velocity of circulation of money;
P = price; Q = quantity of real output(goods).

This equation says the “change in money times velocity equals change in price times quantity.”

Historically, if the money supply grows faster than the quantity of goods, the price of goods goes up to reflect the change. That’s called inflation. The assumption has always been that velocity is stable – mostly, because it’s difficult to predict. In fact, for most of the past thirty to forty years, velocity has been relatively stable. But during 2004-07, it grew rapidly. In 2008, it collapsed.

 

CONSUMER CONFIDENCE INDEX