DCP & NYCE IRA

Glosssary of Investment Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Account (Deferred Compensation Plan Account): Each Plan participant has an account which is maintained by the Plan's recordkeeper. A participant can access his/her account through the voice response telephone system.

Agency Securities: Securities issued by U.S. government-sponsored entities and federally related institutions.

Alpha: Alpha is a measure of value added after adjusting for risk. Beta is the measure of risk used in the calculation of alpha, so the accuracy of alpha is dependent on the accuracy of beta. Alpha is the difference between the manager's return and what one would expect the manager to return after adjusting for the amount of risk taken. Mathematically, Alpha = Portfolio Return - Risk Free Rate - Beta * (Market Return - Risk Free Rate); a = rp - rf - ß(rm - rf). A positive alpha is an indication of value added.

Asset-Backed Bonds: Bonds that are backed by loan paper or accounts receivable.

Asset Backed Security (ABS): A fixed income security which has specifically pledged collateral such as car loans, credit card receivables, lease loans, etc.

Average Capitalization: Average capitalization is the sum of the capitalization of each stock in the portfolio divided by the number of stocks in the portfolio.

B

Balanced Portfolio: A fund that combines stocks, bonds and sometimes a cash component into one portfolio.

Barbell: A barbell yield curve strategy is a portfolio made up of long term and short term bonds with nothing (or very little) in between. This strategy performs well during periods when the yield curve flattens.

Basis Point: One one-hundredth (1/100) of one percent. In others words, it takes 100 basis points to make up one percent. (ex: 10 basis pts = .10%)

Benchmark: A standard against which the performance of a fund or investment manager can be measured. The benchmark tends to be a stock or bond index that has the best representation of the broader market and/or market-segment of the investment in question.

Beneficiary: A person or persons designated by the participant to receive proceeds or benefits upon the participant’s death.

Beta: Beta is a measure of risk for domestic equities. The market has a beta of 1. A manager with a beta above 1 exhibits more risk than the market, while a manager with a beta below 1 is less risky than the market.

BIC: The abbreviation for Bank Investment Contract. A BIC is a time deposit for a specified period and rate of interest, normally issued to a retirement or deferred compensation plan. The issuing bank guarantees the interest and the return of the funds at maturity.

Blue Chip: A stock of a large and well-established company

Bond: An IOU or promissory note, usually issued in multiples of $1000. The issuer promises to pay the bondholder a fixed or variable rate of interest for a specific length of time and to repay the principal amount of the loan at maturity. The U.S. government, states, municipalities and corporations issue bonds. In every case, a bond represents debt; the bondholder is a creditor, not a part owner like a person who owns a stock. Also referred to as a fixed income or debt security.

Bond Funds: A mutual fund which invests in bonds issued by corporations or by the U.S. government. Investment returns are earned from interest payments and from fluctuations in the market value (both up and down) of the bonds held by the fund.
Bond Rating: A measure of the quality, safety and potential performance of a bond issue Standard & Poor’s is a major company that rates bonds.

Book Value: For the Stable Income Fund, book value is the principal plus accumulated interest. For an equity fund, the book value per share is a company’s assets less liabilities divided by the number of shares outstanding. Book value of an asset or a security may have little or no significant relationship to market value.

Brokerage Window: A plan feature that permits participants to purchase investments that are not included among the plan’s general menu of designated investment alternatives.

Bullet: A bullet yield curve strategy focuses on the intermediate area of the yield curve. This strategy performs well during periods when the yield curve steepens.

C

Capital Appreciation: A rise in the market value of the original investment.

Capital Gains: A profit that is realized on an asset if the selling price is greater than the purchase price.

Cash Equivalents: Short-term investments held in lieu of cash and readily converted into cash within a short time span (i.e., CDs, commercial paper, Treasury bills, etc.).

Collateralized Mortgage Obligation (CMO): A CMO is a security backed by a pool of pass through securities and/or mortgages. Since CMOs derive their cash flow from the underlying mortgage collateral, they are referred to as derivatives. CMOs are structured so there are several classes of bondholders with varying stated maturities and varying certainty of the timing of cash flows.

Common Stock: Equity, or ownership, in a corporation. Stockholders participate in a company’s profits or losses through dividends and changes in the stock’s market value.

Compound Interest: Paying interest on interest earned in addition to paying interest on principal.

Consumer Price Index: The Consumer Price Index is an indicator of the general level of prices. It attempts to compare the cost of purchasing a market basket of goods purchased by a typical consumer during a specific period with the cost of purchasing the same market basket of goods during an earlier period.

Convertibles: Corporate securities that are exchangeable for a set number of another form of security at a pre-stated price.

Core Bond Fund: Investment style of a bond fund that invests in a well-diversified portfolio US Investment grade bonds, which include US Governments, Corporate, Agency and Mortgage related bonds.

Corporate Bond: (See Bond)

Coupon: The coupon rate is the annual coupon (i.e. interest) payment value divided by the par value of the bond.

Credit Rating: (See Standard & Poor’s Rating)

Currency Risk: A risk that the value of an asset can change in price of one currency against another

Current Income: Money that is received on an ongoing basis from investments in the form of dividends, interest, or other income sources.

Custom Benchmark: A customized combination of standard benchmarks created to map representative changes in the underlying investment.

D

Debt Security: (See Bond)

Depreciation: An decrease in the value of the markets collective assets over time.

Diversification: The spreading of risk by placing assets in several categories of investments, such as stocks, bonds, and money market instruments, or in several industries or sectors.

Dividend: The payment or earnings resulting from the distribution of profits to shareholders. Dividends may also be realized from income derived from a mutual fund’s investments.

Dividend Yield: Dividend yield is calculated on common stock holdings, and is the ratio of the last twelve months dividend payments as a percentage of the most recent quarter-ending stock market value.

Domini 400 Social Indexsm: Created in 1990, an Index made up 400 stocks that have passed multiple social and environmental screens. The Index is a market cap weighted index consisting primarily of large-capitalization U.S. equities. Approximately 250 of these companies are included in the Standard & Poor’s 500 Index, approximately 100 are large companies not included in the S&P 500, but providing industry representation, and approximately 50 additional companies with particularly strong social characteristics.

Duration: Duration is a weighted average maturity, expressed in years. All coupon and principal payments are weighted by the present value term for the expected time of payment. Duration is a measure of sensitivity to changes in interest rates with a longer duration indicating a greater sensitivity to changes in interest rates.

E

Equity Fund: (See Stock Funds)

Equity Security: (See Stock)

Expected Return: The internal rate of return that discounts the consensus forecast of dividends back to current price. A stock with an expected return of 15% purchased at the current price will provide an expected total rate of return compounded annually of 15%, assuming a reinvestment rate of 15%.

Expense Ratio: The amount paid by investors for an investment fund’s operating expenses and management fees. This amount, expressed as a percentage of total invested assets, is taken out of current income before the net asset value (NAV) of the fund is established.

F

Fixed-Income Security: (See Bond)

Fixed Income Options: (See Bond)

Fund Manager: (See Portfolio Manager)

Futures: Options on a Futures Contract. A Futures Contract is an agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date.

G

GIC: The abbreviation for Guaranteed Investment Contract. The "guarantee" relates to specific contract provisions insuring payment of principal and accrued interest. The contracts are backed by the investments, legal reserve and cash flow from operations of the contract issuers. Thus, the guarantee is valid only as long as these institutions are sound.

Growth Fund: A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.

H

I

Index Fund: A fund designed to replicate a designated securities index. In the case of Deferred Compensation, it is the Standard & Poor’s 500 Index.

Individual Retirement Account (IRA): A personal retirement account in which the principal is sometimes, and the earnings are always, tax-deferred.

Inflation: An increase in the general level of prices.

Information ratio: A ratio of portfolio returns above the returns of the benchmark in relation to the volatility of those returns. The information ratio (IR) measures a portfolio manager's ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the manager. The higher the IR the more consistent a manager is.

Institutional Investors: Organizations that trade large volumes of securities.

Institutional Class Shares: Shares sold to institutional investors.

Interest: An amount paid for the use of borrowed money, usually calculated as a percentage.

Interest Only Strip (IO): An IO is a type of CMO that gets its cash flows from interest payments only. IOs benefit from a slowing in prepayments (i.e. when interest rates rise) and under-perform in an accelerating prepayment environment (i.e. when interest rates decline). IOs can be very volatile, but can offset volatility in the overall portfolio.

International Fund: A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.

Investment Grade: Bonds that are appropriate for purchase by conservative investors because they represent moderate to low risk.

J

K

L

Large Capitalization (Cap): A reference to either a large company stock or an investment fund that invests in the stocks of large companies.

M

Market Appreciation: An increase in the value of the markets collective assets over time.

Market Capitalization: Market capitalization is a company's market value, or closing price times the number of shares outstanding.

Market Cycle: Relative price trends or patterns, and/or sector and industry trends that fluctuate in a market environment. It is often the experience that some asset classes outperform others in varying market cycles.

Market Value: the price the buyer is willing to pay for a security and the price a seller is willing to accept.

Market-Weighted Portfolio: Market Capitalization (Market Cap) is the current market price per share of a company multiplied by the number of shares outstanding. Market cap is the value, in dollars, that the stock market has assigned to a publicly traded company at any particular moment. A market weighted (or market capitalization weighted) portfolio is a portfolio in which each stock held, is held in proportion to its market capitalization. For instance, if company "A"'s Market Cap is twice that of Company "B", the portfolio's holdings of Company "A" will be worth twice as much as the holdings of Company "B".

Maturity: The maturity for an individual bond is calculated as the number of years until principal is paid. For a portfolio of bonds, the maturity is a weighted average maturity, where the weighting factors are the individual security's percentage of the total portfolio; Reaching the date at which a debt instrument is due and payable.

Median Manager: The median manager is the manager with the middle return when returns are ranked from high to low return. Half of the managers will have a higher return and half will have a lower return.

Mid Capitalization (Cap): A reference to either a medium sized company stock or an investment fund that invests in the stocks of medium-sized companies.

Mid Cap Fund: A fund that invests primarily in mid-cap stocks.

Money Market Fund: A fund made up of only short-term, low-risk securities.

Mortgage-Backed Bond or Certificate: Security backed by mortgages. Such certificates are issued by the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association. Others are guaranteed by the Government National Mortgage Association (GNMA). Investors receive payments out of the interest and principal on the underlying mortgages.

Mortgage Pass Through: A security which “passes through” to the holder the interest and principal payments on a group of mortgages.

Mutual Fund: A fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies or money market securities. Such a fund offers investors the advantages of diversification and professional management. All shareholders share equally in the gains and losses generated by the fund.

N

Net Asset Value (NAV): The market value of a fund share. It is calculated by taking the market value of all securities owned by the fund and all other assets, such as cash: subtracting all liabilities, then dividing the result by the total number of shares outstanding.

O

Option: An investment that gives the investor the right to buy or sell a security for an agreed upon sum up to a specified date. If the right is not exercised before the date, the option expires and the buyer forfeits whatever he or she paid for it.

P

Passive Investment Strategy: An investment strategy that seeks to match, rather than outperform, the return and risk characteristics of an index, by holding all securities that make up the index or a statistically representative sample of the index.

Percentile Rank: A manager's rank signifies the percentage of managers in the universe performing better than the manager. For example, a manager with a rank of 10 means that only 10% of managers had returns greater than the managers over the period of measurement. Likewise, a rank of 50 (i.e. the median manager) indicates that 50% of managers in the universe did better and 50% did worse.

Planned Amortization Class (PAC): A PAC is a type of CMO with the cash flows set up to be fairly certain. PACs appeal to investors who want more certain cash flow payments from a mortgage security than provided by the underlying collateral.

Portfolio: Combined holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, common stocks and other securities.

Portfolio Manager: The professional in charge of the securities portfolio of a mutual fund. The portfolio manager has the responsibility to manage the assets and to choose which stocks, bonds or other investments present the best opportunities for profit at any particular time, consistent with the fund’s stated investment objective.

Price/Book Value: The price/book value for an individual common stock is the stock's price divided by book value per share. Book value per share is the company's common stockholders equity divided by the number of common shares outstanding.

Price/Earnings Ratio (P/E): The P/E ratio of a common stock's price divided by earnings per share. The ratio is used as a valuation technique employed by investment managers.

Principal: The amount of money invested, exclusive of earnings, i.e. dividends or interest.

Principal Only Strip (PO): A PO is a type of CMO which gets its cash flows from principal payments only. POs are sold at a discount and perform well if prepayments come in faster than expected (i.e. interest rates decrease) and extend and perform poorly if prepayments come in slower than expected (i.e. interest rates rise).

Private Label Mutual Fund: A mutual fund designed exclusively for a specific group of investors.

Prospectus: A document offered by a mutual fund describing the fund’s history and its investment objective, policies, and practices.

Q

Quality: Quality relates to the credit risk of a bond (i.e. the issuers ability to pay). Quality is most relevant for corporate bonds. Several rating organizations publish ratings of bonds including Moody's and Standard & Poor's. AAA is the highest quality rating, followed by AA+, AA, AA‑, A+, A, A‑ and then BBB+, BBB, BBB‑, BB+, BB, BB‑, etc. Bonds rated above BBB‑ are said to be of investment grade.

R

R2 (R Squared): A measure of how well a manager moves with the market. If a manager's performance closely tracks that of the market, the R2 will be close to 1. Broadly diversified managers have an R2 of 0.90 or greater, while the R2 of undiversified managers will be lower.

Rate of Return: For stocks, the annual dividend divided by the purchase price. For bonds, the rate of return is the current yield.

Repurchase Agreements (REPO): An agreement between a seller and buyer, usually of U.S. Government Securities, whereby the seller agrees to repurchase the securities at an agreed upon price and, usually, at a stated time.

Retail Class Shares: Shares sold to retail investors. A retail investor buys securities and commodities futures on his/her own behalf, not for an organization, and is usually charged commissions higher than those paid by institutions.

Return: The amount of money received annually from an investment, usually expressed as a percentage.

Return On Equity: The return on equity for a common stock is the annual net income divided by total common stockholders' equity.

Risk: The potential for gain or loss. The possibility of exposure to loss or no increase in value. The types of risk that can affect investments include:

Credit risk: The creditworthiness or ability of the issuer of the security to pay its obligations. The most creditworthy of bond issuers is the Federal Government, so from a credit risk stand-point, the safest investments are U.S. Treasury securities. At the opposite end of the spectrum are so-called junk bonds issued by companies with lower credit ratings. These companies have to pay a higher rate of interest than more creditworthy issuers to encourage investors to buy their bonds.

Economic risk: Changes in the state of the economy. For example, a depression or major recession could negatively impact a company, affecting the price of its stock and its ability to pay regular dividends to its shareholders.

Market risk: Fluctuations in interest rates affect the prices of securities bought and sold on the stock and bond markets. For example, a long-term bond, bought for a par value of $1,000, that pays 10% interest, will pay that rate (i.e., $100/yr.) as long as it is held. If the bond is held to maturity, the $1,000 is returned to the investor. But if the bond is sold before then, the investor could receive either more or less than $1,000. If interest rates have risen above 10%, the bond will decline in value because it pays less than the current market rate. Conversely, if interest rates have fallen, the bond will be worth more because it pays more than the current market rate.

Risk Tolerance: The amount of fluctuation a person can absorb to his/her account value from one quarter to the next. The primary factor in determining a person’s level of risk tolerance is the Time Horizon. For example, someone with a long investment time horizon is better able to assume risk than a person with a short investment time horizon.

S

Securities: A general term used when referring to all types of stocks, bonds, and money market instruments. Securities may also be called "instruments."

Separate Account Vehicle: An individually managed investment portfolio. Separately managed accounts typically have customized investment guidelines.

Share: A security representing ownership in a mutual fund or publicly-owned corporation.
Share Value: The dollar value associated with a share. The share value is calculated by dividing the market value of the mutual fund by the number of outstanding shares.

Sharpe Ratio: Measure of risk-adjusted performance, indicating how much risk was taken to generate excess performance. The greater a portfolio’s Sharpe ratio, the better its risk-adjusted return.

Small Capitalization (Cap): A reference to either a small company stock or an investment fund that invests in the stocks of small companies.

Small Cap Fund: A fund that invests primarily in small-cap stocks.

Small Cap Stocks: Stocks of companies with a smaller market capitalization. Small caps are often considered to offer more growth potential than large caps and mid caps but with more risk.

Social and Environmental Screens: Utilization of social and environmental criteria in evaluating a company for inclusion or exclusion from a portfolio.

Socially Responsible Investing: Incorporation of social and environmental criteria in the investment decision making process.

Stable Value Fund: An investment fund that seeks to preserve principal, provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.

Standard Deviation: Standard deviation is the degree of variability of a time series, such as quarterly returns, relative to the average. Standard deviation measures the volatility of the time series.

Standard & Poor’s Index (Standard & Poor’s 500 Index): Broad based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.

Standard & Poor’s Rating: A classification of bonds according to risk. S&P’s four top grades, AAA, AA, A, and BBB are called Investment Grade because they are low-risk investments.

Stock: Shares of ownership in a corporation. Common stock, which is more widely issued than preferred stock, entitles the holder to voting rights in the corporation. Preferred stock usually does not vote, but generally does give the holder a right to be paid dividends or distributions before holders of common stock.

Stock Funds: Mutual Funds which invest in common stocks and preferred stocks. Investment returns are earned from dividends and from fluctuations in the market value (both up and down) of the stocks held by the fund. There is no guarantee of principal or fixed return.

Stock Market: General term referring to the organized trading of securities through the various exchanges and the over the counter market. The securities involved include common stock, preferred stock, bonds, convertibles, options, rights, and warrants.

T

Time Horizon: The amount of time a person has until he/she begins to draw funds from his/her investment account. A person’s ability to accept risk is a function of his/her time horizon.

Total Return: The amount of one’s original investment (principal value), plus the interest or dividends one received on the investment, and any increase or decrease in the purchase price. Mutual fund total returns, except for money market mutual funds, reflect changes in net asset value (NAV) plus the effect of reinvesting all dividends. This term should not be confused with an investment’s "yield".

Tracking Error: The difference between the return of a portfolio and the return of its benchmark.

Treasury Bills: Short-term IOU issued by the U.S. Government.

Treasury Bonds: Long-term debt instruments with maturities of ten years or longer issued in minimum denominations of $1,000.

U

U.S. Government Agency Securities: Securities issued by federal agencies, like the Government National Mortgage Association. These are not backed by the full faith and credit of the U.S. Government.

Unit: An accounting measure that represents ownership of a blended investment option.

Unit Value: The dollar value associated with a unit. The unit value is calculated by dividing the market value of the blended investment option by the number of outstanding units.

V

Value Fund: A fund that invests primarily in stocks that are believed to be priced below what they are really worth.

Volatility: The characteristic of a security or market to rise or fall sharply in price within a short-term period.

W

Warrants: A certificate giving the holder the right to purchase securities at a defined price within a specified time.

Weighted Average Duration: A measurement of a bond portfolio’s price volatility relative to changes in interest rates.

Weighted Capitalization: Weighted capitalization is the sum of the capitalization of each stock in the portfolio weighted by its percentage of the portfolio.

X

Y

Yield: Return received on investments, usually expressed as a percentage of the latest selling price of the stock or bond. For example, if the current price of a stock is $10 per share and investment income dividends totaled $0.50 during the past twelve months, the yield is expressed as 5%. In a mutual fund, yield is generally the current income that all of the securities in its portfolio pay per share, net of expenses.

Yield to Maturity: The discount rate that equates the present value of cash flows (coupons and principal) to the market price taking into account the time value of money.