Terms used to describe bond prices standing at a premium or discount to their underlying face value, generally the value at which the stock will be redeemed at some stated date in the future.

A type of unit or share, which provides the facility for, the automatic reinvestment of income earned from the underlying portfolio. The number of Accumulation units does not change as income is reinvested. In the case of UK domiciled funds, income is reinvested on a net (after tax) basis. For funds based in offshore domiciles, reinvestment is normally transacted on a gross basis; the liability of individual investors to tax being determined by their country of residence.

Alpha measures the difference between a fund's actual results and the results that a statistically average fund having the same beta in the same category would be expected to achieve. It is calculated with linear regression, a statistical routine, using 36 monthly observations.

Certificates issued by US banks stating that a specific number of a foreign company's shares have been placed with them. ADRs reflect any movement in the related share price. Issued as US investors cannot hold shares directly in foreign domiciled groups, ADRs provide them with an indirect but equivalent participation.

The name of an American company, Barra Inc, which has developed a quantitative tool, that is widely used to analyse performance as well as manage and trade portfolios of equity, fixed income, derivatives and other financial instruments.

An independently created and calculated security index having the closest correlation to an investment fund against which the manager's performance is regularly measured.

Beta measures a fund's sensitivity to changes in the overall market. The overall market is designated by the fund's category benchmark. Beta is calculated with linear regression using 36 monthly observations, e.g. a fund with a Beta of 1.0 would all other things being equal, perform exactly in line with its benchmark. A fund with a Beta of 1.1 would under the same circumstances be expected to outperform or underperform its benchmark by 10% (1.1 : 1.0)

Relates to historical performance measurement using the "bid" or sale prices of funds at the beginning and end of the period being considered.

Description of a management style where the manager gives priority to individual stock selection over investment sector or asset allocation.

A term relating to a country, corporation or security assessed by an independent rating agency. The rating, according to a scale, is based on the current opinion of the borrower's overall financial capacity (creditworthiness) and willingness to meet its financial obligations.

Corporate security whose share price generally fluctuates from high to low and subsequently back to high reflecting economic or industry cycles.

A fund's decile ranking is expressed in inverse format. Thus a fund in the top decile (i.e. top 10% of funds within its sector) has a decile ranking of (11-1) = "10". A second decile fund would have a decile rank of (11-2) = "9".

Discrete years are separate 12 month periods. For instance the two discrete years to 30 June 1998 refer to the two periods, twelve months to 30 June 1997 and twelve months to 30 June 1998.

Dividend yield is calculated by expressing a company's declared dividends per share as a percentage of the current share price..

A term used in fixed interest markets, reflecting a fund's sensitivity to changes in interest rates. Duration measures the average time required to receive all payments from a security, principal as well as interest, taking into account its eventual maturity and the frequency and amount of the income payments. The longer a fund's duration, the greater is its sensitivity to long term interest rate movements.

The amount of profit of an enterprise attributable to each ordinary share. It is calculated by dividing net profit by the number of ordinary shares (see also Price Earnings ratio).

A process whereby potential capital gain and income due to investors are boosted by fixed interest borrowing. The return on this extra investment, minus the cost of the borrowing, gives investors an enhanced or geared profit.

The main characteristics of growth stocks are: (i) continuing growth of sales leading to earnings growth and a higher return on assets; (ii) high level of capital expenditure not necessarily from retentions; (iii) earnings growth in part attributable to product development research and forward-looking management. Growth stocks normally have below average yields.

So called "guaranteed " funds comprise two basic types; those which guarantee the return of capital or a prescribed proportion of capital (usually between 90-95%) over a fixed period, normally five years, approximately equivalent to long term fixed interest rate returns, or to equity stockmarket returns minus the option or futures cost of the "insurance"; and those which offer "stepped" or variably adjusted downside protection, normally limited to 5%-15% in exchange for equity stockmarket returns minus, as above, the cost of "insurance".

Funds which have the ability to "gear" portfolios by borrowings to increase their exposure to underlying stockmarkets, synonymous with increased risk; or funds which can offset stockmarket exposure either by "short" selling (selling stocks not owned in the hope of buying them back more cheaply at a later date), or by covering the equity position with derivative instruments, normally stock or stockmarket options or futures. These strategies are synonymous with reduced risk, although not immune from losses or lost opportunities.

A process for reducing the currency exposure of an investment portfolio and consequently the adverse effect of the exchange rate fluctuation. Hedging may also be used to reduce risk to a fund from adverse movements in interest rates, markets or share prices.

This is the UK investment industry standard for performance comparison. To reflect investment returns fully, fund performance is usually expressed as "total return", i.e. including any capital appreciation and the reinvestment of net income distributions in further units or shares on a periodic basis. In the case of funds domiciled in offshore centres, reinvestment is normally transacted on a gross basis with the liability of individual investors to tax being determined by their country of residence.

A collective investment fund aiming to mirror the performance of a stock market index. Some management groups may achieve this by "full replication", holding all constituent companies in the same weightings as the underlying index. Others offer "partial replication" fully holding a substantial proportion of the index, but investing in a representative sample of the smaller capitalisation stocks to enable their fund to move in line with the index within a stated tracking error.

The American equivalent to a new issue or public flotation.

The total market value of a company determined by multiplying the number of shares in issue by their current share price quotation.

Total assets of a company/ fund less all liabilities and prior charges. Net asset value per share is calculated by dividing this figure by the number of ordinary shares/ units in issue.

Relates to historical performance measurement using the "offer", or purchase prices at the beginning and end of the investment period being considered.

A term used to describe the situation where either an individual asset, country, industrial sector or individual stock investment in a fund is greater than its proportional content in its relevant benchmark index.

The way in which a fund's performance is attributed to specific factors such as stock selection or asset allocation.

A price earnings ratio (often referred to as a PE ratio or PER) is a measure of the level of confidence investors have in a company. The PE ratio is calculated by dividing the current share price by the last published earnings per share (net profit divided by the number of ordinary shares). Generally the higher the figure is, the higher the confidence.

Applicable to dual priced funds (unit trusts), the difference between the price at which investors buy units ("the offer price") and the price at which they can be sold ("the bid price"). The spread covers the fund's initial charge and the costs of trading in underlying securities.

R2 is a statistical tool which measures the degree to which a fund's behaviour or performance "character" is related to an external benchmark. For example, an equity fund with an R2 of 86 relative to the S&P 500 Index records that 86% of the fund's historical behaviour was attributable to movements in the S&P 500 Index.

A description of a management style where holdings are either well diversified to avoid undue concentration or primarily held in large capitalisation "blue chip" stocks to facilitate the marketability of the fund's underlying securities.

The Sharpe ratio measures the fund's risk adjusted return. It is calculated by deducting a "risk free" return (normally the rate of interest paid on US Treasury Bills or in the UK, the Halifax savings rate paid for £25,000) from the fund's three year performance and then dividing this by the fund's standard deviation (frequently referred to as "volatility"). The relevant equation being :

Fund's Standard Deviation

When the fund is a municipal bond fund, the Treasury bill return is adjusted to reflect the tax treatment of the municipal bond fund.

Standard deviation measures the volatility of a fund's returns. Funds with high standard deviation exhibit relatively more volatility than those with low standard deviations. A fund's annual return can be expected to fall within one standard deviation of its average annual return two-thirds of the time. As an example, a fund with an average annual return of 12% and a standard deviation of 8 percentage points can be expected to produce an annual return that is within the range of 4% to 20% two-thirds of the time. During the remaining one-third of the time, it would be expected to fall outside of these boundaries.

Style composition shows the mix of benchmarks, for example whether the fund is invested in growth or value stocks (see appended definitions) or asset allocation e.g. cash, bonds, overseas stocks etc, which affected performance over a specified period of time.

Style Drift measures the tendency of a fund to deviate from its specified investment style over time.

Description of a management style where the manager is initially influenced by macroeconomic considerations, asset and sector allocations before selecting individual investments.

The ratio of total expense to a fund's average size over an annualised accounting period. Expenses are taken to include all expenses shown in the income account, including management, administration, custody, audit, legal and professional fees

The investment return comprising both capital appreciation as well as reinvested income.

The expected or actual maximum deviation of a fund's returns from those of a relevant index or benchmark.

Description of a situation where either the asset, country, industrial sector or individual stock investment is below their current proportional content of the relevant benchmark index.

Stocks deemed to have current intrinsic value, with less regard for future potential. Such stocks are often on low PERs with above average dividend yields. They may also have relative high levels of asset backing supporting the share price.

The speed and magnitude of price changes of a security measured over a period of time. A price that often moves significantly will be considered to have a high degree of volatility. Standard deviation is the absolute measure of volatility and is the measure of the square root of the variance of the fund's returns from the mean over specified regular measurement periods. (See also: Standard Deviation)

A fund's performance ranking adjusted to reflect the level of volatility experienced. It is calculated by dividing absolute performance by the volatility figure and re-ranking the funds on this basis. (See also: Sharpe Ratio).

An expression used in fixed interest markets to describe the relationship between long, medium and short term interest rates.