Glossary
12b-1 Fees Back-end load—that is, deferred commission—fees on mutual funds, up to 1% per year for up to eight years. These fees, permitted under the SEC Rule 12b-1, are calculated on the net asset value (NAV) of the fund and are therefore subject to market risk. As of this writing, there is a pending proposal by the SEC to rescind Rule 12b-1 and replace it with Rule 12b-2, which would significantly alter the terms and structure of deferred commission fees. ABS See Asset-Backed Security. Absolute Delta The dollar sensitivity of the price of a derivative to a dollar change in the price of the underlying. See Relative Delta. ADR See American Depository Receipt. Alpha In the capital asset pricing model, the portion of an asset's return uncorrelated with the return on the broad market and, therefore, diversifiable. In factor models, the portion of an asset's return uncorrelated with factor returns. In portfolio management, the portion of a portfolio's return uncorrelated to the portfolio's benchmark. Sometimes used loosely to mean the portion of a portfolio's return in excess of the benchmark return. American Depository Receipt (ADR) Certificate issued by an American bank and tradable on a U.S. exchange, representing an ownership interest in one or more shares of a foreign company. American Option An option that can be exercised on any date during its life, in contrast to a European option, which can only be exercised on its expiration date. Amortizing Bond A bond that pays ...
