The Blue Portfolio - Stock Market Portfolio Recommendations

Day orders: Orders that are canceled if they are not filled on the day they are entered.

Dealer: One who buys or sells stock for his own account, charging a markup when he sells to a customer and a markdown when he buys from the customer.

Debentures: Bonds not secured by any specific property, based on the full faith and credit of the issuer.

Debit balance: Money owed to a broker/dealer by a customer.

Debit spread: An options spread position in which the premium paid on the long position is greater than the premium received on the short position.

Declared date: The date on which a corporation declares a dividend.

Defeasance: Annulment of trust indenture conditions granting new bonds a claim on revenues, and the old bonds a claim on the escrow account containing the proceeds (the money) from the pre-refunding issue.

Defensive issue: Common stock of companies that are relatively unaffected by the business cycle, such as food companies, utilities, and tobacco companies.

Defined benefit plan: A corporate pension plan that guarantees a specific level of benefits for participants, usually based on levels of compensation and years of service. For example, an annuity purchased by the corporation for the employee.

Defined contribution plan: A corporate pension plan that guarantees the employer will pay a specific amount into the plan each year. Either a money purchase plan, such as a 401(k) or a SEP, or a profit sharing plan, or some combination of the two.

Deflation: A decline in the prices of goods and services.

Delivery versus payment: A type of settlement, commonly used by bank trust departments, in which the security is paid for when the broker/dealer has it deliverable in the purchaser's name. Also referred to as DVP or COD.

Demand note: A short-term municipal note that permits the issuer to change the interest rate on a weekly or monthly basis, and the holder to sell the note back to the issuer at the same intervals.

De minimus transactions: A small amount of transactions allowed in a state for a registered rep who is not registered in that state. Applies when an existing customer of a firm moves to another state or stays in another state for less than 30 days. Subject to restrictions.

Depository Trust Company (DTC): A central depository for the physical certificates evidencing securities held by its members. The members transfer securities among themselves to effect transactions using electronic bookkeeping entries.

Depository trust receipt: A written guarantee that can be used for money or stock, and to cover either calls or puts. Unlike escrow receipts or bank guarantee letters, which can only be used once, a depository trust receipt may be used again upon expiration of the option.

Depreciation: A noncash expense reflecting wear and tear of property used as part of a trade or business or held for the production of income. Usually, the cost of an asset, less an appropriate salvage value, is "written off" over its useful life by periodically reducing the book value of the asset with an increase to accumulated depreciation and charging an equal and offsetting amount as depreciation expense. Depreciation used for book purposes may be different from the amounts allowed on tax statements.

Derivative security: A contract whose value depends on the performance of some other security, index, or other investment. For example, a stock option is a derivative security whose value depends on the value of the underlying stock.

Depression: A stage of the business cycle characterized by high unemployment and low levels of business activity.

Designated order: In a municipal bond underwriting, an order by the buyer specifying the syndicate member who receives the compensation for the order.

Designated reporting member: A broker/dealer who engages in many third market trades, and is designated as such.

Developmental drilling: Drilling oil or gas wells in an area of known production.

Diagonal spread: An options spread position in which both the strike prices and the expiration months differ.

Dilution: Reduction of the percentage ownership of the existing shareholders through the sale of more stock by the corporation.

Direct Participation Program: An investment program that allows the flow-through of all tax consequences to the investor, often referred to as a DPP. The most common form of DPP is a limited partnership.

Discount: The difference between some nominal amount for a security and the lower current market price. For example, the discount on a preferred stock or bond is the amount by which it is currently selling below par or face value. For securities sold or loans made "at a discount," the issue or loaned amount is the face amount reduced by the amount of the interest.

Discount rate: The rate of interest the Federal Reserve Board charges member banks for reserves borrowed from the Fed.

Discretionary account: A customer account in which the firm or its registered representative has the authority to enter orders without the prior approval of the customer.

Discretionary income: The amount of income the individual has left after covering his or her essentials such as food, housing, utilities, clothes, and payment of obligations.

Discretionary orders: Orders where the customer allows the registered representative to decide whether to buy or sell, which security; and the number of shares. The order is discretionary even if the customer supplies the other information required to order, such as when to place the order and whether the order is at market price or a limit order at a stated price.

Discretionary power: The power of attorney given by a customer to a registered representative or brokerage firm

Disintermediation: The nonuse of financial institutions as intermediaries between savers and the users of funds.

Disproportionate sharing arrangement: A sharing arrangement in an oil and gas program granting the general partner a greater share of income than would be merited by his capital contribution. For example, the general partner contributes 10% of the total capital but receives 25% of the income.

District executive representative: Person designated by a member of the NASD to vote on NASD matters related to a particular district for the member. A member may designate one district executive representative for each district in which it has at least one branch office. However, the firm cannot designate a district executive representative in addition to an executive representative in the district that is its principal place of business.

Diversification: Reducing risk by spreading investments among several markets and/or industry segments within a market. Diversification reduces the risk that an individual investment will perform worse than other investments in its same class (i.e., non-systematic risk).

Diversified investment management company: An investment company with 75% of the value of its assets held in cash or cash equivalents, government securities, securities of other investment companies, or securities of other issuers; no more than 5% of its total assets in the securities of any one company; and ownership of no more than 10% of the outstanding voting stock of any one company.

Dividend: A payment of corporate earnings to shareholders. Dividends are normally paid in cash, but may also be in stock or property.

Dividend Re-Investment Plan (DRIP): A program offered by some corporations (particularly investment companies) in which shareholders may opt to use their dividends to purchase additional shares in the corporation in lieu of receiving cash payments. Since the shares are purchased directly from the corporation, brokerage fees do not apply. However, the shareholder is still responsible for taxes on the dividends.

Dollar bond: A term municipal bond, quoted in the same manner as corporate bonds.

Dollar-cost averaging: A method of investing where the investor makes fixed dollar purchases at regular intervals regardless of the price per share. The investor purchases more shares with this method when the share price is low and fewer shares when the share price is high. Thus, the investor benefits from temporary downturns in share price.

Don't know procedures (DK procedures): Procedures followed by dealers if confirmations between dealers are in disagreement, or if one party fails to confirm a trade prior to the settlement date. Literally means we "don't know" this trade.

DOT System: The Designated Order Turnaround System, which is the automated execution system on the NYSE. It is now called the Super Dot 250 System.

Double-barreled bonds: A municipal bond based on the revenues to be generated by some facility or project, but also backed by the full faith, credit, and taxing power of a government.

Double-exempt bonds: Bonds issued by a territory of the United States that are exempt from both federal and state income taxes in all fifty states. Some states may tax bonds of other states.

Dow Jones Composite Average: An average of 65 stocks, including the 30 stocks in the Dow Jones Industrial Average, plus 20 transportation stocks and 15 utility stocks.

Dow Jones Industrial Average: An average of 30 stocks that are purportedly representative of the entire stock market. This is the average most widely followed by the public.

Due bill: A written admission of a debt. Due bills are given when a stock split or stock dividend is pending and the shares are sold prior to the ex-date, but too late to transfer them to the buyer's name.

Due-bill check: A postdated check dated to the payment date of a cash dividend. Due bill checks are used when a cash dividend is pending and the shares are sold prior to the ex-dividend date, but too late to transfer them to the buyer's name.

Due-diligence meeting: A meeting held by the issuer and the underwriters shortly before the effective date of an offering. The purpose is to make certain that all disclosures are adequate.

DVP: See Delivery versus Payment.