The Blue Portfolio - Stock Market Portfolio Recommendations

Face-amount certificate: An obligation on the part of its issuer to pay a specific amount or amounts at a specific date or dates at least 24 months in the future. If the purchase is made in periodic payments, the face-amount certificate is an installment type.

Face-amount certificate company: A fairly rare category of investment company that issues face-amount certificates, backed with specific assets, such as real estate or securities. The issuer promises to pay the holder at maturity the face amount of the certificate, which is the return of capital plus accrued interest. Investors may also be able to get a surrender value if the certificate is presented prior to maturity.

Face value: The amount on the face of a bond on which interest payments are calculated. This amount is also the amount due at maturity. May be higher or lower than market value. Also called par value.

Fair market price: The price a willing buyer would pay a willing seller for an asset, where both are acting rationally with full knowledge.

Feasibility study: A viability study for a municipal revenue bond, to determine its technical and economic profitability.

Federal covered security: A security that is exempt from state registration because either it must be registered with the Federal government under the Securities Act of 1933 or it is exempt from federal registration under the 1933 Act (except that municipal securities may be regulated by the state of which the issuer is a part). Includes securities listed or authorized for listing on the NYSE, AMEX, the National Market System of Nasdaq®, or securities of the same issuer as those above with equal or higher seniority; registered investment company securities; securities offered or sold to qualified purchasers; securities with respect to certain transactions exempt from Federal registration, including some private placements; and securities that are exempt from Federal registration.

Federal funds: Very short-term loans (usually overnight) between banks, without any collateral.

Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"): Purchases conventional mortgages from federally chartered savings and loans.

Federal National Mortgage Association: An independent association that purchases mortgages from banks and other lenders, known as FNMA, or "Fannie Mae."

Federal Reserve Board: Commonly referred to as the Fed or "the Board," it manages the Federal Reserve System.

Fidelity bond: see Blanket fidelity bond.

Fiduciary: Someone who manages an account for the beneficiary of the account.

FIFO: First-In, First-out, a method of accounting for which shares or inventory items are being sold from a pool of similar shares or items. Assumes that when a sale is made, the items purchased first are sold first.

Fill-or-Kill: A limit order for multiple round lots that must be executed in its entirety at the stated price, or be canceled.

Financial futures: Contracts to buy or sell specific amounts of a financial instrument at a specific price on some specific date in the future. Underlying securities include Treasuries, CDs, and currencies. Used by banks and other financial institutions to hedge against changing interest rates.

Financial and operations principal: Person in a NASD-member firm who is responsible for the financial reports of the firm, keeping of books and records, supervision of back office operations, and compliance with financial responsibility rules, including compliance with net capital requirements. At least one person in each member firm must be registered with the NASD as such.

Firm commitment underwriting: A promise from the underwriters of an issue to purchase the securities for their own account if they cannot be sold to customers.

Firm quote: A quote committing the firm to buy or sell at least 100 shares of stock or 5 bonds at the stated price. All quotes are assumed to be firm unless otherwise specified.

Five percent policy: NASD policy to limit commissions, markups, and markdowns to five percent. This is a guideline rather than a rule because a number of other factors must also be considered.

Fixed annuity: An annuity policy with fixed monthly payments to the owner. See annuity.

Fixed assets: Corporate assets that are used in a trade or business having a useful life of more than one year.

Fixed Income Pricing System (FIPS): An automated quotation and trade negotiation system for the high-yield bond market that is operated by the NASD.

Fixed-unit investment trust: A trust that buys a fixed portfolio of securities (usually municipal bonds) and sells that portfolio to investors in units. Each unit represents an undivided interest in the portfolio. The holdings of the trust are static. When the holdings mature, the redemptions are passed proportionately to the unit holders. The unit shares do not trade on a secondary market.

Floor brokers: Employees of a broker/dealer who execute the firm's orders on the floor of a futures exchange.

Flower bonds: U.S. government securities that were issued at a discount from par value, but are acceptable at par in payment of estate taxes.

FNMA: See Federal National Mortgage Association.

FOCUS report: Financial and Operational Combined Uniform and Single reports that all registered broker/dealers must regularly file with the SEC. Shows the firm's activity volume, cash position, amount of customer exposure, inventory, money and securities owed to or from other broker/dealers, net income, and net capital position. The type and frequency of filing varies by the type of firm.

FOK: See Fill-or-Kill.

FOMC: The Federal Open Market Committee, which controls the open market operations of the Federal Reserve Banks.

Forward pricing: In mutual funds, the practice of filling orders based on the next computed net-asset value of the fund.

Fourth market: Trades in which institutions deal directly with each other, without using broker/dealers.

FRB: See Federal Reserve Board.

Free credit balances: A credit balance in a customer's account that the customer can withdraw upon request. Not all credits are free credits. For example, the credit balance related to a short sale in a margin account is not a free credit, since the customer cannot withdraw that credit until the short sale is covered. The firm must send customers statements concerning any existing credit balances at least quarterly.

Freeriding: Using the proceeds of a sale to pay for a prior purchase.

Freeriding and withholding: Failure of a member firm to make a bona fide public distribution of a hot issue. Such an issue may not be purchased by any broker/dealer or his employees or families, except under certain conditions.

Frozen account: An account that is not readily usable. The customer must have the money already on deposit to enter a buy order, or the security already on deposit to enter a sell order.

Full authorization or discretion: A power of attorney for an account that gives the person holding it the right to enter orders and also add or withdraw funds.

Fully diluted earnings per share: The earnings per share if all convertible securities were converted into common stock.

Fully paid securities: Securities held in a cash account for which full payment has been made.

Functional allocation: A sharing arrangement in an oil and gas program in which the limited partners contribute all the intangible costs and the general partners contribute all the tangible costs.

Fundamental analysis: The study of certain factors affecting prices such as the management of a corporation, the economy, the industry, supply and demand, and so forth. Compare with technical analysis.

Futures: Contracts to buy or sell a specific amount of some product at a specific price on a specific date in the future. The underlying asset might be a financial instrument (financial future), a stock index (stock index future) or an agricultural product, such as wheat, soybeans, or pork bellies. If the underlying asset is a stock index, settlement is made in cash due to the difficulty in delivering a market basket of stocks.