1. Generally in law, the voluntary relinquishing of all rights, title or possession of property such as trademarks, copyrights and patents.
2. Specifically in option trading, the situation where an option holder allows ownership of an option to expire unexercised.

1. Regular investment of a fixed dollar amount in a mutual fund with dividends reinvested.
2. In charting, the period before a sustainable price rise when the so-called smart money starts to buy stock.
3. Purchase of a large number of shares over a period of time in a manner designed to avoid pushing the price up.

Units in a unit trust where the income from the trust's investments is reinvested in the trust rather than being paid out to its investors as dividends. This is either through enhancing the unit price or issuing additional units.

Unitholders get the benefit of the dividends through the increased value of the fund's assets (and their share of those assets).

A daily weighted volume indicator that moves with price:

• price up - volume positive
• price down - volume negative

A financial ratio which is similar to the current ratio, but more stringent. It is defined as:

• current assets minus stocks divided by current liabilities

and it shows whether a company would be able to pay its debts if it needed to satisfy creditors but it had no time to sell any of its assets.

If the acid test is 1 or higher, a company passes the test.

A term used to describe the takeover of a company by another which might be by agreement or hostile.

Rules on mergers and acquisitions involving listed companies are governed by the City Code on Takeovers.

A fund in which the objective is to outperform the market average by actively seeking out stocks that will provide superior total return. Fund managers have access to extensive research and analysis to help them make the right choices, and one of the consequences of this effort is that the management charges passed on to investors in the fund tend to be high.

Contrast this with passive funds like tracker and index funds, which do not try to beat the index, but simply aim to match it by investing in companies precisely in accordance with the constituents of an index. Since this is a mechanical process, the managers of the fund have far lower expenses, and the charges to investors are lower than for active funds (which of course helps fund performance.)

Advocates of passive funds point to the fact that many actively managed funds fail to match the index. Advocates of active funds argue that the more investors pile into index funds, the more opportunity for active investment. Plus the only way to better the index is to manage actively.

American depositary receipts (ADRs) are a convenient way for Americans to own shares in foreign companies. Rather than buying European or Asian shares direct, they buy ADRs.

ADRs are receipts for the shares of a foreign company. The share certificates themselves are held by an American bank which issues the ADRs, then collects dividends and distributes them to ADR-holders after converting them into dollars. The holders of ADRs normally have all the rights of normal shareholders, including voting rights. The ADRs are tradable instruments in their own right.

One of the ironies of ADRs is that, though intended for American investors, they can also be bought by non-Americans. In some cases it can be cheaper (in terms of costs) for someone in London to buy ADRs in a UK company than to buy the shares on the London markets.

Most foreign companies that want to list in the US use ADRs.

A broker who not only deals in stocks and shares on behalf of his client, but also advises on what shares should be bought and sold for the portfolio.

• The broker will contact the client to suggest changes in the composition of the portfolio, but does not have authority to trade on a completely discretionary basis.
• The client pays a commission on dealing and may pay charges based on the value of the portfolio.

When one listed company bids for another company (listed or private), and offers to pay in three ways:

• all cash: the shareholders of the target company get cash for their shares
• cash and paper: the shareholders of the target company get some cash for their shares, and some of the shares in the bidding company
• all paper: the shareholders of the target company only get shares in the bidding company for their shares in the target company

Obviously, the attraction of an all paper deal to shareholders in the target company will depend on how much confidence they have in the bidding company (do they want to own its shares?) and whether they think the relative valuations of the two companies' shares are fair.

There can be some tax advantages to taking shares from a bidding company, rather than cash. The swap of shares is not deemed to be a disposal of the target company shares, so there is no immediate capital gains tax liability. If you take cash for your shares, it is a disposal, and there may be CGT to pay.

The distribution of shares to applicants in a new issue. Applicants may get all the shares they applied for or, if the new issue is oversubscribed, the allotment will be scaled down either pro rata to the amount which each person applied for or, in some cases, using a random ballot.

Tax allowances are concessions by the Inland Revenue which can be used to reduce a person's taxable income. The main allowance for UK taxpayers is the 'personal allowance', which is an amount of income that is tax free. In the tax year 2006-2007 the personal allowances are:

• For people under 65: £5,035
• 65-74: £7,280
• 75+: £7,420

The personal allowances for elderly people are reduced if their total income exceeds £20,100, and the amount of the reduction is £1 for every £2 of the excess. So someone aged 68 with total income of £20,400 would get a personal allowance of £7,420 less £300 = £7,120.

Other allowances are:

• Married Couple's Allowance: only available to couples where one person is 65 or over
• Blind Person's Allowance: £1,660

• Shares which rise when the market as a whole is falling have 'positive alphas'.
• Shares which fall when the market as a whole is rising have 'negative alphas'.

A market for small, young and growing companies operated by the London Stock Exchange as a regulated market of a Recognised Investment Exchange and set up in June 1995. It replaced the Unlisted Securities Market (USM). The market provides an opportunity for companies to raise capital for expansion, a trading facility and a way of establishing a market value for their shares.

There are about 400 companies listed on AIM. The market cap of the index varies quite widely. AIM companies tend to trade on wider spreads than companies on the main market, and liquidity can be a problem.

One of the advantages of investing in AIM companies is that for tax purposes they are treated as 'unquoted investments' (even though they are quoted). The significance of this is that for every year that you hold AIM shares, you get 5% 'taper relief' on any gains you subsequently make. So if you are a higher rate taxpayer who would normally pay 40% CGT, and you hold shares for one year then sell them, you only pay 35% CGT. If you hold shares for four years or more, the tax rate falls to 10%. Note that this only applies to shares bought after 6th April 2000.

American depositary receipts are a convenient way for Americans to own shares in foreign companies. Rather than buying European or Asian shares direct, they buy ADRs.

ADRs are receipts for the shares of a foreign company. The share certificates themselves are held by an American bank which issues the ADRs, then collects dividends and distributes them to ADR-holders after converting them into dollars. The holders of ADRs normally have all the rights of normal shareholders, including voting rights. The ADRs are tradable instruments in their own right.

One of the ironies of ADRs is that, though intended for American investors, they can also be bought by non-Americans. In some cases it can be cheaper (in terms of costs) for someone in London to buy ADRs in a UK company than to buy the shares on the London markets.

Most foreign companies that want to list in the US use ADRs.

A professional working for a fund manager or broker whose job is to analyse key industry sectors (e.g. retail, oil, pharmaceuticals) and determine the prospects for the companies operating in them.

Research done by a broker analyst will be made available to the firm's clients (fund managers) in an attempt to persuade the fund managers to place orders with the brokers and generate commission revenue.

A provider of venture capital, usually used in relation to backers of theatrical productions.

Angels put up capital to get a show into production, and in return they get 'units'. If the show is successful, they get their capital repaid, and earn a share of profits in proportion to the number of units they own. If the show is unsuccessful, they lose the lot.

Each taxpaying individual in the UK is entitled to an annual exemption of £8,800 on capital gains for the current tax year. This means that they can make this level of gains (on for instance share sales) without paying capital gains tax.

For exemptions relating to inheritance tax, see 'inheritance tax'.

An annual meeting, called by the directors of a company, which shareholders are invited to attend. Subjects normally discussed include audited accounts, election or re-election of directors and dividend payments to shareholders.

The AGM is the main opportunity for shareholders to put questions direct to the directors of the company. They can also put forward their own motions, though some companies have criteria for motions which may restrict this - e.g. they may require that only shareholders with a certain number of shares can put forward motions.

The equivalent US term is 'Annual Meeting'.

All quoted companies have a legal obligation to send shareholders annual results within six months of their financial year-end. The Reports and Accounts have to include an annual report and a set of accounts, and the information in each has to include certain elements. They also have to send out interim results.

Reports and Accounts typically contain five sections that offer hard information:

• the directors' report
• the profit and loss account
• the balance sheet
• the cash flow statement
• the auditors report

1. The Directors' Report
   This tells what the company does, who its directors are, and what their stake in the company is. It also states whether there have been any significant business or financial developments during the year, and provides a brief review of the year's trading.
2. Profit and Loss Account
   This summarises the result of last year's trading in figures. It tells what the company sold, what its costs were, how much profit it made, what the tax charge was, what was left for shareholders, and how much of this is being paid out to them in dividends and how much ploughed back into the company. It also gives comparable figures for the previous year.
3. Balance Sheet
   This provides a snapshot of everything the company owes and owns at the end of the financial year in question. It tells what its assets are and how they are financed. Where the profit & loss account tells you how the company has performed in the previous year, the balance sheet reveals its fundamental health.
4. Cash Flow Statement
   This compares the amount of cash coming into the company from trading profits, investment, more efficient debt collection and so on, with the amount flowing out from trading losses, tax and dividends. Then it adds or subtracts the cash produced by capital raising or spent on capital repayment.
5. Auditors' Report
   This tells you whether the accounts prepared by management reflect a true and fair view of affairs and meet the legal and regulatory requirements.

1. The total annual return on an investment which includes dividend payments and capital gains/losses. Not included are transaction costs and taxes.
2. An obligatory return, submitted annually to the Registrar of Companies, detailing information about a company's operations including business description, details of directors and company secretary, and share capital etc.

The payment of a regular income by a life company to an annuitant in exchange for a lump sum either for life or shorter periods.

Annuities are typically used for pensions and the individual receiving the annuity is known as an annuitant. In the UK they can broadly be classified into two types:

1. A Compulsory purchase annuity which is bought from the proceeds of a pension fund and is taxable as earned income
2. A purchased life annuity which is bought with an individual's own capital and is taxed at a lower rate than a compulsory purchase annuity.

There are three different types of pension annuities, commonly referred to as standard annuities, with-profits annuities and unit-linked annuities.

Standard pension annuities are the most commonly purchased and account for over ninety percent of the UK market. The income from a standard pension annuity is guaranteed for the rest of the annuitant's life whereas the income from a with-profits or unit-linked annuity will fluctuate depending on the investment performance of the underlying assets. There are various options which can be provided including:

• Annuity certain: Income is paid for a given period whether or not death of the individual occurs
• Deferred annuity: Income which does not commence until some future specified date
• Escalating annuity: Income which increases annually by a given amount, for example 3%. The choosing of this option results in lower income compared with a level annuity over the initial years
• Immediate annuity: An annuity which starts to pay income soon after it has come into operation, for example at the end of the month following the payment of the lump sum
• Joint life annuity: Income usually relevant to two people (for example man and wife) which continues until the death of the first person only
• Joint life and survivor annuity: Income usually relevant to two people (for example man and wife) which continues until the death of the second person
• Level annuity: Income which is paid at a fixed rate throughout the life of the individual. See also guaranteed minimum period
• Temporary annuity: Income is paid either for a fixed period or until earlier death.

It used to be the case that you could only receive your pension from a personal pension plan by buying an annuity. You can now also choose to defer (up to age 75) the purchase of an annuity with your pension fund and take an income directly from the fund.

A pension plan in which employer and employee pay full rate National Insurance contributions equivalent to the employee contracting into S2P. This rate will be greater than the rate paid by contracting out of S2P.

The difference between these rates, the contracted-out rebate, is paid by the Government into a scheme known as an appropriate personal pension plan which buys pension benefits at retirement age known as protected rights. Provided an employee qualifies, incentive payments may also be paid by the Government into the scheme.

The contracted-out rebate plus any incentive payments are known as minimum contributions. Payment of minimum contributions into an appropriate personal pension plan results in a reduction of S2P benefit at retirement age as though the employee had contracted out through a final salary related scheme.

An investment trust which satisfies certain conditions set by the tax authorities and accordingly is exempt from tax on capital gains made on profits from sales of investments within its portfolio.

This ability of investment trusts to trade in and out of shares gives them an advantage over private investors who, in considering whether to sell shares, are bound to have one eye on the capital gains tax liability that they might incur.

The simultaneous purchase and sale of two different, but closely related, securities to take advantage of a disparity in their prices. Alternatively, the purchase and sale of the same security in different markets.

Originally, most arbitrage occurred in the currency markets: arbitrageurs would buy in one market and sell in another. Nowadays, the practice applies equally to commodities, futures and stocks. For instance, if a company is dual-listed on two stock exchanges, and the prices are at variance, an arbitrageur has an opportunity to buy in one market and sell in another before the disparity is closed.

The correct term for what most people call the 'average'. Often shortened to 'mean'.

Calculated by adding up a series of values and dividing the total by the number of values.

E.g. 1+2+3+4+5+6+7 = 28. The mean is 28 divided by 7 which equals 4.

The amount of interest due on bonds and dividends due on cumulative preferred stock but as yet unpaid. Whilst dividends on cumulative preferred stock remain unpaid, dividends on common stock are not payable.

The document which lists the regulations that govern the running of a company. Articles of Association will cover things like:

• main business and purposes of the company
• shareholder's voting rights
• directors duties
• general working and management practices

They are registered with the memorandum of association when the company is formed.

The process of deciding how to apportion investment capital between the various possible asset classes: bonds, stocks, property, cash etc.

Having decided the asset classes, professional fund managers will also try to achieve the right risk/reward profile by choosing which geographical areas to invest in. (UK, continental Europe, Asia, America etc)

An investment strategy which seeks to identify companies whose net assets per share are worth significantly more than the current share price - essentially a type of value investing.

Asset plays are difficult because assets are notoriously difficult to value. Plant and machinery may have a substantial value if a business is a going concern, but if a factory is closed down and its plant has to be sold at auction, it may be worth very little. The valuation of brands and other intangible assets is also highly subjective.

1. The main sense in which the term asset is used is to describe anything owned by an individual or business which has a monetary value. Some assets are relatively easy to measure - debtors, cash, stock and so on. Others are more difficult - goodwill, intellectual property, and brand values. In the context of a company's balance sheet, an asset is also a deferred cost. Equipment valued at £1m in a balance sheet represents £1m which the company spent and which is being depreciated as the equipment exhausts its usable life. The question of whether that equipment is actually an asset or a liability is really whether that asset generates more in after-tax revenues than it costs. If not, it is hardly something accruing to the benefit of the company and its shareholders.
2. More generally, 'asset' is used to describe a class of investment product. So, shares, property, and bonds are all asset classes. Hence the phrase used in portfolio management - 'asset allocation'.

An association formed in 1932 to represent the interests of investment trust companies. Its main aims are the protection and promotion of the interests of its members and their shareholders. It also provides information on the composition and performance of investment trusts.

Contact the AITC by phone on +44 (0)20 7282 5555 or by post at Durrant House, 8-13 Chiswell Street, London, EC1V 4YY or online at http://www.aitc.co.uk.

An association formed in 1990 to represent the interests of stockbroking and investment management firms which specialise in the provision of services for private investors (Also known as private clients). Member stockbrokers are members of the London Stock Exchange and regulated by the Financial Services Authority (FSA). Investment management firms are also regulated by the FSA.

http://www.apcims.co.uk.

A trade association formed in 1959 to represent the interests of unit trusts and known then as the Unit Trust Association. The Association was renamed AUTIF in April 1993 and merged with the Fund Manager's Association in February 2002 to form the Investment Management Association (IMA). Its stated objectives are:

• to make representations to the UK Government on legislative, regulatory and taxation matters which affect the business interests of its members
• to liase with the Financial Services Authority and other organisations in the UK and Europe on regulatory matters and other important issues
• to increase public awareness and understand ing of investment funds
• to seek to improve the standards of training in the industry
• to seek to integrate personal finance education into the school curriculum
• to add value to member companies by providing them with information, guidance and assistance in matters related to their business
• to offer an information service to external parties interested in the activities of the UK investment funds industry

IMA's website is: http://www.investmentfunds.org.uk

An 'at best' order is an order given by a client to a broker where no particular instruction is given on the price. So, an instruction to 'buy 500 shares in AstraZeneca 'at best' means that the broker will complete the purchase at the best price available on the 'order book' at the time, and the client cannot be sure what that price is going to be.

In contrast when a client places a 'limit' order he actually dictates the price at which he is willing to buy or sell, and the broker can only make a deal within the limit given.

An order to buy shares up to a maximum price or sell down to a minimum price.

For example an investor may place a limit order to buy shares at £12 where the current price is say £15 and falling. If the price levels at £13 and goes up again the order would not be placed. If the price fell to £12 or below, the investor's order would be placed and the maximum he/she would pay would be £12. The point about a limit order is that the client knows what his exposure is.

In contrast when a client places an 'at best' order, the broker will complete the purchase at the best price available on the 'order book' at the time, and the client cannot be sure what that price is going to be.

The instruction a client gives a broker to obtain a quote from a market maker on the price for a particular share. e.g. '3,000 shares in Halifax at quote'.

The broker will check the bid and offer prices with a market maker and report back to the client. The client then has thirty seconds or so to place an order, and if he fails to do so the quotes lapse and the market maker will not be held to them.

A person appointed by a company to perform an audit. In the UK auditors are Chartered Accountants.

Auditors are required to certify that the accounts produced by their client companies have been prepared in accordance with normal accounting standards and represent a true and fair view of the company. If they don't feel able to certify as such, they may 'qualify' the accounts by saying that they weren't able to perform the checks they would have liked to. A qualified auditor's report is a serious matter for a quoted company, and will send alarms bells though the City.

The report produced by a firm of Chartered Accountants which is part of a company's annual Report and Accounts.

Auditors are required to certify that the accounts produced by their client companies have been prepared in accordance with normal accounting standards and represent a true and fair view of the company. If they don't feel able to certify as such, they may 'qualify' the accounts by saying that they weren't able to perform the checks they would have liked to. A qualified auditor's report is a serious matter for a quoted company, and will send alarms bells though the City.

The total number of shares a company is authorised to issue by reference to its memorandum and articles of association.

The amount of issued share capital must be lower or equal to the authorised share capital. i.e. a company cannot issue more shares than it is authorised to issue in its Articles.

The purchase of additional shares in a company when the price has fallen.

The point of averaging (also known as 'Pound cost averaging') is that it lowers the average price of the shares you own in the company, as can be seen by the following example:

• Jan 1st: purchase of 1,000 shares at 150p (average cost of all shares owned on Jan 1st is 150p)
• Feb 1st: purchase of 1,000 shares at 100p (average cost of all shares owned on Feb 1st is 125p)

The questionable thinking behind this is that, on February 1st, the owner of the shares will be making a profit on his investment if the share price rises above 125p - whereas prior to the second purchase the threshold was 150p.