dictionary of finance and investment terms 5th edition phần 9 ppsx

< previous page page_598 next page > Page 598 tracked by the VALUE LINE INVESTMENT SURVEY. The index uses a base value of 100, established June 30, 1961; changes are expressed in index numbers rather than dollars and cents. Designed to reflect price changes of typical stocks (industrials, transportation, and utilities) without being price-weighted or market value-weighted, the index largely succeeds. Futures on the index are traded on the KANSAS CITY BOARD OF TRADE and futures options are traded on the PHILADELPHIA STOCK EXCHANGE. Wilshire Indices: performance measurement indices created by Wilshire Associates Inc., of Santa Monica, California. The Wilshire 5000 Equity Index is the most widely followed and the broadest of all the averages and indices. It is market value-weighted and measures the performance of all U.S headquartered equity securities with readily available price data, or more than 7,000 security returns. Its capitalization is approximately 81% NYSE, 2% AMEX, and 17% NASDAQ Stock Market. Changes are measured against a base value established December 31, 1980. Other indices maintained by Wilshire include the Wilshire 4500 Equity Index, Wilshire Small Cap Index, four Wilshire Asset Management Indexes derived from the Wilshire 5000; six individual style indices and three Real Estate Securities Indexes. Wilshire Small Cap Index options are traded on the PACIFIC EXCHANGE, which helped develop the index. Many indices and averages track the performance of stock markets around the world. The major indices include the: ALL ORDINARIES INDEX; AMSTERDAM EXCHANGES; ATHENS STOCK EXCHANGE; BOLSA DE COMMERCIO DE SANTIAGO; BOLSA DE VALORES DE SAO PAULO; BOLSA DE VALORES DO RIO DE JANIERO; CAC 40 INDEX; EAFE INDEX; EMERGING MARKET FREE (EMF) INDEX; HANG SENG INDEX; INTERNATIONAL MARKET INDEX; ITALIAN STOCK EXCHANGE; JOHANNESBURG STOCK EXCHANGE; KUALA LUMPUR STOCK EXCHANGE; LISBON STOCK EXCHANGE; LONDON STOCK EXCHANGE; MADRID STOCK EXCHANGE (BOLSO DE MADRID); MEXICAN STOCK EXCHANGE; MONTREAL EXCHANGE/BOURSE DE MONTREAL; MORGAN STANLEY CAPITAL INTERNATIONAL INDICES; NEW ZEALAND STOCK EXCHANGE; OSLO STOCK EXCHANGE; STOCK EXCHANGE OF SINGAPORE (SES); STOCK EXCHANGE OF THAILAND (SET); STOCKHOLM STOCK EXCHANGE; SWISS ELECTONIC BOURSE (EBS); TAIWAN STOCK EXCHANGE; TEL AVIV STOCK EXCHANGE; TOKYO STOCK EXCHANGE; TORONTO STOCK EXCHAGNE (TSE); VANCOUVER STOCK EXCHANGE; and VIENNA STOCK EXCHANGE. See also BARRON'S CONFIDENCE INDEX; BOND BUYER'S INDEX; COMMODITY INDICES; ELVES; LIPPER MUTUAL FUND INDUSTRY AVERAGE; SECURITIES AND COMMODITIES EXCHANGES. STOCK INDEX FUTURE security that combines features of traditional commodity futures trading with securities trading using composite stock indices. Investors can speculate on general market performance or buy an index future contract to hedge a LONG POSITION or SHORT POSITION against a decline in value. Settlement is in cash, since it is obviously impossible to deliver an index of stocks to a futures buyer. Among the most popular stock index futures traded are the Dow Jones Industrial Average on the CHICAGO BOARD OF TRADE, the NASDAQ 100 on the CHICAGO MERCANTILE < previous page page_598 next page > < previous page page_599 next page > Page 599 EXCHANGE, New York Stock Exchange Composite Index on the New York Futures Exchange (NYFE), the Standard & Poor's 500 Composite, Mini Index, the S&P Mini Index, and the S&P MidCap Index on the CHICAGO MERCANTILE EXCHANGE (CME), and the Value Line Composite Index on the KANSAS CITY BOARD OF TRADE (KCBT). It is also possible to buy options on stock index futures; the Dow Jones Industrials futures options trade on the Chicago Board of Trade and the Standard & Poor's 500 Stock Index futures options are traded on the Chicago Mercantile Exchange, for example. Unlike stock index futures or index options, however, futures options are not settled in cash; they are settled by delivery of the underlying stock index futures contracts. See also FUTURES CONTRACT, HEDGE/HEDGING; SECURITIES AND COMMODITIES EXCHANGES. STOCK INSURANCE COMPANY insurance company that is owned by stockholders, as distinguished from a MUTUAL COMPANY that is owned by POLICYHOLDERS. Even in a stock company, however, policy-holders interests are ahead of shareholder's dividends. STOCK JOCKEY stockbroker who actively follows individual stocks and frequently buys and sells shares in his client's portfolios. If the broker does too much short-term trading in accounts over which he has discretion, he may be accused of CHURNING. STOCK LIST function of the organized stock exchanges that is concerned with LISTING REQUIREMENTS and related investigations, the eligibility of unlisted companies for trading privileges, and the delisting of companies that have not complied with exchange regulations and listing requirements. The New York Stock Exchange department dealing with listing of securities is called the Department of Stock List. STOCK MARKET general term referring to the organized trading of securities through the various exchanges and the OVER THE COUNTER market. The securities involved include COMMON STOCK, PREFERRED STOCK, BONDS, CONVERTIBLES, OPTIONS, rights, and warrants. The term may also encompass commodities when used in its most general sense, but more often than not the stock market and the commodities (or futures) market are distinguished. The query "How did the market do today?" is usually answered by a reference to the Dow Jones Industrial Average, comprised of stocks listed on the New York Stock Exchange. See also SECURITIES AND COMMODITIES EXCHANGES. STOCK OPTION 1. right to purchase or sell a stock at a specified price within a stated period. OPTIONS are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate in stocks with relatively little investment, and to capitalize on changes in the MARKET VALUE of options contracts themselves through a variety of options strategies. See also CALL OPTION; PUT OPTION. < previous page page_599 next page > < previous page page_600 next page > Page 600 2. widely used form of employee incentive and compensation, usually for the executives of a corporation. The employee is given an OPTION to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years. See also INCENTIVE STOCK OPTION; QUALIFIED STOCK OPTION. STOCK POWER power of attorney form transferring ownership of a REGISTERED SECURITY from the owner to another party. A separate piece of paper from the CERTIFICATE, it is attached to the latter when the security is sold or pledged to a brokerage firm, bank, or other lender as loan COLLATERAL. Technically, the stock power gives the owner's permission to another party (the TRANSFER AGENT) to transfer ownership of the certificate to a third party. Also called stock/bond power. STOCK PURCHASE PLAN organized program for employees of a company to buy shares of its stock. The plan could take the form of compensation if the employer matches employee stock purchases. In some companies, employees are offered the chance to buy stock in the company at a discount. Also, a corporation can offer to reinvest dividends in additional shares as a service to shareholders, or it can set up a program of regular additional share purchases for participating shareholders who authorize periodic, automatic payments from their wages for this purpose. See also AUTOMATIC INVESTMENT PROGRAM. Another form of stock purchase plan is the EMPLOYEE STOCK OWNERSHIP PLAN (ESOP), whereby employees regularly accumulate shares and may ultimately assume control of the company. STOCK RATING evaluation by rating agencies of common stocks, usually in terms of expected price performance or safety. Standard & Poor's and Value Line's respective quality and timeliness ratings are among the most widely consulted. STOCK RECORD control, usually in the form of a ledger card or computer report, used by brokerage films to keep track of securities held in inventory and their precise location within the firm. Securities are recorded by name and owner. STOCK RIGHT see SUBSCRIPTION RIGHT. STOCK SPLIT see SPLIT. STOCK SYMBOL letters used to identify listed companies on the securities exchanges on which they trade. These symbols, also called trading symbols, identify trades on the CONSOLIDATED TAPE and are used in other reports and documents whenever such shorthand is convenient. Some examples: ABT (Abbott Laboratories), AA (Aluminum Company of America), XON (Exxon), KO (Coca Cola). Stock symbols are not necessarily the same as abbreviations used to identify the same companies in the stock tables of newspapers. See also COMMITTEE ON UNIFORM SECURITIES IDENTIFICATION PROCEDURES (CUSIP). < previous page page_600 next page > < previous page page_601 next page > Page 601 STOCK-TRANSFER AGENT see TRANSFER AGENT. STOCK WARRANT see SUBSCRIPTION WARRANT. STOCK WATCHER (NYSE) computerized service that monitors all trading activity and movement in stocks listed on the New York Stock Exchange. The system is set up to identify any unusual activity due to rumors or MANIPULATION or other illegal practices. The stock watch department of the NYSE is prepared to conduct investigations and to take appropriate action, such as issuing clarifying information or turning questions of legality over to the Securities and Exchange Commission. See also SURVEILLANCE DEPARTMENT OF EXCHANGES. STOP-LIMIT ORDER order to a securities broker with instructions to buy or sell at a specified price or better (called the stop-limit price) but only after a given stop price has been reached or passed. It is a combination of a STOP ORDER and a LIMIT ORDER. For example, the instruction to the broker might be "buy 100 XYZ 55 STOP 56 LIMIT" meaning that if the MARKET PRICE reaches $55, the broker enters a limit order to be executed at $56 or a better (lower) price. A stop-limit order avoids some of the risks of a stop order, which becomes a MARKET ORDER when the stop price is reached; like all price-limit orders, however, it carries the risk of missing the market altogether, since the specified limit price or better may never occur. The American Stock Exchange prohibits stop- limit orders unless the stop and limit prices are equal. STOP LOSS Insurance: promise by a reinsurance company that it will cover losses incurred by the company it reinsures over and above an agreed-upon amount. Stocks: customer order to a broker that sets the sell price of a stock below the current MARKET PRICE. A stop-loss order therefore will protect profits that have already been made or prevent further losses if the stock drops. STOP ORDER order to a securities broker to buy or sell at the MARKET PRICE once the security has traded at a specified price called the stop price. A stop order may be a DAY ORDER, a GOOD-TILL-CANCELED ORDER, or any other form of time-limit order. A stop order to buy, always at a stop price above the current market price, is usually designed to protect a profit or to limit a loss on a short sale (see SELLING SHORT). A stop order to sell, always at a price below the current market price, is usually designed to protect a profit or to limit a loss on a security already purchased at a higher price. The risk of stop orders is that they may be triggered by temporary market movements or that they may be executed at prices several points higher or lower than the stop price because of market orders placed ahead of them. Also called stop-loss order. See also GATHER IN THE STOPS; STOP LIMIT ORDER; STOP LOSS (stocks). STOP-OUT PRICE lowest dollar price at which Treasury bills are sold at a particular auction. This price and the beginning auction price are aver- < previous page page_601 next page > < previous page page_602 next page > Page 602 aged to establish the price at which smaller purchasers may purchase bills under the NONCOMPETITIVE BID system. See also BILL; DUTCH AUCTION. STOP PAYMENT revocation of payment on a check after the check has been sent or delivered to the payee. So long as the check has not been cashed, the writer has up to six months in which to request a stop payment. The stop payment right does not carry over to electronic funds transfers. STOPPED OUT term used when a customer's order is executed under a STOP ORDER at the price predetermined by the customer, called the stop price. For instance, if a customer has entered a stop-loss order to sell XYZ at $30 when the stock is selling at $33, and the stock then falls to $30, his or her position will be stopped out. A customer may also be stopped out if the order is executed at a guaranteed price offered by a SPECIALIST. See also GATHER IN THE STOPS; STOPPED STOCK. STOPPED STOCK guarantee by a SPECIALIST that an order placed by a FLOOR BROKER will be executed at the best bid or offer price then in the SPECIALIST'S BOOK unless it can be executed at a better price within a specified period of time. STOP PRICE see STOP ORDER. STORY STOCK/BOND security with values or features so complex that a "story" is required to persuade investors of its merits. Story stocks are frequently from companies with some unique product or service that is difficult for competitors to copy. In a less formal sense, term is used by news organizations to mean stocks most actively traded. STRADDLE strategy consisting of an equal number of PUT OPTIONS and CALL OPTIONS on the same underlying stock, stock index, or commodity future at the same STRIKE PRICE and maturity date. Each OPTION may be exercised separately, although the combination of options is usually bought and sold as a unit. STRAIGHT-LINE DEPRECIATION method of depreciating a fixed asset whereby the asset's useful life is divided into the total cost less the estimated salvage value. The procedure is used to arrive at a uniform annual DEPRECIATION expense to be charged against income before figuring income taxes. Thus, if a new machine purchased for $1200 was estimated to have a useful life of ten years and a salvage value of $200, annual depreciation under the straight-line method would be $100, charged at $100 a year. This is the oldest and simplest method of depreciation and is used by many companies for financial reporting purposes, although faster depreciation of some assets with greater tax benefits in the early years is allowed under the MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS). STRAIGHT TERM INSURANCE POLICY term life insurance policy for a specific number of years in which the death benefit remains < previous page page_602 next page > < previous page page_603 next page > Page 603 unchanged. A level premium policy will charge the same premium for a number of years, usually ten, and then increase. An annual renewable term policy will charge slightly higher premiums each year. STRANGLE sale or purchase of a put option and a call option on the same underlying instrument, with the same expiration, but at strike prices equally OUT OF THE MONEY. A strangle costs less than a STRADDLE because both options are out of the money, but profits are made only if the underlying instrument moves dramatically. STRAP OPTION contract combining one PUT OPTION and two CALL OPTIONS of the same SERIES, which can be bought at a lower total premium than that of the three options bought individually. The put has the same features as the callssame underlying security, exercise price, and maturity. Also called triple option. Compare with STRIP. STRATEGIC BUYOUT ACQUISITION based on analysis of the operational benefits of consolidation. Implicitly contrasts with the type of TAKEOVER based on "paper values" that characterized the "merger mania" of the 1980sundervalued stock bought using JUNK BONDS ultimately repayable from the liquidation of acquired assets and activities. A strategic buyout focuses on how companies fit together and anticipates enhanced long-term earning power. See also SYNERGY. STREET short for Wall Street, referring to the financial community in New York City and elsewhere. It is common to hear "The Street likes XYZ." This means there is a national consensus among securities analysts that XYZ's prospects are favorable. See also STREET NAME. STREET NAME phrase describing securities held in the name of a broker or another nominee instead of a customer. Since the securities are in the broker's custody, transfer of the shares at the time of sale is easier than if the stock were registered in the customer's name and physical certificates had to be transferred. STRIKE PRICE see EXERCISE PRICE. STRIP Bonds: brokerage-house practice of separating a bond into its CORPUS and COUPONS, which are then sold separately as ZERO-COUPON SECURITIES. The 1986 Tax Act permitted MUNICIPAL BOND strips. Some, such as Salomon Brothers' tax-exempt M-CATS, represent PREREFUNDINGS backed by U.S. Treasury securities held in escrow. Other strips include Treasuries stripped by brokers, such as TIGERS, and stripped mort-gage-backed securities of government-sponsored issuers like Fannie Mae. A variation known by the acronym STRIPS (Separate Trading of Registered Interest and Principal of Securities) is a prestripped zero-coupon bond that is a direct obligation of the U.S. Treasury. Options: OPTION contract consisting of two PUT OPTIONS and one CALL OPTION on the same underlying stock or stock index with the same strike and expiration date. Compare with STRAP. < previous page page_603 next page > < previous page page_604 next page > Page 604 Stocks: to buy stocks with the intention of collecting their dividends. Also called dividend stripping. See also DIVIDEND ROLLOVER PLAN. STRIPPED BOND bond separated into its two components: periodic interest payments and principal repayment. Each of the interest payments and the principal repayment are stripped apart by a brokerage firm and sold individually as ZERO-COUPON SECURITIES. Investors therefore have a wide choice of maturities to pick from when shopping for a zero-coupon bond. When a U.S. government bond is stripped, it is often called a STRIP, which stands for separate trading of registered interest and principal of securities. Such bonds are also called CATS AND TIGRS. STRONG DOLLAR dollar that can be exchanged for a large amount of a foreign currency. The dollar can gain strength in currency markets because the United States is considered a haven of political and economic stability, or because yields on American securities are attractive. A strong dollar is a blessing for American travelers going abroad, because they get more pounds, francs, marks, and yen and other currencies for their greenbacks. However, a strong dollar makes it difficult for American firms to export their goods to foreign countries because it raises the cost to foreigners of purchasing American products. In 1985, the dollar became so strong that the PLAZA ACCORD was signed to bring the dollar down. See also EXCHANGE RATE; WEAK DOLLAR. STRUCTURED NOTE 1. derivative instrument based on the movement of an underlying index. For example, a structured note issued by a corporation may pay interest to noteholders based on the rise and fall of oil prices. This gives investors the opportunity to earn interest and profit from the change in price of a commodity at the same time. 2. complex debt instrument, usually a medium-term note, in which the issuer enters into one or more SWAP arrangements to change the cash flows it is required to make. A simple form utilizing interest-rate swaps might be, for example, a three-year FLOATING RATE NOTE paying the London Interbank Offered Rate (LIBOR) plus a premium semiannually. The issuer arranges a swap transaction whereby it agrees to pay a fixed semiannual rate for three years in exchange for the LIBOR. Since the floating rate payments (cash flows) offset each other, the issuer has synthetically created a fixed-rate note. STRUCTURED SETTLEMENT agreement to pay a designated person a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single LUMP SUM payment. Structured settlements typically are used to pay court-ordered or privately-agreed upon damages to injured claimants or their survivors. Structured settlements are also used to pay lottery winners. In both cases, the settlement is funded with an ANNUITY. STUB STOCK common stocks or instruments convertible to equity in a company that is overleveraged as the result of a BUYOUT or RECAPITAL- < previous page page_604 next page > < previous page page_605 next page > Page 605 IZATION and may have DEFICIT NET WORTH. Stub stock is highly speculative and highly volatile but, unlike JUNK BONDS, has unlimited potential for gain if the company succeeds in restoring financial balance. STUDENT LOAN MARKETING ASSOCIATION (SLMA) publicly traded stock corporation that guarantees student loans traded in the SECONDARY MARKET. It was established by federal decree in 1972 to increase the availability of education loans to college and university students made under the federally sponsored Guaranteed Student Loan Program and the Health, Education Assistance Loan Program. Known as Sallie Mae, it purchases student loans from originating financial institutions and provides financing to state student loan agencies. It also sells short-and medium-term notes, some FLOATING RATE NOTES. SUBCHAPTER M Internal Revenue Service regulation dealing with what is commonly called the conduit theory, in which qualifying investment companies and real estate investment trusts avoid double taxation by passing interest and dividend income and capital gains directly through, without taxation, to shareholders, who are taxed as individuals. See also REAL ESTATE INVESTMENT TRUST; REGULATED INVESTMENT COMPANY. SUBCHAPTER S section of the Internal Revenue Code giving a corporation that has 35 or fewer shareholders and meets certain other requirements the option of being taxed as if it were a PARTNERSHIP. Thus a small corporation candistribute its income directly to shareholders and avoid the corporate income tax while enjoying the other advantages of the corporate form. These companies are known as Subchapter S corporations, tax-option corporations, or small business corporations. SUBJECT Wall Street term referring to a bid and/or offer that is negotiablethat is, a QUOTATION that is not firm. For example, a broker looking to place a sizable order might call several dealers with the question, "Can you give me a subject quote on 20,000 shares of XYZ?" SUBJECT QUOTE see SUBJECT. SUBORDINATED junior in claim on assets to other debt, that is, repayable only after other debts with a higher claim have been satisfied. Some subordinated debt may have less claim on assets than other subordinated debt; a junior subordinated debenture ranks below a subordinated DEBENTURE, for example. It is also possible for unsubordinated (senior) debt to become subordinated at the request of a lender by means of a subordination agreement. For example, if an officer of a small company has made loans to the company instead of making a permanent investment in it, a bank might request the officer's loan be subordinated to its own loan as long as the latter is outstanding. This is accomplished by the company officer's signing a subordination agreement. See also EFFECTIVE NET WORTH; JUNIOR SECURITY. < previous page page_605 next page > < previous page page_606 next page > Page 606 SUBORDINATION CLAUSE clause in a MORTGAGE loan agreement that permits a mortgage recorded at a subsequent date to have preference over the original mortgage. SUBROGATION legal process by which an insurance company, after paying for a loss, seeks to recover the amount of the loss from another party who is legally liable for it. SUBSCRIPTION agreement of intent to buy newly issued securities. See also NEW ISSUE; SUBSCRIPTION RIGHT; SUBSCRIPTION WARRANT. SUBSCRIPTION AGREEMENT application submitted by an investor seeking to join a limited partnership. All prospective limited partners must be approved by the general partner before they are allowed to become limited partners. SUBSCRIPTION PRICE price at which existing shareholders of a corporation are entitled to purchase common shares in a RIGHTS OFFERING or at which subscription warrants are exercisable. See also SUBSCRIPTION RIGHT; SUBSCRIPTION WARRANT. SUBSCRIPTION PRIVILEGE right of existing shareholders of a corporation, or their transferees, to buy shares of a new issue of common stock before it is offered to the public. See also PREEMPTIVE RIGHT; SUBSCRIPTION RIGHT. SUBSCRIPTION RATIO see SUBSCRIPTION RIGHT. SUBSCRIPTION RIGHT privilege granted to existing shareholders of a corporation to subscribe to shares of a new issue of common stock before it is offered to the public; better known simply as a right. Such a right, which normally has a life of two to four weeks, is freely transferable and entitles the holder to buy the new common stock below the PUBLIC OFFERING PRICE. While in most cases one existing share entitles the stockholder to one right, the number of rights needed to buy a share of a new issue (called the subscription ratio) varies and is determined by a company in advance of an offering. To subscribe, the holder sends or delivers to the company or its agent the required number of rights plus the dollar price of the new shares. Rights are sometimes granted to comply with state laws that guarantee the shareholders' PREEMPTIVE RIGHTtheir right to maintain a proportionate share of ownership. It is common practice, however, for corporations to grant rights even when not required by law; protecting shareholders from the effects of DILUTION is seen simply as good business. The actual certificate representing the subscription is technically called a SUBSCRIPTION WARRANT, giving rise to some confusion. The term subscription warrant, or simply warrant, is commonly under-stood in a related but different senseas a separate entity with a longer life than a rightmaybe 5, 10, or 20 years or even perpetual < previous page page_606 next page > < previous page page_607 next page > Page 607 and with a SUBSCRIPTION PRICE higher at the time of issue than the MARKET VALUE of the common stock. Subscription rights are offered to shareholders in what is called a RIGHTS OFFERING, usually handled by underwriters under a STANDBY COMMITMENT. SUBSCRIPTION WARRANT type of security, usually issued together with a BOND or PREFERRED STOCK, that entitles the holder to buy a proportionate amount of common stock at a specified price, usually higher than the market price at the time of issuance, for a period of years or to perpetuity; better known simply as a warrant. In contrast, rights, which also represent the right to buy common shares, normally have a subscription price lower than the current market value of the common stock and a life of two to four weeks. A warrant is usually issued as a SWEETENER, to enhance the marketability of the accompanying fixed income securities. Warrants are freely transferable and are traded on the major exchanges. They are also called stock-purchase warrants. See also PERPETUAL WARRANT; SUBSCRIPTION RIGHT. SUBSIDIARY company of which more than 50% of the voting shares are owned by another corporation, called the PARENT COMPANY. See also AFFILIATE. SUBSTITUTION Banking: replacement of COLLATERAL by other collateral. Contracts: replacement of one party to a contract by another. See also NOVATION. Economics: concept that, if one product or service can be replaced by another, their prices should be similar. Law: replacement of one attorney by another in the exercise of stock powers relating to the purchase and sale of securities. See also STOCK POWER. Securities: 1. exchange or SWAP of one security for another in a client's PORTFOLIO. Securities analysts often advise substituting a stock they currently favor for a stock in the same industry that they believe has less favorable prospects. 2. substitution of another security of equal value for a security acting as COLLATERAL for a MARGIN ACCOUNT. See also SAME-DAY-SUBSTITUTION. SUICIDE PILL POISON PILL with potentially catastrophic implications for the company it is designed to protect. An example might be a poison pill providing for an exchange of stock for debt in the event of a hostile takeover; that would discourage an acquirer by making the TAKEOVER prohibitively expensive, but its implementation could put the TARGET COMPANY in danger of bankruptcy. SUITABILITY RULES guidelines that those selling sophisticated and potentially risky financial products, such as limited partnerships or commodities futures contracts, must follow to ensure that investors < previous page page_607 next page > [...]... TAXPAYER RELIEF ACT OF 199 7 landmark legislation signed into law by President Clinton in August 199 7 as part of a larger act designed to balance the federal budget Some of the major provisions of the law: 1 Tax credits for children: Parents or grandparents supporting children under the age of 17 are allowed to claim a TAX CREDIT of $400 per child in 199 8 and $500 per child in 199 9 and every year thereafter... TAXPAYER RELIEF ACT OF 199 7, the amount of assets that each person can exclude from federal estate taxes is $625,000 in 199 8, rising to $1 million in 2006 and later years This limit rises to $650,000 in 199 9, $675,000 in 2000 and 2001, $700,000 in 2002 and 2003, $850,000 in 2004, $95 0,000 in 2005 and $1 million in 2006 The law created a special $1.3 million exclusion for qualifying farmers and small business... amount of ASSETS that individuals can exclude from estate taxes was boosted from $600,000 to $1 million, and up to $1.3 million for small businessmen and farmers The increase in the universal estate tax exclusion is phased in over a 9- year period, with the limit rising to $625,000 in 199 8, $650,000 in 199 9, $675,000 in 2000 and 2001, $700,000 in 2002 and 2003, $850,000 in 2004, $95 0,000 in 2005, and topping... 199 8 to $74,000 in 199 9, $76,000 in 2000, $78,000 in 2001 and $80,000 in 2002 and later years 15 Repeal of excess accumulation and excess distributions tax: In earlier legislation, Congress imposed a 15% "excess accumulation tax" on LUMP SUM payouts of more than $800,000 from pension plans and a 15% "excess distributions tax" on payouts from INDIVIDUAL RETIREMENT ACCOUNTS of more than $160,000 All of. .. pay for the first two years of tuition and fees for students attending college or vocational school The tax credit started at $1,500 in 199 8 and rises to $2,000 in 2003 Starting on July 1, 199 8, a yearly "Lifetime Learning Credit" of up to $1,000 for 20% of tuition and school fees up to $5,000 is available for third- and fourth-year college students, graduate students, and people returning to school... portion of health insurance premiums paid by the self-employed were deductible, while all premiums paid by larger companies were deductible This inequity was phased out by the law In 199 7, 40% of the premium paid by the self-employed were deductible In 199 8 and 199 9, it rose to 45% In 2000 and 2001, it rises to 50% In 2002 it is 60% From 2003 through 2005, the deduction rises to 80% In 2006 it is 90 % From... Security tax (6.2%) was raised to $65,400 All wages are subject to the Medicare tax of 1.45% 25 Liberalization of the home office deduction: For many years, the IRS rules and court decisions greatly restricted home office deductions The 199 7 tax law eased the rules and home office deductions are allowed starting in 199 9 if the space used is essential to running or administering the business No longer... example.) In the case of a tax credit, a taxpayer owing $10,000 in tax would owe $9, 000 if he took advantage of a $1,000 tax credit Under certain conditions, tax credits are allowed for low-income people over age 65, people with disabilities, income tax paid to a foreign country, child care expenses ($400 per child supported under age 17 in 199 8 and $500 in 199 9 and thereafter), costs of adopting a child... it allows depreciation based on an inverted scale of the total of digits for the years of useful life Thus, for four years of life, the digits 4, 3, 2, and 1 are added to produce 10 The first year's rate becomes 4/10ths of the depreciable cost of the asset (cost less salvage value), the second year's rate 3/10ths, and so on The effects of this method of accelerated depreciation are compared with the... INCOME of $110,000 on a joint return, $55,000 for those married filing separately, and $75,000 for a single filer The credit is reduced by $50 for each $1,000 of the threshold, and it disappears altogether for couples with incomes of $1 19, 000 or more and singles with incomes of $85,000 or higher A tax credit of $5,000 was also added for taxpayers who adopt children, with up to $6,000 for adoptions of "special . the official market, official parallel market, and unofficial market. The official market is open from 10 A.M. to 1 P.M. and 2 P.M. to 4 P.M., while the official parallel market is open from 9: 15. STANDARD & POOR'S 500 INDEX in terms of its construction. Trading hours are Monday through Friday from 9 A.M. to noon, and Saturday from 9 A.M. to 11 A.M. Settlement by delivery of. life of ten years and a salvage value of $200, annual depreciation under the straight-line method would be $100, charged at $100 a year. This is the oldest and simplest method of depreciation and