Have you ever wondered what the terms mean on the performance report you receive from your investment manager?  They may not mean what you think.

For instance, for performance purposes “contributions” is not the same as money you deposited into the account.   And, “realized gains” on a performance report are usually very different than realized gains on a tax report.

Here’s a brief explanation of the basic terms.

Beginning (BV) = The total market value of the portfolio at the beginning of the reporting period.

Net Contributions (NC) = The total market value of all securities and cash deposits added to or subtracted from the portfolio during the reporting period.
NC = Contributions + Withdrawals

Contributions (C) = Cash deposits plus the market value of securities deposited into the portfolio during the reporting period.
C = Cash deposits (dollar value) + Market value of Receipts of Security + Flows created from movement between unmanaged and managed assets (Principal cost + brokerage fees + other fees + accrued interest)

Withdrawals (W) = Cash withdrawals plus the market value of securities transferred out of the portfolio during the reporting period.
W = Cash withdrawals (dollar value) + Market value of Transfers of Security + Flows created from movement between unmanaged and managed assets (gross proceeds – brokerage fees – other fees + accrued interest, if applicable) + Expenses unchecked to reduce both gross and net returns

Note: If your report aggregates several accounts, Contributions and Withdrawals may also include the value of cash and securities which transferred between accounts covered by the report.

Capital Appreciation (CA) = The change in value, excluding additions and withdrawals, during the reporting period.
CA = Unrealized Gains (Losses) + Realized Gains (Losses) + Transfers

Realized Gains (RG) = Total of the capital gains realized on the sale of securities during the reporting period — not from the purchase price
RG = Net Proceeds of Securities Sold – Beginning Market Value of Securities Sold + any Gain Distributions

Unrealized Gains (UG) = Total change in value during the reporting period –not from the purchase price
UG = (Ending Market Value) – (Beginning Market Value) – (Net Contributions ) – (Transfers) – (Income) – (Realized Gain) – (Change in Accrued) – (External Fee Payments) – (Expenses)

Transfers (T) = The total of all movement into or out of the portfolio that is not a net contribution during the reporting period. For example if a security is sold prior to the beginning date of the report and it pays a dividend during the reporting period, the dividend may be counted as a transfer. Typically these movements net to zero and transfers is omitted from the report.
T = Credits – Debits ± Journals + Odd Income ± Trades to ‘None’ + Accrued Income ‘not displayed’

Note: Performance reports and tax reports are different creatures. Performance reports calculate the un/realized gain/loss by subtracting the market value at the beginning of the reporting period from the gross proceeds. Tax reports subtract the cost basis from the gross proceeds. The un/realized gain/loss numbers on Performance reports rarely match those on tax reports.

Income (I) = Total of Dividend Income + Interest Income during the report period

Interest Income = Total interest received during the report period.
Dividend Income = Total dividends received during the report period.

Total Expenses = Total of Management Fees (including external fees) + Other Expenses during the report period.

Other Expenses = (Total Expenses) – (Management Fees) during the report period.
Management Fees = Total expenses marked as management fees during the report period.

Change in Accrued (CH) = Net change in accrued interest on fixed income securities during the report period.
CH = (Ending Accrued) – (Beginning Accrued) – (Accrued Paid)

Beginning Accrued = Total accrued interest for fixed income, mortgage backed and CDs + total accrued dividend for equity, user defined and unit trust at the beginning of the reporting period.
Accrued Paid = Total of the accrued paid field on buys of fixed income, mortgage backed and CDs during the report period.
Ending Accrued = Total accrued interest for fixed income, mortgage backed and CDs + total accrued dividend for equity, user defined and unit trust at the end of the reporting period

Ending Value (EV) = The total market value of the portfolio at the end of the reporting period. This values comes from the intervals.

Investment Gain (IG) = The dollar amount that makes this formula true for the reporting period: BV + C – W + IG = EV

This post first appeared on Krisan’s Backoffice and is reprinted here with permission.

Photo used here under Flickr Creative Commons.