_ PFROI Shareware User Manual Contents 1.0 Create Backup 2.0 PFROI Overview 3.0 Shareware Distribution 4.0 Caution 5.0 Exploring PFROI 5.1 Loading PFROI 5.2 Main Menu 5.3 Configure System 5.4 Purchase Information 5.5 Loading Portfolio Data 5.6 Editing Portfolio Records 5.6.1 Transaction Edits 5.6.2 Tax Rate Edits 5.6.3 Position/Price Edits 5.6.4 Deleting/Adding Valuations 5.7 Sorting Records 5.8 Printing Records 5.9 Symbol Mask 5.10 Autotax 5.11 Income Summaries 5.12 ROI 5.13 Saving Updates 6.0 Using PFROI 6.1 Return on Investment 6.2 Defining the Portfolio 6.3 Deposit/Withdrawal Rules 6.4 Starting the Portfolio 6.5 Transactions 6.5.1 Update Frequency 6.5.2 Transaction Codes 6.5.3 Security Symbols 6.5.4 Tax Lot Number 6.5.5 Transaction Charges 6.5.6 Manual Tax Input 6.6 Tax Rates 6.7 Valuations 6.8 Special Situations 6.8.1 IRA's/Keogh Accounts 6.8.2 Stock Options (Puts and Calls) 6.8.3 Employee Stock Options 6.8.4 Gifts/Inheritance 6.8.5 Dividend Reinvestment 6.8.6 Wash and Short Sale Tax Rules 6.8.7 Return of Capital 6.8.8 Exchanges of Securities 6.8.9 Money Market Funds 6.8.10 Other Assets 6.9 Merging Portfolio Files 7.0 Record Structure 8.0 Update Information 9,0 Terms and Limited Warranty Techserve, inc., P.O. Box 70056, Bellevue, WA 98007, USA Copyright (C) 1985, Techserve, inc. All Rights Reserved. _ 3 1.0 Create Backup A shareware disk copy of PFROI should contain the following files: PFROI.COM Shareware copy of PFROI. PFROI.DOC This manual (abbreviated from complete manual for compactness). DEMOPF Demo portfolio data file. Copy these files to a working disk that you've formatted with the "/S" option (i.e. A>format b:/s) to put DOS boot files on the disk. If you have a hard disk system, you should still make a backup, but you may wish to copy only PFROI.COM to the hard disk since it is the only file you will use regularly. Consult your DOS manual if you are unfamiliar with file copy procedures. 2.0 PFROI Overview PFROI is the result of an effort to measure portfolio performance in order to effectively set and meet long range investment goals. The classical performance measure for single investments in industry is "return on investment" or "ROI". Determining ROI for a portfolio of investments, however, is non-trivial. Complicating factors include fluctuating dividend and interest payments, non-uniform security growth rates, as well as the periodic addition and/or withdrawal of portfolio funds. Taxes further complicate the issue. It is no surprise that the well-advertised major portfolio software packages either don't address ROI or don't compute it correctly. PFROI has solved this problem, however, to compute portfolio and individual security ROI both before and after taxes. PFROI is additionally a complete portfolio manager. It handles all usual portfolio transactions . . . buys, sells, short sales, covers, dividends, interest, splits, capital gains distributions, as well as deposits and withdrawal of funds. PFROI accepts most investment types, including stocks, bonds, options, C.D.'s, money market funds, mutual funds as well as trust accounts such as IRA's and Keogh accounts. PFROI permits daily portfolio valuations and provides securities' cost bases for monitoring of unrealized capital gains. PFROI's autotax feature also makes it an excellent tax planning tool, while its income summaries can be invaluable in preparing Tax schedules B and D. _ 4 When used to manage your investments and to help with tax planning and preparation, PFROI is tax deductible and can contribute to the deductibility of your computer. We hope you find the use of PFROI pleasant and profitable. 3.0 Shareware Distribution PFROI is distributed as a "shareware" product. This means that users are encouraged to pass copies of PFROI on to others. This approach permits a user to try the program before buying. It also keeps marketing costs low, permitting a considerable cost savings to the user as compared with conventionally marketed software. However, if you wish to continue to see "shareware" products, your support is required. Thus if you use PFROI, please purchase an inexpensive "update disk". This will ensure that you have the latest version, with a complete manual and also will support the development of additional economical software. If you like PFROI, pass demo copies on to friends. If you have suggestions for improvement, let us know. 4.0 Caution Although we think PFROI will be useful for the investor, and we will do our best to minimize bugs, we can't underwrite everyone's investment risk. Thus you use and rely upon the results of PFROI at your own risk. We suggest that you satisfy yourself with test examples before committing to using and relying upon the program on a regular basis. 5.0 Exploring PFROI The best way to become familiar with the mechanics of operating PFROI is to go through all the menus and display screens and "push all the buttons". This section leads you through this process. 5.1 Loading PFROI Insert the working disk created in Section 1.0 into drive A. Turn on your printer and adjust to top of page. Then type: "A:PFROI" , followed by a carriage return. _ 5 5.2 Main Menu The main menu will appear as follows: L) Load Portfolio I) Income Reports T) Transactions C) Configure Sys. V) Valuations P) Purchase Info X) Tax Rates S) Save Updates R) ROI Q) Quit > _ 5.3 Configure System Select "Configure Sys." to get the following sub-menu: C) Colors Data : White/Black Title : Black/White Header: Black/White A) Account : L) Lines/Page : 66 P) Printer Codes : S) Save Configs. > _ Try each selection: Colors - If you have a color monitor, this selection allows you to set the display colors to your tastes. You may want to come back to this section for further trials after you've seen the other screens. Account - Allows you to place an account name and number on PFROI's reports. _ 6 Lines/Page - Controls the paging on the printer output. It defaults to 66 lines/page, the typical setting for most printer output. Change this setting if you are using other than 6 lines/inch. Printer Codes - Permits you to specify printer setup codes (up to 14 keystrokes) which will be sent to the printer prior to each printing operation. The control codes you use will depend upon your printer type. For an Epson printer, Ctrl-O will set up the printer for compressed print, or the sequence Esc G Esc E will set up double-strike, emphasized printing. Try one of these sequences or one appropriate to your printer. Note that PFROI displays the PC's display icon for the control codes. Save Configuration - Allows you to save your configurations on disk so you need not reconfigure everytime you load the program. NOTE: This feature may not be used when a portfolio file is loaded; first quit PFROI and restart it before saving configurations. Hit "Esc" to exit the Configuration menu to the main menu. In general, unless you are in the middle of an operation, "Esc" will return you to the previous screen. 5.4 Purchase Information Selecting "Purchase Info." from the main menu dis- PFROI's update order form. If your printer is on, the form will print when you hit the "P" key. Try it out to see if your printer setup codes are working. _ 7 5.5 Loading Portfolio Data PFROI stores the data you provide on your portfolio in a "portfolio file". Use the "Load Portfolio" selection on the main menu to create a new portfolio file, or to load an existing portfolio file. Note the prompt for the portfolio file. A maximum string of 30 characters is accepted as input in the following format: Portfolio file : d:filename The filename may contain paths as permitted by DOS 2.0 or higher. The drive and path may be omitted if the file is in the current directory. See your DOS manual for use of paths. If you forget to load or create a file with "Load Portfolio", you will be prompted for a filename when you attempt any processing which requires portfolio data. For this exercise, select "Load Portfolio" and load the demo portfolio file for practice edits in the next section: DEMOPF 5.6 Editing Portfolio Records The portfolio file stores portfolio data using the following four record types : Transaction Records Tax Rate Records Position/Price Records Valuation Records PFROI has display screens for each of these record types from which the user may perform edits as described below. _ 8 5.6.1 Transaction Edits Transaction records are the most complex portfolio record to edit. Select "Transactions" from the main menu to obtain the transaction editing screen. Notice that the second line on the screen provides a summary of edit and command keys. For more detail on these, hold down the "Alt" key and then hit the "H" key. The edit keys are: H-Arws Previous/Next Field V-Arws Previous/Next Record PgUp Page Screen Up PgDn Page Screen Down Home To First Record (or Ctl PgUp) End To Last Record (or Ctl PgDn) Ins Insert Record Del Delete Record Ctrl G Erase Field Cursor Movement - The "H-Arws" and "V-Arws" refer to the horizontal and vertical arrows on the number keypad. Try moving the cursor around with these and with the "PgUp", "PgDn", "Home" and "End" keys. Toggle the "NumLock" key if nothing is happening. Insert Record - Next, try inserting a record with the "Ins" key. Note that the screen scrolled down to make room for the new record. Now, enter some data, moving the cursor to start with the first field: Mo/Dy/Year - This field is really three fields. Key in a date using the number keys at the top row of the keyboard to avoid having to fiddle with the "NumLock" key on the keypad. End each entry with the "carriage return" key. Use a two digit entry for the year. Note it is automatically extended to four digits. TAC (TransAction Code) - Before making an entry, note that the valid code values are displayed at the bottom of the screen when the cursor moves into this field. A fuller description is obtained by using the "Alt-H" (help) command or by referring to section 6.5.2 of this manual. Since we are now just concentrating on mechanics, enter "BUY" in this field. _ 9 5.6.1 Transaction Edits (cont'd.) Symb (Security Symbol) - This field uniquely identifies an asset in your portfolio. Typically, a security's trading symbol is used. For this exercise enter "ABC". L# (Tax Lot Number) - This field is used to match buy and sell transactions for determining capital gains cost basis. Enter a number (try "2"). Description - This field is not used by PFROI in any of its processing. It merely provides space for a security name and/or a short note for a more informative record. Enter "Am. BCast (2nd buy)". ShrQty - This field holds the number of shares involved in a transaction. Enter "100". Note that there is no decimal point. Occasionally, however, some transactions involve fractional shares. This field can accommodate a fractional entry up to four decimal places. Move the cursor back to the start of the field and make an entry with a fractional portion (e.g. "25.4321") to see what happens. $Amount - This field contains the dollar amount of a transaction. Enter a value (e.g. 2515.75). Note that when you complete the entry, PFROI adds a negative sign. PFROI uses the transaction code to determine the sign on all ShrQty and $Amount entries to avoid user error. In this case the sign is negative because cash flows out of the portfolio when a security is bought. Est. Tax - Note that this field was skipped, with the cursor moving on to the first field of the next record. This is because a "BUY" transaction is not an income generating transaction by itself. A tax amount may be entered in this field for income producing transactions (codes: IN+, IN-, DV+, DV-, SLL, BYC, DV$, IN$, CGD, PIN) or by using the "TAX" transaction code. When this is done, an "m" appears in the right margin to indicate a "manual" tax entry. Ordinarily, however, the user leaves this field blank to be filled in later by PFROI when the "autotax" command is given. _ 10 5.6.1 Transaction Edit (cont'd.) Delete Record - Now that you've created a record, hit the "Del" key to delete it. Note that the screen scrolls up to fill over the deleted record unless it happened to be the last record, in which case the record is just blanked. Fill in some of the fields in the last record and then delete it to test out this feature. Ctrl-G (Erase Field) - A value in any field of a record may be erased by using Ctrl-G (^G). Note, however, that if you want to change the value in a field, the old value is erased as soon as you start entering the new value. Thus Ctrl-G is primarily useful when you want to erase an entry, such as a "manual" tax entry, and then leave the field empty. "No Data Required" - Not all transaction types require data in every field. PFROI will skip over fields not requiring input. To see this, move to the blank record at the end of the file and enter a "Deposit Funds" (enter "DPF" in TAC field) transaction. Note that the Symbol, L# and ShrQty fields are skipped in entering data. Note also that a new blank last record is appended upon completion of data entry into the current last record. 5.6.2 Tax Rate Edits Return to the main menu by hitting the "Esc" key. Select Tax Rates ("X") to view and edit the tax rate records. These records have four fields in addition to the date field: HldPrd - Minimum Holding Period (in months) for long term capital gains. CGRate - Long Term Capital Gains Rate. This is the fraction of long term capital gains subject to ordinary income tax. MaxLoss - Maximum capital loss deductible in any one year. TaxRate - User's Tax Rate (see section 6.6). Use the same keys to move the cursor and edit these records as were used for the transaction records. Try them out. _ 11 5.6.2 Tax Rate Edits (cont'd.) The tax records in the demo portfolio file are the default values which are generated every time a new portfolio file is created. Updating these and adding new rates are discussed further in Sec. 6.6. 5.6.3 Position/Price Edits You must go through the "Valuation" display to get to the "Position/Price" edit. Return to the main menu (Esc) and select "Valuations" to get the Valuations screen. Note that this screen cannot be edited. It is basically a summary of underlying "Position/Price" records. To view the security positions and prices underlying a particular valuation, hit the Alt-R (for Review) key combination. You will be prompted for a valuation date. Input one of the dates shown on the Valuation screen to get the corresponding Position/Price display. Upon reaching the Position/Price screen, note that only the Price Field can be edited. Note also that the "Cost Base" and "Gain/-Loss" fields allow you to easily compare current valuations with the amount you've invested. Try changing some of the prices to see the effect on the valuation field. Try "Alt-T" to get totals on the last line and generate percentages. Use "Esc" to return to the Valuation screen. Note that the valuation for that date has changed to reflect the prices you entered. 5.6.4 Deleting/Adding Valuations The Alt-D and Alt-A keys are used respectively to delete excess old valuations and add new valuations. Try deleting a valuation, but first note its date. Deleting the valuation also deletes the underlying position/price record. After deleting a valuation use Alt-R to see if you can still see the underlying position/price records. You can't. Deleting old valuations prevents a build-up of excess valuation and position price records. _ 12 Now try adding a valuation (Alt-A). Use any date, provided it is not earlier than the first transaction in the portfolio. Wait while PFROI computes the portfolio position for the specified date. The position/price screen is displayed upon completing the computation. Note that the price fields are empty, unless you specified an existing valuation, in which case any existing prices are used. Enter prices to complete position valuations. Escape to the valuation screen to see the valuation just added. 5.7 Sorting Records In the review in the previous section, we skipped some of the commands shown on the "Keys" display lines. The first of these is the "Sort" (Alt-S) command. It allows you to sort Transaction and Tax Rate records by date to maintain orderly records. Go to the Transaction or Tax Rates screen to try the sort command. First insert a blank record or other out-of-sequence record. Examine the results. PFROI automatically sorts records before operations such as the autotax operation which require sorted records to work properly. However, one good use of the sort function is to find incomplete records. These will be sorted to the end of the list. It is a good idea to sort and then examine your last few records if PFROI is giving unexpected results. 5.8 Printing Records All four record types (Transactions, Tax Rates, Position/Price, Valuations) may be printed by invoking the Print (Alt-P) command from the appropriate record screen. For Transaction and Tax Rate records you are prompted for start and end dates. Try the print command for all record types. (Note: Certain screens print using the PC's BIOS print-screen routine. These may encounter problems if you are running another program in background which manipulates BIOS status bytes or interrupts.). _ 13 5.9 Symbol Mask The "Mask" command ("Alt-M") from the transaction edit allows you to isolate one security from the rest of the portfolio to review and print transactions, and to compute an ROI. The current setting of the symbol mask is indicated in the title line (top line) of the transaction edit. The mask should be set to ".ALL." to view all the securities in the portfolio. If the current Mask setting is ".ALL.", the "Alt-M" command command will set the mask to the symbol of the current transaction. Re-toggling the "Alt+M" command reinstates the Mask to ".ALL.". 5.10 Autotax The "taX" command (Alt-X) from the transaction edit screen invokes the Autotax computation. Before trying this feature, first escape to the main menu and reload DEMOPF using the "Load Portfolio" command. This will restore any records which might have been altered or deleted in the previous exercises and which may be needed to illustrate Autotax features. Now return to the Transaction edit screen. Move the cursor to any record dated 1982. Hit Alt-X. Wait for the records to be redisplayed. Observe ("page" if necessary) that there are now values in the "Est. Tax" fields of all transactions from 1982 down to the end of the portfolio for which you would expect there to be a tax liability or credit (e.g.: interest, dividends, sell, and buy to cover transactions). Note that some new records with the transaction codes "TAX", "SCO", and "LCO" have appeared. These records are a year-end capital gains tax adjustment and short and long term loss carryovers. The tax adjustment reconciles the taxes on Schedule D netted capital gains with the sum of estimated taxes on individual capital gains transactions. _ 14 5.11 Income Summaries Select "Income Summaries" from the main menu to get the following sub-menu: C) Capital Gains D) Dividends I) Interest > _ Try each selection. You will be prompted you to specify a year. An annual report of the selected type will be generated on your printer. For each exercise be sure to select a year containing at least one of the income transactions of interest so there is meaningful output. Examine the reports closely and note the contents. 5.12 ROI Now you are ready to try the ROI computation. Select "ROI" from the main menu. A version of the valuation screen is displayed to aid in specifying a start and end date for the ROI. An error message is displayed if an invalid date is specified. Hitting any key (except Esc) will restart the ROI process. "Esc" returns you to the main menu. To perform an ROI on the entire portfolio carriage return through the Symbol setting so as to leave it set at ".ALL.". Initially try using the first and last valuations for the start and end dates. Because the ROI calculation is an iterative computation involving many transactions, there will be some delay while the computer works. When the calculations are complete, the ROI results are displayed. Note that sources of income are summarized and ROI is shown both before and after taxes. _ 15 To generate an ROI on an individual security, set the symbol to that security's symbol before setting the ROI dates. If the security is one you no longer hold, note the buy (or short sell) date. This date can be used as the start date of the ROI. Likewise, the sell (or buy to cover) date of the security can be used as the end date of the ROI. PFROI will search for valuations on these dates. If none are found, PFROI will select default valuations which straddle the dates specified. When the ROI summary is displayed, note the "Funds Added" and "Funds Removed" categories. For an ROI of the entire portfolio (".ALL." Symbol Mask), "Funds Added" signifies deposit transactions, while "Funds Removed" signifies withdraw transactions or cashing of dividends. For an individual security ROI, "Funds Added" signifies buying into the security, while "Funds Removed" signifies selling out of the security, or cashing of dividends. 5.13 Saving Updates The "Save" selection on the main menu saves portfolio changes to disk. You should "Save" occasionally to minimize data loss should your PC malfunction or lose power. PFROI does not save changes to the demo portfolio in order to preserve its integrity. _ 16 6.0 Using PFROI You should now be familiar with the mechanics of operating PFROI. This section is intended to give you the information needed to get useful results. 6.1 Return on Investment Return on investment (ROI) is one of the most common measures of investment performance. It is computed by PFROI using the internal rate of return method. For those not familiar with using or computing ROI, it is easiest to think of it as an interest rate. The interest rate you receive on a continuously compounded savings account or certificate of deposit is in fact the ROI on that account or CD. PFROI computes the return on investment on a portfolio by determining the interest rate which would generate an identical ending value in a savings account with the same history of deposit and withdrawal of funds as the portfolio. The ROI on an individual security is computed in a similar fashion except that in lieu of deposits and withdrawals, each transaction in the security is reduced to a "cash flow" and the resulting cash flows (plus start valuation and ending valuation) are used to compute the ROI. 6.2 Defining the Portfolio Before starting a portfolio file, you should define the portfolio to yourself. This is a mental exercise, but will help to prevent errors in determining the correct entries to make to the portfolio file. The transactions most susceptible to error in this regard are "deposit" and "withdraw" transactions. _ 17 6.2 Defining the Portfolio (cont'd.) To define the portfolio, first consider it as a separate financial entity from yourself. Now define which of your assets are to be included in the portfolio. It may include a single brokerage account or may include several types of accounts. Some possibilities are: a) Securities (stocks, bonds, T-bills, etc) and funds held in an account with a broker. b) Securities held in a safe deposit box. c) A money market account. d) A mutual fund account. e) A stock subscription account (e.g., as part of a dividend reinvestment plan). f) A savings account or C.D. 6.3 Deposit/Withdrawal Rules Once the portfolio is defined, you can determine what transactions involve "deposit" or "withdrawal" of funds to or from the portfolio. The basic rules to follow are: a) Enter a "deposit" transaction whenever the portfolio owner (you) adds funds to a portfolio account. b) Enter a "withdraw" transaction whenever the portfolio owner (you) removes funds from a portfolio account. Note that if funds are transferred from one account within the portfolio to another account within the portfolio, it is good practice to enter a "withdraw" transaction from the first account and a "deposit" transaction to the second account. This may seem unnecessary because the value of the overall portfolio remains unchanged. However it ensures accurate recording of any time lag that might occur between the withdrawal and deposit transaction. It also facilitates any later reconciliation with account statements. _ 18 6.3 Deposit/Withdrawal Rules (cont'd.) As an example, assume that the portfolio is defined to consist of a brokerage account, securities in a safe deposit box, and a money market account (separate from the brokerage account). Some possible "deposit" and "withdraw" transactions with this portfolio are as follows: a) You send a $2000 personal check to your broker to credit to your account. This is a "deposit" transaction because new funds are being injected into the portfolio. Note: This is a "deposit" transaction even if the $2000 is to pay for 100 shares of "XYZ " you bought last week. In this case you must also enter a "buy" transaction. The "buy" transaction will debit the portfolio for the $2000 and credit it for the 100 shares. The net effect is that the $2000 credit of the "deposit" offsets the $2000 debit of the "buy" leaving the portfolio with a net gain of 100 shares. b) Your broker sends you $3000 from your account. This is a "withdraw" transaction because funds are being withdrawn from the portfolio. Note: This is a "withdraw" transaction even if the $3000 are proceeds from the sale of 100 shares of "XYZ". In this case you must also enter a "sell" transaction. The "sell" transaction credits the portfolio for the $3000 received from the sale, and debits the portfolio for the shares sold. The net effect is that the $3000 debit of the "withdraw" transaction offsets the $3000 credit of the "sell" transaction. The cash balance is unchanged, but the portfolio now has 100 fewer shares of "XYZ". c) You send a check for $7000 from your money market fund to your broker to credit your account. This is a "withdraw" transaction from the money market fund (enter fund name in security field) and a "deposit" transaction to the brokerage account (enter broker name in security field). _ 19 6.3 Deposit/Withdrawal Rules (cont'd.) d) You receive a $60 quarterly dividend check from AT&T for the 200 shares you hold in your safe deposit box. You deposit the check in your checking account (not part of your portfolio!). Ordinarily two transaction entries would be needed: 1) A "dividend earned" (DV+) transaction to indicate that the dividend was received. 2) A "withdraw" (WDF) transaction to indicate that the funds were removed from the portfolio. However, since this situation occurs frequently, a transaction code, "DV$" is provided which combines both of these transactions. A similar code, "IN$", is also provided for interest payments (e.g. on bonds) which are not retained in your portfolio. Note, however, that if the stock in this example was in your brokerage account and the dividend was received and retained in your brokerage account, only one transaction would be required . . . a "DV+" transaction. 6.4 Starting the Portfolio To start the portfolio file, gather records of portfolio transactions you've made to date. Old tax schedules B and D are good sources for these if your cannot find all of your old broker statements or transaction slips. Use "Load Portfolio" on PFROI's main menu to create the new portfolio, then select "Transactions" to input your transaction records. The first transaction entered must be a "deposit" transaction (remember, you had to get money into the portfolio to "buy" that first security). Enter subsequent transactions until the portfolio is up to date. Refer to section 6.5 if uncertain about the proper transaction code to use, or to section 6.9 if you have a special situation such as inherited stock. When you are done entering transactions, use the "Sort" command (Alt-S) to sort the transactions in case some were entered out of date order. _ 20 6.4 Starting the Portfolio (cont'd.) It is possible to simplify the startup process if you are willing to dispense with portfolio history. To do this, however, you must still establish your current portfolio position and the purchase dates and costs associated with securities currently held. The process is as follows: 1) Determine the "buy" date and purchase cost of all securities currently in the portfolio. (This is not redundant effort, you will need this information for the IRS when you sell). Make two entries into the portfolio file for each security: a) A "deposit" transaction for amount of the purchase cost. b) A "buy" transaction for both the share quantity and purchase cost. Note that the dollar amounts for the deposit and buy transactions offset each other to produce a zero net cash position. 2) Enter your portfolio's latest reported cash position as a "deposit" transaction using the date on which the cash position was reported as the transaction date. On completion of initial portfolio data entry, go to the "Valuation" screen and do an "add valuation". Check the results versus your latest broker statements or other records. If you find a valuation discrepancy, check to see that prices in the valuation are the same as on the broker statement being used for comparison. If there is a discrepancy in share position, a share transaction such as a buy, sell or split was probably inadvertantly omitted. _ 21 6.5 Transactions 6.5.1 Update Frequency The normal frequency for PFROI portfolio updates is monthly, when you receive your broker statement. The typical investor should not require much more than five to ten transactions per month, involving no more than ten to fifteen minutes per month. More time will be required if you have several brokers, multiple portfolios or are a heavy trader. 6.5.2 Transaction Codes (TAC) The valid transaction codes and their use are as follows: DPF DePosit Funds - Use whenever portfolio owner adds funds to a portfolio account. WDF WithDraw Funds - Use whenever portfolio owner removes funds from a portfolio account. IN+ INterest earned - Use whenever interest is credited to and retained in a portfolio account. IN- INterest charged - Use whenever a portfolio account is debited for interest. IN$ INterest ca$hed - Interest earned, but cashed rather than retained in portfolio. Example: You receive a semi-annual interest payment on a T-bill in your portfolio and deposit it in your checking account, which is not part of your portfolio. BUY BUY security - Use whenever a security (stock, bond, T-bill, option, etc) is purchased into the portfolio. SLL SelL security held Long - Use whenever a security is sold from the portfolio. DV+ cash DiVidend earned - Use whenever the port- folio is credited with a dividend. DV- cash DiVidend charged - Use whenever the port- folio is debited for a dividend on a stock held short. DV$ DiVidend ca$hed - Dividend earned, but cashed rather than retained in portfolio. (Like IN$, but for dividend). _ 22 6.5.2 Transaction Codes (cont'd.) SP+ SPlit Long - Use whenever stock held long in the portfolio splits or has a stock dividend. Fractional shares may be entered up to 4 decimal places. If you are given cash in lieu of a fractional share, the cash amount should be entered as a dividend transaction, with a manual "est. tax" entry of zero, if you determine the payment is tax free under current law. SP- SPlit short - Use whenever stock held short in the portfolio splits or has a stock dividend. SLS SelL Short - Use whenever security sold short. BYC BuY to Cover - Use whenever a security is pur- chased to cover a short position. CGD Capital Gains Distribution - Use whenever a capital gains distribution is received, such as from a mutual fund. Capital gains distributions are taxed at capital gains rates. PIN Phantom INterest - Imputed interest earned on zero coupon ("original issue discount") bonds. This entry is required to get correct tax reporting, but does not affect valuations. Note: A zero coupon bond should be valued at market price, if available, otherwise purchase price plus phantom interest earned to date should be used. A "SLL" transaction should be used on redemption or sale of the bond. PFROI automatically adds phantom interest on the bond to its cost basis in order to generate correct capital gains. You should be careful, however, to use a unique symbol for each bond if several zero coupon bonds are held over the same time period. This will prevent double counting of phantom interest in the cost basis of more than one bond. TAX TAX adjustment - Use whenever a tax adjustment at year-end is needed to force total taxes in the "Est. Tax" field for the year to equal Schedule D taxes on portfolio capital gains. Entries in the "Est. Tax" field only affect the "After Tax ROI" and do not affect portfolio valuation or the "Income Summaries". Using "AutoTax" auto- matically inserts a tax adjustment record to account for the netting process of Schedule D on capital gains, so normally there should be no need for a manual TAX entry. _ 23 6.5.2 Transaction Codes (cont'd.) SCO Short term loss CarryOver - Use whenever tax schedule D indicates a short term loss carryover. LCO Long term loss CarryOver - Use whenever tax schedule D indicates a long term loss carryover. The SCO and LCO records are automatically inserted by "AutoTax" so normally there should be no need for manual entries. However, if a manual entry is needed, the date 1/2/Year must be used since 1/1/Year is reserved for autotax generated carryovers. Note that the loss carryover amount is placed in the ShrQty field of the transaction record. 6.5.3 Security Symbol (Symb) PFROI uses the security symbol in the transaction record to uniquely identify a security. In general, the trading symbol of a security should be used in this field, although any symbol may be used provided each security in the portfolio has a unique symbol. 6.5.4 Tax Lot Number (L#) PFROI uses the tax lot number, along with the stock symbol, to match buy and sell transactions and short sale and cover transactions in order to compute capital gains or losses. A "new" tax lot number must be assigned whenever a "Buy" or "Sell Short" transaction is entered. A tax lot number qualifes as "new" if there is no "open" transaction with the same security symbol and lot number. An "open" transaction is any "Buy" or "Sell Short" transaction for which the stock position (long or short as appropriate) has not yet been zeroed out by matching "Sell" or "Buy to Cover" transactions. _ 24 6.5.4 Tax Lot Number (cont'd.) Note that a tax lot number is used only once in opening a stock position, but may be used several times in the process of closing the stock position. For example: Mo/Dy/Yr TAC Symb L# Descript. ShrQty $Amount Est. Tax == == == === ===== == ========== ========== ============ ======== 2/ 4/81 BUY XYZ 3 XYZ Inc. 400 -20000.00 7/ 5/83 SLL XYZ 3 XYZ Inc. 100 6500.00 3/ 5/84 SLL XYZ 3 XYZ Inc. 200 14000.00 5/22/84 SLL XYZ 3 XYZ Inc. 100 7800.00 Note also that a "BUY" transaction is not closed until at least one "SLL" transaction with corresponding tax lot number is entered. Review the demo portfolio file DEMOPF for more examples of tax lot number usage. 6.5.5 Transaction Charges Commission charges and transaction taxes should be included in the "$Amount" entry for "Buy", "Sell", "Buy to Cover", and "Sell Short" transactions. 6.5.6 Manual Tax Input Most PFROI users will not need to manually input estimated taxes for transactions. Occasionally, however, there are special situations due to the complexity of our tax laws which require manual tax input. One of these, for example, involves a tax exemption on dividend reinvestment in public utilities (see section 6.8.5). You may have other special tax situations where a manual tax input is required to produce the correct estimated tax. Note that a manual tax entry of "zero" may be entered to designate a transaction as tax free. These "tax free" transactions will not be reported on the dividend, interest, or capital gains reports. _ 25 6.6 Tax Rates Before you start using PFROI's "AutoTax" feature, you should update PFROI's initial default tax rate records to reflect your own marginal tax rates. The default tax rate records are as follows: Mo/Dy/Yr Hld Prd CGRate MaxLoss TaxRate == == == ======= ====== ======= ======= 1/ 1/70 6 0.500 3000 0.250 1/ 1/77 9 0.500 3000 0.250 1/ 1/79 12 0.400 3000 0.250 6/23/84 6 0.400 3000 0.250 Since your personal tax rate probably varies from year to year, you should insert a tax rate record for each year in which your portfolio is active. The date of this record should be January 1st. The reason for this is that whenever AutoTax is invoked, PFROI searches for the first tax rate record chronologically prior to the transaction. Setting the record date to 1/1 thus ensures that the record applies for the whole year. An exception to this rule is whenever there is a mid-year tax law change, as occurred in 1984. 6.7 Valuations PFROI permits a total of 48 valuations. It is recommended that valuations be kept on a yearly basis except for the current year, for which you may wish to keep more frequent valuations. Use the "Delete" valuation command to delete old valuations. Valuations are normally computed (by default) starting from the first portfolio transaction. This is indicated by the display of "FirstTA" in the Valuation title header. For long files, valuations can be computed starting from the prior valuation by hitting "Alt-B" to change the valuation base. Note that that "PriorVal" is displayed in the title header when this is done. Toggling "Alt-B" a second time will return the valuation base to "FirstTA". Whenever a transaction is modified or a new transaction is inserted, all subsequent valuations must be regenerated using the "Add" command to incorporate the change. This is a good reason to be careful to not overlook transactions or make entry errors when inputting original transaction data. Fortunately, when valuations must be regenerated, the market prices in the original valuation are carried over to the new valuation. _ 26 6.8 Special Situations The following special situations are covered in the manual which comes with a PFROI "update" disk: 6.8.1 IRA's and Keogh Accounts 6.8.2 Stock Options (Puts and Calls) 6.8.3 Employee Stock Options 6.8.4 Gifts/Inheritance 6.8.5 Dividend Reinvestment 6.8.6 Wash and Short Sale Tax Rules 6.8.7 Return of Capital 6.8.8 Exchanges of Securities (Mergers/Divestitures) 6.8.9 Money Market Funds 6.8.10 Other Assets 6.9 Merging Portfolio Files Some users may find it convenient to keep transactions from separate accounts in separate portfolio files. This may occur, for example, if you use more than one broker to diversify brokerage risk. The utility program "PFMERGE.COM" is provided on PFROI's update disk to permit you to periodically merge these separate files into a "master" portfolio file to determine your overall return on investment. _ 27 7.0 Record Structure PFROI uses a 68 byte record for the portfolio file. The record structure is as follows: Field # bytes Description ------ ------- ------------------------- RecType 1 Record Type (0=Tax;1=TA;2=Pos/Prc;3=Val) FwdPtr 4 Link pointer BkwdPtr 4 Link pointer Month 2 Month (integer) Day 2 Day (integer) Year 2 Year (integer) CodeIdx 1 Transaction code index Symbol 6 Security symbol (5 char string) L# 2 Tax Lot Number Descrip. 21 Security Name/Note (20 char string) ShrQty 6 Share Quantity (real) $Amount 6 Transaction Amount (real) Est. Tax 6 Estimated Tax (real) Flag 1 Processing Flags Dcml 1 Decimal place Spare 1 Spare byte Spare Int 2 Spare integer ------- 68 The maximum number of records (of all types) which can be processed by PFROI is dependent upon your PC's installed memory. About 2000 records can be handled with 256K-bytes RAM, and about 5000 records with 512K-bytes RAM. 8.0 Update Order Information Description $U.S. =========== ======= Update Disk (complete manual on disk) $ 10 PFROI Disk with printed manual $ 20 Minimum System Reqt.: IBM PC or compatible computer, DOS 2.0 or higher, 128K RAM, printer. (Prices subject to change without notice) Send payment with name and address to: Techserve, inc., POBox 70056, Bellevue, WA 98007, USA or call (206) 747 5598. (VISA or MC accepted). Inquire also about our other investment software: PFPRO - Professional Client & Portfolio management STOCKPRO - Risk-adjusted DCF Stock valuation BONDPRO - Bond swap evaluation. _ 28 9.0 Purchase Terms and Limited Warranty Purchase of diskettes containing software described above licenses purchaser to use software and make multiple backup copies provided only one copy is used at any one time. "Shareware" (or demo) versions may be copied and transferred without restriction. Software contained on diskettes purchased is provided "as is". Purchasers should ascertain to their own satisfaction that software produces acceptable results and performs to expectations. If not satisfied, return diskettes and manuals (if included) in original condition to Techserve, Inc. within guarantee period for full refund of purchase price. Refund voids user license. This warranty is in lieu of all others, express or implied.