Accrued interest: Interest that has been earned
but not received.
Accumulation plan: An arrangement which enables
an investor to purchase mutual fund shares regularly in large or small
amounts.
Annual Report: A financial report sent yearly
to a publicly held firm's shareholders. This report must be audited by
independent auditors.
Annuitant: An individual who purchases an annuity
and will receive payments from that annuity.
Annuity: A contract that guarantees a series
of payments in exchange for a lump sum investment.
Ask price: A proposal to sell a specific quantity
of securities at a named price.
Assets: What a firm or individual owns.
Back-end load: A sales charge levied when mutual
fund units are redeemed.
Balance sheet: A financial statement showing
the nature and amount of a company's assets, liabilities and shareholders'
equity.
Balanced fund: A mutual fund which has an
investment policy of "balancing" its portfolio generally by including bonds
and shares in varying proportions influenced by the fund's investment outlook.
Bank Rate: The rate at which the Bank of Canada
makes short-term loans to chartered banks and other financial institutions,
and the benchmark for prime rates set by financial institutions.
Bankers' Acceptance: Short-term bank paper
with the repayment of principal and payment of interest guaranteed by the
issuer's bank.
Bear market: A declining financial market.
Beta: A statistical term used to illustrate
the relationship of the price of an individual security or mutual fund
unit to similar securities or financial market indexes.
Bid price: A proposal to buy a specific quantity
of securities at a named price.
Blue chip: A descriptive term usually applied
to high grade equity securities.
Board lot: A standard number of shares for
trading transactions. The number of shares in a board lot varies with the
price level of the security, although in most cases a board lot is 100
shares.
Board of directors: A committee elected by
the
shareholders of a company, empowered to act on their behalf in the management
of company affairs. Directors are normally elected each year at the annual
meeting.
Bond: A long-term debt instrument with the
promise to pay a specified amount of interest and to return the principal
amount on a specified maturity date.
Bond fund: A mutual fund whose portfolio
consists primarily of bonds.
Book value: The value of net assets that belong
to a company's shareholders, as stated on the balance sheet.
Broker: An agent who handles the public's orders
to buy and sell securities, commodities, or other property. A commission
is generally charged for this service.
Bull market: An advancing financial market.
Buying on margin: Purchasing a security partly
with borrowed money.
Callable: Preferred shares or bonds that give
the issuing corporation an option to repurchase, or "call" those securities
at a stated price. These are also known as redeemable securities.
Canada Savings Bond: A bond issued each year
by the federal government. These bonds can be cashed in at any time for
their full face value.
Capital: Generally, the money or property used
in a business. The term is also used to apply to cash in reserve, savings,
or other property of value.
Capital cost allowance: A taxation term,
equivalent to depreciation, that makes allowance for the wearing away of
a fixed asset.
Capital loss: The loss that results when
a capital asset is sold for less than its purchase price.
Capital stock: All ownership shares of a
company, both common and preferred.
Capitalization: The total amount of all securities,
including long-term debt, common and preferred stock, issued by a company.
Cash equivalent: Assets that can be quickly
converted to cash. These include receivables, Treasury bills, short-term
commercial paper and short-term municipal and corporate bonds and notes.
Cash surrender value: The amount of cash
a person may obtain by voluntarily surrendering a life insurance policy.
Certificate: A document providing evidence
of ownership of a security such as a stock or bond.
Closed-end fund: A fund company that issues
a fixed number of shares. Its shares are not redeemable, but are bought
and sold on stock exchanges or the over-the-counter market.
Commercial paper: A negotiable corporate promissory
note with a term of a few days to a year. It is generally not secured by
company assets.
Common stock: A security representing ownership
of a corporation's assets. Voting rights are normally accorded to holders
of common stock.
Compounding: The process by which income is
earned on income that has previously been earned. The end value of the
investment includes both the original amount invested and the reinvested
income.
Consumer price index: A statistical device
that measures the change in the cost of living for consumers. It is used
to illustrate the extent that prices have risen or the amount of inflation
that has taken place.
Contractual plan: An arrangement whereby an
investor contracts to purchase a given amount of a security by a certain
date and agrees to make partial payments at specified intervals.
Convertible: A security that can be exchanged
for another. Bonds or preferred shares are often convertible into common
shares of the same company.
Corporation: A legal business entity created
under federal or provincial statutes. Because the corporation is a separate
entity from its owners, shareholders have no legal liability for its debts.
Coupon rate: The annual interest rate of a
bond.
Current asset: An asset that could be converted
into cash within 12 months.
Current liability: A liability that has to
be paid within 12 months.
Current yield: The annual rate of return
that an investor purchasing a security at its market price would realize.
This is the annual income from a security divided by the current price
of the security. It is also known as the return on investment.
Custodian: A financial institution, usually
a bank or trust company, that holds a mutual fund's securities and cash
in safekeeping.
Debenture: A bond unsecured by any pledge of
property. It is supported by the general credit of the issuing corporation.
Debt: An obligation to repay a sum of principal,
plus interest. In corporate terms, debt often refers to bonds or similar
securities.
Deferral: A form of tax sheltering that results
from an investment that offers deductions during the investor's high-income
years, and/or postpones capital gains or other income until after retirement
or during another period when the income level is expected to change.
Deferred Profit Sharing Plan: A plan that
allows an employer to set aside a portion of company profits from the benefit
of employees. A corporation makes a contribution to the plan on behalf
of an employee.
Defined benefit pension plan: A registered
pension plan that guarantees a specific income at retirement, based on
earnings and the number of years worked.
Defined contribution pension plan: a registered
pension plan that does not promise an employee a specified benefit upon
retirement. Benefits depend on the performance of investments made with
contributions to the plan.
Denomination: The principal amount, or value
at maturity, or a debt obligation. Also known as the par value or face
value.
Depreciation: Charges made against earnings
to write off the cost of a fixed asset over its estimated useful life.
Depreciation does not represent a cash outlay. It is a bookkeeping entry
representing the decline in value of an asset that is wearing out.
Discount: The amount by which a bond sells
on the secondary market at less than its par value or face value.
Distributions: Payments to investors by a
mutual fund from income or from profit realized from sales of securities.
Diversification: The investment in a number
of different securities. This reduces the risks inherent in investing.
Diversification may be among types of securities, companies, industries
or geographic locations.
Dividend: A per-share payment designated by
a company's board of directors to be distributed among shareholders. For
preferred shares, it is generally a fixed amount. For common shares, the
dividend varies with the fortunes of the company and the amount of cash
on hand. It may be omitted if business is poor or the directors withhold
earnings to invest in plant and equipment.
Dividend fund: A mutual fund that invests
in common shares of senior Canadian corporations with a history of regular
dividend payments at above average rates, as well as preferred shares.
Dividend tax credit: An income tax credit
available to investors who earn dividend income through investments in
the shares of Canadian Corporations.
Dollar cost averaging: A principle of investing
which entails the use of equal amounts for investment at regular intervals
in the hope of reducing average share cost by acquiring more shares in
periods of lower securities prices and fewer shares in periods of higher
securities prices.
Earned income: For tax purposes, earned income
is generally the money made by an individual from employment. It also includes
some taxable benefits. Earned income is used as the basis for calculating
RRSP maximum contribution limits.
Earnings statement: A financial statement
showing the income and expenses of a business over a period of time. Also
known as an income statement or profit and loss statement.
Equity: The net worth of a company. This represents
the ownership interest of the shareholders (common and preferred) of a
company. For this reason, shares are often known as equities.
Equity fund: A mutual fund whose portfolio
consists primarily of common stocks.
Face value: The principal amount, or value
at maturity, of a debt obligation. Also known as the par value or denomination.
Fair market value: The price a willing buyer
would pay a willing seller if neither was under any compulsion to buy or
sell. The standard at which property is valued for a deemed disposition.
Fiduciary: An individual or institution occupying
a position of trust. An executor, administrator or trustee. Hence, "fiduciary"
duties.
Fiscal policy: The policy pursued by government
to manage the economy through its spending and taxation powers.
Fixed assets: Assets of a long-term nature,
such as land and buildings.
Fixed dollar withdrawal plan: A plan that
provides the mutual fund investor with fixed-dollar payments at specified
intervals, usually monthly or quarterly.
Fixed liability: Any corporate liability
that will not mature within the following fiscal period. For example, long-term
mortgages or outstanding bonds.
Fixed income investments: Investments that
generate a fixed amount of income that does not vary over the life of the
investment.
Fixed-period withdrawal plan: A plan through
which the mutual fund investor's holdings are fully depleted through regular
withdrawals over a set period of time. A specific amount of capital, together
with accrued income, is systematically exhausted.
Front-end load: A sales charge levied on the
purchase o mutual fund units.
Fundamental analysis: A method of evaluating
the future prospects of a company by analyzing its financial statements.
It may also involve interviewing the management of the company.
Growth stocks: Shares of companies whose earnings
are expected to increase at an above-average rate. Growth stocks are often
typified by their low yields and relatively high price/earnings rations.
Their prices reflect investors' belief in their future earnings in growth.
Guaranteed investment certificates: A deposit
instrument paying a predetermined rate of interest for a specified term,
available from banks, trust companies and other financial institutions.
Income funds: Mutual funds that invest primarily
in fixed-income securities such as bonds, mortgages and preferred shares.
Their primary objective is to produce income for investors, while preserving
capital.
Index fund: A mutual fund that matches its
portfolio to that of a specific financial market index, with the objective
of duplicating the general performance of the market in which it invests.
Inflation: A condition of increasing prices.
In Canada, inflation is generally measured by the Consumer Price Index.
Interest: Payments made by a borrower to a
lender for the use of the lender's money. A corporation pays interest on
bonds to its bondholders.
International fund: A mutual fund that invests
in securities of a number of countries.
Intrinsic value: The amount by which the price
of a warrant or call option exceeds the price at which the warrant or option
may be exercised.
Investment adviser: Investment counsel to a
mutual fund. Also may be the manager of a mutual fund.
Investment company: A corporation or trust
whose primary purpose is to invest the funds of its shareholders.
Investment counsel: A firm or individual
which furnishes investment advice for a fee.
Investment dealer: A securities firm.
Investment fund: A term generally interchangeable
with "mutual fund."
Investment Funds Institute of Canada (IFIC):
The mutual fund industry trade association set up to serve its members,
co-operate with regulatory bodies, and protect the interests of the investing
public that use mutual funds as a medium for their investments.
Issued shares: The number of securities of
a company outstanding. This may be equal to or less than the number of
shares a company is authorized to issue.
Letter of intent: An agreement whereby an investor
agrees to make a series of purchases of mutual fund units.
Leverage: The financial advantage of an investment
that controls property of greater value than the cash invested. Leverage
is usually achieved through the use of borrowed money.
Liabilities: All debts or amounts owing by
a company in the form of accounts payable, loans, mortgages and long-term
debts.
Life annuity: An annuity under which payments
are guaranteed for the life of the annuitant.
Life expectancy adjusted withdrawal plan:
A plan through which a mutual fund investor's holdings are fully depleted
while providing maximum periodic income over the investor's lifetime.
Liquidity: Refers to the ease with which an
investment may be converted to cash at a reasonable price.
Load: Commissions charged to holders of mutual
fund units. (See sales charge.)
Long-term asset: A mutual fund that charges
a commission to purchase its shares.
Long-term debt: Debt that becomes due after
more than one year.
Management company: The entity within a mutual
fund complex responsible for the investment of the fund's portfolio and/or
the administration of the fund. It is compensated on a percentage of the
fund's total assets.
Management expense ratio: A measure of the
total costs of operating a fund as a percentage of average total assets.
Management fee: The sum paid to the investment
company's adviser or manager for supervising its portfolio and administering
its operations.
Margin: An investor's equity in the securities
in his or her account. The margin purchaser puts up a portion of the value
of the securities, borrowing the remainder from the investment dealer.
Marginal tax rate: The rate of tax on the
last dollar of taxable income.
Market index: A vehicle used to denote trends
in securities markets. The most popular in Canada is the Toronto Stock
Exchange 300 Composite Index (TSE 300).
Market price: In the case of a security,
market price is usually considered the last reported price at which the
stock or bond is sold.
Maturity: The date at which a loan or bond
or debenture comes due and must be redeemed or paid off.
Money market: A sector of the capital market
where short term obligations such as Treasury bills, commercial paper and
bankers' acceptances are bought and sold.
Money market fund: A type of mutual fund that
invests primarily in treasury bills and other low-risk, short-term investments.
Money purchase pension plan: Another term
for defined contribution pension plan.
Mortgage fund: A mutual fund that invests in
mortgages. Portfolios of mortgage funds usually consist of first mortgages
on Canadian residential property, although some funds also invest in commercial
mortgages.
Mortgage-backed securities: Certificates that
represent ownership in a pool of mortgages. The holders of these securities
receive regular payments of principal and interest.
Mutual fund: An investment entity that pools
shareholder or unitholder funds and invests in varios securities. The units
or shares are redeemable by the fund on demand by the investor. The value
of the underlying assets of the fund influences the current price of units.
Net asset value: The value of all the holdings
of a mutual fund, less the fund's liabilities.
Net asset value per share: Net asset value
of a mutual fund divided by the number of shares or units outstanding.
This represents the base value of a share of unit of a fund and is commonly
abbreviated to NAVPS.
No-load fund: A mutual fund that does not
charge a fee for buying or selling its shares.
Odd lot: Any number of securities that represents
less than a board lot.
Open-end fund: An open-end mutual fund continuously
issues and redeems units, so the number of units outstanding varies from
day to day. Most mutual funds are open-ended.
Option: The right or obligation to buy or
sell a specific quantity of a security at a specific price within a stipulated
period of time.
Over-the-counter market: A securities market
that exists for securities not listed on stock exchanges. Bonds, money
market securities and many stocks are traded on the over-the-counter market.
Par value: The principal amount, or value at
maturity, of a debt obligation. It is also known as the denomination or
face value. Preferred shares may also have par value, which indicates the
value of assets each share would be entitled to if a company were liquidated.
Pension adjustment: An amount that reduces
the allowable contribution limit to an RRSP based on the benefits earned
from the employee's pension plan or deferred profit sharing plan.
Pension plan: A formal arrangement through
which the employer, and in most cases the employee, contribute to a fund
to provide the employee with a lifetime income after retirement.
Permanent life insurance: Life insurance coverage
for which the policyholder pays an annual premium, generally for the life
of the insured. This type of policy features a savings component, known
as the cash surrender value.
Portfolio: All the securities which an investment
company or an individual investor owns.
Preferred share: An ownership security, senior
to the common stock of a corporation, with preferred claim on assets in
case of liquidation and a specified annual dividend.
Premium: The amount by which a bond's selling
price exceeds its face value. Also, the amounts paid to keep an insurance
policy in force.
Present value: The current worth of an amount
to be received in the future. In the case of an annuity, present value
is the current worth of a series of equal payments to be made in the future.
Price earnings ratio: The market price of
a common share divided by its earnings per share for 12 months.
Primary distribution: A new security issue,
or one that is made available to investors for the first time.
Principal: The person for whom a broker executes
an order, or a dealer buying or selling for his or her own account. Also,
an individual's capital or the face amount of a bond.
Prospectus: The document by which a corporation
or other legal entity offers a new issue of securities to the public.
Ratio withdrawal plan: A type of mutual fund
withdrawal plan that provides investors with an income based on a percentage
of the value of units held.
Real estate fund: A mutual fund that invests
primarily in residential and/or commercial real estate to produce income
and capital gains for its unitholders.
Real estate investment trust: A closed-end
investment company that specializes in real estate or mortgage investments.
Redeemable: Preferred shares or bonds that
giver the issuing corporation an option to repurchase securities at a stated
price. These are also known as callable securities.
Registered Education Savings Plan (RESP):
A plan that enables a contributor, on a tax deferral basis, to accumulate
assets on behalf of a beneficiary to pay for a post secondary education.
Registered Retirement Income Fund (RRIF):
A maturity option available for RRSP assets to provide a stream of income
at retirement.
Registered Retirement Savings Plan (RRSP):
A tax-deferred retirement plan that allows individuals who have not reached
the age of 71 to set aside sums of money, within limits. These sums are
deductible from taxable income and can compound on a tax-free basis.
Retained earnings: The accumulated profits
of a company. These may or may not be reinvested in the business.
Retractable: Bonds or preferred shares that
allow the holder to require the issuer to redeem the security before the
maturity date.
Rights: Options granted to shareholders to
purchase additional shares directly from the company concerned. Rights
are issued to shareholders in proportion to the securities they may hold
in a company.
Risk: the possibility of loss; the uncertainty
of future returns.
Sales charge: In the case of mutual funds,
these are commissions charged to holder of fund units, usually based on
the purchase or redemption price. Sales charges are also known as "loads."
Securities Act: Provincial legislation regulating
the underwriting, distribution and sale of securities.
Shares: A document signifying part ownership
in a company. The terms "share" and "stock" are often used interchangeably.
Shareholders' equity: The amount of a corporation's
assets belonging to its shareholders (both common and preferred) after
allowance for any prior claim.
Short selling: The sale of a security made
by an investor who does not own the security. The short sale is made in
expectation of a decline in the price of a security, which would allow
the investor to then purchase the shares at a lower price in order to deliver
the securities earlier sold short.
Simplified prospectus: An abbreviated and simplified
prospectus distributed by mutual fondes to purchasers and potential purchasers
of units or shares (see prospectus).
Specialty fund: A mutual fund that concentrates
its investments on a specific industrial or economic sector or a defined
geographical area.
Spread: The difference between the rates at
which money is deposited in a financial institution and the higher rates
at which the money is lent out. Also, the difference between the bid and
ask price for a security.
Stock options: Rights to purchase a corporation's
stock at a specified price.
Strip bonds: The capital portion of a bond
from which the coupons have been stripped. The holder of the strip bond
is entitled to its par value at maturity, but not the annual interest payments.
Systematic withdrawal plan: Plans offered
by mutual fund companies that allow unitholders to receive payment from
their investment at regular intervals.
Tax credit: An income tax credit that directly
reduces the amount of income tax paid by offsetting other income tax liabilities.
Tax deduction: A reduction of total income
before the amount of income tax payable is calculated.
Technical analysis: A method of evaluating
future security prices and market directions based on statistical analysis
of variables such as trading volume, price changes, etc., to identify patterns.
Term insurance: Temporary life insurance that
covers the policyholder for a specific time.
Term to 90 annuity: An annuity that pays
a fixed amount each year until it is exhausted in the year that the annuitant
turns 90.
Trade: A securities transaction.
Treasury bill (T-bill): Short-term government
debt. Treasury bills bear no interest, but are sold at a discount. The
difference between the discount price and par value is the return to be
received by the investor.
Trust: An instrument placing ownership of
property in the name of one person, called a trustee, to be held by the
trustee for the use and benefit of some other person.
Underwriter: An investment firm that purchases
a security directly from its issuer for resale to other investment firms
or the public or sells for such issuer to the public.
Unit trust: An unincorporated fund whose organizational
structure permits the conduit treatment of income realized by the fund.
Universal life insurance: A life insurance
term policy that is renewed each year and which has both an insurance component
and an investment component. The investment component invests excess premiums
and generates returns to the policyholder.
Variable life annuity: An annuity providing
a fluctuating level of payments, depending on the performance of its underlying
investments.
Vesting: In pension terms, the right of an
employee to all or part of the employer's contributions, whether in the
form of cash or as a deferred pension.
Voluntary accumulation plan: A plan offered
by mutual fund companies whereby an investor agrees to invest a predetermined
amount on a regular basis.
Warrant: Certificates allowing the holder the
opportunity to buy shares in a company at a stated price over a specified
period. Warrants are usually issued in conjunction with a new issue of
bonds, preferred shares or common shares.
Wrap account: An account offered by investment
dealers whereby investors are charged an annual management fee based on
the value of invested assets.
Yield: Annual rate of return received on investments,
usually expressed as a percentage of the market price of the security.
Yield curve: A graphic representation of the
relationship among yields of similar bonds of differing maturates.
Yield to maturity: The annual rate of return
an investor would receive if a bond were held until maturity.
Zero coupon bond: A bond that pays no interest
and is initially sold at a discount.
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