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Glossary of Terms

A-C    D-F   G-I    J-L    M-O    P-R    S-U    V-Z




A-C

Accrued interest: Interest that has been earned but not received. 
Annual Report: A financial report sent yearly to a publicly held firm's shareholders. This report must be audited by independent auditors. 
Annuity: A contract that guarantees a series of payments in exchange for a lump sum investment. 
Assets: What a firm or individual owns.
Balance Sheet: A financial statement showing the nature and amount of a company's assets, liabilities and shareholders' equity. 
Balanced Funds: A mutual fund that holds a mix of securities – usually money market, bonds and equities. The relative balance of these securities can be changed to take advantage of phases in the economic cycle. 
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. 
Bear Market: A market in which prices are generally falling. 
Bid and Ask: The bid price is the highest price anyone is willing to pay to buy a stock; while the ask is the lowest anyone will accept to sell a stock. Together, the bid and ask prices are referred to as a "quote". 
Blue Chip: A descriptive term usually applied to high grade equity securities. 
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. 
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: A market in which prices are generally rising. 
Buying on Margin: Purchasing a security partly with borrowed money. 
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 Gain or Loss: A income tax term referring to profit or loss resulting from the sale of an asset, such as a security. 
Capital Stock: All classes or types of shares represent ownership of a corporation, both common and preferred.
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. 
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 government and corporate bonds and notes. 
Certificate: A document providing evidence of ownership of a security such as a stock or bond. 
Common Shares: Securities which represent part ownership in a company and generally carry voting privileges.
Compounding: The process by which income is earned on income that has previously been earned.
Consumer Price Index: A statistic that is a measure of 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 over a period of time. 
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. 
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 a trust company, that holds a mutual fund’s securities and cash in safekeeping. 
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D - F

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. 
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. 
Deflation: A condition of decreasing prices. In Canada, deflation is generally measured by the Consumer Price Index.
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. 
Dividend Fund: A mutual fund that holds preferred and common stock that generally pay regular dividends.
Dividend: A portion of a company’s profit paid to the shareholders.
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. 
Equities: Common and preferred stocks, which represent a share in the ownership of a company.
Equity Fund: A mutual fund whose portfolio consists primarily of common and/or preferred stock. 
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. 
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 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. 

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G - I

Guaranteed Investment Certificates (GICs): A deposit instrument paying a predetermined rate of interest for a specified term. Available from banks, trust companies and other financial institutions.
Income Fund: Alternatively called a bond fund. Income funds are a type of mutual fund that holds debt instruments such as government bonds and corporate debentures. Its return is based on both interest earnings and capital gains.
Index Fund: A mutual fund that matches its portfolio to that of a specific financial market index, with the objective of tracking the general performance of the market in which it invests.
Index: Statistical measure of the state of the stock market or economy based on the performance of stocks or other components. 
Inflation: A condition of increasing prices. In Canada, inflation is generally measured by the Consumer Price Index.
Instalment Receipts: This allows the buyer to pay for the stock in instalments instead of one lump sum.
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.
Interlisted: A stock which is listed on more that one exchanges. 
International Fund: A mutual fund that invests in securities from a number of countries.
Investment Advisor: An individual who furnishes investment advice.
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." 
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. 

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J - L

Letter of Intent: An agreement whereby an investor agrees to make a series of purchases of mutual fund units.
Leveraging: The borrowing of money for investment purposes.
Liabilities: All debts or amounts owing by a company in the form of accounts payable, loans, mortgages and long-term debts.
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. 
Load: Commissions charged on the purchase or sale of mutual fund units. 

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M - O

Management Company: The business entity that establishes, promotes and manages a fund or funds.
Management Expense Ratio: A measure of the total cost of operating a fund as a percentage of average total assets.
Margin: The amount paid by clients when they use credit to buy a security. The remainder is loaned by their brokers.
Marginal Tax Rate: The rate of tax on the last dollar of taxable income.
Market Capitalization: Value of a corporation as determined by the market price of its issued and outstanding securities. It is calculated by multiplying the number of outstanding shares by the current market price of a share.
Market Index: A statistic which measures trends in securities markets. 
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 on 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 Purchase Pension Plan: Another term for defined contribution pension plan. 
Mortgage Fund: A mutual fund that holds mortgages. 
Mutual Fund: An investment entity that pools shareholder or unit holder funds and invests in various securities. The units or shares are redeemable by the fund on demand by the investor. The value of the underlying assets of the fund less liabilities establishes the current price of units.
Net Asset Value per Share: Net asset value of a mutual fund divided by the number of shares or units outstanding. This represents the value of a share of unit of a fund and is commonly abbreviated to NAVPS.
Net Asset Value: Net asset value is the price set on a fund’s units by deducting liabilities from assets and dividing by outstanding units.
No-Load Fund: A mutual fund that does not charge a fee for buying or selling its shares.
Open Order: An order to buy of sell a security at a specified price. The order is valid until executed or cancelled.

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P - R

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. 
Portfolio: All the securities which an investment company or an individual investor owns.
Preferred Shares: Shares that carry dividends at fixed rates which must be paid before any dividends are paid to common shareholders. 
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. 
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: A legal document describing securities being offered for sale to the public. It must be prepared in accordance with provincial securities commissions regulations.
Real Estate Fund: A mutual fund that owns real estate, often commercial properties.
Real Estate Investment Trust: A closed-end investment company that specializes in real estate or mortgage investments. 
Real Return: Real Return is the net return of an investment, adjusted for inflation during the time you have held that investment but prior to tax considerations.
Realized Earnings: Realized Earnings is investment income as earned by a fund and considered part of your income.
Redemption: A redemption is the right given to a security holder to sell, at anytime, some or all of his/her units back to the fund for cash.
Registered Education Savings Plan: A Registered Education Savings Plan is a plan that enables the contributor, on a tax deferral basis, to accumulate assets on behalf of a beneficiary to pay for post secondary education. There is no tax deduction given on contributions and certain limits and qualifications apply.
Registered Retirement Income Fund: A Registered Retirement Income Fund is a fund that is commonly used to "store" your accumulated RRSP capital while it is still growing on a tax-deferred basis. However, there are minimum requirements for how much you can take out of a RRIF and all income taken out becomes part of your taxable income.
Registered Retirement Savings Plan: A Registered Retirement Savings Plan is a retirement savings vehicle in which growth is protected from tax until taken into the RRSP owner’s income.
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. 
Risk: The possibility of loss; the uncertainty of future returns.

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S - U

Sales Charge: In the case of mutual funds, these are commissions charged to purchasers of fund units, usually based on the purchase or redemption price. Sales charges are also known as "loads."
Salesperson An investment salesperson or broker who is registered with the provincial securities commission.
Securities Act: Provincial legislation regulating the underwriting, distribution and sale of securities.
Shareholders' Equity: The amount of a corporation's assets belonging to its shareholders (both common and preferred) after allowance for any prior claim. 
Shares: A document signifying part ownership in a company. The terms "share" and "stock" are often used interchangeable.
Stock Options: Rights to purchase a corporation's stock at a specified price. 
Stock Yield: The annual dividend as a percentage of the price of the stock. For example, a stock selling at $40 a share with an annual dividend of $2 a share yields five percent. 
Total Return: Total Return is the change in value of the fund plus any distribution (i.e. capital gain, interest, and dividends) divided by the value of the fund at the beginning of the period (i.e. cost).
Trade: A securities transaction. 
Treasury Bills (T-Bills): Treasury Bills are short-term government issued debt instruments whose return is determined by prevailing market rates of return.
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. 
Underwriting: The purchase for resale of a new issue of securities by an investment dealer or group of dealers.
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. 

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V - Z

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. 
Yield Curve: A graphic representation of the relationship among yields of similar bonds of differing maturities. 
Yield to Maturity: The annual rate of return an investor would receive if a bond were held until maturity.
Yield: Yield is most commonly associated with a money market fund’s return. "Current Yield" is based on daily return, "Effective Yield" on the annual compounded return.

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