Accrued Interest
Interest accumulated on a bond or debenture since the last interest payment date.

Adjusted Cost Base
The deemed cost of an asset representing the sum of the amount originally paid plus any additional costs, such as brokerage fees and commissions.

Everything a company or a person owns or has owed to it. A balance sheet category.

Asset Allocation
Apportioning investment funds among different categories of assets, such as cash, fixed income securities and equities. The allocation of assets is built around an investor’s risk tolerance.

Asset-backed commercial paper (ABCP)
A type of security that has a maturity date of less than one year, typically in the range of 90 to 180 days, with a legal and design structure of an asset-backed security.

Asset Mix
The percentage distribution of assets in a portfolio among the three major asset classes: cash and equivalents, fixed income and equities.

Attribution Rules
A Canada Revenue Agency rule stating that an investor cannot avoid paying taxes at their marginal rate by transferring assets to other family members who have lower personal tax rates.

AveragesA statistical tool used to measure the direction of the market. The most common average is the Dow Jones Industrial Average.

Back-End Load
A sales charge applied on the redemption of a mutual fund.

Balance Sheet
A financial statement showing a company’s assets, liabilities and shareholders’ equity on a given date.

Bank of Canada
Canada’s central bank which exercises its influence on the economy by raising and lowering short-term interest rates.

Bank Rate
The minimum rate at which the Bank of Canada makes short-term advances to the chartered banks, other members of the Canadian Payments Association and investment dealers who trade in the money market.

The legal status of an individual or company that is unable to pay its creditors and whose assets are therefore administered for its creditors by a Trustee in Bankruptcy.

One who expects that the market generally, or the market price of a particular security, will decline. See also Bull.

Bear Market
A sustained decline in equity prices. Bear markets are usually associated with a downturn (recession or contraction) in the business cycle.

Blue Chip
An active, leading, nationally known common stock with a record of continuous dividend payments and other strong investment qualities. The implication is that the company is of “good” investment value.

A Certificate evidencing a debt on which the issuer promises to pay the holder a specified amount of interest based on the coupon rate, for a specified length of time, and to repay the loan on its maturity. Strictly speaking, assets are pledged as security for a bond issue, except in the case of government “bonds”, but the term is often loosely used to describe any funded debt issue.

Book Value
The amount of net assets belonging to the owners of a business (or shareholders of a company) based on balance sheet values. It represents the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated. Also represents the original cost of the units allocated to a segregated fund contract.

An investment dealer or a duly registered individual that is registered to trade in securities in the capacity of an agent or principal and is a member of a Self- Regulatory Organization.

Budget Deficit
Occurs when total spending by the government for the year is higher than revenue collected.

Budget Surplus
Occurs when government revenue for the year exceeds expenditures.

One who expects that the market generally or the market price of a particular security will rise. See also Bear.

Bull Market
A general and prolonged rising trend in security prices. Bull markets are usually associated with an expansionary phase of the business cycle. As a memory aid, it is said that a bull walks with his head up while a bear walks with his head down.

Business Cycle
The recurrence of periods of expansion and recession in economic activity. Each cycle is expected to move through five phases: the trough, recovery, expansion, peak, contraction (recession). Given an understanding of the relationship between the business cycle and security prices an investor or fund manager would select an asset mix to maximize returns.

A company’s purchase of its common shares either by tender or in the open market for cancellation, subsequent resale or for dividend reinvestment plans.

Canada Education Savings Grant (CESG)
An incentive program for those investing in a Registered Education Savings Plan (RESP) whereby the federal government will make a matching grant of a maximum of $500 to $600 per year of the first $2,500 contributed each year to the RESP of a child under age 18.

Canada Pension Plan (CPP)
A mandatory contributory pension plan designed to provide monthly retirement, disability and survivor benefits for all Canadians. Employers and employees make equal contributions. Québec has its own parallel pension plan Québec Pension Plan (QPP).

Canada Premium Bonds (CPBs)
A relatively new type of savings product that offers a higher interest rate compared to the Canada Savings Bond and is redeemable once a year on the anniversary of the issue date or during the 30 days thereafter without penalty.

Canada Savings Bonds (CSBs)
A type of savings product that pays a competitive rate of interest and that is guaranteed for one or more years. They may be cashed at any time and, after the first three months, pay interest up to the end of the month prior to being cashed.

Has two distinct but related meanings. To an economist, it means machinery, factories and inventory required to produce other products. To an investor, it may mean the total of financial assets invested in securities, a home and other fixed assets, plus cash.

Capital Cost Allowance (CCA)
An amount allowed under the Income Tax Act to be deducted from the value of certain assets and treated as an expense in computing an individual’s or company’s income for a taxation year. It may differ from the amount charged for the period in depreciation accounting.

Capital Gain
Selling a security for more than its purchase price. For non-registered securities, 50% of the gain would be added to income and taxed at the investor’s marginal rate.

Capital Loss
Selling a security for less than its purchase price. Capital losses can only be applied against capital gains. Surplus losses can be carried forward indefinitely and used against future capital gains. Only 50% of the loss can be used to offset any taxable capital loss.

Carry Forward
The amount of RRSP contributions that can be carried forward from previous years. For example, if a client was entitled to place $13,500 in an RRSP and only contributed $10,000, the difference of $3,500 would be the unused contribution room and can be carried forward indefinitely.

Cash Account
A type of brokerage account where the investor is expected to have either cash in the account to cover their purchases or where an investor will deliver the required amount of cash before the settlement date of the purchase.

Cash Flow
A company’s net income for a stated period plus any deductions that are not paid out in actual cash, such as depreciation and amortization, deferred income taxes, and minority interest. For an investor, any source of income from an investment including dividends, interest income, rental income, etc.

Central Bank
A body established by a national Government to regulate currency and monetary policy on a national level. In Canada, it is the Bank of Canada; in the United States, the Federal Reserve Board; in the U.K., the Bank of England.

Class A and B Stock
Shares that have different classes sometimes have different rights. Some may have superior claims over other classes or may have different voting rights. Class A stock is often similar to a participating preferred share with a prior claim over Class B for a stated amount of dividends or assets or both, but without voting rights; the Class B may have voting rights but no priority as to dividends or assets. Note that these distinctions do not always apply.

Closed-End Fund
Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed. See also Investment Company.

Closet Indexing
A portfolio strategy whereby the fund manager does not replicate the market exactly but sticks fairly close to the market weightings by industry sector, country or region or by the average market capitalization.

Commercial Paper
An unsecured promissory note issued by a corporation or an asset-backed security backed by a pool of underlying financial assets. Issue terms range from less than three months to one year. Most corporate paper trades in $1,000 multiples, with a minimum initial investment of $25,000. Commercial paper may be bought and sold in a secondary market before maturity at prevailing market rates.

The fee charged by a stockbroker for buying or selling securities as agent on behalf of a client.

A product used for commerce that is traded on an organized exchange. A commodity could be an agricultural product such as canola or wheat, or a natural resource such as oil or gold. A commodity can be the basis for a futures contract.

Common Stock
Securities representing ownership in a company. They carry voting privileges and are entitled to the receipt of dividends, if declared. Also called common shares.

Compound Interest
Interest earned on an investment at periodic intervals and added to the amount of the investment; future interest payments are then calculated and paid at the original rate but on the increased total of the investment. In simple terms, interest paid on interest.

Consumer Price Index (CPI)
Price index which measures the cost of living by measuring the prices of a given basket of goods. The CPI is often used as an indicator of inflation.

Contributions in Kind
Transferring securities into an RRSP. The general rules are that when an asset is transferred there is a deemed disposition. Any capital gain would be reported and taxes paid. Any capital losses that result cannot be claimed.

Conversion Price
The dollar value at which a convertible bond or security can be converted into common stock.

Conversion Ratio
The number of common shares for which a convertible security can be exchanged. Convertible preferreds and debentures would have a stated number outlined in their prospectus or indenture as to the exchange rate. For example, the conversion ratio on a bond may be 25. This means that the bond could be exchanged for 25 common shares. If the conversion ratio is divided into par value, the result is called the conversion price.

A bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company, in accordance with the terms of the conversion privilege. A company can force conversion by calling in such shares for redemption if the redemption price is below the market price.

Corporation or Company
A form of business organization created under provincial or federal statutes which has a legal identity separate from its owners. The corporation’s owners (shareholders) have no personal liability for its debts. See also Limited Liability.

A measure of the relationship between two or more securities. If two securities mirror each other’s movements perfectly, they are said to have a positive one (+1) correlation. Combining securities with high positive correlations does not reduce the risk of a portfolio. Combining securities that move in the exact opposite direction from each other are said to have perfect negative one (-1) correlation. Combining two securities with perfect negative correlation reduces risk. Very few, if any, securities have a perfect negative correlation. However, risk in a portfolio can be reduced if the combined securities have low positive correlations.

Coupon Rate
The rate of interest that appears on the Certificate of a bond. Multiplying the coupon rate times the principal tells the holder the dollar amount of interest to be paid by the issuer until maturity. For example, a bond with a principal of $1,000 and a coupon of 10% would pay $100 in interest each year. Coupon rates remain fixed throughout the term of the bond. See also Yield.

Current Account
Account that Reflects all payments between Canadians and foreigners for goods, services, interest and dividends. Along with the capital account it is a component of the balance of payments.

Current Assets
Cash and assets which in the normal course of business would be converted into cash, usually within a year, e.g. accounts receivable, inventories. A balance sheet category.

Current Liabilities
Money owed and due to be paid within a year, e.g. accounts payable. A balance sheet category.

Current Ratio
A liquidity ratio that shows a company’s ability to pay its current obligations from current assets. A current ratio of 2:1 is the generally accepted standard. See also Quick Ratio.

Current Yield
The annual income from an investment expressed as a percentage of the investment’s current value. On stock, calculated by dividing yearly dividend by market price; on bonds, by dividing the coupon by market price. See also Yield.

Cyclical Stock
A stock in an industry that is particularly sensitive to swings in economic conditions. Cyclical Stocks tend to rise quickly when the economy does well and fall quickly when the economy contracts. In this way, cyclicals move in conjunction with the business cycle. For example, during periods of expansion auto stocks do well as individuals replace their older vehicles. During recessions, auto sales and auto company share values decline.

Cyclical Unemployment
The amount of unemployment that rises when the economy softens, firms’ demand for labour moderates, and some firms lay off workers in response to lower sales. It drops when the economy strengthens again.

A Certificate of indebtedness of a government or company backed only by the general credit of the issuer and unsecured by mortgage or lien on any specific asset. In other words, no specific assets have been pledged as collateral.

Money borrowed from lenders for a variety of purposes. The borrower typically pays interest for the use of the money and is obligated to repay it at a set date.

Debt/Equity Ratio
A ratio that shows whether a company’s borrowing is excessive. The higher the ratio, the higher the financial risk.

Debt Ratios
Financial ratios that show how well the company can deal with its debt obligations.

Declining Industry
An industry moving from the maturity stage. It tends to grow at rates slower than the overall economy, or the growth rate actually begins to decline.

Deemed Disposition
Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale, e.g., there is a deemed disposition on death or emigration from Canada.

A bond is in default when the borrower has failed to live up to its obligations under the trust deed with regard to interest, sinking fund payments or has failed to redeem the bonds at maturity.

Default Risk
The risk that a debt security issuer will be unable to pay interest on the prescribed date or the principal at maturity. Default risk applies to debt securities not equities since equity dividend payments are not contractual.

Defensive Stock
A stock of a company with a record of stable earnings and continuous dividend payments and which has demonstrated relative stability in poor economic conditions. For example, utility stock values do not usually change from periods of expansion to periods of recession since most individuals use a constant amount of electricity.

Defined Benefit Plan
A type of registered pension plan in which the annual payout is based on a formula. The plan pays a specific dollar amount at retirement using a predetermined formula.

Defined Contribution Plan
A type of registered pension plan where the amount contributed is known but the dollar amount of the pension to be received is unknown. Also known as a money purchase plan.

Refers to consumption of natural resources that are part of a company’s assets. Producing oil, mining and gas companies deal in products that cannot be replenished and as such are known as wasting assets. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.

Systematic charges against earnings to write off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not involve the expenditure of cash.

A type of financial instrument whose value is based on the performance of an underlying financial asset, commodity, or other investment. Derivatives are available on interest rates, currency, stock indexes. For example, a call option on IBM is a derivative because the value of the call varies in relation to the performance of IBM stock. See also Options.

The amount by which a preferred stock or bond sells below its par value.

Discount Brokers
Brokerage house that buys and sells securities for clients at a greater commission discount than full-service firms.

A decline in the rate at which prices rise – i.e., a decrease in the rate of inflation. Prices are still rising, but at a slower rate.

Disposable Income
Personal income minus income taxes and any other transfers to government.

Spreading investment risk by buying different types of securities in different companies in different kinds of businesses and/or locations.

An amount distributed out of a company’s profits to its shareholders in proportion to the number of shares they hold. Over the years a preferred dividend will remain at a fixed annual amount. The amount of common dividends may fluctuate with the company’s profits. A company is under no legal obligation to pay preferred or common dividends.

Dividend Payout Ratio
A ratio that measures the amount or percentage of the company’s net earnings that are paid out to shareholders in the form of dividends.

Dividend Reinvestment Plan
The automatic reinvestment of shareholder dividends in more shares of the company’s stock.

Dividend Tax Credit
A procedure to encourage Canadians to invest in preferred and common shares of taxable, dividend-paying Canadian corporations. The taxpayer pays tax based on grossing up (i.e., adding 4 5% to the amount of dividends actually received) and obtains a credit against federal and provincial tax based on the grossed up amount in the amount of 19%.

Dividend Yield
A value ratio that shows the annual dividend rate expressed as a percentage of the current market price of a stock. Dividend yield represents the investor’s percentage return on investment at its prevailing market price.

Dollar Cost Averaging
Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time, thereby reducing the average cost paid per unit.

Domestic Bonds
Bonds issued in the currency and country of the issuer. For example, a Canadian dollar-denominated bond, issued by a Canadian company, in the Canadian market would be considered a domestic bond.

Dow Jones Industrial Average (DJIA)
A price-weighted average that uses 30 actively traded blue chip companies as a measure of the direction of the New York Stock Exchange.

A measure of bond price volatility. The approximate percentage change in the price or value of a bond or bond portfolio for a 1% point change in interest rates. The higher the duration of a bond the greater its risk.

Dynamic Asset Allocation
An asset allocation strategy that refers to the systematic rebalancing, either by time period or weight, of the securities in the portfolio, so that they match the long-term benchmark asset mix among the various asset classes.

Earned Income
Income that is designated by Canada Revenue Agency for RRSP calculations. Most types of revenues are included with the exception of any form of investment income and pension income.

Earnings or Income Statement
A financial statement which shows a company’s revenues and expenditures resulting in either a profit or a loss during a financial period.

Earnings Per Share (EPS)
A value ratio that shows the portion of net income for a period attributable to a single common share of a company. For example, a company with $100 million in earnings and with 100 million common shareholders would report an EPS of $1 per share.

Economic Indicators
Statistics or data series that are used to analyze business conditions and current economic activity. See also leading, lagging, and coincident indicators.

Ownership interest in a corporation’s stock that represents a claim on its earnings and assets. See also Stock.

Exchange Rate
The price at which one currency exchanges for another.

Exchange-Traded Funds (ETFs)
Open-ended mutual fund trusts that hold the same stocks in the same proportion as those included in a specific stock index. Shares of an exchange-traded fund trade on major stock exchanges. Like index mutual funds, ETFs are designed to mimic the performance of a specified index by investing in the constituent companies included in that index. Like the stocks in which they invest, shares can be traded throughout the trading day.

A term that denotes that when a person purchases a common or preferred share, they are not entitled to the dividend payment. Shares go ex-dividend two business days prior to the shareholder record date.

Extraordinary Items
An event not typical of normal business activity and do not occur on a regular basis. For example, a company may write off an underperforming division or it may sell a large amount of real estate in a given fiscal year. The results of these special gains or losses are included as an extraordinary item on the earnings statement.

Face Value
The value of a bond or debenture that appears on the face of the Certificate. Face value is ordinarily the amount the issuer will pay at maturity. Face value is no indication of market value.

Fee-Based Accounts
A type of account that bundles various services into a fee based on the client’s assets under management, for example, 1% to 3% of client assets.

Fiscal Policy
The policy pursued by the federal government to influence economic growth through the use of taxation and government spending to smooth out the fluctuations of the business cycle.

Fiscal Year
A company’s accounting year. Due to the nature of particular businesses, some companies do not use the calendar year for their bookkeeping. A typical example is the department store that finds December 31 too early a date to close its books after the Christmas rush and so ends its fiscal year on January 31.

Fixed Asset
A tangible long-term asset such as land, building or machinery, held for use rather than for processing or resale. A balance sheet category.

Fixed-Income Securities
Securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares.

Floating Exchange Rate
A country whose central bank allows market forces alone to determine the value of its currency, but will intervene if it thinks the move in the exchange rate is excessive or disorderly.

Floating Rate
A term used to describe the interest payments negotiated in a particular contract. In this case, a floating rate is one that is based on an administered rate, such as the Prime Rate. For example, the rate for a particular note may be 2% over Prime. See also Fixed Rate.

Floating-Rate Debentures
A type of debenture that offers protection to investors during periods of very volatile interest rates. For example, when interest rates are rising, the interest paid on floating rate debentures is adjusted upwards every six months.

Foreign Bonds
If a Canadian company issues debt securities in another country, denominated in that foreign country’s currency, the bond is known as a foreign bond. A bond issued in the U.S. payable in U.S. dollars is known as a foreign bond or a “Yankee Bond.” See also Eurobond. Foreign Exchange Rate Risk The risk associated with an investment in a foreign security or any investment that pays in a denomination other than Canadian dollars, the investor is subject to the risk that the foreign currency may depreciate in value.

Front-End Load
A sales charge applied to the purchase price of a mutual fund when the fund is originally purchased.

Fundamental Analysis
Security analysis based on fundamental facts about a company as revealed through its financial statements and an analysis of economic conditions that affect the company’s business. See also Technical Analysis.

Acronym for Generally Accepted Accounting Principles which are conventions, procedures and guidelines for accounting practices.

Generally understood to represent the value of a well-respected business – its name, customer relations, employee relations, among others. Considered an intangible asset on the balance sheet.

Gross Domestic Product (GDP)
The value of all goods and services produced in a country in a year.

Gross Profit Margin
A profitability ratio that shows the company’s rate of profit after allowing for cost of goods sold.

Growth Stock
Common stock of a company with excellent prospects for above-average growth; a company which over a period of time seems destined for above-average expansion.

Guaranteed Income Supplement (GIS)
A pension payable to OAS recipients with no other or limited income.

Guaranteed Investment Certificate (GIC)
A deposit instrument most commonly available from trust companies, requiring a minimum investment at a predetermined rate of interest for a stated term. Generally nonredeemable prior to maturity but there can be exceptions.

Income Splitting
A tax planning strategy whereby the higher-earning spouse transfers income to the lower-earning spouse to reduce taxable income.

Income Trusts
A type of investment trust that holds investments in the operating assets of a company. Income from these operating assets flows through to the trust, which in turn passes on the income to the trust unitholders.

A measure of the market as measured by a basket of securities. An example would be the S&P/TSX Composite Index or the S&P 500. Fund managers and investors use a stock index to measure the overall direction and performance of the market.

Index-Linked GICs
A hybrid investment product that combines the safety of a deposit instrument with some of the growth potential of an equity investment. They have grown in popularity, particularly among conservative investors who are concerned with safety of capital but want yields greater than the interest on standard interest bearing GICs or other term deposits.

A portfolio management style that involves buying and holding a portfolio of securities that matches, closely or exactly, the composition of a benchmark index.

A generalized, sustained trend of rising prices.

Inflation Rate
The rate of change in prices. See also Consumer Price Index.

Inflation Rate Risk
The risk that the value of financial assets and the purchasing power of income will decline due to the impact of inflation on the real returns produced by those financial assets.

Initial Public Offering (IPO)
A new issue of securities offered to the public for investment for the very first time. IPOs must adhere to strict government regulations as to how the investments are sold to the public.

Initial Sales Charge
A commission paid to the financial adviser at the time that the policy is purchased. This type of sales charge is also known as an acquisition fee or a front-end load.

All directors and senior officers of a corporation and those who may also be presumed to have access to nonpublic or inside information concerning the company; also anyone owning more than 10% of the voting shares in a corporation. Insiders are prohibited from trading on this information.

Money charged by a lender to a borrower for the use of his or her money.

Interest Coverage Ratio
A debt ratio that tests the ability of a company to pay the interest charges on its debt and indicates how many times these charges are covered based upon earnings available to pay them.

Interest Rate Risk
The risk that changes in interest rates will adversely affect the value of an investor’s portfolio. For example, a portfolio with a large holding of long-term bonds is vulnerable to significant loss from changes in interest rates.

International Monetary Fund (IMF)
Entity whose purpose is to promote cooperation and collaboration on international monetary and trade issues.

The goods and supplies that a company keeps in stock. A balance sheet item.

Inventory Turnover Ratio
Cost of goods sold divided by inventory. The ratio may also be expressed as the number of days required to sell current inventory by dividing the ratio into 365.

Investment Company, or Fund
A company which uses its capital to invest in other companies. There are two principal types: closed-end and open-end or mutual fund. Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed. Open-end funds sell their own new shares to investors, buy back their old shares, and are not listed. Open-end funds are so-called because their capitalization is not fixed; they normally issue more shares or units as people want them.

Issued Shares
That part of authorized shares that have been sold by the corporation and held by the shareholders of the company.

Know Your Client Rule (KYC)
The cardinal rule in making investment recommendations. All relevant information about a client must be known in order to ensure that the registrant’s recommendations are suitable.

Labour Force
The sum of the population aged 15 years and over who are either employed or unemployed.

Labour Sponsored Venture Capital Corporations (LSVCC)
LSVCCs are investment funds, sponsored by labour organizations, that have a specific mandate to invest in small to medium-sized businesses. To encourage this mandate, governments offer generous tax credits to investors in LSVCCs.

Lagging Indicators
A selection of statistical data, that on average, indicate highs and lows in the business cycle behind the economy as a whole. These relate to business expenditures for new plant and equipment, consumers’ instalment credit, short-term business loans, the overall value of manufacturing and trade inventories.

Leading Indicators
A selection of statistical data that, on average, indicate highs and lows in the business cycle ahead of the economy as a whole. These relate to employment, capital investment, business starts and failures, profits, stock prices, inventory adjustment, housing starts and certain commodity prices.

The effect of fixed charges (i.e., debt interest or preferred dividends, or both) on per-share earnings of common stock. Increases or decreases in income before fixed charges result in magnified percentage increases or decreases in earnings per common share. Leverage also refers to seeking magnified percentage returns on an investment by using borrowed funds, margin accounts or securities which require payment of only a fraction of the underlying security’s value (such as rights, warrants or options).

Debts or obligations of a company, usually divided into current liabilities—those due and payable within one year—and long-term liabilities—those payable after one year. A balance sheet category.

Limited Liability
The word limited at the end of a Canadian company’s name implies that liability of the company’s shareholders is limited to the money they paid to buy the shares. By contrast, ownership by a sole proprietor or partnership carries unlimited personal legal responsibility for debts incurred by the business.

Limited Partnership
A type of partnership whereby a limited partner cannot participate in the daily business activity and liability is limited to the partner’s investment.

1. The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. 2. A corporation’s current assets relative to its current liabilities; its cash position.

Liquidity Risk
The risk that an investor will not be able to buy or sell a security quickly enough because buying or selling opportunities are limited.

Listed Stock
The stock of a company which is traded on a stock exchange.

Load Fund
The portion of the offering price of shares of most open-end investment companies (mutual funds) which covers sales commissions and all other costs of distribution.

Long-Term Bond
A bond with greater than 10 years remaining to maturity.

Macroeconomics focuses on the performance of the economy as a whole. It looks at the broader picture and to the challenges facing society as a result of the limited amounts of natural resources, human effort and skills, and technology.

Management Expense Ratio
The total expense of operating a mutual fund expressed as a percentage of the fund’s net asset value. It includes the management fee as well as other expenses charged directly to the fund such as administrative, audit, legal fees etc., but excludes brokerage fees. Published rates of return are calculated after the management expense ratio has been deducted.

Management Fee
The fee that the manager of a mutual fund or a segregated fund charges the fund for managing the portfolio and operating the fund. The fee is usually set as fixed percentage of the fund’s net asset value.

The amount of money paid by a client when he or she uses credit to buy a security. It is the difference between the market value of a security and the amount loaned by an investment dealer.

Margin Agreement
A contract that must be completed and signed by a client and approved by the firm in order to open a margin account. This sets out the terms and conditions of the account.

Margin Call
When an investor purchases an account on margin in the expectation that the share value will rise, or shorts a security on the expectation that share price will decline, and share prices go against the investor, the brokerage firm will send out a margin call requiring that the investor add additional funds or marketable securities to the account to protect the broker’s loan.

Marginal Tax Rate
The tax rate that would have to be paid on any additional dollars of taxable income earned

Market Capitalization
The dollar value of a company based on the market price of its issued and outstanding common shares. It is calculated by multiplying the number of outstanding shares by the current market price of a share.

Market Timing
Decisions on when to buy or sell securities based on economic factors, such as the strength of the economy and the direction of interest rates, or based on stock price movements and the volume of trading through the use of technical analysis.

A measure of the ability to buy and sell a security. A security has good marketability if there is an active secondary market in which it can be easily bought and sold at a fair price.

The date on which a loan or a bond or debenture comes due and is to be paid off.

Medium-Term Bond
A bond with 5 to 10 years remaining to maturity.

Analyzes the market behaviour of individual consumers and firms, how prices are determined, and how prices determine the production, distribution, and use of goods and services.

Monetary Policy
Economic policy designed to improve the performance of the economy by regulating money supply and credit. The Bank of Canada achieves this through its influence over short-term interest rates.

Money Market
That part of the capital market in which short-term financial obligations are bought and sold. These include treasury bills and other federal government securities, and commercial paper, and bankers’ acceptances and other instruments with one year or less left to maturity. Longer term securities, when their term shortens to the limits mentioned, are also traded in the money market.

Money Purchase Plan (MPP)
A type of Registered Pension Plan; also called a Defined Contribution Plan. In this type of plan, the annual payout is based on the contributions to the plan and the amounts those contributions have earned over the years preceding retirement. In other words, the benefits are not known but the contributions are.

A contract specifying that certain property is pledged as security for a loan.

Mortgage-Backed Securities
Bonds that claim ownership to a portion of the cash flows from a group or pool of mortgages. They are also known as mortgage pass-through securities. A servicing intermediary collects the monthly payments from the issuers and, after deducting a fee, passes them through (i.e., remits them) to the holders of the security. The MBS provides liquidity in an otherwise illiquid market. Every month, holders receive a proportional share of the interest and principal payments associated with those mortgages.

Mortgage Bond
A bond issue secured by a mortgage on the issuer’s property.

Moving Average
The average of security or commodity prices calculated by adding the closing prices for the underlying security over a pre-determined period and dividing the total by the time period selected.

A colloquial term for the Price/Earnings ratio of a company’s common shares.

Mutual Fund
An investment fund operated by a company that uses the proceeds from shares and units sold to investors to invest in stocks, bonds, derivatives and other financial securities. Mutual funds offer investors the advantages of diversification and professional management and are sold on a load or no load basis. Mutual fund shares/units are redeemable on demand at the fund’s current net asset value per share (NAVPS).

An acronym for the National Association of Securities Dealers Automated Quotation System. NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded OTC.

National Debt
The accumulation of total government borrowing over time .It is the sum of past deficits minus the sum of past surpluses.

Net Asset Value
For a mutual fund, net asset value represents the market value of the fund’s share and is calculated as total assets of a corporation less its liabilities. Net asset value is typically calculated at the close of each trading day. Also referred to as the book value of a company’s different classes of securities.

Net Earnings
That part of a company’s profits remaining after all expenses and taxes have been paid and out of which dividends may be paid.

Net Profit Margin
A profitability ratio that indicates how efficiently the company is managed after taking into account both expenses and taxes.

New Issue
An offering of stocks or bonds sold by a company for the first time. Proceeds may be used to retire outstanding securities of the company, to purchase fixed assets or for additional working capital. New debt issues are also offered by government bodies.

New York Stock Exchange (NYSE)
Oldest and largest stock exchange in North America with more than 1,600 companies listed on the exchange.

A preferred dividend that does not accrue or accumulate if unpaid.

Old Age Security (OAS)
A government pension plan payable at age 65 to all Canadian citizens and legal residents.

Operating Income
The income that a company records from its main ongoing operations.

A right to buy or sell specific securities or properties at a specified price within a specified time. See Put Options and Call Options.

Option Premium
The amount paid to enter into an option contract, paid by the buyer to the seller or writer of the contract.

Option Writer
The seller of the option who may be obligated to buy (put writer) or sell (call writer) the underlying interest if assigned by the option buyer.

A call option is out-of-the-money if the market price of the underlying security is below its strike price. A put option is out-of-the-money if the market price of the underlying security is above the strike price.

Outstanding Shares
That part of issued shares which remains outstanding in the hands of investors.

An amount made in excess to the annual limit made to an RRSP. An overcontribution in excess of$2,000 is penalized at a rate of 1% per month.

Paper Profit
An unrealized profit on a security still held. Paper profits become realized profits only when the security is sold. A paper loss is the opposite to this.

Par Value
The stated face value of a bond or stock (as assigned by the company’s charter) expressed as a dollar amount per share. Par value of a common stock usually has little relationship to the current market value and so no par value stock is now more common. Par value of a preferred stock is significant as it indicates the dollar amount of assets each preferred share would be entitled to should the company be liquidated.

Penny Stocks
Low-priced speculative issues selling at less than $1 a share. Frequently used as a term of disparagement, although some penny stocks have developed into investment calibre issues.

Pension Adjustment (PA)
The amount of contributions made or the value of benefits accrued to a member of an employer-sponsored retirement plan for a calendar year. The PA enables the individual to determine the amount that may be contributed to an RRSP that would be in addition to contributions into a Registered Pension Plan.

Personal Disposable Income
The amount of personal income an individual has after taxes. The income that can be spent on necessities, nonessential goods and services, or that can be saved.

Political Risk
The risk associated with a government introducing unfavourable policies making investment in the country less attractive. Political risk also refers to the general instability associated with investing in a particular country.

Holdings of securities by an individual or institution. A portfolio may contain debt securities, preferred and common stocks of various types of enterprises and other types of securities.

Preferred Shares
A class of share capital that entitles the owners to a fixed dividend ahead of the company’s common shares and to a stated dollar value per share in the event of liquidation. Usually do not have voting rights unless a stated number of dividends have been omitted. Also referred to as preference shares.

Price-Earnings (P/E) Ratio
A value ratio that gives investors an idea of how much they are paying for a company’s earnings. Calculated as the current price of the stock divided current earnings per share.

Prime Rate
The interest rate chartered banks charge to their most credit-worthy borrowers.

The person for whom a broker executes an order, or a dealer buying or selling for its own account. The term may also refer to a person’s capital or to the face amount of a bond.

A provincial fee charged for authenticating a will. The fee charged is usually based on the value of the assets in an estate rather than the effort to process the will.

The amount of output per worker used as a measure of efficiency with which people and capital are combined in the output of the economy. Productivity gains lead to improvements in the standard of living, because as labour, capital, etc. produce more, they generate greater income.

Program Trading
A sophisticated computerized trading strategy whereby a portfolio manager attempts to earn a profit from the price spreads between a portfolio of equities similar or identical to those underlying a designated stock index, e.g., the Standard & Poor 500 Index, and the price at which futures contracts (or their options) on the index trade in financial futures markets. Also refers to switching or trading blocks of securities in order to change the asset mix of a portfolio.

Put Option
A right to sell the stock at a stated price within a given time period. Those who think a stock may go down generally purchase puts. See also Call Option.

Quick Ratio
A more stringent measure of liquidity compared with the current ratio. Calculated as current assets less inventory divided by current liabilities. By excluding inventory, the ratio focuses on the company’s more liquid assets.

Random Walk Theory
The theory that stock price movements are random and bear no relationship to past movements.

Real Estate Investment Trust (REIT)
An investment trust that specializes in real estate related investments including mortgages, construction loans, land and real estate securities in varying combinations. A REIT invests in and manages a diversified portfolio of real estate.

Real GDP
Gross Domestic Product adjusted for changes in the price level. Also referred to as constant dollar GDP.

Record Date
The date on which a shareholder must officially own shares in a company to be entitled to a declared dividend. Also referred to as the date of record.

Registered Education Savings Plans (RESPs)
A type of government sponsored savings plan used to finance a child’s post secondary education.

Registered Pension Plan (RPP)
A trust registered with Canada Revenue Agency and established by an employer to provide pension benefits for employees when they retire. Both employer and employee may contribute to the plan and contributions are tax-deductible. See also Defined Contribution Plan and Defined Benefit Plan.

Registered Retirement Income Fund (RRIF)
A tax deferral vehicle available to RRSP holders. The planholder invests the funds in the RRIF and must withdraw a certain amount each year. Income tax would be due on the funds when withdrawn.

Registered Retirement Savings Plan (RRSP)
An investment vehicle available to individuals to defer tax on a specified amount of money to be used for retirement. The holder invests money in one or more of a variety of investment vehicles which are held in trust under the plan. Income tax on contributions and earnings within the plan is deferred until the money is withdrawn at retirement. RRSPs can be transferred into Registered Retirement Income Funds upon retirement.

Resistance Level
The opposite of a support level. A price level at which the security begins to fall as the number of sellers exceeds the number of buyers of the security.

Restricted Shares
Shares that participate in a company’s earnings and assets (in liquidation), as common shares do, but generally have restrictions on voting rights or else no voting rights.

Retail Investor
Individual investors who buy and sell securities for their own personal accounts, and not for another company or organization. They generally buy in smaller quantities than larger institutional investors.

Retained Earnings
The cumulative total of annual earnings retained by a company after payment of all expenses and dividends. The earnings retained each year are reinvested in the business.

Retained Earnings Statement
A financial statement that shows the profit or loss in a company’s most recent year.

A feature which can be included in a new debt or preferred issue, granting the holder the option under specified conditions to redeem the security on a stated date – prior to maturity in the case of a bond.

Return on Equity
A profitability ratio expressed as a percentage representing the amount earned on a company’s common shares. Return on equity tells the investor how effectively their money is being put to use.

Return on Invested Capital
A profitability ratio that shows the amount earned on a company’s total capital – the sum of its common and preferred shares and long-term debt. It is a useful measure of management efficiency.

Risk-Free Rate
The rate of return an investor would receive if he or she invested in a risk free investment, such as a treasury bill.

Risk Premium
A rate that has to be paid in addition to the risk free rate (T-bill rate) to compensate investors for choosing securities that have more risk than T-Bills.

The Securities and Exchange Commission, a federal body established by the United States Congress, to protect investors in the U.S. In Canada there is no national regulatory authority; instead, securities legislation is provincially administered.

Segregated Funds
Insurance companies sell these funds as an alternative to conventional mutual funds. Like mutual funds, segregated funds offer a range of investment objectives and categories of securities e.g. equity funds, bond funds, balanced funds etc. These funds have the unique feature of guaranteeing that, regardless of how poorly the fund performs, at least a minimum percentage (usually 75% or more) of the investor’s payments into the fund will be returned when the fund matures.

Self-Directed RRSP
A type of RRSP whereby the holder invests funds or contributes certain acceptable assets such as securities directly into a registered plan which is usually administered for a fee by a Canadian financial services company.

Settlement Date
The date on which a securities buyer must pay for a purchase or a seller must deliver the securities sold. For most securities, settlement must be made on or before the third business day following the transaction date.

Shareholders’ Equity
A balance sheet item that represents the excess of the company’s assets over its liabilities and shows shareholder’s interest in the company. Also referred to as net worth as it represents the ownership interest of common and preferred shareholders in a company.

Short Sale
The sale of a security which the seller does not own. This is a speculative practice done in the belief that the price of a stock is going to fall and the seller will then be able to cover the sale by buying it back later at a lower price, thereby making a profit on the transactions. It is illegal for a seller not to declare a short sale at the time of placing the order. See also Margin.

Short-Term Bond
A bond with greater than one year but less than five years to maturity.

Short-Term Debt
Company borrowings repayable within one year that appear in the current liabilities section of the balance sheet. The most common short-term debt items are: bank advances or loans, notes payable and the portion of funded debt due within one year.

Small Cap
Reference to smaller growth companies. Small cap refers to the size of the capitalization or investments made in the company. A small cap company has been defined as a company with an outstanding stock value of under $500 million. Small cap companies are considered more volatile than large cap companies.

Soft Landing
Describes a business cycle phase when economic growth slows sharply but does not turn negative, while inflation falls or remains low.

Soft Retractable Preferred Shares
A type of retractable preferred share where the redemption value may be paid in cash or in common shares, generally at the election of the issuer.

An acronym for the Standard & Poor Depository Receipts (a type of derivative). These mirror the S&P 500 Index. They are referred to as “Spiders”.

One who is prepared to accept calculated risks in the marketplace. Objectives are usually short to medium-term capital gain, as opposed to regular income and safety of principal, the prime objectives of the conservative investor.

S&P/TSX Composite Index
A benchmark used to measure the performance of the broad Canadian equity market.

Spousal RRSP
A special type of RRSP to which one spouse contributes to a plan registered in the beneficiary spouse’s name. The contributed funds belong to the beneficiary but the contributor receives the tax deduction. If the beneficiary removes funds from the spousal plan in the year of the contribution or in the subsequent two calendar years, the contributor must pay taxes on the withdrawn amount.

Stock Dividend
A pro rata payment to common shareholders of additional common stock. Such payment increases the number of shares each holder owns but does not alter a shareholder’s proportional ownership of the company.

Stock Exchange
A marketplace where buyers and sellers of securities meet to trade with each other and where prices are established according to laws of supply and demand.

Stock Savings Plan
Some provinces allow individual residents of the particular province a deduction or tax credit for provincial income tax purposes on investments made in certain prescribed vehicles. The credit or deduction is a percentage figure based on the value of investment.

Stock Split
An increase in a corporation’s number of shares outstanding without any change in the shareholders’ equity or market value. When a stock reaches a high price making it illiquid or difficult to trade, management may split the stock to get the price into a more marketable trading range. For example, an investor owns one standard trading unit of a stock that now trades at $70 each (portfolio value is $7,000). Management splits the stock 2:1. The investor would now own 200 new shares at a market value, all things being equal, of $35 each, for a portfolio value of $7,000.

Strategic Asset Allocation
An asset allocation strategy that rebalances investment portfolios regularly to maintain a consistent long-term mix.

Strike Price
The price, as specified in an option contract, at which the underlying security will be purchased in the case of a call or sold in the case of a put. See also Exercise Price.

Strip Bonds or Zero Coupon Bonds
Usually high quality federal or provincial government bonds originally issued in bearer form, where some or all of the interest coupons have been detached. The bond principal and any remaining coupons (the residue) then trade separately from the strip of detached coupons, both at substantial discounts from par.

Superficial Losses
Occur when an investment is sold and then repurchased at any time in a period that is 30 days before or after the sale.

Supply-Side Economics
An economic theory whereby changes in tax rates exert important effects over supply and spending decisions in the economy. According to this theory, reducing both government spending and taxes provides the stimulus for economic expansion.

Systematic Withdrawal Plan
A plan that enables set amounts to be withdrawn from a mutual fund or a segregated fund on a regular basis.

T3 Form
Referred to as a Statement of Trust Income Allocations and Designations. When a mutual fund is held outside a registered plan, unitholders of an unincorporated fund is sent a T3 form by the respective fund.

T4 Form
Referred to as a Statement of Remuneration Paid. A T4 form is issued annually by employers to employees reporting total compensation for the calendar year. Employers have until the end of February to submit T4 forms to employees for the previous calendar year.

T5 Form
Referred to as a Statement of Investment Income. When a mutual fund is held outside a registered plan, shareholders are sent a T3 form by the respective fund.

Tactical Asset Allocation
An asset allocation strategy that involves adjusting a portfolio to take advantage of perceived inefficiencies in the prices of securities in different asset classes or within sectors.

Tax Free Savings Account (TFSA)
A savings vehicle whereby income earned within a TFSA will not be taxed in any way throughout an individual’s lifetime. In addition, there are no restrictions on the timing or amount of withdrawals from a TFSA, and the money withdrawn can be used for any purpose.

Tax Loss Selling
Selling a security for the sole purpose of generating a loss for tax purposes. There may be times when this strategy is advantageous but investment principles should not be ignored.

Technical Analysis
A method of market and security analysis that studies investor attitudes and psychology as revealed in charts of stock price movements and trading volumes to predict future price action.

Term Insurance
A type of insurance policy that pays a death benefit if the insured dies within the given contracted period. It is sometimes called pure insurance as it does not have a savings component and is put in place strictly for insurance purposes.

Term to Maturity
The length of time that a segregated fund policy must be held in order to be eligible for the maturity guarantee. Normally, except in the event of the death of the annuitant, the term to maturity of a segregated-fund policy is 10 years.

Thin Market
A market in which there are comparatively few bids to buy or offers to sell or both. The phrase may apply to a single security or to the entire stock market. In a thin market, price fluctuations between transactions are usually larger than when the market is liquid. A thin market in a particular stock may reflect lack of interest in that issue, or a limited supply of the stock.

Tilting Yield Curve
The yield curve that results from a decline in long-term bond yields while short-term rates are rising.

Time to Expiry
The number of days or months or years until expiry of an option or other derivative instrument.

Top-Down Approach
A type of fundamental analysis. First, general trends in the economy are analyzed. This information is then combined with industries and companies within those industries that should benefit from the general trends identified.

Toronto Stock Exchange (TSX)
The largest stock exchange in Canada with over 1,700 companies listed on the exchange.

Trailer Fee
Fee that a mutual fund manager may pay to the individual or organization that sold the fund for providing services such as investment advice, tax guidance and financial statements to investors. The fee is paid annually and continues for as long as the investor holds shares in the fund.

Transaction Date
The date on which the purchase or sale of a security takes place.

Treasury Bills
Short-term government debt issued in denominations ranging from $1,000 to $1,000,000. Treasury bills do not pay interest, but are sold at a discount and mature at par (100% of face value). The difference between the purchase price and par at maturity represents the lender’s (purchaser’s) income in lieu of interest. In Canada, such gain is taxed as interest income in the purchaser’s hands.

TSX Venture Exchange
Canada’s public venture marketplace, the result of the merger of the Vancouver and Alberta Stock Exchanges in 1999.

Underlying Security
The security upon which a derivative contract, such as an option, is based. For example, the ABC June 35 call options are based on the underlying security ABC.

The purchase for resale of a security issue by one or more investment dealers or underwriters. The formal agreements pertaining to such a transaction are called underwriting agreements.

Unemployment Rate
The percentage of the work force that is looking for work but unable to find jobs.

Valuation Day
The day on which the assets of a segregated fund are valued, based on its total assets less liabilities. Most funds are valued at the end of every business day.

Value Manager
A manager that takes a research intensive approach to finding undervalued securities.

Value Ratios
Financial ratios that show the investor the worth of the company’s shares or the return on owning them.

A measure of the amount of change in the daily price of a security over a specified period of time. Usually given as the standard deviation of the daily price changes of that security on an annual basis.

Voting Right
The stockholder’s right to vote in the affairs of the company. Most common shares have one vote each. Preferred stock usually has the right to vote only when its dividends are in arrears. The right to vote may be delegated by the shareholder to another person.

A Certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit. Warrants are usually issued with a new issue of securities as an inducement or sweetener to investors to buy the new issue.

Working Capital
Current assets minus current liabilities. This figure is an indication of the company’s ability to meet its short-term debts.

Working Capital Ratio
Current assets of a company divided by its current liabilities.

Wrap Account
Also known as a wrap fee program. A type of fully discretionary account where a single annual fee, based on the account’s total assets, is charged, instead of commissions and advice and service charges being levied separately for each transaction. The account is then managed separately from all other wrap accounts, but is kept consistent with a model portfolio suitable to clients with similar objectives.

The seller of either a call or put option. The option writer receives payment, called a premium. The writer in then obligated to buy (in the case of a put) or sell (in the case of a call) the underlying security at a specified price, within a certain period of time, if called upon to do so.

Yield – Bond & Stock
Return on an investment. A stock yield is calculated by expressing the annual dividend as a percentage of the stock’s current market price. A bond yield is more complicated, involving annual interest payments plus amortizing the difference between its current market price and par value over the bond’s life. See also Current Yield.

Yield Curve
A graph showing the relationship between yields of bonds of the same quality but different maturities. A normal yield curve is upward sloping depicting the fact that short-term money usually has a lower yield than longer-term funds. When short-term funds are more expensive than longer term funds the yield curve is said to be inverted.

Yield to Maturity
The rate of return investors would receive if they purchased a bond today and held it to maturity. Yield to maturity is considered a long term bond yield expressed as an annual rate.

Yield Spread
The difference between the yields on two debt securities, normally expressed in basis points. In general, the greater the difference in the risk of the two securities, the larger the spread.

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