A

Active Asset Allocation The goal of active asset allocation is to add value to a passive or fixed asset allocation strategy by overweighing categories likely to outperform and underweighting categories likely to underperform. 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.

B

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. Basis Point 1/100th of 1% (One one-hundredth of a percent). A measure normally used in the statement of interest rates; e.g. a change from 5.75% to 5.81% is a change of six basis points. 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. 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

C

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 Gain The gain on the disposal of an asset calculated by deducting the cost of the asset from the proceeds received on its disposal. Capital Loss The loss that results when a capital asset is sold for less than its purchase price 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. 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. Compounding When interest is earned on both the principal amount and any interest already earned. Because of compound interest, money grows much faster if the income from an investment is left in the account. 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 Asset An asset that could be converted into cash 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. Also known as the return on investment Custodian A financial institution, usually a bank or trust company, which holds a mutual fund's securities and cash in safekeeping

D

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 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. Dollar Cost Averaging Investment of a fixed amount of money at regular intervals, usually each month; this process results in the purchase of extra shares during market downturns and fewer shares during market upturns. Dollar-cost averaging is based on the belief that the market or an over the long term and that it is not worthwhile (or even possible) to identify intermediate highs and lows.

E

Emerging Market Markets in securities in newly industrialized countries and in countries in Central and Eastern Europe and elsewhere, in transition from planned economies to free-market economies and in developing countries with capital markets at an early stage of development 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 ETF (Exchange-traded Fund) An exchange-traded fund, or ETF, is a basket of stocks traded on a stock exchange. Each ETF typically represents a particular sector of the economy or of a country at large. For instance, the iUnits traded on the TSE are a bundle of 60 large Canadian stocks that track the performance of the S&P 60 Index. To acquire these 60 stocks you can either buy each one individually or buy an iUnit that represents all 60 stocks through one purchase.

F

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 were under any compulsion to buy or sell; the standard at which property is valued for a deemed disposition Fixed Assets Assets of a long-term nature, such as land and buildings Fixed Income Investments Investments that generate a fixed amount of income that does not vary over the life of the investment

G

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

I

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. International Fund A mutual fund that invests in securities of a number of countries Investment Fund A term generally interchangeable with "mutual fund"

L

Leverage The financial advantage of an investment that controls property of greater value than the cash invested. Leverage is usually achieved with borrowed money. 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.

M

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. 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 Portfolio A market portfolio is a portfolio consisting of a weighted sum of every asset in the market, with weights in the proportions that they exist in the market (with the necessary assumption that these assets are infinitely divisible). 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 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. Mutual Fund 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 influences the current price of units.

N

Net Asset Value The value of all the holdings of a mutual fund, less the fund's liabilities No-load Fund A mutual fund that does not charge a fee for buying or selling its shares

O

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 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.

P

Portfolio An appropriate mix of or collection of investments held by an institution or a private individual; Holding a portfolio is part of an investment and risk-limiting strategy called diversification. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value. Portfolio management Involves deciding what assets to include in the portfolio, given the goals of the portfolio owner and changing economic conditions. Selection involves deciding what assets to purchase, how many to purchase, when to purchase them, and what assets to divest. These decisions always involve some sort of performance measurement, most typically expected return on the portfolio, and the risk associated with this return (i.e. the standard deviation of the return 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.

R

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. Risk The uncertainty of future returns.

S

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. 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

T

Total Assets under Management The total value of all mutual funds held and managed by a mutual fund company. 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.

U

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

V

Volatility The market fluctuations in the price of a security

Y

Yield Annual rate of return received on investments, usually expressed as a percentage of the market price of the security

Z

Zero Coupon Bond A bond that pays no interest and is initially sold at a discount