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Mutual Fund Glossary

Accrued interest:
Interest that has been earned but not received.

Annual Report:
A financial report sent yearly to the shareholders of a publicly-held firm. This report must be audited by independent auditors.

An individual who purchases an annuity and will receive payments from that annuity.

A contract that guarantees a series of payments in exchange for a lump sum investment. Assets – What a firm or individual owns

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Back-End Load:
A sales charge levied when mutual fund units are redeemed.

Balanced Asset Allocation Funds:
Funds that invest primarily in a portfolio including both equities and fixed-income securities in order to provide income and capital appreciation.

Bank Rate:
The rate at which the Bank of Canada makes short-term loans to chartered banks and other financial institutions, and the benchmark for prime rates set by financial institutions.

Bankers’ Acceptance:
Short-term bank paper with the repayment of principal and payment of interest guaranteed by the issuer’s bank.

Bear Market:
A declining financial market.

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.

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.

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.

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Canadian Bond Funds:
Funds that invest primarily in Canadian-dollar debt issues to provide income and, to a lesser extent, capital appreciation through trading and interest rate movements.

Canadian Equity Funds:
Funds that invest primarily in common shares of Canadian corporations. Capital growth over the long term is the investment objective.

Canadian Money Market Funds:
Funds that invest primarily in treasury bills, government-guaranteed or government-issued debt securities, or commercial paper with a rating of at least A-1, and a dollar-weighted average term to maturity not exceeding 180 days.

Generally, the money or property used in a business. The term is also used to apply to cash in reserve, savings, or other property value.

Capital Loss:
The loss that results when a capital asset is sold for less than its purchase price.

The total amount of all securities, including long-term debt, common and preferred stock, issued by a company.

A document providing evidence of ownership of a security such as a stock or bond.

Certified Financial Planner:
This is a designation for an individual who has:

1. Completed a recognized course of study: As at October 31, 1996, the FPSC informally adopted a curriculum which set out the job knowledge requirements for a Certified Financial Planner. The curriculum is in the format of topics, their relative importance and the target cognitive level.

2. Met personal financial planning practice requirements: Candidates for the CFP designation will have worked full-time in a financial planning related position for compensation for at least 2 years within a period of 5 years prior or subsequent to writing the qualifying examination.

3. Successfully completed the Financial Planners Standards Council examination for qualifying Certified Financial Planners: The examination is offered two times during the year, in June and in November.
Closed-End Fund:
A fund that issues a fixed number of shares. Its shares are not redeemable, but are bought and sold on stock exchanges or the over-the-counter market.

Commercial Paper:
A negotiable corporate promissory note with a term of a few days to a year. It is generally not secured by company assets.

Common Stock:
A security representing ownership of a corporation’s assets. Voting rights are normally accorded to holders of common stock.

The process by which income is earned on income that has previously been earned. The end value of the investment includes both the original amount invested and the reinvested income.

A security that can be exchanged for another. Bonds or preferred shares are often convertible into common shares of the same company.

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.

A financial institution, usually a bank or trust company, that holds a mutual fund’s securities and cash in safekeeping.

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Defined Benefit Pension Plan:
A registered pension plan that guarantees a specific income at retirement, based on earnings and the number of years worked.

Deferred Sales Charge (DSC):
Also known as a redemption fee, this charge is assessed when redeeming mutual fund units that were originally purchased on the basis of a back-end load.

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.

Payments to investors by a mutual fund from income or from profit realized from sales of securities.

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.

A per-share payment designated by a company’s board of directors to be distributed among shareholders. For preferred shares, it is generally a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand. It may be omitted if business is poor or the directors withhold earnings to invest in plant and equipment.

Dividend Fund:
A mutual fund that invests in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates, as well as preferred shares.

Dividend Tax Credit:
An income tax credit available to investors who earn dividend income through investments in the shares of Canadian corporations.

Dollar-Cost Averaging:
A principle of investing which entails the use of equal amounts for investment at regular intervals, in the hope of reducing average share cost by acquiring more shares in periods of lower securities prices, and fewer shares in periods of higher securities prices.

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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.

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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.

Fixed Income Investments:
Investments that generate a fixed amount of income that does not vary over the life of the investment.

Foreign Bond Funds:
Funds that invest primarily in a global bond portfolio to provide income and the potential for capital appreciation through interest rate and currency movements.

Front-End Load:
A sales charge levied on the purchase of mutual fund units.

Foreign Money Market Funds:
Funds that invest primarily in foreign currency short-term investments.

Fund Types:
The 13 general fund categories are: Canadian Equity, U.S. Equity, International Equity, Specialty Equity, Resource, Balanced/Asset Allocation, Dividend, Mortgage, Real Estate, Canadian Bond, Foreign Bond, Canadian Money Market and Foreign Money Market.

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Growth Stocks:
Shares of companies whose earnings are expected to increase at an above-average rate. Growth stocks are often typified by their low yields and relatively high price / earnings ratios. Their prices reflect investors’ belief in their future earnings growth.

Guaranteed Investment Certificates:
A deposit instrument paying a predetermined rate of interest for a specified term, available from banks, trust companies and other financial institutions.

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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. Inflation – A condition of increasing prices. In Canada, inflation is generally measured by the Consumer Price Index.

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.

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.

International Fund:
A mutual fund that invests in securities of a number of countries.

Investment Advisor:
Investment counsel to a mutual fund. Also may be the manager of a mutual fund.
Investment Counsel:
A firm or individual which furnishes investment advice for a fee.

Investment Dealer:
A securities firm.

Investment Funds Institute of Canada (IFIC):
The mutual fund industry trade association set up to serve its members, co-operate with regulatory bodies, and protect the interests of the investing public that use mutual funds as a medium for their investments.

Investment Objective:
Information provided by the fund company that outlines the investment goals of the fund. It should indicate whether the fund is directed toward growth, protection of capital, interest income or some specialized area of the market. IR: Installment receipt.

Investment Strategy:
Information provided by the fund company intended to describe the strategy the manager uses in order to achieve the fund objectives. The strategy, in conjunction with the fund performance and investment style, should give you a better sense of how a fund might perform in the future.

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Labor sponsored venture capital corporation.

The commission charged when mutual fund units are bought (front-end load) or sold (back-end load).

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Management Fee:
Every fund has a management fee, charged by the manager for managing the fund assets. The fee is expressed as an annual percentage of assets. In practice, the fee is generally charged against the fund on a weekly, monthly or quarterly basis.

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). In the case of a security, market price is usually considered the last reported price at which the stock or bond is sold.

The date at which a loan, bond or debenture comes due and must be redeemed or paid off.

MER (Management Expense Ratio):
All funds charge a management fee. But the calculation of the fee varies.The management expense ratio, which funds are required to disclose, allows investors to make comparisons of fund management costs. The MER is calculated as the total of all fees and expenses that the manager charges the fund, divided by the fund’s assets.

Money Market:
A sector of the capital market where short-term obligations such as treasury bills, commercial paper and bankers’ acceptances are bought and sold.

Money Market Fund:
A type of mutual fund that invests primarily in treasury bills (T-bills) and other low-risk, short-term investments.

Mortgage-Backed Securities:
Certificates that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.

Mortgage Funds:
Funds that invest primarily in mortgages on Canadian property to provide high interest income.

Mutual Fund:
An investment entity that pools shareholder or unitholder 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.

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NAVPS (Net Asset Value Per Share):
The value of a mutual fund unit at any given time. It is calculated by subtracting the fund’s liabilities from its assets and dividing that by the number of units outstanding. Open-end mutual funds are bought or sold at their NAVPS.

NL (No load):
Non-RRSP Initial Investment. The dollar amount required to start investing in a specific fund for an investment account.

Net portfolio value.

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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.

Penny Change:
The change between the current NAVPS and the previous NAVPS in dollar amounts.

Pension Adjustment:
An amount that reduces the allowable contribution limit to an RRSP based on the benefits earned from an 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.

All the securities which an investment company or an individual investor owns.

Preferred Share:
An ownership security, senior to the common stock of a corporation, with preferred claim on assets in case of liquidation and a specified annual dividend.

The amount by which a bond’s selling price exceeds its face value. Also, the amounts paid to keep an insurance policy in force.

Price Earnings Ratio:
The market price of a common share divided by its earnings per share for 12 months.

The document by which a corporation or other legal entity offers a new issue of securities to the public.

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Real Estate Funds:
Funds that invest primarily in a portfolio of commercial and industrial income-producing properties to provide income and long-term capital appreciation.

Registered Education Savings Plan (RESP):
A plan that enables a contributor, on a tax deferral basis, to accumulate assets on behalf of a beneficiary to pay for a post-secondary education.

Registered Retirement Income Fund (RRIF):
A maturity option available for RRSP assets to provide a stream of income at retirement.

Registered Retirement Savings Plan (RRSP):
A tax-deferred retirement plan that allows individuals who have not reached the age of 69 to set aside sums of money, within limits. These sums are deductible from taxable income and can compound on a tax-free basis.

Real Estate Investment Trust:
A closed-end investment company that specializes in real estate or mortgage investments.

Resource Equity Funds:
Funds that invest primarily in common shares of corporations operating in one or more segments of the resource industry. Capital growth over the long term is the investment objective.

The amount of money earned by investment. The rate of return is the percentage this represents. For example, a $1,000 investment that produced a return of $150 over 12 months would have an annual rate of return of 15 percent. RRSP Initial Investment: The dollar amount required to start investing in a specific fund. This amount refers to accounts that are RRSP-eligible.

The possibility of loss; the uncertainty of future returns.

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Securities Act:
Provincial legislation regulating the underwriting, distribution and sale of securities.

A document signifying part ownership in a company. The terms “share” and “stock” are often used interchangeably.

Simplified Prospectus:
An abbreviated and simplified prospectus distributed by mutual fund companies to purchasers and potential purchasers of fund units.

Special Equity Funds:
Funds that invest primarily in one or more segments of the market, such as biotechnology, telecommunications, or the environment. Long-term capital growth is the investment objective. Included in this category are labor-sponsored, venture capital corporations, commodity funds and others that may impose restrictions on their liquidity.

Systematic Withdrawal Plan:
A plan offered by mutual fund companies that allows a unitholder to receive payment from an investment at regular intervals.

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Total Assets:
The total dollar value invested in a specific fund at a specific point in time.

A securities transaction.

Treasury Bill (T-bill):
Short-term government debt. Treasury bills bear no interest, but are sold at a discount. The difference between the discount price and par value is the return to be received by the investor.

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.

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U.S. Equity Funds:
Funds that invest primarily in common shares of U.S. corporations. Capital growth over the long term is the investment objective.

Valuation Date:
Most funds are valued daily but some are valued weekly, monthly or quarterly. It is important to know when a fund is valued, because that determines when you can buy or redeem a fund. Generally your redemption or purchase order must reach the fund prior to close of business on a valuation day.

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.

A statistical measure of the change in a fund’s rate of return over time.

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