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Glossary of Mutual Funds Terms

The purpose of a Special glossary is to provide brief definitions, while not necessarily legally accurate, are tailored to suit the meaning(s) given to the special terms you may come across in dealing with a Mutual Fund Investments. Additional meanings for the terms may be found in a dictionary.


Accumulation Plan:

An arrangement which enables an investor to purchase mutual funds shares regular in large or small amounts.


Active Investments Strategies:

A method of managing a portfolio that requires regular decisions and adjustment to the portfolio by the investor. Decisions involve how much to buy, what to buy, when to buy and sell and how to reinvest.


Adjusted Cost Base:

The amount needed when calculating your capital gains or losses. The amount includes commissions and other currents tax considerations.


Adverse Market Conditions:

Unfavorable time to Buy or Sell.

Annual Report:

Reports range from very simple to very elaborate - each year a printed report containing information about a company's financial conditions.

Asset-Backed Security (ABS):

Are bundled pools of assets that are sold as units and these units are a security that is backed by an asset. Mortgage pools were the principal forerunners of the ABS market and this is now a multi-billion-dollar market in the U.S.

More recently, banks in the U.S. and elsewhere have bundled credit card receivable and car loans as ABSs. The general theory is that safety in numbers provides a steady flow of income, usually interest income, while losses from defaults are spread across the pool.

Asset Class: Asset class' typically refer to securities that have similar features. For example, bonds and stocks are the two main classes. They are then subdivided into more defined classes such as mortgages, common stock and preferred stock. Asset classes are used in the process of asset allocation to control the risk and return characteristics of a portfolio.

Asset Mix:

Percentage of net assets invested in various classes of securities, as at a particular time. A Fund's investments can change at any time.

Asset Class Performance:

Are based on historical performance characteristics, which include the expected future return, the expected future volatility (risk) of the return, and how the returns of assets classes perform relative to each other.


Back-end load:

A sales charge levied when a mutual fund units are redeemed.


Back Office:

The administrative department of a brokerage house.


Balance Sheet:

One of the financial statements that appears in a Company's Annual Report Its divided into three major parts: Assets (see assets), Liabilities which include debts, taxes owing and Shareholders Equity (see equity).

Bear/Bull Markets:

A declining market or a period of pessimism when declines in the market are anticipated (a way to remember bear down).

- Bears: are investors who believe interest rates are more likely to go up than down. If right the price of existing fixed-income securities such as bonds will go down.

- Bulls: are investors who believe interest rates are more likely to go down than up. If right the price of existing fixed-income securities such as bonds will go up down.

Bearish: An attitude or indication implying that prices are likely to experience a substantial decline.

BellCharts Quartile Ranking:

A measurement of a fund's performance against mutual funds that are available in Canada and that generally have similar investment objectives.

Bellwether Security:

A particular security that is felt to be representative of the market in which it trades. Hence, movements by a bellwether are taken as an indication of the overall direction of the market.



One who is to receive the benefits of any type of contract.


A broker is a financial middleman who matches investors who wish to purchase a particular investment with those who wish to sell it. For this service, the broker charges a fee or commission that is usually related to the amount of money involved in the transaction.


Bull Market:

A slang expression meaning an extended period of time during which the general price level of a market rose.

Any metal in mass, gold and silver.

Buying on Margin:

Purchasing a security partly with borrowed money.


In an investment context, the term usually means the financial assets that an investor owns, especially cash. In an economic context, the term usually means the machinery, buildings, equipment, and inventory a company uses to produce its goods.


Capital Cost Allowance:

A taxation term, equivalent to depreciation, that makes allowance for the wearing away of a fixed asset.

Capital Gain:

A type of profit derived by selling an asset at a higher price than that at which it was purchased. One-half of the amount is taxable as income when received.

Capital Loss:

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


Closed-End Fund:

A fund company that issues a fixed number of shares. Its shares are not redeemable, but are bought and sold on the stock exchange or the over-the-counter market.

Common Equity:

A generic term describing stocks that represent ownership of a company and carry voting privileges in its affairs.


This is a relatively stable and predictable investment that usually features a specific (or limited) gain or loss.



A market correction is usually a sudden temporary decline in stock or bond prices after a period of market strength.


Correction in the Market:

A significant drop in the value of the stock market.

Coupon vs. Yield:

The coupon on a bond is literally the portion of a certificate that is clipped (detached) and presented for payment when interest is due but the coupon also is used as a term for the rate of interest a bond pays. Yield is the current return on a bond in the market. As market conditions change, yield on the bonds rise or fall. If a bond bought at par, then the yield and the coupon rate are the same. But if the yield falls, the price of the bond must rise. And rising yields mean falling prices.


A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.


Financial contracts whose values are derived from an underlying asset, index or reference rate, such as interest rates, foreign exchange rates, or equity or commodity prices. Derivative can be used to manage financial risks and consist of:

-Interest rates swaps: A contact between two parties to exchange a stream of interest rate payments, such as fixed rate payments for variable rates payments, on a specified notional value for a pre-determined time period.

- Swaps that have been entered into, but for which interest rate payment streams have not commenced by year-end, are referred to as forward starting swaps.

- Interest rate caps and floors: Option contracts for specified periods, based on interest rates, for which a cost (premium) is settled in advance. In the case of a cap, the agreement places a maximum on the cost of interest rate borrowings. In the case of a floor, the agreement places a minimum on the yield of interest rate investments.

- Forward rate agreements: A contract for payment or receipt of interest on a specified principal to be settled at a future date. The settlement amount is the difference between the contracted rate of interest and the market rate.

-foreign exchange forward contracts: A contract to buy or sell a fixed amount of foreign currency on a specified date at a set rate of exchange.

- Index-linked call option: The right but not the obligation to buy on or before a specified date, an underlying notional amount at a contracted price based on a stock market index.

Distributions: Payments from the fund that may include dividends from capital gains or earnings from sale of securities with the funds portfolio holdings and/or return of capital. A distribution is made by cash or by investing in additional units/shares via a Dividend Reinvestment Plan (DRP). Funds are required to distribute capital gains (if any) to unit/shareholders at least once per year.

Distribution History:

Per unit dollar figure representing accrued capital gains and dividends paid out annually, or on a year-to-date basis.


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 geographical locations. You can't count on the stock market alone to make you rich - especially if your money is in just one stock or even just in Canada. You can't count on your house to fund your retirement. Various economic conditions lend themselves to different weighting



Dividends are the share of a company's stock. Not all profits are paid in dividends; some are usually reinvested in building up the operations of the company, with the intention of producing additional future profits.


Dollar Cost Averaging:

A principal 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.

Financial Intermediaries:

Corporations that receive savings and investment funds from individuals and invest them in capital market securities. Examples would include chartered banks, trust companies, life insurance companies, mutual funds, and pension funds.


Fixed Income Fund:

A fund whose assets are invested in preferred shares, bonds and mortgages.


Front-End Load:

A sales charge levied on the purchase of mutual fund units.


Full-Service Brokerage:

Full-service brokerage is the most traditional type of brokerage. It offers advice on building portfolios, on the types of securities to buy and sell, and asset allocation. In general, full-service brokerages charge higher commissions in exchange for this advice.


Fundamental Analysis:

A method of evaluating the future prospects of a company by analyzing its financial statements. It may also involve interviewing the management of the company.

Fund Number: Number assigned to each Fund for the purpose of placing instructions to purchase, redeem, or transfer Fund units.

Fund Manager:

A person who manages the assets of an invest.


A statistical yardstick, determined by tracking the ups and downs of a particular market by monitoring a group of securities over time.

Internal Rate of Return (IRR):

Any IRR calculation must be based on continuous compounding, Thus the Internal rate of return of an investment, is the growth rate of the money over a time period relative to the amount invested. IRR, which compares the profit to the amount invested, and is expressed as a percent gain or loss for easy comparison with other percent changes for the same time period.

Investment Considerations:

Choosing which investments are right for you will depend on a number of factors:

Your Primary Goal - Is it to have your money readily accessible, to have a dependable source of regular income, or to build your assets over time? Each type of investment fulfills a different need.

Your Time Horizon - When will you need the proceeds of your investment? If it's in a few months or years, short-term cash or income investments should be considered. With a long term horizon, you may want to add growth investments to the mix.

Your Risk Tolerance - Growth investments with a higher level of risk will generally pay higher return, but if your nest egg and peace of mind are key, investments with safety of principal may be the answer. (See Risk Tolerance)

Investment Counselor:

A person who, for a fee, advises you on which investments you should make.

Investment Dealer:

A company that acts as a middleman in the capital markets by buying and selling securities with its own funds, and then filling sale or purchase requests from its own security holdings. A dealer will also act as a broker, but a broker may not necessarily be a dealer.

Investment Fund:

A term generally interchangeable with "mutual fund".

Investment Strategy:

The method used to select which assets to include in a portfolio and to decide when to buy and when to sell those assets.


Investment Funds Institute of Canada. The mutual fund industry trade association set up to serve its members, cooperate with regulatory bodies, and protect the interest of the investing public that use mutual funds as a medium for their investments.

Know Your Client Rule (KYC):

The rule that recognizes the fiduciary duty of the investment advisor to understand the client's investment objectives and make appreciate recommendations for investments.

Labour-Sponsored Venture Funds:

Venture capital corporation's established by unions, managed by investment managers subject to government regulations

Managed Investment Fund:

A specific pool of money that is invested by an institutional investor or a professional investment manager.

Management Expense Ratio:

A measure of the total costs of operating a mutual fund as a percentage of average total assets.

Management Fee:

The sum paid to the investment company's advisor or manager for supervising its portfolio and administering its operations.


The amount of money supplied by an investor as a portion of the total funds needed to buy or sell a security, with the balance of required funds loaned to the investor by a broker, dealer, or other lender.

Market Bottom:

The time when a category of securities, such as stocks, are felt to have reached their lowest prices as a group for an extended period of, say, three or four years. Usually measured by the lowest level of an index that indicates what is happening within that market, such as the Dow Jones Industrial Index.

Market Capitalization:

Market capitalization is the amount of money someone would have to pay to buy the company. To calculate market capitalization, multiply the total number of a company's shares by the current price per share. For example, if a company has 10 million shares, and the current price is $20 per share, then the company's market capitalization is $200 million ($20 x 10 million).

-Large cap is a company with over $1 billion in market capitalization

-Mid cap has between $500 million and $1 billion

-Small cap has less than $500 million.

Market Timing:

An element of investment strategy. Investors will often seek to increase the amount of money they can make in a particular security or category of security by purchasing it when the market associated with that type of security is near its trough, and sell these holdings when the market is near its peak.


Mutual Funds:

A mutual fund is a portfolio of investment securities held in the name of the fund, which is owned by people who have bought shares in the fund itself.


Types of Mutual Funds

Canadian Equity Funds: invest primarily in common stocks and other equity securities of Canadian companies.

Canadian Resource Equity Fund: Invest in the Canadian resource sector, such as forestry, mining, oil and gas stocks.

U.S. Equity Funds: Invest a large portion of assets in common stocks and other equity securities of U.S. companies.

North American Equity Funds: Invest in Canadian and U.S equity securities, but may hold Mexican equity securities.

Global Equity Funds: Invest in common stocks and other equity securities of foreign and Canadian issuers. A fund's investments are not limited geographically.

International Equity Funds: Invest primarily in common stocks and other equity securities of foreign issuers. No Canadian securities.

Asia-Pacific Rim Equity Funds: Invest primarily in common stocks and other equity securities with principal business activities in one or more Asia-Pacific Rim region countries.

European Equity Funds: Invest primarily in common stocks and other equity securities of companies with principal business activities in one or more European countries.

Dividend Funds: Invest in high dividend-paying preferred (and sometimes common) shares of Canadian companies.

Canadian Bond & Income Funds: Invest primarily in fixed-income securities of Canadian government and corporate issuers.

U.S. & International Bond & Income Funds: Invest in U.S. and foreign government and corporate securities, or in Canadian government and corporate securities in U.S. or foreign denominations.

Mortgage Funds: Invest in residential and commercial mortgages.

Canadian Balanced Funds: Invest in a blend of Canadian stocks and bonds and generally must maintain minimum holdings of each.

U.S. & International Balanced Funds: Invest in a balance of U.S. or international stocks and bonds, or Canadian issues in U.S. or international denominations.

Asset Allocation Funds: Assets are allocated among stocks, bonds and money-market instruments, which will vary according to economic conditions. Normally no minimum asset holding requirements.

Money Market Funds: Almost all assets in Canadian money market instruments such as treasury bills, certificates of deposit, short-term government bonds and commercial paper.

U.S. & International Money Market Funds: Almost all assets in U.S. or foreign money-market instruments, or in Canadian money-Market instruments denominated in U.S. or foreign currencies.

Real Estate Funds: Invest in commercial and industrial real estate.

Specialty Funds: Invest in specific markets, such as precious metals or commodities.


Mutual Balanced Funds:

A 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.


Mutual Dividend Fund:

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


Mutual Equity Funds:

A fund whose portfolio of which consists primarily of common stock.


Mutual Growth Funds:

Fund that hold growth 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.


Mutual 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.


Mutual Index Funds:

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.


Mutual International Fund:

A fund that invest in securities of a number of countries.


Mutual Money Market Fund:

A type of mutual fund that invests primarily in treasury bills and other Low-risk short-term investments.


Mutual Mortgage Fund:

A mutual fund that invest 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 Prospectus:

A legal document which describes the investment objective of the fund, the manner in which the fund is administered and operated, the fees and other pertinent information.


Mutual Real Estate Fund:

This type of fund invests primarily in residential and/or commercial real estate to produce income and capital gains for its unitholders.

Mutual Specialty Fund: A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.
NAVPS: Net Asset Value per share is the price or market value of an individual share or unit of a mutual fund.

Net Asset Value:

The performance of a hypothetical investment of $1000 invested at the Fund's inception. Figures include reinvestment of dividends and capital gains, but do not reflect the effect of any applicable sales charges or redemption fees, which would lower these figures.

No-Load Fund:

A mutual fund that does not charge a fee for buying or selling its shares.



A position or financial state you wish to achieve. Well-defined objectives are critical to the success of any money management plan because they provide your plan with a sense of purpose and a benchmark against which you can measure your progress.

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-end funds.


OSC - Ontario Securities Commission (SEC):

Agency created by the Ontario Government to protect investors in securities transactions by administering various securities acts.

Performance: Performance figures for years 1 through 7 are calculated on an annual basis. Figures quoted since inception reflect cumulative, rather than annual, growth. Both annual and cumulative figures include reinvestment of dividends and capital gains, but do not reflect the effect of any applicable sales charges or redemption fees, which would lower performance figures.

Portfolio Manager:

An individual, usually a professional, who attempts to produce the highest return on invested capital while incurring a minimum of risk within the guidelines laid down by the person or company whose funds he is investing.

Portfolio Management:

The systematic development and implementation of an investment strategy, the purpose of which is to achieve the investor's financial goals. Often portfolio management is mistaken for the simple buying of new securities and the selling of current holdings.



A detailed statement prepared by an issuer and filed with the a Securities Regulator prior to the sale of a new issue. The prospectus gives detailed information on the issue and on the issuer's condition and prospects.



Mutual funds are grouped into sectors. For the proposes of comparison, ach sector is divided into four quartiles (or quarts); the best performing funds are in the top quartile.


Rate of Return (Dollar-Weighted):

Also called the internal rate of return, the interest rate will make the present value of the cash flows from all the sub-periods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

Real Rate of Return:

The rate of return on an investment after the effects of inflation have been removed. Hence the return produced by the investment in excess of the rate of inflation.



1) The possibility that some invested funds will be lost through a decline in the value of the investment.

2) Degree of uncertainty of return of asset.

We have defined the following 13 types of risks separately, they are shown below as Adjusted assets, Company Risk, Credit Risk, Currency risk, Economic Risk, Industry Risk, Inflation Risk, Interest Rate Risk, Liquidity Risk, Market Risk ,Political Risk, and Reinvestments.


Risk - Adjusted Assets:

Assets categories are assigned pre-determined risk weighting factors. The asset face values are then adjusted by the risk weighting factors in order to reflect a comparable risk per dollar among all types of assets.


Risk - Company:

When you buy shares, you buy part of a business. Even in booming industries, poorly run business' lose money over time.


Risk - Credit:

This is a prime concern for the income investor. What are the chances that the issuer of your bond will suspend interest payments or fail to pay back principal at maturity? What is the risk that dividends on your shares will be cut or skipped? Rating services assess those risks.


Risk - Currency:

This risk applies when your investment is made in foreign money. Perhaps you buy shares on the New York Stock Exchange, or purchase a mutual fund that invests outside Canada. When converted to Canadian dollars, your return will get an extra push up or down, depending on whether the Canadian dollar has gained or lost value.


RISK - Economic:

Some investments are more sensitive than others to changes in the economy. The auto industry is "cyclical." It tends to do well in good times and suffer in downturns. Utilities such as telephone companies are less sensitive..


RISK - Industry:

Some industries are inherently volatile, because the dramatic pace of change means a whole generation of technology can quickly become outdated. Examples include the computer and health industries.


RISK - Inflation.

That's the risk that your investment won't keep up with inflation. It's a major concern for those who buy GICs and other seemingly "risk-free" investments. Say you buy a 5 year GIC that pays 8%. remember that this income stream is fixed for 5 years. If inflation averages 5% a year between now and maturity, your "real return" is only 3%. Real return is the difference between the stated return and the inflation rate. Moreover, if that GIC is not held in an RRSP or some other tax shelter, you must pay tax on the interest each year. Say your marginal tax rate is 40%. That cuts your 8% GIC rate to 4.8% after tax ( 8 x (1.00 - 0.40) ).

Now subtract the 5% inflation rate and you'll see you're actually losing money - or at least purchasing power - on a risk-free GIC. The same goes for Canada Savings Bonds, though their rates are adjusted each year


Risk - Interest Rate:

This is related to inflation risk. As inflation goes up, so do interest rates on newly issued bonds and other fixed-income vehicles. As interest rates rise, the market value of previously issued instruments fall. Conversely, as interest rates fall, those values rise. That is a big concern for an investor who has to sell a bond before it matures.


Risk - Liquidity:

How easily can you get at your money without undue capital loss? A bank account is highly liquid and carries no risk of capital loss - as long as you're within deposit insurance limits. But it yields very low returns. Stocks and bonds are highly liquid and offer higher returns, but greater capital risk. Residential real estate is liquid when the market booms, but you'll get hammered if you have to sell when the market is down.


Risk - Market:

That's the risk associated with just being in the market. A market plunge will hit the shares of even the world's best companies. You might own the nicest home in the area , but an overall slump in housing will reduce its value.. What you paid for something is irrelevant; it's worth only what someone will pay when you go to sell.


Risk - Political:

Government action affects every investment, either directly, through changes in tax or zoning laws, or indirectly, through economic policy. The longer you hold your investment, the more you run the risk that politicians and bureaucrats will change the rules.


Risk - Reinvestment:

The risk that proceeds received in the future will have to be reinvested at a lower potential interest rates.

Risk -Premium:

The difference between the required rate of return on a riskless asset with the same expected life.

Settlement Date:

The date on which a trade is cleared by delivery of securities against funds. The settlement data may be the trade date or a later date.



The owner of a share or shares; hence a part-owner of a corporation.

Simplified Prospectus:

An abbreviated and simplified prospectus distributed by mutual funds to purchasers and potential purchasers of units or shares.

Securities: A catchall term for stocks, bonds, and money market instruments.

Small Cap:

A small cap stock is one issued by a company with less than $500 million in market capitalization.

Systematic Withdrawal Plan:

Plans offered by financial institutions allowing the investor to receive payments from their investment at regular intervals.


Technical analysis:

A form of investment research that focuses on information and events in the marketplace itself, generally without reference to the fundamental underlying the issuers of the securities traded in the market. Hence, a stock market technician might look at stock prices and trading volumes in an effort to determine where prices were going in the future.

Timing the market:

The method investing by timing market highs ("sell" points) and market lows ("buy" points).


Time-weighted return (TWR):

A time-weighted return is a measure of the performance (income and price changes) of investments independent of the amount of money invested. Because the TWR is expressed as a percent gain or loss, it's makes for a easy comparison with other percent changes for the same time period.

By annualizing the TWR and expressing it as an interest rates that you can easily compare it with other interest rates for the same time period.


A management style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding the financial markets and various industry sectors. The top- down manager selects a portfolio of individual securities within the favored sector. (See bottom-up)

Transfer Fee: Fee payable on a internal transfer of units from one Fund to another Fund.

Value Manager:

A manager who seeks to buys stocks that are at a discount to their “ fair value” and sell them at or in excess of that value. Also called contrarians because they see value where many other market participants do not.

Value at redemption:

This is the dollar amount of your investment at the time you decide to sell, or redeem, your mutual fund. A back-end load calculated on the value of your investment when you sell, or redeem, it can significantly reduce your investment return. Refer to the example above under.


In its standard definition, volatility is a measure of the rate of change in the price of a security over a specified time. The usual yardstick is standard deviation from average price. Volatility also has become a sophisticated security in the over-the-counter market where investors take on risks of volatility in security, the process that works much like an expensive insurance policy in high-risk markets.

Voluntary Accumulation Plan :

A plan offered by financial institutions whereby an investor over agrees to purchase investment units or make contributions towards an RRSP, the amount is normally predetermined and make via a Pre-authorized Cheque (PAC).

Withdrawal Plan:

The ability to establish automatic periodic redemption's from a mutual fund or registered retirement plan and have proceeds mailed directly to the investor

Withholding Tax:

A tax levied on dividends paid abroad or levied by the trustee of a retirement savings plan on early encashment or other withdrawals within a certain time frame. A tax levied by a country of source on income paid, usually on dividends remitted to the home country of the firm operating in a foreign country.

Wrap Account:

An account offered by investment dealers whereby investors are charged an annual management fee based on the value of invested assets.


The return on an investment, expressed as a percentage.

Yield Curve:

A graph showing, for securities, that all expose the investor to the came credit risk, the relationship at a given point in time between yield and current maturity. Yield curves are typically drawn using yields on governments of various maturities.


This Glossary of financial terms was created by Fiscal Agents Financial Information Services, Research Department. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, electronic, photocopying, recording, or otherwise, without the prior written permission of Fiscal Agents. Copyright Fiscal Agents © 2000. All Worldwide Rights Reserved. See Notes and Credits or see permissions page.

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