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Financial Glossary

A  B  C  D  E  F  G - H  I - J - K  L - M - N  O  P - Q  R  S  T - U  V - W - X - Y - Z

- L -

Labour-sponsored funds
Investment funds issued by a labour organization. A portion of these funds are invested in startups or small and medium-sized enterprises (SMEs) in order to create or maintain jobs. These funds usually generate tax benefits for investors.

Last survivor insurance
Life insurance that covers at least two persons and pays a certain amount on the death of the last surviving insured.

Leverage (loan-based investment)
Borrowing money in order to invest increases the potential gains, as well as the potential losses, of any investment. Loan-based investments therefore carry more risk and require caution on the part of investors. If you are thinking of borrowing to invest, make sure you are fully aware of the potential loss this could represent should the value of your investment drop.

An amount owed, e.g., a mortgage balance, bank loans, a credit card balance, etc.

Life annuity
Annuity that provides periodic payments until the death of the annuitant.

Life income fund (LIF)
Plan that allows taxes on the investment income it generates to be deferred. Funds invested in a LIF are often derived from a supplemental pension plan. Unlike an RRSP, the holder of a LIF is required to withdraw a minimum amount each year. In addition, holders cannot withdraw more than a certain amount from a LIF each year, to ensure that income can be provided for life. Amounts withdrawn are taxable.

Life insurance
Contract under which the insurer enters into an agreement with the insured in exchange for a premium, to pay the beneficiary the benefit provided for in the contract in the event of the insured’s death or until a specified period during his/her lifetime.

In insurance, it is the maximum the insured will receive for a given item in case of loss.

Limited partnership
Limited partnership units are issued by a partnership. A general partner manages the partnership and limited partners supply the capital. The liability of limited partners is limited to their investment outlay. These partnerships usually invest in a particular sector such as real estate or the oil and gas industry. They often provide tax benefits that may be transferable from the partnership to the limited partners.

Liquidation value
Amount that could be obtained on the dissolution of a company.

The ability to easily convert an investment into cash without significant cost.

Listed share
Company share that is traded on a stock exchange. For a company to be registered, it must meet certain criteria, rules, and regulations, and pay listing fees.

Locked-in retirement account (LIRA)
Plan that allows holders to defer payment of income taxes on investment income until amounts are withdrawn from the LIRA. The funds usually stem from amounts accumulated in a supplemental pension plan (SPP). Since the amounts in a LIRA are locked in, these funds can only be used to draw a lifetime income in retirement. To do so, you must transfer amounts held in a LIRA into a life income fund (LIF) or purchase a life annuity from an insurance company.

Long-term debt (not current debt)
Amount of money that a natural person or legal person must pay back, generally with interest. However, the amount is not due within one year.

Damage sustained following an unfavourable event, for example death, illness, fire, accident, etc.

Loss of employment insurance
Insurance that repays a debt or portion thereof when the borrower loses his/her job. A number of restrictions may apply.

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- M -

Managed account
Account for which a client has given a third party formal written authorization to make all required investment transactions in consideration of a fee.

Management expense ratio (MER)
The management expense ratio (MER) corresponds to the management fees and operating expenses as a percentage of the average net assets of the fund. These fees and expenses include the trailing commission. The higher the MER, the greater its impact on the performance of the fund and on the return obtained by participants. These management fees and operating expenses are applicable to the fund, regardless of whether or not it generated positive returns.

Management Fees
A charge levied by mutual funds to pay for management expertise and administration costs.

Management fees and operating expenses
Management fees are the total fees paid or payable by an investment fund to its manager or one or more portfolio advisers or sub-advisers, including incentive or performance fees, but excluding operating expenses of the fund. Management fees include trailing commissions (trailer fees).

Funds also pay operating expenses related to the administration of their activities, which may include brokerage fees on securities trading, audit and legal fees, investor communication expenses, remuneration paid to members of the independent audit committee, and income and other taxes.

Management fees and operating expenses are taken out of the fund's assets. You may have to pay other fees when you buy, hold, sell or switch fund units.

Margin account
Account opened with a dealer that a client may use for margin buying, i.e., using money borrowed through the dealer.

Margin buying
Borrowing money in order to invest. This increases the potential gains, as well as the potential losses, on any investment (leverage effect). Margin buying thus increases risk and requires caution on the part of investors.
Also called borrowing to invest.

Marginal tax rate
Tax rate applicable to the highest taxable income bracket.

Market capitalization
The value of a company determined by multiplying the number of common shares by its market price.

Market maker
Employed by a dealer, a market maker maintains the liquidity of at least one security on stock markets by buying and selling the security.

Market price
Most recent price at which a security (e.g., share, bond, etc.) was traded.

Market value (investment funds)
Value of a security (as determined by the capital markets) at a given point in time. It is the amount an investor will get if he sells his investment at that point in time.

MD&A (Management’s Discussion & Analysis)
Document that explains, through the eyes of management, the company’s results for the period covered by the financial statements as well as the company’s financial condition and future prospects. This report completes the financial statements but does not form part of these statements.

Medical history
All diseases and other health problems experienced by a person and his/her ascendants and descendants.

Money market
That part of the financial market in which short-term securities (current assets) are bought and sold, such as Treasury bills, short-term bonds, guaranteed investment certificates, etc.

Mutual benefit association
An association without share capital that provides benefits to members and their families in the event of a loss. Benefits may be available in the event of death, illness, or accident.

Mutual fund
Fund made up of money pooled by investors and managed on their behalf by a manager. The manager uses the money to purchase stocks, bonds, or other securities according to the fund’s objectives. Ownership is in the form of shares if the mutual fund is set up as a business corporation, and in the form of units if the fund is set up as a trust (the most common form). Holders have voting rights. These securities have no maturity.

- N -

Named peril
Named peril insurance covers losses only for causes that are specifically described in your contract.

Net worth
Assets less debt.

Nominal rate of return
The nominal rate of return is the rate of return earned by an investment each period. For example, if your $1,000 investment pays you interest of $20 after six months, your nominal rate of return will be 2% for six months.

How to convert a nominal rate of return into an effective annual rate of return?

Use the following formula:

Effective annual rate of return = (1+ nominal rate of return)Number of periods per year - 1

Therefore, an investor who earns a 2% return after six months has an effective annual rate of return of 4.04%, calculated as follows:
(1+0.02)2 -1 = (1.02 x 1.02) -1 = 1.0404 – 1 = 0.0404 = 4.04%.

Non-waiver agreement
Document signed by the insured after a claim has been filed. This document states that the insurer is currently investigating the circumstances of the loss and reserves the right to apply possible policy restrictions or exclusions that might result in denial of coverage.

Notice of meeting
Notice sent to shareholders announcing the date, time and location of the shareholders’ meeting. The notice of meeting is usually included with the information circular.

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