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ST'AT'IMC (PC) 2011 TRUST

Common Investment Terms: Welcome

COMMON INVESTMENT TERMS

Need help understanding the investment "lingo"?

If you have attended an Annual General Meeting, you may have heard updates from the Investment Consultant and/or the Investment Managers. Their terminology can be confusing so here is a listing of frequently used investor terms to help you understand what it is they are referring to in their updates.

Asset Allocation: The division of an investment portfolio among major asset categories, such as bonds, shares, property or cash.

Bonds: A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. 

Banker's Acceptance: A short-term debt instrument issued by a corporation that has been guaranteed by a bank, meaning that the bank is liable in the event of a non-payment. 

Chartered Financial Analyst (CFA): A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management and security analysis.

Commercial Paper: Unsecured short-term corporate debt that is characterized by a single payment at maturity. 

Common Stock: A type of security that represents ownership interest in a company. 

Convertible Debenture: A type of corporately issued debt security that yields interest, but entitles the holder to convert into a specified number of common shares at a later date.

Convertible Preferred Shares:  Shares: Preferred shares that include an option for the holder to convert the shares into a fixed number of common shares at a specified date.

Coupons Residuals: Once bonds are stripped, there are two parts: the principal and the coupons. The interest payments are known as "coupons", and the final payment at maturity is known as the "residual" since it is what is left over after the coupons are stripped off. Both coupons and residuals are bundled and referred to as zero-coupon bonds or "zeros".

Debentures: Unsecured debt backed only by the integrity of the borrower, not by collateral, and documented by an agreement called an indenture. One example is an unsecured bond.

Debt Instrument: A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower.

Deflation: A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.

Dividend: A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Emerging Market: An emerging market economy is a nation's economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body.

Equity: A stock or any other security representing an ownership interest. 

Future Contracts: A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.

Income Trusts: An investment trust that holds income-producing assets and trades units like a stock on an exchange. Income trusts attempt to hold assets which will generate a steady flow of income, such as lease payments from an office building. The income is passed on to the unit holders.

Indenture: A legal and binding contract between a bond issuer and the bondholders. The indenture specifies all the important features of a bond, such as its maturity date, timing of interest payments, method of interest calculation, callable/convertible features if applicable and so on. The indenture also contains all the terms and conditions applicable to the bond issue.

Inflation: The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.

Installment Receipts: A debt or equity issuance in which the purchaser does not pay the full value of the issue up front. In the purchase of an installment receipt, an initial payment is made to the issuer at the time the issue closes; the remaining balance must be paid in installments, usually within a two-year period. Although the purchaser has not paid the full value of the issue, he or she is still entitled to full voting rights and dividends.

Leverage: The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

Liquidity: The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

Money Market: A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.

Mortgage-backed Securities: A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by an accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Option Contracts:  A contract that allows the holder to buy or sell an underlying security at a given price, known as the strike price. The two most common types of options contracts are put and call options, which give the holder-buyer the right to sell or buy respectively, the underlying at the strike if the price of the underlying crosses the strike. Typically each options contract is written on 100 shares of the underlying.

Private Placements: The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

Preferred Shares: A class of ownership in a corporation that acts as a hybrid between common stock and bond issues. It has a higher claim on the assets and earnings than common stock Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.

Common Investment Terms: FAQ
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