Glossary

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Annualized Return
A calculation for a period of less than a year as if the period were a whole year or for an investment period of longer than a year to equate to a single year, taking compounding into account. An annualized return gives you a better idea of how a stock or fund performed and makes it easier to compare them over the long term.

Asset Allocation (Asset Mix)
Proportion in which assets are divided among various types of investments, such as equities, bonds or cash.

Average Maturity
Is the weighted average of the expiration dates for a portfolio of debt securities. An income fund's volatility can be managed by shortening or lengthening the average maturity of its portfolio.

Bankers Acceptances (BAs)
A short-term credit investment created by a non-financial firm and guaranteed by a bank. Acceptances are traded at a discount from face value on the secondary market. Banker's acceptances are very similar to T-bills and are often used in money market funds. They offer liquidity to the investor as it is possible to sell BAs prior to maturity at the current market price.

Basis Point
A measure of an interest rate: one basis point is equal to 1/100 of 1 percent, or .0001.

Bear Market
A period in which stock prices are generally declining over a prolonged period of time is referred to as a bear market.

Benchmark
A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose.

Bond
A long-term debt security, issued by a corporation or government, which provides a promise to the holder that the principal and a specified amount of interest will be repaid within a specific period of time. Investing in a bond is akin to lending money to a government or organization in return for interest and principal.

Book Value
Is the amount at which an asset is carried on the books of the owner. The book value of an asset does not necessarily have a significant relationship to market value.

Bull Market
A period in which stock prices are generally increasing over a prolonged period of time is referred to as a bull market.

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Canada Bond
A Government bond, available in denominations ranging from $1,000 to $1,000,000. Fixed-coupon marketable bonds are interest-bearing securities based on stated coupon rates, pay interest semi-annually and are non-callable. Government of Canada bonds are the benchmark bonds in the Canadian bond market.

Cash Equivalents
Are liquid investments such as Treasury Bills and Money Market Securities that can be easily converted into cash.

Certificates of Deposit
Certificates of Deposit, familiarly known as CDs, are certificates issued against funds deposited in a bank for a definite period of time and earning a specified rate of return. Certificates of Deposit bear rates of interest in line with money market rates current at the time of issuance.

Compounding
Is the process by which you earn income on your investment's earnings. For example, if you had $1,000 in an investment that earned 5% interest a year, after one year you would have $1,050. During the second year, you would earn interest on the $50 earned the first year as well as on the original $1,000. Over time, compounding can lead to significant growth in your investments.

Concentration Risk
Some investment funds concentrate their portfolios in a single industry, country or geographic area. Funds that concentrate their investments tend to have greater fluctuations in price than funds with broader diversification. This is because they invest in fewer securities, and in the case of industry, country or geographically restricted funds, those securities may be affected by the same factors.

Credit Quality
Is the measurement of the financial strength of a bond issuer. This measures likelihood of timely interest payments and repayment of the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies.

Credit Risk
Is the risk that another party to an investment transaction will not fulfill its obligations. Credit risk can be associated with the issuer of a security, a financial institution holding the entity's deposit, or a third party holding securities or collateral. Credit risk exposure can be affected by a concentration of deposits or investments in any one investment type or with any one party.

Currency Risk
Changes in the exchange rate between the currency that an investment is purchased in and the Canadian dollar affect the value of the investment.

Custodian
An independent third party (usually bank or trust company) that holds securities in safekeeping as an agent for the owner. CIBC Mellon is the custodian for the One Investment Programs.

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Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

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.

Discount
The condition of the price of a bond that is lower than par. The discount equals the difference between the price paid for a security and the security's par value.

Dollar-Cost Averaging
By investing equal amounts of money at regular intervals regardless of whether share prices are moving up or down, you acquire more shares in periods of lower prices and fewer shares in periods of higher prices, actually reducing your average share cost over a longer term. Eventually, the average cost per share of the security will become smaller and smaller. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time.

Duration
A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. The bigger the duration number, the greater the interest-rate risk or reward for bond prices.

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Equity
A stock or any other security representing an ownership interest. An equity security refers to common stock, representing ownership interest in a corporation. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.

Expense Ratio
An expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets and lower the return to a fund's investors. Also known as "management expense ratio" (MER). Particular to the One Investment Programs known as "Fees and Expenses" found in the Schedules to the Agency Agreement.

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Face Value
The value of a fixed income security stated on the certificate; thus, the redemption value at maturity. The par values for different fixed-income products will vary.

Fixed Income
Investments that have some safety of principal and a potential for capital gains that typically account for 15% to 70% of a balanced portfolio. Examples include bonds and GICs with maturities greater than one-year, strip bonds, mortgage-backed securities, private placements and other debt instruments.

Foreign Investment Risk
Investments issued by foreign companies or governments other than Canada can be riskier than investments in Canada. Foreign countries can be affected by political, social, legal or diplomatic developments, including the imposition of currency and exchange controls. Some foreign markets can be less liquid, are less regulated and are subject to different reporting practices and disclosure requirements than issuers in North American markets.

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Inflation
Inflation is the rise in the cost of goods and services that causes a loss in the dollar's purchasing power. Inflation is frequently measured by the percentage change of the Consumer Price Index (CPI).

Inflation Risk
A risk of investing in fixed income instruments is the threat of inflation. The bond market reacts strongly not only to actual inflation, but also to the threat of inflation. A report that the economy is gaining strength and unemployment is falling can cause bond prices to fall and yields to rise. The reason for this is that investors who buy and hold bonds or other fixed income investments may be looking at a term of 10 years before receiving the principal amount invested. If there is a high rate of inflation during this term, then the principal amount to be received will lose purchasing power.

Interest Rate Risk
In general, rising interest rates cause fixed income investments to decrease in value and falling interest rates cause fixed income investments to increase in value. Fixed income investments with longer terms to maturity tend to be more sensitive to changes in interest rates. If an investor has invested directly in a fixed income security, such as a bond, this will be a concern if he/she wishes to sell the bond prior to maturity. If the bond is held to maturity, this type of risk has no impact. If an investor has invested in a bond fund, then these changes in interest rates and subsequent changes in fixed income security values will lead to changes in the net asset value of the fund. The value of the investment in the fund may decrease or increase.

Investment Policy
A formal statement approved by municipal Council which provides the basis upon which a fund or pool of funds (i.e. The One Investment Programs) is to be invested.

Investment Time Horizon
Your investment time horizon is the projected length of time your money will be invested.

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Liquidity
Liquidity is the ease of turning an investment to cash without a substantial loss in value. For example, a savings account is more liquid than real estate.

Liquidity Risk
Liquidity is a measure of how quickly an investment can be sold for cash at a fair market price. If a fund can't sell an investment quickly, it may lose money or make a lower profit, especially if it has to meet a large number of redemption requests. In general, investments in smaller companies, smaller markets or certain sectors of the economy tend to be less liquid than other types of investments. The less liquid an investment, the more its value tends to fluctuate.

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Mark-to-Market
An adjustment in the valuation of a securities portfolio to reflect the current market values of the respective securities in the portfolio. The One Investment Programs are priced on a mark-to-market basis daily.

Market Value
The price at which a security is trading and could presumably be sold. Market Value is often used interchangeably with Open Market Value, Fair Value, or Fair Market Value, although these bases of value can be somewhat different under some circumstances. International Valuation Standards (IVS) define Market Value as:

"the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgably, prudently, and without compulsion."

Market Risk
Is the risk that the value of an investment will decrease due to moves in market factors. The four standard market risk factors are:

• Equity risk, or the risk that stock prices will change.
• Interest rate risk, or the risk that interest rates will change.
• Currency risk, or the risk that foreign exchange rates will change.
• Commodity risk, or the risk that commodity prices will change.

Maturity
The date upon which the principal or stated value of an investment becomes due.

Mutual Fund
A mutual fund is a collection of stocks, bonds or other securities managed by professional portfolio managers with a stated investment goal such as growth, income, or some combination of the two. All investors in a particular fund share in both the expenses and the potential profits of the mutual fund.

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Par Value
The nominal or face value of a debt security; that is, the value at maturity.

Premium
The amount by which a bond sells above its par value.

Prime Rate
The interest rate a bank charges on loans to its most credit worthy customers. The Prime Rate is frequently cited as a standard for general interest rate levels in the economy €“ i.e. some One Investment Programs products are compared to bank prime rate less 1.75%, which is the rate commonly received by larger municipalities on bank deposits.

Principal
In general, principal refers to an invested amount on which interest is charged or earned.

Prudent Investor Rule
Modern conception of the Prudent Man Rule that requires a trustee to act prudently and with caution, discretion, loyalty and care but does not restrict the assets in which a trustee can invest. The Prudent Investor Rule makes use of Modern Portfolio Theory and applies the standard of prudence to the entire portfolio rather than to individual investments. It identifies the fiduciary's central consideration as the trade-off between risk and return as found in the CFA Institute Standards of Practice Handbook (CFA an international organization comprised of more than 70,000 members who hold the Chartered Financial Analyst (CFA) designation or are otherwise bound by its rules. Its primary mandate is to specify and maintain a high standard for the investment industry).

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Securities
Bonds, notes, mortgages, or other forms of negotiable or nonnegotiable instruments.

Spread
Refers to the interest rate differential between two fixed rate securities, generally bonds. Mathematically, a bond spread is the simple subtraction of one bond yield from another. Spreads reflect the relative risks of the bonds being compared. The higher the spread, the higher the risk usually is. People referring to bond spreads are generally talking about comparing the yields on federal government bonds, generally considered a country's most creditworthy bonds, to the bonds of other issuers such as provinces, municipalities or corporations.

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Term Deposits
Deposit instruments most commonly available from chartered banks, requiring a minimum investment at a predetermined rate of interest for a stated term. The interest varies according to the amount invested and term to maturity but is competitive with comparable alternative investments. However, a reduced interest rate will usually apply if funds are withdrawn prior to maturity.

Treasury Bills (T-Bills)
A short-term debt obligation backed by the government with a maturity of less than one year. T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder. Because treasury bills are considered "risk-free," these instruments generally yield the lowest returns of the major money market instruments.

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Volatility
Volatility is the tendency of an investment to experience price swings (ups and downs) over periods of time.

Yield
The rate at which an investment pays out interest or dividend income, expressed in percentage terms and calculated by dividing the amount paid by the price of the security and annualizing the result.

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