Each year, new forms of investments appear on the market, often with new and, at times, complex
features. Are you familiar enough with the main forms of investments available to make a sound
investment choice?
This glossary presents an overview of the most common forms of investments based on three
fundamental criteria: expected return, liquidity and risk.
Before choosing an investment, you should assess your needs, financial situation and goals, risk
tolerance and investment horizon, and consider any related fees and tax consequences. Gather
information and, if necessary, consult a representative who holds a certificate issued by the AMF.
Most investment funds and issuers that publicly sell securities are required to file an electronic
version of their information documents, including annual reports, on SEDAR. You can consult
these documents on-line, free of charge, at www.sedar.com.
Risk represents the possibility of earning a lower
return than anticipated or losing all or a portion
of the amounts invested, and perhaps more
in certain cases.
The expected return is the gain you anticipate
from your investment in the form of interest
income, dividends or capital gains. Generally, the
higher the expected return from an investment,
the higher the risk. The return you actually earn
may differ significantly from the expected return,
which, as a rule, is not guaranteed.
Risk
Expected return
Liquidity
Liquidity represents the ability to quickly convert
an investment security (the “security”) into cash
without incurring significant costs. As a general
rule, the longer your investment horizon, the less
impact liquidity should have on your investment
decision. Ask yourself whether the funds invested
must be available at any time, in a few years, or
only when you retire. The answer could eliminate
several forms of investments.
Many investors do not distinguish between
securities that are redeemable by the issuer
and those that are redeemable by the holder
(investor). However, this distinction is essential
for determining the liquidity of a security.
Security redeemable by the issuer
A security is redeemable by the issuer if the latter
can buy it back at its option.
You should consider that an investment bought
back from you may be to your disadvantage. For
example, if an issuer can call a bond it has issued
at its option, the issuer may well do so when
interest rates drop, as it can now seek financing
at a lower rate. Given the lower interest rates,
you will have a difficult time reinvesting the
amount received at a rate similar to that offered
by this issuer.
Risk factors
There will always be certain risks associated
with an investment. Below are various risk factors
often related to numerous forms of investments.
Market risk Risk that a security’s value will
fluctuate according to market trends. Hence,
negative circumstances impacting a given industry
can lead to a decline in the value of a company’s
stock
Interest rate risk Risk that changes in interest
rates will impact a security’s value. For example, the
market value of bonds will fluctuate in the opposite
direction of interest rates; hence the market value
will drop when interest rates rise and vice versa.
Credit risk Risk that an issuer’s overall
creditworthiness will impact the value of the
securities it has issued. For example, an issuer
could have difficulty paying back its loans
to investors.
Political risk Risk that a government will not
be able to honour its commitments. The risk that
a government will change the rules in place must
also be considered. For example, a government
may amend tax laws, sometimes even retroactively.
Political instability and war are also risk factors.
Inflation risk or risk related to purchasing
power Risk that the real return on investments
will not offset the increase in the cost of living.
For example, if you hold a security earning a 5%
return when inflation is at 2%, your real rate
of return is approximately 3%. Your purchasing
power has therefore risen by only 3% rather
than 5%.
Note: A simple method for measuring the real rate
of return on an investment is to subtract the inflation
rate from the rate of return.
Risk related to changes in the rating
of securities Risk that the ratings assigned
to an issuer’s securities will change. For example,
independent bodies that evaluate the quality of
debt securities can lower an issuer’s credit rating
(discount) if its financial position deteriorates.
Such a discount will hike the issuer’s borrowing
costs and undercut the value of its securities.
Risk related to the payment of dividends Risk
that the issuer will cancel the payment of dividends
on shares.
Regardless of the risk level, there is always
a possibility of losing part or all of the
invested capital. This seldom occurs for
low-risk investments, but is more likely as
the degree of risk you are willing to accept
increases.
Other considerations
Risk tolerance depends on a number of factors:
age, personality, objectives, investment horizon,
knowledge, etc. You need to know your investor
profile to make sound investment decisions.
Fees Fees must be taken into account when
choosing your investments. The transaction fees
for some securities can be very high and can reduce
your returns. The same is true for the fees charged
by the firms and representatives managing your
investments. These fees can vary. We recommend
asking your representative or the firm you deal
with for more details.
Tax liabilities
Remember to take taxes into consideration, as
they can affect the net return on your investment.
Interest, dividends and capital gains (or losses) are
treated differently for tax purposes. Some registered
plans allow you to eliminate or defer the tax impact
of investment income or gains: registered retirement
savings plans (RRSPs), registered retirement income
funds (RRIFs), registered education savings plans
(RESPs), and tax-free savings accounts (TFSAs).
Tax treatment of returns
Interest Interest earned on an investment
is generally treated as ordinary income for tax
purposes.
Dividends from Canadian companies A dividend
tax credit is generally allowed, so dividends are
often taxable at a lower rate than is interest.
Capital gains It is generally possible to exclude
a portion of capital gains when calculating taxable
income. Capital losses can generally be used
to offset capital gains.
Consult your representative to find out
if you are eligible to contribute to a
plan and if it meets your needs and your
financial goals.
Counterparty risk Risk that the party with whom
you are dealing will not fulfill its obligations
(delivery, payment, etc.) and that you will suffer
a loss as a result.
Currency risk Risk that the currency used to
purchase your investment will fluctuate and lower
its value. For example, if you hold bonds from
a U.S. issuer and the Canadian dollar appreciates
against the U.S. dollar, the value of your bonds
will be less if you sell the bonds and convert
the proceeds to Canadian dollars.
Security redeemable by the holder
A security is redeemable by the holder if you
have the option of requesting that the issuer
buy it back.
Prospectus exemptions
Prospectuses made clear
Red-flagging financial fraud
Watch out for securities fraud
Mutual Funds
Choosing a securities firm
and representative
Short investment glossary
Choose the investments
that suit you
Update your financial position
Brochures to help you
with your investments
SHORT INVESTMENT GLOSSARY
TO CONTACT THE AUTORITÉ
DES MARCHÉS FINANCIERS
QUÉBEC CITY
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
Autorité des marchés financiers
The Autorité des marchés financiers (AMF) is the
regulatory and oversight body for Québec’s financial
sector.
MONTRÉAL
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
Part of its mission is to protect the public by enforcing
the laws and regulations governing insurance, securities,
the distribution of financial products and services,
and deposit institutions (other than banks).
INFORMATION CENTRE
Québec City: 418 525-0337
Montréal: 514 395-0337
Toll-free: 1 877 525-0337
Website: www.lautorite.qc.ca/en
AMF youth website: www.tesaffaires.com
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
Dépôt légal – Bibliothèque et Archives nationales du Québec, 2006
Dépôt légal – Bibliothèque et Archives Canada, 2006
ISBN-10: 2-550-47871-1 (Print version)
ISBN-10: 2-550-47872-X (Electronic version)
03_Cafe_Lexique_V3_AN-1.qxp
11/05/09
14:42
Page 1
Each year, new forms of investments appear on the market, often with new and, at times, complex
features. Are you familiar enough with the main forms of investments available to make a sound
investment choice?
This glossary presents an overview of the most common forms of investments based on three
fundamental criteria: expected return, liquidity and risk.
Before choosing an investment, you should assess your needs, financial situation and goals, risk
tolerance and investment horizon, and consider any related fees and tax consequences. Gather
information and, if necessary, consult a representative who holds a certificate issued by the AMF.
Most investment funds and issuers that publicly sell securities are required to file an electronic
version of their information documents, including annual reports, on SEDAR. You can consult
these documents on-line, free of charge, at www.sedar.com.
Expected return
Risk
The expected return is the gain you anticipate
from your investment in the form of interest
income, dividends or capital gains. Generally, the
higher the expected return from an investment,
the higher the risk. The return you actually earn
may differ significantly from the expected return,
which, as a rule, is not guaranteed.
Risk represents the possibility of earning a lower
return than anticipated or losing all or a portion
of the amounts invested, and perhaps more
in certain cases.
Liquidity
Liquidity represents the ability to quickly convert
an investment security (the “security”) into cash
without incurring significant costs. As a general
rule, the longer your investment horizon, the less
impact liquidity should have on your investment
decision. Ask yourself whether the funds invested
must be available at any time, in a few years, or
only when you retire. The answer could eliminate
several forms of investments.
Many investors do not distinguish between
securities that are redeemable by the issuer
and those that are redeemable by the holder
(investor). However, this distinction is essential
for determining the liquidity of a security.
Security redeemable by the issuer
A security is redeemable by the issuer if the latter
can buy it back at its option.
You should consider that an investment bought
back from you may be to your disadvantage. For
example, if an issuer can call a bond it has issued
at its option, the issuer may well do so when
interest rates drop, as it can now seek financing
at a lower rate. Given the lower interest rates,
you will have a difficult time reinvesting the
amount received at a rate similar to that offered
by this issuer.
Risk factors
There will always be certain risks associated
with an investment. Below are various risk factors
often related to numerous forms of investments.
Market risk Risk that a security’s value will
fluctuate according to market trends. Hence,
negative circumstances impacting a given industry
can lead to a decline in the value of a company’s
stock
Interest rate risk Risk that changes in interest
rates will impact a security’s value. For example, the
market value of bonds will fluctuate in the opposite
direction of interest rates; hence the market value
will drop when interest rates rise and vice versa.
Credit risk Risk that an issuer’s overall
creditworthiness will impact the value of the
securities it has issued. For example, an issuer
could have difficulty paying back its loans
to investors.
Counterparty risk Risk that the party with whom
you are dealing will not fulfill its obligations
(delivery, payment, etc.) and that you will suffer
a loss as a result.
Political risk Risk that a government will not
be able to honour its commitments. The risk that
a government will change the rules in place must
also be considered. For example, a government
may amend tax laws, sometimes even retroactively.
Political instability and war are also risk factors.
Other considerations
Inflation risk or risk related to purchasing
power Risk that the real return on investments
will not offset the increase in the cost of living.
For example, if you hold a security earning a 5%
return when inflation is at 2%, your real rate
of return is approximately 3%. Your purchasing
power has therefore risen by only 3% rather
than 5%.
Fees Fees must be taken into account when
choosing your investments. The transaction fees
for some securities can be very high and can reduce
your returns. The same is true for the fees charged
by the firms and representatives managing your
investments. These fees can vary. We recommend
asking your representative or the firm you deal
with for more details.
Note: A simple method for measuring the real rate
of return on an investment is to subtract the inflation
rate from the rate of return.
Tax liabilities
Risk related to changes in the rating
of securities Risk that the ratings assigned
to an issuer’s securities will change. For example,
independent bodies that evaluate the quality of
debt securities can lower an issuer’s credit rating
(discount) if its financial position deteriorates.
Such a discount will hike the issuer’s borrowing
costs and undercut the value of its securities.
Interest, dividends and capital gains (or losses) are
treated differently for tax purposes. Some registered
plans allow you to eliminate or defer the tax impact
of investment income or gains: registered retirement
savings plans (RRSPs), registered retirement income
funds (RRIFs), registered education savings plans
(RESPs), and tax-free savings accounts (TFSAs).
Risk related to the payment of dividends Risk
that the issuer will cancel the payment of dividends
on shares.
Interest Interest earned on an investment
is generally treated as ordinary income for tax
purposes.
Regardless of the risk level, there is always
a possibility of losing part or all of the
invested capital. This seldom occurs for
low-risk investments, but is more likely as
the degree of risk you are willing to accept
increases.
Risk tolerance depends on a number of factors:
age, personality, objectives, investment horizon,
knowledge, etc. You need to know your investor
profile to make sound investment decisions.
Remember to take taxes into consideration, as
they can affect the net return on your investment.
Tax treatment of returns
Dividends from Canadian companies A dividend
tax credit is generally allowed, so dividends are
often taxable at a lower rate than is interest.
Capital gains It is generally possible to exclude
a portion of capital gains when calculating taxable
income. Capital losses can generally be used
to offset capital gains.
Consult your representative to find out
if you are eligible to contribute to a
plan and if it meets your needs and your
financial goals.
Currency risk Risk that the currency used to
purchase your investment will fluctuate and lower
its value. For example, if you hold bonds from
a U.S. issuer and the Canadian dollar appreciates
against the U.S. dollar, the value of your bonds
will be less if you sell the bonds and convert
the proceeds to Canadian dollars.
Security redeemable by the holder
A security is redeemable by the holder if you
have the option of requesting that the issuer
buy it back.
Prospectus exemptions
Prospectuses made clear
Red-flagging financial fraud
Watch out for securities fraud
Mutual Funds
Choosing a securities firm
and representative
Short investment glossary
Choose the investments
that suit you
Update your financial position
Brochures to help you
with your investments
SHORT INVESTMENT GLOSSARY
TO CONTACT THE AUTORITÉ
DES MARCHÉS FINANCIERS
QUÉBEC CITY
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
MONTRÉAL
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
INFORMATION CENTRE
Québec City: 418 525-0337
Montréal: 514 395-0337
Toll-free: 1 877 525-0337
Website: www.lautorite.qc.ca/en
AMF youth website: www.tesaffaires.com
Dépôt légal – Bibliothèque et Archives nationales du Québec, 2006
Dépôt légal – Bibliothèque et Archives Canada, 2006
Autorité des marchés financiers
The Autorité des marchés financiers (AMF) is the
regulatory and oversight body for Québec’s financial
sector.
Part of its mission is to protect the public by enforcing
the laws and regulations governing insurance, securities,
the distribution of financial products and services,
and deposit institutions (other than banks).
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
ISBN-10: 2-550-47871-1 (Print version)
ISBN-10: 2-550-47872-X (Electronic version)
03_Cafe_Lexique_V3_AN-1.qxp
11/05/09
14:42
Page 1
Each year, new forms of investments appear on the market, often with new and, at times, complex
features. Are you familiar enough with the main forms of investments available to make a sound
investment choice?
This glossary presents an overview of the most common forms of investments based on three
fundamental criteria: expected return, liquidity and risk.
Before choosing an investment, you should assess your needs, financial situation and goals, risk
tolerance and investment horizon, and consider any related fees and tax consequences. Gather
information and, if necessary, consult a representative who holds a certificate issued by the AMF.
Most investment funds and issuers that publicly sell securities are required to file an electronic
version of their information documents, including annual reports, on SEDAR. You can consult
these documents on-line, free of charge, at www.sedar.com.
Expected return
Risk
The expected return is the gain you anticipate
from your investment in the form of interest
income, dividends or capital gains. Generally, the
higher the expected return from an investment,
the higher the risk. The return you actually earn
may differ significantly from the expected return,
which, as a rule, is not guaranteed.
Risk represents the possibility of earning a lower
return than anticipated or losing all or a portion
of the amounts invested, and perhaps more
in certain cases.
Liquidity
Liquidity represents the ability to quickly convert
an investment security (the “security”) into cash
without incurring significant costs. As a general
rule, the longer your investment horizon, the less
impact liquidity should have on your investment
decision. Ask yourself whether the funds invested
must be available at any time, in a few years, or
only when you retire. The answer could eliminate
several forms of investments.
Many investors do not distinguish between
securities that are redeemable by the issuer
and those that are redeemable by the holder
(investor). However, this distinction is essential
for determining the liquidity of a security.
Security redeemable by the issuer
A security is redeemable by the issuer if the latter
can buy it back at his convience.
You should consider that an investment bought
back from you may be to your disadvantage. For
example, if an issuer can call a bond it has issued
at his convience, the issuer may well do so when
interest rates drop, as it can now seek financing
at a lower rate. Given the lower interest rates,
you will have a difficult time reinvesting the
amount received at a rate similar to that offered
by this issuer.
Risk factors
There will always be certain risks associated
with an investment. Below are various risk factors
often related to numerous forms of investments.
Market risk Risk that a security’s value will
fluctuate according to market trends. Hence,
negative circumstances impacting a given industry
can lead to a decline in the value of a company’s
stock
Interest rate risk Risk that changes in interest
rates will impact a security’s value. For example, the
market value of bonds will fluctuate in the opposite
direction of interest rates; hence the market value
will drop when interest rates rise and vice versa.
Credit risk Risk that an issuer’s overall
creditworthiness will impact the value of the
securities it has issued. For example, an issuer
could have difficulty paying back its loans
to investors.
Counterparty risk Risk that the party with whom
you are dealing with will not fulfill its obligations
(delivery, payment, etc.) and that you will suffer
a loss as a result.
Political risk Risk that a government will not
be able to honour its commitments. The risk that
a government will change the rules in place must
also be considered. For example, a government
may amend tax laws, sometimes even retroactively.
Political instability and war are also risk factors.
Other considerations
Inflation risk or risk related to purchasing
power Risk that the real return on investments
will not offset the increase in the cost of living.
For example, if you hold a security earning a 5%
return when inflation is at 2%, your real rate
of return is approximately 3%. Your purchasing
power has therefore risen by only 3% rather
than 5%.
Fees Fees must be taken into account when
choosing your investments. The transaction fees
for some securities can be very high and can reduce
your returns. The same is true for the fees charged
by the firms and representatives managing your
investments. These fees can vary. We recommend
asking your representative or the firm you deal
with for more details.
Note: A simple method for measuring the real rate
of return on an investment is to subtract the inflation
rate from the rate of return.
Tax liabilities
Risk related to changes in the rating
of securities Risk that the ratings assigned
to an issuer’s securities will change. For example,
independent bodies that evaluate the quality of
debt securities can lower an issuer’s credit rating
(discount) if its financial position deteriorates.
Such a discount will hike the issuer’s borrowing
costs and undercut the value of its securities.
Interest, dividends and capital gains (or losses) are
treated differently for tax purposes. Some registered
plans allow you to eliminate or defer the tax impact
of investment income or gains: registered retirement
savings plans (RRSPs), registered retirement income
funds (RRIFs), registered education savings plans
(RESPs), and tax-free savings accounts (TFSAs).
Risk related to the payment of dividends Risk
that the issuer will cancel the payment of dividends.
Interest Interest earned on an investment
is generally treated as ordinary income for tax
purposes.
Regardless of the risk level, there is always
a possibility of losing part or all of the
invested capital. This seldom occurs for
low-risk investments, but is more likely as
the degree of risk you are willing to accept
increases.
Risk tolerance depends on a number of factors:
age, personality, objectives, investment horizon,
knowledge, etc. You need to know your investor
profile to make sound investment decisions.
Remember to take taxes into consideration, as
they can affect the net return on your investment.
Tax treatment of returns
Dividends from Canadian companies A dividend
tax credit is generally allowed, so dividends are
often taxable at a lower rate than is interest.
Capital gains It is generally possible to exclude
a portion of capital gains when calculating taxable
income. Capital losses can generally be used
to offset capital gains.
Consult your representative to find out
if you are eligible to contribute to a plan
and if this meets your needs and your
financial goals.
Currency risk Risk that the currency used to
purchase your investment will fluctuate and lower
its value. For example, if you hold bonds from
a U.S. issuer and the Canadian dollar appreciates
against the U.S. dollar, the value of your bonds
will be less if you sell the bonds and convert
the proceeds to Canadian dollars.
Security redeemable by the holder
A security is redeemable by the holder if you
have the possibility of requesting that the issuer
buy it back.
Prospectus exemptions
Prospectuses made clear
Red-flagging financial fraud
Watch out for securities fraud
Mutual Funds
Choosing a securities firm
and representative
Short investment glossary
Choose the investments
that suit you
Update your financial position
Brochures to help you
with your investments
SHORT INVESTMENT GLOSSARY
TO CONTACT THE AUTORITÉ
DES MARCHÉS FINANCIERS
QUÉBEC CITY
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
MONTRÉAL
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
INFORMATION CENTRE
Québec City: 418 525-0337
Montréal: 514 395-0337
Toll-free: 1 877 525-0337
Website: www.lautorite.qc.ca/en
AMF youth website: www.tesaffaires.com
Legal deposit – Bibliothèque et Archives nationales du Québec, 2006
Legal deposit – Bibliothèque et Archives Canada, 2006
Autorité des marchés financiers
The Autorité des marchés financiers (AMF) is the
regulatory and oversight body for Québec’s financial
sector.
Part of its mission is to protect the public by enforcing
the laws and regulations governing insurance, securities,
the distribution of financial products and services,
and deposit institutions (other than banks).
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
ISBN-10: 2-550-47871-1 (printed)
ISBN-10: 2-550-47872-X (on-line)
03_Cafe_Lexique_V3_AN-2.qxp
09/06/09
13:55
Page 1
Each year, new forms of investments appear on the market, often with new and, at times, complex
features. Are you familiar enough with the main forms of investments available to make a sound
investment choice?
This glossary presents an overview of the most common forms of investments based on three
fundamental criteria: expected return, liquidity and risk.
Before choosing an investment, you should assess your needs, financial situation and goals, risk
tolerance and investment horizon, and consider any related fees and tax consequences. Gather
information and, if necessary, consult a representative who holds a certificate issued by the AMF.
Most investment funds and issuers that publicly sell securities are required to file an electronic
version of their information documents, including annual reports, on SEDAR. You can consult
these documents on-line, free of charge, at www.sedar.com.
Expected return
Risk
The expected return is the gain you anticipate
from your investment in the form of interest
income, dividends or capital gains. Generally, the
higher the expected return from an investment,
the higher the risk. The return you actually earn
may differ significantly from the expected return,
which, as a rule, is not guaranteed.
Risk represents the possibility of earning a lower
return than anticipated or losing all or a portion
of the amounts invested, and perhaps more
in certain cases.
Liquidity
Liquidity represents the ability to quickly convert
an investment security (the “security”) into cash
without incurring significant costs. As a general
rule, the longer your investment horizon, the less
impact liquidity should have on your investment
decision. Ask yourself whether the funds invested
must be available at any time, in a few years, or
only when you retire. The answer could eliminate
several forms of investments.
Many investors do not distinguish between
securities that are redeemable by the issuer
and those that are redeemable by the holder
(investor). However, this distinction is essential
for determining the liquidity of a security.
Security redeemable by the issuer
A security is redeemable by the issuer if the latter
can buy it back at his convience.
You should consider that an investment bought
back from you may be to your disadvantage. For
example, if an issuer can call a bond it has issued
at his convience, the issuer may well do so when
interest rates drop, as it can now seek financing
at a lower rate. Given the lower interest rates,
you will have a difficult time reinvesting the
amount received at a rate similar to that offered
by this issuer.
Risk factors
There will always be certain risks associated
with an investment. Below are various risk factors
often related to numerous forms of investments.
Market risk Risk that a security’s value will
fluctuate according to market trends. Hence,
negative circumstances impacting a given industry
can lead to a decline in the value of a company’s
stock
Interest rate risk Risk that changes in interest
rates will impact a security’s value. For example, the
market value of bonds will fluctuate in the opposite
direction of interest rates; hence the market value
will drop when interest rates rise and vice versa.
Credit risk Risk that an issuer’s overall
creditworthiness will impact the value of the
securities it has issued. For example, an issuer
could have difficulty paying back its loans
to investors.
Counterparty risk Risk that the party with whom
you are dealing with will not fulfill its obligations
(delivery, payment, etc.) and that you will suffer
a loss as a result.
Political risk Risk that a government will not
be able to honour its commitments. The risk that
a government will change the rules in place must
also be considered. For example, a government
may amend tax laws, sometimes even retroactively.
Political instability and war are also risk factors.
Other considerations
Inflation risk or risk related to purchasing
power Risk that the real return on investments
will not offset the increase in the cost of living.
For example, if you hold a security earning a 5%
return when inflation is at 2%, your real rate
of return is approximately 3%. Your purchasing
power has therefore risen by only 3% rather
than 5%.
Fees Fees must be taken into account when
choosing your investments. The transaction fees
for some securities can be very high and can reduce
your returns. The same is true for the fees charged
by the firms and representatives managing your
investments. These fees can vary. We recommend
asking your representative or the firm you deal
with for more details.
Note: A simple method for measuring the real rate
of return on an investment is to subtract the inflation
rate from the rate of return.
Tax liabilities
Risk related to changes in the rating
of securities Risk that the ratings assigned
to an issuer’s securities will change. For example,
independent bodies that evaluate the quality of
debt securities can lower an issuer’s credit rating
(discount) if its financial position deteriorates.
Such a discount will hike the issuer’s borrowing
costs and undercut the value of its securities.
Interest, dividends and capital gains (or losses) are
treated differently for tax purposes. Some registered
plans allow you to eliminate or defer the tax impact
of investment income or gains: registered retirement
savings plans (RRSPs), registered retirement income
funds (RRIFs), registered education savings plans
(RESPs), and tax-free savings accounts (TFSAs).
Risk related to the payment of dividends Risk
that the issuer will cancel the payment of dividends.
Interest Interest earned on an investment
is generally treated as ordinary income for tax
purposes.
Regardless of the risk level, there is always
a possibility of losing part or all of the
invested capital. This seldom occurs for
low-risk investments, but is more likely as
the degree of risk you are willing to accept
increases.
Risk tolerance depends on a number of factors:
age, personality, objectives, investment horizon,
knowledge, etc. You need to know your investor
profile to make sound investment decisions.
Remember to take taxes into consideration, as
they can affect the net return on your investment.
Tax treatment of returns
Dividends from Canadian companies A dividend
tax credit is generally allowed, so dividends are
often taxable at a lower rate than is interest.
Capital gains It is generally possible to exclude
a portion of capital gains when calculating taxable
income. Capital losses can generally be used
to offset capital gains.
Consult your representative to find out
if you are eligible to contribute to a plan
and if this meets your needs and your
financial goals.
Currency risk Risk that the currency used to
purchase your investment will fluctuate and lower
its value. For example, if you hold bonds from
a U.S. issuer and the Canadian dollar appreciates
against the U.S. dollar, the value of your bonds
will be less if you sell the bonds and convert
the proceeds to Canadian dollars.
Security redeemable by the holder
A security is redeemable by the holder if you
have the possibility of requesting that the issuer
buy it back.
Prospectus exemptions
Prospectuses made clear
Red-flagging financial fraud
Watch out for securities fraud
Mutual Funds
Choosing a securities firm
and representative
Short investment glossary
Choose the investments
that suit you
Update your financial position
Brochures to help you
with your investments
SHORT INVESTMENT GLOSSARY
TO CONTACT THE AUTORITÉ
DES MARCHÉS FINANCIERS
QUÉBEC CITY
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
MONTRÉAL
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
INFORMATION CENTRE
Québec City: 418 525-0337
Montréal: 514 395-0337
Toll-free: 1 877 525-0337
Website: www.lautorite.qc.ca/en
AMF youth website: www.tesaffaires.com
Legal deposit – Bibliothèque et Archives nationales du Québec, 2006
Legal deposit – Bibliothèque et Archives Canada, 2006
Autorité des marchés financiers
The Autorité des marchés financiers (AMF) is the
regulatory and oversight body for Québec’s financial
sector.
Part of its mission is to protect the public by enforcing
the laws and regulations governing insurance, securities,
the distribution of financial products and services,
and deposit institutions (other than banks).
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
ISBN-10: 2-550-47871-1 (printed)
ISBN-10: 2-550-47872-X (on-line)
03_Cafe_Lexique_V3_AN-2.qxp
09/06/09
13:55
Page 1
03_Cafe_Lexique_V3_AN-2.qxp
09/06/09
13:55
Page 2
Note — The terms followed by an asterisk are defined at the end of the table.
TYPE AND DEFINITION
DEBT SECURITIES
EXPECTED RETURN
LIQUIDITY
RISK
The return is solely the difference between the purchase price and the
value of the T bill at maturity, e.g. $990 for a value at maturity of $1,000.
The market value of T-bills may fluctuate based on changes in interest
rates.
T-bills can generally be easily sold
before maturity.
Very low: There is practically no risk of default of payment because
they are guaranteed by the governments that issue them. Since T-bills
are short-term securities, the risk of major fluctuations in the market
value due to interest rate changes is limited.
Guaranteed investment certificates generally earn a fixed interest rate up
to maturity. They either bear compound or regular interest (paid to the
investor on a regular basis). There are also some GICs where the return
fluctuates based on the performance of an index such as a stock index
(index-linked GIC).
Most GICs must be held until maturity,
but some can be redeemed upon
request. Penalties may apply in such
cases.
Very low to medium: As a general rule, they are guaranteed by the issuer.
With respect to index-linked GICs, they may or may not be guaranteed.
The capital can also be insured by deposit insurance, in the event
of bankruptcy of the issuer. Some restrictions apply. GICs that carry
terms of more than five years and are non-redeemable are not covered
by deposit insurance.
The majority of savings bonds with regular or compound interest offer
a fixed annual rate of return until maturity or a minimum rate of return
that can be increased by the issuer if market conditions change. There
are also tiered-rate savings bonds (regular and predetermined increases
in the rate).
Savings bonds cannot usually be sold
or transferred to another person.
Some can be redeemed by the holder
at any time, while others can be
redeemed only at specific intervals
or only at maturity.
Very low: They are guaranteed by the government issuer.
The return is in the form of interest or capital gains (losses) realized
at maturity or at the time of sale. The majority of bonds and debentures
provide for regular interest payments until maturity or minimum interest
payments that can be increased by the issuer if market conditions
change.
Bonds are sold on over-the-counter
markets*. No secondary market may
be available if the issuer experiences
financial difficulties. Some bonds may
be redeemable by the issuer.
Low to high: A rise in interest rates or financial difficulties for the issuer
will lower the value of the bonds.
If sold before maturity, the return will consist of capital gains (losses).
Otherwise, the return consists of interest. The return may be tied to the
performance of a stock, bond, commodity or currency index. The return
on some notes may be tied to hedge fund returns. Some notes guarantee
a rate of return for certain years, for example the first year only.
A secondary market* for principalprotected notes is usually maintained
by the financial institutions that issue
the notes.
Medium: Principal-protected notes are usually guaranteed by a financial
institution. However, the guarantee does not apply if the note is redeemed
before maturity, which is usually between 5 and 10 years. Since the return
on these notes is tied to underlying interests, there is a risk that the
interest paid will be less than expected or that there will be no interest
payments at all. In some cases, the issuer may limit the return on a note
and/or redeem it before maturity.
The return on common shares may be in the form of dividends and
capital gains (losses). Many companies periodically pay dividends to their
shareholders. Others may not pay dividends, either because they are not
profitable, or because they choose to retain their earnings and reinvest
them. In many cases, the return will depend primarily on the performance
of the company’s stock, resulting in capital gains or losses when the shares
are sold. The price of common shares may rise or fall, sometimes quickly
and sharply, based on the size, profitability and financial stability of the
company, as well as on the skills of its management and its exposure
to economic slumps, etc.
Common shares are normally traded
on a stock exchange or on over-thecounter markets*. However, there may
not be any market for certain common
shares and trading may be subject
to restrictions.
Medium to high: The risk depends on a number of factors such as the
size, profitability and financial stability of the company, the quality of
management and its exposure to economic slowdowns. If the company
is dissolved and its remaining assets are distributed, the holders of common
shares will be reimbursed after governments, employees, creditors
and holders of preferred shares.
(the risk is qualified for information purposes only)
Treasury bills
Treasury bills (T-bills) are issued by the federal and provincial governments. They consist of loans
granted by investors to issuers. Treasury bills are sold in denominations of $1,000, and are issued
for a term of one year or less.
Guaranteed investment certificates (GICs)
GICs are certificates of deposit issued by financial institutions. They represent loans granted by investors
to issuers. Terms range from 30 days to 10 years.
Note – The return of a stock market index measures the performance
of a predetermined group of securities that are listed on an exchange.
Savings bonds
Savings bonds are issued in several forms by the federal government and the governments of certain
provinces. They represent loans granted by investors to issuers. Terms are one year or more.
Bonds and debentures
Bonds are issued by governments and companies and represent loans granted by investors to issuers.
In general, the issuer promises to pay a fixed interest rate to the investor at certain intervals and pay
back a predetermined amount at maturity: the face value. The face value is often a multiple of $1,000.
Bonds can be traded at a price above or below their face value. Corporate bonds are generally backed
by specific assets. The term is generally from 1 to 30 years. Some bonds, known as convertible bonds,
can be exchanged for shares by the investor at his option.
Strip bonds (or zero coupon bonds) are bonds whose coupons have been separated. The remainder
of the bond (the principal) and the interest portion are discounted and sold separately. The principal
is paid at maturity. The difference between the purchase price and the amount paid back at maturity
corresponds to the interest income.
Debentures are similar to bonds, except that they are not backed by specific assets.
Should the issuer be dissolved, bonds and debentures entitle holders
to a portion of the issuer’s remaining assets, before the shareholders.
The market value of a bond varies according to changes in interest rates
and the issuer’s credit rating. If interest rates fall, for example, the market
value of a bond will rise because the interest payments provided by the
bond become more attractive to investors. Value also depends on changes
to the issuer’s credit rating.
Note – The rate of return on a bond or a debenture depends on the price
paid at the time of purchase and the time left until maturity. For example,
a debenture with an interest rate of 6% will pay a return of $60 per year
for each multiple of $1,000 (face/par value). If you purchase the debenture
for $950, your return will be higher than 6%.
Principal-protected notes
Principal-protected notes are securities whereby the issuer recognizes a debt. The term is usually between
5 and 10 years. At maturity, the issuer agrees to pay back the principal to investors. These securities
do not necessarily carry a fixed interest rate, and their return can fluctuate on the basis of the benchmark
portfolio, which can in turn be tied to several indexes, commodities, currencies, hedge funds, etc.
EQUITY INTERESTS
Common shares
Common shares are issued by companies and give holders an ownership interest in the company. Holders
of common shares generally have the right to vote on certain decisions involving the issuer and receive
any declared dividends. Should the issuer be dissolved, holders will share a portion of the remaining
assets. Common shares have no maturity date.
Restricted shares
• Restricted shares hold limited voting rights or no voting rights except under special circumstances.
Flow-through shares
• Flow-through shares are issued by certain oil, gas and mining exploration companies. They give
shareholders certain tax deductions for eligible exploration, development and investment costs.
•
Same comments as for common shares.
•
Same comments as for common
shares.
•
Same comments as for common shares.
•
The benefit to an investor will partially depend on the tax benefits
the latter can enjoy and the fluctuations in the price of the shares,
with an impact on capital gains or losses when the investor sells
the shares.
•
Same comments as for common
shares.
•
High: Exploration and development programs generally carry high risk.
In addition, exploration costs may not be eligible under the tax rules
and tax deductions may be refused.
Preferred shares
Preferred shares are issued by companies. They generally entitle holders to receive a fixed dividend
before any dividends are paid to holders of common shares. Should the issuer be dissolved, holders
will share the remaining assets. Generally, preferred shareholders are not entitled to vote.
In many cases, preferred shares have special features, such as the holder’s right to redeem the shares
at certain times. They may also be convertible, in which case the holder has the right to exchange them
for common shares at a pre-established price. Preferred shares may be redeemable at the issuer’s
option at certain periods. Others earn cumulative dividends: dividends not paid during a given year
accumulate until paid out.
INVESTMENT
FUND SECURITIES
The dividends on preferred shares are generally fixed, although the
company may reduce or suspend the payment of dividends if, for example,
its profits are lower than expected or if it needs to maintain its earnings
for various reasons.
Same comments as for common shares.
Medium to high: Same comments as for common shares. The suspension
of dividends in case of financial difficulties or rising interest rates may
lower the value of preferred shares. An increase in the rate of return
offered by other investments can also affect the price of preferred shares,
making the fixed dividend on these shares less attractive. If the issuer
is dissolved and its remaining assets are distributed, holders of preferred
shares will be reimbursed after governments, employees and creditors.
Mutual fund securities can generate returns in the form of dividends,
interest or capital gains (losses). The capital gains (losses) may be realized
by the mutual fund when it sells securities from its portfolio. Capital gains
(losses) can also occur when the investor wishes to redeem his securities.
The return depends on the investment decisions made and the success
of the strategies adopted by the fund manager.
Investors can generally request
that their mutual fund securities
be redeemed.
Low to high: The risk depends on the mutual fund’s investments,
such as bonds, shares, etc. Securities are not guaranteed.
Same comments as for mutual funds.
Same comments as for mutual funds.
In general, the investment term must
be 10 years to benefit from the capital
guarantee at maturity.
Low to medium: The risk depends on the fund’s investments (e.g. bonds,
stocks, money market instruments). Individual segregated fund contracts
offer a guarantee that protects, at maturity, at least 75% of the amount
invested. Moreover, insurers generally offer a death benefit guarantee.
However, you can still lose money with a segregated fund if you must
redeem your investment before maturity, because the guarantee will
no longer apply.
Exchange-traded fund securities can generate returns in the form
of dividends, interest or capital gains (losses). The capital gains (losses)
are realized when the investor sells his securities.
The liquidity of an exchange-traded
fund (ETF) depends on the liquidity
of the underlying securities.
Low to high: The risk depends on the volatility of the index tracked by
the fund. For example, an emerging market ETF could be more risky than
an ETF that tracks the stock exchange index of an industrialized country.
Securities can generate returns in the form of capital gains (losses). The
benefit to the investor will partially depend on the resulting tax benefits.
Shares in labour-sponsored funds
must be retained until the age of
65 years or the time of retirement
or early retirement, i.e. at 55 years
of age. Certain conditions apply. Shares
can also be redeemed in exceptional
circumstances. These include:
purchase of a property, pursuing
education, loss of employment
or launch of a business, disability
or terminal illness.
Medium to high: These funds invest a major proportion of their assets
in start-ups or small and medium-sized enterprises.
The potential capital gains on a company’s preferred shares are generally
less than what can be earned on the common shares of the same
company.
The value of these shares is linked primarily to changes in interest
rates and to the issuer’s earnings. Conversion and redemption privileges
can also have an impact on the value of preferred shares.
Mutual funds
A mutual fund is an investment fund comprised 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. Investors will hold shares if the fund is set up as a business corporation,
and units if the fund is set up as a trust (the most common form). Investors have voting rights. These
securities have no maturity and can be purchased or sold at any time.
Note – For more information, see the brochure on mutual funds published by the AMF.
Segregated funds
Segregated funds are created by insurers. These investment funds are similar to mutual funds, except
that they generally include a guarantee in the event of death and a guarantee at maturity. Fund assets
are held by an insurer separately from its other assets, hence the term “segregated funds.”
Exchange-traded funds (ETFs)
Securities in these funds are traded like shares on some stock exchanges. These funds generally track
a given benchmark index, for example a stock market or bond index. Under certain conditions, investors
can redeem their units directly from the fund in exchange for securities comprising the index.
Labour-sponsored investment funds or venture capital funds
These are investment fund securities issued by a labour organization or a financial institution.
They provide investors with tax benefits. The funds invest a portion of their assets in start-ups
or small and medium-sized enterprises (SMEs) in order to create or maintain jobs.
Another type of available fund is a
regional development fund, the shares
of which are redeemable after being
held seven years, unless an exceptional
event occurs such as death, disability
or terminal illness.
Hedge funds
These are funds that enjoy a great deal of flexibility as to the investment strategies that can be used.
These strategies are often called “alternative investment strategies.” These funds are usually structured
so that stock or bond market fluctuations have little or no influence on their returns.
Hedge fund investments, which are made up of investments such as shares of private issuers, derivatives,
etc., are generally suitable only for investors able to support high risks. And likewise for the strategies
used, which include short selling*, leverage*, narrow-based investments, and investments in companies
experiencing financial difficulties.
LIMITED
PARTNERSHIPS
Limited partnerships
INCOME TRUSTS
Income trusts
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 restricted 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.
Income trust securities are issued by a trust that holds securities or assets in one or more companies.
The units represent an interest in the profits generated by the assets held by the trust. Income trusts
are designed to regularly distribute (usually on a monthly or quarterly basis) income to security
holders.
The return consists of capital gains (losses), and depends on the success
of the strategies used. Because of the activities specific to these funds,
the return is not usually linked to stock indexes or to the economy in
general. They seek to generate positive returns regardless of economic
conditions, but in practice this goal is not always achieved.
They may carry liquidity restrictions.
For example, some hedge funds may
require at least one month’s prior
notice for the redemption of securities.
Medium to high: Depending on the strategies used, the risk can vary
from one fund to the next. Some funds employ strategies that can be very
risky, for example borrowing to invest (leverage*), short selling*, etc.
The return is in the form of dividends or capital gains (losses). The benefit
to the investor will depend on the resulting tax benefits.
There is often no organized market
for the resale of these securities and
resale restrictions may apply. In some
cases, the general partner may offer
restricted redemption privileges.
Medium to high: The risk depends on the nature of the partnership’s
activities. An investment in units of limited partnerships may be more
suitable for knowledgeable investors. There may also be a risk that
the tax deductions will be refused. If the partnership is dissolved, the
remaining assets, after repayment of all debts, are distributed to the
limited partners.
The return is in the form of income, royalties or capital gains (losses).
Profits from the trust are distributed to the unitholders. The return
depends on the operating income from the assets held by the trust
as well as on royalties.
Securities are generally traded on an
exchange; those that are not are much
less liquid.
Medium to high: The risk will depend on the type and performance
of the assets held by the trust. The return of some trusts is generated
by non-renewable resources. The life cycle of these resources may be
difficult to estimate accurately. An investment in units of income trusts
is more suitable for knowledgeable investors.
The return consists of capital gains (losses). If the option is exercised,
the return will depend on the price or value of the underlying interest,
the strike price and the option price. If the option is sold before expiration,
its value will depend on the time remaining before expiration, its strike
price and the present value of the underlying interest. The market value
of an option has a tendency to decrease the closer it is to expiration.
If it is not exercised before expiration, its value is nil.
Options are usually traded on an
exchange; those that are not may
or may not be transferred.
Medium to high: The risk depends on the underlying interest and how
the option is used. If it is used for hedging* purposes, the risk is reduced;
if it is used for speculation purposes, the risk is high. An investment
in options is more suitable for knowledgeable investors.
The comments applicable to options also apply to warrants acquired
on the market. The holder who receives warrants at the time a security
is issued is not required to pay for them.
Same comments as for options.
If they are acquired on the market, same comments as for options. If the
holder to whom an issuer has provided warrants does not exercise them,
he/she does not incur any risk.
Same comments as for warrants.
Some rights are listed on an exchange.
Restrictions may apply to reselling
rights.
Same comments as for warrants. However, given their short maturity,
they are seldom used for speculation purposes.
The return, in the form of capital gains (losses), depends mainly on changes
in the value of the underlying interest.
Futures contracts are traded on an
exchange; this increases their liquidity.
Over-the-counter contracts (forwards)
offer little liquidity.
Medium to high: The risk depends on the underlying interest and how
the contracts are used. If they are used for hedging purposes*, the risk
is reduced; if they are used for speculation purposes, the risk is high. In
addition, with OTC contracts (forwards), there is a risk that the counterparty
may not be able to honour its commitments. Futures and forward contracts
may only be suitable for knowledgeable investors.
The main categories of income trusts are: business trusts, real estate investment trusts (REITs), resource
trusts and utility trusts. Numerous trusts offer investors tax benefits. On October 31, 2006, however,
measures announced by the federal Minister of Finance abolished certain tax benefits that trusts enjoyed
over companies. Trusts created after October 31, 2006 are thus taxed on their income in the same manner
as companies. Trusts created prior to this date will be taxed as are companies beginning in 2011
(except for certain instances such as real estate investment trusts).
DERIVATIVES
Options
Options give the holder the right but not the obligation to buy (call option) or sell (put option)
an underlying interest at a fixed price for a specified period. The underlying interest may be a security
(for example, a common share or a bond), a commodity, a currency, an index (such as a stock market
index), etc.
The holder of an option may sell it, exercise it (buy or sell the underlying interest) or let it expire.
When an option is exercised, the holder takes delivery (or delivers) the underlying interest at the fixed
price.
The Canadian Derivatives Clearing Corporation acts as the buyer with respect to the seller
and as the seller with respect to the buyer for derivatives listed on the Montréal Exchange.
Over-the-counter products (not traded on an exchange), such as employee stock options offered
by corporations as compensation, are granted by the companies themselves and cannot be traded.
Warrants
Warrants give holders the right to purchase from the issuer a certain number of securities, at a specified
price and during a specified period. The issuer generally offers them to investors when selling other
securities, such as bonds or preferred shares.
Rights
When an issuer extends rights, it gives its common shareholders the right to buy additional shares at
a specified price usually below market price. Investors must exercise their rights within a short period,
generally between six and eight weeks.
Futures and forward contracts
Futures contracts are generally traded on stock exchanges. Whenever contract features are negotiated
between the parties, they are considered over-the-counter (OTC) forward contracts. In both cases,
the parties involved undertake to buy or sell a specific quantity of financial products or commodities
at a determined price and date. Contracts are traded in commodities (wheat, meat, etc.) and financial
products (stock market indexes, bonds, common shares, etc.). Transactions are finalized when the
financial product or commodity – or an equivalent cash amount – is delivered or delivery is taken.
With futures contracts, the time frame, quantity, quality and place of delivery of the underlying commodity
or financial product (particularly when contracts concern commodities) are standardized. In this case,
the value of the contract is generally the only element that fluctuates throughout the term.
OTC contracts (forwards) are traded directly between the buyer and the seller, so the contracts are not
standardized. These contracts are, furthermore, seldom transferable.
Clearing house: An institution separate
from a stock exchange that ensures payment
and delivery of securities between securities
dealers.
level of risk for the return you expect to
obtain. That is the advantage of diversification,
a principle that every investor should put
into practice.
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.
Coupon: The interest portion of a bond.
Issuer: Entity that creates and offers
securities for the purposes of financing
projects or activities.
Over-the-counter or OTC market: Market
where securities which are not listed on
any exchange are traded. This is a market
for knowledgeable investors such as dealers,
financial institutions, retirement fund
managers, etc.
Diversification: It consists of not putting
all your eggs in one basket. Each form
of investment has its own risk profile. Some
forms carry very high risk, others very low.
For most investors, the most important factor
is the risk profile of their portfolio as a whole.
By combining various forms of investments
in your portfolio, you can reduce the overall
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.
Secondary market: Market consisting of
exchanges and the OTC market, for the trading
of outstanding securities.
Hedging (strategy): This involves trading to
reduce a potential loss with regard to an asset.
For example, a shareholder could buy a put
option on the shares he/she holds to offset
a decrease in share value. This way, if the shares
decline in value, the investor can exercise the
option and sell the shares at the fixed price
or sell the option, which will have increased
in value, at a profit.
Short selling of certain securities: This
transaction involves borrowing a security
from a financial intermediary and selling
it immediately on the market. The investor
will later have to buy back the security and
deliver it to the intermediary. The investor
expects the security to decline in value and
to be able to buy it back at a lower price.
This investment strategy is extremely risky,
because the investor can lose more than the
value of the traded security if it rises in price.
Theoretically, the loss could be unlimited.
For knowledgeable investors only.
Make sure your investment
decisions are in line with your
personal objectives, investment
horizon and tolerance for risk.
03_Cafe_Lexique_V3_AN-1.qxp
11/05/09
14:42
Page 2
Note — The terms followed by an asterisk are defined at the end of the table.
TYPE AND DEFINITION
DEBT SECURITIES
EXPECTED RETURN
LIQUIDITY
RISK
The return is solely the difference between the purchase price and the
value of the T bill at maturity, e.g. $990 for a value at maturity of $1,000.
The market value of T-bills may fluctuate based on changes in interest
rates.
T-bills can generally be easily sold
before maturity.
Very low: There is practically no risk of default of payment because
they are guaranteed by the governments that issue them. Since T-bills
are short-term securities, the risk of major swings in the market value
due to interest rate changes is limited.
Guaranteed investment certificates generally earn a fixed interest rate up
to maturity. They either bear compound or regular interest (paid to the
investor on a regular basis). There are also some GICs where the return
fluctuates based on the performance of an index such as a stock index
(index-linked GIC).
Most GICs must be held until maturity,
but some can be redeemed upon
request. Penalties may apply in such
cases.
Very low to medium: As a general rule, they are guaranteed by the issuer.
With respect to index-linked GICs, they may or may not be guaranteed.
The capital can also be insured by deposit insurance, in the event
of bankruptcy of the issuer (some restrictions apply). GICs that carry
terms of more than five years and are non-redeemable are not covered
by deposit insurance.
The majority of savings bonds with regular or compound interest offer
a fixed annual rate of return until maturity or a minimum rate of return
that can be increased by the issuer if market conditions change. There
are also tiered-rate savings bonds (regular and predetermined increase
in the rate).
Savings bonds cannot usually be sold
or transferred to another person.
Some can be redeemed by the holder
at any time, while others can be
redeemed only at specific intervals
or only at maturity.
Very low: They are guaranteed by the government issuer.
The return is in the form of interest or capital gains (losses) realized
at maturity or at the time of sale. The majority of bonds and debentures
provide for regular interest payments until maturity or minimum interest
payments that can be increased by the issuer if market conditions
change.
Bonds are sold on over-the-counter
markets*. No secondary market may
be available if the issuer experiences
financial difficulties. Some bonds may
be redeemable by the issuer.
Low to high: A rise in interest rates or financial difficulties for the issuer
will lower the value of the bonds.
If sold before maturity, the return will consist of capital gains (losses).
Otherwise, the return consists of interest. The return may be tied to the
performance of a stock, bond, commodity or currency index. The return
on some notes may be tied to hedge fund returns. Some notes guarantee
a rate of return for certain years, for example the first year only.
A secondary market* for principalprotected notes is usually maintained
by the financial institutions that issue
the notes.
Medium: Principal-protected notes are usually guaranteed by a financial
institution. However, the guarantee does not apply if the note is redeemed
before maturity, which is usually between 5 and 10 years. Since the return
on these notes is tied to underlying interests, there is a risk that the
interest paid will be less than expected or that there will be no interest
payments at all. In some cases, the issuer may limit the return on a note
and/or redeem it before maturity.
The return on common shares may be in the form of dividends and
capital gains (losses). Many companies periodically pay dividends to their
shareholders. Others may not pay dividends, either because they are not
profitable, or because they choose to retain their earnings and reinvest
them. In many cases, the return will depend primarily on the performance
of the company’s stock, resulting in capital gains or losses when the shares
are sold. The price of common shares may rise or fall, sometimes quickly
and sharply, based on the size, profitability and financial stability of the
company, as well as on the skills of its management and its exposure
to economic slumps, etc.
Common shares are normally traded
on a stock exchange or on over-thecounter markets*. However, there may
not be any market for certain common
shares and trading may be subject
to restrictions.
Medium to high: The risk depends on a number of factors such as the
size, profitability and financial stability of the company, the quality of
management and its exposure to economic slowdowns. If the company
is dissolved and its remaining assets are distributed, the holders of common
shares will be reimbursed after governments, employees, creditors
and holders of preferred shares.
(the risk is qualified for information purposes only)
Treasury bills
Treasury bills (T-bills) are issued by the federal and provincial governments. They consist of loans
granted by investors to issuers. Treasury bills are sold in denominations of $1,000, and are issued
for a term of one year or less.
Guaranteed investment certificates (GICs)
GICs are certificates of deposit issued by financial institutions. They represent loans granted by investors
to issuers. Terms range from 30 days to 10 years.
Note – The return of a stock market index measures the performance
of a predetermined group of securities that are listed on an exchange.
Savings bonds
Savings bonds are issued in several forms by the federal government and the governments of certain
provinces. They represent loans granted by investors to issuers. Terms are one year or more.
Bonds and debentures
Bonds are issued by governments and companies and represent loans granted by investors to issuers.
In general, the issuer promises to pay a fixed interest rate to the investor at certain intervals and pay
back a predetermined amount at maturity: the face value. The face value is often a multiple of $1,000.
Bonds can be traded at a price above or below their face value. Corporate bonds are generally backed
by specific assets. The term is generally from 1 to 30 years. Some bonds, known as convertible bonds,
can be exchanged for shares by the investor at his option.
Strip bonds (or zero coupon bonds) are bonds whose coupons have been separated. The remainder
of the bond (the principal) and the interest portion are discounted and sold separately. The principal
is paid at maturity. The difference between the purchase price and the amount paid back at maturity
corresponds to the interest income.
Debentures are similar to bonds, except that they are not backed by specific assets.
Should the issuer be dissolved, bonds and debentures entitle holders
to a portion of the issuer’s remaining assets, ahead of shareholders.
The market value of a bond varies according to changes in interest rates
and the issuer’s credit rating. If interest rates fall, for example, the market
value of a bond will rise because the interest payments provided by the
bond become more attractive to investors. Value also depends on changes
to the issuer’s credit rating.
Note – The rate of return on a bond or a debenture depends on the price
paid at the time of purchase and the time left until maturity. For example,
a debenture with an interest rate of 6% will pay a return of $60 per year
for each multiple of $1,000 (face/par value). If you purchase the debenture
for $950, your return will be higher than 6%.
Principal-protected notes
Principal-protected notes are securities whereby the issuer recognizes a debt. The term is usually between
5 and 10 years. At maturity, the issuer agrees to pay back the principal to investors. These securities
do not necessarily carry a fixed interest rate, and their return can fluctuate on the basis of the benchmark
portfolio, which can in turn be tied to several indexes, commodities, currencies, hedge funds, etc.
EQUITY INTERESTS
Common shares
Common shares are issued by companies and give holders an ownership interest in the company. Holders
of common shares generally have the right to vote on certain decisions involving the issuer and receive
any declared dividends. Should the issuer be dissolved, holders will share a portion of the remaining
assets. Common shares have no maturity date.
Restricted shares
• Restricted shares hold limited voting rights or no voting rights except under special circumstances.
Flow-through shares
• Flow-through shares are issued by certain oil, gas and mining exploration companies. They give
shareholders certain tax deductions for eligible exploration, development and investment costs.
•
Same comments as for common shares.
•
Same comments as for common
shares.
•
Same comments as for common shares.
•
The benefit to an investor will partially depend on the tax benefits
the latter can enjoy and the fluctuations in the price of the shares,
with an impact on capital gains or losses when the investor sells
the shares.
•
Same comments as for common
shares.
•
High: Exploration and development programs generally carry high risk.
In addition, exploration costs may not be eligible under the tax rules
and tax deductions may be refused.
Preferred shares
Preferred shares are issued by companies. They generally entitle holders to receive a fixed dividend
before any dividends are paid to holders of common shares. Should the issuer be dissolved, holders
will share the remaining assets. Generally, preferred shareholders are not entitled to vote.
In many cases, preferred shares have special features, such as the holder’s right to redeem the shares
at certain times. They may also be convertible, in which case the holder has the right to exchange them
for common shares at a pre-established price. Preferred shares may be redeemable at the issuer’s
option at certain periods. Others earn cumulative dividends: dividends not paid during a given year
accumulate until paid out.
INVESTMENT
FUND SECURITIES
The dividends on preferred shares are generally fixed, although the
company may reduce or suspend the payment of dividends if, for example,
its profits are lower than expected or if it needs to maintain its earnings
for various reasons.
Same comments as for common shares.
Medium to high: Same comments as for common shares. The suspension
of dividends in case of financial difficulties or rising interest rates may
lower the value of preferred shares. An increase in the rate of return
offered by other investments can also affect the price of preferred shares,
making the fixed dividend on these shares less attractive. If the issuer
is dissolved and its remaining assets are distributed, holders of preferred
shares will be reimbursed after governments, employees and creditors.
Mutual fund securities can generate returns in the form of dividends,
interest or capital gains (losses). The capital gains (losses) may be realized
by the mutual fund when it sells securities from its portfolio. Capital gains
(losses) can also occur when the investor wishes to redeem his securities.
The return depends on the investment decisions made and the success
of the strategies adopted by the fund manager.
Investors can generally request
that their mutual fund securities
be redeemed.
Low to high: The risk depends on the mutual fund’s investments,
such as bonds, shares, etc. Securities are not guaranteed.
Same comments as for mutual funds.
Same comments as for mutual funds.
In general, the investment term must
be 10 years to benefit from the capital
guarantee at maturity.
Low to medium: The risk depends on the fund’s investments (e.g. bonds,
stocks, money market instruments). Individual segregated fund contracts
offer a guarantee that protects, at maturity, at least 75% of the amount
invested. Moreover, insurers generally offer a death benefit guarantee.
However, you can still lose money with a segregated fund if you must
redeem your investment before maturity, because the guarantee will
no longer apply.
Exchange-traded fund securities can generate returns in the form
of dividends, interest or capital gains (losses). The capital gains (losses)
are realized when the investor sells his securities.
The liquidity of an exchange-traded
fund (ETF) depends on the liquidity
of the underlying securities.
Low to high: The risk depends on the volatility of the index tracked by
the fund. For example, an emerging market ETF could be more risky than
an ETF that tracks the stock exchange index of an industrialized country.
Securities can generate returns in the form of capital gains (losses). The
benefit to the investor will partially depend on the resulting tax benefits.
Shares in labour-sponsored funds
must be retained until the age of
65 years or the time of retirement
or early retirement, i.e. at 55 years
of age. Certain conditions apply. Shares
can also be redeemed in exceptional
circumstances. These include:
purchase of a property, pursuing
education, loss of employment
or launch of a business, disability
or terminal illness.
Medium to high: These funds invest a major proportion of their assets
in start-ups or small and medium-sized enterprises.
The potential capital gains on a company’s preferred shares are generally
less than what can be earned on the common shares of the same
company.
The value of these shares is linked primarily to changes in interest
rates and to the issuer’s earnings. Conversion and redemption privileges
can also have an impact on the value of preferred shares.
Mutual funds
A mutual fund is an investment fund comprised 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. Investors will hold shares if the fund is set up as a business corporation,
and units if the fund is set up as a trust (the most common form). Investors have voting rights. These
securities have no maturity and can be purchased or sold at any time.
Note – For more information, see the brochure on mutual funds published by the AMF.
Segregated funds
Segregated funds are created by insurers. These investment funds are similar to mutual funds, except
that they generally include a guarantee in the event of death and a guarantee at maturity. Fund assets
are held by an insurer separately from its other assets, hence the term “segregated funds.”
Exchange-traded funds (ETFs)
Securities in these funds are traded like shares on some stock exchanges. These funds generally track
a given benchmark index, for example a stock market or bond index. Under certain conditions, investors
can redeem their units directly from the fund in exchange for securities comprising the index.
Labour-sponsored investment funds or venture capital funds
These are investment fund securities issued by a labour organization or a financial institution.
They provide investors with tax benefits. The funds invest a portion of their assets in start-ups
or small and medium-sized enterprises (SMEs) in order to create or maintain jobs.
Another type of available fund is a
regional development fund, the shares
of which are redeemable after being
held seven years, unless an exceptional
event occurs such as death, disability
or terminal illness.
Hedge funds
These are funds that enjoy a great deal of flexibility as to the investment strategies that can be used.
These strategies are often called “alternative investment strategies.” These funds are usually structured
so that stock or bond market fluctuations have little or no influence on their returns.
Hedge fund investments, which are made up of investments such as shares of private issuers, derivatives,
etc., are generally suitable only for investors able to support high risks. And likewise for the strategies
used, which include short selling*, leverage*, narrow-based investments, and investments in companies
experiencing financial difficulties.
LIMITED
PARTNERSHIPS
Limited partnerships
INCOME TRUSTS
Income trusts
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 restricted 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.
Income trust securities are issued by a trust that holds securities or assets in one or more companies.
The units represent an interest in the profits generated by the assets held by the trust. Income trusts
are designed to regularly distribute (usually on a monthly or quarterly basis) income to security
holders.
The return consists of capital gains (losses), and depends on the success
of the strategies used. Because of the activities specific to these funds,
the return is not usually linked to stock indexes or to the economy in
general. They seek to generate positive returns regardless of economic
conditions, but in practice this goal is not always achieved.
They may carry liquidity restrictions.
For example, some hedge funds may
require at least one month’s prior
notice for the redemption of securities.
Medium to high: Depending on the strategies used, the risk can vary
from one fund to the next. Some funds employ strategies that can be very
risky, for example borrowing to invest (leverage*), short selling*, etc.
The return is in the form of dividends or capital gains (losses). The benefit
to the investor will depend on the resulting tax benefits.
There is often no organized market
for the resale of these securities and
resale restrictions may apply. In some
cases, the general partner may offer
restricted redemption privileges.
Medium to high: The risk depends on the nature of the partnership’s
activities. An investment in units of limited partnerships may be more
suitable for knowledgeable investors. There may also be a risk that
the tax deductions will be refused. If the partnership is dissolved, the
remaining assets, after repayment of all debts, are distributed to the
limited partners.
The return is in the form of income, royalties or capital gains (losses).
Profits from the trust are distributed to the unitholders. The return
depends on the operating income from the assets held by the trust
as well as on royalties.
Securities are generally traded on an
exchange; those that are not are much
less liquid.
Medium to high: The risk will depend on the type and performance
of the assets held by the trust. The return of some trusts is generated
by non-renewable resources. The life cycle of these resources may be
difficult to estimate accurately. An investment in units of income trusts
is more suitable for knowledgeable investors.
The return consists of capital gains (losses). If the option is exercised,
the return will depend on the price or value of the underlying interest,
the strike price and the option price. If the option is sold before expiration,
its value will depend on the time remaining before expiration, its strike
price and the present value of the underlying interest. The market value
of an option has a tendency to decrease the closer it is to expiration.
If it is not exercised before expiration, its value is nil.
Options are usually traded on an
exchange; those that are not may
or may not be transferred.
Medium to high: The risk depends on the underlying interest and how
the option is used. If it is used for hedging purposes*, the risk is reduced;
if it is used for speculation purposes, the risk is high. An investment
in options is more suitable for knowledgeable investors.
The comments applicable to options also apply to warrants acquired
on the market. The holder who receives warrants at the time a security
is issued is not required to pay for them.
Same comments as for options.
If they are acquired on the market, same comments as for options. If the
holder to whom an issuer has provided warrants does not exercise them,
he/she does not incur any risk.
Same comments as for warrants.
Some rights are listed on an exchange.
Restrictions may apply to reselling
rights.
Same comments as for warrants. However, given their short maturity,
they are seldom used for speculation purposes.
The return, in the form of capital gains (losses), depends mainly on changes
in the value of the underlying interest.
Futures contracts are traded on an
exchange; this increases their liquidity.
Over-the-counter contracts (forwards)
offer little liquidity.
Medium to high: The risk depends on the underlying interest and how
the contracts are used. If they are used for hedging purposes*, the risk
is reduced; if they are used for speculation purposes, the risk is high.
In addition, with over-the-counter contracts (forwards), there is a risk that
the counterparty may not be able to honour its commitments. Futures
and forward contracts may only be suitable for knowledgeable investors.
The main categories of income trusts are: business trusts, real estate investment trusts (REITs), resource
trusts and utility trusts. Numerous trusts offer investors tax benefits. On October 31, 2006, however,
measures announced by the federal Minister of Finance abolished certain tax benefits that trusts enjoyed
over companies. Trusts created after October 31, 2006 are thus taxed on their income in the same manner
as companies. Trusts created prior to this date will be taxed as are companies beginning in 2011
(except for certain instances such as real estate investment trusts).
DERIVATIVES
Options
Options give the holder the right but not the obligation to buy (call option) or sell (put option)
an underlying interest at a fixed price for a specified period. The underlying interest may be a security
(for example, a common share or a bond), a commodity, a currency, an index (such as a stock market
index), etc.
The holder of an option may sell it, exercise it (buy or sell the underlying interest) or let it expire.
When an option is exercised, the holder takes delivery (or delivers) the underlying interest at the fixed
price.
The Canadian Derivatives Clearing Corporation acts as the buyer with respect to the seller
and as the seller with respect to the buyer for derivatives listed on the Montréal Exchange.
Over-the-counter products (not traded on an exchange), such as employee stock options offered
by corporations as compensation, are granted by the companies themselves and cannot be traded.
Warrants
Warrants give holders the right to purchase from the issuer a certain number of securities, at a specified
price and during a specified period. The issuer generally offers them to investors when selling other
securities, such as bonds or preferred shares.
Rights
When an issuer extends rights, it gives its common shareholders the right to buy additional shares at
a specified price usually below market price. Investors must exercise their rights within a short period,
generally between six and eight weeks.
Futures and forward contracts
Futures contracts are generally traded on stock exchanges. Whenever contract features are negotiated
between the parties, they are considered OTC or over-the-counter forward contracts. In both cases,
the parties involved undertake to buy or sell a specific quantity of financial products or commodities
at a determined price and date. Contracts are traded in commodities (wheat, meat, etc.) and financial
products (stock market indexes, bonds, common shares, etc.). Transactions are finalized when the
financial product or commodity – or an equivalent cash amount – is delivered or delivery is taken.
With futures contracts, the time frame, quantity, quality and place of delivery of the underlying commodity
or financial product (particularly when contracts concern commodities) are standardized. In this case,
the value of the contract is generally the only element that fluctuates throughout the term.
Over-the-counter contracts (forwards) are traded directly between the buyer and the seller,
so the contracts are not standardized. These contracts are, furthermore, seldom transferable.
Clearing house: An institution separate
from a stock exchange that ensures payment
and delivery of securities between securities
dealers.
level of risk for the return you expect to
obtain. That is the advantage of diversification,
a principle that every investor should put
into practice.
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.
Coupon: The interest portion of a bond.
Issuer: Entity that creates and offers
securities for the purposes of financing
projects or activities.
Over-the-counter or OTC market: Market
where securities which are not listed on
any exchange are traded. This is a market
for knowledgeable investors such as dealers,
financial institutions, retirement fund
managers, etc.
Diversification: It consists of not putting
all your eggs in one basket. Each form
of investment has its own risk profile. Some
forms carry very high risk, others very low.
For most investors, the most important factor
is the risk profile of their portfolio as a whole.
By combining various forms of investments
in your portfolio, you can reduce the overall
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.
Secondary market: Market consisting of
exchanges and the OTC market, for the trading
of outstanding securities.
Hedging (strategy): This involves trading to
reduce a potential loss with regard to an asset.
For example, a shareholder could buy a put
option on the shares he/she holds to offset
a decrease in share value. This way, if the shares
decline in value, the investor can exercise the
option and sell the shares at the fixed price
or sell the option, which will have increased
in value, at a profit.
Short selling of certain securities: This
transaction involves borrowing a security
from a financial intermediary and selling
it immediately on the market. The investor
will later have to buy back the security and
deliver it to the intermediary. The investor
expects the security to decline in value and
to be able to buy it back at a lower price.
This investment strategy is extremely risky,
because the investor can lose more than the
value of the traded security if it rises in price.
Theoretically, the loss could be unlimited.
For knowledgeable investors only.
Make sure your investment
decisions are in line with your
personal objectives, investment
horizon and tolerance for risk.
03_Cafe_Lexique_V3_AN-2.qxp
09/06/09
13:55
Page 2
Note — The terms followed by an asterisk are defined at the end of the table.
TYPE AND DEFINITION
DEBT SECURITIES
EXPECTED RETURN
LIQUIDITY
RISK
The return is solely the difference between the purchase price and the
value of the T bill at maturity, e.g. $990 for a value at maturity of $1,000.
The market value of T-bills may fluctuate based on changes in interest
rates.
T-bills can generally be easily sold
before maturity.
Very low: There is practically no risk of default of payment because
they are guaranteed by the governments that issue them. Since T-bills
are short-term securities, the risk of major fluctuations in the market
value due to interest rate changes is limited.
Guaranteed investment certificates generally earn a fixed interest rate up
to maturity. They either bear compound or regular interest (paid to the
investor on a regular basis). There are also some GICs where the return
fluctuates based on the performance of an index such as a stock index
(index-linked GIC).
Most GICs must be held until maturity,
but some can be redeemed upon
request. Penalties may apply in such
cases.
Very low to medium: As a general rule, they are guaranteed by the issuer.
With respect to index-linked GICs, they may or may not be guaranteed.
The capital can also be insured by deposit insurance, in the event
of bankruptcy of the issuer. Some restrictions apply. GICs that carry
terms of more than five years and are non-redeemable are not covered
by deposit insurance.
The majority of savings bonds with regular or compound interest offer
a fixed annual rate of return until maturity or a minimum rate of return
that can be increased by the issuer if market conditions change. There
are also tiered-rate savings bonds (regular and predetermined increases
in the rate).
Savings bonds cannot usually be sold
or transferred to another person.
Some can be redeemed by the holder
at any time, while others can be
redeemed only at specific intervals
or only at maturity.
Very low: They are guaranteed by the government issuer.
The return is in the form of interest or capital gains (losses) realized
at maturity or at the time of sale. The majority of bonds and debentures
provide for regular interest payments until maturity or minimum interest
payments that can be increased by the issuer if market conditions
change.
Bonds are sold on over-the-counter
markets*. No secondary market may
be available if the issuer experiences
financial difficulties. Some bonds may
be redeemable by the issuer.
Low to high: A rise in interest rates or financial difficulties for the issuer
will lower the value of the bonds.
If sold before maturity, the return will consist of capital gains (losses).
Otherwise, the return consists of interest. The return may be tied to the
performance of a stock, bond, commodity or currency index. The return
on some notes may be tied to hedge fund returns. Some notes guarantee
a rate of return for certain years, for example the first year only.
A secondary market* for principalprotected notes is usually maintained
by the financial institutions that issue
the notes.
Medium: Principal-protected notes are usually guaranteed by a financial
institution. However, the guarantee does not apply if the note is redeemed
before maturity, which is usually between 5 and 10 years. Since the return
on these notes is tied to underlying interests, there is a risk that the
interest paid will be less than expected or that there will be no interest
payments at all. In some cases, the issuer may limit the return on a note
and/or redeem it before maturity.
The return on common shares may be in the form of dividends and
capital gains (losses). Many companies periodically pay dividends to their
shareholders. Others may not pay dividends, either because they are not
profitable, or because they choose to retain their earnings and reinvest
them. In many cases, the return will depend primarily on the performance
of the company’s stock, resulting in capital gains or losses when the shares
are sold. The price of common shares may rise or fall, sometimes quickly
and sharply, based on the size, profitability and financial stability of the
company, as well as on the skills of its management and its exposure
to economic slumps, etc.
Common shares are normally traded
on a stock exchange or on over-thecounter markets*. However, there may
not be any market for certain common
shares and trading may be subject
to restrictions.
Medium to high: The risk depends on a number of factors such as the
size, profitability and financial stability of the company, the quality of
management and its exposure to economic slowdowns. If the company
is dissolved and its remaining assets are distributed, the holders of common
shares will be reimbursed after governments, employees, creditors
and holders of preferred shares.
(the risk is qualified for information purposes only)
Treasury bills
Treasury bills (T-bills) are issued by the federal and provincial governments. They consist of loans
granted by investors to issuers. Treasury bills are sold in denominations of $1,000, and are issued
for a term of one year or less.
Guaranteed investment certificates (GICs)
GICs are certificates of deposit issued by financial institutions. They represent loans granted by investors
to issuers. Terms range from 30 days to 10 years.
Note – The return of a stock market index measures the performance
of a predetermined group of securities that are listed on an exchange.
Savings bonds
Savings bonds are issued in several forms by the federal government and the governments of certain
provinces. They represent loans granted by investors to issuers. Terms are one year or more.
Bonds and debentures
Bonds are issued by governments and companies and represent loans granted by investors to issuers.
In general, the issuer promises to pay a fixed interest rate to the investor at certain intervals and pay
back a predetermined amount at maturity: the face value. The face value is often a multiple of $1,000.
Bonds can be traded at a price above or below their face value. Corporate bonds are generally backed
by specific assets. The term is generally from 1 to 30 years. Some bonds, known as convertible bonds,
can be exchanged for shares by the investor at his option.
Strip bonds (or zero coupon bonds) are bonds whose coupons have been separated. The remainder
of the bond (the principal) and the interest portion are discounted and sold separately. The principal
is paid at maturity. The difference between the purchase price and the amount paid back at maturity
corresponds to the interest income.
Debentures are similar to bonds, except that they are not backed by specific assets.
Should the issuer be dissolved, bonds and debentures entitle holders
to a portion of the issuer’s remaining assets, before the shareholders.
The market value of a bond varies according to changes in interest rates
and the issuer’s credit rating. If interest rates fall, for example, the market
value of a bond will rise because the interest payments provided by the
bond become more attractive to investors. Value also depends on changes
to the issuer’s credit rating.
Note – The rate of return on a bond or a debenture depends on the price
paid at the time of purchase and the time left until maturity. For example,
a debenture with an interest rate of 6% will pay a return of $60 per year
for each multiple of $1,000 (face/par value). If you purchase the debenture
for $950, your return will be higher than 6%.
Principal-protected notes
Principal-protected notes are securities whereby the issuer recognizes a debt. The term is usually between
5 and 10 years. At maturity, the issuer agrees to pay back the principal to investors. These securities
do not necessarily carry a fixed interest rate, and their return can fluctuate on the basis of the benchmark
portfolio, which can in turn be tied to several indexes, commodities, currencies, hedge funds, etc.
EQUITY INTERESTS
Common shares
Common shares are issued by companies and give holders an ownership interest in the company. Holders
of common shares generally have the right to vote on certain decisions involving the issuer and receive
any declared dividends. Should the issuer be dissolved, holders will share a portion of the remaining
assets. Common shares have no maturity date.
Restricted shares
• Restricted shares hold limited voting rights or no voting rights except under special circumstances.
Flow-through shares
• Flow-through shares are issued by certain oil, gas and mining exploration companies. They give
shareholders certain tax deductions for eligible exploration, development and investment costs.
•
Same comments as for common shares.
•
Same comments as for common
shares.
•
Same comments as for common shares.
•
The benefit to an investor will partially depend on the tax benefits
the latter can enjoy and the fluctuations in the price of the shares,
with an impact on capital gains or losses when the investor sells
the shares.
•
Same comments as for common
shares.
•
High: Exploration and development programs generally carry high risk.
In addition, exploration costs may not be eligible under the tax rules
and tax deductions may be refused.
Preferred shares
Preferred shares are issued by companies. They generally entitle holders to receive a fixed dividend
before any dividends are paid to holders of common shares. Should the issuer be dissolved, holders
will share the remaining assets. Generally, preferred shareholders are not entitled to vote.
In many cases, preferred shares have special features, such as the holder’s right to redeem the shares
at certain times. They may also be convertible, in which case the holder has the right to exchange them
for common shares at a pre-established price. Preferred shares may be redeemable at the issuer’s
option at certain periods. Others earn cumulative dividends: dividends not paid during a given year
accumulate until paid out.
INVESTMENT
FUND SECURITIES
The dividends on preferred shares are generally fixed, although the
company may reduce or suspend the payment of dividends if, for example,
its profits are lower than expected or if it needs to maintain its earnings
for various reasons.
Same comments as for common shares.
Medium to high: Same comments as for common shares. The suspension
of dividends in case of financial difficulties or rising interest rates may
lower the value of preferred shares. An increase in the rate of return
offered by other investments can also affect the price of preferred shares,
making the fixed dividend on these shares less attractive. If the issuer
is dissolved and its remaining assets are distributed, holders of preferred
shares will be reimbursed after governments, employees and creditors.
Mutual fund securities can generate returns in the form of dividends,
interest or capital gains (losses). The capital gains (losses) may be realized
by the mutual fund when it sells securities from its portfolio. Capital gains
(losses) can also occur when the investor wishes to redeem his securities.
The return depends on the investment decisions made and the success
of the strategies adopted by the fund manager.
Investors can generally request
that their mutual fund securities
be redeemed.
Low to high: The risk depends on the mutual fund’s investments,
such as bonds, shares, etc. Securities are not guaranteed.
Same comments as for mutual funds.
Same comments as for mutual funds.
In general, the investment term must
be 10 years to benefit from the capital
guarantee at maturity.
Low to medium: The risk depends on the fund’s investments (e.g. bonds,
stocks, money market instruments). Individual segregated fund contracts
offer a guarantee that protects, at maturity, at least 75% of the amount
invested. Moreover, insurers generally offer a death benefit guarantee.
However, you can still lose money with a segregated fund if you must
redeem your investment before maturity, because the guarantee will
no longer apply.
Exchange-traded fund securities can generate returns in the form
of dividends, interest or capital gains (losses). The capital gains (losses)
are realized when the investor sells his securities.
The liquidity of an exchange-traded
fund (ETF) depends on the liquidity
of the underlying securities.
Low to high: The risk depends on the volatility of the index tracked by
the fund. For example, an emerging market ETF could be more risky than
an ETF that tracks the stock exchange index of an industrialized country.
Securities can generate returns in the form of capital gains (losses). The
benefit to the investor will partially depend on the resulting tax benefits.
Shares in labour-sponsored funds
must be retained until the age of
65 years or the time of retirement
or early retirement, i.e. at 55 years
of age. Certain conditions apply. Shares
can also be redeemed in exceptional
circumstances. These include:
purchase of a property, pursuing
education, loss of employment
or launch of a business, disability
or terminal illness.
Medium to high: These funds invest a major proportion of their assets
in start-ups or small and medium-sized enterprises.
The potential capital gains on a company’s preferred shares are generally
less than what can be earned on the common shares of the same
company.
The value of these shares is linked primarily to changes in interest
rates and to the issuer’s earnings. Conversion and redemption privileges
can also have an impact on the value of preferred shares.
Mutual funds
A mutual fund is an investment fund comprised 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. Investors will hold shares if the fund is set up as a business corporation,
and units if the fund is set up as a trust (the most common form). Investors have voting rights. These
securities have no maturity and can be purchased or sold at any time.
Note – For more information, see the brochure on mutual funds published by the AMF.
Segregated funds
Segregated funds are created by insurers. These investment funds are similar to mutual funds, except
that they generally include a guarantee in the event of death and a guarantee at maturity. Fund assets
are held by an insurer separately from its other assets, hence the term “segregated funds.”
Exchange-traded funds (ETFs)
Securities in these funds are traded like shares on some stock exchanges. These funds generally track
a given benchmark index, for example a stock market or bond index. Under certain conditions, investors
can redeem their units directly from the fund in exchange for securities comprising the index.
Labour-sponsored investment funds or venture capital funds
These are investment fund securities issued by a labour organization or a financial institution.
They provide investors with tax benefits. The funds invest a portion of their assets in start-ups
or small and medium-sized enterprises (SMEs) in order to create or maintain jobs.
Another type of available fund is a
regional development fund, the shares
of which are redeemable after being
held seven years, unless an exceptional
event occurs such as death, disability
or terminal illness.
Hedge funds
These are funds that enjoy a great deal of flexibility as to the investment strategies that can be used.
These strategies are often called “alternative investment strategies.” These funds are usually structured
so that stock or bond market fluctuations have little or no influence on their returns.
Hedge fund investments, which are made up of investments such as shares of private issuers, derivatives,
etc., are generally suitable only for investors able to support high risks. And likewise for the strategies
used, which include short selling*, leverage*, narrow-based investments, and investments in companies
experiencing financial difficulties.
LIMITED
PARTNERSHIPS
Limited partnerships
INCOME TRUSTS
Income trusts
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 restricted 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.
Income trust securities are issued by a trust that holds securities or assets in one or more companies.
The units represent an interest in the profits generated by the assets held by the trust. Income trusts
are designed to regularly distribute (usually on a monthly or quarterly basis) income to security
holders.
The return consists of capital gains (losses), and depends on the success
of the strategies used. Because of the activities specific to these funds,
the return is not usually linked to stock indexes or to the economy in
general. They seek to generate positive returns regardless of economic
conditions, but in practice this goal is not always achieved.
They may carry liquidity restrictions.
For example, some hedge funds may
require at least one month’s prior
notice for the redemption of securities.
Medium to high: Depending on the strategies used, the risk can vary
from one fund to the next. Some funds employ strategies that can be very
risky, for example borrowing to invest (leverage*), short selling*, etc.
The return is in the form of dividends or capital gains (losses). The benefit
to the investor will depend on the resulting tax benefits.
There is often no organized market
for the resale of these securities and
resale restrictions may apply. In some
cases, the general partner may offer
restricted redemption privileges.
Medium to high: The risk depends on the nature of the partnership’s
activities. An investment in units of limited partnerships may be more
suitable for knowledgeable investors. There may also be a risk that
the tax deductions will be refused. If the partnership is dissolved, the
remaining assets, after repayment of all debts, are distributed to the
limited partners.
The return is in the form of income, royalties or capital gains (losses).
Profits from the trust are distributed to the unitholders. The return
depends on the operating income from the assets held by the trust
as well as on royalties.
Securities are generally traded on an
exchange; those that are not are much
less liquid.
Medium to high: The risk will depend on the type and performance
of the assets held by the trust. The return of some trusts is generated
by non-renewable resources. The life cycle of these resources may be
difficult to estimate accurately. An investment in units of income trusts
is more suitable for knowledgeable investors.
The return consists of capital gains (losses). If the option is exercised,
the return will depend on the price or value of the underlying interest,
the strike price and the option price. If the option is sold before expiration,
its value will depend on the time remaining before expiration, its strike
price and the present value of the underlying interest. The market value
of an option has a tendency to decrease the closer it is to expiration.
If it is not exercised before expiration, its value is nil.
Options are usually traded on an
exchange; those that are not may
or may not be transferred.
Medium to high: The risk depends on the underlying interest and how
the option is used. If it is used for hedging* purposes, the risk is reduced;
if it is used for speculation purposes, the risk is high. An investment
in options is more suitable for knowledgeable investors.
The comments applicable to options also apply to warrants acquired
on the market. The holder who receives warrants at the time a security
is issued is not required to pay for them.
Same comments as for options.
If they are acquired on the market, same comments as for options. If the
holder to whom an issuer has provided warrants does not exercise them,
he/she does not incur any risk.
Same comments as for warrants.
Some rights are listed on an exchange.
Restrictions may apply to reselling
rights.
Same comments as for warrants. However, given their short maturity,
they are seldom used for speculation purposes.
The return, in the form of capital gains (losses), depends mainly on changes
in the value of the underlying interest.
Futures contracts are traded on an
exchange; this increases their liquidity.
Over-the-counter contracts (forwards)
offer little liquidity.
Medium to high: The risk depends on the underlying interest and how
the contracts are used. If they are used for hedging purposes*, the risk
is reduced; if they are used for speculation purposes, the risk is high. In
addition, with OTC contracts (forwards), there is a risk that the counterparty
may not be able to honour its commitments. Futures and forward contracts
may only be suitable for knowledgeable investors.
The main categories of income trusts are: business trusts, real estate investment trusts (REITs), resource
trusts and utility trusts. Numerous trusts offer investors tax benefits. On October 31, 2006, however,
measures announced by the federal Minister of Finance abolished certain tax benefits that trusts enjoyed
over companies. Trusts created after October 31, 2006 are thus taxed on their income in the same manner
as companies. Trusts created prior to this date will be taxed as are companies beginning in 2011
(except for certain instances such as real estate investment trusts).
DERIVATIVES
Options
Options give the holder the right but not the obligation to buy (call option) or sell (put option)
an underlying interest at a fixed price for a specified period. The underlying interest may be a security
(for example, a common share or a bond), a commodity, a currency, an index (such as a stock market
index), etc.
The holder of an option may sell it, exercise it (buy or sell the underlying interest) or let it expire.
When an option is exercised, the holder takes delivery (or delivers) the underlying interest at the fixed
price.
The Canadian Derivatives Clearing Corporation acts as the buyer with respect to the seller
and as the seller with respect to the buyer for derivatives listed on the Montréal Exchange.
Over-the-counter products (not traded on an exchange), such as employee stock options offered
by corporations as compensation, are granted by the companies themselves and cannot be traded.
Warrants
Warrants give holders the right to purchase from the issuer a certain number of securities, at a specified
price and during a specified period. The issuer generally offers them to investors when selling other
securities, such as bonds or preferred shares.
Rights
When an issuer extends rights, it gives its common shareholders the right to buy additional shares at
a specified price usually below market price. Investors must exercise their rights within a short period,
generally between six and eight weeks.
Futures and forward contracts
Futures contracts are generally traded on stock exchanges. Whenever contract features are negotiated
between the parties, they are considered over-the-counter (OTC) forward contracts. In both cases,
the parties involved undertake to buy or sell a specific quantity of financial products or commodities
at a determined price and date. Contracts are traded in commodities (wheat, meat, etc.) and financial
products (stock market indexes, bonds, common shares, etc.). Transactions are finalized when the
financial product or commodity – or an equivalent cash amount – is delivered or delivery is taken.
With futures contracts, the time frame, quantity, quality and place of delivery of the underlying commodity
or financial product (particularly when contracts concern commodities) are standardized. In this case,
the value of the contract is generally the only element that fluctuates throughout the term.
OTC contracts (forwards) are traded directly between the buyer and the seller, so the contracts are not
standardized. These contracts are, furthermore, seldom transferable.
Clearing house: An institution separate
from a stock exchange that ensures payment
and delivery of securities between securities
dealers.
level of risk for the return you expect to
obtain. That is the advantage of diversification,
a principle that every investor should put
into practice.
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.
Coupon: The interest portion of a bond.
Issuer: Entity that creates and offers
securities for the purposes of financing
projects or activities.
Over-the-counter or OTC market: Market
where securities which are not listed on
any exchange are traded. This is a market
for knowledgeable investors such as dealers,
financial institutions, retirement fund
managers, etc.
Diversification: It consists of not putting
all your eggs in one basket. Each form
of investment has its own risk profile. Some
forms carry very high risk, others very low.
For most investors, the most important factor
is the risk profile of their portfolio as a whole.
By combining various forms of investments
in your portfolio, you can reduce the overall
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.
Secondary market: Market consisting of
exchanges and the OTC market, for the trading
of outstanding securities.
Hedging (strategy): This involves trading to
reduce a potential loss with regard to an asset.
For example, a shareholder could buy a put
option on the shares he/she holds to offset
a decrease in share value. This way, if the shares
decline in value, the investor can exercise the
option and sell the shares at the fixed price
or sell the option, which will have increased
in value, at a profit.
Short selling of certain securities: This
transaction involves borrowing a security
from a financial intermediary and selling
it immediately on the market. The investor
will later have to buy back the security and
deliver it to the intermediary. The investor
expects the security to decline in value and
to be able to buy it back at a lower price.
This investment strategy is extremely risky,
because the investor can lose more than the
value of the traded security if it rises in price.
Theoretically, the loss could be unlimited.
For knowledgeable investors only.
Make sure your investment
decisions are in line with your
personal objectives, investment
horizon and tolerance for risk.
03_Cafe_Lexique_V3_AN-2.qxp
09/06/09
13:55
Page 2
Note — The terms followed by an asterisk are defined at the end of the table.
TYPE AND DEFINITION
DEBT SECURITIES
EXPECTED RETURN
LIQUIDITY
RISK
The return is solely the difference between the purchase price and the
value of the T bill at maturity, e.g. $990 for a value at maturity of $1,000.
The market value of T-bills may fluctuate based on changes in interest
rates.
T-bills can generally be easily sold
before maturity.
Very low: There is practically no risk of default of payment because
they are guaranteed by the governments that issue them. Since T-bills
are short-term securities, the risk of major fluctuations in the market
value due to interest rate changes is limited.
Guaranteed investment certificates generally earn a fixed interest rate up
to maturity. They either bear compound or regular interest (paid to the
investor on a regular basis). There are also some GICs where the return
fluctuates based on the performance of an index such as a stock index
(index-linked GIC).
Most GICs must be held until maturity,
but some can be redeemed upon
request. Penalties may apply in such
cases.
Very low to medium: As a general rule, they are guaranteed by the issuer.
With respect to index-linked GICs, they may or may not be guaranteed.
The capital can also be insured by deposit insurance, in the event
of bankruptcy of the issuer. Some restrictions apply. GICs that carry
terms of more than five years and are non-redeemable are not covered
by deposit insurance.
The majority of savings bonds with regular or compound interest offer
a fixed annual rate of return until maturity or a minimum rate of return
that can be increased by the issuer if market conditions change. There
are also tiered-rate savings bonds (regular and predetermined increases
in the rate).
Savings bonds cannot usually be sold
or transferred to another person.
Some can be redeemed by the holder
at any time, while others can be
redeemed only at specific intervals
or only at maturity.
Very low: They are guaranteed by the government issuer.
The return is in the form of interest or capital gains (losses) realized
at maturity or at the time of sale. The majority of bonds and debentures
provide for regular interest payments until maturity or minimum interest
payments that can be increased by the issuer if market conditions
change.
Bonds are sold on over-the-counter
markets*. No secondary market may
be available if the issuer experiences
financial difficulties. Some bonds may
be redeemable by the issuer.
Low to high: A rise in interest rates or financial difficulties for the issuer
will lower the value of the bonds.
If sold before maturity, the return will consist of capital gains (losses).
Otherwise, the return consists of interest. The return may be tied to the
performance of a stock, bond, commodity or currency index. The return
on some notes may be tied to hedge fund returns. Some notes guarantee
a rate of return for certain years, for example the first year only.
A secondary market* for principalprotected notes is usually maintained
by the financial institutions that issue
the notes.
Medium: Principal-protected notes are usually guaranteed by a financial
institution. However, the guarantee does not apply if the note is redeemed
before maturity, which is usually between 5 and 10 years. Since the return
on these notes is tied to underlying interests, there is a risk that the
interest paid will be less than expected or that there will be no interest
payments at all. In some cases, the issuer may limit the return on a note
and/or redeem it before maturity.
The return on common shares may be in the form of dividends and
capital gains (losses). Many companies periodically pay dividends to their
shareholders. Others may not pay dividends, either because they are not
profitable, or because they choose to retain their earnings and reinvest
them. In many cases, the return will depend primarily on the performance
of the company’s stock, resulting in capital gains or losses when the shares
are sold. The price of common shares may rise or fall, sometimes quickly
and sharply, based on the size, profitability and financial stability of the
company, as well as on the skills of its management and its exposure
to economic slumps, etc.
Common shares are normally traded
on a stock exchange or on over-thecounter markets*. However, there may
not be any market for certain common
shares and trading may be subject
to restrictions.
Medium to high: The risk depends on a number of factors such as the
size, profitability and financial stability of the company, the quality of
management and its exposure to economic slowdowns. If the company
is dissolved and its remaining assets are distributed, the holders of common
shares will be reimbursed after governments, employees, creditors
and holders of preferred shares.
(the risk is qualified for information purposes only)
Treasury bills
Treasury bills (T-bills) are issued by the federal and provincial governments. They consist of loans
granted by investors to issuers. Treasury bills are sold in denominations of $1,000, and are issued
for a term of one year or less.
Guaranteed investment certificates (GICs)
GICs are certificates of deposit issued by financial institutions. They represent loans granted by investors
to issuers. Terms range from 30 days to 10 years.
Note – The return of a stock market index measures the performance
of a predetermined group of securities that are listed on an exchange.
Savings bonds
Savings bonds are issued in several forms by the federal government and the governments of certain
provinces. They represent loans granted by investors to issuers. Terms are one year or more.
Bonds and debentures
Bonds are issued by governments and companies and represent loans granted by investors to issuers.
In general, the issuer promises to pay a fixed interest rate to the investor at certain intervals and pay
back a predetermined amount at maturity: the face value. The face value is often a multiple of $1,000.
Bonds can be traded at a price above or below their face value. Corporate bonds are generally backed
by specific assets. The term is generally from 1 to 30 years. Some bonds, known as convertible bonds,
can be exchanged for shares by the investor at his option.
Strip bonds (or zero coupon bonds) are bonds whose coupons have been separated. The remainder
of the bond (the principal) and the interest portion are discounted and sold separately. The principal
is paid at maturity. The difference between the purchase price and the amount paid back at maturity
corresponds to the interest income.
Debentures are similar to bonds, except that they are not backed by specific assets.
Should the issuer be dissolved, bonds and debentures entitle holders
to a portion of the issuer’s remaining assets, before the shareholders.
The market value of a bond varies according to changes in interest rates
and the issuer’s credit rating. If interest rates fall, for example, the market
value of a bond will rise because the interest payments provided by the
bond become more attractive to investors. Value also depends on changes
to the issuer’s credit rating.
Note – The rate of return on a bond or a debenture depends on the price
paid at the time of purchase and the time left until maturity. For example,
a debenture with an interest rate of 6% will pay a return of $60 per year
for each multiple of $1,000 (face/par value). If you purchase the debenture
for $950, your return will be higher than 6%.
Principal-protected notes
Principal-protected notes are securities whereby the issuer recognizes a debt. The term is usually between
5 and 10 years. At maturity, the issuer agrees to pay back the principal to investors. These securities
do not necessarily carry a fixed interest rate, and their return can fluctuate on the basis of the benchmark
portfolio, which can in turn be tied to several indexes, commodities, currencies, hedge funds, etc.
EQUITY INTERESTS
Common shares
Common shares are issued by companies and give holders an ownership interest in the company. Holders
of common shares generally have the right to vote on certain decisions involving the issuer and receive
any declared dividends. Should the issuer be dissolved, holders will share a portion of the remaining
assets. Common shares have no maturity date.
Restricted shares
• Restricted shares hold limited voting rights or no voting rights except under special circumstances.
Flow-through shares
• Flow-through shares are issued by certain oil, gas and mining exploration companies. They give
shareholders certain tax deductions for eligible exploration, development and investment costs.
•
Same comments as for common shares.
•
Same comments as for common
shares.
•
Same comments as for common shares.
•
The benefit to an investor will partially depend on the tax benefits
the latter can enjoy and the fluctuations in the price of the shares,
with an impact on capital gains or losses when the investor sells
the shares.
•
Same comments as for common
shares.
•
High: Exploration and development programs generally carry high risk.
In addition, exploration costs may not be eligible under the tax rules
and tax deductions may be refused.
Preferred shares
Preferred shares are issued by companies. They generally entitle holders to receive a fixed dividend
before any dividends are paid to holders of common shares. Should the issuer be dissolved, holders
will share the remaining assets. Generally, preferred shareholders are not entitled to vote.
In many cases, preferred shares have special features, such as the holder’s right to redeem the shares
at certain times. They may also be convertible, in which case the holder has the right to exchange them
for common shares at a pre-established price. Preferred shares may be redeemable at the issuer’s
option at certain periods. Others earn cumulative dividends: dividends not paid during a given year
accumulate until paid out.
INVESTMENT
FUND SECURITIES
The dividends on preferred shares are generally fixed, although the
company may reduce or suspend the payment of dividends if, for example,
its profits are lower than expected or if it needs to maintain its earnings
for various reasons.
Same comments as for common shares.
Medium to high: Same comments as for common shares. The suspension
of dividends in case of financial difficulties or rising interest rates may
lower the value of preferred shares. An increase in the rate of return
offered by other investments can also affect the price of preferred shares,
making the fixed dividend on these shares less attractive. If the issuer
is dissolved and its remaining assets are distributed, holders of preferred
shares will be reimbursed after governments, employees and creditors.
Mutual fund securities can generate returns in the form of dividends,
interest or capital gains (losses). The capital gains (losses) may be realized
by the mutual fund when it sells securities from its portfolio. Capital gains
(losses) can also occur when the investor wishes to redeem his securities.
The return depends on the investment decisions made and the success
of the strategies adopted by the fund manager.
Investors can generally request
that their mutual fund securities
be redeemed.
Low to high: The risk depends on the mutual fund’s investments,
such as bonds, shares, etc. Securities are not guaranteed.
Same comments as for mutual funds.
Same comments as for mutual funds.
In general, the investment term must
be 10 years to benefit from the capital
guarantee at maturity.
Low to medium: The risk depends on the fund’s investments (e.g. bonds,
stocks, money market instruments). Individual segregated fund contracts
offer a guarantee that protects, at maturity, at least 75% of the amount
invested. Moreover, insurers generally offer a death benefit guarantee.
However, you can still lose money with a segregated fund if you must
redeem your investment before maturity, because the guarantee will
no longer apply.
Exchange-traded fund securities can generate returns in the form
of dividends, interest or capital gains (losses). The capital gains (losses)
are realized when the investor sells his securities.
The liquidity of an exchange-traded
fund (ETF) depends on the liquidity
of the underlying securities.
Low to high: The risk depends on the volatility of the index tracked by
the fund. For example, an emerging market ETF could be more risky than
an ETF that tracks the stock exchange index of an industrialized country.
Securities can generate returns in the form of capital gains (losses). The
benefit to the investor will partially depend on the resulting tax benefits.
Shares in labour-sponsored funds
must be retained until the age of
65 years or the time of retirement
or early retirement, i.e. at 55 years
of age. Certain conditions apply. Shares
can also be redeemed in exceptional
circumstances. These include:
purchase of a property, pursuing
education, loss of employment
or launch of a business, disability
or terminal illness.
Medium to high: These funds invest a major proportion of their assets
in start-ups or small and medium-sized enterprises.
The potential capital gains on a company’s preferred shares are generally
less than what can be earned on the common shares of the same
company.
The value of these shares is linked primarily to changes in interest
rates and to the issuer’s earnings. Conversion and redemption privileges
can also have an impact on the value of preferred shares.
Mutual funds
A mutual fund is an investment fund comprised 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. Investors will hold shares if the fund is set up as a business corporation,
and units if the fund is set up as a trust (the most common form). Investors have voting rights. These
securities have no maturity and can be purchased or sold at any time.
Note – For more information, see the brochure on mutual funds published by the AMF.
Segregated funds
Segregated funds are created by insurers. These investment funds are similar to mutual funds, except
that they generally include a guarantee in the event of death and a guarantee at maturity. Fund assets
are held by an insurer separately from its other assets, hence the term “segregated funds.”
Exchange-traded funds (ETFs)
Securities in these funds are traded like shares on some stock exchanges. These funds generally track
a given benchmark index, for example a stock market or bond index. Under certain conditions, investors
can redeem their units directly from the fund in exchange for securities comprising the index.
Labour-sponsored investment funds or venture capital funds
These are investment fund securities issued by a labour organization or a financial institution.
They provide investors with tax benefits. The funds invest a portion of their assets in start-ups
or small and medium-sized enterprises (SMEs) in order to create or maintain jobs.
Another type of available fund is a
regional development fund, the shares
of which are redeemable after being
held seven years, unless an exceptional
event occurs such as death, disability
or terminal illness.
Hedge funds
These are funds that enjoy a great deal of flexibility as to the investment strategies that can be used.
These strategies are often called “alternative investment strategies.” These funds are usually structured
so that stock or bond market fluctuations have little or no influence on their returns.
Hedge fund investments, which are made up of investments such as shares of private issuers, derivatives,
etc., are generally suitable only for investors able to support high risks. And likewise for the strategies
used, which include short selling*, leverage*, narrow-based investments, and investments in companies
experiencing financial difficulties.
LIMITED
PARTNERSHIPS
Limited partnerships
INCOME TRUSTS
Income trusts
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 restricted 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.
Income trust securities are issued by a trust that holds securities or assets in one or more companies.
The units represent an interest in the profits generated by the assets held by the trust. Income trusts
are designed to regularly distribute (usually on a monthly or quarterly basis) income to security
holders.
The return consists of capital gains (losses), and depends on the success
of the strategies used. Because of the activities specific to these funds,
the return is not usually linked to stock indexes or to the economy in
general. They seek to generate positive returns regardless of economic
conditions, but in practice this goal is not always achieved.
They may carry liquidity restrictions.
For example, some hedge funds may
require at least one month’s prior
notice for the redemption of securities.
Medium to high: Depending on the strategies used, the risk can vary
from one fund to the next. Some funds employ strategies that can be very
risky, for example borrowing to invest (leverage*), short selling*, etc.
The return is in the form of dividends or capital gains (losses). The benefit
to the investor will depend on the resulting tax benefits.
There is often no organized market
for the resale of these securities and
resale restrictions may apply. In some
cases, the general partner may offer
restricted redemption privileges.
Medium to high: The risk depends on the nature of the partnership’s
activities. An investment in units of limited partnerships may be more
suitable for knowledgeable investors. There may also be a risk that
the tax deductions will be refused. If the partnership is dissolved, the
remaining assets, after repayment of all debts, are distributed to the
limited partners.
The return is in the form of income, royalties or capital gains (losses).
Profits from the trust are distributed to the unitholders. The return
depends on the operating income from the assets held by the trust
as well as on royalties.
Securities are generally traded on an
exchange; those that are not are much
less liquid.
Medium to high: The risk will depend on the type and performance
of the assets held by the trust. The return of some trusts is generated
by non-renewable resources. The life cycle of these resources may be
difficult to estimate accurately. An investment in units of income trusts
is more suitable for knowledgeable investors.
The return consists of capital gains (losses). If the option is exercised,
the return will depend on the price or value of the underlying interest,
the strike price and the option price. If the option is sold before expiration,
its value will depend on the time remaining before expiration, its strike
price and the present value of the underlying interest. The market value
of an option has a tendency to decrease the closer it is to expiration.
If it is not exercised before expiration, its value is nil.
Options are usually traded on an
exchange; those that are not may
or may not be transferred.
Medium to high: The risk depends on the underlying interest and how
the option is used. If it is used for hedging* purposes, the risk is reduced;
if it is used for speculation purposes, the risk is high. An investment
in options is more suitable for knowledgeable investors.
The comments applicable to options also apply to warrants acquired
on the market. The holder who receives warrants at the time a security
is issued is not required to pay for them.
Same comments as for options.
If they are acquired on the market, same comments as for options. If the
holder to whom an issuer has provided warrants does not exercise them,
he/she does not incur any risk.
Same comments as for warrants.
Some rights are listed on an exchange.
Restrictions may apply to reselling
rights.
Same comments as for warrants. However, given their short maturity,
they are seldom used for speculation purposes.
The return, in the form of capital gains (losses), depends mainly on changes
in the value of the underlying interest.
Futures contracts are traded on an
exchange; this increases their liquidity.
Over-the-counter contracts (forwards)
offer little liquidity.
Medium to high: The risk depends on the underlying interest and how
the contracts are used. If they are used for hedging purposes*, the risk
is reduced; if they are used for speculation purposes, the risk is high. In
addition, with OTC contracts (forwards), there is a risk that the counterparty
may not be able to honour its commitments. Futures and forward contracts
may only be suitable for knowledgeable investors.
The main categories of income trusts are: business trusts, real estate investment trusts (REITs), resource
trusts and utility trusts. Numerous trusts offer investors tax benefits. On October 31, 2006, however,
measures announced by the federal Minister of Finance abolished certain tax benefits that trusts enjoyed
over companies. Trusts created after October 31, 2006 are thus taxed on their income in the same manner
as companies. Trusts created prior to this date will be taxed as are companies beginning in 2011
(except for certain instances such as real estate investment trusts).
DERIVATIVES
Options
Options give the holder the right but not the obligation to buy (call option) or sell (put option)
an underlying interest at a fixed price for a specified period. The underlying interest may be a security
(for example, a common share or a bond), a commodity, a currency, an index (such as a stock market
index), etc.
The holder of an option may sell it, exercise it (buy or sell the underlying interest) or let it expire.
When an option is exercised, the holder takes delivery (or delivers) the underlying interest at the fixed
price.
The Canadian Derivatives Clearing Corporation acts as the buyer with respect to the seller
and as the seller with respect to the buyer for derivatives listed on the Montréal Exchange.
Over-the-counter products (not traded on an exchange), such as employee stock options offered
by corporations as compensation, are granted by the companies themselves and cannot be traded.
Warrants
Warrants give holders the right to purchase from the issuer a certain number of securities, at a specified
price and during a specified period. The issuer generally offers them to investors when selling other
securities, such as bonds or preferred shares.
Rights
When an issuer extends rights, it gives its common shareholders the right to buy additional shares at
a specified price usually below market price. Investors must exercise their rights within a short period,
generally between six and eight weeks.
Futures and forward contracts
Futures contracts are generally traded on stock exchanges. Whenever contract features are negotiated
between the parties, they are considered over-the-counter (OTC) forward contracts. In both cases,
the parties involved undertake to buy or sell a specific quantity of financial products or commodities
at a determined price and date. Contracts are traded in commodities (wheat, meat, etc.) and financial
products (stock market indexes, bonds, common shares, etc.). Transactions are finalized when the
financial product or commodity – or an equivalent cash amount – is delivered or delivery is taken.
With futures contracts, the time frame, quantity, quality and place of delivery of the underlying commodity
or financial product (particularly when contracts concern commodities) are standardized. In this case,
the value of the contract is generally the only element that fluctuates throughout the term.
OTC contracts (forwards) are traded directly between the buyer and the seller, so the contracts are not
standardized. These contracts are, furthermore, seldom transferable.
Clearing house: An institution separate
from a stock exchange that ensures payment
and delivery of securities between securities
dealers.
level of risk for the return you expect to
obtain. That is the advantage of diversification,
a principle that every investor should put
into practice.
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.
Coupon: The interest portion of a bond.
Issuer: Entity that creates and offers
securities for the purposes of financing
projects or activities.
Over-the-counter or OTC market: Market
where securities which are not listed on
any exchange are traded. This is a market
for knowledgeable investors such as dealers,
financial institutions, retirement fund
managers, etc.
Diversification: It consists of not putting
all your eggs in one basket. Each form
of investment has its own risk profile. Some
forms carry very high risk, others very low.
For most investors, the most important factor
is the risk profile of their portfolio as a whole.
By combining various forms of investments
in your portfolio, you can reduce the overall
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.
Secondary market: Market consisting of
exchanges and the OTC market, for the trading
of outstanding securities.
Hedging (strategy): This involves trading to
reduce a potential loss with regard to an asset.
For example, a shareholder could buy a put
option on the shares he/she holds to offset
a decrease in share value. This way, if the shares
decline in value, the investor can exercise the
option and sell the shares at the fixed price
or sell the option, which will have increased
in value, at a profit.
Short selling of certain securities: This
transaction involves borrowing a security
from a financial intermediary and selling
it immediately on the market. The investor
will later have to buy back the security and
deliver it to the intermediary. The investor
expects the security to decline in value and
to be able to buy it back at a lower price.
This investment strategy is extremely risky,
because the investor can lose more than the
value of the traded security if it rises in price.
Theoretically, the loss could be unlimited.
For knowledgeable investors only.
Make sure your investment
decisions are in line with your
personal objectives, investment
horizon and tolerance for risk.
Each year, new forms of investments appear on the market, often with new and, at times, complex
features. Are you familiar enough with the main forms of investments available to make a sound
investment choice?
This glossary presents an overview of the most common forms of investments based on three
fundamental criteria: expected return, liquidity and risk.
Before choosing an investment, you should assess your needs, financial situation and goals, risk
tolerance and investment horizon, and consider any related fees and tax consequences. Gather
information and, if necessary, consult a representative who holds a certificate issued by the AMF.
Most investment funds and issuers that publicly sell securities are required to file an electronic
version of their information documents, including annual reports, on SEDAR. You can consult
these documents on-line, free of charge, at www.sedar.com.
Risk represents the possibility of earning a lower
return than anticipated or losing all or a portion
of the amounts invested, and perhaps more
in certain cases.
The expected return is the gain you anticipate
from your investment in the form of interest
income, dividends or capital gains. Generally, the
higher the expected return from an investment,
the higher the risk. The return you actually earn
may differ significantly from the expected return,
which, as a rule, is not guaranteed.
Risk
Expected return
Liquidity
Liquidity represents the ability to quickly convert
an investment security (the “security”) into cash
without incurring significant costs. As a general
rule, the longer your investment horizon, the less
impact liquidity should have on your investment
decision. Ask yourself whether the funds invested
must be available at any time, in a few years, or
only when you retire. The answer could eliminate
several forms of investments.
Many investors do not distinguish between
securities that are redeemable by the issuer
and those that are redeemable by the holder
(investor). However, this distinction is essential
for determining the liquidity of a security.
Security redeemable by the issuer
A security is redeemable by the issuer if the latter
can buy it back at its option.
You should consider that an investment bought
back from you may be to your disadvantage. For
example, if an issuer can call a bond it has issued
at its option, the issuer may well do so when
interest rates drop, as it can now seek financing
at a lower rate. Given the lower interest rates,
you will have a difficult time reinvesting the
amount received at a rate similar to that offered
by this issuer.
Risk factors
There will always be certain risks associated
with an investment. Below are various risk factors
often related to numerous forms of investments.
Market risk Risk that a security’s value will
fluctuate according to market trends. Hence,
negative circumstances impacting a given industry
can lead to a decline in the value of a company’s
stock
Interest rate risk Risk that changes in interest
rates will impact a security’s value. For example, the
market value of bonds will fluctuate in the opposite
direction of interest rates; hence the market value
will drop when interest rates rise and vice versa.
Credit risk Risk that an issuer’s overall
creditworthiness will impact the value of the
securities it has issued. For example, an issuer
could have difficulty paying back its loans
to investors.
Political risk Risk that a government will not
be able to honour its commitments. The risk that
a government will change the rules in place must
also be considered. For example, a government
may amend tax laws, sometimes even retroactively.
Political instability and war are also risk factors.
Inflation risk or risk related to purchasing
power Risk that the real return on investments
will not offset the increase in the cost of living.
For example, if you hold a security earning a 5%
return when inflation is at 2%, your real rate
of return is approximately 3%. Your purchasing
power has therefore risen by only 3% rather
than 5%.
Note: A simple method for measuring the real rate
of return on an investment is to subtract the inflation
rate from the rate of return.
Risk related to changes in the rating
of securities Risk that the ratings assigned
to an issuer’s securities will change. For example,
independent bodies that evaluate the quality of
debt securities can lower an issuer’s credit rating
(discount) if its financial position deteriorates.
Such a discount will hike the issuer’s borrowing
costs and undercut the value of its securities.
Risk related to the payment of dividends Risk
that the issuer will cancel the payment of dividends
on shares.
Regardless of the risk level, there is always
a possibility of losing part or all of the
invested capital. This seldom occurs for
low-risk investments, but is more likely as
the degree of risk you are willing to accept
increases.
Other considerations
Risk tolerance depends on a number of factors:
age, personality, objectives, investment horizon,
knowledge, etc. You need to know your investor
profile to make sound investment decisions.
Fees Fees must be taken into account when
choosing your investments. The transaction fees
for some securities can be very high and can reduce
your returns. The same is true for the fees charged
by the firms and representatives managing your
investments. These fees can vary. We recommend
asking your representative or the firm you deal
with for more details.
Tax liabilities
Remember to take taxes into consideration, as
they can affect the net return on your investment.
Interest, dividends and capital gains (or losses) are
treated differently for tax purposes. Some registered
plans allow you to eliminate or defer the tax impact
of investment income or gains: registered retirement
savings plans (RRSPs), registered retirement income
funds (RRIFs), registered education savings plans
(RESPs), and tax-free savings accounts (TFSAs).
Tax treatment of returns
Interest Interest earned on an investment
is generally treated as ordinary income for tax
purposes.
Dividends from Canadian companies A dividend
tax credit is generally allowed, so dividends are
often taxable at a lower rate than is interest.
Capital gains It is generally possible to exclude
a portion of capital gains when calculating taxable
income. Capital losses can generally be used
to offset capital gains.
Consult your representative to find out
if you are eligible to contribute to a
plan and if it meets your needs and your
financial goals.
Counterparty risk Risk that the party with whom
you are dealing will not fulfill its obligations
(delivery, payment, etc.) and that you will suffer
a loss as a result.
Currency risk Risk that the currency used to
purchase your investment will fluctuate and lower
its value. For example, if you hold bonds from
a U.S. issuer and the Canadian dollar appreciates
against the U.S. dollar, the value of your bonds
will be less if you sell the bonds and convert
the proceeds to Canadian dollars.
Security redeemable by the holder
A security is redeemable by the holder if you
have the option of requesting that the issuer
buy it back.
Prospectus exemptions
Prospectuses made clear
Red-flagging financial fraud
Watch out for securities fraud
Mutual Funds
Choosing a securities firm
and representative
Short investment glossary
Choose the investments
that suit you
Update your financial position
Brochures to help you
with your investments
SHORT INVESTMENT GLOSSARY
TO CONTACT THE AUTORITÉ
DES MARCHÉS FINANCIERS
QUÉBEC CITY
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
Autorité des marchés financiers
The Autorité des marchés financiers (AMF) is the
regulatory and oversight body for Québec’s financial
sector.
MONTRÉAL
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
Part of its mission is to protect the public by enforcing
the laws and regulations governing insurance, securities,
the distribution of financial products and services,
and deposit institutions (other than banks).
INFORMATION CENTRE
Québec City: 418 525-0337
Montréal: 514 395-0337
Toll-free: 1 877 525-0337
Website: www.lautorite.qc.ca/en
AMF youth website: www.tesaffaires.com
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
Dépôt légal – Bibliothèque et Archives nationales du Québec, 2006
Dépôt légal – Bibliothèque et Archives Canada, 2006
ISBN-10: 2-550-47871-1 (Print version)
ISBN-10: 2-550-47872-X (Electronic version)
03_Cafe_Lexique_V3_AN-1.qxp
11/05/09
14:42
Page 1
Each year, new forms of investments appear on the market, often with new and, at times, complex
features. Are you familiar enough with the main forms of investments available to make a sound
investment choice?
This glossary presents an overview of the most common forms of investments based on three
fundamental criteria: expected return, liquidity and risk.
Before choosing an investment, you should assess your needs, financial situation and goals, risk
tolerance and investment horizon, and consider any related fees and tax consequences. Gather
information and, if necessary, consult a representative who holds a certificate issued by the AMF.
Most investment funds and issuers that publicly sell securities are required to file an electronic
version of their information documents, including annual reports, on SEDAR. You can consult
these documents on-line, free of charge, at www.sedar.com.
Expected return
Risk
The expected return is the gain you anticipate
from your investment in the form of interest
income, dividends or capital gains. Generally, the
higher the expected return from an investment,
the higher the risk. The return you actually earn
may differ significantly from the expected return,
which, as a rule, is not guaranteed.
Risk represents the possibility of earning a lower
return than anticipated or losing all or a portion
of the amounts invested, and perhaps more
in certain cases.
Liquidity
Liquidity represents the ability to quickly convert
an investment security (the “security”) into cash
without incurring significant costs. As a general
rule, the longer your investment horizon, the less
impact liquidity should have on your investment
decision. Ask yourself whether the funds invested
must be available at any time, in a few years, or
only when you retire. The answer could eliminate
several forms of investments.
Many investors do not distinguish between
securities that are redeemable by the issuer
and those that are redeemable by the holder
(investor). However, this distinction is essential
for determining the liquidity of a security.
Security redeemable by the issuer
A security is redeemable by the issuer if the latter
can buy it back at his convience.
You should consider that an investment bought
back from you may be to your disadvantage. For
example, if an issuer can call a bond it has issued
at his convience, the issuer may well do so when
interest rates drop, as it can now seek financing
at a lower rate. Given the lower interest rates,
you will have a difficult time reinvesting the
amount received at a rate similar to that offered
by this issuer.
Risk factors
There will always be certain risks associated
with an investment. Below are various risk factors
often related to numerous forms of investments.
Market risk Risk that a security’s value will
fluctuate according to market trends. Hence,
negative circumstances impacting a given industry
can lead to a decline in the value of a company’s
stock
Interest rate risk Risk that changes in interest
rates will impact a security’s value. For example, the
market value of bonds will fluctuate in the opposite
direction of interest rates; hence the market value
will drop when interest rates rise and vice versa.
Credit risk Risk that an issuer’s overall
creditworthiness will impact the value of the
securities it has issued. For example, an issuer
could have difficulty paying back its loans
to investors.
Counterparty risk Risk that the party with whom
you are dealing with will not fulfill its obligations
(delivery, payment, etc.) and that you will suffer
a loss as a result.
Political risk Risk that a government will not
be able to honour its commitments. The risk that
a government will change the rules in place must
also be considered. For example, a government
may amend tax laws, sometimes even retroactively.
Political instability and war are also risk factors.
Other considerations
Inflation risk or risk related to purchasing
power Risk that the real return on investments
will not offset the increase in the cost of living.
For example, if you hold a security earning a 5%
return when inflation is at 2%, your real rate
of return is approximately 3%. Your purchasing
power has therefore risen by only 3% rather
than 5%.
Fees Fees must be taken into account when
choosing your investments. The transaction fees
for some securities can be very high and can reduce
your returns. The same is true for the fees charged
by the firms and representatives managing your
investments. These fees can vary. We recommend
asking your representative or the firm you deal
with for more details.
Note: A simple method for measuring the real rate
of return on an investment is to subtract the inflation
rate from the rate of return.
Tax liabilities
Risk related to changes in the rating
of securities Risk that the ratings assigned
to an issuer’s securities will change. For example,
independent bodies that evaluate the quality of
debt securities can lower an issuer’s credit rating
(discount) if its financial position deteriorates.
Such a discount will hike the issuer’s borrowing
costs and undercut the value of its securities.
Interest, dividends and capital gains (or losses) are
treated differently for tax purposes. Some registered
plans allow you to eliminate or defer the tax impact
of investment income or gains: registered retirement
savings plans (RRSPs), registered retirement income
funds (RRIFs), registered education savings plans
(RESPs), and tax-free savings accounts (TFSAs).
Risk related to the payment of dividends Risk
that the issuer will cancel the payment of dividends.
Interest Interest earned on an investment
is generally treated as ordinary income for tax
purposes.
Regardless of the risk level, there is always
a possibility of losing part or all of the
invested capital. This seldom occurs for
low-risk investments, but is more likely as
the degree of risk you are willing to accept
increases.
Risk tolerance depends on a number of factors:
age, personality, objectives, investment horizon,
knowledge, etc. You need to know your investor
profile to make sound investment decisions.
Remember to take taxes into consideration, as
they can affect the net return on your investment.
Tax treatment of returns
Dividends from Canadian companies A dividend
tax credit is generally allowed, so dividends are
often taxable at a lower rate than is interest.
Capital gains It is generally possible to exclude
a portion of capital gains when calculating taxable
income. Capital losses can generally be used
to offset capital gains.
Consult your representative to find out
if you are eligible to contribute to a plan
and if this meets your needs and your
financial goals.
Currency risk Risk that the currency used to
purchase your investment will fluctuate and lower
its value. For example, if you hold bonds from
a U.S. issuer and the Canadian dollar appreciates
against the U.S. dollar, the value of your bonds
will be less if you sell the bonds and convert
the proceeds to Canadian dollars.
Security redeemable by the holder
A security is redeemable by the holder if you
have the possibility of requesting that the issuer
buy it back.
Prospectus exemptions
Prospectuses made clear
Red-flagging financial fraud
Watch out for securities fraud
Mutual Funds
Choosing a securities firm
and representative
Short investment glossary
Choose the investments
that suit you
Update your financial position
Brochures to help you
with your investments
SHORT INVESTMENT GLOSSARY
TO CONTACT THE AUTORITÉ
DES MARCHÉS FINANCIERS
QUÉBEC CITY
Place de la Cité, tour Cominar
2640, boulevard Laurier, bureau 400
Québec (Québec) G1V 5C1
MONTRÉAL
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
INFORMATION CENTRE
Québec City: 418 525-0337
Montréal: 514 395-0337
Toll-free: 1 877 525-0337
Website: www.lautorite.qc.ca/en
AMF youth website: www.tesaffaires.com
Legal deposit – Bibliothèque et Archives nationales du Québec, 2006
Legal deposit – Bibliothèque et Archives Canada, 2006
Autorité des marchés financiers
The Autorité des marchés financiers (AMF) is the
regulatory and oversight body for Québec’s financial
sector.
Part of its mission is to protect the public by enforcing
the laws and regulations governing insurance, securities,
the distribution of financial products and services,
and deposit institutions (other than banks).
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
This AMF brochure is provided for your information.
It does not offer any advice on the purchase or use
of specific financial products and services.
ISBN-10: 2-550-47871-1 (printed)
ISBN-10: 2-550-47872-X (on-line)
03_Cafe_Lexique_V3_AN-2.qxp
09/06/09
13:55
Page 1