Glossary

Accumulation Fund
A fund where the benefit received by the investor is determined by the contributions that have been invested plus the investment earnings, less any fees, taxes and insurance premiums.

Adviser Nomination Referral Fee
Professional Investment Services' growth and development strategy hinges on the internal referrals received from our existing accountants and advisers. In recognition of the commitment that referring individuals make to the company, we make available a referral fee equivalent to 10% of the commission split retained by Professional Investment Services for any new advisers who have joined us as a direct result of the initial referral and encouragement.

All Ordinaries Accumulation Index
A measurement of the average movements in share price of a selection of major Australian companies listed on the Australian Stock Exchange. It is an accumulation index, which means that it assumes that dividends have been reinvested.

Allocated Pension Or Annuity
A retirement income investment where an individual invests their superannuation money and receives an income payment periodically. The value of the account depends on the investment earnings and the amount of income taken less any fees or taxes. The capital is accessible and the income is set between Government minimums and maximums. Income will continue to be paid for as long as the account balance is greater than zero.

Annuity
A regular income stream paid to an individual from a lump sum investment, usually for the purposes of generating a retirement income stream.

Application
To apply for an investment in a unit trust or managed fund and application must be signed and submitted.

Application Price
The price per unit or share of an investment in which applications are made.

Appreciation
The increase in the value of an asset.

Approved Deposit Fund (ADF)
A concessionally taxed investment fund for superannuation monies. Similar to a superannuation fund, however an ADF can only accept ETPs (eligible termination payments) and cannot allow contributions. For this reason superannuation funds have become more popular.

Approved Product List
Members of the Group have access to our Approved Product List, which can be found on the adviser section of the PIS website. Professional Investment Holdings provides one of the most comprehensive Approved Product Lists, which has over 1,000 products making up a stable of available investments that our advisers can recommend. Research of these and other available products is an ongoing enterprise.

Asset Allocation
A representation of how a portfolio is invested among the various available asset classes eg a balanced fund may have an asset allocation of 30% Australian shares, 25% international shares, 10% property, 20% fixed interest, 10% international fixed interest and 5% cash.

Asset Classes
The range of financial securities, such as shares, bonds, property and cash.

Asset Purchase (Leasing)
Assets are technically hired to the user until the last payment of the agreement, at which point the user, referred to as the hirer, becomes the outright owner. Depending on business usage, the interest portion of the regular repayments and depreciation can be claimed as tax deductions. Flexibility of the structure is an attractive feature. No minimum lump sum payment (balloon) at the end of an asset purchase agreement. Maximums are the same as for lease residual amounts and are set down by the ATO.

Asset Value
The value of assets underpinning a security. These may not be fully reflected in the price of a security.

Balanced Fund
A type of managed fund whose investment strategy is to have, at all times, some proportion of its investments in all asset classes, creating a risk/return balance between the types of investments.

Balloon Payment
The optional lump sum remaining at the end of an asset purchase agreement.

Bear Market
A market that is decreasing over time. The opposite to a bull market.

Benefit
In relation to superannuation, the entitlement to a lump sum, pension or annuity.

Blue Chip Shares
Shares in well established companies that have shown ability to pay dividends in uncertain markets.

Bonds
Also known as fixed interest securities, are agreements that guarantee to repay a fixed amount of money at a pre-determined date in the future (maturity date). Bonds are generally issued by Governments, banks or companies to finance investment projects.

Broker
An individual who executes investors' orders to buy or sell securities.

Brokerage
A fee charged by a financial adviser or stockbroker for a transaction. Sometimes referred to as commission.

Bull Market
A market that is increasing over time. The opposite to a bear market.

Capital Gains Tax
A tax on the gains of an investment, payable only when the capital gain is realised by selling the investment.

Capital Gains/growth
Occur when the market value of an investment increases.

Cash
One of the asset classes. Coin and note currency in circulation and in deposit accounts and money market securities.

Cash Management Trust (CMT)
A form of managed investment in which the primary investment is cash securities. While offering security, they can also offer the potential for a higher return than an ordinary bank savings account.

Chattel Mortgage
A chattel mortgage is a type of leasing facility used to finance business equipment. The asset acts as security for the lender, and upon the final payment, ownership of the item is transferred to the lessee. It is specifically for business purposes and can be used to finance motor vehicles, plant and equipment. Like a standard loan facility, the lessee retains ownership of the asset throughout the term of the loan - the asset is effectively mortgaged to the finance provider until the final payment is made.

Client Data Form / Fact Find
All advice must be preceded with the client's completion of a Client Data Form which ascertains a client’s personal details and investor profile.

Commission
A fee paid to a financial adviser or stockbroker for a financial transaction or advice. Sometimes referred to as brokerage.

Compliance
Compliance Department within Head Office is responsible for ensuring all Authorised Representatives and Life Broker Representatives who are licensed under all of our licences are conducting their businesses in line with the rules that are set in place by governing bodies such as the Australian Securities and Investments Commission (ASIC).

Compound Interest
Interest calculated on the principal and interest already accrued.

Concessional Component
Superannuation benefits received before 1 July 1994 which relate to certain disablement, redundancy and approved early retirement benefits.

Constitution
Formerly known as a Trust Deed. A document setting out the methods of application, investment and withdrawal of funds within a managed investment, unit trust or public offer superannuation fund.

Consumer Price Index (CPI)
An index measuring the prices of items of a selection of goods and services. This allows a comparison of the relative cost of living over time, which is known as inflation.

Contributions
Amounts of money placed into a fund.

Contributions Tax
Tax applied to certain contributions to a superannuation fund.

Currency Gains
The contribution to a security's capital gain, attributed to movements in the currency in which the asset was denominated.

Deductible
Expenses that can be offset against assessable income, or some contributions to superannuation funds are tax deductible to individuals.

Defined Benefit Fund
A superannuation fund that defines the member's retirement benefit as a multiple of their salary. The multiple is usually based on the member's period of service and level of contributions made over the period of employment. The opposite of a defined benefit fund is a defined contribution or accumulation fund.

Derivatives
Securities that derive their value from another physical asset, also known as synthetics. Examples of derivatives include futures and options.

Distributions
Income payments from managed investments. Such payments comprise a share of any net income and realised capital gains earned by an investment over a financial year. The components which generally make up a distribution are profits from the sale of assets, income and currency gains.

Diversification
Spreading an investment over a range of asset classes, sectors and regions with the aim of reducing risk. As the old saying goes, "don't put all your eggs in one basket".

Dividend
Payment to shareholders from a company's earnings.

Dividend Imputation
Tax already paid by a company is credited to individual shareholders when a dividend is paid.

Dollar Cost Averaging
Investing a set amount of money, at regular intervals, over a long period of time. This means an investor could gain an advantage from rises and falls in the investment price, over a period of time, by buying more when the price is low and less when the price is high.

Eligible Termination Payment (ETP)
A payment from a superannuation fund, approved deposit fund or employer to a person.

Equity
(1) a share investment or (2) the part of an asset owned by an individual over and above any debt against the asset.

Fee For Service
If an adviser charges a fee for service as opposed to taking a commission from their client an invoice must be presented.

Finance Lease
An agreement whereby the owner rents goods to the user. It must have a residual amount which represents the potential sale price of the goods at the end of the lease. In most cases, Lessees can claim the full amount of the rentals as tax deductions, provided the goods are used predominately (more than 50%) to earn assessable income.

Financial Planner
An Authorised Representative of an Australian Financial Services Licence Holder, qualified to provide securities advice.

Financial Services Guide (FSG)
The Financial Services Guide must be made available to all clients. The FSG provides a client with a synopsis on the legitimacy of the dealer group, payment and procedure in which complaints are to be tabled.

Fixed Interest Securities
See Bonds.

Franked Dividends
Dividends on shares which include an imputation credit.

Fund
See managed investment.

Futures
An obligation to buy or sell a specified quantity of an underlying asset at some time in the future, at a price which is agreed when the contract is executed.

Gearing
(1) a measure of the debt ratio, which is the amount of borrowing compared with the equity in an asset. (2) borrowing to invest, such as when purchasing a house using a mortgage or purchasing a share portfolio using a margin loan.

Growth Assets
A term given to assets such as shares and property which are expected to provide strong investment returns over the long term.

Growth Fund
An investment fund which is predominantly invested in growth assets.

Hedge Funds An investment fund where the fund manager is authorised to use derivatives and borrowing to provide a higher return, albeit at a higher risk.

Hedging Undertaking one investment to protect against the potential loss in another investment. Options and futures are often used to hedge an investment.

Imputation Credit
Taxation credits which are passed on to shareholders who have received franked dividends from holding direct shares or managed share investments.

Income
Regular payments from an investment derived from interest on cash or bonds, dividends on shares, or rent from investment properties.

Inflation
Consumer Price Index.

Interest
The return earned on money that has been invested or loaned, ie the price paid for its use.

Invalidity Component
Payments from a superannuation fund or employer made after 30 June 1994 for total and permanent disability.

Investment
An asset purchased with the intention of producing capital growth or income, or both, for the owner.

Lessee The user of the goods in relation to a lease.

Lessor The owner of the goods in a lease, usually a finance company or bank.

Lifetime Pension Or Annuity A retirement income investment where an individual invests their superannuation or other money and receives an income periodically. The capital is not accessible, and there is little income flexibility. The payments are guaranteed to be made for the person's lifetime.

Liquidate To sell an investment or to convert an investment into cash.

Listed Security A security which is bought and sold via an exchange, such as shares on the stock exchange.

Loss Occurs where the sale price of an asset is less than the initial cost.

Lump Sum A cash payment from a superannuation fund.

Lump Sum Tax Tax payable on a lump sum (ETP) benefit payment from a superannuation fund.

Managed Investments Or Funds
A unit trust that allows investors to pool their money with that of other investors so that the fund can buy a wide range of investments. Investments are managed by a professional Fund Manager who makes the investment decisions.

Management Expense Ratio (MER)
A ratio expressing the management, trustee and certain other expenses of a managed fund as a proportion of the net asset value of the fund.

Margin Loan
A line of credit established for the purpose of investing in shares or unit trusts, often used to maximise your returns.

Maximum Deductible Contribution (MDC)
The maximum amount of super contributions per annum for which a tax deduction is allowed. The limit is dependent on your age.

Money Market
A market where short-term securities, such as promissory notes and bills of exchange, are traded. Securities in the money market all have terms of 1 year or less.

Negative Gearing
Purchasing an investment with borrowed funds where the interest on the borrowing exceeds the income from the investment.

Net Asset Value
The value of a company, or managed fund, which is the assets less liabilities.

Novated Lease
An employee leases a car and then sub-leases it to their employer who pays the lease rentals. Employee remains fully liable for the debt.

Operating Lease
A pure rental agreement with no documented residual amount. Goods can be returned to the financier when the agreement expires. Commitments need only be disclosed by way of a footnote to the published accounts and, should the asset be sold for less than the residual amount, the user cannot be held liable. Usually limited to motor vehicles, computers and multi purpose industrial equipment.

Options
A derivative investment, giving the holder an option to buy or sell a specified quantity of an underlying asset at some time in the future, at a price which is agreed when the contract is executed.

Pension
A regular income stream paid to an individual, either by the Government (such as an Age Pension) or from a superannuation benefit.

Pooled Investment
An investment where a number of individuals place their money with a professional manager who manages the total fund on their behalf. Also known as a unit trust or managed investment.

Portfolio
The full range of an investor's, or managed fund's, investment holdings.

Preservation
A requirement to retain superannuation benefits within the superannuation environment until a condition of release has been met. Under current laws most benefits are compulsorily preserved until a person has retired or is at least 55.

Product Disclosure Statement
A legal document lodged with the Australian Securities and Investments Commission which details how the fund operates, outlining the nature of the fund(s), how to invest and what returns to expect from the investment.

Profit
Occurs when an investment appreciates in value and is sold, or realised. Also known as a realised gain.

Property Funds
In a managed investment the term property generally refers to investments in property securities - property trusts listed on the stock exchange. Funds which invest in property securities allow diversification by investing across a range of different property sectors such as commercial, office, industrial, hotel and retail properties. A property securities fund generally invests in property trusts that are listed on the share market, or in property-related companies.

Real Interest Rate The nominal (quoted) interest rate minus the inflation rate.

Realise To sell an investment.

Realised Capital Gain When an investment is sold and a profit is made.

Reasonable Benefit Limit (RBL) The maximum superannuation benefit a person can build up over their lifetime which is taxed on a concessional basis.

Redemption Price The price at which an investor can withdraw their units from a fund or trust.

Redemption/Redeem To withdraw, or sell, an investment.

Reinvest Where income from an investment is used to make an additional investment, generally at no fee, to allow greater returns through the benefit of compound interest.

Residual The lump sum remaining at the end of a lease, to be paid by the lessee.

Return The amount of money received from an investment each year. Can be comprised of income and/or capital growth and is expressed as a percentage.

Risk The variability of returns. Generally, the higher the level of risk an investor is prepared to accept, the higher the potential return over time may be.

Rollover/Rolling Over The transfer of a superannuation benefit or an eligible termination payment within the superannuation environment between superannuation funds, or from a superannuation fund to a pension or annuity.

Salary Sacrifice An amount of pre-tax salary that an employee decides to contribute to super or allocate to fringe benefits instead of taking it as cash.

Sector A group of securities with common characteristics, such as resource sector companies or financial companies.

Security (1) an asset traded on a financial market, such as shares or bonds or (2) an asset pledged to ensure the repayment of a loan.

Shares Represents ownership in part of a company. When you buy a share in a company you become a joint owner of the business and share in the future of that business. Also known as an equity.

Spouse Contribution A contribution to a superannuation fund from a spouse on behalf of their partner. Taxation offsets may be able to be claimed for such contributions, depending on the spouse's level of assessable income.

Stockbroker A person who buys and sells securities on behalf of others in return for brokerage or commission.

Superannuation A tax effective means of putting aside money during your working life for use in retirement.

Superannuation Fund A concessionally taxed investment fund for superannuation monies. These funds can accept both ETPs and other contributions. Generally balances cannot be withdrawn until age 55 and fully retired. These can be run by an employer as a company fund, a fund manager as a personal fund or can be self managed by an individual.

Surcharge Superannuation surcharge is a tax paid by high income earners on certain superannuation contributions.

Switching Transferring units between two funds in a unit trust. This may trigger a capital gain.

Tax Deduction
An expense that can be offset against assessable income.

Tax Rebate/offset
The amount of money that reduces the level of tax payable.

Trust Deed
See constitution.

Undeducted Contributions
A term given to after-tax money which is invested in a superannuation fund.

Unit Price
The price for each unit of a unit trust. This is calculated by dividing the value of the assets of the trust by the number of units on issue to investors.

Unit Trust
An investment where a number of individuals place their money with a professional manager who manages the total fund on their behalf. Also known as a pooled investment or managed investment.

Units
A share of a unit trust or managed fund which represents an entitlement to the asset within the fund.

Unrealised Capital Gain
Occurs when an investment increases in value, but is not sold or realised.

Vesting
Relates to superannuation, an employee's entitlement to optional employer superannuation contributions. Vesting is usually expressed on a scale, for example, for each year of service employees are entitled to a further 20% of optional employer contributions. This means that after 5 years of service an employee is entitled to 100% of these contributions if they leave the employer.

Yield
The dividend, or interest rate, on an investment expressed as a percentage of the price.