Glossary

Package Trade
A sharemarket transaction involving the purchase and/or sale of an entire portfolio rather than individual securities alone. Often used to manage index funds, and occasionally to arbitrage between physical and derivative securities.

PADF
Abbreviation for Personal Approved Deposit Fund.

Paid-up Capital
The proportion of a company's share capital which has in fact been paid for by shareholders (ie. excluding capital that has been called, but not yet paid).

Paper Profit
A profit still existing in a security which has not yet been sold, and is therefore unrealised.

Par
Referring to a foreign exchange transaction in which the forward price is the same as the spot price.

Part A Statement
A written statement, disclosing matters prescribed by the Corporations Law, provided by a takeover bidder to the target company shareholders for the purpose of assisting the shareholders to decide whether to accept the takeover offer.

Part B Statement
A written statement, disclosing matters prescribed by the Corporations Law, provided by the directors of the target company shareholders for the purpose of assisting them to decide whether to accept the takeover offer.

Partial Vesting
The inclusion in an employee's superannuation benefit of part of the employer's contribution, not the total amount. (See also Vesting).

Par Value
The face value of a security. In relation to shares, the par value is set by the company at the time of issue and does not necessarily reflect the share's market value.

Passive Management
A style of investment management that seeks to attain performance equal to the market or index returns. In pure index funds, no judgements are made about future market movements, although more sophisticated managers usually offer tilted portfolios. (Opposite of Active Management).

PAYE
Abbreviation for Pay-As-You-Earn, a taxation procedure for wage and salary earners under which income tax is deducted in instalments from periodic (ie. weekly) pay.

Pay-Off Diagram
A graphical representation of the profit and loss structure of an option or a combination of different option exposures. (See also Exercise Price).

Payout Ratio
A ratio expressing the proportion of a company's profits which is paid out to shareholders in the form of dividends. The ratio is calculated by dividing the dividends by the amount of the company's profit. (See also Earnings Per Share).

Payroll Tax
A State Government tax on businesses, levied on the basis of the number of employees of the business.

PDF
Abbreviation for Pooled Development Fund.

Peak
A charting term, also known as a top (eg. in charting prices, a peak is the point where the price climaxes before the pressure to sell pushes it back down). See also Trough.

Pension
A regular periodic payment to a person, either by the Government (ie. social security) or as a superannuation benefit.

Pension Fund
a) A superannuation fund in which benefits are payable as an income stream during retirement rather than (or as well as) by way of a lump sum payment; b) The term used in the United Kingdom and United States for retirement savings plans generally (ie. the US equivalent of superannuation funds).

Pension Reasonable Benefit Limit
See Reasonable Benefit Limit.

Pensions Power
The authority of the Commonwealth Government, under Section 51 of the Australian Constitution, to regulate the provision of age pensions. Along with the Corporations Power, the pensions power is one of the constitutional foundations of the federal Government's SIS Legislation.

PE Ratio
Abbreviation for Price Earnings Ratio.

Percentile
A statistical measure representing the ranking of a particular figure or outcome on a scale comprising 100 equal groups. (See also Quartile).

Performance Measurement
A form of analysis that attempts to compare investment manager performance. It can be critically affected by the time period selected and while some attempts have been made to look at risk adjusted returns, generally it is very difficult to assess the quality of those returns. Good performance measurement should include: a) analysis of performance over a business cycle (typically 3-5 years) and assessment of returns on a quarterly basis, ideally by sectors as well as total returns; b) ensuring that like is being compared with like the best way to do this is to look at each manager's benchmark, or risk profile, and compare performance against the benchmark, preferably on a sector basis; and c) analysis of the reason for any extreme out-or-under performance in a given period (eg. whether a large overweight position exists in one or a few securities or a sector).

Personal Approved Deposit Fund (PADF)
An Approved Deposit Fund (ADF) with one individual as the investor. The portfolio is structured and managed to meet that individual's personal requirements and objectives.

Personal Superannuation Plan
An arrangement, often in the form of a policy from a life insurance company, under which individuals can make superannuation contributions without the need for employer contributions.

Physical Market
a) The market in tangible assets such as plant and equipment, as distinct from markets in financial investments (ie. bonds, shares, etc); b) The term is also sometimes used to distinguish investments in derivative securities (futures or options) from the underlying (`physical') securities from which they were derived.

Physical Security
See Underlying Security.

PI Cover
See Professional Indemnity.

Pin Risk
The risk to a trader who has sold an option that at expiration the price of the underlying security will be identical to the exercise price of the option. The trader, therefore, will not know whether the option is likely to be exercised.

Placement
An issue of newly-created shares by a company which is already established, as a means of raising cash and/or diversifying its investments. (See also Private Placement).

Plc
Abbreviation for public limited company, the term used in the United Kingdom to describe a company limited by shares (see Company). A company must be a Plc in order to be listed on the London Stock Exchange. (See also Listed Company).

Poison Pill
An anti-takeover device used by a company to protect itself from hostile bidders. There are many varieties of poison pills, the most common being the 'flip-over', which guarantees the shareholders of a company targeted for take-over the right to purchase shares in the new, merged entity at below market cost, thereby reducing the raider's gain. (See also Sugar-coated Pill).

Policy
The legal contract between an insurer and the insured individual/company/trustee, etc.

Policy Committee
A committee, comprising equal representation from employers and members, which is established under provisions of the SIS Legislation to advise the trustees of a Public Offer Fund.

Political Risk
The uncertainty in return on a foreign investment due to the possibility that the foreign government might take actions which are detrimental to the investor's interests.

Pooled Development Fund (PDF)
A form of pooled investment which offers taxation concessions for investors to invest in development capital projects. To be eligible for PDF status, the trustees must submit a capital raising plan and investment plan for approval by the PDF Registration Board of the Commonwealth Department of Industry, Science and Technology. PDFs may only invest in Australian companies with less than $50 million in assets. As at April 1996, there were 36 PDFs registered in Australia.

Pooled Investment
Any form of investment in which a number of individuals place their money with a professional manager to manage the total fund on their behalf and produce a return to them individually. Also known as Collective Investment.

Pooled Superannuation Trust (PST)
A superannuation trust which complies with certain conditions set out in the SIS Legislation and Regulations, and into which complying funds may place their investments.

Portability
In relation to superannuation, the ability to switch benefits from one fund to another, or from a superannuation fund into a rollover fund (eg. upon a change of employment).

Portable Loans
A portable loan allows you to sell your house and move to a new one without having to refinance. This saves application and legal fees. Most lenders however insist that the loan amount is the same or less. Make sure you know the terms of your loan.

Portfolio
The collection of investment holdings of a particular investor usually with reference to its composition ie. the mix of different classes of securities, such as bonds, property, shares and cash, or if in a single asset class, the mix of different sectors and stocks.

Portfolio Construction
The process of identifying which asset classes to invest in, and in what proportions.

Portfolio Insurance
An investment strategy which aims to ensure a minimum rate of return while allowing the investor to benefit from the positive returns generated by investment in a risky portfolio. (See Dynamic Hedging).

Portfolio Manager
A person or organisation engaged to manage investment portfolios and make investment decisions on behalf of others.

Portfolio Optimisation
The process of selecting an investment portfolio that minimises risk for a given level of return, taking account of a) expected return; b) variances of expected return; and c) covariance of return with every other security under consideration.

Position
a) The total of an option trader's open contracts in a particular underlying security; b) A market commitment. For example, a purchaser of a futures contract has a long position, while a seller of a future contract has a short position.

Preference Shares
Shares which rank before ordinary shares in the event of liquidation of the issuing company and usually receiving a fixed rate of return on the unfranked investment. (See also Ordinary Shares).

Premium
a) The opposite of discount; b) The amount paid at the time of purchase (eg. of an option); or c) a periodic payment made towards an insurance policy. Prepaid interest
The ability to prepay interest months in advance. Up to 13 months can be claimed under current legislation.

Prescribed Interest
A statutory concept introduced in the Corporations Law, covering a wide range of collective investment activities administered by investment managers. Prescribed interests include: a) funds management activities, such as property trusts, cash management trusts and equity trusts; b) business investment projects, such as film investment schemes or certain agricultural schemes; and c) recreational investments, such as timeshare holiday apartments and horseracing syndicates. Prescribed interests are treated differently from other collective investments for certain regulatory requirements (eg. prospectus provisions).

Present Value
The current value of an investment which matures in the future, after discounting the maturity at an assumed rate of interest and adjusting for the probability of its payment or receipt.

Preservation
The maintenance of superannuation benefits and/or eligible termination payments in superannuation or rollover funds until retirement. Under current laws, some benefits are subject to compulsory preservation until retirement (ie. they must be preserved in a superannuation or rollover fund, and cannot be withdrawn beforehand). (See also Vesting).

Price-Earnings Ratio (PE Ratio)
A stock's market price divided by its current or estimated future earnings per share; a fundamental measure of the attractiveness of a particular security versus all other securities as determined by the investing public. The lower the ratio relative to the average of the sharemarket, the lower the (market's) profit growth expectations. Also called Earnings Multiple.

Price Input
The effect on the price of a security resulting from a trade in that security (eg. a major sale or purchase).

Price Range
The range between the highest price and the lowest price reached by a certain security, or the general market, during any specific day, week or year.

Prices and Incomes Accord
See Accord.

Prices Surveillance Authority (PSA)
The former Commonwealth Government agency responsible for administering legislation concerning prices, and merged in 1995 with the Trade Practices Commission to form the Australian Competition and Consumer Commission.

Primary Market
The market in which securities are sold at the time they are first issued. (Opposite of Secondary Market).

Prime Assets Ratio (PAR)
A prudential requirement under which banks have to hold a prescribed percentage of the value of their total liabilities in specified highly secure assets. These currently consist of notes and coins on issue, balances with the Reserve Bank, Commonwealth government debt securities and loans to official dealers secured by Commonwealth securities.

Prime Rate
The minimum rate on bank loans set by commercial banks. It is affected by overall business conditions, the availability of reserves and the general level of interest rates, and may vary geographically. Lending rates are also greatly influenced by the size of the loan; the largest loans naturally command the lowest rates. Also called Base Rate.

Private Equity
An equity interest in an unlisted company or enterprise. (See also Development Capital).

Private Placement
The placement of a security with an institutional investor or investors as opposed to a public offering.

Private Sector
The part of the economy owned/operated by corporations and individuals outside the public sector. Split by economists into households and business.

Privatisation
The alteration of the legal and management structure of a Government trading body (eg. a statutory authority) to permit private equity or ownership (as opposed to corporatisation, under which ownership and control remain with the Government).

Productivity
The level of efficiency with which goods or services are produced given the inputs used to produce those goods and services.

Professional Indemnity
A form of insurance against negligence or defalcation by a professional adviser (eg. a lawyer or an accountant). Also known as PI Cover. Investment managers and custodian companies generally take PI cover as well.

Profit and Loss Account
A financial statement showing the earnings and expenses of a company over a given reporting period (as distinct from a balance sheet, which shows the company's assets and liabilities at a set point in time).

Profit Taking
The act of selling securities which have appreciated in value to translate a paper profit into a realised gain. Often used to partly explain a market decline after a noticeable run-up in prices.

Program Trading
a) A synonym for index arbitrage; or b) A synonym for package trading.

Promissory Note
A debt security issued by a borrower, showing the amount which the borrower is prepared to pay the noteholder on its maturity. The note is issued at a discount to its face value, representing the yield on the funds for the noteholder (lender). Promissory Notes are similar to Bills of Exchange with the exception that only the name of the borrower and not the lender appears on the face of the note.

Proper Authority
An instrument under the Corporations Law which signifies the responsibility of a securities dealer or investment adviser for acts of an employee or agent. Proper authorities are required to be provided to certain categories of employees of fund managers sharebrokers and investment advisers. (See also Dealer?s Licence).

Property
In the finance industry, the term refers to real estate including land and buildings that can be bought, sold or leased.

Property Trust
A collective investment vehicle which owns a portfolio of real property, thus providing for a wider spread of ownership. Listed property trusts are quoted on the stock exchange, and their prices fluctuate with supply and demand, as with equity investments. Unlisted property trusts are transacted directly with the trust's manager, who fixes the prices in relation to the established asset backing of the trust, with adjustments for expenses.

Proprietary Limited
Usually abbreviated to Pty Ltd. (See also Company).

Prospectus
A legal document lodged and/or registered with the Australian Securities Commission setting forth the complete history and current status of a security issue or fund, and which must be made available to all interested investors in advance of their investment, when an offer is made to the public.

Protected Growth Fund
An investment portfolio which aims to maximise growth to the greatest extent possible consistent with the objective of achieving a positive return for each financial year. (See also Capital Protected and Growth Fund).

Protection Overlay
A portfolio management technique by which an investment manager aims to protect the capital value of a portfolio through risk management techniques, such as dynamic hedging.

Provisional Tax
A form of income tax collection, normally levied on non-PAYE taxpayers such as self-employed professionals. Provisional tax is usually payable in April, prior to the end of the taxation year in question.

Proxy
A written authorisation given by a shareholder to someone else to vote his or her shares at a shareholder's meeting. Fund management agreements often delegate the authority to the fund manager to exercise proxy votes on behalf of the client. (See also Corporate Governance).

Prudential Standard
A regulatory control imposed on a financial institution to protect the interests of its depositors or other creditors (eg. a restriction on foreign currency transactions or on the maximum shareholding which can be held by a single individual or group). (See also Capital Adequacy).

Prudent Man Rule
A common law standard applied by the Courts to the investment of trust funds. Briefly stated: 'All that can be required of a trustee in the investment of trust funds is that he conduct himself faithfully and exercise sound discretion. He is to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital to be invested'. The Prudent Man Rule is tending to be replaced by the notion of the `Prudent Expert'.

PSBR
Abbreviation for Public Sector Borrowing Requirement.

PST
Abbreviation for Pooled Superannuation Trust.

Pty Ltd
A contraction of proprietary limited company, and a term unique to Australia, New Zealand and South Africa. See Company.

Public Offer Entities
A legal term under the SIS Legislation for Public Offer Funds.

Public Offer Fund
A type of superannuation fund which, under the SIS Legislation, is required to comply with certain regulatory requirements, including the need to have a corporate trustee, to meet certain disclosure requirements and to establish a policy committee to advise the trustee directors. Public offer funds include superannuation products marketed directly to the public and master trusts, although other funds can obtain public offer fund status either by their own choice or by declaration by the Insurance and Superannuation Commission.

Public Sector
The part of the economy which is made up of Government (Commonwealth, State and Local) enterprises and activities. The public sector includes public service departments, essential services such as health, education, transport and defence and utilities, such as electricity and water authorities. (See also Private Sector and Statutory Authority).

Public Sector Borrowing Requirement (PSBR)
The amount of borrowing required (whether through issuance of bonds, increasing money supply or offshore borrowing) to supplement revenue so as to finance the activities of governments and semi-government authorities.

Purchase Price
See Allocation Price.

Purchasing Power
The extent to which a sum of money or benefit can retain its ability to purchase physical assets. Investors generally aim to improve or at least to preserve the purchasing power of their money or assets against increase in the inflation rate over time.

Put Option
An option giving its purchaser the right, without the obligation, to sell an asset at a specified price (the exercise price) at any time between the purchase of the option and its expiry date. (See also Call Option).

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