Key investment terms Franking credits Franking credits (also known as imputation credits) are tax credits attached to franked dividends that companies distribute to their shareholders. These credits represent the tax the company has already paid on its profits, which helps to avoid double taxation of those profits once distributed to shareholders. Shareholders can use franking credits to offset their income tax liabilities. Grossed-up dividend yield Grossed up dividend yield includes the value of franking credits and is based on the corporate tax rate (generally 30.0%) assuming the dividend is fully franked. This is calculated as follows: Annual dividend yield ÷ (1 - the corporate tax rate of 30.0%) Investment grade corporate notes and bonds Debt instruments issued by corporations with a high credit rating (BBB- or higher by Standard & Poor’s). They offer regular interest payments and return the principle at maturity and are generally considered lower risk compared to high-yield bonds. Investment portfolio performance Investment portfolio performance measures the growth of the underlying portfolio of investments and cash before expenses, fees, taxes and capital management initiatives, to compare to the relevant benchmark which is before expenses, fees and taxes. Leverage The use of debt as a funding source. A highly leveraged firm has a higher ratio of debt-to-equity or debt-to-earnings. Listed investment company (LIC) LICs are corporate entities in a ‘company’ structure providing a permanent and stable closed-end pool of capital, established for the purpose of investing in a portfolio of securities or investments on behalf of shareholders. LICs are listed on an exchange which in Australia is primarily the Australian Securities Exchange (ASX). Each company on the ASX has a code, also known as a ‘ticker’.
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