Download T Zero and T Zero Plus

CONFIDENTIAL
INVESTMENT REPORT
Offering general product Information on the product
“T Zero and T Zero Plus” securities
For
Client Name
Prepared
By
Brad traynor
Authorised Representative
The Outlook Group Pty Ltd
ABN: 44105079696
AFSL: 253119
Mail: PO Box 777, Spit Junction, NSW, 2088.
Phone: 02 99683588
Email: [email protected]
Web: www.outlookgroup.com.au
Dear Sir/Madam,
I have pleasure in enclosing our investment appraisal offering a review of the products “T
Zero and T Zero Plus securities”.
We have undertaken due diligence and research in into “T Zero and T Zero Plus
securities".
We have formed the view that these products have relevance in a variety of financial
circumstances. We have investigated the underlying security of these investments and
have satisfied ourselves of their bona fides. They are a conservative investment and their
security is well evidenced by past performance, robust legislation and the fact that they
come from very creditworthy issuers.
As foreshadowed in our disclaimer, while we are comfortable to give general advice in
support of this product, we cannot guarantee that the product is appropriate to your
circumstances.
Product appraisal:
We are comfortable to recommend T Zero and T Zero Plus securities as investment
grade.
If you seek specific and tailored financial planning advice - please contact us to arrange
such. If you have any queries regarding our recommendations or any other aspect of your
financial affairs please call.
Yours sincerely
Brad Traynor
Authorised Representative
The Outlook Group Pty Ltd
ABN: 44105079696
Mail:
Mobile
Phone:
Email:
Web:
PO Box 777, Spit Junction, NSW, 2088.
0413673366
0299683588
[email protected]
www.outlookgroup.com.au
Dealer Group: Pearce The Outlook Group Pty Ltd
Head Office: 3/5 Earl Street, Mosman NSW 2088. AFSL: 253119.
DISCLAIMER - This document contains general product information only
When giving specific financial advice the law requires that recommendations made are
consistent with the client's financial needs and objectives. These recommendations need
to show that they were formed on a reasonable basis. This document is NOT a specific
Statement of Advice -- nor is it to be interpreted as individual advice. Rather, this
document presents product information and an overview of a particular product known as
T Zero and T Zero Plus securities.
Where an investor wishes to have a specific, tailored Statement of Advice (S0A) please
contact us so that we can gather further information on your specific circumstances and
make arrangements to engage us to prepare a full personal Statement of Advice
No responsibility is accepted in relation to any other aspect of your financial circumstances
or financial product selection.
You are warned that there may be issues beyond the scope of this document, which may
impact on your outcomes. We have made reasonable efforts to identify such issues,
where it is in our power to do so. If there is any information that has not been provided to
us, or about which you have not sought our advice, you risk making a financial decision
that may not be appropriate to your needs and circumstances and financial loss may
occur.
This information is prepared solely for the use of the client to whom it is addressed and we
do not accept any liability whatsoever to third parties.
Advice in this report is based on current information and should only be considered current
for one month from the date of this report.
In the event that any advice or other services rendered by the Company constitute a
supply of services to a consumer under the Trade Practices Act 1974 (as amended), then
the Company's liability for any breach of any conditions or warranties implied under the Act
shall not be excluded but will be limited to the cost of having the advice or services
supplied again.
Subject to the above paragraph, nothing in any paragraph of this disclaimer affects any
rights or remedies to which you may be entitled under the Trade Practices Act 1974 (as
amended) or under the Corporations Act as a consequence of services being rendered by
the Company.
Whilst every effort has been made to include relevant tax and social security
considerations, you are advised to discuss your annual tax liability and the tax and social
security implications of this advice with your tax adviser as the estimates contained herein
are intended as a guide only.
Scope of Investment opinion
On your instruction The Outlook Group Pty Ltd is not to consider any other aspect of your
financial situation or the investment of other funds.
In providing this opinion we have not taken into account any information regarding your
personal circumstances and objectives and we have provided no advice in this letter
regarding any other investments or aspects of your financial affairs.
It is perfectly reasonable to seek information regarding specific products as you have
done. You should be aware that by limiting information in this way you risk neglecting
issues of financial significance and that you could incur financial loss in relation to issues
not covered by this advice. Where we become aware of such issues we will bring them to
your attention however we are limited in our capacity to do so by the information you have
chosen to provide. If you wish to undertake a broader analysis of your financial
affairs and have us tailor advice suited to your personal circumstances & objectives
you should let us know before proceeding with this investment.
Product description
T Zero and T Zero Plus
This is a unique unlisted investment, which has properties that resemble fixed interest and
the underlying assets are a diverse collection across all major asset classes under the
management of a leading life company. Investment advisors and financial planners tend to
compare the T Zero and T Zero Plus securities with unlisted fixed Interest hybrid
investments.
T Zero and T Zero Plus securities are the brand names for Traded Endowment policies.
T Zero and T Zero Plus securities offer investors a high level of tax-exempt/tax paid
returns. T-Zero and T Zero Plus securities are good value when viewed on a Risk / Return
basis. There is an element of portfolio protection in the form of significant underlying
capital guarantees, while the returns are highly attractive when compared to other fixed
interest securities. In addition, the Issuer of this product (the Traded Endowment policy),
has received an AA Credit Rating from Standard & Poors, which is the same as that
awarded to the 4 major banks for their ability to pay the maturity value.
This type of security does not pay any income (Zero Coupon) and provides Tax Free/Tax
Paid returns. Upon maturity, all income and capital growth are realised. For
superannuation investors the gains are Tax Exempt on maturity and do not need to be
reported in the SMSF's return.
For Non Super Investors who choose 5 year durations, the gains are Tax Paid to 30% and
10 year durations are Tax Exempt. ATO Advance ATO Rulings are available in this regard
at time of purchase.
Investors are able to choose terms of either 5 or 10 years. By selecting the T Zero Plus
option you are able to top up your investment with additional savings of up to 2% of the
original purchase price per annum. (This reflects the original annual premiums established
on the old policies). This is a key benefit of the T Zero Plus option over the regular T Zero
option and is recommended for the SMSF's portfolio ( Accumulation mode), to improve
flexibility as well as Non Super Investors who seek to maximise their returns.
It is important to note that there are no fees charged within the T Zero and T Zero Plus
securities and that the Management Expenses Ratio (MER) is also effectively zero.
Your Objectives
This investment is suited to you if you seek one or more of the following:





Growth only returns.
Long term investment for the ear-marked funds
Secure investments
Returns above inflation
Tax paid investment on maturity
This investment is not suited to you if you seek one or more of the following:



Income returns.
Short term investment for the ear-marked funds
Short term liquidity.
Analysis
Before the popularity of Managed Funds emerged, most Australians used Whole of Life
policies to save and invest. The Outlook Group Pty Ltd buys these and converts them to 5
or 10 year Endowment policies. They are then marketed to investors under the brand
name of T Zero or T Zero Plus securities. Occasion investors maybe able to buy Traded
Endowment policies that have been sold on an earlier occasion, where the duration may
differ to 5/10 years. The policies have an asset value, which has been built up over many
years..
Key Features

Tax Exempt / Tax Advantaged Gains (30% Tax credits or exemption with no annual tax
reporting)

No Fees → 0% MER

7-10 day liquidity

Yields over Bond Rate - (typically 1.0 - 2.0%)

No Income – Growth only Bond – (Zero Coupon Bond)
Key Features (Con’t)

Significant underlying Capital Guarantees

ATO written opinion on tax outcome of investment

Investors may elect to pay for their T Zero/T Zero Plus Bonds using borrowings
(although no tax deduction is available for the interest used for such borrowings)

Investors may borrow back against the security of the T Zero /T Zero Plus bonds

A loan maybe requested by a policy owner against the value of the policy

A loan request can be either in writing, by email or by phone

Life companies typically lend 70% of the current Surrender value of the policy

The loans are non-recourse against the value of the policy

The Life company will issue a loan document in respect of such transaction

Interest will accrue and be payable at the current rate described in the loan contract

There is generally no credit assessment/fee/charges to grant the loan

Stamp duty could be payable on a loan depending upon the state in which you reside

Loans can be repaid at any time once granted

Repayments can methods include; Cheque, BPay, Electronic transfer and credit cards

Although Life companies permit repayment by credit card, there are no assurances that
such form of repayments could continue

There are also no assurances that repayment of loans by credit card (if permitted to
continue) will be free of charges

No withholding taxes

Hedge against capital loss in rising interest rate cycle

Low Investment Volatility, due to rising guarantees

Investors can top up Investment by choosing a T Zero Plus Bond.
Pricing and how the investment works

The Net Present Value (NPV) pricing model assumes when calculating the Forecast
Maturity Value (face value), that the underlying bonus rates published by the Bond
Issuer do not change between purchase and maturity. If they do change, then the
estimated face value could rise or fall based upon the underlying bonus rates that the
Issuer credits. The longer the duration, generally the lower the sensitivity to under or
over performance of the bond by virtue of a change in the forecast face value

Assets held in the Statutory No1 fund of the Issuer back the investments and the
underlying bonuses being credited. A reasonable measurement of the default risk is the
Standard & Poor’s rating of “Financial Strength Rating” of the issuer, which applies to
the product. This rating is currently AA and thus the chance of default is considered
very low.

The Bond Issuer must manage these statutory assets in accordance with the
Commonwealth Life Act 1995, which provides prudential and capital adequacy
disciplines upon the Issuer. The Life Act and the use of statutory reserves have proven
to be a robust model both in legislation and in operation. The investment can be
redeemed for cash on any working day for the Surrender Value of the underlying
traditional policy. This payout may take up to 2 weeks to complete. The payout will be
less than the forecast IRR of the bond as the Issuer discounts the true value of the
security for early encashment. Investors would normally expect to receive more than
the sum offered by the issuer if they sell their product back to the Secondary Market,
thereby reducing the encashment discount.

The actuaries of the Issuer undertake a process of smoothing the crediting of bonuses
to the underlying traditional policies. This process eliminates part of the bonus rate
volatility risk, but not all. Written ATO Advance Opinions have been obtained in relation
to the securities. These are not a Product or Private binding ruling, but provide a strong
measure of taxation certainty. The ATO’s administration of tax laws may change or the
government may change the taxation regime after the date of purchase. Historically a
conservative stance has been adopted with investments covered by the Life Act and
investors could reasonably expect a low level of legislative risk in these investments.

The underlying policies provide significant Capital Guaranteed components of the
investment. These are not fully available until maturity of the bond or earlier death of
the original insured owner.
Investing comes with risks, some common risks for investors are mentioned below:
Sophisticated Investor/Wholesale Investor.
We have not conducted a full data collection and analysis on your Risk Profile to
determine if this product is suitable for you. If you wish to undertake a broader analysis
of your financial affairs and have us tailor advice suited to your personal
circumstances & objectives you should let us know before proceeding with this
investment.
What is Sophisticated Investor?
Sophisticated Investors do not require a disclosure document to accompany an investment
offer.
Sophisticated investors, as defined by Corporations Law are:
 Individual entities in respect of whom a qualified accountant has given a certificate
in the last six months confirming that:
 the individual entity either has net assets of at least A$2.5 million, or
 Has a gross annual income (for each of the last 2 financial years), of at least
A$250,000.
OR

Individual entities who subscribe for and are allocated at least A$500,000 worth of
the securities being offered
OR

Individual entities who control for the purpose of investment in securities (that is,
shares, debentures, units in managed funds - not property), at least A$10,000,000.
OR

Individual entities who are licensed dealers subscribing for the securities as
principal.
If you meet any of the requirements above – you are a Sophisticated Investor although to
participate in offers to sophisticated investors you will need to provide evidence of this.
Investment risk Profile:
Backing up each style are rules that I use to gain returns and control risk so that your
investments behave within your expectations or tolerance. These rules that I apply to my
advice are built around the balance between lower risk investments and higher risk
investments. There remains a risk that the product recommended may not suit your overall
investment strategy.
Inflation Risk:
This is the risk that a general rise in prices will reduce the purchasing power of your
investment capital over time.
Currency Risk:
This is the risk that the actual returns of an investment will not match the underlying
returns of the relevant investment market due to currency fluctuations.
Market Risk:
Market risk refers to volatility, or the extent to which the market value of your investment
will fluctuate, moving down as well as up. Different types of investments experience
different levels of volatility. Investments that are expected to produce higher long term
returns generally experience greater volatility.
Volatility becomes a problem if you don’t have the timeframe to ride out the rough patches.
It is important to remember that markets go through regular ups and downs. While it is
tempting to sell out of an investment after its value has fallen, historically investors who
stick with their strategy generally go on to recover and prosper.
Legislative Risk:
When we map out a particular investment strategy we assume that the current laws and
regulations will not change. We invest people’s money to take advantage of current tax
laws and rulings at the time, but there is always a risk that these rules could change.
Disclosure of Interests
Fees & Brokerage
Investment
Amount Invested
$
Fee per annum
%
XXX Financial
Planning/TZero/TZero Plus
Total
$
$
0
0
$
Nil
Nil
Premium payments
By selecting the T Zero Plus option you are able to top up your investment with additional
savings of approximately 2% of the original purchase price per annum. This is a key
benefit of the T Zero Plus option over the regular T Zero option and is recommended for
the SMSF's portfolio (accumulation mode), to improve flexibility as well as Non Super
Investors who seek to maximise their returns. Details of estimated instalment
premiums/top ups is detailed below
Investment
Amount Invested
$
TZero Plus
Total
Top up per annum
%
$
2
$
Nil
$
XXX Financial Planning uses its own capital to purchase traditional life policies and
converts these to Traded Endowment Policies. The sale price of a policy is determined by
the discount rate used in a Net present value calculation of the policy cashflows. XXX
Financial Planning will make a manufacturers margin on each T Zer/ TZero Plu that it sells.
The margin per policy is not uniform but a unique calculation based upon the policies
historic actuarial values.
Investment
TZero/TZero Plus
Total GST inclusive
Amount
Invested
$
Initial Brokerage
%
$
$nil
Ongoing Brokerage
%pa
0
0
$pa
0