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March 2011
Important information
Macquarie Group This information is current as at March 2011. This information has been prepared by Macquarie Bank Limited ABN 46 008 583 542, AFSL 237502 (Macquarie) as issuer of Macquarie Equity Lever (Equity Lever) and is current as at 31 March 2011. It is provided for the use of licensed financial advisers only. The information has been prepared for general information purposes only, without taking into account any potential investors personal objectives, financial situation or needs. Before acting on this general advice, an adviser must consider its appropriateness for a potential investor having regard to the potential investor's own financial objectives, financial situation and needs. Macquarie takes no responsibility for the use of, or amendments to, this information and makes no representation as to the legality, sufficiency, relevance or accuracy of this information in the context of any factual or financial product advice that financial advisers may give on Macquarie Equity Lever. If the adviser uses any of the information, it does so on its own behalf and is not authorised to do so on behalf of, or in any other representative capacity for any Macquarie Group entity. The adviser should consider and use this information having regard to its own legal obligations, including making the appropriate disclosures. An offer to acquire a new Equity Lever Facility and Instalment Receipts under that Facility is made in the Macquarie Equity Lever Combined Product Disclosure Statement and Financial Services Guide dated 1 February 2011 and the Short form PDS dated 1 February 2011 (collectively the 2011 PDSs). An offer to acquire Instalment Receipts under an Equity Lever Facility issued before 1 February 2011 is made in the M acquarie Equity Lever Combined Product Disclosure Statement and Financial Services Guide (FSG) dated 14 March 2008, and the Supplementary Product Disclosure Statement dated 14 May 2008 (collectively "the 2008 PDS"), as updated on the website macquarie.com.au/equitylever. In deciding whether to acquire or continue to hold an investment in an Instalment Receipt through an existing Equity Lever Facility, an investor should obtain a copy of the relevant PDSs together with any updates on the website macquarie.com.au/equitylever and consider their contents. All potential investors should also obtain financial, legal and taxation advice before making any decision about whether to acquire an Instalment Receipt. The 2011 PDSs and the 2008 PDS are available at 1 Martin Place, Sydney or by phoning 1800 080 033. The Instalment Receipts Deed dated 20 March 2008, as amended, also contains Equity Lever terms and conditions and a copy can be viewed at 1 Martin Place, Sydney NSW 2011. Macquarie or its associates, officers or employees may have interests in the financial products referred to in this information by acting in various roles including as investment banker, underwriter or dealer, holder of principal positions, broker, lender or adviser. Macquarie or its associates may receive fees, brokerage or commissions for acting in these capacities. In addition, Macquarie or its associates, officers or employees may buy or sell the financial products as principal or agent and as such may effect transactions which are not consistent with any recommendations in the information. Investments in Instalment Receipts are not deposits with or liabilities of Macquarie Bank Limited, or of any entity in the Macquarie Group, and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. Neither of Macquarie Bank Limited nor any other member of the Macquarie Group guarantees any particular rate of return or the performance of the Instalment Receipts, nor do they guarantee the repayment of capital from the Instalment Receipts. Macquarie does not give, nor does it purport to give any taxation advice. The taxation discussion in this document is based on current laws, anticipated legislation and Commonwealth announcements at the time of writing. Those laws and the level of taxation may change. The application of taxation law to each investor depends on that investors individual circumstances. Accordingly, investors should seek independent professiona l advice on taxation implications before making any investment decisions. You may contact Macquarie in 1800 080 033.
In this information a reference to Macquarie Group shall be a reference to Macquarie Group Limited and its related bodies corporate.
Macquarie Group
Agenda
SMSF industry overview and leverage
Source: ATO December 2010 SMSF Statistical Report and APRA Quarterly Superannuation Performance December 2010.
* Provided leverage is permitted according to the funds investment strategy and is in the best interests of its members.
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Provide an investment amount (min $20,000) to Macquarie of at least 50 per cent of purchase value of the Underlying Securities includes a portion of the First Instalment and any fees payable
Macquarie issues the SMSF with an Instalment Receipt for each Underlying Security selected. Security Trustee holds the Underlying Securities on Trust until the Total Completion Payments are received by Macquarie
The investment term is generally 10 years, during which the SMSF is entitled to all capital growth as well as rights and entitlements to ordinary dividends, Income distributions and franking credits on the Underlying Securities*
* Subject to investors eligibility and own circumstances. 7
* Break costs may be payable where a fixed interest rate had been in place on a receipt which is sold.
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Issuance Fee/Sale Brokerage the greater of 0.20 per cent of the Purchase /Sale Price of the Underlying Securities; and $50
Contribution Fee = nil Withdrawal Fee = nil* Termination Fee = nil* Management Costs = nil Service Fees = nil Straightforward application via the Product Disclosure Statement (PDS) means the costs and complexities of establishing a DIY instalment can be avoided.
Case study
John and Anna are both 50 years old and are trustees of their SMSF with a $200,000 cash balance
The SMSF is invested across a range of asset classes including fixed interest, however John and Anna wish to increase their equity exposure via a diversified portfolio of stocks The SMSFs investment strategy and fund deed provisions include the ability to invest in equities and employ leverage The SMSF invests $100,000 into a portfolio of Australian equities, committing $50,000 of cash and leveraging 50 per cent through Macquarie Equity Lever The investment through Macquarie Equity Lever over 10 years assumes: Six per cent compound share price and dividend growth 4%pa dividend yield 75 per cent franking Variable Interest Rate of 9.95%pa
Issuance fee/sale brokerage of 0.2 per cent and Adviser Investment/Sale Brokerage of 1.1 per cent
Capital Gains Tax (CGT) discount of 33.3 per cent SMSF tax rate of 15 per cent.
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$100,000 ($3,628) $105,446 $33,893 ($24,317) ($50,000) $79,085 ($6,972) $15,779 $215,394
Portfolio value
20 14 /1 5
20 15 /1 6
20 16 /1 7
20 17 /1 8
20 18 /1 9
20 19 /2 0
Cashflow
Consider a simple cashflow scenario:
Deductions for interest expense expected to be up to Reserve Bank of Australia (RBA) indicator variable rate for standard housing loans plus 100 basis points*, currently 8.80%pa, with balance of interest treated as paid for a notional put option.
*If the Tax Laws Amendment (2010 measures No. 5) Bill 2010 is enacted in its current form. This example is for illustrative purposes only, all assumptions or figures are hypothetical and are not actual or potential returns, estimates, projections or forecasts for investments in Macquarie Equity Lever. They have been prepared without taking account of any potential investors personal objectives, financial situation or needs. 15
Risk management
Leverage to Valuation Ratio (LVR) is calculated at the portfolio level, new instalments can be purchased provided the portfolio LVR remains below 50 per cent* Risk is managed daily via an Instalment Acceleration Event process activated when the 15 per cent buffer is exceeded (ie total facility LVR can reach 65 per cent*) If this event occurs your clients will be required to reduce their Current Facility LVR to five per cent below their Maximum Facility LVR (ie 60 per cent* in this case).
* Based on all underlying securities in the portfolio being approved for a 50 per cent LVR which is generally the case, but can vary.
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Risks
The risk that the Underlying Securities that your client selects will perform poorly over time and decrease the value of an investor's Instalment Receipt and/or result in an Instalment Acceleration Event The risk that leverage incorporated in the Instalment Receipts will magnify losses Risks associated with Instalment Acceleration Events The risk that because the Instalment Receipts are not listed your clients may not be able to buy or sell their instalment receipts when they want to The risk of Macquarie or the Security Trustee not performing their obligations under the Instalment Receipts The risk that the value of your clients' Instalment Receipts may not increase sufficiently to cover all interest and other amounts paid in respect of those Instalment Receipts The risk that the completion date of your clients' Instalment Receipts may be brought forward in a number of circumstances The risk of a change in tax or superannuation laws The risk of a rise in interest rates. Before making an investment decision, investors should read Section Four Risks of the PDS for more detailed information.
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Cost efficient
Transparent Flexibility to buy and sell ASX-listed securities within a leveraged structure via Instalment Receipts Suitable for a range of investors.
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