Macquarie Income Instalments

Features

Macquarie Income Instalments are a convenient way for your clients to benefit from potential increases in the price of a number of leading Australian shares.

By paying only a portion of the share price upfront and accessing a limited recourse loan from Macquarie, your clients can gain exposure to any capital gains, ordinary dividends (paid to your clients in cash⁺) and franking credits^ of a number of leading Australian shares.

Key benefits for clients

• Potential to boost gains and dividend yield, with only a portion of the share price required to be paid upfront.
• No ongoing cash payments* and optional repayment of the loan at maturity.
• Increased exposure to any ordinary dividends (paid to your clients in cash⁺) and franking credits^.
• Ability to borrow without the risk of daily margin calls.
• Potential to prepay interest.

Key benefits for advisers

• Available on Wrap platforms.
• Low administration.

At a glance

Shares available	Select from a range of ASX-listed shares
Payments	Initial payment made upfront No additional cash required from your client throughout the term* Ability to repay the loan at any time and receive the underlying share (no obligation to repay the loan at maturity)
Initial gearing level	Regular: 40% to 70% of the underlying share price Hot: 70% or above of the underlying share price
Investment term	Generally one to three years when issued
Minimum investment amount	Cash Application: $2,000 per Instalment Series Shareholder application: the minimum number specified by Macquarie from time to time for that Series No minimum if purchasing through the ASX
Ordinary dividends	Receive any ordinary dividends in cash+ and franking credits^ from the underlying share over the life of the Instalment
Ongoing interest payments	Added annually to your client’s loan (which occurs at the end of June each year)
Options at maturity	Repay the loan and receive the underlying share Roll over to a new series of Macquarie Instalments (if available) Sell the Instalments on the ASX Do nothing and receive an Assessed Value Payment (if any)
ASX Instalment Code	Six letter code (eg CBAJMJ) with the fourth and fifth letters usually JM
ASX traded	Able to be acquired on the ASX (subject to availability)
Adviser commission	Up to 1.65% (incl GST) of the Loan Amount (per Instalment)
Tax	Potential to prepay interest up to 12 months in advance

 

How do they work?

Upfront

• Choose from a range of ASX-listed shares.
• Choose the desired gearing level (40 - 70 per cent or more of the underlying share price).
• Pay a portion of the share price upfront (including fees and interest).
• Macquarie provides your client with a limited recourse loan.
• The ASX-listed share is then held in a trust for your client.

During the investment

• Your clients receive any ordinary dividends in cash⁺.
• Any special dividends are used to reduce the loan.
• Your clients will receive any franking credits attached to any ordinary or special dividends^.
• Interest is capitalised (added to your client’s loan amount on 30 June each year). This means your clients won’t be outlaying cash to service their loan*.
• Your client's investment may be cash-flow positive.
• Your client can repay the loan at any time and receive the underlying share.
• May be sold on the ASX.

At maturity your clients have four choices:

• repay the loan and receive the underlying share
• roll into another Instalment series (if available)
• do nothing and receive an Assessed Value Payment (if any), or
• sell their Instalments on market prior to the close of trading on the ASX on the maturity date.

How do Income Instalments differ from other Instalments?

There are many similarities between Income Instalments and other types of Instalments. Like other Instalments, your clients obtain geared exposure to the performance of an ASX-listed share by paying a portion of the share price upfront and accessing a limited recourse loan from Macquarie. As the loan is limited recourse, your clients have no obligation to repay the loan and will not be subject to daily margin calls over the life of the Instalment.

Where Income Instalments differ from other Instalments is in the treatment of cashflows. The combination of:

1. each annual interest amount being capitalised onto your clients’ loans on 30 June each year
2. any ordinary dividends being paid to your clients in cash

makes Income Instalments a potentially cashflow positive investment. This may be particularly attractive to those clients who do not want to make physical cash payments to service their loan during the term.

Strategies

Income Instalments can play an important role within your client’s investment portfolio. There is a variety of strategies you and your clients may consider, a few of which are listed below:

• use leverage to increase your clients’ exposure to a particular ASX-listed share
• diversify your clients’ portfolio by paying only a portion of the cost of a direct investment in those shares and keeping cash free for other investment opportunities
• unlock capital from existing share positions, without losing exposure to the shares or triggering Capital Gains Tax on the underlying share
• Dividend Yield Play; short term strategy used to increase your client’s short term income potential using Macquarie Income Instalments.

Investor centre

Product Disclosure Statement

Income Instalments Product Disclosure Statement

30 June closing prices

Income Instalments 30 June 2010 closing prices

Useful links

ASX Warrants Understanding Trading and Investments Warrants Handbook

Check your registry holding

Macquarie Funds Group request a document

Key risks

Before making any investment decision, it is important that you consider the risks of an investment in Macquarie Instalments, in particular, the risks of making a leveraged investment. More information about some of the significant risks of investing in Macquarie Instalments is set out in the Product Disclosure Statement. You should discuss the risks of investing in Instalments with your professional advisers.