Macquarie Income Instalments

Features

Macquarie Income Instalments are a convenient way 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, you can gain exposure to any capital gains, ordinary dividends (paid to you in cash⁺) and franking credits^{^} of a number of leading Australian shares.

Benefits:

• Potentially boost your 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 you in cash⁺) and franking credits^{^}.
• Ability to borrow without the risk of daily margin calls.
• Potential to prepay interest.
• Low administration.

 

More information

Shares available	Select from a range of ASX-listed shares.
Payments	Initial payment made upfront. No additional cash required 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 loan (which occurs at the end of June each year).
Options at maturity	Repay the loan and receive the underlying shares. 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).
Tax	Potential to prepay interest up to 12 months in advance.

How do they work?

Upfront	During the investment	At maturity
Choose from a range of ASX-listed shares. Choose your desired gearing level (40 - 70% or more of the underlying share price). Pay a portion of the share price upfront (including fees and interest). Macquarie provides you with a limited recourse loan. The ASX-listed share is then held in a trust for you.	You receive any ordinary dividends in cash+. Any special dividends are used to reduce the loan. You will receive any franking credits attached to any ordinary or special dividends^. Interest is capitalised (added to your loan amount on 30 June each year). This means you won’t be outlaying cash to service their loan*. Your investment may be cash-flow positive. You can repay the loan at any time and receive the underlying share. May be sold on the ASX.	Your 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 your 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, you 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, you 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 cash-flows. The combination of:

1. each annual interest amount being capitalised onto your loan on 30 June each year; and
2. any ordinary dividends being paid to you in cash⁺,

makes Income Instalments a potentially cash-flow positive investment. This may be particularly attractive to investors 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 investment portfolio. There is a variety of strategies you may consider, a few of which are listed below:

• Use leverage to increase your exposure to a particular ASX-listed share.
• Diversify your 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 short term income potential using Macquarie Income Instalments.
  
  

Relevant documents

Product Disclosure Statement

• Income Instalments Product Disclosure Statement

June 30 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.