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MACQUARIE EQUITY LEVER

ADVISER PRESENTATION

Note: For advisers only. Not to be distributed to retail investors.

Important information

This information is current as at July 2012.

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 July 2012. It is provided for the use of licensed financial advisers only. In no circumstances is it to be used by a potential investor for the purpose of making a decision about a

financial product or class of products.

This 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.

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 Macquarie 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 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 2000.

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 investor‟s

individual circumstances. Accordingly, investors should seek independent professional 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.

Capitalised terms which are not otherwise defined shall have the meaning given to them in the 2011 PDS.

© Macquarie Group

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Agenda

The SMSF industry – an overview

Available types of leverage for SMSFs

About Equity Lever

Key benefits

How does Equity Lever work?

Current market opportunities – take advantage with Equity Lever

Franking credits – why they are valuable for SMSFs

Risk management

Class Super partnership – benefits for Equity Lever advisers

Fees and costs

Who might Equity Lever be suitable for?

Case studies

3


The SMSF industry - an overview

More than 442,000 SMSFs in Australia

$416 billion in assets - the largest superannuation industry segment

Average size of SMSF funds is approximately $900,000

Over 32,000 new SMSFs established in financial year to 30 June 2011

Cash and term deposits - over $115 billion of all assets (28 per cent).

Source: Australian Taxation Office (ATO) March 2012 SMSF Statistical Report. 4


Equities within SMSFs

Source: ATO March 2012 SMSF Statistical Report.

Cash and term deposits

27%

Listed Shares

34%

11%

Other

11% 14%

5

Listed shares represent one third of total assets in SMSFs ($132 billion)

Over $115 billion in SMSFs is invested in cash - opportunity to invest

into other assets

Potential benefits of leveraging into equities within a SMSF include:

– enhanced income and franking credits

– portfolio diversification

– liquidity

– capitalise on current opportunity within equities market.

Available types of leverage for SMSFs


Background to using leverage in the SMSF

Historically borrowing prohibited (albeit very limited number of exceptions)

Instalment warrant borrowing exception introduced in 2007

– allowed SMSF borrowing for investment purposes

– subject to certain criteria being satisfied

New legislation introduced in July 2010 – “Limited Recourse Borrowing Arrangements”

– applies to arrangements entered into on or after 7 July 2010

Allowance of grandfathering of existing arrangements if entered into prior to 7 July 2010, unless:

– „re-financed‟ or „sufficiently changed‟ on or after 7 July 2010

New rules, generally more restrictive

Note, there are investment options available which do not involve a borrowing as regulated under the

Superannuation Industry (Supervision) Act 1993 (SIS Act).

7

Note: Simple re-negotiation of existing loan (eg extending term) not likely to trigger „new rules‟. Conversely, re-financing, material changes to terms and conditions are likely to trigger

such an event.


SMSF limited recourse lending – general

8


Types of leveraged products for SMSFs

9

Feature Instalment warrants Self funding

instalments

Unlisted instalment

receipts

Limited recourse

No protection fee

Gearing unable to

exceed maximum

LVR

Flexible leverage

Access to dividends

and franking credits

Portfolio investment

Listed and tradeable

Choice of interest

rate options

No margin calls

Introducing Equity Lever


About Equity Lever

Equity Lever provides investors, including SMSFs1, with accelerated exposure to Australian and

international equity markets using Instalment Receipts as the source of leverage.

Investors have the opportunity to build a low-cost, diversified portfolio of blue-chip Australian

shares with access to dividends and franking credits and control over leverage.

11

Build a diversified portfolio of blue-chip Australian shares and access international markets

– over 75 ASX-listed shares

– pre-selected portfolios created by Macquarie Research Equities

– Exchange Traded Funds and Listed Investment Companies

One of the few solutions available for SMSFs that can enhance growth and income potential in a tax efficient way

Innovative offering to the Australian market.

1. Trustees of superannuation funds who propose to invest through a Macquarie Equity Lever Facility should be aware of their obligations to formulate and implement an appropriate

investment strategy that has regard to the whole of the circumstances of their fund and to act in the best interests of members of the fund.


Limited time 0.20% pa discount on the variable interest rate3

Key benefits

12

Build a diversified portfolio of Australian shares – at current discounted levels

Flexible leverage from zero to 50 per cent1 – re-enter the market, build exposure conservatively

Earn dividends and access franking credits2 and capital growth

Low cost with no ongoing fees4

Leverage to valuation ratio calculated at a portfolio level – greater control and better risk management

Interest is capitalised and may be tax deductible5

Establish a facility today and invest in the sharemarket when opportunities arise.

1. The maximum permitted leverage for each underlying security may be varied by Macquarie if reasonably necessary to protect Macquarie‟s rights.

2. Subject to the investor‟s eligibility to claim franking credits and the investor‟s own circumstances.

3. All new Facilities established from 23 July to 30 September 2012 will receive a 20 basis point reduction off the headline variable interest rate for one year to 30 September 2013. The variable interest rate is advertised on the Equity Lever website.

4. Except when investors buy, sell or transfer an Instalment Receipt or a direct debit is dishonoured.

5. The capital protected borrowing rules apply to the product. Consequently, interest may be deductible up to the Reserve Bank of Australia benchmark rate, being the indicator lending rate for standard variable housing loans plus 100 basis points

(currently 7.85% pa) for June 2012.

Offset tax payable or receive a tax refund2

No SMSF audit report required to apply – low administration burden



13

SMSF investor

Cash holdings

Equity Lever Instalment Receipts

established for $40k

- Selected ASX-listed securities

- Listed Investment Companies

- Exchange Traded Funds

SMSF contribution

$20k

Macquarie contribution

up to $20k

Dividends can be passed

back to the SMSF or directed

to reduce the Outstanding

Instalment Balances1

Interest is capitalised monthly with

interest deductibility benefits for

the SMSF

Franking credits are passed

back to the SMSF

SMSF investor can

choose to pay down the

Outstanding Instalment Balance

of the Instalment Receipts, or

close out holdings at any time

1. Dividends are used to reduce the Outstanding Instalment Balances unless the aggregate of the Outstanding Instalment Balances on all the investor‟s Instalment Receipts is less than

40 per cent of the value of the underlying securities. In this case, the investor can choose to use this income as a source of cash for further investing.



Equity Lever Instalment Receipts - allows investor to purchase underlying securities in two instalments:

– First Instalment: initial investor contribution

– Final Instalment: remaining investor contribution

At the time of purchase, investors are issued with one Instalment Receipt for each underlying security

– under each Instalment Receipt, investors pay the First Instalment (a percentage of the purchase price of the

underlying security) out of their own funds

Underlying securities are held on investor‟s behalf by a Security Trustee

– until the Outstanding Instalment Balance (Final Instalment + Capitalised Interest - dividends applied against

this balance) is paid off

Investment is limited recourse

No embedded put option or protection fees – typically, lower interest costs and no break costs (except for fixed rate

break costs).

Investor has control to select:

– the underlying securities

– The First Instalment (minimum $20,000)

– the desired level of leverage (up to a current maximum of 50 per cent)

– the type of Interest Rate – fixed or variable.

Equity Lever gives investors control to make all the key choices

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Initial investment


Throughout the term:

– interest accrues on the Outstanding Instalment Balance

– this interest is capitalised and may be tax deductible1

– dividends are earned and investors may be eligible to receive franking credits2

– excess franking credits may be used to offset other SMSF tax liabilities or refunded to the SMSF3

– Instalment Acceleration Events may occur

At any time, investors can adjust the level of leverage, or re-balance their portfolio by buying and selling

Instalment Receipts.

Throughout the term

15


1. The capital protected borrowing rules apply to the product. Consequently, interest may be deductible up to the Reserve Bank of Australia benchmark rate, being the indicator lending rate

for standard variable housing loans plus 100 basis points (currently 7.85% pa) for June 2012.

2. Subject to the investor‟s eligibility to claim franking credits and the investor‟s own circumstances.

3. Dividends are used to reduce the Outstanding Instalment Balance, unless the balance is less than 40 per cent of the value of the underlying securities, In this case, investors can choose

to use this income as a source of cash for further investing.


Investors can exit their investment at any time

Investors have the choice to:

– make an Early Instalment Payment – investors take ownership of the shares in their name

– request Early Closure – investors receive the residual proceeds (less brokerage) in cash

There are no break costs (except for fixed rate loans).

Early exit

16



Current market opportunities –

take advantage with Equity Lever

Generate income through dividend yields with Equity Lever

17

Ticker Company name

Dividend

yield* Franking*

NAB National Australia Bank Limited 7.93% 100%

WBC Westpac Banking Corporation 7.42% 100%

TLS Telstra Corporation Limited 7.22% 100%

ANZ Australian and New Zealand Banking Group Limited 6.38% 100%

CBA Commonwealth Bank of Australia 6.01% 100%

WES Wesfarmers Limited 5.41% 100%

WOW Woolworths Limited 4.87% 100%

BHP BHP Billiton Limited 3.77% 100%

WPL Woodside Petroleum Limited 3.18% 100%

RIO Rio Tinto Limited 2.77% 100%

* based on twelve month Macquarie Research Equities forecasts as at 17 July 2012

Current attractive dividend yields for top ASX-listed companies with 100 per cent franking.


Franking credits –

why they are valuable to SMSFs

Post-tax return of the investment increases when franked dividends are paid

– < tax payable: use to offset tax

– > tax payable: refund to investor

Equity Lever provides SMSFs with the opportunity to earn dividends, therefore benefit from franking credits1

SMSFs‟ long term investment timeframes represent a significant opportunity to earn franking credits

Franking credits may be especially valuable to SMSFs in pension phase due to favourable tax treatment.

Franking credits represent a credit for tax paid of up to 30 per cent on company profits before

distributing dividends

1. Subject to investor‟s eligibility to claim franking credits and the investor‟s own circumstances. 18


Risk management

Conservative levels of leverage only – zero to 50 per cent1

– market must fall considerably to trigger an Instalment Acceleration Event

Leverage to valuation ratio calculated at portfolio level – greater control and better risk management

– well-performing stocks offset poor performing stocks

– reduces chance of Instalment Acceleration Event

Daily management of portfolio leverage

– 15 per cent buffer – protects against small market fluctuations

– Instalment Acceleration Event activated when buffer exceeded (ie leverage up to 65 per cent3)

– If this event occurs investors will be required to reduce their Current Facility LVR by five per cent by providing

more cash or closing out some Instalment Receipts.

1. The maximum permitted leverage for each underlying security may be varied by Macquarie if reasonably necessary to protect Macquarie‟s rights.

2. Assumes the Facility LVR is 50 per cent and the Buffer is 15 per cent.

3. Based on all underlying securities in the portfolio being approved for a 50 per cent LVR which is currently the case, but can vary. 19

Conservative leverage + strong risk management framework

Market Value of Underlying

Portfolio Total Completion Payments Current Facility LVR

Necessary fall in Market

Value of Underlying

Portfolio2

$100,000 $50,000 50% 23%

$100,000 $45,000 45% 31%

$100,000 $40,000 40% 38%

$100,000 $35,000 35% 46%


Equity Lever now available on

Class Super

Class Super is a comprehensive online SMSF administration solution for

advisers, accountants, administrators, auditors, trustees and tax agents

Allows users to cater for all administration and reporting needs of their

SMSF clients

Gain consolidated access to:

– reporting and tax lodgement

– administration and accounting

– compliance and audit

Integrate your clients‟ Equity Lever positions with their other SMSF holdings,

including:

– Automated Stock Holdings

– Automated Cash Management Trust Holdings

Daily electronic data feeds of Equity Lever investor data are now available through Class Super

20

To find out more about Class Super and how you can benefit, contact your Macquarie Specialist Investments

Distribution Manager.

Please note: Subject to investor‟s authority being received, authorising their Equity Lever data to be provided.


Fees and costs

Discounted variable, monthly in arrears Interest Rate – currently 8.90 % pa

Issuance Fee – the greater of 0.20 per cent of the Purchase/Sale Price of the Underlying Securities, and $50

Adviser Investment/Closure Brokerage – paid to the adviser as commission

Contribution Fee = nil

Withdrawal Fee = nil2

Termination Fee = nil2

Management Costs = nil

Service Fees = nil

Trust vetting fee = nil

Straightforward application via the Product Disclosure Statement (PDS)

– costs and complexities of establishing a DIY instalment can be avoided.

21

1. All new Facilities established from 23 July 2012 to 30 September 2012 will receive a 20 basis point reduction off the headline variable interest rate for one year to 30 September 2013.

The variable interest rate is advertised on the Equity Lever website.

2. Break costs may apply on fixed rate Instalment Receipts.

Limited time 0.20% pa discount on the variable interest rate1


May be suitable for…

are currently overweight in cash and concerned that their portfolio has low exposure to potential sharemarket returns

are looking to re-enter the market and have control to build a diversified share portfolio with flexible levels of leverage

are seeking enhanced exposure to the benefits of potential capital growth, dividends and franking credits

wish to establish a facility to invest in the sharemarket when opportunities arise.

Equity Lever may be an ideal investment for a wide range of investors, including SMSFs, who:

22


Risks

of leverage magnifying losses

that the underlying securities selected will perform poorly over time, decreasing the value of the instalment receipts

and possibly requiring the sale of the underlying securities, or an early repayment of the amounts owing

of a rise in interest rates

that the value of the underlying securities may not increase sufficiently to cover all interest and other amounts paid

of Macquarie or the Security Trustee not performing their obligations under the Instalment Receipts

that the completion date of the Equity Lever Instalment Receipts may be brought forward in a number of

circumstances

that investors may not be able to specify the time and price they wish to buy or sell their underlying securities

of a change in tax or superannuation laws.

Before making an investment decision, investors should read Section 4, 'Risks', of the PDS for more detailed information.

The risk:

23

Case studies

Case study – leveraged versus

unleveraged investment

25


This sample case study is provided for the use of licensed financial advisers only and may not be reproduced or distributed to any other persons. It shows two of many possible

investment strategies available to an investor and is provided for illustrative purposes only without taking into account any potential investors‟ personal objectives, financial situation

or needs. Financial advisers should form their own views about the case study and the applicability of the information (if any) to their clients‟ objectives, financial situation and needs

The case study and the assumptions or figures contained in it are purely hypothetical. They do not represent actual or potential returns, estimates, projections or forecasts for an

investment in Instalment Receipts through Equity Lever. The assumptions made may have a material effect on returns. The actual performance of an investment in Instalment

Receipts through Equity Lever will depend on the Underlying Securities selected, future economic conditions, future taxation laws and the individual circumstances of that investor.

Whilst Macquarie has taken reasonable care in producing this information, subsequent changes in circumstances may occur at any time and may impact on the accuracy of the

assumptions made. Some of the assumptions may be based on information obtained from third parties which may not have been checked or verified. Neither Macquarie nor any

other Macquarie Group company, or any of their officers, employees or gives any representation or warranty as to the accuracy or completeness of this information nor does any of

them accept any liability for loss or damage arising in anyway from the use of these case studies.

Please note that the two options are not comparing similar products with similar benefits and risks. Instead, the two options below have different benefits and different risk profiles,

which financial advisers should be aware of and take into account when advising their clients.

Important note

Case study:

Leveraged versus unleveraged investment

26


Case study:


John and Anna are both 50 years old and are trustees of their SMSF with a $400,000 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 SMSF‟s investment strategy and fund‟s deed provisions include the ability to invest in equities and employ leverage

The SMSF invests around $250,000 into a portfolio of Australian equities, committing around $150,000 of cash and leveraging 40 per cent through Equity Lever

The investment through Equity Lever over 10 years assumes:

– 6% pa compound share price and dividend growth

– 4% pa dividend yield

– 75% pa franking

– variable Interest Rate of 9.95% pa

– Issuance Fee/Sale Brokerage of 0.2 per cent

– Capital Gains Tax (CGT) discount of 33.3 per cent

– SMSF tax rate of 15 per cent

– all interest is capitalised to the Outstanding Instalment Balance, all dividends are applied to reduce the Outstanding Instalment Balance, and no Instalment Acceleration Events occur over the term.

John and Anna

27


Case study:


Leveraged Unleveraged

Underlying Security value purchased $249,969 $150,000

- brokerage/fees ($1,395) ($837)

+ dividends $131,792 $79,085

+ franking credits 42,362 $25,420

- interest ($89,679) $0

- final instalment ($99,969) $0

+ capital growth in portfolio $197,687 $118,627

- CGT liability ($18,111) ($11,779)

+ net tax refundable (payable), net of

franking credits

$27,413 $9,744

Final value of investment, net of

cashflows, tax and CGT liability

$397,707 $344,840

How does Equity Lever compare?

28


Case study:


29

Comparison of leveraged vs unleveraged portfolio value

*Value includes capital growth, net of outstanding balance.

Unleveraged portfolio value

Leveraged portfolio value*

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

Investment time horizon

Port

folio

valu

e

Case study – generating returns through

dividends in a flat market

30


This sample case study is provided for the use of licensed financial advisers only and may not be reproduced or distributed to any other persons. It has been prepared for general

information purposes only, without taking into account any potential investors‟ personal objectives, financial situation or needs.


investment in Instalment Receipts through Equity Lever. The actual performance of an investment in Instalment Receipts through Equity Lever will depend on the Underlying

Securities selected, future economic conditions, future taxation laws and the individual circumstances of that investor.

Whilst this sample case study shows the results for an investment in certain securities it is not intended to be an endorsement or recommendation of those securities or a particular

investment strategy. Investors are responsible for determining their own investment strategy including the appropriate level of diversification for their investments.





In the case study example, negative capital growth of 7.83% pa or worse would result in a better return for an investor under the Term Deposit investment than in the Instalment

Receipt investment.

Case study:

Generating returns through dividends

in a flat market

Important note

31


Case study:

Generating returns through dividends in

a flat market

Tan is 54 years old and is the sole corporate trustee for her single-member SMSF

Tan‟s SMSF has $1 million in assets and is currently invested with a 50 per cent allocation in cash, earning 4.50% pa

Tan is concerned that cash rates may be lowered, and therefore wishes to invest in selected Australian equities offering

a higher dividend yield than cash

Tan is prepared to hold a high dividend portfolio for a term of seven years, and is prepared to invest on the assumption

that the underlying share portfolio achieves zero capital growth

Tan decides to switch $250,000 of the cash holdings to gain exposure to high yielding Australian equities with a

Leverage to Valuation Ration (LVR) of 40 per cent

The assessable income for Tan‟s SMSF is 15 per cent.

Situation

32


Case study:


in a flat market

Total Investment Amount of $250,000

– Total First Instalment amount of $246,914

– Adviser Investment Brokerage of $2,083

– Issuance Fees of $833

Investment of equal weights in NAB, WBC, MTS, TLS at closing prices on 25 July 2012

Equity Lever Interest Rate is 8.90% pa (assumed constant over term)1

Interest deductibility of 7.85% pa (assumed constant over term)2

Capital growth in share portfolio of zero over the term

At the end of term, Tan makes the Completion Payments and takes legal ownership of the Underlying Securities.

Additional assumptions

1. All interest is capitalised, all dividends are applied to reduce the total Outstanding Instalment Balance for all Instalment Receipts, and no

Instalment Acceleration Events occur over the term.

2. The capital protected borrowing rules apply to the product. Consequently, interest may be deductible up to the Reserve Bank of Australia

benchmark rate, being the indicator lending rate for standard variable housing loans plus 100 basis points (currently 7.85% pa) for June

2012. 33

Stock NAB WBC MTS TLS

Weighting 25% 25% 25% 25%

Closing Price 23.82 22.45 3.20 3.89


Case study:


in a flat market

The move from cash into equities has further diversified Tan‟s SMSF investment portfolio.

Portfolio diversification

34

$ 500 k$ 500 k

$ 250 k

$ 500 k

$ 412 k

With Equity Lever

Without Equity Lever

0m

0.2m

0.4m

0.6m

0.8m

1.0m

1.2m

1.4m

Tan's investment portfolio - inception

Equities

Cash

Property


Case study:


in a flat market

1. Dividend assumptions to 30 June 2018 are based on Macquarie Research Equities forecasts as at 25 July 2012 and are assumed flat thereafter.

They may not reflect the actual dividends paid.

Equity Lever share portfolio – dividend and franking credit assumptions1

Financial Year ending: 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Jun-17 30-Jun-18 30-Jun-19

National Australia Bank Limited

NAB Dividends $1.88 $1.96 $2.04 $2.12 $2.20 $2.24 $2.24

Franking Level 100% 100% 100% 100% 100% 100% 100%

Westpac Banking Corporation

WBC Dividends $1.67 $1.69 $1.73 $1.77 $1.81 $1.83 $1.83

Franking Level 100% 100% 100% 100% 100% 100% 100%

Metcash Limited

MTS Dividends $0.28 $0.27 $0.28 $0.28 $0.28 $0.28 $0.28

Franking Level 100% 100% 100% 100% 100% 100% 100%

Telstra Corporation Limited

TLS Dividends $0.28 $0.31 $0.35 $0.36 $0.36 $0.36 $0.36

Franking Level 100% 100% 100% 100% 100% 100% 100%

35


Case study:


in a flat market

Cashflow

36 1. This is the total annual interest amount an investor is required to pay out of their own funds.

30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Jun-17 30-Jun-18 30-Jun-19

Pre-tax Cashflow ($)

Distributions Received 32,179 33,088 34,996 35,789 36,318 36,583 36,583

Interest Paid1 (13,795) (12,049) (10,011) (7,681) (5,028) (2,115) (50)

Pre-Tax Benefit / (Cost) 18,384 21,039 24,985 28,109 31,290 34,467 36,533

Tax Calculation ($)

Distribution Received 32,179 33,088 34,996 35,789 36,318 36,583 36,583

Franking Credits 13,791 14,181 14,998 15,338 15,565 15,678 15,678

Deductible Interest (12,106) (10,574) (8,785) (6,739) (4,411) (1,854) (44)

Taxable Gain / (Loss) 33,863 36,695 41,209 44,389 47,472 50,407 52,217

Tax Refund / (Payment) @ 15% (5,079) (5,504) (6,181) (6,658) (7,121) (7,561) (7,833)

Franking Credits 13,791 14,181 14,998 15,338 15,565 15,678 15,678

Net Tax Refund / (Payment) $8,711 $8,676 $8,817 8,680 8,444 8,117 7,846

Post-tax Cashflow ($)

Pre-Tax Benefit / (Cost) 18,384 21,039 24,985 28,109 31,290 34,467 36,533

plus: Net Tax Refund / (Payment) 8,711 8,676 8,817 8,680 8,444 8,117 7,846

After-Tax Benefit / (Cost) 27,095 29,715 33,802 36,789 39,734 42,585 44,379


Total Outstanding Instalment Balance for all Instalment Receipts

37

$164,589 $146,206 $125,167 $100,182 $72,074 $40,784 $6,316 -

Case study:


in a flat market

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Jun-17 30-Jun-18 30-Jun-19


Case study:


in a flat market

Investment is cashflow positive within the first year

– Tan pays off her Outstanding Instalment Balance for all of her Instalment Receipts with excess dividends

throughout the term

– Reduces the total balance to zero in the final year

– Excess franking credits can be used to offset tax payable, including super contributions tax, or to generate a

tax refund

Over the entire term, total dividends received exceed interest expense by $194,806

– Total dividends received: $245,535

– Total interest expense: $50,729

Tan is $171,973 better off in comparison to leaving her assets in a cash deposit

– Cumulative net after-tax holding benefit from Equity Lever investment: $254,098

– based on zero capital growth from Tan‟s portfolio

– Cumulative after-tax holding benefit from cash deposit: $75,127

– based on $250,000 earning 4.50% pa over seven years.

Cashflow summary

38

Optimising super contributions and

dollar cost averaging


This sample case study is provided for the use of licensed financial advisers only and may not be reproduced or distributed to any other persons. It has been prepared for general

information purposes only, without taking into account any potential investors‟ personal objectives, financial situation or needs.


investment in Instalment Receipts through Equity Lever. The actual performance of an investment in Instalment Receipts through Equity Lever will depend on the Underlying

Securities selected, future economic conditions, future taxation laws and the individual circumstances of that investor.

Whilst this sample case study shows the results for an investment in certain securities it is not intended to be an endorsement or recommendation of those securities or a particular

investment strategy. Investors are responsible for determining their own investment strategy including the appropriate level of diversification for their investments.





In the case study example, negative capital growth of 25.14% pa or worse would result in a greater loss in the leveraged investment than under the direct unleveraged investment.

Case study:



Important note

40


Case study:



Frank is 55 years old, is self employed and is the sole trustee for his $250,000 single-member SMSF

With his current SMSF balance and recent reductions to concessional super contributions from $50,000 to $25,000

per year, Frank is concerned that he may struggle to accumulate sufficient funds for his retirement. Frank also has

$150,000 outside his SMSF

Additionally, Frank has the majority of his super invested in low-risk assets, and wants to increase diversification by

investing into equities

Although Frank wishes to increase his equity exposure, his adviser is concerned that equity markets may still

experience some level of volatility

Frank‟s adviser recommends that Frank establish a Macquarie Equity Lever Facility and regularly invest his super

contributions throughout the year. By doing this, Frank can:

– increase the size of his SMSF portfolio through leverage

– increase portfolio diversification

– reduce the impact of volatile prices by averaging the price he pays for equities over time

– improve the tax effectiveness of his income

Frank‟s adviser wants to compare the investment‟s performance via Frank‟s SMSF to the performance of a direct

investment, equal to the concessional super contribution, had Frank decided to invest in his individual capacity.

Situation

41


Case study:



Frank contributes $25,000 of concessional super contributions each year for five years into his Equity Lever Facility:

– this equates to $21,250 per year, after taking into account the 15 per cent super contributions tax

– includes Equity Lever adviser brokerage of $230 and an Issuance Fee of $84 for each yearly contribution

50 per cent leverage and investment in the Income Plus (6 Stock) Portfolio on Closing Prices as at 25 July 2012

Variable Equity Lever Interest Rate of 8.90% pa (assumed constant over term)1

Interest deductibility of 7.85% pa (assumed constant over term)2

Capital growth of +4% pa in a positive growth scenario, and -4% pa in a negative growth scenario

Frank makes a Completion Payment and takes legal ownership and immediately sells the Underlying Securities after five years, when he is

in retirement phase

Frank‟s employment and investment income is taxed at his marginal tax rate of 38.5 per cent, while income generated by Frank‟s SMSF is

taxed at 15 per cent

Dividends are based on Macquarie Research Equities forecasts as at 25 July 2012.

Assumptions

Stock WBC CBA ANZ TAH WDC TCL

Allocation 25% 20% 15% 15% 15% 10%

1. All interest is capitalised, all dividends are applied to reduce the total Outstanding Instalment Balance for all Instalment Receipts, and no Instalment Acceleration Events occur

over the term.

2. The capital protected borrowing rules apply to the product. Consequently, interest may be deductible up to the Reserve Bank of Australia benchmark rate, being the indicator

lending rate for standard variable housing loans plus 100 basis points (currently 7.85% pa) for June 2012. 42


Equity Lever Contributions

Contribution

1

Contribution

2

Contribution

3

Contribution

4

Contribution

5

Yearly Contributions ($) 1-Jul-12 1-Jul-13 1-Jul-14 1-Jul-15 1-Jul-16 1-Jul-17

First Instalments 20,936 20,936 20,936 20,936 20,936 -

Published Instalment Receipt LVR 50% 50% 50% 50% 50% -

Purchase Price 41,807 41,791 41,836 41,790 41,810 -

Additional Final Instalments 20,871 20,855 20,899 20,854 20,874 -

Equity Lever Portfolio

Total Outstanding Instalment Balances ($) FY 12-13 FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18

Opening Outstanding Instalment Balances - 19,987 39,134 57,104 73,522 88,248

Additional Final Instalments (on 1 July) 20,871 20,855 20,899 20,854 20,874 -

New Outstanding Instalment Balances (on 1 July) 20,871 40,842 60,033 77,958 94,395 88,248

less Distributions Received 2,696 5,255 8,125 11,175 14,251 -

plus Interest Paid 1,812 3,548 5,196 6,739 8,103 22

Ending Outstanding Instalment Balances (at 30 June) 19,987 39,134 57,104 73,522 88,248 88,269

Tax ($)

Franking Credits 939 1,789 2,743 3,722 4,674 -

Net Tax Refund 633 1,199 1,796 2,375 2,902 3

Case study:



By the numbers

43


Net

equity

43,480

88,682

135,738

184,629

235,522

19,987

39,134

57,104

73,522 88,269

-

50,000

100,000

150,000

200,000

250,000

30 - Jun - 13 30 - Jun - 14 30 - Jun - 15 30 - Jun - 16 30 - Jun - 17

Total Market Security Value Outstanding Instalment Balances

Assuming a 4% pa growth rate, the investor‟s net equity increases at an increasing rate over time.

Case study:



Underlying Portfolio Value versus Outstanding Instalment Balances

44


Investment amount (over five years) ($) Equity Lever Direct Investment

Gross Income available for investment 125,000 125,000

Super Contributions Tax/Income Tax (18,750) (37,500)

Total cash available for investment 106,250 76,875

Total amount available for investment in portfolio (net of fees) 209,034 76,875

Performance (over five years) Equity Lever Direct Investment

Growth rate -4.00% pa +4.00% pa -4.00% pa +4.00% pa

Value of Underlying Portfolio 185,257 235,522 67,757 86,141

Adviser Closure Brokerage on disposal (371) (471) (136) (172)

Outstanding Instalment Balances to be paid (82,947) (88,269) - -

Capital Gains Tax on sale of securities 2,879 (2,134) 1,388 (1,364)

Surplus dividends - - 12,959 11,624

Net tax refundable (payable) 9,468 8,908 (3,054) (2,735)

Value of portfolio equity at maturity net of holding costs 114,286 153,556 78,915 93,494

Performance Comparison +35,371 +60,062

Case study:



As a result of the 15 per cent concessional tax rate, over five years Frank has been able to invest $106,250 into the Equity Lever portfolio

through super contributions, compared to $76,875 had he chosen to invest directly in the portfolio

Frank is able to optimise wealth accumulation by taking advantage of leverage and franking credits in a tax efficient manner – this holds true

even when there is -4% pa growth in the portfolio.

Comparison

45


Case study:



Over the five year term, Frank‟s Equity Lever Facility is net cash flow positive

– dividends of $41,503 are used to reduce the Outstanding Instalment Balances

– interest of $25,419 is capitalised onto the Outstanding Instalment Balances

– Frank generates tax credits of $13,867, which can be used to offset other tax payable within his super fund

or received as a tax refund

Frank has benefited from:

– the possibility of a positive after-tax investment return, even if there is a moderate fall in the value of this

portfolio over the term

– optimising his SMSF contributions through leverage, despite the cap placed on concessional super

contributions

– improved tax efficiency of his SMSF by taking advantage of the 15 per cent concessional tax rate

– reducing the impact of volatile prices by averaging the price he pays for the equities over time

– franked dividends providing a positive after-tax cash flow within Equity Lever

– increased portfolio diversification

– having to repay the Outstanding Instalment Balances only once he has reached retirement age.

Potential benefits

46


How we can help you

Local and dedicated Distribution Managers to support your business

Visit macquarie.com.au/equityleveradviser, where you will find:

– wide range of marketing collateral

– adviser calculator

– approved list of ASX-listed securities and pre-selected portfolios

Access to GearUp – a secure online portal that allows you and your clients to monitor their investment at any time

Adviser and client seminars

Client Service Team:

– Ph: 1800 080 033

– E: [email protected]

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Documents

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