CitiFirst Instalment MINIs
=>
The New Generation in Instalments
INVESTMENT PRODUCT: NOT A DEPOSIT | NOT INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
Citigroup Global Markets Australia Pty Limited ABN 64 003 114 832 and AFSL 240992
CitiFirst Instalment MINIs are the latest generation of Instalments,
designed for Individuals and Self Managed Super Funds seeking
leveraged exposure to Australia’s leading companies and Exchange
Traded Funds.
Investors gain the benefits of share ownership, including dividends and
franking credits, for a small portion of the cost of purchasing the shares
outright.
CitiFirst Instalment MINIs are listed and traded on the Australian Stock
Exchange. There are no margin calls, no credit checks, no loan
documents and importantly investors are unable to lose more than their
original investment amount.
2
CitiFirst Instalment MINIs
Contents
Features
Case Studies
How to Purchase?
Introducing CitiFirst Instalment MINIs
4
CitiFirst Instalment MINIs - background
Heightened Levels of Volatility impact pricing of traditional Instalments
New Instalment MINI structure decreases the impact of volatility in pricing (as volatility is no longer an input).
This makes Instalment MINIs more cost effective than traditional Instalment / SFI structures.
Introducing CitiFirst Instalment MINIs
“I want a product with
transparent pricing”
6
CitiFirst Instalment MINIs – Structure
Instalment MINI Price
-confers benefits of share
ownership including dividends,
franking credits and capital
appreciation. Equals the
investors equity.
Buy Shares in Two Payments
Loan Amount – optional
payment at maturity. Investors
are not obliged to pay this
amount - unless you want to
own the shares.
CitiFirst Instalment MINIs – Structure
Share Price
$10.00
First
Instalment
$4.00
Final
Instalment
$6.00
Value of Instalment MINI
Share Price – Final Instalment
Stop Loss Trigger $6.60
Stop Loss Feature ensures
investment is non-recourse
Citi funds the loan amount.
Interest capitalised to loan daily.
For illustrative purposes only
8
Instalment MINI – Tracks Underlying
Instalment
MINI Value
$4.00
Loan
Amount
$6.00
Instalment
MINI Value
$6.00
Loan
Amount
$6.00
Instalment
MINI Value
$3.00
Loan
Amount
$6.00
Instalment
MINI value
tracks the
underlying
share price
one for one.
Share Price
$10.00
$12.00
$9.00
Introducing CitiFirst Instalment MINIs
“I want enhanced dividend yield
and franking credits”
Dividends
10
Potential yield on Instalment MINI may be significantly higher than direct
investment (due to leverage), hence enhanced dividend yield
Excess franking credits assist earnings contribution shelter for SMSF
Holders Receive Dividends and Franking Credits
Dividends and Franking Credits
Past performance is not indicative of future performance.
For illustrative purposes only
For illustrative purposes only
Source: Citi
Source: Citi
0% 3% 6% 9% 12% 15% 18% 21% T L S G r o s s D iv id e n d Y ie ld p .aTLS Shares TLS Instalment MINI
Gross Dividend Yield
Introducing CitiFirst Instalment MINIs
“I want to manage my exposure”
12
Set approximately 10% above the Loan Amount
Stop Loss reset every month to original distance from Loan Amount
Stop loss and strike announced to the market daily via ASX announcement board
and available on Citi website:
www.citifirst.com.au
or via registering to our
Instalment MINI distribution email
If Stop Loss is reached, trading in Instalment MINI is halted & Citi sells stock sitting
in trust account and determines a remaining value
The remaining value is placed on the ‘bid’ at 2:00pm the following trading day to
effect the close out of any trades
If the position is not closed out, any remaining funds are reimbursed to the client off
market T+10
Managing your exposure
Instalment MINI– Stop Loss Feature
Share Price
$10.00
IM Price
$4.00
Loan
Amount
$6.00
Value of Instalment MINI
Share Price – Final Instalment
Stop Loss level $6.60
14
Instalment MINI – Tracks Underlying
Instalment
MINI Value
$4.00
Loan
Amount
$6.00
Instalment
MINI Value
$6.00
Loan
Amount
$6.00
Instalment
MINI Value
$3.00
Loan
Amount
$6.00
Citi covers the
gap risk beyond
the Loan Amount.
Share Price
$10.00
$12.00
$9.00
For illustrative purposes only. Past performance is not indicative of future performance.
Loan
Amount
$6.00
Introducing CitiFirst Instalment MINIs
“I want to keep my funding costs
to a minimum”
16
Funding Costs added to the Final Instalment
Funding is the cost associated with borrowing the Final Instalment from Citi and
holding the stock overnight.
Funding is calculated and added to the Final Instalment daily.
Interest Rate = 7.95% p.a.*
*Current as at April 2013. Funding costs are subject to change
Instalment MINI Funding – How does it work
IM Value
$4.00
Final
Instalment
$6.00
Day 0
Day 1
Day 2
Day 3
Day 4
18
Case Study 1: “Cash Extraction”
An investor is overweight BHP
They’d like to free up cash whilst retaining exposure to the company
The investor does not want to sell his shares & realise any potential capital gain
By converting the 5,000 BHP shares into 5,000 BHPJOC Instalment MINIs, the
investor is able to extract $84,735 without realizing a tax event
Convert your existing shares into CitiFirst Instalment MINIs
For illustrative purposes only. Past performance is not indicative of future performance.
Security
Shares
Purchase
Price
Current Price
Unrealised
Gain
BHP
5,000
$20
33.50
67.5%
Security
Shares
Purchase
Price
Current Price
Unrealised
Gain
Case Study 1: “Cash Extraction”
Convert your existing shares into CitiFirst Instalment MINIs
BHP
$33.50
Shareholder
Application
Loan
Amount
$16.95
Investor
Investor
Issuer
BHP shares held in trust
20
Case Study 1: “Cash Extraction”
Convert your existing shares into CitiFirst Instalment MINIs
For illustrative purposes only. Past performance is not indicative of future performance.
Currently: 5,000 BHP shares are worth $167,500^
Option 1 – Sell half of holding and use proceeds to diversify
Security No. of Units sold Sale price Proceeds After tax cash amount available for investment
BHP
2,500
33.50
$83,750
$58,184*
Option 1 – Sell half of holding and use proceeds to diversify
Security No. of Units sold Sale price Proceeds After tax cash amount available for investment
BHP
2,500
33.50
$83,750
$58,184*
*Assumptions: Individual investor on the highest Marginal Tax Rate, taxed at the concessional rate as holding exceeds 1 year
Option 2 – Convert your existing shares into CitiFirst Instalment MINIs and use proceeds to
diversify
Security No. of Units Instalment MINI Price
Final Instalment
Total Value Investor cashback amount available for
investment
BHPJOC
5,000
$16.55
$16.947
$167,500
$84,735
Option 2 – Convert your existing shares into CitiFirst Instalment MINIs and use proceeds to
diversify
Security No. of Units Instalment MINI Price
Final Instalment
Total Value Investor cashback amount available for
investment
Case Study 2: Enhancing Total Returns
An individual investor on the highest marginal tax rate expects CBA shares to
appreciate by ~5% over the next 6 months from $68.50 to $71.92
The market expects CBA to pay a fully-franked Final Dividend in August 2013 of
$1.92* - the grossed up amount thus comes to $2.74
Enhanced Income & Capital Gains - Moderately Geared Instalment MINIs
CBA Shares
CBAJOF Instalments
Purchase Price
$68.50
$30.02
Sale Price
$71.92
$31.88
Gain/Los s on Trade
$3.42
$1.86
Grossed up Dividend
Received
$2.74
$2.74
Total Return Per Unit
$6.16
$4.60
Total Post Tax % Return
5.96%
10.73%
CBA Shares
CBAJOF Instalments
Purchase Price
$68.50
$30.02
Sale Price
$71.92
$31.88
Gain/Los s on Trade
$3.42
$1.86
Grossed up Dividend
Received
$2.74
$2.74
22
Case Study 2: Enhancing Total Returns
Plan ahead - Research
Estimated dividends
Ex-dividend dates
Understand the impact of the “45 day rule”
To be eligible for franking credits you must
Hold the share (or instalment) for a period of 45 days plus 2 (day of acquisition and disposal); or
If claiming less than a total of $5,000 of franking credits, no holding period is required
Ex Div
Div Announced
Cum Div Status
-Ex Div
Div Announced
Cum Div Status
-45 days plus 2
45 days plus 2
Sold
Bought
Sold
Sold
Bought
Bought
Last Cum Div Day
Case Study 2: Enhancing Total Returns
Enhanced Income & Capital Gains with Moderately Geared Instalment MINIs
3) Portfolio 5) Tax Analysis
Instalment MINI Loan Amount $38.4769 Initial Outlay Year 1 Year 1
Investment Amount $43,834 Portfolio Value $100,011 $104,997 Deductible Interest $2,087
Underlying Share Price $68.50 Underlying Reference Price $68.50 $71.92 Non Deductible Interest Amt $185
Quantity 1,460 Final Instalment Price $38.4769 $40.03 Deductible Est. Fee $0
First Instalment Price $30.02 $31.88 Tax Paid/Received -$804
Leverage 56.17% Required # of Instalment MINIs 1460 1460 Post-Tax Return ($) $4,704
Gross Portfolio Value $100,011 Initial Final Instalment $56,177 $56,177 Post-Tax Return (%) 10.73%
Loan Amount $56,177 Year End Final Instalment - $58,448 Post Tax Breakeven Underlying Price $67.72
First Instalment Market Value $43,834 $46,549
Tax Entity Individual Redemption Value $43,834 $46,549
Investor Tax Rate 46.50%
Tax Rate Discount 50.00% 4) Adjustments
Calendar Days 365 Initial Outlay Year 1 Direct Investment Instalment MINI
Days Instalment MINI Held For 182 Dividend - $2,793 Equity Value $43,834 $43,834
Establishment Fee 0.00% Franking - $1,197 Dividend $1,224 $2,793
Total Daily Funding Amounts - $2,271 Franking $525 $1,197
Interest Rate 7.95% Establishment Fee $0 $0 Redemption Value $46,020 $46,549
Capital Growth 4.99% Total Adjustments $0 $2,271 After Tax Profit $2,613 $4,704
Dividend Yield 2.79% Pre-Tax Return - 12.57%
Franking Percentage 100.00% Pre-Tax Breakeven Underlying Price $68.14 Return on Direct Investment
CGT Cost Base $100,011 $100,195 Return on Instalment MINI
2) Rates CGT Sales Proceeds $100,011 $104,997 Outperformance of Instalment MINI
Variable Home Indicator Rate 6.45%
Dividend Yield pa 5.60%
Capital Growth pa 10.00%
Interest Rate 7.95%
Deductible Rate 7.45%
Assumptions
1. The Daily Funding Amount is compounded daily for the number of days that the Instalment MINI is held for, reflecting a 365 day year. 2. The Deductible Rate is equal to the Variable Home Loan Indicator Rate plus 1% and is constant.
3. The Redemption Value is the difference between the Portfolio Value and the Final Instalment. 4. The Total Adjustment is the sum of the Daily Funding Amount over the year and the Fees paid.
5. The Deductible Interest is the lesser of the Interest Payment and the Indicator Rate multiplied by the Final Instalment. 6. The Non Deductible Interest is, if any, the difference between the Interest Payment and the Deductible Interest.
4.77%
1) Investor Specifications
6) Direct Investment Comparison
24
Introducing CitiFirst Instalment MINIs
“I want a Tax Efficient Investment”
A tax efficient investment
Interest costs deductible up to the ‘deductible rate’
- i.e. the relevant RBA benchmark rate (7.45% as at Feb 2013).
Annual tax statements and dividend / franking credits sent to holders
detailing deductible portion of investment.
26
Introducing CitiFirst Instalment MINIs
“I want to invest in a way that
suits me”
How to Purchase
Investors can buy and sell Instalment MINIs in the same way as they buy and sell
ordinary shares (subject to signing a Warrant Client Agreement Form with their broker).
via the Product Disclosure Statement by completing the cash application form
via wrap provider
On Market
Primary Market Cash Application
28
What Happens at Maturity
At maturity investors can roll in to alternate Instalment MINI either on-market
(Capital Gains Tax (CGT) event crystallised) or off-market (no CGT event)
Sell on market any time until maturity
Let expire = investor receives back any remaining equity in the investment (i.e.,
share price – loan amount) as a cash payout
Roll in to Another Series
Sell on market or let investment expire
Pay Loan Amount and Receive Shares
Loan amount can be repaid any time prior to and including the maturity date in order
Identifying CitiFirst MINI
BHPJOC
BHP: first three letters indicate the underlying share or Index
J: fourth letter indicates the warrant is an Instalment MINI
O: fifth letter indicates the MINI is issued by CGMA
30
ASX Listed
“I want to know who I’m dealing with”
CitiFirst Instalment MINIs are issued by Citigroup Global Markets
Australia Pty Limited (CGMA) (AFSL 240992, Participant of ASX Group)
Obligations guaranteed by Citigroup Inc
Risks
As with any investment that offers the potential for profit, there is a corresponding potential for loss.
Risks include, but are not limited to:
CitiFirst MINIs are a speculative investment. You could lose all of your investment amount.
CitiFirst Instalment MINIs are leveraged products and may decrease in value at a greater rate than
an investment in the underlying. Leverage has the potential to magnify gains as well as losses, and
may give rise to leverage costs.
Performance of the obligations by Citi and the Guarantor. The value of an Instalment MINI
depends on the ability of Citi and the Guarantor to fulfill their obligations to you.
If a stop loss is reached, the Instalment MINI will automatically terminate and investors may
receive significantly less than their original investment or they may expire worthless
The possibility of market illiquidity in the CitiFirst MINI or the underlying. In addition, trading may
be halted or suspended by the ASX in certain circumstances, and there is no guarantee that a
Holder’s request under an Off Market Redemption Notice will be accepted, or will cause the
investor to receive more than the on market price.
Market factors including severe market volatility, will impact upon the value of a MINI and may
impact the ability of CGMA to provide liquid markets in the CitiFirst Instalment MINI. In particular,
CitiFirst Instalment MINIs may decrease in value at a greater rate than an investment in the
32
Risks (cont’d)
There are a number of discretions conferred on Citi under the Instalment MINI terms which may
adversely affect you, such as the power to nominate an extraordinary event, causing an
Instalment MINI to terminate early.
Legislative changes (including law changes) may affect your investment.
The ASX may half or suspending trading in Instalment MINIs if it deems appropriate, which may
adversely affect your investment.
Citi and its related companies may buy and sell Instalment MINIs or the underlying , either as
principal or agent, and this trading may impact the Instalment MINI price.
Suitability
CitiFirst Instalment MINIs may appeal to investors if one or more of the
following apply to you:
looking to leverage your medium to long-term view of the
Underlying Shares
seeking a leveraged investment offering gearing of 50% to 80%
seek enhanced dividend yields and franking credits
reluctant to sell Securities and crystallize capital gains
an existing shareholder wishing to unlock equity but retain
exposure to the Underlying Share
experienced in investing in instalment warrant products
an SMSF seeking enhanced capital appreciation, dividend yields
and franking credits
34
Conclusion – “I want an investment that works for me”
CitiFirst Instalment MINIs Offer
Leveraged exposure to Underlying Shares and ETFs
Enhanced dividend yield and franking credits
Straightforward and transparent pricing
Potential tax benefits
Tracks underlying share price one for one
Eligible for Self Managed Super Funds
Exposure managed via a Stop Loss Feature
No margin calls or collateral requirements
No optionality – pricing not affected by time decay and volatility
1. Visit us online
•
www.citifirst.com.au/minis
- Investment Guide / Daily Pricing Sheet
2. Call the CitiFirst Sales Desk
•
1300 30 70 70
3. Subscribe to the CitiFirst Newsletter
•
Daily / weekly commentary
•
Trade Ideas
36
Disclaimer
This material is made available by Citigroup Global Markets Australia Pty Limited ABN 64 003 114 832 and AFSL 240992, Participant of the ASX Group. The Financial Products referred to in this document are issued by Citigroup Global Markets Australia Pty Limited. This information does not take into account the investment objectives or financial situation of any particular person. Investors should be aware that there are risks of investing and that prices both rise and fall. Investors should obtain a copy of the PDS and seek their own independent financial advice based on their own circumstances before making a decision.
The terms set forth herein are intended for discussion purposes only and subject to the final expression of the terms of a transaction as set forth in a definitive agreement and/or confirmation. Although the information contained herein is based upon generally available information and has been obtained from sources believed to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. Any prices used herein are historic and may not be available when any order is entered. All opinions and estimates included in this document constitute our judgment as of this date and are subject to change without notice.
This material does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Before entering into a derivative transaction, you should ensure that you fully understand the terms of the transaction, relevant risk factors, the nature and extent of your risk of loss and the nature of the contractual relationship into which you are entering. You should also carefully evaluate whether the transaction is appropriate for you in light of your experience, objectives, financial resources, and other relevant circumstances and whether you have the operational resources in place to monitor the associated risks and contractual obligations over the term of the transaction.
The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor or agent. Therefore prior to entering into the proposed transaction you should determine, without reliance upon us or our affiliates, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences of the transaction, and independently determine that you are able to assume these risks. In this regard, by acceptance of these materials, you acknowledge that you have been advised that (a) we are not in the business of providing legal, tax or accounting advice, (b) you understand that there may be legal, tax or accounting risks associated with the transaction, (c) you should receive legal tax and
accounting advice from advisors with appropriate expertise to assess relevant risks, and (d) you should apprise senior management in your organization as to the legal, tax and accounting advice (and, if acceptable, risks) associated with this transaction and our disclaimers as to these maters. If you are acting as a financial adviser or agent, you should evaluate these considerations in light of the circumstances applicable to your principal and the scope of your authority. If you believe you need assistance in evaluating and understanding the terms or risks of a particular derivative transaction, you should consult appropriate advisers before entering into the transaction.
We and/or our affiliates (together, the “Firm”) may from time to time take proprietary positions and/or make a market in instruments identical or economically related to derivative transactions entered into with you, or may have an investment banking or other commercial relationship with and access to information from the issuer(s) of financial products underlying derivative transactions entered into with you. We may also undertake
proprietary activities, including hedging transactions related to the initiation or termination of a derivative transaction with you, that may adversely affect the market price, rate, index or other market factors(s) underlying a derivative transaction entered into with you and consequently the value of the
transaction. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding.