1. What is the Westpac PEL Plus?
Westpac PEL Plus is an interest-only loan package which enables investors to build a share portfolio with 100% borrowed funds.  Investors can lock in gains and extract cash from an existing shareholding without having to dispose of those shares.

Furthermore, there is no risk of loss in the value of an investor’s capital investment at maturity, regardless of how the share portfolio performs.



2. What are the benefits of the Westpac PEL Plus?

• Invest in the share market with no capital contribution (interest and fees are payable).
• Implement an investment strategy similar to negative gearing in property.
• Ability to protect 100% of the Loan value of the investment (i.e. there is no capital loss upon maturity).
• Maximise overall potential profits i.e. gains from profitable investments will not be offset by losses from unprofitable investments at maturity.
• Investors have access to ordinary dividends or distributions and potential franking credits.
• Trade high-performing securities to lock-in profits from any capital growth during the Loan Term.
• Benefit from potential tax deductions associated with gearing.
• No margin calls.

3. Who are target clients for a Westpac PEL Plus investment and why?
Large equity investors

• Can “unlock” value from existing Security holdings without triggering a capital gains tax (CGT) event by using the Security holder Application (i.e. ability to borrow against existing Security holdings).
• Protect Security holdings at their market value as at the date of the Loan.
• Must be able to pay the interest due under the PEL Plus for the full Loan Term.
• High net worth individuals.
• Geared share investment free of margin calls.
• Potentially can deduct 12 months of prepaid interest.
• Must be able to pay the interest due under the PEL Plus for the full Loan Term.

High income earners

• Can invest in the share market without any initial capital contribution (interest and fees are payable).
• No security requirements or margin calls unlike margin lending.
• Must be able to pay interest due under the PEL Plus for the full Loan Term.

Cautious investors

• Can invest in the share market without putting their own capital at risk.
• Want to protect themselves from repaying a Loan where their investments have lost value at maturity.
  Want a geared share investment free of margin calls.

Please note: PEL Plus is NOT available to self-managed superannuation funds.

4. What decisions need to be made in relation to a PEL Plus investment?
Investors need to decide the:

• Loan amount – minimum of $50,000 with $25,000 increments
• Type of interest rate
  - Fixed Rates for the term of the loan; or
  - Variable Rates which are reset annually (available for four or more portfolios only)
• Securities - over 80 ASX-listed securities are available to choose from
• Interest payments - Annually in advance or monthly in arrears to match your cashflows
• Term of the loan - 1-5 years.  A Reduced Rate Facility is also available (descibed below).

5. Which securities can be invested into through a Westpac PEL Plus? Are there any restrictions?
Westpac regularly produces a Supplementary PDS containing the current Term Sheet, which lists available ASX200 Securities for investment under the PEL Plus and indicative rates for each Loan Term.

6. Does the choice of securities impact the cost of a Westpac PEL Plus investment?
Yes. As detailed on the Term Sheet there are different fixed interest rates applicable to each Security.  The interest rates are made up of the following two components, which influence the rate applicable for each Security:

• Borrowing cost; and
• Cost of protecting the initial value of the parcel of Securities.

7. Can the Securities in the portfolio change during the Loan term?
With the Westpac PEL Plus, Securities can be sold that have appreciated. The same or different Securities can also be purchased at a later date during the Loan Term. There are costs associated with the sale of Securities including brokerage and when purchasing different securities, a portfolio adjustment fee, being the cost of entering into a new put option and selling out of the old put option. These costs are detailed on page 9 of the Westpac PEL Plus PDS.

8. What Portfolio options are available?
Two types of portfolios are available:

1. Fixed
- Interest rates are given on a per Security basis and fixed for the entire term of the loan
- Available for a parcel of one or more Securities
- Total minimum loan is $50,000

2. Variable
-­ At least four different Parcels of Securities are required in the Portfolio
­- The average interest rate across the stocks within the Portfolio is provided in the Term Sheet
- Minimum loan is $50,000 and thereafter in multiples of $25,000
- No one parcel to exceed 25% of the value of the Portfolio

9. What is a Reduced Rate Facility?
Westpac will make available reduced interest rates for loans where investors forego a portion of capital growth in the Securities above the Cap Price.

Any capital growth up to the Cap Price will be retained by the investor.

Two rates need to be set:

1. Cap Rate
This fixes the Cap Price, being the price up to which you will benefit from any growth in the value of the securities.  The Cap Rate can be chosen from the Term Sheet.

2. Participation Rate
This fixes the percentage of growth in the value of the Securities above the Cap Price that the investor will retain.

10. Can stock gains be locked-in during the Loan term?
Yes, this can be done through the following facilities:

i. Top-Up Loan
To Top-Up the Loan during the Term, the value of a parcel of Securities needs to have increased in value by more than $10,000 from when the Loan was advanced or the time the last Top up Loan was made. The mechanics are comparable to drawing down equity on your home loan.

In addition, by increasing the Loan to the new value of the Security, effectively the parcel of Securities is protected at the new level.

Westpac will advance to the investor, by way of an increased Loan, a cash amount up to the amount of the increase in value of that parcel of Securities.

ii. Portfolio Adjustment Facility
The Portfolio Adjustment Facility allows investors to sell a whole Parcel of Securities held under the Westpac PEL Plus if it has increased in value since the acquisition date.

The proceeds will be placed in a Deposit Account or used to buy new Securities, where the total value of the Parcel of Securities are equal to the Loan amount of the Parcel of Securities sold.

Brokerage, Put Option fees and transaction costs apply.

Securities cannot be sold if:

• The Reduced Rate Facility is selected
• It is less than two months before the expiry of the Westpac PEL Plus

11. Can losses in one parcel of Securities offset gains in another?
No. The capital protection represented by the Put Option applies to each Parcel of Securities individually.

If one Parcel has lost value at the term of the loan but other Parcels have gained value, then you keep the gains and incur none of the losses.

12. What happens if there is a rights issue or another corporate action relating to a stock in the portfolio?
Westpac has broad rights designed to protect the value of the Security mortgaged to it as collateral for the Loan. These rights include:

• Directing to sell or otherwise deal in the shares, Units or rights that are created or affected as a result of the Corporate Action,
• Transferring the registration of the securities or any other security that has been created as a result of a Corporate Action to Westpac or that of a nominee of Westpac
• Requiring early repayment of all or part of the Loan in respect of the relevant Security, which may involve Break Costs
• Requiring additional funds to be advanced to protect Westpac’s security position. For example if a company announced a non-renounceable rights issue in order that you take up the rights; and
• Directing the placement of Special Dividends in the Deposit Account as security for the Loan.

Westpac will inform your client of any corporate actions and how it is likely to affect their investment.  Please refer to the Product Disclosure Statement for further information relating to Corporate Actions.

13. Is it possible to terminate the Loan before the maturity date?
The Loan can be repaid at any time, subject to Westpac’s approval, by selling the Securities or with the investor’s own funds.  However, Break Costs, which can be substantial, may be charged. For more information on break costs, please refer to page 7 of the Product Disclosure Statement.

14. What are the Risks associated with Westpac PEL Plus?

• Interest rates will be higher under the Westpac PEL Plus compared to other forms of share financing due to the capital protection feature.
• Cash flow mismatches may occur between interest payments and expenses under the Westpac PEL Plus and the receipt of dividends which may be used to offset these obligations.
• Market volatility may increase or decrease the price of the Securities.
• Under the Reduced Rate Facility, returns are capped or limited if the value of the Security at Maturity is greater than the Cap Price.
• Taxation advice should be sought for tax consequences arising out of the Westpac PEL Plus.
• Government charges, duties and taxes may be payable in respect to the Westpac PEL Plus.
• Taxation law and practice may vary over time, possibly with retrospective application.
• In the event that a security held is affected by a corporate action, Westpac has broad rights designed to protect the value of the security mortgaged to it. These may include directing investors to sell or otherwise deal in the securities, transferring registration, requiring early payment of the Loan.  Further details can be found on page 12 of the Product Disclosure Statement.
• Securities are mortgaged to Westpac. If the Loan is not repaid in accordance with its terms Westpac can take possession of your Securities.

15. ATO Product Ruling
Westpac has obtained a Product Ruling from the Australian Taxation Office on the general tax implications for certain investors in a Westpac PEL Plus, including the deductibility of the interest payments.  You can obtain a copy of PR 2004/15 on our website at www.westpac.com.au/structuredinvestments

16. How do I use the PEL Plus Calculator?
The Westpac PEL Plus Calculator requires you to enter information into the white cells only.

Investment Details Page
In the ‘PEL Plus Details’ section, select the:

• Marginal tax rate
• Loan Term
• Rate type
  - Variable (“Annually Resettable”)
  - Fixed (‘Fixed Term”)
• Interest payment frequency (“monthly in arrears”, or “annually in advance”)
  

In the “Security Details” section, select the:

• Securities that your client would like to subject to the PEL Plus - the interest rate from the current Term Sheet will load automatically
• “Loan Amount ($)” being the dollar amount that your client would like to borrow or invest.
  For existing Shareholders, indicate the quantity of Securities that your client would like to be subject to the PEL Plus by selecting “No. of shares” from the drop down menu;
• Interest rates if you would like to conduct the Flow Analysis using interest rates other than those offered in the Term Sheet

Flow Analysis Page
This page contains an analysis of the indicative tax implications associated with the portfolio of securities you have selected for investment under the PEL Plus for each year of the loan term for your client.

17. How do my clients apply for a Westpac PEL Plus?
After reading and understanding the PDS, Terms and Conditions, Application Form and current Term Sheet, they need to complete the Application Form and forward it to Westpac.

Westpac will process the request and credit application.

18. How is my client assessed for the loan?
As Westpac PEL Plus is an interest only loan, Westpac assesses the cash flow position for each investor and their ability to meet the interest obligations for the term of the loan. Refer to the article titled “Westpac’s Credit Approval Process” for further details.

Application processing can take up to five working days. Please note June, in particular the last week, is our busiest time of year.  To avoid possible delays please strive to submit your client applications as soon as possible.

19. What statements will my client and I receive?
Every six months Westpac produces statements detailing the interest an investor has paid and the current market value of their Securities.

20. What commissions are paid to advisers?
Westpac will pay an upfront commission of 1.5% p.a. and a trail commission of 0.25% p.a., which is generally calculated as a percentage of the Loan Amount.

21. Who do I contact if I have any questions?
For more information, simply contact your Financial Planner or Westpac on 1800 990 107. 

Important Information
Westpac Banking Corporation ABN 33 007 457 141, AFSL 233714 (“Westpac”) is the issuer of the Westpac Protected Equity Loan Plus (“Westpac PEL Plus”). A product disclosure statement (“PDS”) is available for the Westpac PEL Plus. A copy of the Westpac PEL Plus PDS and a copy of Westpac’s Financial Services Guide can be obtained by calling 1800 990 107 or visiting www.westpac.com.au/structuredinvestments. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of the Westpac PEL Plus.  This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs.
The taxation position described is a general statement only and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation. Westpac financial planners are not qualified to give tax advice. The individual situation of investors may differ and investors should seek independent professional tax advice on any taxation matters.
The Product Ruling issued by the Australian Taxation Office is only a ruling on the application of taxation law and is no way expressly or implied as a guarantee or endorsement of the commercial viability of Westpac PEL Plus, or the soundness or otherwise of the Westpac PEL Plus as an investment, or of the reasonableness or commerciality of any fees charged in connection with the Westpac PEL Plus. The Product Ruling is only binding on the Commissioner if the Westpac PEL Plus is implemented in the specific manner provided in the Product Ruling.
Information current as at 26 April 2006.