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Question
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Answer
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| What are structured products? |
Structured products come in many forms and are a combination of standard financial instruments to form a single investment solution. Created to meet the specific needs of investors, structured products are inherently flexible – a solution can be found to match just about every investment objective.
Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce the risk profile of a portfolio or to capitalise on a current market trend.
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| What is Capital Series? |
A ‘set and forget’ investment that aims to generate capital growth and income (in some cases) over a set period. Capital Series can give you easy access to a number of asset classes and markets around the world with the benefit of capital protection at maturity.
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How is Capital
Series
structured?
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Capital Series is structured as a Deferred Purchase Agreement (DPA) Under a DPA, investors agree to accept the physical delivery of the Delivery Assets on the maturity date. They can also elect to sell the Delivery Assets and receive their maturity value in cash (brokerage costs apply).
The geared equity component provides the equity exposure and the fixed interest component provides the capital protection.
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What is capital protection?
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A feature often associated with structured products, capital protection generally means that an investor’s initial investment amount is protected up to a certain level (e.g. 70%, 100%) if the investment is held to maturity. In a volatile environment, a capital protection feature may be valuable for investors who are seeking an alternative to a direct investment with a reduced level of risk.
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| Why is the product called Capital Series? |
The product aims to generate capital growth as well as provide capital protection, hence the name “Capital Series”.
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What are the benefits?
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● You will have exposure to the performance of the relevant Underlying Portfolio during the
investment term;
● A level of capital protection at maturity
● The potential for capital growth
● The potential for income in some instances
● At maturity you can choose physical delivery of the Delivery Assets or receive a cash payment
following the sale of the Delivery Parcel
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What are the risks?
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● If you choose to accept physical delivery of the Delivery Parcel at maturity, you will have
exposure to the performance of theDeliveryAsset which may not be advantageous to you.
● Your Investment Amount is not capital protected if your Investment is terminated early and
significant break costs may be applicable (see ‘What happens if I need to get my money back
early?’ below)
● Performance and general investment risk –There is a risk that the Reference Assets may
perform poorly. Capital Series is not a listed investment. It cannot be traded on a market.
● Market risk – even though the Strategies aim to generate a return over the Investment Term,
Capital Series may be affected bymarket variables, such as uncertain economic conditions.
● Taxation risk – changes to the tax law or interpretation could affect the value of your
Investment.
● Credit risk - the risk that Commonwealth Bank does not meet its obligations under the terms of
each transaction, which are unsecured. Investments in Capital Series are not bank deposits.
● Operational risk – the risk of Commonwealth Bank delaying or failing to execute and settle your
Investment in a timely and accurate manner.
● Legal risk – the risk that Commonwealth Bank suspends, cancels, terminates or refuses you
services due to changes in your financial circumstances or security.
● Adjustment Events – due to certain events occurring the Delivery Assets or Reference
Assets may change.
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What are coupon payments?
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Coupons are an amount paid to you as income under your Capital Series investment. Coupons can be either:
● Fixed - you will receive a coupon payment regardless of the performance of your investment; or
● Contingent – you will only receive a coupon payment if the performance of your investment
reaches a hurdle, e.g. +10% from the start date.
Please be aware not all issues of Capital Series pay coupons.
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What is a Participation Rate?
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The leverage or exposure of a product to movements in the Underlying Portfolio’s price. A participation rate of 100 per cent would generate a return exactly equal to any rise in the Underlying Portfolio. For example, if the Underlying Portfolio rises by 35 per cent, your return would also be 35 per cent. This does not take into account any performance cap.
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What happens at maturity?
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You can choose to receive the final value of your investment as either:
● units in the SPDR S&P/ASX 200 Fund, or
● a cash payment – by electing to sell the units (brokerage costs will apply)
You will receive a letter from Commonwealth Bank one month before maturity asking you to elect one of the above maturity options. If you do not advise of your preference, you will automatically receive units in the SPDR S&P/ASX 200 Fund.
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| What is a Delivery Asset? |
The asset which you agree to purchase at maturity. In most cases, the Delivery Asset is a unit in the SPDR S&P/ASX 200 Fund. The number of units you will receive depends on the Maturity Value of your Capital Series investment.
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| Why is capital growth capped? |
A capped level of capital growth essentially means that you receive any growth up to that particular level. The reason a cap is placed on some Strategies is simply for pricing reasons. For example, by foregoing some capital growth, a 100% capital protection feature can be factored in.
Alternatively, Strategies which do not have a cap on the capital growth usually do not offer coupons (income payments), or in some cases have a reduced level of capital protection.
Commonwealth Bank does not receive any benefit if a Strategy’s capital growth exceeds the cap level.
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What happens if I need to get my money back early?
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You can request to terminate your Capital Series investment and generally your request will be processed on the 15th day of every month (or following business day). You can obtain an indicative termination quote during the month by calling CommSec on 13 15 20. As Capital OzAsia is designed to be held to maturity the early termination costs can be significant. These early termination costs include the following two components:
1) Early Termination fee
Up to 1.50% of the Early Termination Value and, if you elect to use the Delivery Asset Sale Service, a Brokerage Fee (being up to 0.55% (including GST) of the Early Termination Value).
2) Break costs
Break costs take into account the costs to Commonwealth Bank of unwinding the hedge arrangements established in connection with you investment. Break costs may be in your favour which means they will be added in determining the Early Termination Value; or they may not be in your favour, which means they will be deducted in determining the Early Termination Value.
A number of variables can affect Break Costs. The table below shows how each of these variables may affect break costs:
If you wish to proceed with your early termination, please submit your signed termination quote to the Commonwealth Bank at least three business days prior to the 15th of the month. Please note that the final termination amount can vary from the indicative amount.
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How is the Strategy Portfolio Return calculated?
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Because each Strategy has different features, there is no one formula to calculate the Strategy Portfolio Return. You will need to refer to the PDS (Part 2) to determine the calculation relevant to your Strategy.
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What are the costs?
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Application Fee – may be payable at the start of your Capital Series investment.
Brokerage Fee – If you elect a cash payment at maturity, you will be charged a Brokerage Fee of up to 0.55% (incl. GST) to sell your Delivery Assets.
Early Termination Fee – you will be charged up to 1.50% of the Early Termination Value.
Break costs – refer to “1.17 Can my investment be terminated early” in Part 1 of the PDS for more information.
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| How are previous issues of Capital Series performing? |
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