End of year strategies and opportunities Who is presenting, where are they from? Date? 2012

2 What is gearing ?  Borrowing money to invest  Not all gearing is negative  Gearing increases profits but also increases losses  Gearing is not a short-term strategy  Cash flow effects are very important

3 How it works? Non-Geared Geared Capital$10, Loan $30, Share portfolio value $10, $40, % Dividends $ $1, % Franking $ $ Interest deduction $2, Taxable income $ $ Tax paid/saved 46.5% MTR $ $ Franking credits/refund $ $ Net tax paid/saved $70.71-$ % Growth $ $1, Net investment after loan $10, $11, Net return before CGT6.29%10.73%

4 You can gear into … Investment Deductible interest? YesNo Property Not vacant land Super contributions Insurance bonds Property trusts Growth trusts If income producing Direct shares If income producing Friendly society bond International share fund Equity imputation fund Cash/fixed interest products Films Primary production schemes

5 Lets take Gary and Jill for example  Gary and Jill aged 45  Would like to set up a savings strategy that will help them make the most of the money they have to invest  They have an initial lump sum of $5,000 to invest  They also can afford to invest $250 p.m.  What might be the results if they geared these funds

6 Geared savings vs non-geared savings Non-Geared Savings Geared Savings Initial Investment$5,000$10,000 ($5,000 own funds + $5,000 loan) Monthly Savings$250$500 ($250 own funds + $250 loan) Values after 10 years Total Contribution$35,000 Investment Value*$50,557$101,113 Total Value Net Value*$50,557$66,113 * Assumes 3% pa income 100% franked, 4% pa growth return, 7.5% pa loan interest. Tax on income at 46.5%. CGT deferred. Tax and interest paid from investment income.

7 The results after ten years A geared savings plan may positively impact potential returns when compared to a non- geared savings plan over a five-year period.

8 The positives and negatives of gearing as a strategy PositivesNegatives Gain control of a greater amount of assetsIncreased volatility Increase the return on your investmentIncreased risk –ability to make interest payments –ability to meet margin calls –risk of total loss Increase size of portfolio - potential for greater diversification Decreased liquidity Tax deductions on interestPotential increased capital gains tax Tax credits (shares and property)

9 BT Portfolio Services Ltd ABN (BTPS) operates Wrap including Wrap Essentials (Wrap) and administers SuperWrap including SuperWrap Essentials (SuperWrap). BT Funds Management Limited ABN is the trustee and issuer of SuperWrap. Your Dealer Group may also operate a Wrap offering, otherwise its role in relation to Wrap and SuperWrap (Wrap Products) is limited to distributor only. This document has been prepared and is provided solely for the general guidance of advisers and has been prepared without taking into account any individuals objectives, financial situation or needs. The information in this publication provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. This disclaimer is subject to any contrary requirement of the law. Information current as at 1 January © BT Funds Management Limited 2012.