Alpha ReCharge Series 2 is an innovative 2.25 year investment that delivers risk controlled exposure to the ASX 200 index or to the Hang Seng China Enterprise Index (HSCEI) (the “Reference Index”). Returns under the Alpha ReCharge investment will be paid as annual coupons and as a final payment. Using Alpha ReCharge’s unique risk management technique allows investor’s exposure to the Reference Index to be increased or decreased according to the calculated historical volatility of the Reference Index. Alpha ReCharge provides this exposure to the Reference Index for much lower cost than would be involved in purchasing the Reference Index shares themselves: for an initial outlay of $0.1468 per unit for the ASX 200 Index or $0.1633 per unit for the HSCEI Index, investors receive exposure to a notional portfolio of $1.00 worth of the Reference Index. Using the innovative risk management technology in Alpha ReCharge means that the actual exposure to the Reference Index can be reduced to 0% (in periods of relatively high volatility), be 100% when actual historical volatility equals the target volatility of 18% (the long term average volatility of the ASX 200 Reference Index) or 20% (the long term average volatility of the HSCEI Reference Index) or increased to 200% (in periods of relatively low volatility).
Alpha ReCharge offers the potential for coupon payments and capital growth linked to the performance of the Dynamic Portfolio. However, there is no assurance that the total payout from Alpha ReCharge will be at least equal to the Investment Amount. The payout from Alpha ReCharge is dependent on the value of the Dynamic Portfolio at various points in time during the life of Alpha ReCharge.
Alpha ReCharge is classified as a “security” under the Corporations Act because it gives Investors an equitable interest in a portion of the Delivery Assets (“Portion”) for the duration of the investment. The Portion is a 1/1000th interest in a Delivery Asset, held by the Issuer or its nominee for an Investor for the Term. It cannot be dealt with separately to the rest of Alpha ReCharge.
How is Alpha ReCharge structured?
Alpha ReCharge is structured as a deferred purchase agreement. Under a deferred purchase agreement, an Investor agrees to purchase the Delivery Assets (including the Portion) and either:
- elect to accept physical delivery of the Delivery Assets on the Settlement Date; or
- elect to take advantage of the Agency Sale Arrangement upon physical delivery of the Delivery Assets on the Settlement Date and subsequently receive the Sale Proceeds.
For more details, please refer to the section titled “What happens at Maturity?”.
ASX Listed
Alpha ReCharge Series 2 will be ASX Listed, providing convenience and potential for access by investors using wrap platforms. You should check with your wrap platform provider regarding access to Alpha ReCharge Series 2.
What are the Delivery Assets?
On the Settlement Date the Issuer will be required to deliver to the Investor shares in Commonwealth Bank (ASX Code = CBA). The value of these shares will be equal to the Final Value per Unit (as explained below) multiplied by the number of Units held by an Investor less any Costs and Taxes. If any Costs and Taxes are payable, these will be deducted from the Total Value (as at the date of the PDS, dated 12 October 2009 issued by Citigroup Global Markets Australia Limited (“PDS”), no Costs and Taxes are anticipated).
The Issuer will only deliver a whole number of Delivery Assets (which will include the Portion). If any fraction of a Delivery Asset would otherwise be transferable by the Issuer to the Investor, the Issuer may keep that fraction of the Delivery Asset (which includes the Portion) and cause to be paid an amount equal to the value of the fraction of the Delivery Asset foregone, based on the Official Closing Price on the Trading Day immediately following the Maturity Date, provided that the amount exceeds AUD 20. If the amount does not exceed AUD 20, the Issuer is entitled to keep that amount and is under no obligation to the Investor to make any payment for the fraction.
What is the investment objective of Alpha ReCharge?
The investment objective of Alpha ReCharge is to provide access to the growth potential of the Australian or China equity market through payouts that are based on positive returns from a volatility-adjusted exposure to the S&P/ASX 200 Price Index or to the HSCEI Index. Note that this Investment does not provide any capital protection.
The investment objective of Alpha ReCharge does not take into account labour standards or environmental, social or ethical standards.
What is the investment strategy of Alpha ReCharge?
Volatility-adjusted exposure to the Reference Index is provided by constructing a Dynamic Portfolio in which allocation to the Reference Index will be set according to the calculated Historical Volatility of the same Reference Index. An increased Index Allocation will result in increased exposure to (and therefore greater participation in the gains and losses of) the Reference Index. The Index Allocation depends on the Historical Volatility: in times of high volatility, exposure to the Reference Index is reduced; and in times of low volatility, exposure to the Reference Index is increased. When the Index Allocation to the Reference Index in the Dynamic Portfolio is adjusted it will be set to a level between 0% to 200%, depending on the level of the calculated Historical Volatility.
If on a Coupon Observation Date the Dynamic Portfolio Return is positive, then the Coupon Payment Rate on that Coupon Observation Date will be equal to the Dynamic Portfolio Return (subject to a minimum of 0% and cap of 7%). The Final Value per Unit is equal to the Dynamic Portfolio Return at Maturity minus the aggregate of any Coupon Payment Rates and multiplied by the Notional Exposure per Unit. In any case, the calculation of the Final Value per Unit is subject to a minimum of zero.
The following table indicates considerations an Investor should take into account in relation to an investment in Alpha ReCharge. Alpha ReCharge may be a suitable investment for an Investor if the following apply to the Investor:
| Investor Seeks | Investor Can Accept * |
| A medium-term market linked investment | A holding period of 2 years and 3 months |
| Exposure to the Australian equity market at an Issue Price which is less than the Notional Exposure per Unit of the Investment | The risks associated with investing in the Australian equity
market |
| Potential for a Coupon Payment per Unit and Final Value per Unit linked to the performance of the Dynamic Portfolio | No Capital Protection, and hence the possibility that each Coupon Payment per Unit and/or the Final Value per Unit may be zero. That is, the risk of losing part or all of the Investment Amount |
| | The possibility that returns may be less than the return you could earn on other investments |
| | Physical delivery of the Delivery Asset |
| | Ability to understand and perform the necessary due diligence on the Reference Index |
* Please refer to Section 2 of the PDS for more details on risks.
What is the investment profile of Alpha ReCharge?
| Term | 1 or less | 2 | 3 | 4 | 5 or more | Open- ended |
| Risk | Very Low | Low | Moderate | High | Very High | Speculative |
| Investment Objective | Full Protection | Partial Protection | Conditional Protection | No Capital Protection | Income | Growth |
What is volatility?
The volatility of the Reference Index is a measure of the variability of the Reference Index’s level. The more the Reference Index level fluctuates in a given period of time, the higher its volatility and the less certain one can be of the return from an investment in the Reference Index during that time.
For the purpose of Alpha ReCharge, the Historical Volatility (sometimes referred to as ‘realised volatility’) of the Reference Index is calculated on each Trading Day. This measure is based on the average of the actual day-to-day fluctuation of the Reference Index over the 60 Trading Days preceding the day of determination, which is then adjusted for the number of days in a calendar year. Numerically, the Historical Volatility of the Reference Index is determined by the Volatility Formula set out in Section 9 of the PDS.
Dynamic Portfolio Value and Index Allocation
A Dynamic Portfolio is constructed so that the Investor can obtain a notional exposure to the Reference Index and a notional cash amount. The Index Allocation is the set percentage of the Dynamic Portfolio exposed to the Reference Index, and is determined by the relationship between Historical Volatility and the Volatility Target of the Reference Index.
Disclaimer
© Alpha Structured Investments P/L AFSL 290054 - Like all investments, there is no return without risk. If there are losses in relation to the share portfolio, the value of the shares delivered to investors may fall or be nil. Investors should read the Product Disclosure Statement for Alpha RECHARGE, dated 12 October 2009 and issued by Citigroup Global Markets Australia Limited in full and carefully consider the detailed description of the arrangements and risks in the PDS before deciding whether to apply for Alpha RECHARGE. Prior to the maturity of the Alpha RECHARGE investment the value of Alpha RECHARGE will be affected by various market factors such as interest rates, shares and option prices and volatility, the creditworthiness of Citigroup Global Markets Australia Limited and the time remaining to Maturity Date. As a result and as indicated above there is no assurance that an Alpha RECHARGE investor that sells their Alpha RECHARGE investment prior to maturity will receive a price equal to or in excess of the Alpha RECHARGE investors original investment amount. A copy of the Product Disclosure Statement can be obtained by contacting your financial adviser or Alpha Structured Investments. Like all investments, investments in the Alpha RECHARGE involve some risks. The risks include general market risks and risks which are specific to Alpha RECHARGE. Please ensure you have read and understood the Risk Factors, which are set out in that PDS. No action should be taken on the basis of or in reliance on the information, opinions or conclusions contained in this document. In preparing the information in this document, Alpha Structured Investments did not take into account the investment objectives, financial situation or particular needs of any particular investor. Before making a decision to invest, investors should consider the appropriateness of the product having regard to their relevant personal circumstances. Investors should read the PDS in full and carefully consider the detailed description of the arrangements and risks in the PDS before deciding whether to apply for Alpha RECHARGE. This document is not, and is not intended to be, an offer or invitation for subscription or sale, or a recommendation, with respect to any proposed offering of Alpha RECHARGE or any other securities, nor is it to form the basis of any contract or commitment. You should consult your investment adviser before you invest in Alpha RECHARGE.
