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ORB IEI YIELDS / About

Investors should read the product disclosure statement in full including the section on risks prior to investing in this product.

ORB IEI is an offer to invest in Yield Income Enhanced Listed Deferred Securities (YIELDS).  The capital guarantee should ensure that the issue price of $A10 of each YIELDS deferred security is repaid to investors on the maturity date. The Income Plus Trading Strategy (i.e. the Equity Portfolio) is a proprietary trading model developed by Citigroup that seeks to generate a potentially high level of income and capital growth by investing in 30 of the world's largest companies by market capitalisation.  The Equity Portfolio selects a portfolio of 30 of the highest dividend yielding stocks from a universe comprising the Dow Jones Global Titans 50 Index.

The Capital Guarantee

The Capital Guarantee should ensure that the Issue Price of AUD 10.00 per YIELDS is preserved at the Maturity Date regardless of the performance of the Income Plus Trading Strategy.

Citigroup Global Markets Holdings Inc. (the "Guarantor") will guarantee the obligations of the Issuer. This is a guarantee to pay all monies that become payable to an Investor in connection with YIELDS. Each Investor is entitled to enforce this guarantee against the Guarantor. The Guarantor must pay interest on any amount payable by it under the terms of the guarantee during any period when the guarantee remains unpaid. All payments made under the guarantee will be made without any deduction for present or future taxes.

Income from ORB YIELDS

It is expected that ORB YIELDS will pay a quarterly cash distribution. The amount of the distribution is expected to vary from time to time and is dependent on various factors, including:

  • The distributions from ORB YIELDS will increase as the Equity Portfolio generates higher income and vice versa;
  • A higher allocation to the Equity Portfolio will result in higher distributions being payable on ORB YIELDS and vice versa. If the allocation to the Equity Portfolio falls to zero, no further distributions will be paid on ORB YIELDS; and
  • The re-investment feature provides that in a given quarter the income on the Equity Portfolio may be re-invested in the Equity Portfolio if this is necessary in order to maintain an allocation to the Equity Portfolio. If the income is re-invested in any given quarter then no distribution will be paid on ORB YIELDS for that quarter.

Investment strategy

An investor in ORB YIELDS is seeking the potential for both a high quarterly income stream and capital growth over the next six years. ORB YIELDS offers investors exposure to a well-diversified portfolio of large capitalisation global stocks. The Income Plus Trading Strategy (i.e. the Equity Portfolio) is a proprietary trading model developed by Citigroup that seeks to generate potentially high coupons and capital growth by investing in 30 of the world's largest companies by market capitalisation. The Equity Portfolio is designed to track the performance of a hypothetical "buy-write" investment strategy where shares are purchased and "covered call" options are written over each of those shares on a quarterly basis. The dividends received on the shares and the premium generated on the call options provide the income for the variable coupon payments. This means that a product linked to the Equity Portfolio may be suitable for an income-seeking investor who has a view that global equity markets will show moderate growth or will remain flat over the next six years. In addition, ORB YIELDS seeks to expose the investor to less risk than a direct investment in global equity markets by offering the safety of a 100% capital guarantee on the maturity date. The initial exposure to the Equity Portfolio is expected to be 100% but this will change over time as a result of the performance of the Equity Portfolio and could be as high as 150%.

Description of the investment strategy

The Income Plus Trading Strategy is a proprietary Citigroup trading model that seeks to generate a high level of income while providing potential for capital appreciation through investment exposure to 30 of the world's largest companies.

Objectives of the strategy

The two core objectives of the Equity Portfolio are to generate a target annual income of 12% per annum (net of fees)1 and to capture a proportion of equity growth. The Equity Portfolio uses a dual approach in order to meet these objectives:

1. Investing in high dividend yielding stocks in some of the world's largest companies by market capitalisation;

2. Generating additional income by writing "covered call" options over these stocks.

The Equity Portfolio is non-discretionary and rules-based and has been developed using analysis carried out by the Equity Derivatives Department at Citigroup.

High dividend yielding stock selection

The Income Plus Trading Security selects a portfolio of 30 of the highest dividend yielding stocks in the Dow Jones Global Titans 50 Index. The selection portfolio is well diversified across sectors and contains international securities with high liquidity. The highest dividend yielding stocks are selected from this universe by the Equity Portfolio on an annual basis, subject to a diversification rule that seeks to prevent the Equity Portfolio from including more than 10 stocks from any single sector (to the extent that there are enough stocks within the universe to satisfy this rule). In addition, for regulatory reasons, Citigroup Inc. stock will never be selected for inclusion within the Equity Portfolio. Citigroup Global Market Limited has determined that 30 stocks is an optimum number in order to reduce concentration risk and overall volatility without compromising income potential nor incurring excessive trading costs.

The Dynamic Portfolio

The Dynamic Portfolio is designed to replicate an investment strategy that allocates investment exposure between two notional assets, namely the Income Plus Trading Strategy and the Bond Portfolio. On the Portfolio Commencement Date, it is expected that the Dynamic Portfolio will be at least 100% allocated to the Income Plus Trading Strategy and 0% allocated to the Bond Portfolio2. During the investment period the allocations within the Dynamic Portfolio will change based on the dynamic allocation mechanism. The dynamic allocation mechanism is designed to protect an investor's initial capital investment, whilst providing investment exposure to the Equity Portfolio. The general principle of the Dynamic Portfolio is that at any point in time during the Investment Period it is possible to calculate the value of the Bond Portfolio that would be required to grow to an amount equal 100% of the Issue Price on the Maturity Date. At any time, the amount of bonds required to generate the Issue Price is known as the "Protection Floor".

 

1 The target income is only indicative and is not guaranteed. The figure of 12% per annum (net of fees) is a target income figure and not a target total return figure. This figure relates to the strategy and not to the returns achievable by any product linked to the strategy.
2 To be fixed on the Portfolio Commencement Date.

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