Anadara Income Series 1 – PIMCO Global Income Fund (JPY Hedged)

Following the pandemic, interest rates have risen aggressively as central banks tried to combat inflation. Economists have forecast that interest rates have peaked and expect rates to fall this year.

Falling interest rates have a significant impact on bond fund Net Asset Values (NAVs), primarily due to the inverse relationship between bond prices and interest rates. When interest rates decline, the prices of existing bonds increase, as they offer comparatively higher yields than newly issued bonds. This is because when interest rates fall, the fixed coupon payments of existing bonds become more attractive compared to new bonds issued at lower rates. Consequently, investors are willing to pay a premium for these higher-yielding bonds in the secondary market, resulting in the market value of the bonds held by these funds rising, leading to a higher NAV for these funds.

Each month, economists and investors focus on the commentary from the heads of each central bank, hoping for an insight as to when interest rates could change. In his March speech, Federal Reserve Chair, Jerome Powell, that price pressures in the US are easing and that the central bank is on track for three interest rates this year, which we expect will lead to an increase in bond fund NAVs.

PIMCO is a global leader in active fixed interest, with deep expertise across public and private markets managing US$1.8 trillion in assets. PIMCO was established over 50 years ago and yields significant influence in debt markets globally.

The chart above demonstrates the inverse correlation between interest rates and bond funds. Over the last two years, while interest rates have risen, the NAV of one of PIMCOs Exchange Traded Funds fell by over 15% even though it continued paying monthly distributions to investors.

Anadara has structured an investment that offers 100% leveraged exposure to the PIMCO Global Income Fund – Class E (JPY Hedged) (the Fund) via a tax effective limited recourse loan over 12 months. At Maturity, investors may receive an uncapped Performance Coupon based on the positive performance of the Fund during the investment term, adjusted for any changes in the USD/AUD exchange rate.

This offer is for Wholesale Investors Only.

Investors interested in Anadara Income Series 1 must read the Master IM and Term Sheet IM in full before investing. Any advice given is general in nature only and does not consider your personal needs or objectives. Please consult your advisor before investing.

• Term Sheet IM
• Master IM

This investment carries risk – you may lose your capital.

Before investing, potential investors should make sure they understand the risks. Investors should read all of the Term Sheet IM and Master IM and should consult an independent financial, legal and tax adviser before investing.  This document does not take into account a potential investor’s own financial needs, investment goals or financial circumstances.

Performance of the Reference Asset

Historical prices of the Reference Asset should not be taken as an indication of the future performance of the Reference Asset during the Investment Term.  It is impossible to determine with certainty whether the Reference Asset will rise or fall. 

Coupons

Some Series may have the potential to pay Coupons, either during the Investment Term or at Maturity, or both. The Coupons may be Fixed Coupons, Performance Coupons or Conditional Coupons (or as otherwise specified in the relevant Term Sheet IM). Where a Coupon is Conditional or Performance based (e.g. determined based on the performance of the Reference Asset and/or the Strategy Value), there will not be a Coupon if the performance of the Reference Asset and/or the Strategy Value is not higher than the level described in the relevant Term Sheet IM.  

For example, a particular Series may pay a Final Coupon of 20%, provided that the Performance of the Reference Asset is greater than a specified percentage (for example a Series may have a Hurdle set at 10%). Investors need to refer to the relevant Term Sheet IM for detailed calculations of Coupons.

Investors should note that if the Coupons cannot be set to a level satisfactory to the Issuer for a particular Series, for example if there is a significant movement in its cost of hedging prior to the Commencement Date, then the Issuer may, at its discretion, withdraw the offer of Units in that particular Series.

For some Series, the Coupons may be determined in a foreign currency before being converted to Australian Dollars. Even if a Coupon is payable, it may not be sufficient to cover the costs such as Prepaid Interest and any other applicable Fees (as set out in the Term Sheet IM).

Further information and worked examples on the Coupons and how they are calculated may be found the relevant Term Sheet IM.

Investment Loan risks

In the event of an Investor requested Issuer Buy-Back which is accepted by the Issuer or an Early Maturity Event, Investors will not be entitled to a refund of any Prepaid Interest or any other Fees.

Loan Break Costs may also apply if your Investment Loan is repaid prior to the Maturity Date.

The Lender may exercise its rights to effect repayment of your Investment Loan in the event of non-payment, or in certain circumstances you may be deemed to have elected to use the Agency Sale Option.  You will be deemed to direct the Issuer to hold the Delivery Parcel on your behalf and to authorise and direct the Issuer (or its nominees) to sell or procure the sale of the Delivery Parcel and to apply the resulting Sale Monies (which includes a deduction for any Delivery Costs) to pay the Lender an amount equal to the outstanding Loan Amount, and any surplus will be paid to you. The Sale Monies will be applied first to the Investment Loan.

As the Investment Loan is a limited recourse loan, the Lender cannot take action against Investors to recover any amount beyond the Investor’s interest in the Units.

Prepaid Interest and other applicable Fees

The Investment Amount or Prepaid Interest and any other applicable Fees for the Investment Term must be prepaid by Investors by the relevant Application Payment Date and/or such other date as set out in the relevant Term Sheet IM. Investors must provide direct debit details with their Application. Cleared funds must be received by the Issuer by the Application Payment Date or such other date specified in the Term Sheet IM. 

There is no guarantee that the Units will generate returns in excess of the Prepaid Interest and any other Fees. Additionally, in the event of an Investor requested Issuer Buy-Back, an Early Maturity Event or if Investors elect to repay their Investment Loan prior to the Maturity Date, they will not receive a refund of any of the Prepaid Interest or other Fees.

General market risk

The performance of the Reference Asset will largely determine the market price of the Units.  The volatility of the Reference Asset, and, where the Reference Asset is an index, the market price of the securities or commodities that comprise the Reference Asset and other interrelated and complex factors and general risks applicable to financial markets on which those securities or commodities will be traded (such as investor confidence and present and expected future global economic conditions) will be relevant as well.

Tax Risk

Investing in the Units may have tax consequences. Investors should obtain independent tax advice prior to investing in any Units. The expected tax implications of entering into and exiting of the Units at Maturity may change as a result of changes in the taxation laws or changes in interpretation of them by the ATO. 

No claim against underlying asset

You do not have any interest in or rights to the Reference Asset to which the Units relate.  Any claim against the Delivery Assets only arises after Maturity and upon taking physical delivery of them.

Interest Rate Risk

You are exposed to the movement of interest rates whenever you redeem, transfer or sell your Units prior to the Maturity Date.  Movements in interest rates will have an impact upon the value of Units.  As interest rates move upwards, the value of the Units generally fall.

Settlement Risk

Upon purchasing the Units, you assume settlement risks relating to the Issuer failing to deliver the Delivery Assets.  The Issuer believes this risk is remote however a delay in delivering the Delivery Parcel and/or Sale Monies could occur.

Compounding of risks

An investment in the Units involves risks and should only be made after assessing the direction, timing and magnitude of potential future changes in the value of the Reference Asset, and the terms and conditions of the Units as contained in the IM.

More than one risk factor may have simultaneous effects with regard to the Units such that the effect of a particular risk factor may not be predictable.  In addition, more than one risk factor may have a compounding effect which may not be predictable.  No assurance can be given as to the effect that any combination of risk factors may have on the value of the Units.

Break Costs

The Issuer may deduct Break Costs in relation to Early Maturity (whether following an Early Maturity Event or Issuer Buy-Back).  The Break Costs will form part of the calculation of the amount you will receive if your Issuer Buy- Back request is permitted or if an Early Maturity Event occurs.  Break Costs include all costs, expenses and losses reasonably incurred by the Issuer as a result of the determination of an Early Maturity Date, Buy-Back Date or other early termination, unwinding of any hedge position entered into in connection with the Units, or any loss of bargain.  Break Costs could be significant and may not be in your favour.  Break Costs will depend on the economic value the Issuer achieves on the unwinding of its hedge position (i.e. the amount it achieves on the sale or unwind of the options that underlie the Units).  The economic value the Issuer achieves will be reliant on several factors including but not limited to market liquidity, volatility, interest rates, market prices, foreign exchange rates, and the time to Maturity. The economic value that the Issuer achieves may be minimal or nothing.

The impact of these factors is largely unknown and is dependent on movements in financial markets.  Investors and their advisers may contact the Issuer and request an estimate of the Buy-Back Price (including Break Costs) that would apply to Units in the few weeks leading up to each Buy-Back Date.  The Issuer will provide estimates of Buy-Back Prices (which will include Break Costs) to Investors when it is able to accurately value the Units to enable them to determine the likely Buy-Back Price if the Investor requests an Issuer Buy-Back.  However, the actual Buy-Back Price at which the Issuer will buy-back your Units will not be known at the time an Issuer Buy-Back request is made and may be significantly less than the estimate provided.

Investors should also note that they will be required to repay the Investment Loan on an Issuer Buy-Back.  The Issuer will provide the Investor with an estimate of the amount outstanding on the Investment Loan, calculated by the Issuer, acting in good faith and a commercially reasonable manner, and subject to interest rates, liquidity, Loan Break Costs and other relevant factors, upon request from the Investor.  If the Investor does not repay the Investment Loan before the Buy-Back Date, the Buy-Back Price will first be applied towards repayment of the Investment Loan.  However, as the Investment Loan is a limited recourse loan, the Lender cannot take action against the Investors to recover any amount beyond the Investor’s interest in the Units. In the case of Early Maturity or Issuer Buy-Back, Investors will not receive a refund of the Prepaid Interest.

A minimum Early Maturity Value and/or minimum Buy-Back Price may apply in respect of a Series. Please refer to the relevant Term Sheet IM.

Derivatives risk

Derivatives (such as swap agreements, deferred purchase agreements, options, futures, forward rate agreements and forward foreign exchange contracts) may be utilised by the Issuer to manage risk or to gain exposure to individual securities, currencies and investment markets.  Risks associated with using derivatives include the value of the derivative failing to move in line with the underlying asset, potential illiquidity, and counterparty risk (this is where the counterparty to the derivative contract cannot meet its obligations under the contract).  Any such risk occurring is likely to adversely impact on the value of your Units prior to Maturity.

Regulatory risk

The following risks may apply when investing in the Units:

• characteristics of the Units may change;
• taxation, superannuation and other laws and their interpretation are subject to continual change and may affect the tax implications or other characteristics of your investment;
• Investors, particularly superannuation fund trustees must be satisfied that the Units are a permissible investment and suitable for their superannuation fund;
• there may be different tax consequences for different Investors compared to investing directly in underlying investments;
• there may be different tax consequences for Investors investing directly in the Reference Asset and those investing through an Investor Directed Portfolio Service operator;
• the Units could be, by regulation, deemed not to be securities but another class of financial product;
• the Reference Asset could be terminated or cease to exist; and
• the Issuer’s hedging arrangements could be adjusted, amended or terminated.

Managing your risks

You can always help manage risks.  Importantly, you can manage risk by:

• obtaining professional investment advice to determine whether the Units suit your investment objectives, financial situation, and particular needs; and
• reading all the information in this Master IM and the relevant Term Sheet IM before investing in the Units and making sure you understand what it is you are investing into.

Investing for the suggested minimum investment timeframe does not eliminate the risk of loss, although the Investment Loan is limited recourse to your interest in the Units and any assets which replace the Units (including without limitation any associated Coupons, Delivery Parcel, or Sale Monies).  You should note that the amount of the Investment Amount, Prepaid Interest, any Fees are at risk as there is no guarantee that returns on the Units will be in excess of these amounts.  You should consider your investments in light of your investment objectives, financial situation and particular needs and seek independent investment advice.