Understanding Yield-Strategies

Using the S&P 500

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Disclaimer

The information contained in this document is general information only and does not

constitute personal financial advice. It does not take into account any person’s financial

objectives, situation or needs. It has been prepared with all reasonable care by BetaShares

Capital Limited (ABN 78 139 566 868, Australian Financial Services Licence No. 341181)

(“BetaShares”). The information is provided for information purposes only and should not

be construed as an offer or solicitation. BetaShares assumes no responsibilities for errors,

inaccuracies or omissions in this document. Performance and statistical results noted are

unaudited. Past performance is not indicative of future performance. Investments in

BetaShares Funds are subject to investment risk and investors may not get back the full

amount originally invested. Any person wishing to invest in BetaShares Funds should

obtain a copy of the relevant PDS from www.betashares.com.au and obtain financial advice

in light of their individual circumstances.

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Necessity is the mother of innovation

1. Investors need more income and less volatility as they age

2. Typically limited yield available from US stocks

3. Interest rates have been declining and are at historic lows

4. Recent market events have shown how volatile equities can be

5. Investors are finding it difficult to rely upon traditional exposure to cash, bonds or equities to deliver adequate income with reasonable volatility

6. A different approach is available

Confidential – may not be distributed without the consent of BetaShares Capital

A solution: enhance yields and reduce risk from shares

Potential for greater yield than dividends alone in most market conditions

Retain exposure to US equities The opportunity for some capital appreciation

Reduced volatility

Downside risk management

Equity Income Strategies – a Conservative Approach to

Equity Investing

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• Additional income from selling away some of the upside potential

• Buying a share and simultaneously selling, or “writing”, call options

• The investor is selling to the buyer of the option, for a premium, the

right to buy the relevant share

• Option “premiums” provide an additional source of income to the

investor

• In addition, option premium earned will partially hedge against any

decline in the price of the relevant shares

How can an investor earn higher income from

shares?

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BetaShares S&P 500 Equity Yield Maximiser Fund

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S&P 500 Yield Maximiser Fund – exposure to the

biggest stocks in the US, with potential for higher

income!

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Equity Yield Maximiser Fund offers competitive

levels of income combined with reduced volatility

Dividends on passive

stock portfolio

Premium on call options

sold

UMAX Total Income

Sources of income in BetaShares Equity Yield Maximiser Fund

Distribution Yield (December Quarter): 1.6%

Past performance is not an indicator of future performance

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S&P 500 Equity Income Strategy – Total Returns

and Volatility

CBOE S&P 500 2% OTM BuyWrite Index (BXY)(1) v S&P 500: June 1998 – June 2014

Source: CBOE, (1) The BXY index portrays the total return of a buy-write strategy investing in a portfolio of stocks represented by the S&P 500 index,

along with call options over the S&P 500 index which are 2% out-of-the money. The returns from this index provide a general illustration of how an equity

income (buy write) strategy may perform in different market conditions. The BetaShares S&P 500 Equity Yield Maximiser Fund will use an equity income

strategy that contains elements of the BXY strategy, along with certain modifications that seek to optimise the strategy. As a result the strategy of the

BetaShares S&P 500 Yield Maximiser Fund is not identical to what is depicted here, and the performance described in this slide is not indicative of the

future performance of the Fund.

BXY

Equity

Income

Index

S&P 500

Index

Annual return

(%, p.a.)

11.0% 10.3%

Volatility (%, p.a) 14.4% 18.0%

Sharp Ratio (#) 0.76 0.57

Over the long term equity income strategy using options produced better returns with less

volatility than an equity only strategy

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October 2007 – April 2009

Example: S&P 500 Equity Income Strategy

outperforming in a bear market

40

50

60

70

80

90

100

110

Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

CBOE S&P 500 2% OTM BuyWrite Index (BXY)(1)

S&P 500 Total Return Index

-33%

-46%

Source: CBOE, (1) The BXY index portrays the total return of a buy-write strategy investing in a portfolio of stocks represented by the S&P 500 index,

along with call options over the S&P 500 index which are 2% out-of-the money. The returns from this index provide a general illustration of how an equity

income (buy write) strategy may perform in different market conditions. The BetaShares S&P 500 Equity Yield Maximiser Fund will use an equity income

strategy that contains elements of the BXY strategy, along with certain modifications that seek to optimise the strategy. As a result the strategy of the

BetaShares S&P 500 Yield Maximiser Fund is not identical to what is depicted here, and the performance described in this slide is not indicative of the

future performance of the Fund.

Confidential – may not be distributed without the consent of BetaShares Capital 11

June 1992 - July 1995

Example: S&P 500 Equity Income Strategy

outperforming in a modest bull market

80

90

100

110

120

130

140

150

160

May-92 Aug-92 Nov-92 Feb-93 May-93 Aug-93 Nov-93 Feb-94 May-94 Aug-94 Nov-94 Feb-95 May-95

47%

43 %

CBOE S&P 500 2% OTM BuyWrite Index (BXY)(1)

S&P 500 Total Return Index

Source: CBOE, (1) The BXY index portrays the total return of a buy-write strategy investing in a portfolio of stocks represented by the S&P 500 index,

along with call options over the S&P 500 index which are 2% out-of-the money. The returns from this index provide a general illustration of how an equity

income (buy write) strategy may perform in different market conditions. The BetaShares S&P 500 Equity Yield Maximiser Fund will use an equity income

strategy that contains elements of the BXY strategy, along with certain modifications that seek to optimise the strategy. As a result the strategy of the

BetaShares S&P 500 Yield Maximiser Fund is not identical to what is depicted here, and the performance described in this slide is not indicative of the

future performance of the Fund.

Confidential – may not be distributed without the consent of BetaShares Capital 12

June 1993 - June 1994

Example: S&P 500 Equity Income Strategy

outperforming in a range bound market

70

75

80

85

90

95

100

105

110

115

Jun-93 Sep-93 Dec-93 Mar-94 Jun-94

7%

4%

CBOE S&P 500 2% OTM BuyWrite Index (BXY)(1)

S&P 500 Total Return Index

Source: CBOE, (1) The BXY index portrays the total return of a buy-write strategy investing in a portfolio of stocks represented by the S&P 500 index,

along with call options over the S&P 500 index which are 2% out-of-the money. The returns from this index provide a general illustration of how an equity

income (buy write) strategy may perform in different market conditions. The BetaShares S&P 500 Equity Yield Maximiser Fund will use an equity income

strategy that contains elements of the BXY strategy, along with certain modifications that seek to optimise the strategy. As a result the strategy of the

BetaShares S&P 500 Yield Maximiser Fund is not identical to what is depicted here, and the performance described in this slide is not indicative of the

future performance of the Fund.

Confidential – may not be distributed without the consent of BetaShares Capital 13

July 2013 – June 2014

Example: S&P 500 Equity Income Strategy lagging

in a strong bull market

90

95

100

105

110

115

120

125

Jun-13 Sep-13 Dec-13 Mar-14

22%

18%

CBOE S&P 500 2% OTM BuyWrite Index (BXY)(1)

S&P 500 Total Return Index

Source: CBOE, (1) The BXY index portrays the total return of a buy-write strategy investing in a portfolio of stocks represented by the S&P 500 index,

along with call options over the S&P 500 index which are 2% out-of-the money. The returns from this index provide a general illustration of how an equity

income (buy write) strategy may perform in different market conditions. The BetaShares S&P 500 Equity Yield Maximiser Fund will use an equity income

strategy that contains elements of the BXY strategy, along with certain modifications that seek to optimise the strategy. As a result the strategy of the

BetaShares S&P 500 Yield Maximiser Fund is not identical to what is depicted here, and the performance described in this slide is not indicative of the

future performance of the Fund.

Confidential – may not be distributed without the consent of BetaShares Capital

What are the main risks?

• Holding underlying shares so exposed to

same risks as if held U.S. shares, although

volatility should be lower due to additional

income

• Complexity of implementing and managing

strategy

• Upside potential of Fund is limited

• Currency risk

Please refer to PDS for further information on risks

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Clients who may be suited to an equity income strategy

1. Clients focused on diversified market exposure combined with high yield

2. Clients looking for a more conservative equities exposure

3. Clients looking for relatively high and regular income

4. Advisers with clients on platforms seeking high yield, low turnover, market exposure

More broadly, clients seeking higher income, lower risk from an U.S. equities portfolio

Characteristics of an equity income strategy are particularly relevant to retirees and

SMSFs, although suitable for a wide range of investor types

15

Confidential – may not be distributed without the consent of BetaShares Capital 16

The Benefits of Australian Domiciled Funds

BetaShares/Investment Trends ETF Report for 2013 found that US tax forms were

the #1 problem investors encountered with ETFs (i.e. cross-listed ETFs)

W-8 BEN form is renewable every

3 years in order for investors in

US-domiciled funds to benefit

from reduced withholding tax (i.e.

from 30% to 15%)

Investors in Australian Domiciled

Fund (e.g. S&P 500 Yield

Maximiser Fund) do not need to

fill out a W-8 BEN form to benefit

from reduced US withholding tax

Confidential – may not be distributed without the consent of BetaShares Capital 17

FOR MORE INFORMATION Website

Visit www.betashares.com.au

info@betashares.com.au

Blog: www.betasharesblog.com.au

Twitter: @betashares

1300 487 577 (within Australia)

+61 2 9290 6888 (outside Australia)

Confidential – may not be distributed without the consent of BetaShares Capital 18