MACQUARIE ENHANCED RESOURCE & COMMODITY SECURITIES SERIES 3 & 4 PRODUCT DISCLOSURE STATEMENT 13 JULY 2005

Transcription

1 MACQUARIE BANK LIMITED MACQUARIE ENHANCED RESOURCE & COMMODITY SECURITIES SERIES 3 & 4 PRODUCT DISCLOSURE STATEMENT 13 JULY 2005

2 Important Information This Product Disclosure Statement (PDS) was prepared on 13 July 2005 and is issued by Macquarie Bank Limited ABN (MBL or Macquarie). MBL holds Australian financial services licence no A Glossary of capitalised terms used in this PDS appears in Section 14 of this PDS. The PDS invites you to apply for an investment in two Series of Macquarie Enhanced Resource and Commodity Securities ( MERC Securities ). A MERC Security is an agreement between the investor and Macquarie governed by the terms of a deferred purchase agreement set out in Section 12 of this PDS which provides exposure to the movement in commodity sub-indices comprising futures contracts. MERC Securities are warrants in accordance with the definition in Corporations Regulation (1) and securities as defined in section 761A of the Corporations Act. Distribution and Jurisdiction The offer is only open to persons who receive the PDS in Australia. If you receive the PDS in electronic form you are entitled to obtain a paper copy (including the Application Form) free of charge by contacting MBL (its contact details are on the back cover of this PDS or you can call ). The PDS is not required to be lodged with ASIC. Changes to Information in the PDS If any information in this PDS changes in a manner that is not materially adverse to investors, we may update that information by posting the updated information on the MERC Security website: www. macquarie.com.au/mercs. A paper copy of the updated information is also available upon request and free of charge by contacting MBL on Independent Advice Recommended None of Macquarie, its related bodies corporate and their directors, officers or employees makes any recommendation as to the suitability of MERC Securities for any investor. The PDS does not contain personal investment advice. The information in this PDS is general information only and has been prepared without taking into account your individual objectives, financial situation or needs. Consequently you should consider whether the information in this PDS is appropriate for you in light of your objectives, financial situation and needs. Before making an investment on the basis of the PDS you should speak to an Australian financial services licensee or an authorised representative to consider whether an investment in MERC Securities is appropriate in the view of your particular investment needs, objectives and financial and taxation circumstances. It is important that you read the entire PDS before making any decision to invest. In particular, in considering the prospects of MERC Securities it is important that you consider the risk factors that could affect the financial performance of your investment. The risk factors that MBL thinks an investor should consider are referred to in Section 8 of this PDS. MBL authorises the use of the PDS as disclosure to clients and prospective clients of an investor directed portfolio service (IDPS) (including any wrap account or master trust). Persons investing in an IDPS and directing the operator of the IDPS to invest in MERC Securities will not be the investors in MERC Securities. It is generally the operator of the IDPS who holds the investment and so has the rights of an investor. Therefore persons who invest in the IDPS must consider their rights under the IDPS and take into account all fees and costs under the IDPS. Investments in MERC Securities are not deposits with Macquarie and are subject to investment risk, including possible delays in repayment and loss of principal invested. None of Macquarie, or any other member companies of the Macquarie Group guarantees any particular rate of return or the performance of the MERC Securities except as set out otherwise in this PDS. Please note that cooling off rights do not apply in respect of an investment in MERC Securities. Privacy Act Please read the privacy collection statement in the Application Form attached to this PDS. By signing the Application Form you consent to the matters outlined in that statement. Delivery Security Prescribed Entities References in this PDS to BHP Billiton Limited (BHP) and Rio Tinto Limited (RIO) are included solely for the purposes of identification of the Delivery Securities to which the MERC Securities relate. Such references are not to be construed as an express or implied endorsement of MERC Securities by BHP or RIO, nor do either of them accept any responsibility for any statement or representation in the PDS or accept any liability in respect of MERC Securities. This PDS has been prepared by Macquarie on the basis of publicly available information. BHP and RIO have not been party to its preparation nor have they furnished any information specifically to Macquarie for the purposes of preparation of the PDS. Commodity Asset Prescribed Entity MERC Securities are not sponsored, endorsed, sold or promoted by Goldman, Sachs & Co. ( Goldman ). Goldman makes no representation or warranty, express or implied, to the owners of the MERC Securities or any member of the public regarding the advisability of investing in securities generally or in the MERC Securities particularly or the ability of the Goldman Sachs Commodity Index ( GSCI Index ) or the commodity sub-indices of the GSCI Index to track general commodity market performance. Goldman s only relationship to Macquarie Bank Limited is the licensing of the GSCI Index and the relevant sub-indices of the GSCI Index, which is determined, composed and calculated by Goldman without regard to Macquarie Bank Limited or the MERC Securities. Goldman has no obligation to take the needs of Macquarie Bank Limited or the owners of the MERC Securities into consideration in determining, composing or calculating the GSCI Index and the relevant sub-indices of the GSCI Index. Goldman is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the MERC Securities to be issued or in the determination or calculation of the equation by which the MERC Securities are to be converted into cash. Goldman has no obligation or liability in connection with the administration, marketing or trading of the MERC Securities. GOLDMAN DOES NOT GUARANTEE THE QUALITY, ACCURACY AND/OR THE COMPLETENESS OF THE GSCI INDEX OR ITS SUB-INDICES OR ANY DATA INCLUDED THEREIN. GOLDMAN MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MACQUARIE BANK LIMITED, OWNERS OF THE MERC SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE GSCI INDEX OR ITS SUB-INDICES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. GOLDMAN MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE GSCI INDEX OR ITS SUB- INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL GOLDMAN HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. The Goldman Sachs Commodity Index (GSCI ) and its sub-indices are service marks of Goldman, Sachs & Co. and have been licensed for use by Macquarie Bank Limited for use in connection with MERC Securities. The MERC Securities are not sponsored, endorsed, sold, or promoted by Goldman, Sachs & Co. or any of its affiliates. Neither Goldman, Sachs & Co. nor any of its affiliates make any representation regarding the advisability of investing in MERC Securities.

3 Contents 01 Investment Overview Why Invest In Commodities? Key Features The Commodity Asset Details Of The Investment Term Sheets Historical Performance Of The Commodity Asset And Corresponding Performance Of Merc Securities Risks Taxation Considerations Additional Information Description Of Macquarie Terms And Conditions Nominee Deed Glossary How To Apply...83 MACQUARIE FORTRESS i

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5 Investment Overview Macquarie Enhanced Resource & Commodity Securities provide you with the potential for capital growth through exposure to a diverse range of actively produced commodities, while giving you the ability to maintain a level of capital protection 1 for your investment at Maturity. While there can be benefits from including commodity exposure in an investment portfolio, for many retail investors commodity-linked investments represent a relatively new and potentially volatile phenomenon and until recently have been difficult to access. Macquarie Enhanced Resource & Commodity Securities ( MERC Securities ) provide retail investors with a new opportunity to gain exposure to commodities and at the same time provide a level of assurance through a level of capital protection at Maturity and the benefit of diversification across the five primary commodity sectors: Energy, Industrial Metals, Precious Metals, Agriculture and Livestock. 1.1 The Investment An investment in MERC Securities gives you: Exposure to a diversified basket of five Goldman Sachs Commodity Sub-indices. At the date of this PDS the sub-indices comprise a total of 24 individual commodity futures contracts from the five commodity sectors; A term of approximately five years; Capital protection 1 at the relevant capital protection level at Maturity; and Delivery of a parcel of ASX-listed shares at Maturity with a value (at the Valuation Time) equal to the value of your investment at Maturity. Two Series of MERC Securities are offered in this PDS, each providing commodity exposure to a basket of five Goldman Sachs Commodity Subindices. The basket is equally weighted on the Investment Date between the five sub-indices to provide diversified exposure: Sub-index weighting on the Investment Date The two Series of MERC Securities in this PDS offer two different combinations of capital protection and degrees of exposure (through the relevant level of the Participation Rates ) to any positive performance of the basket of Goldman Sachs Commodity Sub-indices over five years as set out on the following page. You can choose to invest in one Series or both. 1 1 The capital protection is provided by an obligation on Macquarie to transfer to you securities which have a Market Value at the Valuation Time equal to the value of your MERC Securities at Maturity (subject to rounding). See Section 5.5 for more information. MACQUARIE INVESTMENT FORTRESS OVERVIEW FUND 1

6 Series 3 MERC Securities 100% capital protection at Maturity. Indicative Participation Rate of 120%* of any increase in the value of the basket of Goldman Sachs Commodity Sub-indices. If the basket of Goldman Sachs Commodity Sub-indices falls in value over the Term, Series 3 MERC Securities will still have a value at Maturity equal to 100% of the Purchase Price because this Series has a Capital Protection Level of 100%. Series 4 MERC Securities 75% capital protection at Maturity. Indicative Participation Rate of 170%* of any increase in the value of the basket of Goldman Sachs Commodity Sub-indices. If the basket of Goldman Sachs Commodity Sub-indices falls in value over the Term, the return on Series 4 MERC Securities will fall by a corresponding percentage However Series 4 MERC Securities will have a value no less than 75% of the Purchase Price at Maturity because this Series has a Capital Protection Level of 75%. * This level of participation is indicative only. The actual Participation Rate that will apply to each Series of MERC Securities will be set as at the Investment Date. Once set, the Participation Rate will not change throughout the Term. However, you may select a pre-defined minimum level of the actual Participation Rate and your application will be automatically withdrawn if the actual Participation Rate achieved on the Investment Date is less than that pre-defined level (referred to as a Participation Floor - see Section 5.4.2). What are commodity futures contracts? Each of the five Goldman Sachs Commodity Sub-indices comprise a number of individual exchangetraded commodity futures contracts. Commodity futures contracts are financial instruments which establish a price today to buy or sell, at a future date, a defined quantity and quality of the physical commodity. One feature of futures contracts is that they do not require the physical commodity to be exchanged when the futures contract is entered into, or at maturity, if the futures contract is cash settled. It can be shown that historically the return on an investment in commodity futures contracts has been highly correlated with the return on an investment in the corresponding physical commodities. 2

7 1.2 Key Benefits The potential to earn capital growth over the term of the investment if the value of the basket of Goldman Sachs Commodity Sub-indices rises. Enhanced exposure to the basket of Goldman Sachs Commodity Sub-indices depending on the actual Participation Rates set by Macquarie as at the Investment Date. The potential to diversify your investment portfolio on the basis that commodity futures contract prices have historically displayed negative correlation with equities and bonds over quarterly, annual and five year horizons (see below for an explanation of what is correlation ). This means that an investment like MERC Securities that is linked to commodity futures contract prices may provide a hedge against negative returns on equities and bonds. The potential to reduce the impact of inflation on your investment portfolio on the basis that commodity futures contract prices have historically displayed positive correlation with inflation. Limitation of loss through capital protection at the Capital Protection Level at Maturity. An investment term of approximately five years. A simple set and forget investment as no instalment payments are made whilst you hold MERC Securities until Maturity. Quarterly liquidity with Early Termination Value estimates provided monthly. An eligible investment for Self Managed Super Funds. 1.3 Who Might MERC Securities Suit? MERC Securities may be suitable for you if: You believe the basket of Goldman Sachs Commodity Sub-indices will increase in value over the Term and therefore provide you with the potential to enhance the capital growth on your investment portfolio. You value the peace of mind gained from knowing the initial value of your investment is capital protected at Maturity to your chosen Capital Protection Level. You are seeking to diversify your portfolio holdings with an asset that has historically displayed negative correlation with equities and bonds over quarterly, annual and five year horizons. You are seeking to protect the real value of your investment with an asset that has historically displayed positive correlation with inflation. You want a low maintenance investment which does not make income distributions over the Term. The suitability factors listed above are of a general nature only and do not constitute advice about your individual situation. You should seek professional advice about whether MERC Securities are suitable for your individual needs, taking into account the risks associated with an investment in MERC Securities as outlined in Section 8. What is correlation? Correlation measures how strongly two variables are related, or change, with each other. If two variables tend to move up or down together, they are said to be positively correlated. If they tend to move in opposite directions, they are said to be negatively correlated. If the value of two investments is said to be negatively correlated then, to the extent that the value of one goes down, the value of the other can be expected to increase. 1 INVESTMENT OVERVIEW 3

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9 Why Invest In Commodities? 2.1 Worldwide Price Trends After a prolonged period of falling commodity prices, from 1995 to 2002, most commodity markets have experienced higher prices since Trends in commodity prices differ between commodity sectors. For example the Goldman Sachs Industrial Metals Excess Return index rose by 68% from the beginning of January 2002 to the start of June Over the same period the Goldman Sachs Precious Metals Excess Return index rose by 42%, the Goldman Sachs Livestock Excess Return index rose by a modest 6% and the Goldman Sachs Agriculture Excess Return index finished the period down 6%. The most significant of all price trends was the substantial return on the Goldman Sachs Energy Excess Return index which rose by 156% over that period. 2.2 Forces of Supply and Demand The following comments were made in a UN Report titled World commodity trends and prospects (August 2004). 2 The general increase in commodity prices in 2003 and the first half of 2004 can be attributed to the general, albeit uneven, recovery of the world economy and to fast increasing commodity demand in Asia, especially China. China and India have a combined population of 2.3 billion people and are at a stage of industrialization (with China somewhat ahead of India) where per capita commodity consumption tends to increase rapidly. They are likely to remain at this stage for the next several years. The need for major investments in infrastructure in both countries will lead to rising demand for construction materials and other raw materials. Lifestyle changes, including dietary patterns, brought on by rising income and urbanization, will change the composition of China s agricultural imports, and also in India s agricultural imports, although to a smaller extent. For example imports of non-traditional products such as coffee and cocoa are increasing. The rising price of certain commodities can also be attributed to supply-side factors. For example there is concern about the adequacy of oil production capacity in the medium term and about reserves in the long term. With respect to agricultural goods, productivity improvements in both China and India would be expected to lead to increasing agricultural production. However, in both countries, shortages of arable land may be a constraint on production increases. The UN Report concludes that Chinese and Indian demand growth will provide a major dynamic stimulus to international commodity markets over the next several years, and, although problems of oversupply of individual commodities will continue to affect export earnings and producers incomes, the general trend should be positive. 2.3 A New Investment Asset Class Despite the fact that commodities represent the raw materials and natural resources essential for everyday life, commodity-linked investment products are a relatively new phenomenon for retail investors. It has also been found by various analysts that historically the risk/return profile of a balanced portfolio improves when a portion of the portfolio is allocated towards commodities. This means that an investment in commodities may be beneficial for retail investors. However, it must be remembered that historical performance is not an indication of future performance. 2 2 United Nations World Commodity Trends and Prospects, (pp 4,5,10,11) 27 August WHY INVEST IN MACQUARIE COMMODITIES? FORTRESS 5

10 2.4 The Argument for Portfolio Diversification A recent study from the Yale International Centre for Finance 3 which analysed the returns on an equally-weighted index of commodity futures from 1959 to 2004 found that the commodity futures returns displayed negative correlation with equity returns and bond returns when held over quarterly, annual and 5 year horizons. The study suggested that commodity futures are effective in diversifying equity and bond portfolios. It was also found that commodity futures earn above average returns when equities earn below average returns and thus it seems that the diversification benefits of commodity futures work well when they are needed most. 2.5 Concerns About Inflation The same Yale study described in the previous paragraph also shows that: the correlation of commodity futures with inflation is positive at all horizons while equities and bonds are negatively correlated with inflation; and commodity futures perform better in periods of unexpected inflation, when equities and bond returns generally disappoint. 2.6 No Equity-Related Risk Whilst it has been possible in the past to gain indirect exposure to commodity prices by investing in equities with commodity-related activities, it has been shown historically that an investment in commodity-related equities has not been a close substitute for an investment in commodity futures. The correlation of the returns from each of these investments can be affected, among other things, by equity-related factors such as the increasing level of capital expenditure required by commodity-linked companies to meet demand. The commentary referenced in this section (see footnotes 2 and 3 on pages 5 and 6 is based on extracts from statements made in certain journals and publications that Macquarie deems to be reliable. However, Macquarie has not verified the accuracy of the information contained in the relevant journals and publications that have been referenced and cannot guarantee its accuracy and Investors should rely on their own enquiries. Investors should also note that while Macquarie has prepared the general commentary, commodity prices may be impacted by various global and domestic economic, financial, political, regulatory, technological and environmental factors. It is not possible to predict the occurrence or magnitude of these and other potentially relevant factors and each commodity sector may be affected differently by the different factors and at different times. The information in this section is general in nature and Investors should note that historical performance is not indicative of future performance. Investors are advised to seek independent professional advice when considering whether an investment in MERC Securities is appropriate for their individual situation. 6 3 Gorton, G & Geert Rouwenhorst, K Facts and Fantasies About Commodity Futures Yale ICF Working Paper No (pp 1,14,16, 20, 32) 14 June 2004.

11 Key Features 3 TOPIC SUMMARY WHERE TO FIND MORE Issuer of MERC Securities and the PDS The Investment Macquarie Bank Limited ( Macquarie or MBL ), of 1 Martin Place Sydney NSW 2000, Australian financial services licence number , is the issuer of MERC Securities. MERC Securities provide you with medium-term exposure to the performance of the Commodity Asset with a pre-determined level of capital protection applying at Maturity. Under this PDS you have the opportunity to invest in two separate Series of MERC Securities each of which has a different level of capital protection and a different rate of participation in any positive returns of the Commodity Asset. Section 11: Description of Macquarie Section 5.1: What are MERC Securities? The Structure When you purchase a MERC Security you enter into a deferred purchase agreement with Macquarie the terms of which are governed by the Terms and Conditions in Section 12 and other Sections of this PDS. This means that in return for paying the Purchase Price per MERC Security, at Maturity you are entitled to have transferred to you, and Macquarie agrees to deliver to you on or before the Settlement Date, the Delivery Securities the Market Value of which at the Valuation Time equals the Aggregate Termination Value of your MERC Securities subject to any Aggregate Rounding Amount. Section 5.1: What are MERC Securities? Purchase Price The Purchase Price is $1 per MERC Security. Section 6: Term Sheets Minimum Application Amount The Minimum Application Amount for each Series of MERC Securities is $2,000 and thereafter in multiples of $1,000. Section 6: Term Sheets MACQUARIE KEY FEATURES FORTRESS 7

12 TOPIC SUMMARY WHERE TO FIND MORE Termination Value Capital Protection Level The Termination Value of your MERC Security on the Maturity Date will be determined by reference to: the performance of the Commodity Asset over the Term; the Participation Rate set as at the Investment Date (the greater the Participation Rate, the greater the impact of a positive Commodity Asset Return on the Termination Value); and the Capital Protection Level. Each MERC Security will have a minimum Termination Value at Maturity - this is referred to as the Capital Protected Value and is the Capital Protection Level multiplied by the Purchase Price. Capital protection does not apply in the event of a termination of MERC Securities before Maturity or to the proceeds from a transfer of MERC Securities to a third party - in these cases, there is no Capital Protected Value. The Capital Protection Level is the level of capital protection that applies to a MERC Security at Maturity. The Capital Protected Value for a MERC Security will be the Purchase Price multiplied by the Capital Protection Level. Series 3 MERC Securities have a Capital Protection Level of 100% at Maturity which means that the Termination Value at Maturity of those MERC Securities will be at least equal to the Purchase Price. Series 4 MERC Securities have a Capital Protection Level of 75% at Maturity which means that the Termination Value at Maturity of those MERC Securities will be at least 75% of the Purchase Price. To the extent that there is a negative return on the Commodity Asset at Maturity, the value of Series 4 MERC Securities will fall by the same percentage but only down to the Capital Protection Level and no further. On or prior to the Settlement Date you are entitled to be delivered Delivery Securities the Market Value of which at the Valuation Time is equal to the Aggregate Termination Value of your MERC Securities (subject to any Aggregate Rounding Amount). Whilst the value of the Commodity Asset may be more volatile than other investments such as Australian equities and bonds, the Capital Protection Level ensures that your exposure to a fall in the value of the Commodity Asset at Maturity is limited, whilst still allowing you to benefit from a rise in value. Section 5.2: Termination Value of a MERC Security Section 5.6: Calculating the Termination Value and Aggregate Termination Value Section 5.5: Capital Protected Value Section 6: Term Sheets 8

13 TOPIC SUMMARY WHERE TO FIND MORE Capital Protection Level (cont d) It is important to note that the Capital Protection Level only applies to the Purchase Price per MERC Security issued to you. The Capital Protection Level does not apply to the amount of the Application Fee deducted from your Application Amount. Capital protection also does not apply in the event of a termination of MERC Securities before Maturity, to the proceeds from a transfer of MERC Securities, or to the value of the Delivery Securities at any time after the Valuation Time. In this PDS the Commodity Asset for both Series of MERC Securities is a basket of five Goldman Sachs Commodity Sub-indices each covering one of the commodity sectors of Energy, Industrial Metals, Precious Metals, Agriculture and Livestock. The basket is equally weighted on the Investment Date between the five sub-indices. Commodity Asset Section 4.1: What is the Commodity Asset? A Basket of Five Commodity Sub-indices 3 The performance of the Commodity Asset affects the value of MERC Securities. Whilst a MERC Security provides exposure to the performance of the Commodity Asset, it does not represent a direct investment in the Commodity Asset. The Participation Rate measures the percentage exposure of MERC Securities to any positive return on the Commodity Asset. The greater the Participation Rate, the greater the exposure of a MERC Security to any positive Commodity Asset Return at Maturity. For example if the Participation Rate was 120% and the Commodity Asset Return at Maturity was 30%, the value of the MERC Security at Maturity would be 36% higher than the Purchase Price. Participation Rate Section 5.4: Participation Rate Section 6: Term Sheets The Participation Rate for each Series of MERC Securities will be set by Macquarie on the Investment Date. Once set, the Participation Rate will not change over the Term. By way of example only, an Indicative Participation Rate is quoted in this PDS for each Series of MERC Securities. This Indicative Participation Rate is calculated based on data available as at 7 July 2005 and is set out in the Term Sheets in Section 6. Macquarie cannot guarantee that the Participation Rate on the Investment Date will be the same as the Indicative Participation Rates set out in this PDS. Updated estimates of the Participation Rates will be posted on: KEY FEATURES 9

14 TOPIC SUMMARY WHERE TO FIND MORE Participation Floors No distributions during the Term Settlement at Maturity Delivery Securities In order to provide you with some certainty about the Participation Rate which will be applicable to your investment in MERC Securities, Macquarie will give you the option to place a lower limit on the Participation Rate (known as the Participation Floor). If the Participation Rate determined by Macquarie as at the Investment Date is lower than your Participation Floor (if you choose one), you will be refunded your Application Amount. You are not obliged to select a Participation Floor to invest in MERC Securities. Series Participation Floor Series 3 105% Series 4 140% There will be no income distributions paid on MERC Securities during the Term. The Term of the MERC Securities offered in this PDS is approximately five years and commences on the Investment Date and ends on the Maturity Date. The Termination Value for a MERC Security on the Maturity Date will be at least the Capital Protected Value but may be more depending on the performance of the Commodity Asset over the Term. Your MERC Securities entitle you, at Maturity, to be delivered Delivery Securities on or before the Settlement Date the Market Value of which at the Valuation Time equals the Aggregate Termination Value subject to any Aggregate Rounding Amount. The Settlement Date is the day that is ten Business Days after the day of the Valuation Time or such other time as reasonably determined by Macquarie. Delivery Securities consist of ordinary shares in BHP Billiton Ltd and Rio Tinto Ltd except where Macquarie, in its reasonable opinion, determines that it is not able to deliver a particular number or type of Delivery Security to Investors in which case Macquarie may replace any of or add to the Delivery Securities with any other security or securities quoted and trading on the ASX which are included in the S&P/ASX 100 Resources Index or the S&P/ASX 100 Index. In addition if Macquarie receives a request from an Investor to substitute Delivery Securities with another security or securities chosen by the Investor and Macquarie, in its absolute discretion, agrees to such substitution, then Macquarie will deliver that substituted security or securities in accordance with the Terms and Conditions as if it were a Delivery Security. Section 5.4.2: Participation Floor Section 5.7: Number of Each Delivery Security Section 5.10: Delivery Securities 10

15 TOPIC SUMMARY WHERE TO FIND MORE Number of Each Delivery Security When you are transferred Delivery Securities after Maturity, you will receive a Number of Each Delivery Security which should give you approximately an equal value subject to the Aggregate Rounding Amount. The Aggregate Rounding Amount will be paid to you if it is greater than $2. Making an Application Once you have read this PDS, refer to Section 15: How To Apply, complete the Application Form at the back of this PDS and send it to the address specified on the form. Application Close Date To participate in a Series of MERC Securities offered under this PDS, Applications must be received by the Offer Closing Time which is 5pm on 9 September Notwithstanding this, Macquarie has a discretion to accept Applications received by it after that date up to and including the Investment Date. Issue Date This is the date on which your MERC Securities are issued to you and is the earlier of the date which is the day prior to one month after your Application (together with your Application Amount) is received by Macquarie and the Investment Date (assuming your Application is accepted by Macquarie). Where your Issue Date is before the Investment Date, the performance of the Commodity Asset is still determined by reference to the period commencing on the Investment Date. For each Application, the application money will be held in a trust account up until the Issue Date for the Application. Macquarie will keep any interest earned on money in the trust account. Investment Date The Investment Date is the start of the Term - the Investment Date for each Series of MERC Securities offered under this PDS is 14 September Confirmations If you provide contact details you will be notified by on or about the day your Application has been received. Confirmation of a successful Application for MERC Securities will be sent to you as soon as reasonably practicable after the Investment Date. Section 5.7: Number of Each Delivery Security Section 15: How to Apply Section 15: How to Apply Section 12: Terms and Conditions Section 6: Term Sheets Section 10.3: Communications From Macquarie 3 KEY FEATURES 11

16 TOPIC SUMMARY WHERE TO FIND MORE Early Terminations Scheduled Valuation Dates Transferability Investors may terminate their investment in MERC Securities each Quarter being each period ending on the last Business Day of each February, May, August or November during the Term. Early Termination Requests must be received in writing by Macquarie at least 10 Business Days before the end of a Quarter. The Investor will receive the Early Termination Value, less an Early Termination Fee, for each MERC Security Terminated. If an Early Termination Event occurs, Macquarie may also terminate all MERC Securities in the Series to which the Early Termination Event relates. Early Termination Events are defined in the glossary of this PDS. An Early Termination Fee will be deducted from the Early Termination Value for each MERC Security terminated prior to the Maturity Date. Macquarie reserves the right to waive the Early Termination Fee including where an Early Termination Event has occurred. Macquarie will calculate an indicative Early Termination Value for each Series of MERC Securities on the second last Business Day of each calendar month (a Scheduled Valuation Date) throughout the Term. The calculation will be published on the MERC Securities website as soon as practical after the Scheduled Valuation Date. However, the indicative Early Termination Value is not binding on Macquarie and you should not expect an Early Termination Value to be the same as an indicative valuation. The indicative Early Termination Value quoted on the website will be the indicative value before any Early Termination Fee is deducted. Macquarie will also publish the prevailing Early Termination Fee with each indicative Early Termination Value. MERC Securities are transferable in accordance with clause 2.10 of the Terms and Conditions in Section 12. A transfer must not result in an Investor holding MERC Securities the value of which on the Transfer Date would be less than the Minimum Application Amount, unless the transfer is a transfer of all the MERC Securities held by the Investor. A Transfer Fee is payable to Macquarie in relation to each transfer of MERC Securities before Macquarie will register a transfer. Section 5.11: Early Termination Section 5.12: Early Termination Value Section 5.13: Transfers of MERC Securities 12

17 TOPIC SUMMARY WHERE TO FIND MORE Risks Like all investments, an investment in MERC Securities involves risks that may adversely affect the return you could receive at Maturity, or prior to Maturity if your investment is terminated prior to Maturity. Section 8: Risks Historically, diversified baskets of commodity futures prices have generally been as volatile as international equity investments over various time frames and have been more volatile than Australian equity investments. Similarly, fluctuations in the value of the Commodity Asset may occur during the Term. Therefore, if a MERC Security is terminated prior to Maturity it is possible that the value of the Commodity Asset at that time could be significantly lower than the value on the Investment Date and as a result the Early Termination Value would also be lower. Risks specific to the Commodity Asset are set out in Section 8.2. These factors, along with changes in interest rates and the time remaining to the Maturity Date will also affect the value of a MERC Security. The Capital Protection Level for a MERC Security only applies on the Maturity Date. As such, if your MERC Securities are terminated before the Maturity Date, either at your own election or by Macquarie as a result of an Early Termination Event or an Investor Insolvency, the Early Termination Value may be less than the Capital Protected Value. 3 The Market Value at the Valuation Time of the Delivery Securities to be transferred to you on or before the Settlement Date is equal to the Aggregate Termination Value of your MERC Securities (subject to any Aggregate Rounding Amount). After that time, the Delivery Securities you are entitled to receive before the Settlement Date become subject to all the market risks and other risks inherent in ownership of such Delivery Securities. Such risks include, but are not limited to, a fall in the value of the Delivery Securities (potentially below the Capital Protection Level), or illiquid trading in the Delivery Securities. There are also costs associated with the disposal of the Delivery Securities. MERC Securities are unsecured liabilities and deferred delivery obligations of Macquarie. Their value during the Term and at Maturity therefore depends on, among other things, the ability of Macquarie to perform its obligations in relation to MERC Securities. What is Volatility? Volatility generally refers to the fluctuation in the value of an asset, index or other type of security over a given period of time. The greater the volatility of an asset, index or security, the larger the fluctuations between its high and low values. Volatility is a measure of risk and can be expressed mathematically as the annualised standard deviation of returns on the asset, index or security. KEY FEATURES 13

18 TOPIC SUMMARY WHERE TO FIND MORE 14 Tax Fees and Commissions Macquarie recommends that you seek your own personal financial and tax advice before making a decision to invest in MERC Securities. Based on certain assumptions set out in Section 9, when an investor holds their MERC Security until Maturity and receives the Delivery Securities, they should not be liable to pay capital gains tax until ultimate disposal of the Delivery Securities. Concessional capital gains tax may also apply. Application Fee An Application Fee of 3.3% of your Application Amount will be deducted from your Application Amount before determining how many MERC Securities will be issued to you. If your Application Form indicates that you have received advice from your Financial Adviser in relation to your investment in MERC Securities, Macquarie will pay the amount of the Application Fee (which includes GST) to your Financial Adviser, except where your Financial Adviser has indicated in your Application Form that the Application Fee should be waived in full or in part. If your Financial Adviser waives the Application Fee it will be applied to the purchase of additional MERC Securities on your behalf. If you do not have a Financial Adviser the Application Fee will be paid to Macquarie. Trail Commission Macquarie may pay a Trail Commission of 0.275%p.a. (including GST) of the Application Amount (net of the Application Fee) to your Financial Adviser. This is not an additional cost to you but rather is paid by Macquarie out of its own funds. Early Termination Fee An Early Termination Fee is payable on your MERC Securities if there is an Early Termination of your MERC Securities. The Early Termination Fee per MERC Security will equal 1%p.a. of the Purchase Price per MERC Security calculated daily for the number of days from the Early Termination Date to the Maturity Date. Transfer Fee A Transfer Fee equal to 2% of the Purchase Price per MERC Security (up to a maximum of $200) is payable upon transfer of a MERC Security holding. The Transfer Fee is payable by the transferee. Macquarie will not register a transfer of MERC Securities until the Transfer Fee is paid to Macquarie. Waiving of Fees Macquarie retains the right to waive, in part or in full, any or all of the fees described above. In particular Macquarie may waive part or all of the Application Fee for Applications received from employees, or associates of employees, of any member of the Macquarie Group, and for Application Amounts greater than $100,000. Section 9: Taxation Considerations Section 5.15: Fees and Other Costs Section 5.16: Important Additional Information on Fees and Commissions

19 TOPIC SUMMARY WHERE TO FIND MORE Complaints Further Information Macquarie has established a complaints handling and disputes resolution process for investors. Before you invest in MERC Securities, you should review any updated information at the MERC Security website A paper copy of any updates will be available from Macquarie free of charge (see the back cover of this PDS for Macquarie s contact details). If you would like further information before investing please call Macquarie on Section 10.2: Enquiries and Complaints Inside front cover 3 KEY FEATURES 15

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21 The Commodity Asset Both Series of MERC Securities offered in this PDS provide you with an enhanced medium-term exposure to the performance of the Commodity Asset. The Commodity Asset is described in detail below. 4.1 What is the Commodity Asset? A Basket of Five Commodity Sub-Indices The Commodity Asset for each Series of MERC Securities offered under this PDS is the basket of the five Goldman Sachs Commodity Subindices set out below which cover the five primary commodity sectors of Energy, Industrial Metals, Precious Metals, Agriculture and Livestock. The sub-indices will be given equal weighting in the basket on the Investment Date as indicated in the table below. Each sub-index comprises a number of commodity futures contracts. The constituent commodity futures contracts of each sub-index and their indicative percentage weight within the equally weighted basket of the five Goldman Sachs Commodity Sub-indices (as at 7 July 2005) are listed in the table on the following page. The actual percentage weight of each commodity futures contract in the sub-indices will vary daily depending on the price of the commodity futures contract on the relevant day. 4 Composition of the Commodity Asset Sub-Index Initial Weight Bloomberg Code GS Energy Excess Return Index 20% GSENER Index GS Industrial Metals Excess Return Index 20% GSINER Index GS Precious Metals Excess Return Index 20% GSPMER Index GS Agricultural Excess Return Index 20% GSSAER Index GS Livestock Excess Return Index 20% GSLVER Index Total 100% THE COMMODITY MACQUARIE ASSET FORTRESS 17

22 Indicative Composition of the Sub-Indices in the Commodity Asset (as at 7 July 2005) GS Energy Excess Return Index GS Industrial Metals Excess Return Index GS Precious Metals Excess Return Index GS Agriculture Excess Return Index GS Livestock Excess Return Index Crude Oil 7.75% Aluminium 7.96% Gold 17.88% Wheat 4.53% Live Cattle 10.02% Brent Crude Oil 3.84% Copper 7.35% Silver 2.12% Red Wheat 1.62% Feeder Cattle 2.93% Unleaded Gas 2.36% Lead 0.81% Corn 4.69% Lean Hogs 7.05% Heating Oil 2.35% Nickel 2.36% Soybeans 3.41% Gas Oil 1.30% Zinc 1.52% Cotton 1.90% Natural Gas 2.39% Sugar 2.22% Coffee 1.30% Cocoa 0.35% Total 20% 20% 20% 20% 20% Each sub-index will constitute 20% of the Commodity Asset on the Investment Date irrespective of the prices of the individual commodity futures contracts in each sub-index on that date. Detailed information on the construction, calculation and valuation of the five Goldman Sachs Commodity Sub-indices can be found on the Goldman Sachs website: A summary of this information is provided below A Broad Spectrum of Commodities The five Goldman Sachs Commodity Sub-indices selected for inclusion in the Commodity Asset are the same five sub-indices used to calculate the Goldman Sachs Commodity Index (GSCI ) which provides a measure of commodity market performance over time. The five Goldman Sachs Commodity Sub-indices are given equal weighting in the Commodity Asset on the Investment Date. This means that Investors are not exposed to price movements in only one commodity or sector but instead they will have diversified exposure. Macquarie will not re-weight the sub-indices in the Commodity Asset after the Investment Date. As such, as the value of each sub-index changes over time, so too will its weight within the Commodity Asset. The five Goldman Sachs Commodity Subindices comprise commodity futures contracts that are the subject of active and liquid futures markets. Individual commodity futures contracts qualify for inclusion in a sub-index on the basis of liquidity and are weighted by their respective world production quantities. At the date of this PDS, the five sub-indices contained an aggregate of 24 commodity futures contracts covering all commodity sectors: six energy contracts, five industrial metals contracts, two precious metals contracts, eight agricultural contracts, and three livestock contracts (see the table above). This broad range of commodities provides diversification across commodity sub-sectors and within each sub-sector. This diversity reduces the effects of sector-specific events which have large implications for a sub-sector but are generally muted when aggregated. Each year the sub-index components and their weightings are reviewed by Goldman Sachs to determine the commodities and commodity futures contracts to be included in the sub-indices for the next calendar year. Goldman Sachs may also adjust the composition of the sub-indices during the year for example where there has been a breach of eligibility criteria Eligibility criteria for inclusion of a commodity futures contract Before a commodity futures contract can be considered for inclusion by Goldman Sachs it must pass a number of general eligibility criteria. For example, the price of a commodity futures contract generally must have been continuously available for at least two years prior to the proposed date of inclusion. If a commodity futures contract meets the general eligibility criteria it must meet two further eligibility criteria which are based on the total dollar value of trading in that commodity futures contract over a specified period as well as the average quantity of production of the underlying commodity in the last five years of available data. The aim of these eligibility criteria is to reflect the relative significance of each of the commodities included in the sub-indices to the world economy while preserving the ability of the index to be traded by limiting commodity futures contracts to those with adequate liquidity. 18

23 4.1.3 Excess Return Index Calculation The sub-index value used to determine the Commodity Asset Return is the excess return sub-index value. The excess return sub-index value generally measures the returns accrued from investing in commodity futures contracts designated by Goldman Sachs which are closest to expiration and rolling out of those contracts at the beginning of the month in which they are due to expire, and into new futures contracts, always keeping the investment in the designated futures contracts which are closest to expiration. The excess return index calculation is based on an uncollateralised investment in futures contracts, that is, it does not include any return that would otherwise be earned on collateral where an investment in futures contracts requires collateral to be held against it. The excess return valuation of each sub-index is published daily on the Goldman Sachs website: Modifications to the methodology used by Goldman Sachs to calculate the sub-indices may be necessary from time to time. Goldman Sachs reserves the right to make such changes or refinements to the methodology, in consultation with a policy committee, as it believes necessary in order to preserve and enhance the utility of the sub-indices as benchmarks for commodity market performance and the ability of the sub-indices to be traded. Goldman Sachs also reserves the right to take such action with respect to the sub-indices as it deems necessary or appropriate in order to address market emergencies or other extraordinary market events or conditions. Wherever practicable, any such changes or actions will be publicly announced prior to their effective date. In addition, the Commodity Asset may be adjusted for the purposes of MERC Securities by Macquarie under certain circumstances described in Section 5.14 of this PDS and clause 4 of the Terms and Conditions Calculating the return on the Commodity Asset It is possible for you to calculate the return on the Commodity Asset on any day during the Term by using the excess return sub-index values quoted on the Goldman Sachs website ( In order to calculate the return on the Commodity Asset you can enter the sub-index values into the calculator on the MERC Securities website ( or you can manually calculate the return on the Commodity Asset using the Settlement Levels of the subindices on the Investment Date obtained from the MERC Security website or by phoning Macquarie on If you are making a manual calculation then the return on the Commodity Asset on a day prior to the Maturity Date will be equal to the aggregate of the weighted return of each sub-index on that day ( Interim Weighted Sub-Index Return ). For each sub-index, the Interim Weighted Sub- Index Return on any day is calculated as: Settlement Level of the sub-index on that day Settlement Level of the subindex on the Investment Date 1 x 20% Please note that when you calculate the return on the Commodity Asset at any time prior to Maturity this will only give you an indication as to how the Commodity Asset is performing at that time. The calculation will NOT provide you with an indication as to the Early Termination Value of your MERC Securities at that time because the Early Termination Value of your MERC Securities is determined by a number of additional factors as described in Section THE COMMODITY ASSET 19

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25 Details Of The Investment 5.1 What are MERC Securities? An investment in MERC Securities provides you with exposure to movements in sub-indices comprising commodity futures contracts of various commodities over five years as well as a predetermined level of capital protection at Maturity. For example, Series 3 MERC Securities have a 100% Capital Protection Level at Maturity and an Indicative Participation Rate of 120% 4 of the increase in the value of the Commodity Asset over the Term. Series 4 MERC Securities have a 75% Capital Protection Level and an Indicative Participation Rate of 170% 4. A MERC Security is a deferred purchase agreement between you and Macquarie. In return for paying the Purchase Price per MERC Security, at Maturity you are entitled to receive, and Macquarie agrees to deliver to you on or before the Settlement Date, Delivery Securities (for example shares in BHP and RIO) with a value at the Valuation Time which is determined by reference to the change in value of the Commodity Asset over the Term as well as the Participation Rate and the Capital Protection Level. 5.2 Termination Value of a MERC Security The Termination Value of a MERC Security is dependent on three elements: the Commodity Asset Return; the Participation Rate; and the Capital Protected Value. The potential return that a MERC Security can earn above the Capital Protected Value at Maturity is equal to the Commodity Asset Return which is multiplied by the Participation Rate when the Commodity Asset Return is positive (see Sections 5.3 and 5.4 on the following page for an explanation of these elements). Regardless of the Commodity Asset Return at Maturity, or the Participation Rate, the minimum value of a MERC Security at Maturity is equal to the Capital Protected Value. Note, however, that the Capital Protected Value only applies at Maturity. If Early Termination occurs, or if you transfer your MERC Securities, capital protection will not apply to the MERC Securities that are terminated or transferred as the case may be (see Section 5.5). 5 It should also be noted that whilst the commodity futures contracts included in the sub-indices may be denominated in foreign currencies, the value of a MERC Security is not directly affected by fluctuations in exchange rates because it is determined only by reference to the percentage change in the price of the commodity futures contracts in the sub-indices, regardless of the currency in which they are denominated. 4 This level of participation is indicative only. The actual Participation Rate that will apply to each Series of MERC Securities will be set as at the Investment Date. However, you have the option to select a pre-defi ned level at which your application will be automatically withdrawn if the actual Participation Rate achieved on the Investment Date is less than the pre-defi ned level (referred to as Participation Floors ). DETAILS OF THE MACQUARIE INVESTMENT FORTRESS 21

26 5.3 Commodity Asset Return The Commodity Asset Return represents the percentage change in the value of the Commodity Asset over the Term. For example, if the commodity sectors (Energy, Industrial Metals, Precious Metals, Agriculture and Livestock) perform well over the Term then the aggregate value of the five sub-indices will rise over the Term resulting in a positive Commodity Asset Return. However, if some or all of the commodity sectors perform poorly over the Term then the net effect may be a negative Commodity Asset Return at Maturity. However, regardless of whether the Commodity Asset Return is positive or negative at Maturity, the Termination Value of a MERC Security at Maturity will not be less than the Capital Protected Value for that Series (see Section 5.5). 5.4 Participation Rate Where the Commodity Asset Return is positive, to determine the Termination Value of a MERC Security the Commodity Asset Return will be multiplied by the Participation Rate. In other words, where the Participation Rate is greater than 100%, you receive increased exposure to any positive Commodity Asset Return. For example, if the Commodity Asset Return is 30% and the Participation Rate is 120% the Termination Value of the MERC Security at Maturity will be 36% (30% x 120%) higher than the Purchase Price. Where the Commodity Asset Return is zero or is negative, the Participation Rate will not apply when calculating the Termination Value and the minimum Termination Value will be the greater of the Termination Value and the Capital Protected Value for each Series of MERC Securities Determining the Participation Rate The Participation Rate will be determined by Macquarie on or as soon as practicable after the Investment Date and will be posted on the MERC Security website The value of the Participation Rate will depend on the value of a range of market variables, such as the level of interest rates and the volatility of the Commodity Asset, on and around the Investment Date. Once set, the Participation Rate will not change throughout the Term. By way of example only, the Indicative Participation Rate for Series 3 MERC Securities is 120% and for Series 4 MERC Securities is 170%. This Indicative Participation Rate is calculated based on data available as at 7 July Macquarie cannot guarantee that the Participation Rate on the Investment Date will be the same as the Indicative Participation Rate set out in this PDS. Regular updates of the Indicative Participation Rate will also be posted on the MERC Securities website during the offer period Participation Floor In order to provide you with some certainty about the Participation Rate which will be applicable to your investment in MERC Securities, Macquarie will give you the option to place a lower limit on the Participation Rate (known as the Participation Floor). If the Participation Rate is lower than your Participation Floor (if you choose one), you will be refunded your Application Amount. However, you are not obliged to select a Participation Floor to invest in MERC Securities. If you do not select a Participation Floor your investment will proceed irrespective of the Participation Rate set as at the Investment Date. The Participation Floor for each Series of MERC Securities is quoted in the Term Sheets in Section 6. If you select a Participation Floor and the Participation Rate is lower than your Participation Floor: (a) if the Issue Date in respect of the MERC Securities the subject of the Application would (but for the Participation Floor) have been the Investment Date, Macquarie will automatically withdraw your Application and your Application Amount (including your Application Fee) will be returned to you in full (Macquarie will keep any interest earned on your Application Amount while it was in the application trust account); (b) if prior to the Investment Date the MERC Securities the subject of the Application have been issued to you (i.e. your Issue Date is earlier than the Investment Date) Macquarie will terminate each MERC Security and will repay you the full Application Amount (Macquarie will keep any interest earned on your Application Amount while it is in the application trust account). For the avoidance of doubt, the Application Fee will not be charged in these circumstances, and this is not an Early Termination and no Early Termination Fee will be charged. 5.5 Capital Protected Value The Capital Protected Value is the minimum Termination Value of a MERC Security at Maturity. The Capital Protected Value applies at Maturity irrespective of how the Commodity Asset performs. The sum of the Market Value of the Delivery Securities at the Valuation Time and the Aggregate 22

27 Rounding Amount is at least equal to the aggregate Capital Protected Value of your MERC Securities. The Capital Protected Value for a MERC Security is determined by multiplying the Purchase Price per MERC Security issued to you by the Capital Protection Level (which is expressed as a percentage). For example, a Capital Protection Level of 100% means that the Termination Value will be at least the Purchase Price for each of your MERC Securities at Maturity and a Capital Protection Level of 75% means that the Termination Value will be at least 75% of the Purchase Price for each of your MERC Securities at Maturity. The Capital Protection Level allows you the potential to benefit from the volatility of the Commodity Asset if you do not terminate your MERC Securities prior to Maturity. This is because the Capital Protection Level limits your exposure to a negative Commodity Asset Return at Maturity while allowing you to participate fully in any positive Commodity Asset Return at Maturity. The Capital Protection Level for Series 3 MERC Securities is 100% and for Series 4 MERC Securities is 75%. It is important to note that the Capital Protection Level only applies on the Maturity Date. Consequently, you may receive less than the Capital Protected Value for each MERC Security if: (a) your MERC Securities are terminated prior to the Maturity Date, either at your election or Macquarie s election (i.e. as a consequence of an Early Termination Event or Investor Insolvency); or (b) you transfer your MERC Securities. The Capital Protected Value applies to the person registered as the holder of the MERC Security at close of business (Sydney time) on the Maturity Date, whether or not the MERC Security has been transferred during the Term. In addition, Capital Protection does not apply to: (a) the value of the Delivery Securities at any time after the Valuation Time; or (b) to the Share Sale Facility Proceeds you may receive if you elect to use the Share Sale Facility described in Section 5.8. It is also important to note that the Capital Protection Level only applies to the Purchase Price. The Capital Protection Level does not apply to the amount of the Application Fee deducted from your Application Amount Negative Commodity Asset Return Where the Capital Protection Level is less than 100% and the Commodity Asset Return is negative over the Term then the return on your MERC Securities at Maturity will also fall by a corresponding percentage. However your loss will be limited at Maturity by the Capital Protection Level. For example, if the Capital Protection Level is 75% and the Commodity Asset Return is -10%, the Termination Value of a MERC Security will be 90% of the Purchase Price. However, if the Capital Protection Level is 75% and the Commodity Asset Return is -30%, the Termination Value of the MERC Security will be equal to the Capital Protected Value which is 75% of the Purchase Price, rather than 70% of the Purchase Price. It is important to note that if the Capital Protection Level for a MERC Security is less than 100% then you are exposed to the possibility of a negative Commodity Asset Return, even if you hold your MERC Securities to Maturity. Conversely, if your Capital Protection Level is 100%, the Termination Value of the MERC Security at Maturity will not be less than the Purchase Price, even if the Commodity Asset Return is negative Market Value of Delivery Securities If the Termination Value of a MERC Security is equal to the Capital Protected Value, the sum of the Market Value of the Delivery Securities at the Valuation Time and the Aggregate Rounding Amount will also be equal to the Capital Protected Value of your MERC Securities. The Market Value of the Delivery Securities for this purpose is based on the Closing Price of each Delivery Security at the ASX Closing Time on the Business Day following the day on which the Termination Value is determined (this is the Valuation Time ). It is important to note that after that time, the value of the Delivery Securities to be transferred to you become subject to all the market risks and other risks inherent in ownership of such Delivery Securities and their value may fluctuate. As a result, at any time after the Valuation Time, the value of the Delivery Securities transferred or to be transferred to you may be more or less than the aggregate Capital Protected Value of your MERC Securities. 5 DETAILS OF THE INVESTMENT 23

28 5.6 Calculating the Termination Value and Aggregate Termination Value If on the Maturity Date the Commodity Asset Return is positive (i.e. greater than zero), the Termination Value of a MERC Security will be calculated using the following formula: Purchase Price x [1 + (Commodity Asset Return x Participation Rate)] If, on the Maturity Date, the Commodity Asset Return is zero or negative, the Termination Value of a MERC Security will be the greater of: (a) (b) the Capital Protected Value; and the amount calculated in accordance with the following formula: Purchase Price x [1 + Commodity Asset Return] For an illustration of the calculation of the Termination Value for positive and negative Commodity Asset Returns see the examples commencing on page 29. The Aggregate Termination Value of your holding of MERC Securities will be the aggregate of the Termination Value for each MERC Security you hold at close of business on the Maturity Date. The Aggregate Termination Value is used to calculate the Number of Each Delivery Security to be transferred to you after Maturity. 5.7 Number of Each Delivery Security At the Maturity of your MERC Securities Macquarie agrees to deliver to you on or before the Settlement Date a Number of Each Delivery Security. The Market Value at the Valuation Time of the total Delivery Securities to be transferred to you is equal to the Aggregate Termination Value of your MERC Securities (subject to any Aggregate Rounding Amount). The Number of Each Delivery Security to be transferred will be determined by reference to the Closing Price of the Delivery Securities at the Valuation Time. Of course, after that time the value of the Delivery Securities to be transferred to you on or before the Settlement Date may change as a result of movements in the market price of the Delivery Securities. You should receive approximately an equal value at the Valuation Time of each Delivery Security and will not receive any one Delivery Security which has a value at the Valuation Time of more than half the Aggregate Termination Value (subject to rounding) (see clauses 2.4 and 6 of the Terms and Conditions and Section 5.10 for more information about the Delivery Securities to be transferred to you after Maturity). The Number of Each Delivery Security to be transferred to you will include your interest in the Beneficially-Owned Parcel described in Section The Delivery Securities will be transferred to an Issuer Sponsored Account with the same registration details as those applying to your MERC Securities unless you have returned a valid Delivery Notice to Macquarie in which you have specified an alternative broker-sponsored account and corresponding HIN, in which case the Delivery Securities will be transferred to that nominated account Aggregate Rounding Amount The Number of Each Delivery Security to be transferred to you after Maturity is calculated at the Valuation Time. If Macquarie must round down its calculation to the nearest whole number of shares in accordance with the Terms and Conditions in Section 12, a Rounding Amount will arise equal to the value of the fraction of the shares forgone. In such a circumstance, in addition to receiving the Number of Each Delivery Security, you will also receive a payment equal to the aggregate of the Rounding Amounts for each Delivery Security provided that this Aggregate Rounding Amount is greater than $2. Where the Aggregate Rounding Amount is not greater than $2 then Macquarie will pay that Aggregate Rounding Amount to a charity of Macquarie s choice. On the following page is an example of how to calculate the Number of Each Delivery Security and the Aggregate Rounding Amount. 24

29 Step One: Calculating the Aggregate Termination Value This example calculation is based on the following assumptions: Delivery Securities: BHP and RIO Investors Application Amount: $10,000 Application Fee: $330 (ie $10,000 x 3.3%) Actual Investment in MERC Securities: $9,670 (ie $10,000 - $330) Commodity Asset Return over 5 years: 30% Series 3 MERC Securities Aggregate Termination Value: $13,151* Series 4 MERC Securities Aggregate Termination Value: $14,602* *For the sake of simplicity, these numbers have been rounded. For a detailed calculation of the Aggregate Termination Value see Example 1 on page 29. Step Two: Obtain the Closing Price of the Delivery Security The Closing Price of the Delivery Security is the last traded price for each of the securities of the same class as each of the Delivery Securities at the Valuation Time. 5 Assume that the Closing Price of the Delivery Security (BHP) is $18.00 and the Closing Price of the Delivery Security (RIO) is $ Step Three: Calculating the Number of Each Delivery Security The Number of Each Delivery Security can be calculated using the following formula: Number of Each Delivery Security = Aggregate Termination Value Number of Delivery Security Units x Closing Price of the Delivery Security The calculation of the Number of Each Delivery Security below assumes that the Delivery Securities of BHP and RIO have not been substituted or added to and as such the Number of Delivery Security Units is two^. Series 3 Series 4 The Number of Each Delivery Security for investors in Series 3 MERC Securities is as follows: Number of Each Delivery Security (BHP) = $13,151 2 x $18 = = 365 (rounded down to the nearest whole share) Number of Each Delivery Security (RIO) = $13,151 2 x $44 = = 149 (rounded down to the nearest whole share) The Number of Each Delivery Security for investors in Series 4 MERC Securities is as follows: Number of Each Delivery Security (BHP) = $14,602 2 x $18 = = 405 (rounded down to the nearest whole share) Number of Each Delivery Security (RIO) = $14,602 2 x $44 = = 165 (rounded down to the nearest whole share) ^ The Number of Delivery Security Units is calculated as the aggregate number of each type of Delivery Security on the Maturity Date. In the event that Macquarie reasonably determines that it is unable to deliver to you a particular number or type of Delivery Security then the Number of Delivery Security Units may increase or decrease because the Delivery Securities to be transferred to you may be substituted or added with other securities in accordance with the Terms and Conditions. Further, securities of one Prescribed Entity may be considered as two or more separate types of Delivery Securities when calculating the Number of Delivery Security Units. For example, if the Delivery Securities are shares in BHP and RIO, and BHP is added as a Delivery Security, the Number of Delivery Security Units will be equal to three. DETAILS OF THE INVESTMENT 25

30 Step Four: Calculating the Rounding Amount and the Aggregate Rounding Amount The Aggregate Rounding Amount is calculated as the aggregate of the Rounding Amounts for each Delivery Security. The following formula calculates the Rounding Amount in relation to a Delivery Security: Aggregate Termination Value x (1/Number of Delivery Security Units); less (Number of Each Delivery Security x Closing Price of the Delivery Security). Series 3 Series 4 Rounding Amount (BHP) = [$13,151 x (1/2)] (365 x $18) = $6, $6,570 = $5.50 Rounding Amount (RIO) = [$13,151 x (1/2)] (149 x $44) = $6, $6,556 = $19.50 The Aggregate Rounding Amount for Series 3 MERC Securities is therefore $25 ($ $19.50). Rounding Amount (BHP) = [$14,602 x (1/2)] (405 x $18) = $7,301 - $7,290 = $11 Rounding Amount (RIO) = [$14,602 x (1/2)] (165 x $44) = $7,301 $7,260 = $41 The Aggregate Rounding Amount for Series 4 MERC Securities is therefore $52 ($11 + $41). 26

31 5.8 Share Sale Facility In the event that you would prefer to sell the Delivery Securities which will be transferred to you after Maturity, Macquarie will make available a Share Sale Facility. Approximately one month prior to the Maturity Date, Macquarie will send you a notice reminding you that your MERC Securities are due to mature on the Maturity Date. The notice will enclose a blank Share Sale Facility Notice which you must fill in and return to Macquarie if you wish to sell all the Delivery Securities that are transferred to you through the Share Sale Facility. A valid Share Sale Facility Notice must be completed and returned to Macquarie at least two Business Days prior to the Maturity Date. If you return a valid Share Sale Facility Notice to Macquarie in which you elect to use the Share Sale Facility then Macquarie or its nominee will sell all the Delivery Securities transferred to you on your behalf and you will be paid the Share Sale Facility Proceeds (less Anticipated Sale Charges) as well as the Aggregate Rounding Amount. Please note that capital protection does not apply to the Share Sale Facility. As such the sum of the Share Sale Facility Proceeds and the Aggregate Rounding Amount may be more or less than the Capital Protected Value at Maturity (see Section 8.9) Operation of the Share Sale Facility This Section describes in more detail your obligations (and those of Macquarie) under the Share Sale Facility as outlined in clause 2.5 of the Terms and Conditions. If Macquarie receives a valid Share Sale Facility Notice from you to sell all the Delivery Securities to be transferred to you, you authorise Macquarie or its nominees to transfer the Number of Delivery Securities to a Nominee Account to be held on your behalf on the Business Day following the day on which the Termination Value is determined in satisfaction of Macquarie s obligations under the MERC Securities. You then authorise Macquarie or its nominees to sell that Number of Delivery Securities on your behalf and pay to you the proceeds of sale of the Delivery Securities (less any Anticipated Sale Charges), along with any Aggregate Rounding Amount, on or before the Settlement Date. For the purpose of completing the sale under the Share Sale Facility, Macquarie or its nominees agree to use reasonable endeavours to sell the Delivery Securities on your behalf for an amount per Delivery Security equal to the Closing Price applicable to that Delivery Security at the Valuation Time. If Macquarie or its nominee sells the Delivery Securities on your behalf at the Closing Price applicable to that Delivery Security then the sum of the Share Sale Facility Proceeds and the Aggregate Rounding Amount will be equal to the Aggregate Termination Value and you will receive this amount (less any Anticipated Sale Charges) on or before the Settlement Date. If Macquarie or its nominee sells the Delivery Securities on your behalf at any price other than the Closing Price applicable to that Delivery Security then the sum of the Share Sale Facility Proceeds and the Aggregate Rounding Amount will not be equal to, and may be less than, the Aggregate Termination Value of your MERC Securities (see Section 8.9) Anticipated Sale Charges If you elect to use the Share Sale Facility to sell the Delivery Securities to be transferred to you after Maturity then you will receive the Share Sale Facility Proceeds less any Anticipated Sale Charges. Based on the laws and practices in existence at the date of this PDS, the Anticipated Sale Charges would amount to approximately 0.2% of the Share Sale Facility Proceeds Example: Share Sale Facility Proceeds Assume that the Aggregate Termination Value of your MERC Securities is $13,151. Also assume the Closing Price on the Business Day following the day on which the Termination Value is $18 for BHP and $44 for RIO. Therefore, following the example for Series 3 in Section 5.7.1, the Number of Each Delivery Security to be transferred to you after the Maturity of your MERC Securities is equal to 365 ordinary shares in BHP and 149 ordinary shares in RIO. You will also be entitled to an Aggregate Rounding Amount of $25. The sale of these Delivery Securities under the Share Sale Facility, if conducted at the Closing Price, will result in Share Sale Facility Proceeds of $13,126. If the Anticipated Sale Charges consist of only brokerage which is 0.2% of the Share Sale Facility Proceeds, then Anticipated Sale Charges of $26.25 will be deducted from the Share Sale Facility Proceeds and the net amount of $13, plus the Aggregate Rounding Amount of $25 will be paid to you. 5 DETAILS OF THE INVESTMENT 27

32 5.9 MERC Security Maturity Pay-off Diagrams The following diagrams illustrate possible returns at Maturity in relation to Series 3 MERC Securities and Series 4 MERC Securities for every $100 invested based on Commodity Asset Return scenarios over the Term of 75%, -50%, -25%, zero, 25%, 50% and 75%. It is assumed that the Opening Level of the Commodity Asset is 100 on the Investment Date. The diagrams also compare the possible returns on the MERC Securities at Maturity with the returns which could be earned if $100 was invested in an investment that directly tracks the percentage change in the Commodity Asset from the Investment Date (assuming no transaction fees or other charges). As it can be seen in the diagrams, the return on the MERC Securities is always at least as great as that of the investment that tracks the Commodity Asset for any level of Commodity Asset Return. Series 3 Maturity Pay-off Diagram (assumes 120% Participation Rate) Series 4 Maturity Pay-off Diagram (assumes 170% Participation Rate) Series 3 MERC Securities This diagram assumes that the Participation Rate on the Investment Date is set at 120%. As you can see, regardless of the Commodity Asset Return at Maturity, the Aggregate Termination Value will not be less than the $100 invested because the Capital Protection Level is 100%. You can also see the effect of the Participation Rate. For example, where the Commodity Asset Closing Level is 150 (a 50% increase over the Term), your investment of $100 would be worth $160 (a 60% increase) at Maturity. Series 4 MERC Securities This diagram assumes that the Participation Rate on the Investment Date is set at 170%. As you can see, regardless of the Commodity Asset Return at Maturity, the Aggregate Termination Value will not be less than $75 for every $100 invested because the Capital Protection Level is 75%. You can also see the effect of the higher Participation Rate in Series 4. For example, where the Commodity Asset Closing Level is 150 (a 50% increase over the Term), your investment of $100 would be worth $185 (a 85% increase) at Maturity. 28

33 EXAMPLE RETURN CALCULATIONS These examples are based on the terms for the two Series of MERC Securities in this PDS (the details of which appear in the Term Sheets in Section 6). These examples are provided for illustrative purposes only and should not be taken as an indication or commitment by Macquarie as to the level of Termination Values, including the Commodity Asset Return and the Participation Rate that would apply to your MERC Securities. Application Amount and number of MERC Securities It is assumed in the examples below that the Investor s Application Amount is $10,000 and that they will be charged the Application Fee. The Application Fee of $330 ($10,000 x 3.3%) is deducted from the Application Amount and paid to the Financial Adviser or Macquarie. The remaining $9,670 of capital is applied to the purchase of 9,670 MERC Securities at a Purchase Price of $1 each. (If the Investor was not charged an Application Fee (because the Investor s Financial Adviser waived it) the Investor would be issued 10,000 MERC Securities for their Application Amount). EXAMPLE 1: If the Commodity Asset Return over five years is 30% Series 3 MERC Securities Series 4 MERC Securities 5 Assumptions Actual Participation Rate: 120% Application Amount: $10,000 Application Fee: $330 Assumptions Actual Participation Rate: 170% Application Amount: $10,000 Application Fee: $330 Aggregate Termination Value In accordance with Section 5.6, because the Commodity Asset Return is positive, the Termination Value of a MERC Security will be equal to: Purchase Price x [1 + (Commodity Asset Return x Participation Rate) ] = $1 x [ 1 + (30% x 120%) ] = $1.360 In this example the Aggregate Termination Value would therefore be calculated as: Termination Value x Number of MERC Securities = $1.360 x 9,670 = $13, Settlement This means that the Investor will be entitled to receive on or before the Settlement Date Delivery Securities with a Market Value at the Valuation Time of $13, (subject to Aggregate Rounding Amounts). Aggregate Termination Value In accordance with Section 5.6, because the Commodity Asset Return is positive, the Termination Value of a MERC Security will be equal to: Purchase Price x [1 + (Commodity Asset Return x Participation Rate)] = $1 x [ 1 + (30% x 170%) ] = $1.510 In this example the Aggregate Termination Value would therefore be calculated as: Termination Value x Number of MERC Securities = $1.510 x 9,670 = $14, Settlement This means that the Investor will be entitled to receive on or before the Settlement Date Delivery Securities with a Market Value at the Valuation Time of $14, (subject to Aggregate Rounding Amounts). DETAILS OF THE INVESTMENT 29

34 EXAMPLE 2: If the Commodity Asset Return over five years is -10% Series 3 MERC Securities Assumptions Actual Participation Rate: 120% Application Amount: $10,000 Application Fee: $330 Series 4 MERC Securities Assumptions Actual Participation Rate: 170% Application Amount: $10,000 Application Fee: $330 Aggregate Termination Value In accordance with Section 5.6, because the Commodity Asset Return is negative, the Termination Value per MERC Security will be equal to the greater of: (a) Capital Protected Value = Capital Protection Level x Purchase Price = 100% x $1 = $1 and (b) Purchase Price x [1 + Commodity Asset Return] = $1 x [ 1 + (-10%) ] = $0.900 In this example the Termination Value would therefore be $1 and the Aggregate Termination Value of the investment would therefore be calculated as: Termination Value x Number of MERC Securities = $1 x 9,670 = $9,670 Settlement This means that the Investor will be entitled to receive on or before the Settlement Date Delivery Securities with a Market Value at the Valuation Time of $9,670 (subject to Aggregate Rounding Amounts). Aggregate Termination Value In accordance with Section 5.6, because the Commodity Asset Return is negative, the Termination Value per MERC Security will be equal to the greater of: (a) Capital Protected Value = Capital Protection Level x Purchase Price = 75% x $1 = $0.750 and (b) Purchase Price x [1 + Commodity Asset Return] = $1 x [ 1 + (-10%) ] = $0.900 In this example the Termination Value would therefore be $0.900 and the Aggregate Termination Value of the investment would therefore be calculated as: Termination Value x Number of MERC Securities = $0.900 x 9,670 = $8,703 Settlement This means that the Investor will be entitled to receive on or before the Settlement Date Delivery Securities with a Market Value at the Valuation Time of $8,703 (subject to Aggregate Rounding Amounts). 30

35 EXAMPLE 3: If the Commodity Asset Return over five years is 30% and the Participation Rate on the Investment Date for each Series is the Participation Floor for each Series. Series 3 MERC Securities Assumptions Actual Participation Rate: 105% Application Amount: $10,000 Application Fee: $330 Series 4 MERC Securities Assumptions Actual Participation Rate: 140% Application Amount: $10,000 Application Fee: $330 Aggregate Termination Value In accordance with Section 5.6, because the Commodity Asset Return is positive, the Termination Value of a MERC Security will be equal to: Purchase Price x [1 + (Commodity Asset Return x Participation Rate) ] = $1 x [ 1 + (30% x 105%) ] = $1.315 In this example the Aggregate Termination Value would therefore be calculated as: Termination Value x Number of MERC Securities = $1.315 x 9,670 = $12, Settlement This means that the Investor will be entitled to receive on or before the Settlement Date Delivery Securities with a Market Value at the Valuation Time of $12, (subject to Aggregate Rounding Amounts). Aggregate Termination Value In accordance with Section 5.6, because the Commodity Asset Return is positive, the Termination Value of a MERC Security will be equal to: Purchase Price x [1 + (Commodity Asset Return x Participation Rate) ] = $1 x [ 1 + (30% x 140%) ] = $1.420 In this example the Aggregate Termination Value would therefore be calculated as: Termination Value x Number of MERC Securities = $1.420 x 9,670 = $13, Settlement This means that the Investor will be entitled to receive on or before the Settlement Date Delivery Securities with a Market Value at the Valuation Time of $13, (subject to Aggregate Rounding Amounts). 5 DETAILS OF THE INVESTMENT 31

36 5.10 Delivery Securities The Delivery Securities for both Series of MERC Securities offered under this PDS are ordinary shares in BHP Billiton Limited ( BHP ) and ordinary shares in Rio Tinto Limited ( RIO ). These shares have been selected to provide Investors with ongoing, indirect exposure to commodity prices if they receive the Delivery Securities after Maturity. Shares in BHP and RIO are listed on the ASX and therefore BHP and RIO are required to disclose certain information to the ASX on a continual disclosing basis. Historical information relating to BHP and RIO, including information about prices, dividends and trading volumes are available from various sources including the ASX, brokers and newspapers. Investors should not take the historical performance of BHP or RIO as an indication of future performance. Macquarie does not accept any liability or responsibility for and makes no representation or warranty, whether express or implied, as to the affairs of BHP or RIO. Potential investors should make their own enquires. Potential investors should obtain advice from a stockbroker or qualified Financial Adviser on the nature, activities and prospects of BHP and RIO and the merits of an investment in BHP and RIO or the MERC Securities offered in this PDS. In addition, if at Maturity Macquarie, in its reasonable opinion, determines that it is not able to deliver a particular number or type of Delivery Security to the Investor then Macquarie may replace any of or add to the Delivery Securities with any other security or securities quoted and trading on the ASX the Prescribed Entity of which, on the Maturity Date, is included in the S&P/ASX 100 Resources Index or the S&P/ASX 100 Index, and deliver that substituted or added security or securities as if it were a Delivery Security. Furthermore, where Macquarie receives a request from an Investor to substitute Delivery Securities with a security of a Prescribed Entity or securities of a number of Prescribed Entities chosen by the Investor and Macquarie, in its absolute discretion, agrees to such substitution, then Macquarie will deliver that substituted security or securities in accordance with the Terms and Conditions as if they were a Delivery Security Early Termination MERC Securities are fixed-term investments - the Term for MERC Securities commences on the Investment Date and ends on the Maturity Date. However, your MERC Securities may be terminated early in the following circumstances: 1. Voluntary Early Termination You may apply to Macquarie for Early Termination of your MERC Securities each Quarter, being each period ending on the last Business Day of each February, May, August or November during the Term. An Early Termination Request must be received in writing by Macquarie at least 10 Business Days before the end of the relevant Quarter. If an Early Termination Request is received by Macquarie after that date, it will be treated as relating to the following Quarter. The Early Termination Date with respect to an Early Termination initiated by an Investor will be the last Business Day of the Quarter in which the valid Early Termination Request is received by Macquarie and the Settlement Date will be accelerated accordingly. Please note that there is no capital protection in relation to an Early Termination. The determination of the Early Termination Value is explained in Section 5.12 on the following page. Macquarie also retains the right to accept an Early Termination Request and determine an Early Termination Date in relation to that request at any time other than the end of a Quarter with the consent of the party requesting the Early Termination. 2. Compulsory Early Termination If an Early Termination Event occurs with regards to a Series of MERC Securities, Macquarie may determine that Early Termination will occur and may set the Early Termination Date. In these circumstances, all MERC Securities issued in that Series will be terminated on the Early Termination Date. An Early Termination Event may include a Tax Event, Legislative Event, or Corporate Event. Macquarie will notify Investors of its determination of Early Termination as soon as practicable after the determination by sending an Early Termination Notice. The Early Termination Date with respect to an Early Termination initiated by Macquarie will be the date so advised in the Early Termination Notice and the Settlement Date will be accelerated accordingly. 32

37 3. Investor Insolvency Where an Investor becomes Insolvent, Macquarie may initiate Early Termination of that Investor s MERC Securities. Macquarie will notify the Insolvent Investor of the Early Termination as soon as practicable after the determination by sending an Early Termination Notice. The Early Termination Date with respect to an Early Termination resulting from an Investor Insolvency will be the date so advised in the Early Termination Notice and the Settlement Date for the Investor s MERC Securities will be accelerated accordingly. In the case of both voluntary Early Termination and compulsory Early Termination as a consequence of either an Early Termination Event or Investor Insolvency, the amount you will receive for the termination of each of your MERC Securities so terminated will equal the Early Termination Value for the MERC Security less an Early Termination Fee. Macquarie retains the right to waive the Early Termination Fee, including as a result of an Early Termination Event, at its absolute discretion. The Early Termination Value will be calculated by Macquarie as described in Section You should note that if a MERC Security is terminated prior to the Maturity Date you may receive less than the Capital Protected Value because the Capital Protection Level only applies at Maturity. You may request Macquarie to provide you with an estimate of the Early Termination Value that might apply on any day during the three weeks leading up to the Quarter end. Macquarie will endeavour to respond to that request as soon as practical after the receipt of the request. It should be noted that the fulfilment of such a request could be time consuming given the different jurisdictions from which various valuations may need to be obtained. The estimate will be based on the market conditions at that time and will not be binding upon Macquarie. It is likely that an estimated value will differ from the actual Early Termination Value that subsequently becomes payable following the receipt of an Early Termination Request as numerous factors that impact on the Early Termination Value are likely to change between the date of an estimate and Early Termination Value for the relevant Early Termination Date Early Termination Value Where you initiate Early Termination of your MERC Securities, or where Macquarie initiates Early Termination of MERC Securities as a result of an Early Termination Event or Investor Insolvency, Macquarie will determine the Early Termination Value. In determining the Early Termination Value of a MERC Security as at an Early Termination Date, Macquarie will consider the following two components of the MERC Security: (a) the present value, as at the Early Termination Date, of the right to be paid at least the Capital Protected Value at Maturity; and (b) the present value of the right to participate in any positive Commodity Asset Return at Maturity. It is important to note that if your MERC Securities are terminated before the Maturity Date you may receive less than the Capital Protected Value per MERC Security because the Capital Protection Level only applies at Maturity Component 1: Capital Protected Value Capital protection only applies at Maturity and only to the Purchase Price per MERC Security issued to you. Therefore, on an Early Termination Date, it is necessary to determine the value, at that time, of the right to receive at least the Capital Protected Value at Maturity. This is known as the present value of that right and it will be less than the Capital Protected Value. The present value of the Capital Protected Value will be calculated using the market interest rates that represent Macquarie s cost of funding on the Early Termination Date. The calculation is therefore dependent on the market s perception of Macquarie s credit quality at that time. The present value of the Capital Protected Value is the minimum Early Termination Value you will receive if your MERC Securities are terminated before the Maturity Date. It is not possible to determine in advance the interest rate that would be used to calculate the present value of the Capital Protected Value, or Macquarie s perceived credit quality on the Early Termination Date. However, by way of example, if the Early Termination occurred three years prior to the Maturity Date and the applicable interest rate at that time was 6.5%p.a., then the present value of the Capital Protected Value per Series 3 MERC Security purchased for $1 with a Capital Protection Level of 100% would be $0.83. The present value of the Capital Protected Value per Series 4 MERC Security purchased for $1 and with a Capital Protection Level of 75% would be $0.62. This is 5 DETAILS OF THE INVESTMENT 33

38 the minimum Early Termination Value you would receive. However, to the extent that some value is derived from the present value of the Commodity Asset Return (as discussed in Section below), this will increase the Early Termination Value payable to you Component 2: Participation in the Commodity Asset Return On the Early Termination Date Macquarie s calculation of the Early Termination Value of a MERC Security will take into consideration the present value as at that date of the right under the MERC Security to participate in any return on the Commodity Asset at Maturity, as well as the Participation Rate. A number of market variables will affect the valuation of this component. Changes in these market variables cannot be predicted and their impact on the value of this component will be dependent on various valuation assumptions. However, the table below provides a general overview of the impact that some of the market variables can be expected to have on the calculation of the present value of the right to participate in the Commodity Asset Return at Maturity. For example, if the present value of the right to receive the Capital Protected Value per Series 3 MERC Security is $0.83 (as calculated in section above), and the present value of your right to participate in the Commodity Asset Return is valued at $0.13 then your total Early Termination Value per Series 3 MERC Security would be equal to $0.96. Similarly, if the present value of the right to receive the Capital Protected Value per Series 4 MERC Security is $0.62, and the present value of your right to participate in the Commodity Asset Return is determined to be $0.33 then the total Early Termination Value per Series 4 MERC Security you would receive is equal to $0.95. Please note that if you terminate a MERC Security before the Maturity Date, you may receive less than the Capital Protected Value. If you wish to receive a more accurate but not binding indication of the Early Termination Value you may contact Macquarie in the three weeks leading up to a Quarter end. In addition, Macquarie will calculate an indicative Early Termination Value for each Series of MERC Securities on the second last Business Day of each calendar month (a Scheduled Valuation Date) throughout the Term. The calculation will be published on the MERC Securities website as soon as practical after the Scheduled Valuation Date. However, the indicative Early Termination Value is not binding on Macquarie and you should not expect an Early Termination Value to be the same as an indicative valuation. The indicative Early Termination Value quoted on the website will be the indicative value before any Early Termination Fee is deducted. Macquarie will also publish the prevailing Early Termination Fee with each indicative Early Termination Value. Expected impact of market variables on the Early Termination Value Market Variable 1 The difference between the value of the Commodity Asset on the Early Termination Date and the present value of the Opening Level of the Commodity Asset (assuming the value of the Commodity Asset is greater than the Opening Level on the Early Termination Date) 2 The remaining time from the Early Termination Date to the Maturity Date 3 The volatility of the price of the Commodity Asset as at the Early Termination Date Effect on the Early Termination Value The greater the difference then, all else being equal, the more value this component can be expected to contribute to the Early Termination Value. As the remaining time decreases then, all else being equal, the value this component contributes to the Early Termination Value can be expected to be lower. If the price of the Commodity Asset has become less volatile then, all else being equal, the value this component contributes to the Early Termination Value can be expected to be lower. 4 Market interest rates If interest rates have fallen since the Investment Date then, all else being equal, the value this component contributes to the Early Termination Value can be expected to be lower. 34

39 5.13 Transfers of MERC Securities MERC Securities are transferable securities. For each holding of MERC Securities transferred, a Transfer Fee equal to the lesser of: (a) 2% of the Purchase Price per MERC Security transferred; and (b) $200; is payable to Macquarie in relation to each transfer of MERC Securities. The requirements for the successful transfer of MERC Securities are listed below and in clause 2.10 of the Terms and Conditions. Mechanism for Transfer 1. The transferor must request an Effective Transfer Form from their Financial Adviser or by calling Macquarie on The transferor must complete and sign an Effective Transfer Form. 3. The transferee must complete, sign and return to Macquarie an Application Form attached to the PDS for the MERC Securities to be transferred and must also return the transferor s Effective Transfer Form. 4. The transferee must include a cheque with their Application Form for the amount of the Transfer Fee. 5. Macquarie will only effect the transfer once it has received an Effective Transfer Form, Application Form and the Transfer Fee Adjustment Events Throughout the Term of the MERC Securities an Adjustment Event may occur to the Commodity Asset, a Delivery Security or both. As a result of an Adjustment Event, Macquarie has broad discretion to make adjustments to the Commodity Asset, Delivery Security, and calculations which determine the value of a MERC Security which, in the reasonable opinion of Macquarie, are appropriate to put both Macquarie and the Investor in substantially the same economic position as they would have been had the Adjustment Event not occurred. Adjustment Events may generally fall into three categories: 1. Adjustments Events which effect Macquarie s ability to determine the value or trade in a Commodity Asset or a Delivery Security. This includes the suspension of calculation or quotation of the value of the Commodity Asset or price of a Delivery Security as well as the complete cancellation of a Commodity Asset or a Delivery Security from quotation or trading. In the event of a suspension of calculation or quotation of the value of the Commodity Asset, Macquarie may replace the Prescribed Entity providing the calculation or quotation or it may make the calculation itself using the prescribed method of calculation immediately prior to the Adjustment Event. In the event of a suspension of quotation of the Delivery Security or where a Commodity Asset or a Delivery Security is cancelled, Macquarie may elect to replace that Commodity Asset or Delivery Security with a successor Commodity Asset or Delivery Security. 2. Adjustment Events which lead to what Macquarie determines to be a material change in the nature or character of a Commodity Asset. This includes a material change in the method of calculating the value of the Commodity Asset or a material change on the composition of the Commodity Asset e.g. the change in the composition of an index. If such an event occurs Macquarie may elect to replace the Commodity Asset with a successor Commodity Asset. 3. Adjustment Events which have a diluting or concentrating effect on a Commodity Asset or a Delivery Security. Examples of such events include, among other things, bonus issues, rights issues, unit splits and takeover offers. If such an event occurs, Macquarie may make an adjustment to any variable (including replacing a Delivery Security) which would be used to calculate the Termination Value or the Number of Each Delivery Security which would be delivered to the Investor at Maturity Fees and Other Costs The following table shows fees and other costs that apply in relation to an investment in MERC Securities. You should read all of the information about fees and charges, as it is important to understand their impact on your investment in MERC Securities. DETAILS OF THE INVESTMENT 5 35

40 Type of fee or cost Amount How and when paid Fees when your money moves in and out of MERC Securities Establishment fee: This is the fee to set up your initial investment. Contribution fee: This is the fee for the initial and every subsequent investment you make. Withdrawal fee: This is the fee for each withdrawal you make (including partial withdrawals). Early Termination Fee: This is the fee payable when some or all of your MERC Securities are terminated prior to the Maturity Date. Transfer fee: This is the fee payable if you choose to transfer your MERC Securities to another person. Termination fee: This is the fee when you finally close your investment. Management costs (includes administration and investment costs) This is the total of all ongoing administration, investment management, other fees and expenses payable. Additional service fees Switching fee: This is the fee when you switch between investment options. Advisor service fee: This is the fee for extra advice from your adviser about your investment. (An adviser may also be paid other amounts as commission out of one or more of the fees listed above). Nil The Application Fee will be equal to 3.3% of your Application Amount. 1 This is equivalent to $33 per $1,000 invested. Nil The Early Termination Fee will be equal to 1%p.a. of the Purchase Price per MERC Security terminated, calculated for the number of days from the Early Termination Date to the Maturity Date. For one MERC Security this equates to $0.01 per year remaining in the Term from the Early Termination Date. The Transfer Fee must be paid before the transfer can become effective. The Transfer Fee for each MERC Security holding transferred will be equal to the lesser of: (a) 2% of the Purchase Price per MERC Security transferred; and (b) $200. Nil Nil Nil As agreed between you and your adviser. Not applicable Payable out of the Application Amount on the Investment Date Not applicable Payable out of the Early Termination proceeds on the Early Termination Date Payable by the transferee prior to registration of the transfer Not applicable Not applicable Not applicable Not applicable Where you have indicated in your Application Form that you have a Financial Adviser, the amount of the Application Fee will be used to pay commission to your Financial Adviser (and will be inclusive of GST). See Application Fee in the Important Additional Information below.

41 5.16 Important Additional Information on Fees and Commissions Application Fee An Application Fee equal to 3.3% of your Application Amount will be deducted from your Application Amount when you apply to invest in MERC Securities. For example if you make an Application (and Macquarie accepts it) and your Application Amount is $10,000 the dollar value of your Application Fee will be $330 ($10,000 x 3.3%) and the remaining $9,670 will be applied to determine the number of MERC Securities that will be issued to you. Macquarie retains the right to waive the Application Fee, in full or in part, and in particular in relation to Applications received from employees, or associates of employees, of any member of the Macquarie Group, and for Application Amounts greater than $100, Adviser Remuneration Upfront Commission If your Application Form indicates that you have received advice from a Financial Adviser, Macquarie will pay the amount of the Application Fee (which includes GST) to your Financial Adviser as up front commission. For example, if your Application Amount is $10,000 and you have received advice from a Financial Adviser, the Application Fee of $330 will be paid to your Financial Adviser as upfront commission subject to the commission being waived by your Financial Adviser. Depending on your arrangements with your Financial Adviser, your Financial Adviser may decide to waive part or all of their up front commission in which case it will be applied to the purchase of additional MERC Securities. To waive part or all of the upfront commission your Financial Adviser must complete the relevant section of the Application Form. If you do not have a Financial Adviser the Application Fee will be paid to Macquarie. Trail Commission In addition to the upfront commission, Macquarie may also pay a Trail Commission of 0.275% (inclusive of GST) of the Application Amount to your Financial Adviser each year during the Term. If the MERC Securities are terminated early, the Trail Commission will cease to be calculated and paid from the Early Termination Date onwards. For example if your Application Amount is $10,000, a Trail Commission of $27.50 ($10,000 x 0.275%) will be paid to your Financial Adviser each year during the Term. This is not an additional cost to you but rather is paid by Macquarie out of its own funds. Your Financial Adviser may elect to rebate this Trail Commission to you at the time of receipt in whole or in part. This rebate will be the subject of a personal agreement between you and your Financial Adviser with no involvement from Macquarie. It is not possible to re-invest any Trail Commission rebate in more MERC Securities of the Series offered under this PDS Early Termination Fee An Early Termination Fee is payable to Macquarie if there is an Early Termination of your MERC Securities. The Early Termination Fee per MERC Security will equal 1%p.a. of the Purchase Price from the relevant Early Termination Date to the Maturity Date. For example if you hold 9,670 MERC Securities and decide to terminate them while there is still 2.5 years remaining to the Maturity Date, the Early Termination Fee applicable to your Early Termination will be $ (9,670 x $1 x 1% x 2.5). The Early Termination Fee applies regardless of whether you make a voluntary Early Termination Request or your MERC Securities are compulsorily terminated by Macquarie as a result of an Early Termination Event or Investor Insolvency. Macquarie retains the right to waive the Early Termination Fee, or to accept a lower Early Termination Fee than it is entitled to, at its own discretion Transfer Fee A Transfer Fee is payable upon the transfer of MERC Securities from one party to another. The Transfer Fee is payable by the transferee. The Transfer Fee per holding of MERC Securities transferred is calculated as the lesser of: (a) 2% of the Purchase Price per MERC Security transferred; and (b) $200. For example if 9,670 MERC Securities were to be transferred, the transferee would pay the lesser of: (a) $ (2% x $1 x 9,670); and (b) $200; in which case the transferee would pay $ The transferee must pay the Transfer Fee when they submit their signed Application Form to Macquarie in accordance with Section 5.13 and the Terms and Conditions. A transfer must not result in an Investor holding MERC Securities the value of which on the Transfer Date would be less than the Minimum Application DETAILS OF THE INVESTMENT 5 37

42 Amount, unless the transfer is a transfer of all the MERC Securities held by the transferor. Macquarie retains the right to waive the Transfer Fee, or to accept a lower Transfer Fee than it is entitled to, at its own discretion Incidental Fees and Costs Anticipated Sale Charges An Investor will bear the cost of any fees or Taxes expected to be incurred by Macquarie (or any agent or nominee of Macquarie) in connection with the sale of the Delivery Securities under the Share Sale Facility. Such fees may include brokerage which at the time this PDS was printed amounted to 0.2% of the Share Sale Facility Proceeds. Where brokerage is incurred, the amount (along with any other Anticipated Sale Charges) will be deducted from the Share Sale Facility Proceeds before it is paid to the Investor. For example, if Macquarie sold 365 BHP shares on your behalf through the Share Sale Facility at a price of $18 and 149 RIO shares on your behalf through the Share Sale Facility at a price of $44, then the Share Sale Facility Proceeds would be equal to $13,126. Assuming a brokerage fee of 0.2% (and no other Anticipated Sale Charges), an amount of approximately $26.25 would be deducted from the Share Sale Facility Proceeds before transferring the remaining cash amount of $13, to you. Macquarie retains the right to waive the Anticipated Sale Charges, in full or in part, at its own discretion. An Investor will bear the cost of any fees or Taxes expected to be incurred by Macquarie (or any agent or nominee of Macquarie) in connection with the transfer of the Delivery Securities to the Investor. However, Macquarie will not cause the Investor to bear any brokerage costs it incurs in respect of the transfer of the Delivery Securities and, at the date of this PDS, it does not expect to incur any other costs in respect of the transfer of the Delivery Securities. However, Macquarie may still, in its absolute discretion, recover the costs for of any unanticipated fees or Taxes that it incurs in connection with the transfer of the Delivery Securities. GST The Application Fee, Transfer Fee and Early Termination Fee when collected by Macquarie are not subject to GST and therefore no GST is payable on these amounts. Where Macquarie pays commission to Financial Advisers, the amount of the commission quoted in Section includes a GST component. If any GST is payable in relation to the Anticipated Sale Charges and Bank Fees described above, that GST will be included in the charge to the Investor Beneficially-Owned Parcel For every MERC Security you hold you will have an interest in a Beneficial Fraction of Trust Assets held by the Nominee. The Nominee will hold each Beneficial Fraction for each Investor on trust in accordance with the Nominee Deed. Under the Nominee Deed, at Maturity when you are entitled to be transferred your Delivery Securities, you will also be entitled to be transferred the Beneficially-Owned Parcel (or an equivalent number of Delivery Securities), as a component of the Delivery Securities transferred to you. Under the Nominee Deed you will not have any right to any dividends and other income distributions the Nominee receives in relation to the Trust Assets. As an Investor you are not entitled to receive any annual reports or notices of meetings or attend or speak or vote at any meeting of holders of securities comprising the Trust Assets. The Nominee will not cast any vote in respect of any security that is a Trust Asset at any shareholders meeting either in its own right or on your behalf. Under the Nominee Deed Macquarie will have the right to any dividends and any other income distributions the Nominee receives in relation to the Trust Assets. Bank Fees Macquarie reserves the right to deduct from your Application Amount any charges incurred by Macquarie resulting from dishonoured Investor cheques or the provision of incorrect direct debit information in the Application Form. 38

43 Term Sheets This PDS offers you the opportunity to invest in two separate Series of MERC Securities: Series 3 MERC Securities and Series 4 MERC Securities. The Series differ in the Capital Protection Level they offer and the expected Participation Rate. The key features of each Series are described in the Term Sheets on the following page. 6 MACQUARIE FORTRESS TERM SHEETS FUND 39

44 Series 3 MERC Securities Series 4 MERC Securities Series Opening Time 9.00am (AEST) on 8 August am (AEST) on 8 August 2005 Series Closing Time 5.00pm (AEST) on 9 September pm (AEST) on 9 September 2005 Investment Date 14 September September 2005 Maturity Date 5 October October 2010 Purchase Price $1 per MERC Security $1 per MERC Security Minimum Application Amount $2,000 and thereafter in multiples of $1,000 $2,000 and thereafter in multiples of $1,000 Right to return Applications and terminate MERC Securities Macquarie has the right to return all Applications or terminate any MERC Securities that have already been issued if, on the Investment Date, the aggregate value of all Applications that would be accepted in the Series is less than $10,000,000. However, Macquarie may proceed with the offer if subscriptions of less than $10,000,000 are received. Macquarie has the right to return all Applications or terminate any MERC Securities that have already been issued if, on the Investment Date, the aggregate value of all Applications that would be accepted in the Series is less than $10,000,000. However, Macquarie may proceed with the offer if subscriptions of less than $10,000,000 are received. Commodity Asset The equally weighted basket of five Goldman Sachs Commodity Subindices described in Section 4.1 of this PDS. The equally weighted basket of five Goldman Sachs Commodity Subindices described in Section 4.1 of this PDS. Capital Protection Level 100% 75% Indicative Participation Rate 120%* This is an estimate only 170%* This is an estimate only Commodity Asset Return Delivery Securities Is the return (expressed as a percentage) on the Commodity Asset over the Term and calculated as the aggregate of the Weighted Sub-Index Return for each subindex in the Commodity Asset. Ordinary shares in BHP and RIO, except where Macquarie reasonably determines that it is unable to deliver these Delivery Securities in which case it may substitute or add to them with other securities which, on the Maturity Date, are included in the S&P/ASX 100 Resources Index or the S&P/ASX 100 Index. Participation Floor 105% 140% Is the return (expressed as a percentage) on the Commodity Asset over the Term and calculated as the aggregate of the Weighted Sub-Index Return for each subindex in the Commodity Asset. Ordinary shares in BHP and RIO, except where Macquarie reasonably determines that it is unable to deliver these Delivery Securities in which case it may substitute or add to them with other securities which, on the Maturity Date, are included in the S&P/ASX 100 Resources Index or the S&P/ASX 100 Index. * The actual Participation Rate which will apply to this Series of MERC Securities will be set as at the Investment Date (see Section 5.4). The actual Participation Rate may be greater or less than the Indicative Participation Rate but once set, will not vary during the Term. 40

45 Historical Performance Of The Commodity Asset and Corresponding Performance Of MERC Securities 7 The analysis below is in respect of historical returns on the Commodity Asset and the corresponding returns that would have been achieved by MERC Securities if they were held to Maturity. The analysis is based on an assumed Participation Rate of 120% for Series 3 MERC Securities, and 170% for Series 4 MERC Securities. Investors should be aware that a simulation such as this based on historical prices gives no indication whatsoever of the likely performance of the Commodity Asset or MERC Securities in the future. It is intended only as an illustration of the variation in the performance of the Commodity Asset in the past and the simulated performance of MERC Securities relative to the Commodity Asset based on certain Participation Rate assumptions. Past performance is not a guide to future performance. HISTORICAL PERFORMANCE OF THE COMMODITY ASSET AND CORRESPONDING PERFORMANCE OF MERC MACQUARIE SECURITIES FORTRESS 41

46 7.1 Chart 1: Five-Year Returns on the Commodity Asset and Corresponding Returns on MERC Securities The chart below shows the range of Commodity Asset Returns 5 which would have been achieved on the equally-weighted basket of the five Goldman Sachs Commodity Sub-indices at the end of each five-year period covered by the chart. The chart also shows the range of corresponding returns which would have been achieved by MERC Securities Series 3 and Series 4 if held until Maturity. The return on the MERC Securities at the end of each five-year period is calculated as: (Termination Value Purchase Price) Purchase Price For example, the chart shows a Commodity Asset Return of 97% over the five-year period ending 29 June 1990 and corresponding returns of 116% for Series 3 MERC Securities and 165% for Series 4 MERC Securities. The return on both Series of MERC Securities is greater than the Commodity Asset Return as a result of the assumed Participation Rates of 120% for Series 3 MERC Securities and 170% for Series 4 MERC Securities. As you can see, the Commodity Asset Return has been volatile in the past. However you can also see that when the Commodity Asset Return has been negative, there would have been no negative return on Series 3 MERC Securities at Maturity because it has a Capital Protection Level of 100%. Similarly you can see that when the Commodity Asset Return is between zero and 25%, the return on Series 4 MERC Securities at Maturity is equally negative. Where the Commodity Asset Return is less than 25%, the return on Series 4 MERC Securities remains at 25% because Series 4 MERC Securities have a Capital Protection Level of 75%. 165% return on Series 4 116% return on Series 3 97% Commodity Asset Return 42 5 The data used to calculate the Closing Level in this analysis is based on trading days in the US rather than Business Days in Australia.

47 7.2 Chart 2: Performance of the Commodity Asset in the Previous Five Years The chart below shows the performance of the equally-weighted basket of five Goldman Sachs Commodity Sub-indices described in Section 4.1 over a single five-year period ending 30 June The Opening Level of the Commodity Asset is indexed to 100 on 30 June 2000 for illustrative purposes. The Commodity Asset Return over this period was 24% which corresponds to a return of 29% on Series 3 MERC Securities and 41% on Series 4 MERC Securities. However, it can be seen in the chart that if the return on the Commodity Asset were calculated prior to Maturity it would have been negative at some points in time. This highlights the risk that investors face if they elect to terminate their MERC Securities prior to Maturity because MERC Securities are only protected to the Capital Protection Level on the Maturity Date. Whilst many variables are used to determine the Early Termination Value, as described in Section 5.12, a negative return on the Commodity Asset at the time of early termination will have a negative impact on the Early Termination Value. 7 HISTORICAL PERFORMANCE OF THE COMMODITY ASSET AND CORRESPONDING PERFORMANCE OF MERC SECURITIES 43

48 7.3 Chart 3: Performance of Sub-indices The chart below shows the variation in the individual performance of the five Goldman Sachs Commodity Sub-indices over the past 20 years. Each sub-index is indexed to 100 on 28 June 1985 for the purpose of comparison. 44

49 Risks An investment in MERC Securities involves a number of risks that may adversely affect the return you will receive from the investment either at or prior to Maturity, or have other negative consequences. 8.1 Obligations of Macquarie A MERC Security is an unsecured liability and deferred delivery obligation of Macquarie. Its value depends on, among other things, the ability of Macquarie to perform its obligations under the Terms and Conditions set out in Section 12 of this PDS. Failure to comply with these obligations by Macquarie may result in your MERC Securities being worth less than they otherwise would be. MERC Securities are not deposit liabilities of Macquarie and they are not guaranteed by any other party. They are unsecured collateral obligations of Macquarie which will rank equally with Macquarie s other unsecured collateral obligations and with its unsecured debt other than liabilities mandatorily preferred by law. In this regard section 13A(3) of the Banking Act 1959 provides that in the event of Macquarie becoming unable to meet its obligations the assets of Macquarie in Australia shall be available to meet its deposit liabilities in Australia in priority to all other liabilities of Macquarie (which include obligations under MERC Securities). You must make your own assessment of the ability of Macquarie to meet its various obligations under the Terms and Conditions. A description of Macquarie is set out in Section 11 of this PDS. 8.2 Volatility of the Commodity Asset Historically, diversified baskets of commodity futures prices have generally been as volatile as international equity investments over various time frames and have been more volatile than Australian equity investments. There is therefore a risk that the return on the Commodity Asset at any point during the Term may be negative or may fall significantly over a relatively short space of time. MERC Securities are exposed to fluctuations in the value of the Commodity Asset. The Capital Protection Level for each Series of MERC Securities limits your exposure to a negative Commodity Asset Return at Maturity. For example holders of Series 3 MERC Securities are not exposed to a negative Commodity Asset Return at Maturity because this Series has a Capital Protection Level of 100%. Holders of Series 4 MERC Securities are exposed to a negative Commodity Asset Return at Maturity because this Series has a Capital Protection Level of only 75%, though the Termination Value will be no less than the Capital Protected Value. However, holders of either Series of MERC Securities are fully exposed to negative returns on the Commodity Asset if they terminate their MERC Securities prior to Maturity, regardless of the Capital Protection Level. This means that if you terminate your MERC Securities prior to Maturity, the Early Termination Value may be less than the Purchase Price per MERC Security. 8 MACQUARIE RISKS FORTRESS 45

50 While the diversification of the Commodity Asset across five sub-sectors aims to reduce the volatility of the Commodity Asset value (and therefore the chance that it will be negative during the Term and at Maturity), you should be aware that the value of the sub-indices and their constituent contracts may vary widely over the Term because each of the five commodity sectors represented (Energy, Industrial Metals, Precious Metals, Agriculture and Livestock) may be influenced by various global and domestic economic, financial, political, regulatory, technological and environmental factors. It is not possible to predict the occurrence or magnitude of these and other potentially relevant factors and each commodity sector may be affected differently by the different factors and at different times. An analysis of the historical performance of the Commodity Asset and the corresponding performance of MERC Securities can be found in Section 7. This analysis shows that the return on the Commodity Asset has been negative over certain periods in the past. Historical performance is not an indication of future performance and you should seek independent professional advice when considering whether MERC Securities are appropriate for you. 8.3 Commodity Futures Prices versus Physical Commodity Prices Investors should not expect the return on the Commodity Asset to be the same as the return on an equivalent basket of physical commodities. The return on the Commodity Asset is based on the returns on the sub-indices included in the Commodity Asset. The returns can be achieved by investing in the futures contracts which are closest to expiration and rolling out of those contracts at the beginning of the month in which they are due to expire, and into new futures contracts for each underlying commodity in each sub-index. Futures contract prices measure the expected price of the underlying physical commodity on a future date. They do not measure the price of the physical commodity if it were purchased and delivered today. Depending upon market conditions the return on an investment in futures contracts may be less than or greater than the return achieved on an investment in the underlying physical commodities. There is therefore no guarantee that the return on the Commodity Asset will be greater than the return on the physical commodities represented by the five sub-indices. 8.4 Changes to the subindex constituents As discussed in Section 4.1.1, Goldman Sachs reviews and amends the composition of the subindices on an annual basis, and more frequently where it is deemed necessary. The process for how Goldman Sachs conducts those reviews is documented and can be found on the Goldman Sachs website ( This may result in a different, and potentially lower, Commodity Asset Return than would otherwise have been achieved if the sub-indices had not been amended. 8.5 Early Termination Event The occurrence of an Early Termination Event or Insolvency Event gives Macquarie the right to declare an Early Termination of MERC Securities to which the Early Termination Event or Insolvency Event relates. If an Early Termination Event or Insolvency Event occurs, your MERC Securities will terminate before the scheduled Maturity Date and you will be entitled to receive the Early Termination Value per MERC Security, less the Early Termination Fee (unless Macquarie agrees to waive that fee) as a cash payment. Because each MERC Security is only protected up to the Capital Protection Level on the Maturity Date, the Early Termination Value may be less than the Capital Protected Value in the event of an Early Termination. The calculation of the Early Termination Value is discussed in detail in Section An Early Termination Event may be any one of a Tax Event, a Legislative Event, or a Corporate Event as described in the Glossary of this PDS. Macquarie s discretion to declare an Early Termination following an Early Termination Event or Insolvency Event is unfettered and absolute. 8.6 Adjustment Events If, as a result of an Adjustment Event (as described in Section 5.14 and the Glossary of this PDS), Macquarie makes an adjustment to a variable which is used to calculate the Termination Value or Number of Each Delivery Security you should receive after Maturity, that adjustment may result in you receiving a different Termination Value or Number of Each Delivery Security than you would have received had the Adjustment Event not occurred. This may be the case even though the adjustment was made in order to put both Macquarie and the Investor in the same economic position as they would have been had the Adjustment Event not occurred. 46

51 For example, if Goldman Sachs ceases to quote an excess return value for the sub-indices included in the Commodity Asset, Macquarie may choose a successor entity to calculate the excess return value of the sub-indices. If that successor entity subsequently makes a change to the method for calculating the sub-index excess return value (e.g. they may change the policy on rounding amounts) the resulting excess return value will be different to those excess return values which would have prevailed if Goldman Sachs had continued to quote prices for the sub-indices. The occurrence of an Adjustment Event does not affect the Capital Protected Value on the Maturity Date. 8.7 Valuation Disruption If on any day on which the valuation of the Commodity Asset or Delivery Security must be made, including the Maturity Date and each Early Termination Date, the valuation cannot be made as a result of: (a) a Trading Disruption, Exchange Disruption or Early Closure; or (b) the exchange on which a Commodity Asset or Delivery Security is traded (as the case may be) fails to open for trading during its regular trading session; or (c) the relevant valuation day not being an Exchange Trading Day; then an alternative valuation for the Commodity Asset or Delivery Security as the case may be on that day may be made in accordance with the method described in clause 5 of the Terms and Conditions in Section 12. Investors should note that where the valuation of the Commodity Asset or Delivery Security is affected by one of the events above, the resulting valuation may impact the Early Termination Value or the Termination Value. 8.8 Delivery Securities Where you receive Delivery Securities after the Maturity of your MERC Securities you should bear in mind that the Market Value at the Valuation Time of the total Delivery Securities to be transferred to you is equal to the Aggregate Termination Value of your MERC Securities (subject to any Aggregate Rounding Amount). After that time, the Delivery Securities that you are entitled to receive and that will be transferred to you on or before the Settlement Date are subject to all the market risks and other risks inherent in ownership of such Delivery Securities. Such risks include, but are not limited to, a fall in the value of, or illiquid trading in, the Delivery Security. Before you take delivery of the Delivery Securities you should first seek independent professional advice with regards to the future prospects of the Delivery Security. In addition there may be restrictions on Macquarie s ability to deliver the Delivery Securities to you, for example where trading in the Delivery Securities becomes illiquid or where the Number of Each Delivery Security is less than the minimum number of securities permitted to be transferred by the ASX. Where it is not possible for Macquarie to deliver the Delivery Securities on the Settlement Date then Macquarie will instead deliver to you substitute Delivery Securities in accordance with clause 6 of the Terms and Conditions. 8.9 Share Sale Facility Sale Price not Guaranteed If you elect to sell your Delivery Securities through the Share Sale Facility after Maturity you are exposed to the risk that Macquarie will not be able to sell your Delivery Securities on your behalf at the same Closing Price which was used to determine the Number of Each Delivery Security transferred to you. If this is the case then the Share Sale Facility Proceeds you receive combined with the Aggregate Rounding Amount might be less or more than the Aggregate Termination Value and could be less than the aggregate Capital Protected Value of your MERC Securities. Also you will be charged any Anticipated Sale Charges in connection with the use of the Share Sale Facility so that, even if the Delivery Securities are sold at the Closing Price at the Valuation Time, the Share Sale Facility Proceeds and Aggregate Rounding Amount will still be less than the Aggregate Termination Value. In other words, capital protection does not apply if you use the Share Sale Facility Conflicts of Interest Companies in the Macquarie Group may buy and sell instruments or securities which constitute the Commodity Asset or Delivery Security or other financial products which are related to such instruments or securities. In addition companies in the Macquarie Group may advise on transactions concerning the instruments or securities which constitute the Commodity Asset or Delivery Security. Such dealings may or may not affect the value of the Commodity Asset or Delivery Security. RISKS 8 47

52 8.11 Taxation Investors should refer to the general description of taxation matters associated with MERC Securities in Section 9. Future changes in tax laws or in their interpretation could affect the tax treatment of MERC Securities and investors should be alert to tax changes. Discussions of taxation issues in the PDS are of a general nature and are not advice in relation to your individual taxation situation. You should seek your own professional tax and investment advice to determine the tax treatment applicable to you and the suitability of MERC Securities to meet your investment needs. 48

53 Taxation Considerations 9 MACQUARIE TAXATION FORTRESS 49

54 Taxation issues are complex and taxation laws, their interpretation and associated administrative practices may change over the term of an investment in the MERC Securities. Macquarie does not provide financial or tax advice and this PDS cannot address all of the taxation issues which may be relevant to a particular Investor. Each Investor must take full and sole responsibility for their own investment in the MERC Securities, the associated taxation implications arising from that investment and any changes in those taxation implications during the course of that investment. This summary outlines the main Australian income tax implications for Investors who apply for MERC Securities pursuant to this PDS. The information in this summary is of a general nature only and does not purport to constitute legal or tax advice. As the taxation implications for each potential Investor may be different, Macquarie recommends that each prospective Investor obtains their own independent professional taxation advice on the full range of taxation implications applicable to their own individual facts and circumstances. 9.1 Assumptions This summary of the taxation implications for an Investor in MERC Securities assumes that: the Investor will hold the MERC Security on capital account and will not be a person who is carrying on a business of either trading in securities or investing in securities in the course of which they regularly acquire and dispose of securities; the Investor is an Australian resident for tax purposes; the Delivery Securities will be listed shares in a company, but neither the Commodity Asset nor any Delivery Security will be shares in a foreign company or units in a foreign trust; the MERC Security will be denominated in Australian dollars; neither the Commodity Asset nor a Delivery Security will be equity interests in Macquarie or a company that is a connected entity of Macquarie; the Capital Protection Level will not be more than 100%; there is nothing in the circumstances of the transaction, or in the way it is implemented, that would indicate at commencement of a MERC Security that an Investor would elect to utilise the Share Sale Facility at Maturity; and the Investor does not enter into a MERC Security in substitution for an economically equivalent investment that they would otherwise be expected to enter into. This summary is based on Australian taxation laws in force and administrative practices generally accepted as at the date of this PDS. Any of these may change in future without notice and legislation introduced to give effect to announcements may contain provisions that are currently not contemplated. Future changes in taxation laws, their interpretation or associated administrative practices could affect the treatment of Investors in MERC Securities. All references in this summary to legislative provisions are to provisions of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act Acquisition of the MERC Securities Each MERC Security is a deferred purchase agreement between the Investor and Macquarie for the purchase of the Delivery Securities on a deferred basis. The MERC Security, and in particular the Investor s rights under that agreement, will be a CGT asset of the Investor. The MERC Security should not be considered to be a security for the purposes of the qualifying security provisions in Division 16E or the traditional security provisions of sections 26BB and 70B. In addition, on entering into a MERC Security, the Investor will also acquire the Beneficially-Owned Parcel. This will also be a CGT asset of the Investor. As the terms of a MERC Security will not confer a right to acquire shares in a foreign company or interests in a foreign trust, the MERC Security will not be an interest in a FIF (as defined in section 483) to which the Foreign Investment Fund provisions in Part XI apply. 9.3 Taxation at Maturity Delivery of Delivery Securities There should be no income tax implications for an Investor on Maturity of their MERC Security where the Investor receives the Delivery Securities. In particular, the ATO should not treat investors as realising a capital gain on Macquarie satisfying its obligations under the Terms and Conditions to deliver the Delivery Securities to the Investor (refer National Tax Liaison Group CGT Subcommittee meeting minutes 10 June 1998). Investors should note that views expressed in this forum are not binding on the ATO and, although there is no 50

55 indication of any proposal to change these views, it is possible that the ATO may change its view in the future. The cost base of the Delivery Securities (including the Beneficially-Owned Parcel) received after Maturity will include the Purchase Price. The date of acquisition of the Delivery Securities (including the Beneficially-Owned Parcel) should be the Issue Date for the MERC Securities or the date of the contract for the transfer of the MERC Securities to the Investor, being the date that the Investor enters into the agreement under which the Delivery Securities are acquired. Where the Investor subsequently disposes of the Delivery Securities, the Investor will realise a capital gain to the extent that their capital proceeds for the disposal exceeds their cost base in the Delivery Securities. A capital loss will arise to the extent that the capital proceeds are less than the Investor s reduced cost base in the Delivery Securities. 9.4 Share Sale Facility Where the Investor elects to use the Share Sale Facility at Maturity of the MERC Security instead of continuing to hold the Delivery Securities, a capital gain will arise for the Investor at that time to the extent that the capital proceeds for the sale of the Delivery Securities, including the Beneficially-Owned Parcel, (ie, the proceeds of sale of the Delivery Securities received by the Investor) and any Aggregate Rounding Amount exceed their cost base in the Delivery Securities (eg, the Purchase Price for those Delivery Securities plus any Anticipated Sale Charges). A capital loss will arise to the extent the capital proceeds and any Aggregate Rounding Amount are less than the Investor s reduced cost base in the Delivery Securities (including any Anticipated Sale Charges). 9.5 Early Termination Where there is an Early Termination of a MERC Security, the Investor will realise a capital gain to the extent the capital proceeds on the discharge of the Investor s rights under the MERC Security, including the Beneficially-Owned Parcel, (eg, the Early Termination Value) exceed the Investor s cost base in those rights (eg, the Purchase Price). A capital loss will arise to the extent those capital proceeds are less than the Investor s reduced cost base in the rights. 9.6 Transfer of MERC Securities Where an Investor transfers their MERC Securities to a third party, the Investor will realise a capital gain on the disposal of their rights under the MERC Securities, including the Beneficially-Owned Parcel, to the extent that the capital proceeds for the transfer exceeds the Investor s cost base in those rights. A capital loss will arise to the extent the capital proceeds are less than the reduced cost base. An Investor who acquires MERC Securities pursuant to such a transfer should include the consideration paid for the transfer of the MERC Securities and the Transfer Fee in their cost base for their rights under the MERC Securities, or, where received, their cost base in the Delivery Securities. The Investor s acquisition date for CGT purposes of those rights and of the Delivery Securities will be the date of the contract for the transfer. 9.7 Discount Capital Gains Tax Treatment Investors who are individuals, trusts or complying superannuation entities should be entitled to a discount of 50% (or one-third for complying superannuation entities) on any capital gain arising from a disposal of their Delivery Securities including the Beneficially Owned Parcel (after the application of any capital losses of the Investor) where the date of disposal of their Delivery Securities is at least 12 months after the date of the issue of the MERC Security (excluding the Issue Date and the disposal date). For these purposes the securities comprising the Delivery Securities will be taken to have been acquired at the date the MERC Security was entered into by the investor, being the date the agreement under which those securities are acquired was entered into (refer section 109-5(2)). Similarly, such Investors should be entitled to discount CGT treatment on any capital gain arising where the Investor s MERC Securities are terminated as a result of an Early Termination, or the Investor transfers their MERC Securities to a third party, provided that the Investor has held their MERC Security for at least 12 months (excluding the Issue Date and the Maturity Date, Early Termination Date or transfer date, as applicable). 9 TAXATION CONSIDERATIONS 51

56 9.8 Part IVA Part IVA is a general anti-avoidance provision that applies where the dominant purpose of a person in entering into or carrying out a scheme is to obtain a tax benefit. Whilst we would not expect the Commissioner to apply Part IVA to Investors in the MERC Securities, the application of Part IVA to an Investor can only be conclusively determined having regard to the Investor s particular circumstances as the individual facts and circumstances of a particular Investor may establish the existence of a tax benefit. For example, circumstances where the last assumption in 9.1 above is not satisfied. Investors should therefore seek their own independent tax advice on the potential application of Part IVA, taking into account whether their own individual circumstances are such that they would not be considered to have a dominant purpose of obtaining a tax benefit in relation to their investment in the MERC Securities. 9.9 GST Issue or redemption of MERC Securities and delivery of the Delivery Securities should not be taxable supplies for GST purposes. If Macquarie became liable for any Taxes, including GST, in connection with the purchase, sale or transfer of, or the completion of, the purchase and sale of the MERC Securities or the Delivery Securities, Macquarie can require the Investor to pay such Taxes Stamp Duty Under current laws, acquisition of the MERC Securities, and the delivery of the Delivery Securities (if they comprise ordinary shares in BHP Billiton Limited and ordinary shares in Rio Tinto Limited), will not result in any liability to ad valorem duty. Provided any substituted Delivery Securities are shares which are listed for quotation on the Australian Stock Exchange, based on current laws, no ad valorem duty will be payable on their transfer at Maturity. If duty becomes payable by Macquarie in connection with the acquisition or transfer of MERC Securities or the Delivery Securities, Macquarie can require the Investor to pay such duty Other Events and Circumstances There may be other events and circumstances relating to an Investor s investment in the MERC Securities or the Delivery Securities that give rise to tax implications that are not discussed in this summary. Investors should seek their own independent tax advice in respect of such events and circumstances. 52

57 Additional Information Aside from the various features of your MERC Securities, there is other information concerning your investment that you should be aware of. This information is provided below The Commodity Asset and Delivery Security The Termination Value of a MERC Security is linked to the performance of the nominated Commodity Asset. At Maturity, unless you have elected to use the Share Sale Facility, you will receive the Number of Each Delivery Security on or before the Settlement Date calculated in accordance with the Terms and Conditions. This PDS has been prepared by Macquarie using publicly available information only. No Prescribed Entity has been involved in the preparation nor furnished any information to Macquarie for the purpose of the preparation of this PDS. Similarly, any disclosure in this PDS concerning a Prescribed Entity, a Commodity Asset or a Delivery Security based on publicly disclosed information has not been independently verified. Macquarie does not, therefore, accept any liability or responsibility for, and makes no representation or warranty, express or implied, as to the accuracy or completeness of such information. You should make your own enquiries. You may obtain historical information relating to a Prescribed Entity, the Commodity Asset and the Delivery Securities from numerous sources including the ASX, any manager, trustee or responsible entity of any fund, newspapers, research houses, stockbrokers and investment advisers. INVESTORS SHOULD NOT TAKE THE HISTORICAL PRICES OF A COMMODITY ASSET AS AN INDICATION OF FUTURE PERFORMANCE AND SHOULD UNDERSTAND THAT THERE CAN BE NO ASSURANCE THAT THE PRICE OF A COMMODITY ASSET OR DELIVERY SECURITY WILL PERFORM IN ACCORDANCE WITH EXPECTATIONS. Nothing in this PDS may be relied upon as implying that the affairs of a Prescribed Entity have remained as they were at the date of this PDS. No representation as to the future performance, assets, distributions, dividends or value of the Commodity Asset or Delivery Securities is made. You should also be aware that companies in the Macquarie Bank Group may issue other instruments whose value is linked to a Commodity Asset or a Delivery Security. Such activities could present real or apparent conflicts of interest for Macquarie and entities within the Macquarie Bank Group with respect to its obligations under the MERC Securities. In addition, companies in the Macquarie Bank Group may buy and sell the securities which may affect the value of the Commodity Asset and Delivery Securities Enquiries and Complaints Macquarie has procedures in place to properly consider and deal with any enquires or complaints from Investors in MERC Securities. Macquarie will acknowledge receipt of a complaint within five Business Days and provide a substantive response within 30 Business Days. 10 ADDITIONAL MACQUARIE INFORMATION FORTRESS 53

58 Where a complaint remains unresolved (eg where a remedy is not offered or not instigated or where a remedy offered is not accepted by the complainant), the complaint may fall within the terms of reference of the external complaints scheme, Financial Industry Complaints Scheme ( FICS ). To contact FICS, Investors should telephone (03) or write to PO Box 579 Collins Street West, Melbourne VIC Communications from Macquarie Confirmation If your Application for MERC Securities is Accepted by Macquarie, you will receive a Confirmation after the Investment Date. The Confirmation will set out, among other things, the number of MERC Securities issued to you, the Participation Rate, and the Opening Level of the Commodity Asset. Semi-Annual Reporting You will receive a semi-annual report showing how your MERC Securities have performed during the previous six month period. This statement will also provide you with an estimate of the value of your MERC Securities at the end of the reporting period. Notice of Maturity No less than 20 Business Days before the Maturity Date Macquarie will notify you of the impending Maturity of your MERC Securities. This Notice of Maturity will include a Delivery Notice for you to complete and return if you wish the Delivery Securities to be transferred to a broker-sponsored account, rather than a new Issuer Sponsored Account as well as a Share Sale Facility Notice for you to complete and return if you wish to use the Share Sale Facility after Maturity. Completion Statement As soon as reasonably practicable after the Maturity Date, Macquarie shall send to you a Completion Statement which will include, among other things the calculation of the Termination Value of a MERC Security, the Aggregate Termination Value of your investment and, where applicable the Number of Each Delivery Security to be delivered to you and the associated Aggregate Rounding Amount if any, or the proceeds of the Share Sale Facility. Web Communications Each month Macquarie will publish the current return on the Commodity Asset, an estimate of the Early Termination Value, and the current Early Termination Fee on its website: Consents Clayton Utz has given its consent to the inclusion of the Taxation Report in Section 9 of this document and to be named in this PDS in the form and context in which it is included and confirms that the statements in that report are not false or materially misleading or deceptive. Belike Nominees Pty Limited has given and not withdrawn its consent to be named in this PDS, but has not been involved in the preparation of this PDS, has not authorised or caused its issue, makes no representation as to its accuracy or completeness, and accepts no responsibility for its form or contents. Goldman, Sachs & Co. has given, and not withdrawn, its consent to the inclusion of the information in the form and context in which it is included regarding the GSCI and its subindices on the inside front cover and Sections through to in this Product Disclosure Statement. Goldman, Sachs & Co. has had no involvement in the preparation of this PDS and has not authorised or caused the issue of, and expressly disclaims and takes no responsibility for, any part of this PDS. Investors are directed to read the disclaimer on the inside front cover of this PDS. Mallesons has given its consent to the inclusion of the Nominee Deed Summary in Section 13 of this document and to be named in this PDS in the form and context in which it is included and confirms that the statements in that section are not false or materially misleading or deceptive Making an Application To apply for MERC Securities please read Section 15 How to Apply and complete the Application Form at the back of this PDS. You can send your completed Application Form and application money via your licensed Financial Adviser or directly to Macquarie at the following address: Macquarie Bank Limited MERC Securities GPO Box 4294 Sydney NSW 1164 It is important that you have read and understood the terms set out in this PDS before you invest in MERC Securities. Applications can only be made by an individual, trustee, superannuation fund or company that are Australian domiciled. Individuals must be at least 18 years of age to apply for MERC Securities. Employees, and associates of employees, of companies in the Macquarie Group may invest in MERC Securities. 54

59 10.6 Benefits to Macquarie Macquarie will earn a financial benefit from the issue of MERC Securities to the extent that the cost to Macquarie of ensuring it can provide the return on the MERC Securities described in this PDS is less than the Purchase Price per MERC Security. The calculation of the Indicative Participation Rates quoted in this PDS, the Participation Rates set as at the Investment Date, and the Early Termination Fee, take into account the financial benefit earned by Macquarie in order to make the issue of MERC Securities viable Labour Standards, Environmental, Social and Ethical Considerations Macquarie does not take into account labour standards or environmental, social or ethical considerations for the purpose of selecting, retaining or realising any investments in connection with the MERC Securities. 10 ADDITIONAL INFORMATION 55

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61 Description of Macquarie 11.1 Macquarie Bank Limited Macquarie Bank Limited (Macquarie) is an authorised deposit taking institution under s9 of the Banking Act 1959 (Commonwealth). As at 31 March 2005 Macquarie had total assets of A$49.3 billion and equity attributable to ordinary equity holders of Macquarie of A$3.2 billion on a consolidated basis. For the year ended 31 March 2005 Macquarie reported profit from ordinary activities after income tax attributable to ordinary equity holders of A$823 million on a consolidated basis. Macquarie is admitted to the official list of the ASX and its ordinary shares have been listed for quotation on the ASX since 29 July Macquarie is a disclosing entity under the Corporations Act 2001 and the ASX Listing Rules and has a continuous disclosure obligation. Copies of documents lodged by Macquarie may be obtained from, or inspected at, an office of ASIC or the ASX. Macquarie will provide a copy of any such document, free of charge, to a person who asks for it Rating Agencies Macquarie is rated by Standard & Poor s, Fitch Ratings and Moody s Investors Service. Current ratings are available from various sources including the ASX, brokers and Macquarie (including on the Macquarie website: The rating agencies (Standard & Poor s, Fitch Ratings and Moody s Investors Service) do not independently verify information provided to them by Macquarie and therefore, the rating agencies make no representation or warranty with respect to the accuracy of their ratings. The rating agencies have not been involved in the preparation, or authorised the issue of, this PDS. Investors should note that credit ratings assigned by the rating agencies address only credit risk, which is only one element of any investment decision and should not be construed as relating to the MERC Securities the subject of this PDS. Ratings are not recommendations to buy, hold or redeem MERC Securities. By publishing a rating, the rating agencies are not inducing or advising investors to take any action with respect to the MERC Securities or any other security. Ratings and rating reports should not be construed as investment advice, personalised or other. Accordingly, each investor should conduct their own evaluation of the MERC Securities or consult with their Financial Adviser. 11 Ratings are subject to change or withdrawal at any time, such change or withdrawal is within each rating agency s sole discretion. MACQUARIE DESCRIPTION FORTRESS OF MACQUARIE FUND 57

62 11.3 Disclosure Obligations Macquarie, as a company whose shares are quoted on the stock market of the ASX, is a disclosing entity for the purposes of the Corporations Act 2001 and the ASX Listing Rules and as such has regular reporting and continuous disclosure obligations. This means that, subject to certain exceptions, Macquarie must disclose to the ASX any information concerning it that a reasonable person would expect to have a material effect on the price or value of Macquarie s ordinary shares. Copies of the information disclosed to the ASX can be viewed on the public file of Macquarie at the ASX Documents Available Macquarie will provide a copy, free of charge, of any of the following documents to any person who requests such copies during the life of this PDS, by contacting the Investment Banking Group, Macquarie Bank Limited, No. 1 Martin Place, Sydney, NSW Australia. Telephone number: the latest available financial report and annual review of Macquarie; and the latest available interim results of Macquarie. Macquarie s latest available Annual Review, Interim Report and Financial Reports are also able to be reviewed online via Macquarie s website at: No circumstance has arisen or information has become available except as disclosed in this PDS or to ASX that would materially affect an investor s decision for the purpose of making an informed assessment of the capacity of Macquarie to fulfil its obligations under the Terms and Conditions since the end of the financial year ended 31 March

63 Terms and Conditions References to clauses in this Section 12 are references to clauses of the Terms and Conditions set out in this Section 12 and they are not references to other Sections of this PDS. 12 MACQUARIE BANK AND THE INVESTOR AGREE: 1. INVESTMENT TERMS 1.1 Acceptance of Application Upon Acceptance by Macquarie of an Investor s Application and in consideration of the payment by the Investor of the Purchase Price Macquarie shall: (a) issue MERC Securities to the Investor on the Issue Date; and (b) enter the Investor s name in the register of holders of MERC Securities. The number of MERC Securities to be issued to the Investor will be determined by dividing the Application Amount, less any Application Fee, by the Purchase Price. As soon as reasonably practicable after the Investment Date, Macquarie will send to the Investor a Confirmation in relation to the Investor s MERC Securities. 1.2 Issue Date The date on which MERC Securities will be issued to an Investor upon Acceptance of the Investor s Application will be the earlier to occur of: (a) the day prior to one month after the date on which Macquarie receives the Application Amount in respect of the Application; and (b) the Investment Date. Where the Issue Date is before the Investment Date, the Opening Level of the Commodity Asset will still be determined as at the Investment Date notwithstanding the fact that the MERC Securities were issued before that date. Macquarie has the right to return all Applications or terminate any MERC Securities that have already been issued if, on the Investment Date, the aggregate value of all Applications that would be accepted in the Series is less than $10,000,000. However, Macquarie may proceed with the offer if subscriptions of less than $10,000,000 are received. 1.3 Independent Obligations The obligations of Macquarie in respect of each MERC Security constitute separate and independent obligations governed by these Terms and Conditions which only the relevant Investor is entitled to enforce. 1.4 Application Fee Macquarie is entitled to be paid an Application Fee equal to 3.3% of the Application Amount in respect of each Application it accepts. For each Application, the amount of the Application Fee in respect of the Application will be deducted from the Application Amount before determining how many MERC Securities will be issued to the applicant. For each Application, application money will be held in a trust account up until the Issue Date for the Application. Macquarie will keep any interest earned on money in the trust account. Macquarie has the right to waive the Application Fee in respect of any Application or to charge a lesser amount than it is entitled to. Macquarie must waive the Application Fee in respect of an Application where the applicant s Financial TERMS AND MACQUARIE CONDITIONS FORTRESS 59

64 Adviser indicates on the Application Form that the Application Fee should be waived. If your Financial Adviser waives the Application Fee it will be applied to the purchase of additional MERC Securities on your behalf. Macquarie retains the right to waive, in part or in full, the Application Fee and in particular in relation to Applications received from employees, or associates of employees, of any member of the Macquarie Group and for Application Amounts greater than $100, Participation Floor An Investor may (but is not obliged to) place a lower limit on the Participation Rate for their MERC Securities. If the Participation Rate is lower than the Investor s selected Participation Floor: (a) if the Issue Date in respect of the MERC Securities the subject of the Investor s Application would (but for the Participation Floor) have been the Investment Date, Macquarie will automatically withdraw the Investor s Application and refund in full to the Investor the Investor s Application Amount (Macquarie will keep any interest earned on the Application Amount while it was in the application trust account); or (b) if prior to the Investment Date the MERC Securities the subject of the Investor s Application have been issued to the Investor, Macquarie will terminate each MERC Security and will repay the Investor the full Application Amount (Macquarie will keep any interest earned on the Application Amount while it was in the application trust account). For the avoidance of doubt, Macquarie will not charge the Application Fee and this termination is not an Early Termination and no Early Termination Fee may be charged in these circumstances. 1.6 Bank Fees Macquarie reserves the right to deduct from the Application Amount any charges incurred by Macquarie resulting from dishonoured Investor cheques or the provision of incorrect direct debit information in the Application Form. 2. ENTITLEMENTS AT MATURITY 2.1 Nature of MERC Securities A MERC Security is a deferred purchase agreement between the Investor and Macquarie the terms of which are set out in these Terms and Conditions and the other sections of this PDS. For the avoidance of doubt, if there is any inconsistency between the Terms and Conditions and other sections of the PDS, the Terms and Conditions will prevail. In return for paying the Purchase Price an Investor is entitled to be transferred at Maturity, and Macquarie must deliver on or before the Settlement Date, Delivery Securities in accordance with clause 2.4 with a Market Value at the Valuation Time equal to the Aggregate Termination Value for the MERC Securities subject to any Aggregate Rounding Amounts. If an Investor notifies Macquarie in accordance with clause 2.2 that they wish to use the Share Sale Facility to sell the Delivery Securities transferred to the Investor under clause 2.4, Macquarie will pay the Investor the Share Sale Facility Proceeds (net of any Anticipated Sale Charges) and any Aggregate Rounding Amount derived under clause 2.7, on or before the Settlement Date in accordance with clause Notice at Maturity (a) Macquarie must give a Notice of Maturity to each Investor no less than 20 Business Days before the Maturity Date setting out: (i) the number of MERC Securities held by the Investor on a date shortly before the date of the notice; and (ii) the Maturity Date. (b) Macquarie must provide each Investor with a blank Delivery Notice and Share Sale Facility Notice for completion with each Notice of Maturity. (c) An Investor must complete and return the Delivery Notice to Macquarie if they wish to have the Delivery Securities to be transferred to them under clause 2.4 delivered to an existing broker account and corresponding HIN. If the Investor does not return a valid Delivery Notice or Share Sale Facility Notice, the Delivery Securities under clause 2.4 will be transferred to an Issuer Sponsored account for the Investor. (d) An Investor must complete and return a valid Share Sale Facility Notice to Macquarie if they wish to use the Share Sale Facility to sell the Delivery Securities transferred to them under clause Validity of Delivery Notice or Share Sale Facility Notice Macquarie will be entitled to treat a Delivery Notice or Share Sale Facility Notice as invalid unless: (a) it has been duly completed; and (b) it is received by Macquarie at least two Business Days prior to the Maturity Date. 60

65 2.4 Transfer of Delivery Securities (a) Macquarie must on or prior to the Settlement Date: (i) transfer to the Investor, or procure the transfer to the Investor of, the unencumbered title to a number of each of the Delivery Securities which equals the Number of Each Delivery Security in each case. The Delivery Securities transferred to the Investor must be free from any mortgage, charge, lien, pledge or other encumbrance and must include all rights, including dividend rights, or the benefit of all rights, attached or accruing to them on and from the Maturity Date; and (ii) pay the Investor the Aggregate Rounding Amount (if any) pursuant to clause 2.7. (b) To effect delivery to an Investor of the Delivery Securities under this clause 2.4 the Investor irrevocably appoints Macquarie as their agent to effect the delivery. (c) If the Investor does not return a valid Delivery Notice, the Delivery Securities will be transferred to an Issuer Sponsored account in the same name in which the MERC Securities are held by the Investor. If the Investor has returned a valid Delivery Notice, in accordance with clause 2.3 that sets out the Investor s alternative broker-sponsored account and corresponding HIN, the Delivery Securities will be transferred to that broker-sponsored account and HIN. (d) If the Investor has returned a valid Share Sale Facility Notice, the Delivery Securities will be transferred by Macquarie or its nominee on the Business Day following the day on which the Termination Value is determined to a Nominee Account to be held on behalf of the Investor. (e) The Delivery Securities transferred to an Investor on or before the Settlement Date will include the Investor s Beneficially-Owned Parcel (or an equivalent number of Delivery Securities) and the transfer will terminate the Investor s interest in the Trust. 2.5 Share Sale Facility If Macquarie receives a valid Share Sale Facility Notice from an Investor in accordance with clause 2.2 and 2.3 who wishes to use the Share Sale Facility to sell the Delivery Securities transferred to them under clause 2.4, then: (a) the Investor irrevocably authorises Macquarie or its nominees to sell as its agent, and irrevocably directs and authorises Macquarie or any of its nominees as execution only broker to take all actions necessary or desirable to effect the sale by Macquarie or its nominees, of the Delivery Securities under this clause on the Business Day following the day on which the Termination Value is determined; (b) Macquarie or its nominees on behalf of Macquarie, will pay the net proceeds of sale of the Delivery Securities under this clause (being the Share Sale Facility Proceeds less the Anticipated Sale Charges), along with any Aggregate Rounding Amount derived in accordance clause 2.7 below, to the Investor on or before the Settlement Date; (c) the Investor acknowledges and agrees that: (i) Macquarie or its nominees agree to use reasonable endeavours to sell the Delivery Securities under this clause on behalf of the Investor for an amount per Delivery Security equal to the Closing Price applicable to that Delivery Security on the Business Day following the day on which the Termination Value is determined; and (ii) to the extent permitted by law, Macquarie and its nominees are not responsible for any loss, costs or expenses incurred by the Investor as a result of using the Share Sale Facility, except to the extent that such losses, costs or expenses arise as a result of Macquarie s or the nominee s gross negligence, default, fraud or dishonesty. (d) The Investor acknowledges and agrees that if Macquarie or its nominee are not able to sell any or all of the Delivery Securities at the Closing Price in accordance with clause 2.5(c)(i) for the Investor under the Share Sale Facility for any reason, Macquarie or its nominee will use reasonable endeavours to sell the unsold Delivery Securities, where possible, at any time on or after the second Business Day following the day on which the Termination Value is determined at a market price. 2.6 Satisfaction of Obligations If an Investor has not returned a valid Share Sale Facility Notice, upon delivery of the Delivery Securities to the Investor in accordance with clause 2.4, all obligations owed by Macquarie and the Nominee to the Investor in respect of the MERC Securities are satisfied and discharged, the Investor s MERC Securities will cease to exist and the Investor s beneficial interest in the Trust will be extinguished. TERMS AND CONDITIONS 12 61

66 If an Investor has returned a valid Share Sale Facility Notice: (a) upon delivery of the Delivery Securities to the Nominee Account on behalf of the Investor in accordance with clause 2.4, all obligations owed by the Nominee to the Investor in respect of the MERC Securities are satisfied and discharged and the Investor s beneficial interest in the Trust will be extinguished; and (b) upon payment of the Share Sale Facility Proceeds (less any Anticipated Sale Charges) and Aggregate Rounding Amount (if any), all obligations owed by Macquarie to the Investor in respect of the MERC Securities are satisfied and discharged and the Investor s MERC Securities will cease to exist. 2.7 Delivery of a whole number of shares or securities Macquarie or its nominee will not transfer a fraction of a share or security as part of the transfer of the Delivery Securities in accordance with clause 2.4. Macquarie will cause to be paid to the Investor (within 5 Business Days of the Settlement Date or such longer period as Macquarie, acting reasonably, determines) an amount equal to the Aggregate Rounding Amount provided that such amount exceeds $2. If the amount does not exceed $2, Macquarie is under no obligation to the Investor to make any payment to the Investor and will pay the amount to a charity of Macquarie s choosing. 2.8 Beneficially-Owned Parcel (a) Each MERC Security held by an Investor gives the Investor an interest in a Beneficial Fraction of the Trust Assets the legal title to which will be held on trust for the Investor by the Nominee in accordance with the Nominee Deed. (b) The Investor acknowledges that pursuant to the terms of the Nominee Deed Macquarie has all rights in respect of all dividends and other income distributions the Nominee receives in respect of the Trust Assets. (c) Under the Nominee Deed, at Maturity the Investor will be transferred their Beneficially- Owned Parcel (or an equivalent number of Delivery Securities), as a component of the Delivery Securities transferred to the Investor under clause 2.4, which will terminate the Investor s beneficial interest in the Trust. 2.9 Completion Statement As soon as reasonably practicable after the Maturity Date, Macquarie shall send to the Investor a Completion Statement which will include, among other things the calculation of the Termination Value, the Investor s Aggregate Termination Value, the Number of Each Delivery Security to be delivered to the Investor and any associated Aggregate Rounding Amount, or where applicable, the Share Sale Facility Proceeds Transferability (a) An Investor may transfer one or more of their MERC Securities. The transfer will only take effect when Macquarie registers the transfer ( Transfer Date ). In order for Macquarie to register a transfer, the following completed documents must be lodged with Macquarie: (i) an Effective Transfer Form; (ii) an Application Form signed by the transferee; and (iii) a cheque for the amount of the Transfer Fee payable to Macquarie in respect of the transfer. (b) By signing an Application Form, a transferee of MERC Securities agrees to be bound by the Terms and Conditions once the transfer of MERC Securities is effective. (c) The Transferee must pay the Transfer Fee when they submit their signed Application Form to Macquarie. (d) An Effective Transfer Form once lodged with Macquarie is irrevocable. (e) The transferee indemnifies Macquarie in respect of any Taxes imposed upon Macquarie in relation to the transfer. (f) Macquarie will not register a transfer that would result in an Investor holding MERC Securities the value of which on the Transfer Date would be less than the Minimum Application Amount, unless the transfer is a transfer of all the MERC Securities held by the transferor. (g) Macquarie has the discretion to refuse to register any transfer of MERC Securities Taxes (a) Macquarie is not liable for any Taxes or other charges including, without limitation, GST and stamp duty, if any, which are: (i) payable by the Investor or Macquarie in relation to or in connection with these Terms and Conditions; or (ii) payable by any person on, as a consequence of, or in connection with the purchase, sale or transfer of, or the completion of, the purchase and sale of the Delivery Securities. 62

67 (b) The Investor must pay all Taxes and other charges including, without limitation, GST and stamp duty, if any, which is: (i) payable by the Investor or Macquarie in relation to or in connection with these Terms and Conditions; or `(ii) payable by any person on, as a consequence of, or in connection with, the purchase, sale or transfer of, or the completion of, the purchase and sale of the Delivery Securities Set-off Rights Notwithstanding any other provision of the Terms and Conditions, Macquarie may in its sole discretion set-off any amount payable to it by the Investor either under these Terms and Conditions or otherwise in relation to a MERC Security held by the Investor against any amount payable by Macquarie to the Investor under these Terms and Conditions Incidental Fees and Costs An Investor must bear the cost of any fees or Taxes expected to be incurred by Macquarie (or any agent or nominee of Macquarie) in connection with the transfer of Delivery Securities to the Investor after Maturity or the sale of the Delivery Securities after Maturity under the Share Sale Facility (these costs and fees are described as the Anticipated Sale Charges in this PDS). Such fees may include brokerage for the Delivery Securities to be sold. Where brokerage is expected to be incurred, the amount (along with any other Anticipated Sale Charges) will be deducted from the Share Sale Facility Proceeds before they are transferred to the Investor along with any Aggregate Rounding Amount. Macquarie retains the right to waive the Anticipated Sale Charges, in full or in part, at its own discretion. 3. EARLY TERMINATION 3.1 Investor Early Termination (a) Subject to paragraphs (b) and (c), an Investor may terminate their MERC Securities prior to the expiry of the Term by giving an Early Termination Request to Macquarie. (b) An Early Termination Request must be received by Macquarie at least ten Business Days before the end of the Quarter in which the MERC Securities are to be terminated. If an Early Termination Request is received by Macquarie after that date, the MERC Securities the subject of the Early Termination Request will be terminated on the Early Termination Date for the next Quarter. (c) In respect of an Early Termination Request received by Macquarie under clause 3.1(b): (i) Macquarie must pay the Investor the Early Termination Value (less any Early Termination Fee which is payable to Macquarie on the Early Termination Date) on or before the Settlement Date; (ii) on and from the payment of the Early Termination Value (less the Early Termination Fee) to the Investor: (A) the MERC Securities the subject of the Early Termination Request will be terminated and will cease to exist; (B) all obligations of Macquarie in relation to the terminated MERC Securities shall be discharged without liability; (C) the Investor s interest in the Trust will cease to exist. (d) Macquarie and an Investor may agree that the Early Termination Date in relation to the Investor s terminated MERC Securities is a date other than the Early Termination Date which would apply but for these Terms and Conditions. 3.2 Macquarie Early Termination (a) If an Early Termination Event occurs at any time during the Term up to and including the Business Day immediately preceding the Maturity Date, Macquarie may, without prior notice to the Investor and in addition to any other rights or remedies conferred by the Terms and Conditions or by law, determine that Early Termination will occur in relation to MERC Securities and may specify a date (which may be any date from the date of the declaration up to and including the Business Day immediately preceding the Maturity Date) as the Early Termination Date for the purposes of this clause. (b) Where a determination of Early Termination is made by Macquarie under paragraph (a) above: (i) Macquarie must send an Early Termination Notice to each Investor as soon as reasonably practicable after the date on which the Early Termination Event is declared stating the Early Termination Date; (ii) Macquarie must pay the Investor the Early Termination Value (less any Early Termination Fee which is payable to Macquarie on the Early Termination Date) on or before the Settlement Date; (iii) Macquarie must send a Termination Statement to each Investor as soon as reasonably practicable after the Early TERMS AND CONDITIONS 12 63

68 64 Termination Date setting out the Early Termination Value and the Early Termination Fee (if any); (iv) on and from the payment of the Early Termination Value (less the Early Termination Fee) to the Investor: (A) each MERC Security subject to Early Termination will be terminated and will cease to exist; (B) all obligations of Macquarie in relation to the terminated MERC Securities shall be discharged without liability; (C) the Investor s interest in the Trust will cease to exist. 3.3 Investor Insolvency (a) If an Investor becomes Insolvent at any time during the Term up to and including the Business Day immediately preceding the Maturity Date, Macquarie may, without prior notice to the Investor and in addition to any other rights or remedies conferred by the Terms and Conditions or by law, determine that Early Termination will occur in relation to MERC Securities held by that Investor and may specify a date (which may be any date from the date of the declaration up to and including the Business Day immediately preceding the Maturity Date) as the Early Termination Date for the purposes of this clause. (b) Where a determination of Early Termination is made by Macquarie under paragraph (a) above: (i) Macquarie must send an Early Termination Notice to the Insolvent Investor as soon as reasonably practicable after the date on which the determination is made; (ii) Macquarie must: pay the Investor the Early Termination Value (less any Early Termination Fee which is payable to Macquarie on the Early Termination Date) on or before the Settlement Date; (iii) Macquarie must send a Termination Statement to the Insolvent Investor as soon as reasonably practicable after the Early Termination Date setting out the Early Termination Value and the Early Termination Fee (if any); (iv) on and from the payment of the Early Termination Value (less the Early Termination Fee) to the Investor: (A) each MERC Security subject to Early Termination will be terminated and will cease to exist; (B) all obligations of Macquarie in relation to the terminated MERC Securities shall be discharged without liability; (C) the Insolvent Investor s interest in the Trust will cease to exist. 3.4 Right to waive Early Termination Fee Macquarie has the right to waive the Early Termination Fee payable under this clause 3 or to charge a lesser amount than it is entitled to. 4. ADJUSTMENT (a) Upon the occurrence of an Adjustment Event in relation to: (i) an index or basket of indices that comprise the Commodity Asset (or part of it), Macquarie may in its absolute discretion appoint an acceptable successor index provider and use the calculation and quotation provided by that successor or where there is no acceptable successor index provider, Macquarie may calculate the index level in accordance with the formula for and method of calculating the index prior to the change, failure or cancellation; or (ii) a futures, option or spot contract, a share or basket of any of these or other securities that comprise either the Commodity Asset (or part of it) or the Delivery Security (or a component of it), Macquarie may in its absolute discretion make an adjustment to any variable (including replacing a Delivery Security) relevant to the Termination Value, Early Termination Value, Number of Each Delivery Security to be transferred after Maturity as it deems appropriate to account for the Adjustment Event, and Macquarie must make such adjustments as, in Macquarie s reasonable opinion, will place Investors in the same economic position as at the time of the Adjustment Event as they would have been had the Adjustment Event not occurred. (b) Where Macquarie makes an adjustment in accordance with clause (a) above, Macquarie will: (i) determine the effective date of the adjustment; and (ii) notify the Investor of: (A) the event which constituted the Adjustment Event; and (B) the effect of the adjustment on the Termination Value, Early Termination Value or Number of Each Delivery Security, whichever the case may be.

69 5. DISRUPTED VALUATION If a Scheduled Valuation Date is a Disrupted Valuation Date then the Valuation Date shall be the next Business Day after the Scheduled Valuation Date that is not a Disrupted Valuation Date, unless each of the five Business Days immediately following the Scheduled Valuation Date is a Disrupted Valuation Date, in which case the fifth such Business Day shall be deemed to be the Valuation Date and Macquarie shall determine, where the Commodity Asset or Delivery Security is: (a) an index, the level of the index on the Valuation Date in accordance with the formula for and method of calculating the index last in effect prior to the first Disrupted Valuation Date using the traded or quoted price of each security, financial product or contract comprising the index at the Closing Time on the Valuation Date, or Macquarie s reasonable estimate thereof; (b) a futures, option or spot contract, share or any other security or financial product, Macquarie s reasonable estimate of the value for the futures, option or spot contract, share or other security or financial product on the Valuation Date. Where the subject of the valuation is a basket of indices, futures, options or spot contracts, shares or any other securities or financial products, the Valuation Date for each index, futures, option or spot contract, share or security or financial product in the basket not affected by the occurrence of a Disrupted Valuation Date shall be the Scheduled Valuation Date, and the Valuation Date for each index, futures, option or spot contract, share, security or financial product in the basket that is affected by the occurrence of a Disrupted Valuation Date shall be the next Business Day that is not a Disrupted Valuation Date, unless each of the five Business Days immediately following the Scheduled Valuation Date is a Disrupted Valuation Date for that index, futures, option or spot contract, share or security or financial product. In that case Macquarie will make a determination for the security in accordance with (a) or (b) above (whichever is relevant to that index, futures, option or spot contract, share or other security or financial product). 6. SUBSTITUTION (a) If Macquarie, in its reasonable opinion, determines that it is not able to transfer a particular number or type of Delivery Security to the Investor in accordance with these Terms and Conditions, Macquarie may substitute or add to any of the Delivery Securities with any other security or securities quoted and trading on the ASX the Prescribed Entity of which, on the Maturity Date, is included in the S&P/ASX 100 Resources Index or the S&P/ASX 100 Index, and deliver that substituted or added security or securities in accordance with these Terms and Conditions as if it were a Delivery Security. (b) Under clause 6(a), Macquarie may add a security which is already a Delivery Security. (c) Each security substituted or added in accordance with clauses 6(a) or (b) will be deemed a separate Delivery Security for the purpose of calculating the Number of Delivery Security Units and Number of Each Delivery Security. (d) Macquarie will not add a security in accordance with clause 6(b) if more than half of the Aggregate Termination Value (subject to rounding) will thereby be comprised of securities of a single Prescribed Entity. (e) Macquarie may receive a request from an Investor to substitute Delivery Securities with a security or securities of a Prescribed Entity chosen by the Investor. Macquarie may, in its absolute discretion, agree to such substitution and the Investor will retain its right to be transferred Delivery Securities under clause 2 except that Macquarie will substitute the Delivery Securities with those securities nominated by the Investor under this clause, and deliver that substituted security or securities in accordance with these Terms and Conditions as if it were a Delivery Security. 7. NOTICES 7.1 How to Give a Notice A notice, consent or other communication given under these Terms and Conditions is only effective if it is: (a) in writing; (b) addressed to the person to whom it is to be given; and (c) either: (i) delivered or sent by pre-paid mail (by airmail, if the addressee is overseas) to that person s address; (ii) sent by fax to that person s fax number and the machine on which it is sent produces a report that states that it was sent in full; or (iii) sent by to that person s address and the computer from which it is sent shows the as a sent item without any undeliverable message response within 24 hours of the sending. TERMS AND CONDITIONS 12 65

70 7.2 When a Notice is Given A notice, consent or other communication given by a party that complies with this clause 7 is regarded as given to and received by the other party: (a) if it is delivered or sent by fax or (i) by 5.00 pm (local time in the place of receipt) on a Business Day on that day; or (ii) after 5.00 pm (local time in the place of receipt) on a Business Day, or on a day that is not a Business Day - on the next Business Day; and (b) if it is sent by mail: (i) within Australia - 3 Business Days after posting; or (ii) to or from a place outside Australia - 7 Business Days after posting. All other notices, consents and other communications given in accordance with this clause 7 are regarded as given and received when given to the recipient. 8. GENERAL 8.1 Definitions Words defined in the Glossary of this PDS have the same meanings in these Terms and Conditions unless the context otherwise requires. 8.2 Interpretation For the purposes of interpreting these Terms and Conditions, the following rules of interpretation apply unless the context otherwise requires: (i) a reference to any statute, ordinance, code or other law, includes any modification, reenactment or substitution and all ordinances, by-laws, regulations and other statutory documents issued there under; (ii) headings are for convenience only, and do not affect interpretation; (iii) the singular includes the plural and vice versa; (iv) references to money amounts are references to amounts of Australian dollars; (v) the word person includes a firm, a body corporate, an unincorporated association and a statutory authority; (vi) a reference to any party includes a reference to that party s executors, administrators, successors, substitutes and permitted assigns and any person taking by way of novation; (vii) a reference to any thing (including, without limitation, any amount) is a reference to the whole or any part of it and a reference to a group of persons is a reference to any one or more of them; and (viii) examples of a thing and references to matters that are included in that thing are not exhaustive of that thing. 8.3 Discretion Where in these Terms and Conditions or elsewhere in this PDS, Macquarie has a discretion to require or determine a certain thing, consent to a certain matter or otherwise act in a certain way, that discretion is unfettered and absolute and may be exercised without obligation, notwithstanding any previous waiver of it, and in addition to any other rights or remedies conferred by these Terms and Conditions or by law. 8.4 Business Day Convention If the day on or by which a person must do something or a value or price must be determined under these Terms and Conditions is not a Business Day the person must do it on or by the next Business Day unless stated otherwise under these Terms and Conditions. 8.5 Ranking of Obligation The obligations of Macquarie in respect of every MERC Security issued under these Terms and Conditions: (a) constitute in every respect unsecured obligations of Macquarie to the Investor; (b) rank pari passu without any preference amongst themselves and without being affected by the different variables applying to each MERC Security as stated in the Term Sheets, including the Investment Date and Maturity Date. 8.6 Amendment Macquarie may from time to time make any modification, variation, alteration or deletion of, or addition to, these Terms and Conditions (the Amendment ) where in Macquarie s reasonable opinion such Amendment: (a) is necessary or desirable to comply with any statutory or other requirement of law, or (b) is desirable to correct an inconsistency or error in these Terms and Conditions (but only if the Amendment does not materially prejudice the interests of Investors), in which case, Macquarie shall provide Investors with notice of the Amendment and the Investor will be bound by the Amendment at the time the Investor is served with such notice. 66

71 8.7 Mode of Delivery and Payment Where Macquarie is required under these Terms and Conditions: (a) to deliver Delivery Securities, that obligation must be satisfied by causing the Delivery Securities to be transferred to the Investor to the extent permitted by, and in accordance with, the rules applicable to those Delivery Securities; or (b) to pay a sum of money, that obligation must be satisfied by: (i) the delivery of a cheque for the relevant amount - in which case the date of dispatch of the cheque shall be deemed to be the date of payment; or (ii) direct credit of a bank account - in which case the date that, in the ordinary course of banking business would be reasonably expected to result in the relevant funds reaching the applicable account upon the giving of the electronic transfer instructions, shall be deemed to be the date of payment. 8.8 Assignment (a) Macquarie may transfer or assign its obligations under the MERC Securities to any other entity without the consent of the Investor provided that either: (i) the proposed assignee has at that time the same or higher Standard & Poors credit rating as Macquarie; or (ii) the proposed assignee is guaranteed by an entity which has at that time the same or higher Standard & Poors credit rating as Macquarie. 8.9 No Bank Account Facilities Nothing in these Terms and Conditions or the holding of the MERC Securities by the Investor confers upon the Investor: (a) a bank account facility for the deposit or the withdrawal of funds other than as specifically contemplated by these Terms and Conditions; or (b) a cheque writing facility Governing Law (a) These Terms and Conditions are governed by and construed in accordance with the law in force in New South Wales. (b) Macquarie and the Investor submit to the nonexclusive jurisdiction of the courts exercising jurisdiction in New South Wales, and any court that may hear appeals from any of those courts, for any proceedings in connection with these Terms and Conditions, and waives any right it might have to claim that those courts are an inconvenient forum Waiver of Rights A right under these Terms and Conditions and the MERC Securities may be waived, and: (a) no other conduct of a person (including a failure to exercise, or delay in exercising, the right) operates as a waiver of the right or otherwise prevents the exercise of the right; (b) a waiver of a right on one or more occasions does not operate as a waiver of that right if it arises again; and (c) the exercise of a right does not prevent any further exercise of that right or of any other right. For the purpose of this clause 8.11 where the Investor waives a right, that right may only be waived if received in writing and signed by the Investor Operation of these Terms and Conditions These Terms and Conditions, the PDS and the Nominee Deed contain the entire agreement between Macquarie and the Investor about their subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by these Terms and Conditions and has no further effect Invalid or Unenforceable Provisions If a provision of these Terms and Conditions is invalid or unenforceable in a jurisdiction, it is to be read down or severed in that jurisdiction to the extent of the invalidity or unenforceability, and that fact does not effect the validity or enforceability of that provision in another jurisdiction or the remaining provisions Exclusion of Contrary Legislation Any legislation that adversely affects an obligation of Macquarie or the Investor, or the exercise by Macquarie or the Investor of a right or remedy, under or relating to these Terms and Conditions is excluded to the full extent permitted by law Personal Information The Investor shall be bound by the privacy collection statement in the Application Form included in this PDS concerning the use by Macquarie of the Investor s personal information No Merger Macquarie s rights under these Terms and Conditions are separate to and do not merge with any other contract between the parties. TERMS AND CONDITIONS 12 67

72 8.17 Consent to Telephone Recording The Investor consents to the recording of any of its conversations with Macquarie in relation to the MERC Securities Investor Information The Investor shall supply to Macquarie when requested to do so such financial or other information relating to the MERC Securities as Macquarie may, from time to time, reasonably request. 68

73 Nominee Deed This summary of some of the terms of the Nominee Deed has been prepared by Mallesons Stephen Jacques. It does not purport to be a comprehensive summary of the relevant terms of the Nominee Deed but highlights particular provisions that Macquarie wishes to encourage prospective investors to consider in detail and discuss with their professional advisers. Prospective investors should contact their Financial Adviser or Macquarie to obtain a copy of the complete Nominee Deed. Clause references are to clauses in the Nominee Deed Structure Macquarie (as Issuer) and Belike Nominees Pty Limited (as Nominee) are parties to the Nominee Deed. The Nominee Deed establishes and sets out the terms of the Trust pursuant to which Investors hold a beneficial interest in the Beneficially-Owned Parcel. Only that component of the Delivery Securities referred to in the definition Trust Assets (or substitute securities) are held under trust. The Commodity Assets are not held under the Trust (or any other trust) for the benefit of Investors. The Nominee is a wholly owned subsidiary of Macquarie Copies of the Nominee Deed The Nominee Deed is available for inspection at the office of Macquarie. A copy of the Nominee Deed is available free of charge to prospective applicants and Investors in MERC Securities, or for a fee of $10 each to other persons Beneficiaries (clause 2) The beneficial interest in the Trust Assets is held solely by the Investors and Macquarie. These interests are held as follows: Investors hold the beneficial interest in the entirety of the Trust Assets (including the right to distributions of capital) except for the beneficial interest held by Macquarie; and Macquarie holds the beneficial interest in all distributions of income (in whatever form). Each Investor holds a Beneficial Fraction in the Trust Assets for each MERC Security held by that Investor Income Distributions (clause 3) The Nominee will pay to Macquarie the cash amount of any income distributions (in whatever form). The Nominee will not participate in any plan conducted by a Prescribed Entity for the Trust Assets for the reinvestment of such income distributions Entitlements (clause 4) Investors are not entitled to receive notices of meetings of a Prescribed Entity of the Trust Assets, attend, speak or vote at any meetings of members of the Prescribed Entity of the Trust Assets, or require the Nominee to do any of the foregoing. The Nominee must not cast any vote in respect of the shares comprised in the Trust Assets. 13 The following is a summary of the material terms of the Nominee Deed. MACQUARIE NOMINEE DEED FORTRESS 69

74 13.6 The Trust (clause 5) The Nominee may administer the Trust such that Beneficial Fractions for a particular Investor from time to time may be aggregated. No Encumbrance may be created or permitted to subsist in respect of the Trust Assets. Each Accretion forms part of the Trust Assets. The Nominee and Macquarie are not liable in respect of any conduct, delay, negligence or breach of duty in the exercise or non-exercise of any power nor for any loss (including consequential loss) which results, except where it arises from fraud or wilful misconduct by or on behalf of the Nominee or Macquarie as the case may be. No person may control the transfer or disposal of Trust Assets (other than the Investor and the Nominee in accordance with the Nominee Deed) except in circumstances which include for the purposes of complying with Macquarie s obligations in relation to MERC Securities. The provisions of the Nominee Deed must not be amended for any purpose referred to in the paragraph above, nor amended in a manner which adversely affects the rights of Investors to receive the Delivery Securities at Maturity Transfer on Maturity (clause 6) At Maturity the Nominee must transfer the unencumbered legal title to the Beneficial Fractions of the Trust Assets held by that Investor on or before the Settlement Date. The Nominee s obligations are satisfied if Macquarie transfers a number of securities in the Trust Assets which is greater than the number of securities determined by aggregating the Beneficial Fractions of the Trust Assets held by that Investor. Where Early Termination applies under the terms of the PDS, the Nominee will dispose of the Investor s Beneficial Fractions of the Trust Assets and pay the disposal proceeds to the Investor (less all fees, costs, charges, liabilities, Tax (as defined in the Nominee Deed) and expenses incurred). The Nominee s obligations are satisfied if Macquarie pays more than the disposal proceeds to that Investor Consequences of Disposal Events (clause 7) If a Disposal Event occurs and the Nominee is obliged to sell some or all of the Trust Assets, the Nominee must sell the relevant Trust Assets in accordance with that obligation. The proceeds of any sale in these circumstances must be applied by the Nominee to acquire Substitute Trust Assets. The Investors have no right to challenge the validity of such a disposal. A certificate given by the Nominee that a Disposal Event has occurred will be sufficient evidence of the Nominee s right to sell the Trust Assets Corporate events (clauses 8-15) If the Prescribed Entity of the Trust Assets or a third party takes any action in respect of the capital of the Prescribed Entity, Macquarie or the Nominee may generally take (and will not be liable for) any reasonable action in response to the event Substitution of Trust Assets (clause 16) Where the Nominee is required under the Nominee Deed to acquire Substitute Trust Assets, the Substitute Trust Assets will form part of the Trust Assets Nominee powers and duties (clause 17) The Nominee has limited powers, duties, rights and discretions. The Nominee has specific powers of sale in the circumstances described in this summary, and has general powers to maintain bank accounts. The Nominee also has the power to borrow, grant security, give indemnities and make payments. 70

75 13.12 Nominee liability and indemnity (clause 18) The Nominee s liability to the Investors and any other person under the Nominee Deed is limited to the extent to which the liability can be satisfied out of the Trust Assets except for liability arising in certain circumstances (for example as a result of the Nominee s dishonesty, wilful breach of trust or gross negligence). The Nominee is indemnified by Macquarie for liabilities properly incurred. The Nominee is not liable for the neglect, dishonesty or default of Macquarie, the Investors or any other person, and is not liable for any losses or liabilities caused because the Nominee acted or failed to act on advice, or a direction by Macquarie or an Investor Nominee obligations, holdings by Nominee and Macquarie, and replacement of Nominee (clause 19) The Nominee may rely on advice from advisers engaged by the Nominee. The Nominee is not liable for anything done or suffered by it in good faith in reliance upon such advice unless the Nominee had reasonable grounds to believe it was not accurate. The Nominee is not required to monitor the Prescribed Entity of the Trust Assets or compliance by Macquarie with the Nominee Deed. The Nominee, Macquarie and any other related bodies corporate and officers may hold MERC Securities and enter into certain financial transaction with Investors. The Nominee may resign and Macquarie may appoint a replacement. Macquarie may remove the Nominee and appoint a replacement if the Nominee breaches the Nominee Deed and the breach is not remedied for 30 days. The Nominee is not required to prepare accounts or tax returns in respect of the Trust. 13 NOMINEE DEED 71

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77 Glossary TERM Acceptance Accretions Adjustment Event DEFINITION Acceptance by Macquarie, in its absolute discretion, of an Application. All rights, accretions and entitlements attaching to the Trust Assets including without limitation, all distributions payable in respect of the Trust Assets (but excluding dividends or other income during the Term) or shares, notes, options, units or other securities exercisable, declared, paid or issued in respect of the Trust Assets. In relation to an index or basket of indices that comprises the Commodity Asset (or a part of it): (a) a relevant index is not calculated or quoted for five Business Days or such longer period as Macquarie determines, acting reasonably, by the Prescribed Entity; or (b) a Prescribed Entity announces that it will make a material change in the formula for calculating the index (or one or more of the indices in the basket) or in any other way materially modifies the index (or one or more of the indices in the basket); or (c) the Prescribed Entity permanently cancels the index (or one or more of the indices in the basket). In relation to a futures, option or spot contract, a share, security or financial product or basket of any of these that comprise either the Commodity Asset (or part of it) or the Delivery Security (or a component of it): (a) any action which is deemed to have a diluting or concentrating effect on the theoretical value of the contract, share, security or financial product or basket including any cash return of capital, capital reduction, liquidator s distributions, unit buy-back, bonus issue, rights issue, compulsory acquisition, termination, arrangement, scheme of arrangement, compromise, merger, demerger, reconstruction, cancellation, replacement, modification, subdivision or consolidation, takeover offer, special distribution or dividend, unit split, non-cash distribution or dividend, or any other similar or like event (but excludes the payment or declaration of ordinary cash distributions and dividends); 14 MACQUARIE GLOSSARY FORTRESS 73

78 TERM Adjustment Event (cont d) DEFINITION (b) a delisting of the contract, share, security or financial product, or one of those things comprised in the basket, from the exchange on which it is traded; or (c) the suspension of trading in the contract, share, security or financial product or one of those things comprised in the basket, for five Business Days or such longer period as Macquarie, acting reasonably, determines. Aggregate Rounding Amount Aggregate Termination Value Anticipated Sale Charges Application Application Amount Application Fee Application Form ASIC ASX ASX Closing Time ATO Average Settlement Level The aggregate of the Rounding Amounts for each Delivery Security. In relation to the MERC Securities held by an Investor at the close of business on the Maturity Date, the sum of the Termination Values for each MERC Security, rounded up to the nearest cent. In relation to the sale of Delivery Securities under the Share Sale Facility at Maturity, Macquarie s reasonable estimate of the Taxes or other costs incurred by Macquarie (or any agent or nominee of Macquarie) in connection with the Share Sale Facility. An application by an applicant to Macquarie for MERC Securities made on an Application Form. The amount that must be at least the Minimum Application Amount, of application moneys (received by Macquarie) accompanying an applicant s Application Form. In respect of an Application, an amount equal to the Application Amount multiplied by 3.3%. The application form attached to the PDS. Australian Securities & Investments Commission. Australian Stock Exchange Limited (ABN ) or the stock market conducted by Australian Stock Exchange Limited, as the context requires. The scheduled weekday closing time of the ASX without regard to after hours or other trading outside the regular trading session hours. Australian Taxation Office. The arithmetic average of the Settlement Levels of a sub-index included in the Commodity Asset on each of the five Business Days up to, and including, the Maturity Date. Basket Weighting For each sub-index included in the Commodity Asset, 20%. Beneficial Fraction Beneficially-Owned Parcel Business Day The proportion of the Trust Assets of the Trust to which the holder of a MERC Security is beneficially entitled under the Nominee Deed, and is the fraction the numerator of which is 1 and the denominator of which is the total number of MERC Securities on issue at the relevant time. For each Investor, the Investor s interest in the Trust Assets determined by aggregating the Beneficial Fraction for each MERC Security held by the Investor pursuant to the terms of the Nominee Deed. A day on which banks and the ASX are open for business in Sydney. Capital Protection Level The Capital Protection Level for Series 3 MERC Securities is 100%. The Capital Protection Level for Series 4 MERC Securities is 75%. Capital Protected Value In relation to a MERC Security, the amount calculated as: Purchase Price x Capital Protection Level for the MERC Security 74

79 TERM DEFINITION Closing Level Opening Level x [ 1 + Commodity Asset Return ] Closing Price Closing Time Commodity Asset Commodity Asset Return Completion Statement Confirmation Corporate Event Corporations Act Delivery Notice Delivery Securities Disposal Event Disrupted Valuation Date In relation to all Delivery Securities, the last traded price for each of the securities of the same class as each of the Delivery Securities at the Valuation Time. In respect of any day, 16:00 New York EST time on that day. The basket of five equally-weighted Goldman Sachs Commodity Subindices described in Section 4.1 of this PDS and subject to adjustment in accordance with clause 4 of the Terms and Conditions. The aggregate of the Weighted Sub-Index Return for each sub-index forming part of the Commodity Asset. A statement issued to each Investor after the Maturity Date with respect to the Maturity of their MERC Securities. In relation to MERC Securities issued to an Investor, the confirmation prepared by Macquarie and delivered to the Investor, confirming the issue and investment details of those MERC Securities. An Adjustment Event in respect of which it is not possible or feasible, in Macquarie s reasonable opinion, to adjust or replace the Commodity Asset in accordance with clause 4 of the Terms and Conditions. The Corporations Act 2001 (Cth). The form sent to each Investor with the Notice of Maturity to be completed by the Investor if the Investor wishes to have the Delivery Securities transferred to an alternative broker sponsored account and corresponding HIN. Ordinary shares in BHP and RIO as may be: (a) substituted in accordance with the Terms and Conditions should an Adjustment Event occur in relation to either of those shares; or (b) added to or substituted for other securities in accordance with clause 6 of the Terms and Conditions, in which case the Delivery Securities will include the added or substituted securities. An event the occurrence of which gives rise to a legal obligation upon the Nominee to dispose of the Trust Assets, other than compulsory acquisition pursuant to a takeover scheme or takeover announcement, a disposal or cancellation under a scheme of arrangement, quasischeme of arrangement or merger in the nature of a scheme of arrangement, or a disposal or cancellation pursuant to a reduction of capital, capital distribution or termination in respect of the Trust Assets. Any Scheduled Valuation Date: (a) on which either a Trading Disruption, Exchange Disruption or Early Closure occurs; or (b) the relevant exchange fails to open for trading during its regular trading session; or (c) which is not an Exchange Trading Day. 14 GLOSSARY 75

80 TERM Early Closure Early Termination Early Termination Date DEFINITION In relation to a Commodity Asset or Delivery Security, the closure of the relevant exchange on any Exchange Trading Day prior to its scheduled closing time unless such earlier closing time is announced by the exchange at least one hour prior to the submission deadline for orders to be entered into the exchange system for execution at the Closing Time. Where the Commodity Asset or Delivery Security is a basket or an index in which case the early closure must relate to at least one of the futures, option or spot contracts, shares, securities or financial products that comprise the basket or index. The termination of MERC Securities prior to the Maturity Date at the election of either the Investor (by sending Macquarie an Early Termination Request) or Macquarie (by determining that Early Termination will apply following the occurrence of an Early Termination Event or Insolvency Event), in accordance with clause 3 of the Terms and Conditions. In respect of a MERC Security in respect of which Early Termination occurs, either: (a) in the case of Early Termination pursuant to an Early Termination Request, the last Business Day in the relevant Quarter unless Macquarie and the Investor agree to an alternative Early Termination Date under clause 3.1(d) of the Terms and Conditions; (b) in the case of Early Termination initiated by Macquarie following the occurrence of an Early Termination Event, the date determined in accordance with clause 3.2 of the Terms and Conditions. (c) in the case of Early Termination initiated by Macquarie following the occurrence of an Investor Insolvency, the date determined in accordance with clause 3.3 of the Terms and Conditions. Early Termination Event In relation to a Series of MERC Securities, any one of the following events: (a) a Tax Event; or (b) a Legislative Event; or (c) a Corporate Event in relation to the Commodity Asset. Early Termination Fee Early Termination Notice Early Termination Request Early Termination Value Effective Transfer Form In relation to both Series of MERC Securities offered under this PDS, and for each MERC Security, 1%p.a. of the Purchase Price calculated from the relevant Early Termination Date to the Maturity Date. A notice given by Macquarie to each relevant Investor as soon as practicable after the determination of an Early Termination in respect to their MERC Securities either as a result of an Early Termination Event or an Investor Insolvency. A request made by the Investor under clause 3 of the Terms and Conditions. For a MERC Security, the realised value on the Early Termination Date, determined by Macquarie in accordance with Section 5.12 of this PDS. A transfer form, in the form provided by Macquarie at the request of an Investor, which specifies all information required by Macquarie in order to be able to process the transfer of MERC Securities. 76

81 TERM Encumbrance DEFINITION An interest or power: (a) reserved in or over any interest in any asset including, without limitation, any retention of title; or (b) created or otherwise arising in or over any interest in any asset under a bill of sale, mortgage, charge, lien, pledge, trust or power, by way of security for the payment of debt or any other monetary obligation or the performance of any other obligation and whether existing or agreed to be granted or created. Exchange Trading Day Exchange Disruption Financial Advisor Goldman Sachs Commodity Index or GSCI Goldman Sachs Commodity Sub-indices GST GST Law Indicative Participation Rate A day on which the relevant exchange would ordinarily be open for business. In relation to a Commodity Asset or Delivery Security, any event (other than an Early Closure) that, in Macquarie s reasonable opinion, disrupts or impairs the ability of market participants in general to effect transactions in, or obtain market values for, the Commodity Asset or Delivery Security except where the Commodity Asset or Delivery Security is a basket or an index in which case the disruption or impairment must relate to at least one of the components that comprise the basket or index. A financial adviser, including a broker, nominated by an Investor on the Investor s Application Form. The index so named, calculated and published by Goldman, Sachs & Co. on the website The sub-indices which are the components of the GSCI. Any goods and services tax, consumption tax, value added tax or similar tax, impost or duty imposed under any GST Law. The tax imposed by the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and the related imposition Acts of the Commonwealth. An indication of the potential Participation Rate that will apply to each Series of MERC Securities at the Investment Date. This Indicative Participation Rate is indicative only and the actual Participation Rate that will apply to each Series will be set by Macquarie on or about the Investment Date and notified to you in your Confirmation. 14 GLOSSARY 77

82 TERM Insolvency Event DEFINITION In relation to any person, any one of the following: (a) a petition is presented (and not struck out or dismissed with 7 Business Days of it being presented) or an effective resolution is passed under the Corporations Act for the winding up of the party or any similar process in relation to the entity; (b) a receiver, receiver and manager, official manager, trustee, administrator or similar official is appointed over all or any substantial part of the assets or undertaking of the entity; (c) a liquidator is appointed to the entity; (d) the entity resolves to wind itself up, or otherwise dissolve itself, or gives notice of its intention to do so, except to reconstruct or amalgamate while solvent, or is otherwise wound up or dissolved; (e) the entity commits an act of bankruptcy; (f) the entity states that it is insolvent or is presumed to be insolvent under any applicable law; (g) as a result of the operation of the Corporations Act the entity is taken to have failed to comply with a statutory demand; (h) the entry by the entity into a scheme of arrangement or composition with, or assignment for the benefit of, all or any class of its creditors, or a moratorium involving any of them; (i) the entity being or stating that it is unable to pay its debts when they fall due; or (j) anything analogous to or of a similar effect to anything described above occurring to any entity under the Corporations Act or the law of any relevant jurisdiction. Insolvent A person becomes insolvent when an Insolvency Event occurs in respect of that person. Investment Date For each Series of MERC Securities, 14 September Investor Issue Date Issuer Sponsored Account Legislative Event In relation to a MERC Security at any time, the person or persons registered as holding the MERC Security. The date Macquarie issues a MERC Security to an Investor in accordance with clause 1.2 of the Terms and Conditions. An account maintained by the issuer of the relevant shares via a share registry. Shares held in an Issuer Sponsored Account are allocated a Shareholder Reference Number (SRN) prefixed by an I. The receipt by Macquarie of an opinion from a reputable legal counsel that, as a result of the introduction of, or any amendment to, or clarification of, or change in or announcement of a prospective introduction of, or amendment to, or clarification of or change in, any law or regulation of the Commonwealth of Australia or any State or Territory of Australia, or any other political subdivision or any official administrative pronouncement or action or judicial decision interpreting or applying such laws or regulations which would impose additional material requirements on Macquarie in relation to a MERC Security which it reasonably determines to be unacceptable. 78

83 TERM DEFINITION Macquarie Bank or Macquarie Macquarie Bank Limited ABN Macquarie Group Market Value The Macquarie group of companies including Macquarie Bank. The aggregate of: Closing Price of each Delivery Security x Number of Each Delivery Security for each Delivery Security. Maturity Maturity of MERC Securities which occurs on the Maturity Date and results in each Investor being entitled to receive Delivery Securities. Maturity Date For each Series of MERC Securities, 5 October MERC Security The deferred purchase agreement between each Investor and Macquarie governed by the Terms and Conditions and which is issued to the Investor after acceptance of an Application in accordance with clause 1.2 of the Terms and Conditions. Minimum Application Amount For each Series of MERC Securities, $2, Nominee Nominee Account Nominee Deed Notice of Maturity Belike Nominees Pty Limited (ABN ), Australian financial services number An account operated by Macquarie or its nominee that Delivery Securities will be transferred to and held on behalf of Investors for those Investors that elect to use the Share Sale Facility. The deed executed by the Nominee and Macquarie on or about the date of this PDS. A notice issued to each Investor no less than 20 Business Days before the Maturity Date notifying an Investor of the impending Maturity of their MERC Securities and including a Delivery Notice and a Share Sale Facility Notice. Number of Delivery Security Units The aggregate number of each type of Delivery Security under this PDS on the Maturity Date. Securities of one Prescribed Entity may be considered as two or more separate types of Delivery Securities when calculating the Number of Delivery Security Units in the circumstances described in clause 6 of the Terms and Conditions. Number of Each Delivery Security The total number of each Delivery Security to be delivered by Macquarie to the Investor on or before the Settlement Date and calculated as: Aggregate Termination Value. Number of Delivery Security Units x Closing Price of the Delivery Security rounded down to the nearest whole number. Offer Closing Time For each Series of MERC Securities, 5pm on 9 September Opening Level Participation Floor The aggregate of the Settlement Level on the Investment Date for each sub-index that forms part of the Commodity Asset. The participation floor selected by an Investor in their Application Form in relation to their MERC Securities which, if the Participation Rate on the Investment Date is below this participation floor their Application will automatically be withdrawn. GLOSSARY 79

84 TERM Participation Rate Prescribed Entity Product Disclosure Statement or PDS Purchase Price Quarter Rounding Amount DEFINITION The participation rate set by Macquarie for each Series of MERC Securities on or as soon as practicable after the Investment Date as set out on that will apply when calculating the Termination Value of a MERC Security at Maturity if the Commodity Asset Return is greater than zero. The Participation Rate will be confirmed to each Investor in their Confirmation. In relation to a Commodity Asset or Delivery Security (or a component of either of those things), the entity that is considered by Macquarie to be the issuer or sponsor of that Commodity Asset or Delivery Security (or that component of either of those things). This product disclosure statement dated 13 July For each Series of MERC Securities, $1.00 per MERC Security. Each three month (or shorter) period ending on the last Business Day of each February, May, August or November during the Term. In relation to a Delivery Security the amount calculated as: (Aggregate Termination Value x (1 / Number of Delivery Security Units); less (Number of Each Delivery Security x Closing Price of the Delivery Security). Scheduled Valuation Date Series Series Number Settlement Date A day on which the Commodity Asset or Delivery Security must be valued (such valuation to subsequently be published by Macquarie) and includes the second last Business Day of each month during the Term and the Maturity Date and any Early Termination Date. A series of MERC Securities offered under this PDS being either Series 3 MERC Securities or Series 4 MERC Securities. The number specified in the Term Sheet in Section 6 for each Series of MERC Securities available under this PDS. In relation to a MERC Security terminated on: (a) the Maturity Date, the day that is ten Business Days after (or such other time as reasonably determined by Macquarie) the day on which the Termination Value is determined; (b) an Early Termination Date, the day that is ten Business Days after (or such other time as reasonably determined by Macquarie) the later of: (i) the Early Termination Date; or (ii) the Business Day on which the Early Termination Value is determined (which will be no more than five Business Days after the Early Termination Date). Settlement Level Share Sale Facility Proceeds Share Sale Facility The Settlement Level on a particular date for a sub-index that forms part of the Commodity Asset is the excess return sub-index value as at the Closing Time on that day for the sub-index as published by the Prescribed Entity for that sub-index. The proceeds paid to an Investor from the sale of Delivery Securities on behalf of an Investor under the Share Sale Facility. The facility offered to Investors under clause 2.5 of the Terms and Conditions. 80

85 TERM Share Sale Facility Notice Sub-Index Return DEFINITION The form sent to each Investor with the Notice of Maturity to be completed by the Investor if the Investor wishes to use the Share Sale Facility to sell the Delivery Securities transferred to the Investor after Maturity. For each sub-index included in the Commodity Asset: Substitute Trust Assets Tax Event Taxes Term Termination Statement (Average Settlement Level Settlement Level on the Investment Date) Settlement Level on the Investment Date The assets acquired by the Nominee (being a fixed number of shares in a company which is listed on the ASX and which is in the top 50 companies ranked by market capitalisation) in substitution for the original Trust Assets which form part of the Trust Assets of the Trust. The receipt by Macquarie of an opinion from a reputable legal counsel or other reputable tax adviser experienced in the tax laws of the Commonwealth of Australia, or any State or Territory of Australia, to the effect that, as a result of any: (a) amendment to, clarification of, or change (including any announced prospective change) in the laws or treaties (or any regulations there under) of such jurisdictions or any political subdivision or taxing authority thereof or therein affecting taxation; (b) judicial decision, published official administrative pronouncement, private ruling, regulatory procedure, notice or announcement (including any notice or announcement of intent to adopt such procedures or regulations) (an Administrative Action ) in relation to such tax laws; or (c) amendment to, clarification of, or change in the pronouncement that provides for a position with respect to an Administrative Action that differs from the theretofore generally accepted position, in each case, by any legislative body, court, governmental authority or regulatory body, irrespective of the manner in which such amendment, clarification, change or Administrative Action is made known; there is more than an insubstantial risk that Macquarie would be exposed to more than a de minimis increase in its economic costs in relation to a MERC Security as a result of increased taxes, duties or other governmental charges or civil liabilities or that Macquarie would not be allowed a tax deduction for any interest paid or due or payable to it under the Terms and Conditions. Taxes (including GST and stamp duty), levies, imposts, deductions, charges, withholding imposed by any government agency together with any related interest, penalties, fines, expenses or other amount incurred in connection with them, except if imposed on the overall net income of Macquarie. The period commencing on the Investment Date and ending on the Maturity Date. In relation to an Investor s MERC Securities, the statement sent by Macquarie after the Early Termination of the Investor s MERC Securities setting out the Early Termination Value and any Early Termination Fee for those MERC Securities. 14 GLOSSARY 81

86 TERM Termination Value DEFINITION In relation to a MERC Security and determined at the Maturity Date, an amount equal to the greater of: (a) the Capital Protected Value for the MERC Security; or (b) Purchase Price x [1 + (Commodity Asset Return x the relevant Participation Rate)]; or (c) Purchase Price x [ 1 + Commodity Asset Return ] Terms and Conditions Term Sheet Trading Disruption Trail Commission Transfer Fee The terms and conditions governing each MERC Security set out in Section 12 of this PDS, as amended from time to time. The term sheet setting out specific details in relation to a Series of MERC Securities and found in Section 6 of this PDS. In relation to a Commodity Asset or Delivery Security, any suspension of or limitation imposed on trading of the Commodity Asset or Delivery Security by the relevant exchange including by reason of movements in price exceeding limits permitted by the exchange except where the Commodity Asset or Delivery Security is a basket or an index in which case the suspension or limitation must relate to at least one of the securities that comprise the basket or index. A commission Macquarie may pay to your Financial Adviser as described in Section In respect of each transfer of a holding of MERC Securities, a fee equal to the lesser of: (a) 2% of the Purchase Price per MERC Security transferred; and (b) $200. Trust Trust Assets Valuation Date Valuation Time Weighted Sub-Index Return The trust established pursuant to the Nominee Deed. 100 shares in BHP and all Accretions relating to those securities, or the Substitute Trust Assets if substituted in accordance with the Nominee Deed. Any day on which the valuation of the Commodity Asset or Delivery Security is made, including the Maturity Date and each Early Termination Date. The ASX Closing Time on the Business Day following the day on which the Termination Value is determined. For a sub-index included in the Commodity Asset, the Sub-Index Return multiplied by the Basket Weighting. 82

87 How To Apply To apply for an investment in MERC Securities, you must complete the Application Form in this Product Disclosure Statement and send it together with your payment via your licensed Financial Adviser or directly to Macquarie. A copy of the Application Form is also included in case it is needed. Remember, before you invest in MERC Securities it is important that you have read and understood this Product Disclosure Statement. It is recommended that you consult your Financial Adviser for personalised recommendations and advice on investing in MERC Securities based on your individual circumstances. Macquarie may reject or accept an Application for any reason in its sole discretion. When You Complete This Application Form, Please: Use a black or blue pen; If you make an error while completing your Application Form, do not use correction fluid. Cross out your mistakes and initial your changes; Write in BLOCK LETTERS; Answer all sections; Sign the Application Form (Section I ); Attach your cheque (if not paying by direct debit) to the Application Form (Please note that third party cheques will not be accepted); and Mail the Application Form to: Macquarie Bank Limited MERC Securities GPO Box 4294 Sydney NSW 1164 Your completed Application Form and payment must be received by Macquarie by the Offer Closing Time. You will receive a Confirmation of your investment as soon as practicable after the Investment Date. Instructions for Completing the Application Form Please complete all the relevant sections of the Application Form in this PDS in accordance with the instructions below. These instructions are cross referenced to each section of the Application Form. B Registration Details You should refer to the table on the following page for the correct forms of registration as applications using an incorrect format may not be accepted by Macquarie. Complete all your personal and contact details in the spaces provided. Make sure you write your full name as you would like it to appear on your statement of MERC Securities holdings. This must be your name (including any titles) or if you are investing in the name of a company, the name of the company. Up to two joint applicants may apply. Joint applicants will be deemed to be joint tenants. You must specify a residential address. If your mailing address is different to your residential address you should also enter your mailing address in the space provided. The mailing address will be used for all correspondence from Macquarie. If you are applying as a joint applicant, only the mailing address of one joint applicant can be entered. 15 MACQUARIE HOW TO APPLY FORTRESS 83