There are two main types of Hybrid Securities, the convertible note and the convertible preference share. The section below outlines an example of each.

Convertible Note

In this example, you can convert the notes into ordinary shares on a one for one basis (subject to adjustments). You can do this by giving Bendigo Bank 15 days notice before the two Conversion Dates listed above. However, certain events such as a take-over offer on the issuer, or an adverse change in the tax deductibility of the interest for the issuer, may alter the conversion terms and allow the Issuer to repay your notes in cash rather than in shares.

Convertible Preference share

On the maturity date for the convertible preference shares you can opt to either convert the $100 face value into a number of ordinary shares in David Jones Ltd or to reset the security. If you decide to convert to shares, then the number of shares you receive is calculated based on the price of DJS over the last 20 business days, subject to some adjustments and conditions.

If you opt to reset the security on the maturity date, then you are renewing the arrangement.  This may mean the Security will have new features, such as a different 'coupon rate' and 'maturity date'.

Income

Hybrid Securities make regular payments to Holders. In the above examples BENGA pays 8% and DJSPA pays 8.1%. Both make their payments semi-annually. Let's say you purchased $10,000 of each security when they were first issued.  This means you would have paid the face value of the security, BENGA has a face value of $4.10 and DJSPA of $100:

As you can see, there isn't a great difference between the two in terms of money received. The difference is that BENGA is paying interest because it is a note, whereas DJSPA is paying a dividend because it is a preference share. Although it is not the case here, sometimes franking credits can apply to dividends from a convertible preference share, which will boost the return you receive.

Market value

Another feature of Hybrid Securities is the ability to sell them on the secondary market, just as you can with ordinary shares. The market value of a Hybrid Security will depend on a number of factors, but the key factor will be the value of the ordinary shares in the underlying company.

Since one BENGA converts into one Bendigo Bank ordinary share, there is a known and direct correlation with the ordinary share's price. This means the market value of BENGA will move closely in line with the value of Bendigo Bank ordinary shares.

The chart below shows the market value of BENGA compared to BEN shares:

DJSPA on the other hand does not correlate to a set number of David Jones shares, rather DJSPA buys a number of shares based on the price of David Jones ordinary shares leading up to the maturity date.  This means the market value of DJSPA will be more stable.

The chart below shows the market value of DJSPA compared to DJS shares:

ASX's Interest Rate Market

Hybrid Securities are a part of ASX's Interest Rate Market.  This market covers a range of different types of securities including Hybrid Securities, Corporate Bonds, and Floating Rate Notes each with different features to benefit the Holder. There are close to 100 different Interest rate Securities allow you to:

• Receive a steady and reliable income stream
• Improve the return on your capital
• Diversify your portfolio
• Profit from interest rate changes

To find out more see the links under More Information at the top of this page or ask your stockbroker. To find a specialist broker in hybrid securities visit Interest Rate Securities.