Once you own shares, companies often make special issues to shareholders. It is in your interest to understand what the issue entails to you as a shareholder, and what the important dates are with each issue.

BONUS ISSUES

A bonus issue is a free issue of shares made to a company's shareholders. It is made in a predetermined ratio so that each shareholder receives a number of bonus shares in proportion to the number of shares held.

Once a bonus is issued, the price of the shares is likely to drop as the value of the company's assets are spread over a larger number of shares. Bonus shares have the effect of 'watering down' the market price of the underlying stock in the same proportion as the increase in the total number of the company's shares. This price adjustment occurs on the 'ex bonus' (XB) date. An investor buying shares after the XB date is not entitled to the bonus shares. They belong to the seller. The bonus date is set five trading days before the Books Closing Date. This is the date on which the company closes its books to determine those shareholders registered to receive a bonus.

RIGHTS ISSUES

Like a bonus issue, a rights issue is an issue of new shares made by a company to its shareholders in proportion to their existing shareholding. Rights issues are made so that the company can raise additional funds from shareholders for expansion or exploration, or to retire debt. A right is a shareholder's entitlement to buy new shares in the company at a predetermined price by a fixed date. Rights issues can be either renounceable or nonrenounceable. If shareholders choose to sell their rights on the sharemarket, brokerage will be charged.

Renounceable Rights Issues - your alternatives are:

• take up the rights and buy the shares by paying the required amount of money to the company; or
• sell the rights to another investor through the sharemarket; or
• forfeit the right and let it lapse.

Nonrenounceable Rights Issues - your alternatives are:

• take up the rights and buy the shares by paying the required amount of money to the company; or
• forfeit the right and let it lapse.

DIVIDENDS

Shareholders participate in the success of the company by receiving a share of the profits. This payout is called a dividend. There is no guarantee that a company will pay a dividend. It depends on the company's activities and reflects the profits it has made from it operations. Dividends are expressed as cents per share and are called interim or final payments. They are usually paid annually or six-monthly.

In the trading of shares it is necessary to establish whether the buyer or the seller is entitled to any dividends paid. To make this easy, a date is set after which the shares are traded without the dividend. This means the seller retains the dividend. This date is the ex dividend date (also referred to a as the ex date). The ex date is set at seven business days before the Books Closing Date) the share price will normally fall in line with the amount of the dividend.

Australian shareholders who pay tax and also receive dividend payments are able to recover a proportional amount of the Australian corporate tax paid by the company. This system is called dividend imputation. It means that shareholders can gain personal tax credits for whatever corporate tax has already been paid. If a company has paid full company tax the dividend is fully franked. If only part of the corporate tax has been paid, the dividend is partially franked.

Investors whose marginal tax rate is lower than the company tax rate can benefit from personal tax credits as they can be offset against tax liability from other sources of income. Investors whose marginal tax rate is higher than the company tax rate must pay tax on the difference between the two rates.

© 2003 AAA Shares & Investments Ltd. All rights reserved.