OCBC PROTECTED INVESTMENT SERIES. OCBC Capital Payout SGD Fund OCBC Capital Payout USD Fund PROSPECTUS. 1 July, 2003

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1 OCBC PROTECTED INVESTMENT SERIES OCBC Capital Payout SGD Fund OCBC Capital Payout USD Fund PROSPECTUS 1 July, 2003

2 OCBC Protected Investment Series Directory Managers OCBC Asset Management Limited 63, Chulia Street, #05-01, OCBC Centre East, Singapore Directors of the Managers Wong Liang Ying Lawrence (Chairman) D Cruz Noel Gerald Tay Boon Kuan Hou Wey Fook Nai Boon Hiong Trustee Bermuda Trust (Singapore) Limited 20, Raffles Place, #13-01/05, Ocean Towers, Singapore Auditors PricewaterhouseCoopers 8, Cross Street, #17-00, PWC Building, Singapore Solicitors to the Managers Allen & Gledhill 36, Robinson Road, #18-01, City House, Singapore Solicitors to the Trustee ASG Law Corporation 30, Raffles Place, #12-00, Caltex House, Singapore i

3 OCBC PROTECTED INVESTMENT SERIES Important Information The managers of OCBC Protected Investment Series (the Fund ), OCBC Asset Management Limited (the Managers ), accept full responsibility for the accuracy of information contained in this Prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in this Prospectus misleading. Unless otherwise stated, all terms not defined in this Prospectus have the same meanings as used in the deed of trust (as amended) relating to the Fund (the Deed ). Investors should consult the relevant provisions of the Deed and obtain independent professional advice in any event of any doubt or ambiguity relating thereto. No application has been made for the units in the sub-funds of the Fund ( Units ) to be listed on any stock exchange. Any holder of Units may request the Managers to realise all or part of his holding of units in accordance with and subject to the provisions of the Deed. OCBC Asset Management Limited s unit trusts and investment products, except for guaranteed funds, are not obligations of, deposits in, or guaranteed by, OCBC Bank or any of its affiliates. An investment in unit trusts and/or other investment products is subject to investment risks, including the possible loss of the principal amount invested. The value of Units and the income from them may fall as well as rise. Past performance figures are not necessarily indicative of future performance of any unit trust. Investors should note that the value of Units and the income from them may fall as well as rise. Potential investors should seek professional advice to ascertain (a) the possible tax consequences, especially in connection with the receipt of any distributions intended to be made by a Sub-Fund, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which they may encounter under the laws of the countries of their citizenship, residence or domicile, which may be relevant to the subscription, holding or disposal of units in the Fund. Investors should also consider the risks of investing in the Fund which are summarised in paragraph 9 of this Prospectus. All enquiries in relation to the Fund should be directed to the Managers, OCBC Asset Management Limited, or any agent or distributor appointed by the Managers. ii

4 OCBC PROTECTED INVESTMENT SERIES Table of Contents Contents Page Directory Important Information i ii 1. Basic Information 1 2. The Managers 4 3. The Trustee 5 4. The Registers of Holders 5 5. The Auditors 5 6. Sub-Fund Structure 5 7. Investment Objective, Focus and Approach 5 8. Fees and Charges Risks Subscription of Units Minimum Sub-Fund Size Realisation of Units Obtaining Prices of Units Suspension of Dealing Performance of Sub-Funds Soft Dollar Commissions/Arrangements Conflicts of Interest Reports Other Material Information Queries and Complaints 30 APPENDIX 31 iii

5 OCBC PROTECTED INVESTMENT SERIES The sub-funds of the OCBC Protected Investment Series (the Fund ) offered in this Prospectus are authorised schemes under the Securities and Futures Act, Chapter 289 of Singapore ( SFA ). A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore ( MAS ). This Prospectus has been prepared in accordance with the requirements of the SFA. MAS assumes no responsibility for the contents of this Prospectus. The registration of this Prospectus by MAS does not imply that the SFA or any other legal or regulatory requirements have been complied with. MAS has not, in any way, considered the investment merits of the sub-funds of the Fund. The meanings of terms not defined in this Prospectus can be found in the deed of trust (as amended) constituting the Fund. 1. Basic Information 1.1 OCBC Protected Investment Series The Fund is an open-ended Singapore-registered umbrella fund which will offer a group of separate and distinct portfolios of securities or obligations, each of which being a sub-fund (each a Sub-Fund ) investing in different markets or groups of markets. The range of sub-funds allows investors to select and allocate their assets in different investment opportunities under the Fund. At present, the managers of the Fund, OCBC Asset Management Limited (the Managers ) are offering units in the Sub-Fund ( Units ) known as the OCBC Capital Payout SGD Fund during the offer period from 1 July 2003 to 15 August 2003 (or such other period as may be agreed between the Managers and the Trustee) (the Offer Period ). The Managers may also, but are not obliged to, offer Units of the Sub-Fund known as the OCBC Capital Payout USD Fund during the Offer Period. 1.2 Date of Registration and Expiry Date of Prospectus The date of registration of this Prospectus with MAS is 1 July This Prospectus shall expire on 30 June 2004, i.e., 12 months after the date of registration. 1.3 Trust Deed and Supplemental Deeds The Deed of Trust relating to the interests being offered to the public for subscription or purchase (the Principal Deed ) is dated 10 August 2000 and the parties to the Principal Deed are the Managers and Bermuda Trust (Singapore) Limited (the Trustee ) The Principal Deed has been amended by the following supplemental/amending and restating deeds entered into between the Managers and the Trustee: Supplemental Deed Dated Purpose First 6 October 2000 To establish the Sub-Fund Supplemental Deed OCBC Capital Guaranteed Investment May Second 5 December 2000 To establish the Sub-Fund Supplemental Deed OCBC Capital Guaranteed Investment August

6 Supplemental Deed Dated Purpose Third 13 June 2001 To incorporate the Supplemental Deed amendments to the CPF Investment Guidelines issued by the CPF Board on 31 January 2001 and to reflect the change in benchmark upon which the calculation of the performance fees in respect of the Sub-Fund OCBC Capital Guaranteed August 2003 is based on. Fourth 26 December 2001 To establish the Sub-Fund Supplemental Deed OCBC Greenhouse S$ Fund and to incorporate the amendments to the CPF Investment Guidelines issued by the CPF Board on 27 September Fifth 22 January 2002 To establish the Sub-Fund Supplemental Deed OCBC Greenhouse US$ Fund and to incorporate the amendments to the CPF Investment Guidelines issued by the CPF Board on 1 January Sixth 11 April 2002 To establish the Sub-Fund Supplemental Deed OCBC Annual Payout Fund and to incorporate the provisions of Practice Direction 10 issued by the MAS on 28 December Seventh 27 June 2002 To establish the Sub-Funds Supplemental Deed OCBC Payout Plus Fund I and OCBC Payout Plus Fund II. 2

7 Supplemental Deed Dated Purpose Amending and 9 January 2003 To establish the Sub-Funds Restating Deed OCBC Payout Select 100 Fund and OCBC Payout Select 85 Fund, to amend the deed to comply with the prescribed requirements for trust deeds under the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2002 and to incorporate the investment guidelines for non-specialised funds issued by the MAS under the Code of Collective Investment Schemes on 23 May 2002 (as updated on 5 December 2002) and the CPF Investment Guidelines issued by the CPF Board on 1 September Second Amending 6 March 2003 To establish the Sub-Fund and Restating Deed OCBC Payout Plus Fund III. Third Amending and 5 May 2003 To establish the Sub-Funds Restating Deed OCBC Payout Select 100 Fund II and OCBC Payout Select 85 Fund II and to update the investment guidelines for non-specialised funds issued by the MAS under the Code of Collective investment Schemes on 23 May 2003 (as updated on 28 March 2003). Fourth Amending 1 July 2003 To establish the Sub-Funds and Restating Deed OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund and to comply with the Notice on Cancellation Period for Collective Investment Schemes constituted as Unit Trusts issued by the Monetary Authority of Singapore on 1 October 2002 and revised on 20 March The Principal Deed as amended by the First Supplemental Deed, the Second Supplemental Deed, the Third Supplemental Deed, the Fourth Supplemental 3

8 Deed, the Fifth Supplemental Deed, the Sixth Supplemental Deed, the Seventh Supplemental Deed, the Amending and Restating Deed, the Second Amending and Restating Deed, the Third Amending and Restating Deed and the Fourth Amending and Restating Deed shall hereinafter be referred to as the Deed The terms and conditions of the Deed shall be binding on each unitholder (each a Holder ) and persons claiming through such Holder as if such Holder had been a party to the Deed, and as if the Deed contained covenants on each Holder to observe and be bound by the provisions of the Deed, and an authorisation by each Holder to do all such acts and things as the Deed may require the Managers and/or the Trustee to do A copy of the Principal Deed and the Supplemental/Amending and Restating Deeds shall be made available for inspection free of charge, at all times during usual business hours at the registered office of the Managers at 63, Chulia Street, #05-01, OCBC Centre East, Singapore and will be supplied by the Managers to any person upon request at a charge of S$25 per copy of the document. 1.4 Semi-annual reports and audited financial statements The latest available semi-annual reports and audited financial statements relating to the Sub-Funds may be obtained from the Managers upon request. 2. The Managers The Managers are OCBC Asset Management Limited, whose registered office is at 63, Chulia Street, #05-01, OCBC Centre East, Singapore The Managers, a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited ( OCBC Bank ), are one of the largest Singapore-based investment management companies. Its areas of expertise are in Asia Pacific equities, global fixed income securities and global asset allocation. Through alliances with leading international institutions, OCBC Asset Management Limited also provides global equities management. The OCBC Bank, incorporated in 1932, is one of the largest Singapore banks in terms of market capitalisation. Together with its banking subsidiaries, it has an extensive network of branches and offices in Singapore and overseas, namely, Australia, China, Hong Kong SAR, India, Indonesia, Japan, Malaysia, Myanmar, South Korea, Taiwan, Thailand, United Kingdom, U.S.A. and Vietnam. OCBC Asset Management Limited offers discretionary investment management and advisory services and also manages and markets unit trusts. It has a team of committed and experienced fund managers whose investment strategies are executed after detailed analysis and in-depth research. OCBC Bank s established network of branches and OCBC Asset Management Limited s contacts with major stockbroking houses enables it to tap on their extensive resources and obtain timely information for sound investment decisions. Clients of OCBC Asset Management Limited include statutory boards, government-linked companies and agencies, public listed corporations, private companies and individuals. The Managers have been managing collective investment schemes and discretionary funds in Singapore since

9 3. The Trustee The Trustee of the Fund is Bermuda Trust (Singapore) Limited whose registered address is at 20, Raffles Place, #13-01/05, Ocean Towers, Singapore The Registers of Holders The registers of Holders of each Sub-Fund (the Registers ) are kept at the registered office of the registrar, MIL Corporate Services (Singapore) Ltd, at 20, Raffles Place, #13-05/06, Ocean Towers, Singapore and are accessible to the public during normal business hours. The Registers are conclusive evidence of the number of Units in any Sub-Fund held by each Holder and the details in each Register shall prevail in the event of any discrepancy between the entries in the Register and the details appearing on any statement of holding, unless the Holder proves to the satisfaction of the Managers and the Trustee that the Register of Holders is incorrect. 5. The Auditors The auditors of the accounts relating to the interests under the Deed are PricewaterhouseCoopers of 8, Cross Street, #17-00, PWC Building, Singapore (the Auditors ). 6. Sub-Fund Structure The OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund are nonspecialised open-ended capital protected funds. The OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund will each mature on 31 August Investment Objective, Focus and Approach 7.1 Investment Objective, Focus and Approach of OCBC Capital Payout SGD Fund Investment Objective of OCBC Capital Payout SGD Fund The investment objective of the OCBC Capital Payout SGD Fund is to provide investors with: (i) (ii) (iii) fixed capital payout of 3% of capital invested at the end of year 1 (as further described below); fixed capital payout of 4% of capital invested plus potential payout at the end of each of year 2, year 3 and year 4 (as further described below); and capital protection on the remaining 85% of capital invested plus potential payout at maturity Investment Focus and Approach of OCBC Capital Payout SGD Fund To achieve the investment objective of providing investors with fixed capital payouts at the end of each of the periods ending 31 August 2004 ( year 1 ), 31 August 2005 ( year 2 ), 31 August 2006 ( year 3 ) and 31 August 2007 ( year 4 ) as well as capital protection on the remaining capital invested upon maturity of the Units on 31 August 2008 (the Maturity Date ), the OCBC Capital Payout SGD Fund will invest a substantial portion of its assets in debt instruments and/or deposits. The OCBC Capital Payout SGD Fund may also enter into interest rate swap transactions. 5

10 The OCBC Capital Payout SGD Fund may invest up to one-third of its net asset value in debt instruments that are structured products issued by a corporation, government, government agency or supranational with a minimum long-term rating of A by Standard & Poor s or equivalent (including such sub-categories or gradations therein) and/or placed in deposits that are structured products with financial institutions with a minimum individual rating of B by Fitch Inc or a financial strength rating of B by Moody s, provided that not more than one-third of the net asset value of the Sub-Fund will be invested or placed with the same entity. The OCBC Capital Payout SGD Fund may also invest above one-third and up to 100% of its net asset value in debt instruments that are structured products issued or guaranteed by a government, government agency or supranational that has a minimum long-term issuer rating of AA by Fitch Inc, Aa by Moody s or AA by Standard and Poor s or equivalent (including such sub-categories and gradations therein). To provide investors with potential payouts at the end of each of year 2, year 3 and year 4 and at maturity, the remainder of the assets of the OCBC Capital Payout SGD Fund (after the deduction of all fees and expenses for the approximately 5-year maturity period) will be invested in call options linked to the performance of a basket of 20 stocks. These call options will provide investors the potential payouts based on the performance of such basket of stocks. The basket of 20 stocks are selected based on their good fundamentals and will be selected from the following list of 30 stocks*: 1. Aventis SA 2. Axa 3. BHP Billiton Ltd 4. Canon Inc 5. Cisco Systems Inc 6. Citigroup Inc 7. Coca-Cola Co 8. DaimlerChrysler AG 9. Denso Corp 10. General Electric Co 11. Gillette Co 12. HSBC Holdings plc 13. Honda Motor Co Ltd 14. JP Morgan Chase & Co 15. Johnson & Johnson 16. Kao Corp 17. Microsoft Corp 18. Nestle SA 19. Nissan Motor Co Ltd 20. Nokia Oyj 21. Novartis AG 22. Pfizer Inc 23. Philips Electronics NV 24. Pioneer Corporation 6

11 25. Procter & Gamble Co 26. Royal Dutch Petroleum 27. Samsung Electronics Co Ltd 28. SAP AG 29. Toyota Motor Corp 30. UBS AG * The Managers may, at their discretion and in the interests of Holders, substitute any of the listed stocks before purchasing the call options linked to the performance of the basket of stocks. After the purchase of the call options, the affected stock in the basket may be removed from the basket without substitution or replaced with another stock in the following circumstances: - any merger event (including a reclassification or change of, or take-over offer for, any constituent stock which results in a transfer of or an irrevocable commitment to transfer any stock and any consolidation, amalgamation or merger of the issuer of any constituent stock with or into another entity; - any delisting or de-merger of the issuer of a stock; - any event of nationalisation (including but not limited to nationalisation, expropriation or other requirement for the stock to be transferred to any governmental agency, authority or entity); - any event of insolvency (including any liquidation, bankruptcy or insolvency); or - any other event which the Managers consider renders it necessary for the stock to be removed from the basket, subject to the approval of the Trustee. The list of the selected 20 stocks in the basket will be available at the latest one month after the close of the Offer Period. Investors can find out the list of 20 stocks by logging onto the Managers website at by calling the Managers hotline at or by checking with the relevant distributor. The payouts that investors will receive at the end of each of year 1, year 2, year 3 and year 4 comprise fixed capital repayment by way of realisation of Units. From the end of year 2 onwards, investors will also receive potential payouts based on payouts from the call options determined as follows: End of year 2 Max [0, P * (6% + 20% * G 2 )] * outstanding Units held before realisation of Units for fixed payout for year 2 * initial Offer Price End of year 3 Max [Potential payout at end of year 2, P * (6% + 20% * G 3 )] * outstanding Units held before realisation of Units for fixed payout for year 3 * initial Offer Price End of year 4 Max [Potential payout at end of year 3, P * (6% + 20% * G 4 )] * outstanding Units held before realisation of Units for fixed payout for year 4 * initial Offer Price 7

12 At maturity Max [Potential payout at end of year 4, P* (6% + 20% * G 5 )] * outstanding Units held * initial Offer Price where: P= Participation rate G 2 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at the end of year 2. G 3 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at the end of year 3. G 4 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at the end of year 4. G 5 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at maturity. The Initial Reference Price for each stock is initially set at the closing price of the stock from the date of purchase of the call options. At the end of each of year 2, year 3 and year 4, the Initial Reference Price of the lowest performing stock for the relevant period will be reset to its previous closing price for the purpose of calculating its growth for the subsequent period. Based on current market conditions, the participation rate is expected to be 25% - 75% for the OCBC Capital Payout SGD Fund. The exact participation rate will be available at the latest one month after the close of the Offer Period. Investors can find out about the participation rate by logging onto the Managers website at by calling the Managers hotline at or by checking with the relevant distributor. The Managers shall have the discretion to liquidate the call options prior to their maturity dates if they are of the opinion that it is in the interest of the investors to do so. The Managers may begin to invest in bonds to hedge against interest rate risks prior to the close of the Offer Period subject to having obtained the prior approval of the Trustee and provided that the total amount of application monies for the Sub-Fund is at least S$30 million at the time of such investment. Illustrations of calculation of potential payouts for OCBC Capital Payout SGD Fund: Scenario A Assuming a participation rate of 50%, and the growth of the lowest performing stock is negative in year 2 to year 5: Year 2 Year 3 Year 4 Year 5 Total Payout Growth of lowest -22% -32% -28% -17% performing stock Payout 0.8% 0.8%* 0.8%* 1.3% 3.7% * Represents the higher of payout from year 2. 8

13 Scenario B Assuming a participation rate of 50%, and the growth of the lowest performing stock is 0% in year 2 with negative growth in subsequent years: Year 2 Year 3 Year 4 Year 5 Total Payout Growth of lowest 0% -23% -30% -18% performing stock Payout 3.0% 3.0%* 3.0%* 3.0%* 12.0% *Represents the higher of payout from year 2. Scenario C Assuming a participation rate of 50%, and the growth of the lowest performing stock is -19% in year 2, 30% in year 3, 14% in year 4 and 56% in year 5: Year 2 Year 3 Year 4 Year 5 Total Payout Growth of lowest -19% 30% 14% 56% performing stock Payout # 1.1% 6.0% 6.0%* 8.6% 21.7% *Represents the higher of payout from year 2. # The payout is gross of performance fee, if any. Investors should note that the above scenarios are for illustrative purposes only and do not represent any forecast of performance. 7.2 Investment Objective, Focus and Approach of OCBC Capital Payout USD Fund Investment Objective of OCBC Capital Payout USD Fund The investment objective of the OCBC Capital Payout USD Fund is to provide investors with: (i) fixed capital payout of 5% of capital invested at the end of year 1; (ii) (iii) fixed capital payout of 6% of capital invested plus potential payout at the end of each of year 2, year 3 and year 4; and capital protection on the remaining 77% of capital invested plus potential payout at maturity Investment Focus and Approach of OCBC Capital Payout USD Fund To achieve the investment objective of providing investors with fixed capital payouts at the end of each of the periods ending approximately one year, two years, three years and four years respectively from the end of its Offer Period ( year 1, year 2, year 3 and year 4 respectively), as well as capital protection on the remaining capital invested upon maturity at the end of the period approximately five years from the end of its Offer Period (the Maturity Date ), the OCBC Capital Payout USD Fund will invest a substantial portion 9

14 of its assets in debt instruments and/or deposits. The OCBC Capital Payout USD Fund may also enter into interest rate swap transactions. * Investors will be notified by the Managers of the exact dates of the end of year 1, year 2, year 3, year 4 for the OCBC Capital Payout USD Fund and the Maturity Date at the commencement of the OCBC Capital Payout USD Fund s Offer Period. The OCBC Capital Payout USD Fund may invest up to one-third of its net asset value in debt instruments that are structured products issued by a corporation, government, government agency or supranational with a minimum long-term rating of A by Standard & Poor s or equivalent (including such sub-categories or gradations therein) and/or placed in deposits that are structured products with financial institutions with a minimum individual rating of B by Fitch Inc or a financial strength rating of B by Moody s, provided that not more than one-third of the net asset value of the Sub- Fund will be invested or placed with the same entity. The OCBC Capital Payout USD Fund may also invest above one-third and up to 100% of its net asset value in debt instruments that are structured products issued or guaranteed by a government, government agency or supranational that has a minimum long-term issuer rating of AA by Fitch Inc, Aa by Moody s or AA by Standard and Poor s or equivalent (including such sub-categories and gradations therein). To provide investors with potential payouts at the end of each of year 2, year 3 and year 4 and at maturity, the remainder of the assets of the OCBC Capital Payout USD Fund (after the deduction of all fees and expenses for the approximately 5-year maturity period) will be invested in call options linked to the performance of a basket of 20 stocks. These call options will provide investors the potential payouts based on the performance of such basket of stocks. The basket of 20 stocks are selected based on their good fundamentals and will be selected from the following list of 30 stocks*: 1. Aventis SA 2. Axa 3. BHP Billiton Ltd 4. Canon Inc 5. Cisco Systems Inc 6. Citigroup Inc 7. Coca-Cola Co 8. DaimlerChrysler AG 9. Denso Corp 10. General Electric Co 11. Gillette Co 12. HSBC Holdings plc 13. Honda Motor Co Ltd 14. JP Morgan Chase & Co 15. Johnson & Johnson 16. Kao Corp 17. Microsoft Corp 18. Nestle SA 10

15 19. Nissan Motor Co Ltd 20. Nokia Oyj 21. Novartis AG 22. Pfizer Inc 23. Philips Electronics NV 24. Pioneer Corporation 25. Procter & Gamble Co 26. Royal Dutch Petroleum 27. Samsung Electronics Co Ltd 28. SAP AG 29. Toyota Motor Corp 30. UBS AG * The Managers may, at their discretion and in the interests of Holders, substitute any of the listed stocks before purchasing the call options linked to the performance of the basket of stocks. After the purchase of the call options, the affected stock in the basket may be removed from the basket without substitution or replaced with another stock in the following circumstances: - any merger event (including a reclassification or change of, or take-over offer for, any constituent stock which results in a transfer of or an irrevocable commitment to transfer any stock and any consolidation, amalgamation or merger of the issuer of any constituent stock with or into another entity; - any delisting or de-merger of the issuer of a stock; - any event of nationalisation (including but not limited to nationalisation, expropriation or other requirement for the stock to be transferred to any governmental agency, authority or entity); - any event of insolvency (including any liquidation, bankruptcy or insolvency); or - any other event which the Managers consider renders it necessary for the stock to be removed from the basket, subject to the approval of the Trustee. The list of the selected 20 stocks in the basket will be available at the latest one month after the close of the Offer Period. Investors can find out the list of 20 stocks by logging onto the Managers website at by calling the Managers hotline at or by checking with the relevant distributor. The payouts that investors will receive at the end of each of year 1, year 2, year 3 and year 4 comprise fixed capital repayment by way of realisation of Units. From the end of year 2 onwards, investors will also receive potential payouts based on the payouts from the call options, determined as follows: End of year 2 Max [0, P * (8% + 20% * G 2 )] * outstanding Units held before realisation of Units for fixed payout for year 2 * initial Offer Price 11

16 End of year 3 Max [Potential payout at end of year 2, P* (8% + 20% * G 3 )] * outstanding Units held before realisation of Units for fixed payout for year 3 * initial Offer Price End of year 4 Max [Potential payout at end of year 3, P* (8% + 20% * G 4 )] * outstanding Units held before realisation of Units for fixed payout for year 4 * initial Offer Price At maturity Max [Potential payout at end of year 4, P* (8% + 20% * G 5 )] * outstanding Units held * initial Offer Price where: P= Participation rate G 2 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at the end of year 2. G 3 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at the end of year 3. G 4 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at the end of year 4. G 5 = Growth of the lowest performing stock in the basket of 20 stocks based on the Initial Reference Price of the stock to its closing price at maturity. The Initial Reference Price for each stock is initially set at the closing price of the stock from the date of the purchase of the call options. At the end of each of year 2, year 3 and year 4, the Initial Reference Price of the lowest performing stock for the relevant period will be reset to its previous closing price for the purpose of calculating its growth for the subsequent period. Based on current market conditions, the participation rate is expected to be 40% - 100% for the OCBC Capital Payout USD Fund. The exact participation rate will be available at the latest two months after the close of the Offer Period. Investors can find out about the participation rate by logging onto the Managers website at by calling the Managers hotline at or by checking with the relevant distributor. The Managers shall have the discretion to liquidate the call options prior to their maturity dates if they are of the opinion that it is in the interest of the investors to do so. The Managers may begin to invest in bonds to hedge against interest rate risks prior to the close of the Offer Period subject to having obtained the prior approval of the Trustee and provided that the total amount of application monies for the Sub-Fund is at least US$20 million at the time of such investment. Illustrations of calculation of potential payouts for OCBC Capital Payout USD Fund: Scenario A Assuming a participation rate of 60%, and the growth of the lowest performing stock 12

17 is negative in year 2 to year 5: Year 2 Year 3 Year 4 Year 5 Total Payout Growth of lowest -22% -32% -28% -17% performing stock Payout 2.1% 2.1%* 2.1%* 2.8% 9.1% * Represents the higher of payout from year 2. Scenario B Assuming a participation rate of 60%, and the growth of the lowest performing stock is 0% in year 2 with negative growth in subsequent years: Year 2 Year 3 Year 4 Year 5 Total Payout Growth of lowest 0% -23% -30% -18% performing stock Payout # 4.8% 4.8%* 4.8%* 4.8%* 19.2% * Represents the higher of payout from year 2. # The payout is gross of performance fee, if any. Scenario C Assuming a participation rate of 60%, and the growth of the lowest performing stock is -19% in year 2, 30% in year 3, 14% in year 4 and 56% in year 5: Year 2 Year 3 Year 4 Year 5 Total Payout Growth of lowest -19% 30% 14% 56% performing stock Payout # 2.5% 8.4% 8.4%* 11.5% 30.8% * Represents the higher of payout from year 3. # The payout is gross of performance fee, if any. Investors should note that the above scenarios are for illustrative purposes only and do not represent any forecast of performance. 7.3 Fixed Payouts made by way of realisation of Units and potential payouts made by way of cash distributions The fixed payouts for the OCBC Capital Payout SGD Fund and the OCBC Capital Payout USD Fund will be made by way of realisation of Units and the potential payouts by way of cash distributions from the capital and/or income of the relevant Sub-Fund, as the Managers may in their absolute discretion decide. Please see sub-paragraph below for more details on the realisation of Units in respect of the fixed payouts. Investors may expect to receive the fixed and/or potential payouts within 14 Business 13

18 Days from the end of each of year 1, year 2, year 3 and year 4 for each Sub-Fund (the Payout Dates ) (or within such period as may be permitted by the MAS or made in such other manner as may be agreed between the Managers and the Trustee.) Investors who are not registered as Holders of the Sub-Funds on the Payout Dates will not be entitled to receive the payouts. Investors should note that the Sub-Funds are not guaranteed funds as the capital protection for Units held until the relevant Maturity Date and the payouts for Units held until the respective Payout Dates are provided by debt instruments, deposits and call options, and not by guarantees. For example, in the event that there is a default by the issuer(s) of the debt instruments, deposits or call options, investors will only be able to realise their Units on the relevant Maturity Date at the net asset value per Unit, which may be lower than the capital protected value per Unit. Investors should also note that only those who hold all their Units (not including Units realised for fixed capital payouts) until the relevant Maturity Date and the respective Payout Dates will be entitled to receive the capital protected value on that Maturity Date and the stated payouts on the respective Payout Dates. Investors should seek professional advice from their tax consultants to ascertain the possible tax consequences of investing in the Sub-Funds, especially in connection with the receipt of any cash distributions intended to be made by the Sub-Funds. No representation or warranty is made or implied as to the availability of taxation deductions or any other tax implications in relation to the Sub-Funds, or in respect of the payouts. 8. Fees and Charges Charges and Fee Payable by Holders Preliminary charge: Realisation charge: Nil. 0% at all times. Fees Payable by OCBC Capital Payout SGD Fund to Managers and Trustee Annual management fee: Annual trustee fee: Performance fee:* Up to 0.90% p.a. of Capital Raised. Up to 0.05% p.a. of Capital Raised, subject to a minimum of S$10,000 p.a. From the end of year 2 onwards, the Managers shall be entitled to a performance fee of 25% of the amount of potential payout in excess of 4% p.a. Fees Payable by OCBC Capital Payout USD Fund to Managers and Trustee Annual management fee: Annual trustee fee: Performance fee:* Up to 1.00% p.a. of Capital Raised. Up to 0.05% p.a. of Capital Raised, subject to a minimum of S$10,000 p.a. From the end of year 2 onwards, the Managers shall be entitled to a performance fee of 25% of the amount of potential payout in excess of 4% p.a. 14

19 9. Risks * The Performance fee, if any, will be deducted from the potential payouts on each Payout Date, prior to the payment of the potential payouts to investors. Capital Raised means the total amount of monies received for the subscription of Units in the OCBC Capital Payout SGD Fund or the OCBC Capital Payout USD Fund (as the case may be) after the close of the Offer Period of that Sub-Fund. Due to the investment strategy of the OCBC Capital Payout SGD Fund and the OCBC Capital Payout USD Fund, all fees and expenses permitted under the Deed for the entire approximately 5-year maturity period for each Sub-Fund, including the management fees and trustee fees, will be deducted upfront from the Capital Raised prior to the investment of the assets of the respective Sub-Funds and there will be no refund of such fees and expenses or any part thereof to investors who realise their Units prior to the relevant Maturity Date. The total management fees, trustee fees and all other fees and expenses deducted upfront will not exceed 5.5% of the Capital Raised for the OCBC Capital Payout SGD Fund and 6.0% of the Capital Raised for the OCBC Capital Payout USD Fund. This upfront deduction of all fees and expenses is due to the OCBC Capital Payout SGD Fund s and the OCBC Capital Payout USD Fund s investment strategy. The advance deduction of the fees and expenses is also intended to encourage investors to hold their Units until the relevant Maturity Date as there will be no refund of such fees and expenses or any part thereof to investors who realise their Units prior to the Maturity Date. As required by the Code on Collective Investment Schemes issued by the MAS on 23 May 2002 (last updated 28 March 2003) (the Code ), all marketing, promotional and advertising expenses in relation to the Sub-Funds will be borne by the Managers and will not be charged to the deposited property of the Sub-Funds. 9.1 General Risks Investors should consider and satisfy themselves as to the risks of investing in the Sub-Funds. Generally, some of the risk factors that should be considered by the investors of the Sub-Funds are market, derivatives, liquidity, political, repatriation, regulatory, currency, emerging market risks and risks associated with investments in debt securities which are default and interest rate risks. While the Managers believe that the Sub-Funds offer income revenue and potential for capital appreciation, no assurance can be given that these objectives will be achieved. An investment in a Sub-Fund is meant to produce returns over the long-term. Investors should not expect to obtain short-term gains from such investment. Investors should note that the value of Units, and the income accruing to the Units, may fall or rise and that investors may not get back their original investment Market Risks The usual risks of investing and participating in listed and unlisted securities apply. Prices of securities may go up or down in response to changes in economic conditions, interest rates, and the market s perception of securities. 15

20 These may cause the price of Units in a Sub-Fund to go up or down as the price of Units in a Sub-Fund is based on the current market value of the investments of the Sub-Fund. There are usual risks of investing in bonds and other fixed income securities. Bond prices may go up or down in response to interest rates with increases in interest rates leading to falling bond prices. The market prices of bonds and other fixed income securities are also affected by credit risks, such as risk of default by issuers and liquidity risk Derivatives Risks A Sub-Fund may from time to time invest in derivatives, which are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. Such assets, rates and indices may include bonds, shares, interest rates, currency exchange rates, bond indices and stock indices. While the judicious use of derivatives by professional investment managers can be beneficial, derivatives involve risks different from, and, in some cases, greater than, the risks presented by more traditional securities investments. Some of the risks associated with derivatives are market risk, management risk, credit risk, liquidity risk and leverage risk. The Managers do not intend to use derivatives transactions for speculation or leverage but will use them for efficient portfolio management and risk management. The Managers will attempt to minimise the risks through careful selection of reputable counterparties and constant monitoring of the Sub- Fund s derivatives positions. The Managers however, have the requisite expertise, experience and quantitative tools to manage and contain such investment risks Political Risks The political situation in the countries may have an effect on the value of the securities of companies in whose securities a Sub-Fund has invested, which may in turn impact on the value of the Units in that Sub-Fund Currency Risks The net asset value per Unit of a Sub-Fund will be computed in its base currency of that Sub-Fund whereas the investments held for the account of that Sub-Fund may be acquired in other currencies. The base currency value of the investments of a Sub-Fund designated in another currency may rise and fall due to exchangeable fluctuations in respect of the relevant currencies. Adverse movements in currency exchange rates can result in a decrease in return and a loss of capital. The investments of each Sub-Fund may be hedged into its base currency. In addition, currency hedging transactions, while potentially reducing the currency risks to which a Sub-Fund would otherwise be exposed, involve certain other risks, including the risk of a default by a counterparty. Where a Sub-Fund enters into cross hedging transactions (e.g., utilising currency different than the currency in which the security being hedged is 16

21 denominated), the Sub-Fund will be exposed to the risk that changes in the value of the currency in which the securities are denominated, which could result in loss on both the hedging transaction and the Sub-Fund securities Risks Associated with Investments in Countries Outside Singapore, Particularly in Emerging Markets: (i) Political Risks Countries outside Singapore, especially those with emerging markets, may be subject to higher than usual risks of political changes, government regulations, social instability or diplomatic developments (including war) which could adversely affect the economies of the relevant countries and thus the value of investments in those countries. There is also the risk that nationalisation or other similar action could lead to confiscation of assets under which shareholders in those companies would get little or no compensation. The emerging economies may be heavily dependent on international trade and accordingly, may be adversely affected by trade barriers, or other protectionist measures and international economic developments generally. (ii) Liquidity Risks Trading volume on stock exchanges in emerging markets can be substantially less than on the stock exchanges of the major markets, so that acquisition and disposal of holdings may be time consuming and/or may need to be conducted at unfavourable prices. (iii) Repatriation Risks Investments in emerging markets could be adversely affected by delays in, or refusal to grant, relevant approvals for the repatriation of funds or by any official intervention affecting the process of settlement of transactions. Consents granted prior to investment being made in any particular country may be varied or revoked, and new restrictions may be imposed. (iv) Regulatory Risks A Sub-Fund s investments in emerging economies are also subject to regulatory risks, for example, the introduction of new laws, the imposition of exchange controls, the adoption of restrictive provisions by individual companies or where a limit on the holding of the Sub- Fund in a particular company, sector or country by non-residents (individually or collectively) has been reached. 9.2 Specific risks associated with an investment in the OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund Default Risks Investments in debt securities are subject to adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an 17

22 unanticipated rise in interest rates, which may impair the ability of the issuer to make payments of interest and principal, especially if the issuer is highly leveraged. Such issuer s ability to meet its debt obligations may also be adversely affected by specific corporate developments, or the issuer s inability to meet specific projected business forecasts, or the unavailability of additional financing. Also, an economic downturn or an increase in interest rates may increase the potential for default by the issuers of these securities Interest-rate Risks Investments in debt securities are also subject to the risk of interest-rate fluctuations, and the prices of debt securities may go up or down in response to such fluctuations in interest rates Currency Risks The OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund are denominated in Singapore dollars and US dollars respectively. As investments of the Sub-Funds may be denominated in currencies other than the currency in which the Sub-Fund is denominated, fluctuations of the exchange rates of the currency of investment against the currency of denomination of a Sub-Fund may affect the value of units in such Sub-Fund. The Managers have the discretion to hedge, whether fully, partially or not at all, the foreign currency exposure of the Sub-Funds, and may employ currency hedging techniques to manage the impact of the exchange rate fluctuations on the Sub-Fund and/or for the purpose of efficient portfolio management. However, as in all hedging transactions, it may not be possible to achieve a perfect hedge. The OCBC Capital Payout USD Fund, being denominated in US dollars, may not be hedged against the Singapore dollar and Holders of the Sub-Fund will be exposed to foreign exchange rate risks Protection not Guaranteed Investors should note that the OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund are not guaranteed funds as the stated capital protection for Units held until the relevant Maturity Date and the payouts for Units held until the respective payout dates are provided by debt instruments, deposits and call options, and not by guarantees. For example, in the event that there is a default by the issuer(s) of the debt instruments, deposits or call options, investors will only be able to realise their Units on the relevant Maturity Date at the net asset value per Unit, which may be lower than the capital protected value Lack of Diversification As an exception to the 10% single party limit under Appendix 1 and Annex 1a of the Code on Collective Investment Schemes issued by the Authority, each of the OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund may invest up to one-third of its net asset value in debt securities that are structured products issued by a corporation, government, government agency or supranational with a minimum long-term rating of A by Standard and Poor s or equivalent (including such sub-categories or gradations therein) 18

23 and/or placed in deposits that are structured products with financial institutions with a minimum individual rating of B by Fitch Inc or a financial strength rating of B by Moody s, provided that not more than one-third of the value of the Sub-Fund will be invested in or placed with the same entity. Each of the OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund may also invest above one-third and up to 100% of its net asset value in debt instruments that are structured products issued or guaranteed by a government, government agency or supranational that has a minimum longterm issuer rating of AA by Fitch Inc, Aa by Moody s or AA by Standard and Poor s or equivalent (including such sub-categories and gradations therein). Therefore, the OCBC Capital Payout SGD Fund and the OCBC Capital Payout USD Fund may be subject to a higher level of risk than a portfolio diversifying its holdings across different issuers Counterparty Credit Risks As the option strategy of each of the OCBC Capital Payout SGD Fund and OCBC Capital Payout USD Fund approaches maturity, it may increase in value to reflect the amounts payable to that Sub-Fund and consistently could represent an increased portion of the Value of its Deposited Property. The insolvency of any counterparty for the call option would adversely affect the ability of such counterparty to meet its payment obligations to the relevant Sub-Fund. A default by any counterparty in this respect may affect the Sub- Fund s ability to meet its payment obligations to Holders Liquidity Risks Over-the-counter debt securities and options may be illiquid. In order to meet realisation requests prior to the relevant Maturity Date, counterparties are obligated to quote a price to unwind any part of the option or over-thecounter transaction once a month. This price will reflect the market liquidity conditions and the size of the options to be transacted. There will be no independent verification of such a price quote. 10. Subscription of Units 10.1 Subscription procedure Applications for Units may be made on the application form attached to this Prospectus or through any agents or distributors appointed by the Managers or their ATMs or through any other sales channels, if applicable. Investors have a choice of either paying for Units with cash or Supplementary Retirement Scheme ( SRS ) monies. Investors paying with SRS monies shall instruct the relevant SRS operator bank to withdraw from his SRS account monies in respect of the Units applied for Minimum Initial Subscription The minimum initial subscription amount for the OCBC Capital Payout SGD Fund and the OCBC Capital Payout USD Fund is S$5,000 and US$5,000 respectively. 19

24 10.3 Offer Price and Offer Period Units of the OCBC Capital Payout SGD Fund will only be offered during the Offer Period from 1 July 2003 to 15 August 2003 (or such other period as may be agreed between the Managers and the Trustee). The Managers may also, but are not obliged to, offer Units of the Sub-Fund known as the OCBC Capital Payout USD Fund during the Offer Period (or such other period as may be agreed between the Managers and the Trustee). The offer price of Units of the OCBC Capital Payout SGD Fund and the OCBC Capital Payout USD Fund shall be pegged at S$1.00 and US$1.00 respectively (the Offer Price ). No subscriptions will be accepted and no Units will be issued after the Offer Period. The Managers shall have the absolute discretion to reject in whole or in part any application for Units in the OCBC Capital Payout SGD Fund and the OCBC Capital Payout USD Fund including, without limitation, if there is a failure to make or a delay in payment of the Units Numerical example of how the number of Units allotted to an investor is calculated, based on an investment of $5,000 and an Offer Price of $1 per Unit: For OCBC Capital Payout SGD Fund e.g. S$5,000 S$1 = 5,000 units Your investment Offer Price No. of Units (0% Preliminary Charge) you will receive For OCBC Capital Payout USD Fund e.g. US$5,000 US$1 = 5,000 units 10.5 Confirmation of purchase Your investment Offer Price No. of Units (0% Preliminary Charge) you will receive A confirmation note detailing your investment amount and the number of Units allocated to you in the OCBC Capital Payout SGD Fund or the OCBC Capital Payout USD Fund will be sent to you within ten Business Days from the date of issue of such Units. 11. Minimum Sub-Fund Size The Managers shall return all application monies received (without interest) for the subscription of Units in the OCBC Capital Payout SGD Fund or the OCBC Capital Payout USD Fund to investors as soon as practicable but in any event no later than 14 Business Days in Singapore after the close of the Offer Period of that Sub-Fund if the Managers are of the view that it is not in the interest of the investors to proceed with that Sub-Fund at the close of the Offer Period or if the total amount of application monies for the OCBC Capital Payout SGD Fund or the OCBC Capital Payout USD Fund at the close of the Offer Period is less than S$30 million and US$20 million respectively, and in such event that Sub-Fund shall be deemed not to have 20