UBS Global Access Fund

Transcription

1 Important Dates Offer Opens/ Close Date 27 July 2009 / 4 September 2009 Unit Issue Date 16 September 2009 Participation Rate Fixing Date 18 September 2009 Capital Protection Date / Maturity 18 September 2014 / 5 years Key Information Investment Type Underlying Index Deferred Purchase Agreement Responsible Entity (RE) Capital Protection* Distributions Participation Rate** Issue Price Loan(s) Minimum Ungeared Investment Liquidity Fees & Commissions Management Fee Withdrawal Fee Loan Establishment Fee Adviser Commissions UBS Global Access Fund (UBS-GAF) is an unlisted Australian unit trust and a registered managed investment scheme under the Corporations Act. S&P/ASX 200 Share Price Index. UBS-GAF acquires the investment exposures via deferred purchase agreements (DPA) where, at maturity, ordinary shares in BHP Billiton (ASX code: BHP) are delivered and a Final Cash Coupon if the Final Value is above $1.00. Valuestream Investment Management Limited (VIML). UBS provides capital protection to UBS-GAF on the Capital Protection Date. Class I 100% ($1.00 per unit) Class J 90% ($0.90 per unit). UBS-GAF is not expected to make any distributions prior to the Capital Protection Date. Class I 100% - 120% Class J 135% - 155% $1.00 per unit. Finance of 100% of the Protected Amount available to approved applicants from UBS. Minimum geared investment of $100,000. $20,000 per application, minimum of $10,000 per unit class, and thereafter multiples of $10,000. Monthly redemptions are available, subject to Withdrawal Fees. 0.50% p.a. of the investment amount. Monthly redemptions are available at a cost. See Fees page % (incl. GST) on approved loan amount but can be waived by UBS if lower adviser commission is payable Ungeared investors up to 2.2% (incl. GST) commission on application amount payable to the financial adviser from investors funds. Geared investors 1.1% or 2.2% (incl. GST) upfront and 0.55% pa (incl. GST) on loan amount paid out of UBS own funds * Capital protection will not apply in certain limited circumstances please refer to PDS for details. ** Final Participation Rates will be set on the Participation Rate Fixing Date. What this Rating means The Recommended rating indicates that Lonsec has conviction that the fund or product can achieve its objectives and, if applicable, outperform peers over an appropriate investment timeframe. The manager or product has a number of competitive advantages in people, process and product design. The investment is a recommended entry point to access this asset class or strategy. Using this Product This is General Advice only and should be read in conjunction with the Disclaimer, Disclosure and Warning on the final page. UBS-GAF provides investors with the opportunity to gain exposure to the price growth potential of the Australian equity market. Maximum percentage asset class allocations for all risk profiles are outlined in Lonsec s Risk Profile Review. UBS-GAF incorporates 90% or 100% capital protection mechanisms at the Capital Protection Date which may provide additional comfort to more risk averse investors. Fund Risk Characteristics Leverage Liquidity Risk Concentration Credit Risk Volatility Low Moderate High Risk categories are based on Lonsec s qualitative opinion of the risks inherent in the product s asset class and the risks relative to other products in the relevant Lonsec sector universe. UBS-GAF may suit: Investors seeking growth from the Australian equities market and not reliant on dividends and / or franking credits. Investors who believe recent equity market turmoil provides a buying opportunity but want the safety net of 90% or 100% capital protection at maturity. Investors utilising any investment loans should be comfortable with the risks associated with borrowing to invest. Investors should be comfortable funding interest payments from their own financial resources. WE STRONGLY RECOMMEND THAT POTENTIAL INVESTORS READ THE PRODUCT DISCLOSURE STATEMENT Lonsec Limited ABN AFSL No Participant of ASX Group 1

2 Lonsec Opinion of this Product Classes I and J of the UBS Global Access Fund (UBS-GAF or the Fund) provide investors with the opportunity to gain leveraged exposure to the price growth potential of the Australian equity market with the benefit of 90% or 100% capital protection at maturity. Lonsec views the UBS-GAF structure as a relatively simple and efficient means of accessing exposure to the Underlying Index. Investors can choose to gain exposure to the Australian equity market via a managed fund or an exchange traded fund, receive dividends and any franking credits and be exposed to both positive and negative price movements. UBS-GAF offers investors leveraged exposure (between 100% and 155% depending on the Unit Class) to the Australian equity market with the benefit of 90% or 100% capital protection provided to the Fund at maturity, although investors do not receive any dividends or franking credits. The Participation Rates in this style of product are affected by (amongst other things) volatility in the Underlying Index. Volatility in most financial markets at present is extremely high relative to levels over the past several years following the continuation of problems in global credit markets. Higher volatility, all other things being equal, has the effect of reducing Participation Rates. Lonsec believes the Underlying Index used in the product is appropriate for investors seeking passive exposure to the Australian equities. The index offers broad representation, investability and transparency. The index is widely recognised in the industry and provides clear rules for security selection and exclusion. Importantly, the Index used is sponsored and calculated independently of the Issuer. Investors should note the Average Index Starting and Ending Levels used to determine an investor s pay-off at maturity are averaged over 13 monthly observations which has the effect of smoothing both levels. The averaging means the return on the investment might be lower or higher than it would have been if it was calculated based on the change between the index level on the Unit Issue Date and the index level on the Maturity Date. Investors participate in any upside through the investment term, with Participation Rates enhancing any positive performance and the averaging of the Average Index Ending Level mitigates the risk of investor returns suffering a material decline closer to the maturity date. Lonsec considers UBS to be an experienced issuer of structured investment products. The group is extremely well resourced both globally and in Australia. Management and withdrawal fees are clearly outlined and in line with similar products. However, UBS may profit (or lose) from hedging arrangements undertaken when managing its contractual obligations under the DPA structure. These amounts are at risk as the hedging arrangements require regular management over the term of the investment. These amounts are obfuscated in the Participation Rate, making fee comparison difficult. Relevant Parties UBS-GAF acquires the various investment exposures by entering into Deferred Purchase Agreements (DPA) with UBS AG, Australia Branch (ABN ), holder of Australian Financial Service Licence No Based on the unit class chosen, UBS undertakes to deliver to UBS-GAF a final value of at least $0.90 or $1.00 per DPA as at the Capital Protection Date. UBS is a global investment bank with significant experience in structured products. UBS has credit ratings of A+ by Fitch, A+ by S&P and Aa2 rated by Moody s as at June UBS AG, Australia Branch commenced operation in January UBS AG was formed in June 1998 from the merger of Swiss Bank Corporation and Union Bank of Switzerland. The Issuer and Responsible Entity (RE) of UBS-GAF is Valuestream Investment Management Limited (VIML). VIML is a public company and as RE, manages the administration and compliance services of UBS-GAF. Underlying Investments Investors are able to choose from two unit classes: Unit Class Underlying Index Protection Level Participation Rate I S&P / ASX % 100% - 120% J S&P / ASX % 135% - 155% If the Participation Rate for investments within a Unit Class is below the indicative range then the issue will not go ahead. How does the Product Work? UBS-GAF is designed as a set and forget investment where the exposure to the Underlying Index is provided for 5 years. UBS-GAF acquires the investment exposure by entering into DPAs with UBS AG, Australia Branch (UBS). The payoff profile is comparable to purchasing a 5 year AUD bond and a 5 year call option (with 2

3 averaging) linked to the Underlying Index. The bond provides the capital protection at maturity and the call option provides the upside potential. Investor returns are determined by the performance of the Underlying Index averaged over first 12 months and final 12 months of the investment term. Investors buy units issued in UBS-GAF that provide exposure to the Underlying Index with 90% or 100% capital protection at the Capital Protection Date and different Participation Rates. An investor s pay-off at the Capital Protection Date: Class I: $ $1.00 x [Participation Rate x Max (0, % change in the Index)] Class J: $ $1.00 x [Participation Rate x Max (0, % change in the Index)] Where the % change in the Index = Average Index Ending Level Average Index Starting Level For those investors choosing a 90% protection level, the % change in the Index multiplied by the relevant Participation Rate must exceed 10% for investors to recover their original investment amount. Investors will lose 10% of their investment amount if the % change in the Index is zero or negative, regardless of the Participation Rate. The following table considers various scenarios (for initial investment of $100) under a 90% protection level with a 145% Participation Rate and a 100% protection level with a 110% Participation Rate. In order for an investor choosing to have 90% of their capital protected at maturity the Underlying Index must increase by more than 6.9% over 5 years (after taking into account averaging) in order for the investor to receive 100% of their investment amount on the Capital Protection Date. This is shown in the second highlighted line in the table below: Average Index Starting Level % change in the Underlying Index from Trade Date UBS GAF Payoff at maturity Protection Level 90% Protection Level 100% Participation Rate 145% Participation Rate 110% % increase Annual compounded return over 5 yrs UBS GAF Payoff at maturity % increase Annual compounded return over 5 yrs 55.0% $ % 11.2% $ % 10.0% 50.0% $ % 10.3% $ % 9.2% 45.0% $ % 9.2% $ % 8.4% 40.0% $ % 8.2% $ % 7.6% 35.0% $ % 7.1% $ % 6.8% 28.6% $ % 5.5% $ % 5.5% 10.0% $ % 1.0% $ % 2.1% 6.9% $ % 0.0% $ % 1.5% 5.0% $ % -0.5% $ % 1.1% 0.0% $ % -2.1% $ % 0.0% -5.0% $ % -2.1% $ % 0.0% -10.0% $ % -2.1% $ % 0.0% The first highlighted line shows that when the Underlying Index increases by over 28.6% (after taking into account averaging) during the investment term, or approximately 5.5% compounded over 5 years, then a capital protection level at 90% with Participation Rate at 145% produces a superior return compared to Class I with a capital protection level at 100%. As such, investors opting for the lower protection level of 90% should be higher risk profile investors comfortable with the trade-off of risking part of their capital for the potential of generating higher returns. The Participation Rate is set on the Participation Rate Fixing Date and is impacted by prevailing interest rates in Australia, the volatility of the Underlying Index and forecast distributions on securities in the Underlying Index (amongst other things).the table is a hypothetical example only and not intended to be a forecast of future performance. 3

4 What happens at Maturity of the DPA? At maturity the Fund will receive the delivery asset (shares in BHP Billiton). The Fund can instruct UBS to sell the delivery asset at that time and realise sale proceeds of at least $1.00 per unit for Class I and $0.90 per unit for Class J. The Fund will also receive a Final Cash Coupon if the Final Value is above $1.00 (calculated as described previously). This arrangement is referred to as a deferred purchase agreement (DPA). Underlying Index S&P/ASX 200 The S&P/ASX 200 index is recognised as the investable benchmark for the Australian equity market. The S&P/ASX 200 is maintained by the S&P Australian Index Committee, a team of five including three Standard & Poor s economists and index analysts and two Australian Securities Exchange representatives. The Index Committee reviews constituents quarterly to ensure adequate market capitalisation and liquidity. Both market capitalisation and liquidity are assessed using the previous six months data. The following table outlines the performance of the S&P/ASX Index over the various periods ending June S&P/ASX 200 Index Periods Ending: June 2009 Performance (% pa) Standard Deviation (% pa) Worst Drawdown (%) Source: Morningstar, Lonsec 1 Yr 3 Yrs 5 Yrs 7 yrs In the 5 year period to June 2009, the Index produced a gross annualised return of 2.3% with a volatility of 14.7%. The worst cumulative loss experienced over the assessed period was 50.5%. Financing the Investment Investors may use their own funds to purchase units in UBS-GAF or may apply for a loan under the PGI facility to fund their investment. PGI allows investors to borrow up to 100% (Class I) and 90% (Class J) of the investment amount subject to a minimum unit investment of $100,000, a minimum investment in each Unit Class of $10,000 and increments of $10,000 thereafter. Rates will be finalised prior to the Unit Issue Date but indicative rates are as follows: Interest payment Type Fixed rate, annual in advance Variable rate, annual in advance Indicative Interest Rate (p.a.) 8.25% 6.99% Lonsec has reviewed the PGI and these rates and found they are competitive when compared to other loan facilities. Risks An investment in UBS-GAF carries a number of standard investment risks associated with the domestic investment markets. These include economic, political, legal, tax and regulatory risks. These and other risks are outlined in Section 7 of the PDS and should be read in full and understood by investors. Lonsec considers the major risks to be: Performance risk The value of the units in UBS- GAF is dependent on the performance of the Underlying Index. The Underlying Index is not actively managed and can be affected by many different factors including but not limited to interest rates, economic policies, political events, war and natural events. There is no guarantee the value of units in UBS-GAF will increase over the investment term. Flat or negative performance of the Underlying Index may result in up to 10% capital loss for Class J units at maturity. Leverage risk Investors utilising any investment loan provided by UBS should be aware that gains and losses are magnified through the use of borrowings. Leverage is also employed to the extent that the Participation Rate is greater than 100%. Counterparty risk Investors are exposed to the creditworthiness of UBS, as UBS-GAF returns are dependent on UBS performing its obligations under the DPA. These obligations created by the DPA are unsecured contractual obligations of UBS and rank equally with other unsecured debt liabilities of UBS other than those obligations mandatorily preferred by law. UBS currently has a long term credit ratings of A+ by Fitch, A+ by S&P and Aa2 rated by Moody s as at June

5 Loss of Capital Protection 90% or 100% capital protection is only provided to the Fund at maturity of the DPA. In certain circumstances, such as changes in the law or where an index can no longer be used, an early maturity could ensue. Early maturity can also result from an early redemption request from an investor. An investor can receive proceeds less than their initial investment in the event of an early withdrawal from UBS-GAF and in certain other circumstances as listed in the PDS. Exercise of discretion by UBS UBS has wide powers under the terms of the DPA and the exercise of those powers may negatively impact the value of units in UBS-GAF. For example, this can occur where there is an adjustment event such as the cancellation of an index or where an index sponsor makes a material change to the method of calculation. Given the Underlying Index used in UBS-GAF Classes I and J this risk is perceived as low. Taxation At maturity any positive return (if any) received as a Final Cash Coupon should be treated as income. Investors using the PGI facility to fund their investment in UBS GAF should refer the PDS for taxation advise regarding deductibility. Investors are advised to refer to Taxation Summary (Section 9) in the PDS which has been prepared by Clayton Utz solicitors. These comments constitute General Advice only and Lonsec advises potential investors to consult a taxation specialist before making a decision to invest (or not to invest) based upon these taxation considerations. Investors should refer to Section 9 of the PDS. Liquidity Units in UBS-GAF are not listed on the Australian Securities Exchange or any other exchange. Investors should have the intention of holding the units to the Capital Protection Date. However redemption requests can be made on a monthly basis provided at least 10 business days notice is provided (or 30 business days for redemptions as at the Capital Protection Date). The Issuer has the discretion to accept, reject or defer any redemption request. For investors utilising the investment loans, any redemption prior to maturity of the investment loan will require repayment of the investment loan. There may be interest break costs and any prepaid interest may not be refunded. Capital protection will be lost in respect of units redeemed prior to the Capital Protection Date. Fees Management and withdrawal fees are clearly outlined in the PDS and are in line with similar products. UBS may also profit (or lose) from hedging arrangements undertaken when managing its contractual obligations under the DPA. The quantum of these amounts and consequent determination of the Participation Rate means pricing of these features of UBS-GAF are not transparent. These amounts are effectively at risk to UBS as the hedging arrangements require regular management over time. Management Fee: 0.50% p.a. of the investment amount. Withdrawal Fee: Tiered withdrawal fee as follows: $ per Unit for withdrawals effective on or before 30 June 2010 $ per Unit for withdrawals effective from 1 July 2010 to and including 30 June 2011 $ per Unit for withdrawals effective from 1 July 2011 to and including 30 June 2012 $ per Unit for withdrawals effective from 1 July 2012 to and including 30 June 2013 $ per Unit for withdrawals effective from 1 July 2013 to but excluding 18 September 2014 No withdrawal fee for withdrawals on the Capital Protection Date of 18 September Adviser Commission: 2.2% on the application amount, payable to advisers upfront. Advisers can elect to waive this fee. Loan Financing Costs Adviser Commission: 1.1% or 2.2 % (incl. GST) on the initial Loan amount payable by UBS to the adviser upfront. This commission will not be charged on geared applications. Loan Establishment Fee: 1.1% (incl. GST) of the initial Loan amount payable by the borrower. This fee may be waived. Adviser Loan Trail: UBS may also pay a commission of 0.55% p.a. (incl. GST) to advisers on the total Loan amount. This fee will be paid by UBS out of its own funds. Other fees, including loan break costs may apply. Investors should refer to the PGI PDS (including the Term Sheet which is set out in the Application Pack). 5

6 Further Information Further information and monthly net asset values can be obtained by contacting Valuestream or UBS on or Analyst Disclosure & Certification Analyst remuneration is not linked to the rating outcome. The Analyst(s) may hold the products(s) referred to in this document, but Lonsec considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst(s) holdings may change during the life of this document. The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about the financial product(s) to which this document refers. Date Prepared: July 2009 Analyst: Shailesh Jain Release Authorised by: Michael Elsworth IMPORTANT NOTICE: The following relate to this document prepared and published by Lonsec Limited ABN ("Lonsec") and should be read before making any investment decision about the product(s). This report, dated July 2009, expires when the initial offer closes or if there are any material changes in relation to the information contained in this report or any disclosure or offer document issued in relation to this offer. Lonsec reserves the right to change its opinion, rating and/or withdraw the report at any time on reasonable grounds. Disclosure at the date of publication: Lonsec receive a fee from the Issuer or distributor for rating the product(s) using comprehensive and objective criteria. Lonsec s fee is not linked to the rating outcome. Lonsec does not hold the product(s) referred to in this document. Lonsec s representatives and/or their associates may hold the product(s) referred to in this document, but detail of these holdings are not known to the Analyst(s). Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to General Advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs ( financial circumstances ) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek further advice on its appropriateness. If our General Advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each financial product before making any decision about whether to acquire a product. Lonsec s rating process relies upon the publicly available information published by the Issuer. Should the Issuer or Distributor no longer be an active participant in Lonsec rating process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the UBS-GAF. Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, employees and agents disclaim all liability for any error or inaccuracy in, or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. 6