SHAREHOLDER BOOKLET RESTRUCTURE. GENERAL MEETING 18 June 2018 AT 5:30 PM (SYDNEY TIME)

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1 AUSTRALIAN GOVERNANCE MASTERS INDEX FUND LIMITED ACN SHAREHOLDER BOOKLET RESTRUCTURE A NOTICE OF MEETING IS INCLUDED AS APPENDIX 1 TO THIS BOOKLET. A PROXY FORM FOR THE MEETING ACCOMPANIES THIS BOOKLET. GENERAL MEETING 18 June 2018 AT 5:30 PM (SYDNEY TIME) This is an important document and requires your urgent attention. If you are in any doubt as to how to deal with this Booklet, please consult your legal, financial, taxation or other professional adviser immediately. If you have recently sold all of your Shares, please disregard all enclosed documents.

2 IMPORTANT NOTICES GENERAL You should read this Booklet in its entirety before making a decision on how to vote on the Restructure Resolutions to be considered at the Meeting. The notice convening the Meeting is contained in Appendix 1. A proxy form for the meeting is enclosed. DEFINED TERMS Capitalised terms in this Booklet are defined either in the Glossary in Section 10 of this Booklet or where the relevant term is first used. References to dollars or $ are references to the lawful currency of Australia. Any discrepancies between the totals and the sum of all the individual components in the tables contained in this Booklet are due to rounding. PURPOSE OF THIS BOOKLET The purpose of this Booklet is to: state the nature of the business to be conducted at the Meeting; and provide such information as is prescribed by the Corporations Act. ASX AND ASIC A copy of this Booklet has been lodged with the ASX. None of the ASX, the ASIC or any of their officers take responsibility for the contents of this Booklet. INVESTMENT DECISIONS This Booklet does not take into account the investment objectives, financial situation or needs, or the tax position and requirements of any particular person. This Booklet should not be relied on as the sole basis for any investment decision in relation to Shares. It is important that you read the entire Booklet and the Product Disclosure Statement that accompanies it before making any voting or investment decision. NOT AN OFFER This Booklet does not constitute or contain an offer to Shareholders or a solicitation from Shareholders in any jurisdiction. FORWARD LOOKING STATEMENTS This Booklet includes certain prospective financial information which has been based on current expectations about future events. The prospective financial information is, however, subject to risks, uncertainties and assumptions that could cause actual results to differ materially from the expectations described in such prospective financial information. The assumptions on which prospective financial information is based may prove to be incorrect or may be affected by matters not currently known to, or considered material by, the Responsible Entity. Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement and deviations are both normal and to be expected. None of the Responsible Entity, the officers of the Responsible Entity or any person named in this Booklet makes any representation or warranty (either expressed or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement, or any events or results expressed or implied in any forward looking statement. You are cautioned not to place undue reliance on those statements. The forward looking statements in this Booklet reflect views held only as at the date of this Booklet. Notwithstanding the uncertainty outlined above, there are reasonable grounds for including all forward looking statements set out in this Booklet. RESPONSIBILITY STATEMENT Australian Governance Masters Index Fund Limited (AQF) is responsible for the information in this Booklet in relation to AQF. Walsh & Company Investments Limited as Responsible Entity of Australian Governance & Ethical Index Fund (AGM) has prepared, and is responsible for, the information about AGM in this Booklet and the content of the accompanying Product Disclosure Statement (PDS). AQF and its officers and advisers do not assume any liability for the accuracy and completeness of such information or the PDS. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 2

3 IMPORTANT DATES AND TIMES Date of this Booklet 17 May 2018 Time and date for determining eligibility to vote at the 7.00 pm (Sydney Time), 16 June 2018 Meeting Last time and date by which the proxy form for the Meeting 5:30 pm (Sydney Time), 16 June 2018 can be lodged Meeting* to vote on the Restructure 5:30 pm (Sydney Time), 18 June 2018 * The Meeting will be held at Level 15, 100 Pacific Highway, North Sydney NSW You should consult your legal, financial, taxation or other professional adviser concerning the impact your decision may have on your own circumstances. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 3

4 CHAIRMANS LETTER 17 May 2018 Dear Shareholder, Proposal to restructure the Australian Governance Masters Index Fund On behalf of the Board, it is my pleasure to present to you this Notice of Meeting to restructure the Australian Governance Masters Index Fund Limited (AQF or Company) from a listed investment company to a new listed investment trust, the Australian Governance & Ethical Index Fund (ARSN ) (AGM or Trust). As a Board, we are always considering ways to improve the nature of AQF and its efficiency as an investment vehicle. In keeping with this practice, we determined last year to reduce AQF s total expense ratio from 0.49% 1 to 0.19% 2 per annum of the gross value of the portfolio, to refine the investment mandate and to engage a dedicated portfolio manager. Our focus on improvement continues and we are writing to Shareholders today to seek support for the following changes to AQF (the Restructure): restructure AQF from a listed investment company to a newly established listed investment trust, AGM; and extend the vehicle s existing focus on corporate governance to include analysis of a company s social and environmental practices and obligations. A successful shareholder vote for the Restructure would result in AQF shareholders receiving one unit in AGM for each AQF share owned at the Record Date. Shares in Australian Governance Masters Index Fund will cease to trade on the ASX ahead of a winding up of the Company (subject to later Shareholder approval). Under the Restructure, while fees are charged in a different manner, the Responsible Entity has undertaken to maintain the cap on the total expense ratio at the current 0.19% 2 per annum. See Section 4.2 and 7.3 for details. BACKGROUND TO THE PROPOSED RESTRUCTURE AQF was launched in 2010 in the wake of the Global Financial Crisis following a number of high profile corporate failures. Many believed these collapses were brought about in part by failures in corporate governance. Taken together with the challenging economic climate at the time, these factors highlighted for many investors the need to revisit corporate governance policies and practices to help determine which companies to invest in. The Company was established to provide investors with exposure to the best governed Australian companies through a lower cost, index style of investing. AQF was structured as a listed investment company, being a structure well-established and well-known to investors at the time. By contrast, listed investment trusts (LIT) were much less common at the time of AQF s establishment. However, the development of the exchange traded fund (ETF) market, which involves funds structured as trusts, and the success of recent public offers of units in LITs have 1 Exclusive of GST and other expenses 2 Inclusive of GST and net of Reduced Input Tax Credits (RITC) AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 4

5 significantly increased the profile and acceptance of LITs. LITs can offer considerable advantages to investors and may appeal to a broader array of investor types. ADVANTAGES OF THE RESTRUCTURE The Board has explored how best to position AQF to continue to provide investors with exposure to Australian equities with a corporate governance bias while seeking to maintain strong, long-term investment returns. This review process led the Board to conclude that moving AQF from a listed investment company to a new listed investment trust with a broader investment mandate would have the following advantages for investors: Increased appeal to a broader range of investor types subsequently improving scale, liquidity, and resources to help drive investment performance; Improved capital management and distribution profile; Broadening of the investment strategy to include social and other ethical factors in portfolio construction; and More robust long-term structure. The Board considers that these advantages have considerable merit, and is firmly of the view that the changes described in this booklet (Booklet) will benefit Shareholders in the longer term. A concise list of the potential advantages and disadvantages of the Restructure is set out for your consideration on pages 9 and 10. FEATURES OF THE AUSTRALIAN GOVERNANCE & ETHICAL INDEX FUND While the Board is firmly of the belief that corporate governance practices are imperative to a firm s overall performance, we are also of the view that a company s broader environmental and social impact is becoming increasingly important to a company s success and longevity. As such, it is proposed that the AGM investment strategy would be broadened beyond corporate governance to include social and other ethical factors in portfolio construction. The investment strategy will however, continue to be implemented through a lower cost, index style of investing. See Section 4.2 for details. As a trust, AGM intends to set a target distribution yield of approximately 5% per annum with the goal of providing investors with a stable income stream and yield. To the extent this distribution is not able to be met from income of AGM, distributions may include a capital component. AGM has confirmed that it will also operate a DRP that will allow participating investors to reinvest up to the Target Distribution at a 2% discount to the NAV in accordance with the DRP. See Section 2.2 and Section 4.2 for details. The governance structure of a trust is different from that of a company and AQF s transition to a trust would entail having a responsible entity and a compliance committee composed of a majority of independent members as opposed to a board of independent directors. We propose that Walsh & Company Investments Limited would become the responsible entity and that, in addition to the compliance committee, an advisory board including AQF s current board members would also be put in place. The advisory board would ensure continuity in process and would continue to provide guidance and advice on operations. While this approach is different to that of a company, the Board considers that its appointment as an advisory board provides an extra layer of oversight to the operation of the new Trust. Further details about the Trust are contained in Sections 2 and 4 of this Booklet. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 5

6 THIS BOOKLET AND THE PDS In order to implement the Restructure, investors will be asked to vote on three interdependent Restructure Resolutions described in Section 3.1 of the Booklet. All of the resolutions must be passed to give effect to the proposed Restructure of the Company. I urge you to read the enclosed Booklet and the accompanying PDS in full to understand the nature of the proposal. This Booklet contains detailed information about the Restructure Resolutions being put to shareholders and about the Notice of Meeting. With this Booklet, you have received the PDS issued by Walsh & Company Investments Limited as responsible entity for AGM. The PDS relates to the issue of Units as part of the Restructure. In considering how to vote, AQF shareholders should consider the entire contents of the Booklet, including the reasons to vote for and against the Restructure Resolutions as set out in the following section, and the accompanying PDS for the offer of AGM Units. In accordance with relief granted by ASIC for transactions such as the Restructure, you do not need to submit an application form to receive Units in the Trust. If the Restructure Resolutions are approved and the Restructure is implemented, you will receive Units without the need to undertake any further action. RECOMMENDATION For the reasons set out in this Booklet, each of the independent Directors being Jeffrey Whalan, Ian Watt and Josephine Tan, considers that the Restructure is in the best interests of Shareholders and recommends that Shareholders vote in favour of the Restructure Resolutions. If you have queries in relation to the material in this proposal, please do not hesitate to contact your adviser or the Company. Yours sincerely Jeff Whalan AO Chairman Australian Governance Masters Index Fund Limited AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 6

7 TABLE OF CONTENTS Important notices... 2 Important dates and times... 3 Chairmans letter... 4 Reasons why you might vote against the Restructure Overview Rationale for the Restructure and Key Considerations Implementation of the Restructure Australian Governance & Ethical Index Fund Effect of the Restructure on Shareholders Tax Material Contracts Comparison of rights attaching to Shares and Units Additional information Glossary AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 7

8 t REASONS WHY YOU SHOULD VOTE IN FAVOUR OF THE RESTRUCTURE Better position AQF to improve scale, liquidity, and performance for investors. Trusts can offer considerable advantages to investors owing to their flexible, flow-through nature. The Board considers that the Restructure should broaden the appeal of AQF to a larger number of investor types and so is expected to improve liquidity and aid in gaining scale. See Section 2.1 for further details. Improve capital management and distribution profile, with greater flexibility in the nature, amount, and timing of distributions. See Section 2.2 for further details. Better align branding and strategy through broadening of the investment strategy to include social and other ethical factors in portfolio construction. See Section 2.3 for further details. More robust long-term structure, as trusts allow flow-through of income and capital gains, and are generally less susceptible to legislative changes that might impact corporate tax rates. See Section 6 for further details. Certainty regarding overall cost structure. The total ongoing expenses incurred in normal operation for AGM are fixed at 0.19% 3 p.a. of the gross assets of the Fund. In addition, the maximum amount charged for transaction-based fundraising fees are fixed within the AGM Constitution. This provides certainty to investors as to the maximum costs that may be incurred for such transactions. See Section 4.2 of the PDS for details. 3 Inclusive of GST net of RITC AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 8

9 t REASONS WHY YOU MIGHT VOTE AGAINST THE RESTRUCTURE One-off costs of the Restructure including professional fees (legal, tax and accounting), wind-up costs and ASX fees, are estimated to be approximately 0.7% of NAV as at 31 March See Section 2.5 for further details. Change in corporate governance structure, as trusts have different governance structures to companies. Following the Restructure, Walsh & Company would act as responsible entity of AGM. AGM would have a compliance committee and the majority of the members of this committee would be independent members, just as the majority of the members of the current Board are independent members. An advisory board including AQF s current board members would also be put in place to ensure continuity in investment process and strategy and would continue to provide guidance and advice on operations. Temporary suspension of liquidity on the ASX as part of the Restructure, there will be a period between the cessation of trading on the ASX for AQF and the commencement of trading on the ASX for AGM. AQF anticipates this period to be approximately 10 Business Days. One-off tax impact, by bringing forward capital gains tax on the gains realised from the sale of investments to the Trust. AQF intends to release franking credits to investors. You may need to pay tax on the Distribution (see Sections 5 and 6 for further information). AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 9

10 1. OVERVIEW 1.1 OVERVIEW Shareholders are asked to approve the Restructure of the Australian Governance Masters Index Fund Limited (AQF) from a listed investment company to a new listed investment trust, the Australian Governance & Ethical Index Fund (AGM or the Trust). The proposal is designed to improve the structure for the Shareholders. It is also directed at better positioning AQF to improve scale, liquidity and performance for investors. Broadly speaking, implementation of the Restructure will consist of the following key steps: AQF to transfer substantially all assets to AGM, a newly established registered managed investment scheme; AQF to undertake a return of capital in an amount equal to its net assets less the costs of the Restructure to Shareholders in the form of Units in AGM. AGM will apply for listing on the ASX under the ticker AGM; and AQF to seek Shareholder approval at a later date to implement a voluntary winding up. The net impact of the Restructure is that, for each Share in AQF that you hold on the Record Date you will receive a Unit in AGM, and AGM will implement the investment strategy and process described in Section 4.2 using substantially all of the net assets of AQF. 1.2 SHAREHOLDER APPROVALS Shareholders are asked to consider Resolutions 1 3 (Restructure Resolutions) to approve: amendment of the constitution of AQF (AQF Constitution) to facilitate the Restructure; a return of capital by AQF to be effected by a distribution in specie of Units in AGM to Shareholders; and the transfer of substantially all of AQF s existing portfolio of investments and cash and other assets to AGM. These Restructure Resolutions are interconditional, meaning that if any one Resolution is not passed, the Restructure will not proceed. 1.3 VOTING Resolution 1 is a special resolution and requires approval by a majority of 75% of votes cast on the Resolution by eligible Shareholders at the Meeting. Resolutions 2 and 3 require approval by a simple majority of votes cast by eligible Shareholders at the Meeting. The Notice of Meeting sets out the voting restrictions that apply to the Restructure Resolutions. 1.4 KEY CONDITIONS The key conditions that must be satisfied or waived for the Restructure to proceed are as follows (Conditions): Shareholders approving the Restructure Resolutions. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 10

11 No judicial authority, entity or government agency taking any action, or imposing any legal restraint or prohibition, to prevent the implementation of the Restructure. AQF and AGM obtaining from ASX all waivers from the Listing Rules that are reasonably necessary for the implementation of the Restructure. No Prescribed Event occurring. ASX agrees in principle to AGM being admitted to the official list of the ASX and Units receiving official quotation. 1.5 RECOMMENDATIONS AND SUPPORT For the reasons set out in this Booklet, including the reasons to vote in favour of the Restructure and reasons against set out earlier, each of the independent Directors being Jeffrey Whalan, Ian Watt and Josephine Tan, considers that the Restructure is in the best interests of Shareholders and recommends that Shareholders vote in favour of the Restructure Resolutions. Nerida Cole, a Director of AQF, is also a Director and employee of Dixon Advisory Group Pty Limited, which is a related body corporate of the Responsible Entity of AGM, and accordingly does not consider it appropriate to give a voting recommendation to Shareholders. Directors, or entities that they control, may hold Shares in AQF and have indicated that they will vote the Shares that they control in favour of the Restructure Resolutions. 1.6 TIMETABLE 1 Date of PDS and despatch of Booklet 17 May 2018 Shareholder Meeting 18 June 2018 Final Restructure Announcement and AQF ceases trading 28 June 2018 Effective Date 6 July 2018 Trading of AGM expected to commence on the ASX 16 July 2018 Note: 1 These dates are indicative only and subject to change. 1.7 WHAT TO DO NEXT a) Read the remainder of this Booklet You should read and consider the remainder of this Booklet and the accompanying PDS in full before making any decision on how to vote on the Restructure Resolutions. b) Consider your options Shareholders should refer to Sections 2 to 9 (inclusive) of this Booklet for further guidance on the Restructure. However, this Booklet does not take into account the financial situation, investment objectives and particular needs of any particular Shareholder. c) Vote at the Meeting The Directors encourage all Shareholders to vote on the Restructure Resolutions at the Meeting. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 11

12 2. RATIONALE FOR THE RESTRUCTURE AND KEY CONSIDERATIONS 2.1 BACKGROUND AQF was launched in 2010 in the wake of the Global Financial Crisis following a number of high profile corporate failures. Many believed these collapses were brought about in part by failures in corporate governance. Taken together with the challenging economic climate at the time, these conditions highlighted for many investors the need revisit corporate governance policies and practices to help determine which companies to invest in. The Company was established to provide investors with exposure to the best governed Australian companies through a lower cost, index style of investing. AQF was structured as a listed investment company, being a structure well-established and well-known to investors at the time. By contrast, listed investment trusts (LIT) were much less common at the time of AQF s establishment. However, the development of the exchange traded fund (ETF) market, which are structured as trusts, and the success of recent public offers of units in LITs have significantly increased the profile and acceptance of LITs. LITs can offer considerable advantages to investors owing to the flexible, flow-through nature of the entity, and may appeal to a broader array of investor types. The Board believes the Restructure will better position AQF to appeal to a broader array of investors and subsequently assist in improving scale, liquidity, and performance for investors. An increase in scale of AQF is expected to: improve liquidity and consequently lower costs associated with transacting on market; improve operational efficiency and access to resources to drive investment performance; and better enable engagement with portfolio companies on matters regarding overall corporate social responsibility. 2.2 MORE FLEXIBLE DISTRIBUTION PROFILE Unlike a company, AGM as a registered managed investment scheme is able to adopt a more flexible approach to distributions as the Responsible Entity can pay distributions of both income and capital without the need to obtain Unitholder approval. This provides investors with greater certainty as to the both the quantum and timing of distributions. In addition, as AGM will not pay tax as a separate legal entity, the Responsible Entity can pass gross income through to Unitholders, with tax payable on distributions determined by the particular circumstances of the recipient Unitholder. See Section 6 for details. These features of a registered managed investment scheme are more attractive for a greater range of investors than AQF s current corporate structure. To provide greater certainty to investors regarding distributions and to take advantage of the more flexible distribution profile offered by AGM, AGM intends to pay semi-annual distributions of approximately 4.5 cents per Unit for the first two years, equating to around a 5% distribution based on the Trust s estimated pro forma NAV of $1.75 as at 31 March 2018 (see Section 5.1 for further details). AGM intends to seek to maintain a stable and growing distribution profile over the longer-term, with a view to providing investors with an attractive source of income. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 12

13 The Responsible Entity will target an annual distribution of 5% based on the NAV at or around the beginning of the relevant distribution period, paid semi-annually (Target Distribution). The Responsible Entity expects that the Target Distribution will provide Unitholders with greater certainty on the amount of upcoming distributions, however there is no guarantee this target will be achieved. To the extent this Target Distribution is not able to be met from income of AGM, distributions may include a capital component. The Trust has established a distribution reinvestment plan (DRP) in respect of distributions to be made by AGM. The Trust intends to allow investors participating in the DRP to invest up to the Target Distribution at a 2% discount to the NAV as defined in the DRP. The Responsible Entity may require that any distribution greater than the Target Distribution be reinvested in accordance with the DRP. For any amount of distribution greater than the Target Distribution, the Responsible Entity may require that this amount be reinvested, for which there will be no discount on the Unit price. Unitholders may nevertheless be required to pay tax on any income distribution reinvested. See Section 6 of this Booklet for further information. The Trust will also aim to apply active capital management strategies and may undertake a buyback of its Units in the event they trade at a discount to NAV. 2.3 BETTER ALIGN BRANDING AND STRATEGY THROUGH BROADENING OF THE INVESTMENT STRATEGY As part of the Restructure, the investment strategy currently employed by AQF will be broadened beyond corporate governance to include social and other ethical factors in portfolio construction. Over the past decade, there has been increased scrutiny on public companies to consider the social and environmental impacts of their operations, and many investors are now incorporating this into their investment decisions. Improvement in investment research and corporate disclosure over the last decade has better enabled analysis of these attributes. Incorporating broader factors of social and environmental performance would be a natural progression for AQF and would provide exposure to Shareholders to a responsible investment strategy that has both active oversight and a low fee structure. The Board and Manager believes that, on average, those companies cognisant of environmental and social risk generally operate more robust and sustainable business models. As such, broadening the investment strategy may assist in generating improved longterm returns. Within the Australian market, there are limited options for individual investors to gain exposure to responsible investment strategies that have both active oversight and a low fee structure. This broadening of the strategy should help improve the appeal and profile of AGM in the market and aid in gaining scale, which the Board considers will provide the benefits set out in Section 2.1 above. 2.4 CONSEQUENCES IF THE RESTRUCTURE IS NOT IMPLEMENTED The Board and the Manager are firmly of the view that the Restructure will benefit Shareholders. Should the Restructure not be implemented, the Company may continue with the existing investment strategy and operations or consider alternative courses of action, including but not limited to mechanisms by which Shareholders can exit their investment in the Company. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 13

14 2.5 COSTS OF THE RESTRUCTURE The costs associated with the Restructure include (Costs of the Restructure): professional fees, including legal, tax and accounting advice; ASX fees in relation to the listing of AGM and the de-listing of AQF, and other regulatory costs; and other costs associated with the wind-up of AQF. The Costs of the Restructure will be $300,000 exclusive of GST or approximately 0.7% of NAV as at 31 March If the Costs of the Restructure exceed $300,000, the Responsible Entity will pay for such costs from its personal assets, and not from the assets of AGM. The Costs of the Restructure for this purpose do not include any unforeseen taxation liability or other costs not otherwise disclosed in this Booklet, which, if such liability arises, will be paid for out of the assets of AGM. See Section 5.1 for details of the impact of the Restructure on the financial position of AQF. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 14

15 3. IMPLEMENTATION OF THE RESTRUCTURE 3.1 SHAREHOLDER APPROVAL In order to implement the Restructure, three interdependent Restructure Resolutions must be passed to give effect to the proposed Restructure of the Company. In short, these resolutions: approve a change to the AQF Constitution to clarify the ability of AQF Shareholders to receive AGM Units approve AQF returning capital to AQF Shareholders through the issue of AGM Units, and approve the disposal of substantially all of the main assets of AQF to AGM. The net result is that, for each Share in AQF that you hold at the Record Date you will receive a Unit in AGM and AGM will implement the new investment strategy and process. 3.2 TRANSFER OF AQF ASSETS TO AGM The first stage of the Restructure is for AQF to transfer substantially all of its assets to AGM. This will be effected by off-market transfers between AQF and AGM that will be undertaken immediately after approval of the Restructure Resolutions and satisfaction of the last of the Conditions. 3.3 DISTRIBUTION DISTRIBUTION PROCESS The second stage of the Restructure is the Distribution and associated transactions. On the Effective Date, being the date the last of the Conditions is satisfied, the following will occur in the following sequence: AQF will apply on behalf of Shareholders for the same number of Units in AGM as there are Shares on issue on the Record Date (Distribution Units). This is to ensure that Units may be distributed on a one for one basis to Shares. The subscription monies will be equal to the Distribution Amount and will be satisfied by the transfer of substantially all of AQF s assets to AGM; AQF will direct AGM to issue the Distribution Units to Eligible Shareholders based on the number of Shares they hold on the Record Date; AGM will redeem the initial 10 Units issued on establishment of AGM for a cash payment of $10.00; the Existing IMA between AQF and the Manager will be terminated; and the New IMA between AGM and the Manager will commence. As a result of this process, Eligible Shareholders will hold an equal number of Shares in AQF and Units in AGM. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 15

16 DISTRIBUTION AMOUNT AND ISSUE PRICE The Distribution contemplates that substantially all of the assets of AQF will be contributed to AGM and then returned to Shareholders in the form of Distribution Units. The Distribution Amount, being the subscription monies or assets contributed to AGM to pay up the Distribution Units will be equal to the net assets of AQF as at the Calculation Time less the costs of the Restructure (Distribution Amount). As the Distribution Amount is based on the net assets of AQF, AQF will also retain sufficient assets to meet its liabilities, including anticipated compliance and winding up costs. The effective issue price for Distribution Units is the Distribution Amount divided by the number of Shares in AQF (Issue Price). This ensures that investors will receive one Unit in AGM for every share they held in AQF on the Record Date. Based on the unaudited pro forma balance sheet set out in Section 5.1: the Distribution Amount would be $43.5 million; and the Issue Price and the pro forma unaudited net tangible asset backing of Distribution Units would be $1.75 per Unit as at March The Issue Price predominately reflects the NAV based on the auditor-reviewed balance sheet as at 31 December 2017 of $1.86 reduced by: the 5 cent cash dividend paid on 29 March 2018; a 5 cent movement predominately relating to a reduction in the value of the investment portfolio over the quarter ended 31 March 2018; and approximately 1 cent relating to professional fees, wind-up costs and ASX fees expected to be incurred in association with the Restructure. For every Share you have in AQF at the Record Date you will receive a Unit in AGM. The Distribution will be a franked dividend to the maximum extent possible, with the remainder being a return of capital. Depending on the individual circumstances of a Shareholder, the Distribution may result in tax being payable or receivable. See Section 6 for further information. Some of AQF s franking credits may not be able to be distributed to Shareholders but these credits are expected to be immaterial in the context of the transaction. Accordingly, Eligible Shareholders will receive the Distribution Units under the Restructure while retaining their holding in AQF Shares which will have nominal value only after the Restructure. 3.4 SUSPENSION AND WINDING UP Following completion of the Restructure, Shareholders will retain their existing Shares in AQF. However, as the net assets of AQF will have been significantly reduced, AQF will not have sufficient assets to maintain its listing on ASX. It is anticipated that trading in Shares will cease on the date 5 Business Days prior to the Record Date (Suspension Date). The Suspension Date is anticipated to be on or around 28 June It is expected that trading in Units on completion of the Restructure will commence on or around 16 July If the Restructure is not completed, trading in Shares would likely recommence promptly following termination of the Restructure. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 16

17 Following completion of the Restructure, the members of the Board, being Jeffrey Whalan, Ian Watt, Josephine Tan and Nerida Cole intend to step down, however they will be appointed to the advisory board of the Trust. The Company intends to appoint Alex MacLachlan, Warwick Keneally and Jaclyn Strelow, executives in the Evans Dixon Group, as Directors of the Company. The Directors intend to apply to ASX for removal of AQF from the official list of ASX following completion of the Restructure. Removal would likely occur in September The Directors then intend to convene a Shareholders meeting to approve resolutions to wind up the Company. Further information in this regard will be provided in that notice of meeting. 3.5 EXIT AND BUYBACK The Restructure will proceed if all Conditions to the Restructure are satisfied or waived and all Eligible Shareholders will participate in the reduction of capital and will receive their pro rata share of Distribution Units. Shareholders who vote against the Restructure Resolutions or who do not wish to receive Distribution Units will still be issued Units. Shareholders who do not wish to receive Distribution Units may do the following: sell their Shares before the Suspension Date; or receive their Distribution Units and sell their Distribution Units. As indicated above, trading in AQF Shares will continue after the Meeting up until the Suspension Date. Trading in Units is expected to commence on or about 16 July Historically AQF has conducted on-market buybacks of Shares. Shareholders approved the on-market buyback of up to 6,221,006 Shares at the annual general meeting of AQF held on 20 November As at 11 May 2018 only 774,961 Shares have been bought back. The Directors expect to continue to buyback Shares on-market up until the Suspension Date. As part of its capital management program, AGM also proposes to implement an on-market buyback of up to 10% of its issued capital following completion of the Restructure. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 17

18 4. AUSTRALIAN GOVERNANCE & ETHICAL INDEX FUND 4.1 INTRODUCTION All information concerning AGM is set out in the PDS accompanying this Booklet. The PDS was issued by the Responsible Entity. AQF and its officers and advisers do not assume any liability for the accuracy and completeness of the information contained in the PDS. The purpose of this Section 4 is to draw the attention of Shareholders to specific sections of the PDS. Shareholders should read the PDS in full. 4.2 AGM INFORMATION INVESTMENT OBJECTIVE AND STRATEGY AGM s investment objective and strategy will be largely the same as AQF, except that the investment strategy will be broadened beyond corporate governance to include social and other ethical factors in portfolio construction. AGM will maintain AQF s objective to achieve long term capital appreciation, while reducing risk and preserving capital, but will now achieve this through investments in securities within the S&P ASX 100 Index that exhibit relatively high levels of corporate governance, and social and environmental performance. AGM will continue to invest in a significant number of the best governed Australian companies, as ranked by the Manager s analysis, in addition to those companies committed to overall corporate social responsibility and sustainable operating practices including minimising environmental harm. AGM will continue AQF s practice to seek to promote adherence to corporate governance best practice and overall corporate social responsibility in its investments by engaging with portfolio companies, directing proxies and participating in shareholder meetings. The Manager will employ a lower cost, index style of investing, with securities screened for exclusion from the investment portfolio based upon detailed company analysis as set out in Sections 2.1 and 2.2 of the PDS. RESPONSIBLE ENTITY The responsible entity of AGM is Walsh & Company Investments Limited (ACN ). The Responsible Entity will be paid a responsible entity fee of 0.08% p.a. of the gross value of the assets of AGM (inclusive of the estimated net effect of GST). AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 18

19 INVESTMENT MANAGER The investment manager of AGM is Walsh & Company Asset Management Pty Limited (ACN ) (Manager). The Manager will be paid a management fee of 0.11% p.a. of the gross value of the assets of AGM (inclusive of the estimated net effect of GST). The initial term of the New IMA is 5 years from the Effective Date. See Section 7.3 for further details. Under the Existing IMA the Manager is entitled to receive a management fee of 0.19% p.a. (inclusive of GST and net of RITC) of the gross asset value of the portfolio payable monthly. No performance fee is payable under the Existing IMA. The current term of the Existing IMA was due to expire in 2020 at which time it would have automatically renewed for an additional 5 year period. See Section 4.2 of the PDS for further information. DISTRIBUTION POLICY The Responsible Entity intends to target a cash distribution of 5% per annum based on the NAV at or around the beginning of the relevant distribution period (Target Distribution), paid semi-annually. The Responsible Entity expects that the Target Distribution will provide Unitholders with greater certainty on the amount of upcoming distributions. However, it is important to note there is no guarantee this target will be achieved. To the extent the Target Distribution is not able to be met from income of AGM, distributions may include a capital component. The Trust has also established a DRP in respect of distributions made by the Trust. The Trust intends to allow investors participating in the DRP to invest up to the Target Distribution at a 2% discount to the NAV in accordance with the DRP. The Responsible Entity may require that any distribution greater than the Target Distribution be reinvested in accordance with the DRP. Unitholders may nevertheless be required to pay tax on any income distribution reinvested. See Sections 2.6 and 7 of the PDS for further information. 4.3 NO OTHER MATERIAL INFORMATION Except as disclosed elsewhere in this Booklet or the PDS, there is no other information that is material to the making of a decision in relation to the Restructure that is within the knowledge of any Director, as at the date of this Booklet, which has not previously been disclosed to Shareholders. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 19

20 5. EFFECT OF THE RESTRUCTURE ON SHAREHOLDERS 5.1 IMPACT ON FINANCIAL POSITION The unaudited summary pro forma statements of financial position set out below represents the auditorreviewed statement of financial position of AQF as at 31 December 2017 released by AQF on 26 February 2018 in summary form, adjusted to take account of post-balance date transactions and implementation of the Restructure. They are intended to be illustrative only and they neither reflect the actual position of AQF as at the date of this Booklet nor on implementation of the Restructure. UNAUDITED SUMMARY PRO FORMA STATEMENTS OF FINANCIAL POSITION The following table should be read in conjunction with the notes below. AUDITOR- REVIEWED 31 DECEMBER 2017 (COMPANY) PRO FORMA BALANCE SHEET POST-RESTRUCTURE $ 000 (UNLESS OTHERWISE STATED) (COMPANY) (TRUST) Cash and cash equivalents 1, Financial assets 49,058-43,000 Other assets Total assets 50, ,565 Tax provisions 3, Other liabilities Total liabilities 4, Net assets 46,216-43,565 Share capital 36,666-43,565 Reserves 9, Retained Profits Total equity 46,216-43,565 No. of shares/units (#) 24,857,283 24,837,349 24,837,349 NAV/share or unit ($/share or unit) Notes: 1 The column headed Auditor-reviewed 31 December 2017 (Company) reflects the financial position of AQF as at 31 December 2017 in summary form as set out in the auditor-reviewed half yearly financial statements of AQF as at that date. 2 The column headed Pro forma balance sheet post-restructure (Company) reflects the column headed Auditor-reviewed 31 December 2017 (Company) adjusted for: AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 20

21 (i) payment of a special cash dividend of $531,000 to holders of Shares (paid on 12 January 2018) and the issue of 111,416 Shares at an issue price of $1.93 per Share under the DRP (totalling $215,000); (ii) payment of a cash dividend of $878,000 to holders of Shares (paid on 29 March 2018) and the issue of 188,364 Shares at an issue price of $1.91 per Share under the DRP (totalling $360,000); (iii) for the quarter ended 31 March 2018, receipt and accrual of $495,000 in investment income and accrual of $22,000 in management fees provided for ongoing investment and administration services; (iv) for the quarter ended 31 March 2018, in relation to investment portfolio transactions undertaken, a net decrease in cash on hand of $21,000, including the buyback and cancellation of 319,714 Units; (v) for the quarter ended 31 March 2018, in respect of the investment portfolio, a net decrease in financial assets of $3,058,000 in relation to market movements, in addition to an estimated decrease of $917,000 in tax provisions; (vi) the realisation of $3,000,000 of investments and payment of tax liabilities including deferred taxes realised on transfer of the investment portfolio to the amount of $2,554,000; (vii) collection of assets and settlement of liabilities existing as at 31 December 2017; (viii) payment of transaction costs and fees associated with the Restructure to the amount of $200,000 in addition to the accrual of wind down, liquidator and run-off insurance costs of $100,000 associated with the settlement of residual net assets of the Company and wind-up of AQF; and (ix) payment to the Trust of a Distribution Amount of $43,565,000 in subscription for 24,837,349 Units at an issue price of $ The column headed Pro forma balance sheet post-restructure (Trust) reflects the pro forma assets of the Trust received from AQF based on the auditor reviewed 31 December 2017 balance sheet of AQF adjusted for Note 2 above. 4 The unaudited summary pro forma statements of financial position have been prepared applying the accounting policies applied in preparing the audited financial statements for the financial year ended 30 June 2017, which are consistent with Australian Accounting Standards. 5 Figures have been rounded to the nearest $100,000. Totals may not sum due to rounding. 6 Sensitivity of net assets to movement in the fair value of the investment portfolio: For every $100,000 increase (decrease) in the fair value of the investment portfolio, it is estimated net assets will increase (decrease) by $70, ISSUE PRICE Based on the Pro forma balance sheet post-restructure (Trust) the Issue Price for the Units in AGM is expected to be $1.75 per Unit, but is subject to market movements. The expected issue price of Units in AGM predominately reflects the NAV based on the auditor-reviewed balance sheet as at 31 December 2017 of $1.86 reduced by: the 5 cent cash dividend paid on 29 March 2018; a 5 cent movement predominately relating to a reduction in the value of the investment portfolio over the quarter ended 31 March 2018; and approximately 1 cent relating to professional fees, wind-up costs and ASX fees expected to be incurred in association with the Restructure. Further information regarding the distribution and issue price is included at Section 3.2 of this Booklet. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 21

22 6. TAX Outlined below is a general summary of the key Australian income tax consequences for Australian resident individuals, trusts, companies and complying superannuation entities who hold their shares in the Company on capital account for Australian income tax purposes (Investors). Investors should be aware that the actual Australian tax implications may differ from those summarised, depending on the individual circumstances of each Investor. For example, complying superannuation funds with pension liabilities may be exempt from income tax on some or all of the income derived but be entitled to a credit/refund of the imputation credits. Similarly, Investors subject to the Taxation of Financial Arrangements regime may be taxable upon different bases, depending upon which elections they have made. In broad terms, if you are a high marginal tax rate payer (e.g. individuals on the top marginal income tax rate) you may be required to pay additional tax on the Dividend Amount. If you are a low marginal rate taxpayer (e.g. complying superannuation funds) you may be entitled to a refund as a result of the imputation credits attached to the Dividend Amount. Investors should seek advice from their own professional taxation adviser regarding the Australian tax consequences of selling or holding the shares in the Company, having regard to their particular circumstances. LIQUIDATION OF THE COMPANY S PORTFOLIO The disposal of the Company s assets should result in tax on the difference between the consideration received and the cost. Broadly, this should result in a crystallisation of the deferred tax liability. The tax paid in the income year should generate franking credits. An amount of franking credits (estimated to be less than 1.5 cents per Share) that would not be able to be utilised under the current AQF structure may not be able to be distributed to Shareholders. DIVIDENDS FROM THE COMPANY Investors who receive dividends paid by the Company should be required to include the dividend and any attached franking credits in their assessable income. Some or all of the dividend may also be designated as a Listed Investment Company capital gain amount. Broadly, individual and trust investors can claim a tax deduction equal to 50% of the eligible capital gain amount and complying superannuation funds a 33.33% deduction. Generally, a tax offset should be available for franking credits. However, Investors will not be entitled to obtain a tax offset for franking credits (and will not be required to include this amount in assessable income) unless the Investor satisfies the holding period rule in respect of their Shares. Generally, the holding period rule requires Investors to hold Shares in the Company at risk for at least 45 days (excluding the dates of acquisition and disposal). However, an Investor should be taken to satisfy the holding period rule if they are an individual, have total franking tax offsets for the relevant income year of $5,000 or less, and satisfy certain other requirements. Investors may wish to seek professional tax advice regarding the application of the qualified person provisions to their particular circumstances. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 22

23 Provided that Investors satisfy the holding period rule and to the extent that the Investor s entitlement to franking credits exceeds their income tax liability for the income year: Investors who are Australian resident individuals and complying superannuation funds should be entitled to receive a cash refund of the excess franking credits; and Investors that are Australian resident companies may be able to convert excess franking credits into tax losses. RETURN OF CAPITAL FROM THE COMPANY The return of capital should result in the reduction of the Investor s capital gains tax cost base of the shares in the Company. If the cost base is lower than the capital return, the cost base is reduced to nil and a capital gain of the excess results. Individual, trust and superannuation shareholders who have held their investments on capital account for more than 12 months should be entitled to a capital gains tax discount. The capital gains tax cost base of Investors in the Units received should be equal to the Distribution satisfied by the issue of Units in AGM. LIQUIDATION OF THE COMPANY The cancellation of the shares in the Company will constitute a disposal for CGT purposes, and may result in a capital gain or capital loss for an Investor. Broadly, Investors with a reduced cost base in the shares at the time of liquidation may be able to claim a capital loss. INCOME TAX STATUS OF AGM AGM should be treated as a flow through entity for Australian income tax purposes. That is, AGM should not be liable to pay income tax on net (i.e. taxable) income for an income year, provided that Unitholders are presently entitled to the distributable income of AGM for the income year. For income tax purposes, AGM may be taxed like a company if it is a public trading trust. Whilst AGM is listed on the ASX it will be a public trading trust if it is a trading trust. However, provided that AGM and the entities that AGM controls (or has the ability to control, either directly or indirectly) do not carry on a trading business, AGM should not be treated as a public trading trust. It is not expected that AGM will be a public trading trust. AGM is a managed investment trust (MIT) for Australian income tax purposes. AGM will make an irrevocable election (the MIT capital election) to apply the capital gains tax (CGT) rules as the primary code for the taxation of gains and losses on the disposal of certain assets (being primarily shares, units and real property). In this regard, capital gains made by AGM from the realisation of investments covered by the MIT capital election that have been held for 12 months or more should qualify for discount CGT treatment. AGM can also make an irrevocable election to be treated as an Attributable Managed Investment Trust (the AMIT election). However, such an election should not result in a materially different outcome to that described below. AUSTRALIAN GOVERNANCE MASTERS INDEX FUND Notice of Meeting 23