Schroder Microcap Fund Professional Class

Transcription

1 Schroders Schroder Microcap Fund Professional Class Product Disclosure Statement Issued: 30 November 2016 Contact details Schroder Investment Management Australia Limited (ABN ) (AFSL No: ) Registered office Level 20, Angel Place 123 Pitt Street Sydney NSW 2000 Schroders unit registry C/o Link Market Services PO Box 3721 Rhodes NSW 2138 Website Client services telephone (+61) General enquiries telephone (+612) Important information This Product Disclosure Statement (PDS) provides information on the Professional Class of the Schroder Microcap Fund ( Fund ) available through platforms or via direct investment on the application form provided in this PDS. You should read this PDS in its entirety before making a decision to invest. This PDS describes the main features of the Schroder Microcap Fund. An investment in the Fund made on the basis of this PDS is an investment in the Fund s units. Under the terms of the Constitution of the Fund, investors in units of the Fund have an interest in all assets of the Fund, which may be used to meet all liabilities arising in respect of the Fund. References to Schroders, our, us or we throughout this PDS are references to Schroder Investment Management Australia Limited ABN in its capacity as the Responsible Entity and product issuer for the Fund. References to Schroders Group are to Schroders plc and its subsidiaries. Neither Schroders, nor any company in the Schroders Group promises that you will earn any return on your investment or that your investment will gain, or retain its value. No Schroders Group company, other than us, makes any statement or representation in this document. The information contained in this PDS is general information only and does not take into account your objectives, financial situation or needs. Before acting on the information contained in this PDS you should consider the appropriateness of the information in this PDS having regard to your objectives, financial situation and needs. Indirect investors, such as those investing through Investor Directed Portfolio Services (IDPS), also known as master funds or wrap accounts, should read the information contained under the heading Investing through an intermediate investment operator in this PDS. The offer of units in the Fund is available to persons receiving a copy, electronic or otherwise, of this PDS within Australia or New Zealand. New Zealand investors should read the section Important additional information for New Zealand investors in this PDS. All references to dollars are in Australian dollars. Capitalised terms in this PDS are defined terms and they are listed in the Glossary section in this PDS or defined elsewhere in the PDS. Days are calendar days unless otherwise specified as Business Days. 1

2 Contents 1. About Schroders 2. At a glance 3. Risks of investing in the Fund 4. What are the significant risks which may apply to the Fund? 5. How Schroders seeks to manage risk 6. How investors can manage investment risk 7. Fund description - Schroder Microcap Fund 8. Additional Fund information 9. Fees and other costs 10. How to invest in the Fund? 11. Cooling-off period 12. How to withdraw from the Fund? 13. Distributions 14. Taxation issues 15. Keeping you informed 16. Our legal relationship with investors 17. Dealing with complaints 18. Investing through an intermediate investment operator 19. Terms and conditions of application and withdrawal 20. Glossary 21. Contacting Schroders Page About Schroders Schroders offers a range of investment products and is part of the Schroders Group which as at 30 September 2016 managed investment assets of approximately A$637 billion worldwide. The Schroders Group is one of the largest and most internationally diverse independent investment managers providing investment management, research and marketing services from offices located in 27 countries. While many financial institutions try to provide all things to their clients, we specialise in just one pure investment management. In Australia, Schroders is a wholly owned subsidiary of Schroders plc, a publicly listed UK company descending from a group that can trace its origins in banking and finance back over 200 years. Financial services has been a core business for Schroders in Australia since 1961 and we now manage A$47 billion as at 30 September 2016 across a broad range of asset classes. In some circumstances, such as a freeze on withdrawals, unitholders may not be able to withdraw their funds within the usual withdrawal periods upon request. Why Schroders? Organisational stability from a strong balance sheet, low levels of debt and majority family and staff ownership Independence and exclusive focus on asset management aligns our interests with our clients Size and experience of investment teams both locally and globally Commitment to in-house research Global perspective Disciplined and robust investment process. 2

3 2. At a glance Fund details Fund name Schroder Microcap Fund ARSN APIR Beneficiary lodgement code 1 SCH0033AU SMC Investment details Fund objective 2 Investment category Management style 3 Distribution frequency Key risks Minimum 4 amounts The objective of the Fund is to outperform the S&P/ASX Small Ordinaries Accumulation Index over the long term by investing predominantly in listed companies with a market capitalisation in excess of AUD10 million but which are outside the top 250 ASX listed companies by market capitalisation and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation. Equities Active Normally annually. Calculated on the last day of June. Market risk, equities risk, company risk, international investments risk, currency risk, derivatives risk, liquidity risk, counterparty risk, regulatory and legal risk, administration risk, fund risk Further information is outlined in the Fund description section of this PDS for further details. Further information is outlined in the Risks of investing in the Fund section of this PDS for explanation of these risks. Initial investment $500,000 Further information is Additional investment $50,000 outlined in the section How to invest in the Withdrawal amount $50,000 Fund? and How to withdraw from the Minimum balance $500,000 Fund? in this PDS. Fees and other costs Fees when your money moves in or out of the Fund Management costs 5 Buy/sell spread 6 Nil A management fee of 1.10% p.a. plus a performance fee of 20.5% p.a. of outperformance above the S&P/ASX Small Ordinaries Accumulation Index. Fees are calculated based on the Net Asset Value (NAV) of the Fund. Indirect costs of 0% of the NAV of the Fund. 1.00% on application and 1.00% on redemption. Further information is outlined in the section Fees and other costs in this PDS. 3

4 Reporting and contact details Reporting Confirmation of application/withdrawal, periodic transaction statements, distribution summary, annual tax statement, fund and financial reports. Further information is outlined in the section Contacting Schroders in this PDS. Application and redemptions Contact details Mail: Fax: Website: Telephone: Attention: Schroders Unit Registry C/o Link Market Services PO Box 3721 Rhodes NSW 2138 (+612) Level 20, 123 Pitt Street Sydney NSW 2000 Australia Client Services (9am-5pm EST): (+61) (+612) (from outside Australia) 1. The beneficiary lodgement code should be referenced on any cheque accompanying an application to invest. 2. Further information on the investment objective, strategy and benefits of the Fund are outlined in the Fund description section of this PDS. 3. Active: This means that the investment manager of the Fund regularly makes decisions about buying & selling investments of the Fund. 4. Additional investment minimum: Schroders has the discretion to waive this minimum. 5. Management costs: This represents the management fee (which covers ordinary expenses since these are paid out of the management fee, performance fee and indirect costs. Fees charged by Schroders are inclusive of GST less any RITC entitlement, where applicable. Schroders may charge abnormal expense recoveries in addition to the management costs, which covers abnormal expenses such as the cost of unitholder meetings. See Fees and other costs section of this PDS for further details. Schroders may rebate or reduce the management fee at its discretion where permitted by law. 6. This is the buy/sell spread as at 30 November See the Fees and other costs section of this PDS for further details in relation to the transactional and operational costs covered by the buy/sell spread as well as other transactional costs associated with day-today trading. Also, visit for details of the buy/sell spread currently applicable to this Fund. 4

5 3. Risks of investing in the Fund It is important to understand the risks associated with investing in the Fund. The nature of investment markets is such that the return on investment markets, as well as individual investments, can vary significantly and future returns are unpredictable. In the event that any of the risks including those described on the following pages eventuate then they may impact upon the value of the Fund s assets and hence unit prices and the extent to which the Fund is able to make distributions. Different types of investments perform differently at different times and have different risk characteristics and volatility. The risks and therefore return on investments will be influenced by factors, including many outside the control of Schroders, such as domestic and international markets, economic conditions, political climates, interest rates and inflation. 4. What are the significant risks which may apply to the Fund? The significant risks that may affect the performance or value of your investment in the Fund include, but are not limited to: Market risk Market risk is the possibility that the market has negative returns over short or even extended periods. Different asset classes are exposed to different levels of market risk for instance, cash investments have the lowest market risk whereas equities generally have higher market risks. The returns of individual securities in any asset sector would normally be determined by a combination of the market return and returns specific to each security. Where the Fund invests in more than one asset class the level of market risk can vary from time to time subject to the allocation to each asset class at a particular point in time. Market risk also relates to the risk that the value of investments can be directly or indirectly affected by changes in legislation, economic policy, political events, technology change and changes in global economic conditions (e.g. growth and inflation). Equities risk Over the longer term, equities have generally outperformed other asset classes, however returns can be volatile. Equity performance will generally be based on, amongst other things, the underlying strength of the cash flows, balance sheet and management of a company. Also affecting the performance of equity markets are changes in global economic conditions (e.g. growth and inflation), interest rates and bond yields. Company risk An investment such as a share or corporate bond in any company is exposed to changes within that company, or to its business environment. These events include changes to operations and/or management, changes to product distribution, legal action against the company or profit and loss announcements. These changes may affect the value of the Fund s investments (and thus the value of the Fund). In addition, there is a risk that if the company becomes insolvent, the Fund s right of recovery against the assets of the company may rank lower than the secured creditors of the company. Many microcap companies have less diversity in either operating business lines or geography of operation and as such can be subject to an increased level of financial performance volatility. Combined with the potentially lower liquidity, this can result in more volatile share prices than larger capitalisation stocks. International investments risk International investments will give exposure to potentially additional risks that are not typically associated with investments in Australia. International investments risk includes but is not limited to political and economic uncertainties, regulatory and legal risk, currency risk, interest rate risk and liquidity risk. Currency risk Units in the Fund are denominated in Australian Dollars. However, investments of the Fund may be denominated in other currencies. Movements in the exchange rate between the Australian Dollar and other currencies may cause the value of these investments to fluctuate when expressed in Australian Dollars. Derivatives risk Derivatives are contracts between two parties that usually derive their value from the price of an underlying physical asset or market index. They can be used to manage certain risks, however they can create exposure to additional risks. These risks include the possibility that the derivative position is difficult or costly to reverse; that the value of the derivative does not move in line with the underlying physical position; or that the parties do not perform their obligations under the contract. Liquidity Risk Liquidity risk relates to the probability of loss arising from the difficulty of selling an investment due to insufficient buyers or sellers in the open market or other prevailing market conditions. The level of liquidity can fluctuate especially for smaller company shares, microcap stocks and corporate debt. At times of lower liquidity the securities may trade at a discount to fair value, reducing the net asset value of the Fund if securities in the Fund need to be sold to fund withdrawals. 5

6 Counterparty risk The Fund may conduct transactions through or with brokers, clearing houses, market counterparties and other agents. There is a risk that these counterparties fail to meet their contractual obligations resulting in loss of capital to the Fund. Regulatory and legal risk Governments or regulators may pass laws, create policy, or implement regulation that affects the Fund or its underlying investments or the manager s ability to execute its investment strategies. Such initiatives may impact either a specific transaction type or market and may be either country specific or global and may include the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital. Such changes may result in the Fund failing to achieve its investment objectives. Administration risk Investors transacting through an administration platform carry the risk that the operator of the administration platform may not perform its obligations properly. In the case of administration platforms which facilitate straight through processing and settlement, systems could fail and errors, anomalies or irregularities may arise. Fund risk The following risks are inherent in any managed fund: the investment team may change, which may affect the Fund s future performance; investing in the Fund may result in a different outcome to investing directly because of the application of tax laws to the Fund, income or capital gains accrued in the Fund, the deduction of management costs and the impact of investments into and withdrawals out of the Fund by other investors; investments into and withdrawals out of the Fund by other investors may also impact the taxable income distributed to an investor during a financial year as those cash flows trigger asset purchases and sales; the costs of your investment may increase through an increase in fees and costs. We will provide at least 30 days prior written notice of any changes to our fees (see Changing the fees section of the PDS); the Fund may be terminated; and investing in the Fund with a relatively smaller number of investments may lead to more volatile returns than investing in a fund with a more diversified portfolio. As stated above, as a result of these risks, the value of an investment in the Fund and the level of distributions may change. 5. How Schroders seeks to manage risks Schroders will seek to minimise risk through diversification of the Fund s assets and may undertake currency strategies such as hedging exposure against various currencies to limit the impact of exchange rate movements. Derivatives may also be used for purposes such as hedging and for the more efficient and cost effective implementation of investment strategies. Where derivatives are used, Schroders will ensure that, at all times, there are sufficient liquid funds to discharge its liabilities in relation to these investments. Further information about derivatives and how Schroders uses derivatives can be found in the current Schroders Derivative Risk Statement, which can be provided at your request or obtained from the Schroders website 6. How investors can manage investment risk Investors should consider their investment objectives, timeframe and risk tolerance before investing in the Fund. We recommend that investors obtain appropriate professional advice with regard to their individual circumstances prior to investing in the Fund. 7. Fund description - Schroder Microcap Fund Overview The Fund provides exposure to a range of quality microcap stocks listed in Australia/New Zealand. Leveraging off the same investment process, team size and experience of the Schroder Australian Equity Team, the strategy invests in a broad range of microcap companies specifically seeking out undervalued companies with the potential to offer superior and visible growth. The objective of the Fund is to outperform the S&P/ASX Small Ordinaries Accumulation Index over the long term by investing predominantly in listed companies with a market capitalisation in excess of AUD10 million that are outside the top 250 ASX listed companies and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation. Microcap companies can provide potentially superior investment returns over the long term providing an excellent complement to mainstream, larger-company investments. Stock selection is at the core of the investment process, based on intensive in-house company analysis undertaken by Schroders highly experienced Australian Investment team. 6

7 Key features Focus on quality stocks - Companies with a sustainable competitive advantage are typically rewarded with superior returns in the long term. Team structure and experience Schroders has extensive experience investing in small and microcap companies and is well resourced with 10 investment professionals having an average of 17 years experience. Analyst research is organised along sectoral lines with each analyst covering stocks through the capitalisation spectrum.* Potential for higher growth - Microcap companies often have higher prospects for growth relative to large companies, either due to the fact they are in the early stages of development or because they provide new services or technologies. Active management - Microcap companies can be under-researched, making it possible to obtain an information advantage through in-depth, fundamentally driven research. * as at 30 September Risks Please refer to the section titled Risks of investing in the Fund of this PDS for details. Investment process The core of Schroders investment philosophy is that corporate value creation, or the ability to generate returns on capital higher than the cost of capital, leads to sustainable share price outperformance in the long term. The ability to generate superior returns is a function of industry dynamics and company competitive advantage. The investment process is a combination of qualitative industry and company competitive position analysis and quantitative financial forecasts and valuations as follows: 1. Stock filtering and coverage Our research universe is comprised predominantly of listed companies outside the top 250 ASX listed companies by market capitalisation, but above AUD10 million, and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation. Securities of unlisted companies which are intending to become listed on the above markets are also included in the investment universe. 2. Financial modelling Companies are subject to detailed financial modelling using a standardised proprietary company financial model. The model consists of a detailed profit & loss statement, cash flow statement, balance sheet and forecast assumptions. Analysts also have the flexibility to add additional information they believe pertinent to any company. External meetings form an important part of the company assessment. 3. Industry and business quality assessment An assessment of current and future key industry drivers, the level of industry returns and company specific reasons for relative success within an industry is quantified into financial forecasts of sustainable margins and returns. 4. Detailed company valuation Companies within the investment universe are subject to the same sum of the parts and/or discounted cash flow valuation methodology where financial statements are forecast forward three years to reach a mid-cycle or sustainable level of earnings, margins and returns. This determination of the mid-cycle or sustainable level is a function of the industry and business quality assessment. 5. Business and financial risk assessment We assess the sensitivity of a company s cash flow to key macro factors such as interest rates together with the impact of financial leverage and capture this information in our database. We believe that these factors are a key risk consideration when constructing a portfolio as opposed to only looking at returns based volatility measures (i.e. tracking error). 6. Portfolio construction Portfolio construction aims to maximise expected returns, whilst maintaining diversification and skewing the portfolio to high quality companies. Analysts take an active role in the consideration of portfolio inclusions, exclusions and relative weights with final positions the responsibility of the Portfolio Construction Committee. Details about the latest performance and asset allocation for this Fund will be made available on 8. Additional Fund information Environmental, social and ethical factors and labour standards considerations Schroders uses an investment approach that considers each investment based on its individual merits. Schroders does not have a predetermined view about labour standards or environmental, social and ethical considerations in relation to investment decision making. Schroders may however take into account these considerations if Schroders becomes aware of them, but only to the extent that they financially affect the investments. The primary focus of Schroders in relation to investments is on economic and financial outcomes. From time to time, Schroders may exclude certain securities from the Fund s investment portfolio having regard to certain matters including regulatory considerations and the risks these matters pose for unitholders. A list of excluded securities can be viewed at 7

8 Custodian Schroders has appointed JPMorgan Chase Bank N.A. (Sydney Branch) (JPMorgan) to hold each Fund s assets. We will pay JPMorgan a fee for acting as the Fund s custodian. This fee is not an additional fee to you and is included in the management costs described in the PDS. In its role as custodian, JPMorgan as the global custodian safekeeps assets of the Fund. The role of the custodian is limited to holding assets of the Fund and it has no supervisory role in relation to the operation of the Fund. The custodian does not make investment decisions in respect of the assets held or manage those assets, and has no liability or responsibility to investors in the Fund. Additionally, the custodian is a paid service provider and is not responsible for the preparation of this document and therefore accepts no responsibility for any information in this document. The custodian may be changed from time to time and we may change the custodian where we are satisfied that the proposed new custodian meets applicable regulatory requirements. You will not be notified of a change in custodian. Related party transactions Schroder Investment Management Australia Limited is a wholly owned subsidiary of Schroders plc and part of the Schroders Group. For these purposes, a related party includes certain entities and individuals that have a close relationship with Schroders, including, but not limited to Schroders plc itself, other subsidiaries of Schroders plc and other funds operated or managed by members of the Schroders Group. We may from time to time use the services of related parties (including, but not limited to, investment management and administration) and pay commercial rates for these services. We may also enter into financial or other transactions with related parties in relation to the assets of the Fund and such arrangements will be based on arm s length commercial terms or as otherwise permissible under the law. In the course of managing the Fund we may come across conflicts in relation to our duties to the Fund, related funds and our own interests. We have internal policies and procedures in place to manage all conflict of interest appropriately. These policies and procedures will be reviewed on a regular basis and may change from time to time. In addition to complying with these policies and procedures, all conflicts will be resolved in a fair and reasonable manner, in accordance with the relevant law and ASIC requirements. 9. Fees and other costs Did you know? Small differences in both investment performance and fees and costs can have a substantial impact on your long-term returns. For example, total annual fees and costs of 2% of your account balance rather than 1% could reduce your final return by up to 20% over a 30 year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs. You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the Fund or your financial adviser. To find out more If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website ( has a managed funds fee calculator to help you check out different fee options. This document shows fees and other costs that you may be charged. These fees and costs may be deducted from your money, from the returns on your investment or from Fund assets as a whole. Tax details are set out in the Taxation issues section of this PDS. You should read all the information about fees and costs, because it is important to understand their impact on your investment. 8

9 Schroder Microcap Fund Type of fee or cost 123 Amount How and when paid Fees when your money moves in or out of the Fund Establishment fee The fee to open your investment Contribution fee The fee on each amount contributed to your investment Withdrawal fee The fee on each amount you take out of your investment Exit fee The fee to close your investment Nil Nil Nil Nil Not applicable Not applicable Not applicable Not applicable Management costs - The fees and costs for managing your investment Management fee Performance fee Indirect costs Service fees Investment switching fee The fee for changing investment options A management fee to Schroders of 1.10% of the NAV per annum. Normal expense recoveries are paid for by Schroders out of its management fee. For more information on the management fee, see Management costs in the Additional explanation of fees and costs section of this PDS. 20.5% of net outperformance per annum in excess of the S&P/ASX Small Ordinaries Accumulation Index. Indirect costs of 0% of the Net Asset Value (NAV) of the Fund. Nil The management fee is accrued daily and is generally deducted within 10 Business Days of month end. The management fee is deducted from the NAV of the Fund as a whole before unit prices are determined. The management fee may be negotiated. See Management costs in the Additional explanation of fees and costs section of this PDS for further details. The performance fee is accrued daily and paid annually from the NAV of the Fund. See Performance fee in the Additional explanation of fees and costs section of this PDS for further details. The indirect costs are calculated and incorporate estimated amounts with reference to the relevant costs incurred during financial year ending 30 June See Indirect costs in the Additional explanation of fees and costs section of this PDS for further details. Not applicable 1. For certain wholesale clients (as defined in the Corporations Act), Schroders may, at its discretion and in accordance with ASIC Policy and the Corporations Act, negotiate, rebate or waive all or part of Schroders fees. Please refer to the Additional explanation of fees and costs section of this PDS for further details. 2. Unless otherwise stated, all fees and costs are quoted inclusive of any GST and net of any input tax credits (ITCs) or reduced input tax credits (RITCs) that are expected to be available to the Fund. Where RITCs are available, the prescribed rate is currently 55% or 75%, depending on the nature of the fee or cost incurred. 3. Adviser fees may also apply. See below for more details. Please refer to the Additional explanation of fees and costs section of this PDS for further details. 9

10 Additional explanation of fees and costs Example of annual fees and costs for the Fund This table gives an example of how the fees and costs for the Schroder Microcap Fund can affect your investment over a 1-year period. You should use this table to compare this product with other managed investment products. Example Balance of $500,000 with a contribution of $50,000 during the year Contribution fees Nil For every additional $50,000 you put in, you will be charged $0 PLUS Management costs comprising: Management fee Performance fee 2 Indirect costs EQUALS Cost of Fund 2.20% 1 p.a 1.10% p.a. 1.10% 3 p.a. 0% And, for every $500,000 you have in the Fund you will be charged $11,000 each year comprising: $5,500 $5,500 $Nil If you had an investment of $500,000 at the beginning of the year and you put in an additional $50,000 during that year, you would be charged fees of $11, What it costs you will depend on the fees you negotiate. 1. Assuming a performance fee of 1.10% is payable in accordance with the assumptions in notes 2 and 3 below. Where no performance fee is payable the total management costs are 1.10%. 2. Where performance fees are applicable, it is not possible to reliably estimate the actual performance fee payable in any given period, as we cannot accurately forecast what the performance of the Fund will be. 3. For illustrative purposes Schroders has assumed 5.5% outperformance above the Index i.e. a performance fee of 20.5% on 5.5%. Please note that the performance fee shown is an example only and the actual level of outperformance can be higher or lower. Accordingly, the actual management costs may also be higher or lower. 4. Additional fees may apply. This amount excludes fees for an additional contribution of $50,000 during the year. Please note that the minimum initial investment for the Fund is $500,000, and the minimum additional investment is $50,000. This example does not take into account the buy/sell spread nor any abnormal expense recoveries. We have assumed a constant value of $500,000 throughout the year. Taxation Tax details are set out in the Taxation issues section of this PDS. GST All fees and costs outlined in this PDS are inclusive of GST less any RITC entitlement where applicable. More detailed information about fees and costs The investment returns of the Fund will be impacted by the fees and expenses incurred. The formula below broadly outlines the management costs associated with your investment in the Fund. Further information on how management costs and transactional costs are calculated is set out below in this section. 10 Management costs = management fee (includes normal expenses) + performance fee (if applicable) + indirect costs (excludes transaction costs) + abnormal costs (if incurred) Management costs Management costs comprise the fees or costs that you incur by investing in the Fund including indirect costs. The management fee is the fee for Schroders services as Responsible Entity in overseeing the operations of the Fund and/or for providing access to the Fund s underlying investments. This revenue comprises a management fee and performance fee and may also include reimbursement for ordinary expenses while acting as the Responsible Entity of the Fund (such as fund accounting, unit registry, audit costs, postage and preparation of tax returns, etc) which it is entitled to recover. Management costs also comprise an indirect cost component, and are the additional fees or costs that you incur by investing in the Fund. Indirect costs are generally payable from the Fund s assets, rather than directly by you. Indirect costs do not include transaction costs. Management fee Schroders is entitled to a management fee of 1.10% p.a. on the NAV of the Fund (inclusive of GST less any RITC entitlement). Schroders may rebate all or part of the management fee to wholesale clients as defined in the Corporations Act on an individually negotiated basis. Schroders can be contacted at the address specified in the Contacting Schroders section of the PDS for further details.

11 While Schroders is entitled to separately recover expenses from the assets of the Fund, Schroders has decided to pay normal expenses out of its management fee entitlement and will only be reimbursed out of the assets of a Fund where such expenses are abnormal expenses. Other fees and costs may apply to the Fund. Unless otherwise agreed, Schroders may change the amount of any fees in this PDS (including increasing fees up to the maximum set out in the Constitution) without your consent. Management fees disclosed in this PDS will not be changed without providing at least 30 days advance notice to you. Expense recoveries Schroders may incur certain expenses whilst acting as the Responsible Entity of the Fund, such as fund accounting, unit registry, audit costs, postage and preparation of tax returns etc, which it is entitled to recover. Provided that the expenses are properly incurred, there is no limit on the amount of these expenses that may be recovered by Schroders from the assets of the Fund. Subject to the items outlined below under Transaction costs while Schroders is entitled to separately recover administration expenses from the assets of the Fund. Schroders has decided to pay any normal expenses incurred in the administration of the Fund out of its management fee entitlement and will only be reimbursed out of the assets of the Fund where such expenses are abnormal expenses. Abnormal expense recoveries Schroders may recover abnormal expenses (such as costs of unitholder meetings, changes to constitutions, and defending or pursuing legal proceedings) from the Fund. Abnormal expenses are not generally incurred during the day-to-day operation of the Fund and are not necessarily incurred in any given year. The management costs set out in the table on the previous page do not include any abnormal expenses. Schroders may, in its sole discretion, decide not to recover these abnormal expenses from the Fund. Performance fee Under the Constitution, Schroders is entitled to recover performance fees from the Fund. The performance fee is reflected in the daily unit price and paid annually each 30 June (Payment Date) at a rate of 20.5% (inclusive of GST less any RITC entitlement) of the net outperformance above the performance benchmark, the S&P/ASX Small Ordinaries Accumulation Index ( Index ). As part of the daily fee accrual, sometimes the daily calculation of the performance fee will result in a negative dollar amount (negative performance fee). This negative performance fee will be offset against any accrued positive performance fees. However, Schroders will not have to reimburse the Fund for negative performance fees and if the total accrued performance fee for a performance fee period is negative, the negative is carried over into the next performance fee period. Furthermore, any cumulative accrued negative performance fee will be reduced pro-rata with the percentage of any net outflow. Full details of how the fee is calculated is set out in the Constitution. For periods of high outperformance, the performance fee may be substantial. We recommend you discuss this with your financial advisor to understand the impact of the performance fee. We set out below some examples of when a performance fee 1 may be payable for the Fund. Example of performance fee The Fund has not outperformed the Index since the last Payment Date. The Fund outperformed the Index after management fees since the last Payment Date, but is insufficient to offset prior periods of negative performance fees. After allowing for any prior periods of negative performance fees, the Fund outperformed the Index by 3% 2 after management fees since the last Payment Date. Balance of $500,000 No performance fee is payable No performance fee is payable 20.5% x 3% x $500,000 = $3, Where performance fees are applicable, it is not possible to reliably estimate the actual performance fee payable in any given period as we cannot accurately forecast what the performance of the Fund will be. 2. For illustrative purposes Schroders has assumed 3% outperformance. The performance fee example is provided for illustrative purposes only and does not represent any actual or prospective performance of the Fund. We do not provide any assurance that the Fund will achieve the performance used in the example and you should not rely on this in determining whether to invest in the Fund. Indirect costs Indirect costs include any amount, not already disclosed as a fee or cost, which reduces (directly or indirectly) the performance return of a product. The management cost figure disclosed in the table of fees and costs of this PDS details the indirect costs incurred in connection with managing the underlying investment assets of the Fund based on the information for the financial year ended 30 June These indirect costs are reflected in the unit price of your investment in the Fund and include any underlying (indirect) management costs, underlying (indirect) performance-related fees and other indirect costs. The indirect costs may vary from year to year, including to the extent that they rely on estimates. Indirect costs include (where applicable) Indirect management costs (any underlying funds): Managers in underlying funds will typically charge management fees and these fees are deducted from the underlying funds and the impact is included as 11

12 part of their unit price. Schroders will typically offset the management fees of investments in Schroders own managed funds to ensure that they are not an additional cost to you. Indirect performance-related fees (any underlying funds): Managers in underlying funds, or who we appoint to manage a portfolio of assets within the Fund, may also receive performance-related fees and if they apply they will reduce the unit price of the underlying fund. These indirect performance-related fees will be an indirect cost to you. Other indirect costs: In managing the assets of the Fund, Schroders may engage in trading activity in certain types of derivative financial products which are either not traded or listed on a recognised exchange and/or not used for hedging purposes but rather to gain or reduce market exposure (e.g. derivatives such as forwards, over-the-counter (OTC) options and swap arrangements). Engaging in trade activity of these types of products may give rise to other indirect costs. The Fund s indirect costs are based on the financial year ending 30 June 2016, however actual indirect costs for future years may differ. Details of any future changes to indirect costs will be provided on Schroders website at where they are not otherwise required to be disclosed to investors under law. Transaction costs In managing the assets of the Fund, the Fund may incur transaction costs such as brokerage, settlement costs, clearing costs and applicable stamp duty when assets are bought and sold. The costs of trading in any OTC derivatives may also give rise to transaction costs. Transaction costs generally arise when the assets of the Fund are changed in connection with day-to-day trading or when there are applications or redemptions which cause net cash flows into or out of the Fund. Buy/sell spreads Transactional costs which arise as a result of applications and redemptions will be recovered from the applicants and redeeming unitholders in the form of buy spread and a sell spread. The buy/sell spread is an additional cost to you. The buy/ sell spread is expressed as a percentage of the Fund s unit price. Transaction costs such as bank charges, custody transaction and processing costs (for example, fees for filing tax reclaims) which cannot be reasonably incorporated into the buy/sell spread will be paid out of the assets of the Fund and are disclosed as part of Other transaction costs. The buy spread for the Fund is currently 1.0% on application and the sell spread of the Fund is currently 1.0% on redemption. The dollar value of these costs based on an application or a withdrawal of $50,000 is $500 for each individual transaction. The buy/sell spread is additional to the costs you incur as detailed in the Fees and other costs table in this PDS. The buy/sell spread is not subject to GST. No part of the buy/sell spread is paid to Schroders - the amount is retained in the assets of the Fund to protect ongoing investors from the transaction activity driven by applications and withdrawals. The size of the buy/sell spread may, subject to law, be varied from time to time without notice, to ensure that non-transacting investors are not adversely impacted by applications or withdrawals made by other investors. For example, a different amount or estimate may apply when brokerage costs or the difference between the bid and offer prices for assets change. In stressed and dislocated market conditions, the buy/ sell spread may increase significantly. To obtain an indication of the current buy/sell spreads that may apply to an application or withdrawal from the Fund, please visit In addition we may at our discretion adjust the buy/ sell spread in certain situations such as when there is a simultaneous purchase and sale of units of equivalent value by different investors; or an investor subscribes assets (rather than cash) on an application or receives assets (rather than cash) on a withdrawal. Reinvested distributions do not incur the buy/sell spread. Other transaction costs Transactional costs which are incurred other than in connection with applications and redemptions arise through the day-to-day trading of the Fund s assets and are reflected in the Fund s unit price. As these costs are factored into the asset value of the Fund s assets and reflected in the unit price, they are an additional implicit cost to you and are not a fee paid to Schroders as the responsible entity. These costs can arise as a result of bid-offer spreads being applied by trading counterparties to securities traded by the Fund. As a percentage of the average fund size, the total estimated transaction costs for the Fund for the financial year ending 30 June 2016 were as follows: Total transaction costs of 0.57% Minus: Buy/sell spread recovery of -0.12% EQUALS: Other transaction costs of 0.45% The dollar value of these costs over a 1 year period based on an average account balance of $500,000 is $2,250. However, such costs for future years may differ. Details of any future changes to such costs will be provided on Schroders website at where they are not otherwise required to be disclosed to investors under law. 12

13 Additional payments made by Schroders Schroders may, subject to law and ASIC s Regulatory Guide 246: Conflicted Remuneration make Product Access Payments (flat dollar amounts) to IDPS operators who distribute our Funds on their investment menu. These payments may help to cover costs incurred in establishing and maintaining our Funds on those menus, and certain other marketing and distribution costs. If these types of payments are made, they are paid directly by Schroders and do not impact the Fund. Schroders will negotiate the amount of the Product Access Payment with each IDPS operator. Subject to law, Schroders may also make Fund Manager Payments (rebates) to IDPS operators, dealer groups and financial advisers for their marketing support. We may also provide other types of non-monetary benefits such as technical support and sponsorship of professional development days. If these types of payments are made, they are paid directly by Schroders and do not impact the Fund, nor are they a further amount you pay. As a member of the Financial Services Council, we are required to maintain a register in compliance with the Industry Code of Practice on Alternative Forms of Remuneration summarising alternative forms of remuneration that are paid or provided to financial advisers. If you would like to review this register, please contact Client Services on (+61) Other fees and charges On investing in the Fund, any costs associated with an in specie transfer will be paid by the investor. Where a withdrawal is satisfied by an in specie transfer, the investor will bear all costs, including any applicable stamp duty, payable as a result of the transfer. Schroders reserves the right to accept in specie transfers for applications in its absolute discretion or in satisfaction of withdrawals if agreed to by Schroders and a unitholder. Additional fees may be paid to a financial adviser if you have consulted a financial adviser. You should refer to the Statement of Advice provided by your financial adviser in which details of the fees are set out. Indirect investors accessing the Fund through an IDPS may incur additional fees and costs. As well as reading this PDS, indirect investors should read their IDPS operator s offer document, which explains the fees payable by the indirect investor to the IDPS operator. Changing the fees Schroders may change the amount of any management fees in this PDS (including increase fees up to the maximum set out in the Constitution) without your consent on 30 days advance notice to you. In accordance with the Constitution and subject to law, Schroders may vary the amount of abnormal expense recoveries and the buy/sell spread at any time without your consent or notice. Schroders may introduce and increase fees at its discretion, including where increased charges are due to Government changes to legislation, increased costs, significant changes to economic conditions and/or the imposition of increased processing charges by third parties. However, Schroders cannot charge more than the maximum fees permitted under the Constitution as set out below (otherwise we would need unitholders approval to increase the fee maximums in the Constitution). Management fees The maximum management fee for the Fund is 3.08% (inclusive of GST on an RITC basis) per annum. All management fees are calculated on the NAV of the Fund (inclusive of GST and less any RITC entitlement) except where indicated otherwise. Establishment fee The Fund has a maximum establishment fee of 5.00% of the application money for units or the market value of the property or any amount as agreed between the applicant and their adviser and notified to Schroders. This fee is not subject to GST. Withdrawal fee The Fund has a maximum withdrawal fee of up to 5.00% of the withdrawal price or such other amount as agreed between Schroders and the relevant unitholder. This fee is not subject to GST. Performance fee The Fund has a maximum performance fee of 33.83% (inclusive of GST on an RITC basis) of the out-performance of the Fund. Expense recovery fee There is no limit under the Constitution for expenses incurred in relation to the proper performance of Schroders duties. 10. How to invest in the Fund? You can make an investment into the Fund by completing the relevant application forms and sending it in accordance with the instructions contained in the form. Application forms can be found in the Invest with Schroders section of the Schroders website Initial investment The minimum initial investment is $500,000. An initial application for units must be made on the application form attached to this PDS. Initial applications must also provide supporting identification documents as part of the requirements of the Anti-Money Laundering and Counter-Terrorism Financing regime. These identification 13

14 and verification requirements are outlined in the customer identification forms. Initial applications received by facsimile will not be accepted without prior agreement by Schroders. All initial applications will only be accepted if Schroders is satisfied with all details disclosed in the application form and associated client identification documents have been received. Application requests will generally need to be funded in cash. Schroders may from time to time accept application requests by transfer of investments in-kind or by a switch of units into the Fund. If agreed to by Schroders and a unitholder, investments that relate to in specie transfers will be valued on the date units are created. All costs including any applicable stamp duty and other taxes, incurred as a result of the transfer, will be payable by the unitholder. Advance notice is required for all transactions the subject of in specie transfers. Additional investments The minimum additional investment is $50,000. Unitholders may make additional investments by forwarding payment in accordance with the Payment options (refer below), together with written notification to Schroders. You should be aware that any additional investments will be deemed to have been made on the terms of the then current PDS. Application cut-off times The cut-off time for Schroders is normally 3pm Sydney time on a Business Day. Where application instructions are received by the cut-off time on a Business Day and accepted by Schroders, units will normally be allocated at the unit price calculated for that Business Day. Where an application instruction is received after the cutoff time on a Business Day, the instruction will be treated as being received on the following Business Day, unless otherwise determined by Schroders at its discretion. The 3pm Sydney time cut-off may be changed by Schroders at its discretion without notice. Typically an earlier cut-off time will be adopted on days when financial markets have shortened trading hours. Investment of application monies Schroders may invest the application monies (Investment) accompanying an application for units (Application Amount) immediately upon receipt and acceptance of the application, even though the payment for the units is not cleared (Investment). If Schroders has invested the Application Amount and cleared funds are not received by Schroders within such period from receipt of the application as Schroders determines, then: any units that have been allocated to the applicant will be voided and treated as though they were never issued; and Schroders may take such steps as it considers necessary or desirable to unwind the Investment; and the investor will be liable to Schroders on behalf of the Fund for all liability, loss, costs, charges and expenses arising from, or incurred by the Fund, as a result of: Schroders making and unwinding the Investment; and Schroders not receiving the cleared funds from the investor on the date that Schroders made the Investment. Payment options There are two options for payment as set out below. Please note that direct debit is not facilitated by Schroders as a payment option. In the case of applications for amounts in excess of $5 million, application funds should be made by direct deposit via Real Time Gross Settlement (RTGS) and released to Schroders before 12pm on the day of application to avoid any delays in processing the application. Any other payment method for such large applications may delay processing of the application. Please quote the beneficiary lodgement code SMC on all payment methods. Please take care to quote the correct beneficiary lodgement code. 1. Cheque payments Please make cheques payable to: Schroder Applications Trust Account No.1 and cross Not Negotiable. Schroders will only accept cheques drawn from an Australian Authorised Deposit-taking Institution (ADI). Schroders will accept and process cheques received as cleared funds if received by 3pm Sydney time on a Dealing Day. 2. Direct deposit Deposit application money directly into the following account: Name of bank: JPMorgan Chase Bank N.A. Branch: Sydney Australia Bank account name: Schroder Applications Trust Account No.1 SWIFT: CHASAU2X BSB: Account number: Where funds are electronically transferred or deposited directly to the bank account, details of the deposit should accompany the application form. Schroders will accept notice of electronic transfer of funds as if deposited and cleared. Physical cash will not be accepted at any time. 14