Winton Global Alpha Fund

Transcription

1 Macquarie Professional Series Winton Global Alpha Fund Product Disclosure Statement ARSN Macquarie Professional Series Preparation Date: 5 December 2008 Issued by: Macquarie Investment Management Limited ABN , AFSL

2 Product Disclosure Statement Date prepared: 5 December 2008 Issued by: Macquarie Investment Management Limited ABN Australian Financial Services ( AFSL ) Licence No This is a Product Disclosure Statement (PDS) for the Winton Global Alpha Fund ARSN (referred to in this PDS as the fund ) APIR code MAQ0482AU. Investments in the Winton Global Alpha Fund (referred to in this PDS as the fund ) are offered by Macquarie Investment Management Limited ABN AFSL No (referred to in this PDS as Macquarie, the Responsible Entity, we, our, us ). Investments in the fund are not deposits with or other liabilities of MIML, Macquarie Bank Limited ABN or of any Macquarie Group company and are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Neither Macquarie Bank Limited, MIML nor any other member company of the Macquarie Group guarantees the performance of the fund or the repayment of capital from the fund or any particular rate of return. Winton Capital Management Limited ( Winton, the Investment Manager ) is the trading adviser to the fund and its only role in relation to the fund is as trading adviser. Winton has given its written consent to the statements about it appearing in the form and context in which they appear in this PDS (in both paper and electronic form), and has not withdrawn that consent before the date of this PDS. However, Winton has not caused or authorised the issue of this PDS and accordingly, Winton takes no responsibility for any other statements contained in the PDS. Winton does not guarantee the success or the performance of the fund nor the repayment of capital or any particular rate of capital or income return. Winton does not guarantee any other parties or named service providers. Winton is not responsible for, or involved in, the marketing or sales of units in the fund, nor for compliance with any marketing or sales rules or regulations, and no third party is authorised to make any statement about Winton or any of its respective products or services in connection with any such marketing or sales. On 12 December 2006, the Australian Parliament passed the Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) Act To meet our regulatory obligations as a reporting entity it will be necessary for Macquarie to collect and verify minimum customer identification information, which will vary by investor type. The data required to be collected has either been added to the application form in this PDS or will be collected via the IFSA/FPA customer identification forms. Information relating to the fund that is not materially adverse may change from time to time. This information will be updated and made available to you on our website at A paper copy of any updated information is available free on request. We will notify you if there is a materially adverse change to information contained in this PDS. The information in this PDS is general advice only and not personal advice. It does not take into account your individual objectives, financial situation or needs. You should read this PDS carefully and assess whether the information is appropriate for you in light of your objectives, financial situation and needs and consider talking to a financial adviser before making an investment decision. The fund is not sponsored, endorsed, sold or promoted by Barclay Trading Group, Ltd. Barclay Trading Group, Ltd. ( Barclay ) has given its written consent to statements about the Barclay CTA Index ( managed futures index ) appearing in the form and context in which they appear in this PDS, and has not withdrawn that consent before the date of this PDS. Except for the statements in the PDS about the managed futures index, Barclay has not independently verified the information contained in the PDS and takes no responsibility for the issue of this PDS, or for any statements contained in the PDS. Barclay does not guarantee the success or performance of the fund nor the repayment of capital or any particular rate of capital or income return. The offer made in this PDS is only available to persons receiving this PDS in Australia. We authorise the use of this PDS by clients or prospective clients of any investor directed portfolio service (IDPS or IDPS-like scheme, commonly referred to as a master trust or wrap account) or a nominee or custody service (collectively referred to as master trusts or wrap accounts in this PDS). Macquarie Investment Management Limited is a member of the Investment and Financial Services Association Limited ( IFSA ). IFSA member companies must comply with standards set by the association which are primarily designed to inform and assist investors. In considering whether to invest in the fund it is important you consider the risk factors that could affect the financial performance of your investment. The main risk factors that the Responsible Entity thinks an investor should consider are referred to on page 5.

3 Contents Winton Global Alpha Fund 02 About the fund 02 What does the fund invest in? 02 About Winton Capital Management Limited 03 How does Winton manage the futures portfolio? 03 What is the track record of the Investment Manager s strategy? 05 What are the benefits of investing in the fund? 05 Risk and return is the fund right for me? 05 What are the significant risks of the fund? 05 Fees and other costs 07 Additional explanation of fees and costs 08 How to invest 10 Important additional information 11 How to contact Macquarie 16 How to complete the application form 17 Anti-Money Laundering (AML) / Counter Terrorism Financing (CTF) and Identification Forms 18 Account types and application requirements table 21 Application form 23 1

4 Winton Global Alpha Fund The Winton Global Alpha Fund (the fund ) is an actively managed fund that invests in futures and cash 1. The fund can be expected to trade in over 100 futures markets worldwide, including share indices, bond, interest rate, currency and commodity futures markets. Macquarie Investment Management Limited is the Responsible Entity for the fund. We have appointed Winton Capital Management Limited (referred to in this PDS as Winton or the Investment Manager ) as trading adviser with the responsibility of managing the fund s futures exposures. Winton is a managed futures adviser specialising in the quantitative management of futures portfolios. It has a strong track record compared to its peers, and a reputation for its commitment to research. As at 31 October 2008, Winton had approximately USD15.5 billion 2 funds under management. About the fund The objective of the fund is to generate long-term total returns from a specialist managed futures strategy. Like most managed funds, the fund is a unit trust. In exchange for your invested money you are issued interests in the fund called units. Your units represent your proportionate share of the fund and reflect the value of your investment, which will change over time as the market value of the assets of the fund rises and falls. Certain rights (such as a right to any income and a right to vote) are attached to your units. You may also have obligations in respect of your units. For more information on these rights and obligations, please see page 14. We expect that as an investor in the fund, you would be seeking mainly growth in the value of your investment, but that you also accept that the fund has risks which may result in the value of your investment going down as well as up. For more information on the risks please see page 5. As well as considering the risks, you should also consider how an investment in this fund fits into your overall investment portfolio. By diversifying your investment portfolio, you can reduce your exposure to failure or underperformance of any one investment, manager or asset class. The fund is not a short term investment, so you should look to invest for at least five years. What does the fund invest in? The fund invests in futures and cash. Futures Futures in this PDS refers to futures and forwards. The fund only trades futures and options on futures that are traded on an exchange, i.e. it does not trade unlisted or over the counter derivatives. Futures and options on futures are contracts to buy or sell a particular asset on a specified future date at an agreed price. They provide returns linked to movements in particular investments, such as a share, bond or interest rate index, a currency, or a commodity. Listed futures are generally liquid (that is, they are readily bought and sold), valued in real time and can be inexpensive to trade when compared to these underlying investments. This means that futures are potentially an efficient way of accessing markets. Listed futures are traded on exchanges such as the Chicago Board of Trade, London Metals Exchange or New York Metals Exchange. The fund can be expected to trade in over 100 individual futures markets worldwide across the following five broad categories: Futures over: Share indices Bonds Interest Rates Currencies Examples of markets traded (not exhaustive) n S&P500 (US) n SFE SPI 200 (Australia) n DJ EuroStoxx n Hang Seng (Hong Kong) n US Treasury 10 year and 5 year Bonds n Australian Commonwealth 10 year and 3 year Bonds n Japanese Government Bonds n Australian Bank Bills n Canadian Bank Bills n Fed funds n Australian Dollar n Brazilian Real n British Pound An investment in the fund is a high risk investment as the futures portfolio can employ significant leverage, which can increase potential losses as well as gains. This may result in significant fluctuations in the value of your units over relatively short periods of time. Before making an investment in the fund, you should read this PDS in full, including the section Risk and return is the fund right for me? on page 5, and seek professional advice as to whether such an investment is suitable for you, in light of your particular investment needs, objectives and financial and taxation circumstances. Commodities (meats, grains, energies, base metals and precious metals) n Pork Bellies n Coffee n Crude Oil n Aluminium n Gold 1 In this PDS, futures refers to exchange-traded futures and forwards. Cash refers to cash and cash equivalents, such as managed funds investing primarily in cash. Please see What does the fund invest in? on this page for more information. 2 Source: Winton Capital Management Limited. 2

5 The fund will take both long positions and short positions in futures. A long position means the fund has bought a futures contract and will make money if the price of the future goes up. Conversely, it will lose money if the price goes down. Long positions involve taking market risk, which is described on page 5. Short positions are the opposite. When the fund takes a short position, it will lose money if the price of the future goes up and make money if the price goes down. The risks of short positions are described on page 6. The face value of the fund s combined long and short positions will frequently be greater than 100% of the value of the fund, and as a result, the fund will be leveraged, i.e. the fund may have more market exposure than the net asset value of the fund. This means gains and losses are amplified. This involves certain risks, which are described on page 6 under the heading Leverage risk. Cash Cash in this PDS refers to all cash-like investments, such as bank accounts, broker margin accounts and wholesale managed funds investing in cash 3. There are three ways the fund may hold cash: in wholesale managed funds; in futures trading accounts, i.e. as collateral for futures positions; or in bank accounts. Macquarie is responsible for deciding how the cash is invested. Currency The fund is denominated in Australian dollars. Most of the futures positions the fund enters into will be in currencies other than Australian dollars. Therefore, in addition to the Investment Manager s active currency trading activities, there will be additional exposure to changes in the value of foreign currencies compared to Australian dollars. Macquarie may from time to time seek to mitigate currency risk by converting foreign currency holdings back to Australian dollars. However, the fund is not hedged to Australian dollars. This means that foreign exchange rate movements may increase or decrease the value of the fund in Australian dollar terms. For more information about currency risk, please refer to page 6. About Winton Capital Management Limited Winton is a managed futures adviser specialising in the quantitative management of futures portfolios. It was founded in London in 1997 by David Harding, and as at 31 October 2008 had approximately USD15.5 billion 4 funds under management. Mr Harding was one of the co-founders of AHL Limited, now part of the Man Group plc. During the 11 years since its inception, Winton has established a strong track record. It is ranked amongst the top performing futures managers and has performed well in absolute returns. Winton is a research-driven organisation. It uses statistical research to analyse market trends and establish trading strategies that aim to profit from each trend, whether up or down. Winton pursues these strategies by using a portfolio that may include futures over share indices, bonds, interest rates, currencies and commodities. This type of management style is called managed futures. Winton only seeks to trade in futures markets in which it believes it has a statistical edge. Winton carries out its strategies in futures markets, due to their relatively high liquidity and low cost. Winton has its main offices in London and two research facilities in Oxford and Hammersmith, London, UK. Researchers typically come from a hard sciences, mathematics or computer science background. As at October , Winton had approximately 200 staff, approximately half of which were involved in research. Winton is authorised and regulated by the Financial Services Authority in the UK, is registered with the US Commodity Futures Trading Commission, and is a member of the National Futures Association in the US. How does Winton manage the futures portfolio? Winton s philosophy Winton believes it can achieve strong long-term returns without relying on a general growth in asset values. It believes this can be done by pursuing a diversified trading strategy. It believes in targeting risk, not return. To find out more about how Winton targets risk, see How does Winton manage the risk of the futures portfolio? on page 4. Winton further believes that trading strategies, by their nature, need to be constantly updated in order to maintain their competitive edge. For this reason, Winton invests heavily in a program of statistical research. 3 These managed funds invest predominantly in cash securities and have a Standard & Poor s rating of A or better. 4 Source: Winton Capital Management Limited. 3

6 Winton s trading system Winton s trading system is proprietary and complex. Figure 1 illustrates the key features of Winton s approach, but you should be aware that: it is systematic and largely automated; it is based on mathematical models; these models are derived through statistical research. This means the quality of the statistical research program will ultimately drive performance over the long term. A large part of the system that Winton applies to the fund can be described as trend following. That is, it uses statistical research to analyse market trends and to establish trading strategies that aim to profit from each trend. Accordingly, Winton is likely to perform better in strongly trending markets. Winton may be less likely to perform well in markets that constantly change direction and do not follow an identifiable trend. The system trades daily, sometimes trading single markets several times per day. Most of Winton s trading is carried out automatically by computer algorithms. In some markets, Winton s staff carry out trading instructions advised by the system. How does Winton manage the risk of the futures portfolio? Winton manages risk by risk targeting, that is, by targeting a level of volatility. The system adjusts the futures positions in the portfolio each day to keep the forecast risk at or below a fixed target. If the forecast risk is higher than the target, the system will reduce its position sizes as it trades. The main ways in which Winton targets risk are: controlling the futures position sizes in each market; diversifying across futures markets; and taking a mixture of long and short positions. What is volatility? Volatility is a statistical measure of risk. The more sharply the value of a portfolio moves up and down over time, the more volatile it is, and the higher the risk. Figure 1. Winton investment process Explanatory variables e.g.: Daily prices The objective of Winton s research is to forecast both the return and risk for each market in which it trades. Correlation assumptions Transaction cost estimates Trading system } The trading system is thoroughly researched and frequently updated; from an assessment of the optimal time of day to trade each market to long term market behaviour. Market volatility forecast Market return forecast } The trading system generates a set of risk and return estimates for multiple asset classes. Portfolio design Position adjustments } } A portfolio is then designed to produce the highest level of return at the targeted level of risk. Any single futures trade has the risk of significant loss. Winton aims to manage this risk and achieve its risk target by having positions in a number of futures markets at any one time. Trading is program driven, with positions being established and rebalanced each day in accordance with the trading system s daily assessment of optimal portfolio weightings. Source: Winton. 4

7 What is the track record of the Investment Manager s strategy? In assessing Winton s ability as a futures manager we have considered their 11 years 5 experience in managing futures portfolios. For performance information on the fund, please contact us using the details provided on page 16 or refer to the website for the latest fund review; In considering this information you should bear in mind we have the discretion to replace the manager of the fund with one or more investment managers. If we do so, we will generally inform you in advance. However, in certain circumstances we may replace the manager of the fund without notice to you if we think it is in the best interests of unitholders in the fund as a whole. What are the benefits of investing in the fund? The fund provides the potential for the following key benefits: 1. Attractive long-term returns; 2. Overall diversification, when combined with exposure to other asset classes or markets such as Australian or international equities; and 3. Potential to generate positive returns in rising or falling markets. Risk and return is the fund right for me? Part of the fund s strategy is to target a high level of volatility or risk. This means that the value of the fund can change quickly. In assessing this level of volatility and risk, we have considered the track record of the Winton Futures Fund Limited ( Winton Futures Fund ), which is the Investment Manager s flagship fund established in September The futures trading strategy of the fund is based on the Winton Futures Fund. The strategy of targeting a high level of risk has generated high returns for long-term investors in both this fund and the Winton Futures Fund in the past. However, it would have generated large losses for short-term investors who had put their money into the Winton Futures Fund when it was doing well and withdrew their money from the fund when it was doing poorly. There is no guarantee that the fund will generate positive returns or preserve your initial investment. But for investors with a short time horizon, or who prefer to withdraw money from investments which have experienced recent poor performance, the chances of losing money are much higher. For example, between February 2004 and June 2004, the Winton Futures Fund fell 12%. Then, between June 2004 and December 2004, the Winton Futures Fund rose by 21%. Many investors may have been tempted to withdraw their funds in June If they had done so, they would not have participated in the subsequent strong recovery in performance. Likewise, those who invested in the Winton Futures Fund on the basis of the strong performance to December 2004 would have experienced an immediate loss of 5% in January This illustrates the point that the recent performance of the strategy is no guide to future performance. In summary: If you are not prepared to weather periods of poor performance, including periodic falls of greater than 20%, then the fund may not be right for you. If you do not intend to hold the fund for at least five years, then the fund may not be right for you. In considering this information you should bear in mind the following: The performance of the Winton Futures Fund is not, and should not be regarded as, the performance of the fund. The fund s performance will differ from the performance of the Winton Futures Fund and these differences may be significant. In particular, Macquarie charges fees to the fund that are not charged on the Winton Futures Fund. The information about the performance of the Winton Futures Fund is provided only for the purpose of illustrating the Investment Manager s experience and expertise in managing futures portfolios. Past performance is not indicative of future performance and you should not base your decision to invest solely upon past performance information. What are the significant risks of the fund? The significant investment risks for the fund are discussed below. These risks described below are not exhaustive. We cannot eliminate all risks and cannot promise that the ways we manage them will always be successful. A financial adviser can explain these risks in detail as well as tailor advice to suit your needs and objectives. If these risks eventuate, your income distributions may be lower than expected or there may be none, and the capital value of your investment could significantly fall. In addition, there is no assurance that the level of distributions if any, will be sufficient to service your debt if you borrow to invest. The significant investment risks for the fund are: Market risk: Changes in the prices of futures positions held by the fund may result in loss of principal or large movements in the unit price of the fund within short or long periods of time. Global and local economic, financial, political, technological and environmental factors can drive changes in the prices of futures positions. It is not possible to predict the occurrence or magnitude of these and other potentially relevant factors. Different factors may affect the price of individual futures positions, particular asset classes (such as shares, bonds, interest rates, currencies and commodities) or futures positions generally at different times. 5 As at 31 October

8 Volatility risk: Generally the higher the potential return for your portfolio the higher the risk, and the greater the chance of substantial fluctuations in returns (including the possibility of losses) that may occur over time (especially over shorter periods of time). For example, between July 2007 and the date of this PDS, equity markets experienced sharp declines and heightened volatility, with some markets experiencing volatility at very high levels. Investing in periods where highly volatile conditions exist implies a greater level of risk for investors than an investment made in a more stable market. You should carefully consider this additional volatility risk before making any investment in the fund. Leverage risk: Arises when the fund takes on positions that are greater in size than its assets. Winton may take leveraged positions with the aim of increasing returns; however this can also lead to increased losses. Leverage arises in the fund through the use of short selling and the taking of long positions which are larger in size than the net asset value of the fund. While this process forms a key part of the investment strategy, it may mean that gains and losses may be significantly greater than those in a fund that is not leveraged. Strategy and model risk: The Investment Manager s strategy of generating long-term total returns is implemented through a proprietary trading model. However the trading model may not achieve the Investment Manager s investment objectives, resulting in lower than expected distributions or a reduction or loss of investors capital. Manager risk: Refers to the risk that the manager will not achieve its performance objectives or not produce returns that compare favourably against its peers. Many factors can negatively impact the manager s ability to generate acceptable returns from its stock selection process (e.g. loss of key staff). Short positions: The fund may enter into short positions as described on page 3. In taking short positions the fund bears the risk of an increase in the price of the investment over which the short position is taken. Such an increase could lead to a substantial loss. Currency risk: is the risk that fluctuations in exchange rates between the Australian Dollar and foreign currencies may cause the value of the fund s investments to decline significantly. Concentration risk: Concentration risk is the risk that poor performance in a particular market may significantly affect the fund. Although the fund can invest in over 100 markets at any given time, it may only be invested in a small number of markets. Generally, the fewer markets in which the fund invests, the greater the overall volatility of the fund. This may result in large movements in the unit price of the fund within short periods of time. Liquidity risk: Exists when particular investments are difficult to purchase or sell, preventing the fund from closing out its position or rebalancing within a timely period and at a fair price. While every effort is made for the fund to be able to satisfy all redemption requests within 30 days, the nature of the securities means that in certain circumstances (e.g. if trading in a particular security has been restricted or suspended in the market), we may not be able to fully meet all redemption requests when they are received. This may lead to satisfaction of the redemption requests and payment of the redemption proceeds to unitholders being deferred until the Responsible Entity forms the view that it is in the best interests of all unitholders to meet the outstanding redemption requests and pay out the redemption proceeds. Default risk: A default by a counterparty or issuer could have an adverse effect on the fund. Counterparties may include futures exchanges, banks and issuers of securities invested in by cash funds. Issuers include deposit takers and issuers of debt and hybrid securities. Issuer default risk concerns the failure to pay the interest and/or repay the principal of a security or deposit. This risk is generally greater for issuers with lower credit ratings. Interest rate risk: Changes in interest rates may adversely affect the value of futures positions and cash funds. An increase in interest rates leads to a reduction in the value of a long position on interest rate and bond futures and vice-versa. Fund risk: This is the risk that the fund could terminate, the fees and expenses could change, or key investment professionals could change. There is also the risk that investing in the fund may give different results than investing individually because of the income or capital gains accrued in the fund and the consequences of investment and withdrawal by other investors. Change of law and other statutory and trading restrictions: Changes in laws or their interpretations including taxation and corporate regulatory laws, practice and policy could have a negative impact on the returns of investors. 6

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 fund 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 Responsible Entity 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 calculator to help you check out different fee options. This table 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 the fund assets as a whole. For information on tax, see page 13. You should read all of the information about fees and costs, as it is important to understand their impact on your investment. All amounts shown in this table include the net effect of GST. Type of fee or cost Amount How and when paid Fees when your money moves in or out of the fund 6 Establishment fee The fee to open your investment Contribution fee 7 The fee on each amount contributed to your investment Withdrawal fee The fee on each amount you take out of your investment Termination fee The fee to close your investment Management costs Management fee and recoverable expenses The fees and costs for managing your investment Performance fee The fee payable to Winton and referable to the performance of the fund Service fees Investment switching fee The fee for when you switch between investment options. Nil Nil Nil Nil 1.88% p.a. of the net asset value of the fund, comprised of the management fee and recoverable expenses. 20.5% 8 of the dollar value of net profit (if any) from futures trading, provided that any carried forward losses from futures trading have been made up. For further information, including a worked dollar example, please refer to Performance fees on page 8. Nil Not applicable. Not applicable. Not applicable. Not applicable. The management fee and recoverable expenses are calculated daily and paid monthly from the assets of the fund. The amount of this fee may be negotiated by wholesale investors. See the Additional explanation of fees and costs section on page 8 for more information. This fee is calculated daily, payable quarterly in arrears and is deducted from the assets of the fund. Not applicable. 6 Please note that you may incur a buy/sell spread when your money moves in or out of the fund. For further information on the buy/sell spreads please refer to Transaction costs and buy/sell spread on page 9. 7 Under the constitution we have the right to charge a contribution fee of up to 2% of the application amount. We do not currently charge this fee. 8 This is based on a performance fee of 20% plus applicable GST, less any reduced input tax credits that may be claimed by the fund. 7

10 Additional explanation of fees and costs Example of annual fees and costs The table below gives an example of how the fees and costs for this product can affect your investment over a one year period. You should use this table to compare this product with other managed investment products. Example Balance of $20,000 with a contribution of $2,000 during the year Contribution Fees Nil For every additional $2,000 you put in, you will be charged $0. PLUS Management costs (assuming no performance fee is payable) EQUALS Cost of fund 1.88% p.a. And, for every $20,000 you have in the fund you will be charged $376 each year. If you had an investment of $20,000 at the beginning of the year and you put in an additional $2,000 during that year, you would be charged fees of: $ This amount assumes the $20,000 balance remains constant over a one year period and excludes additional management costs of up to $37.60 (i.e. 1.88% x $2,000) in respect of an additional contribution of $2,000 (assuming this additional amount was contributed at the end of the year). Performance fees may also apply to your investment. See below for more information. The actual cost of investing depends on how much you invest, the investment balance of your account (as this varies over time), and the number and types of transactions you make. Performance fees The management costs in the Fees and other costs table on the previous page includes a performance fee, which may be payable to Winton as explained below. The fund invests in futures and cash. By applying its trading system (described on page 4) Winton seeks to generate returns from trading the fund s futures portfolio and may be entitled to a performance fee for this trading. The performance fee is determined by reference to the dollar value of profits from such futures trading during a quarter, disregarding any interest earned on the cash holdings. It is not calculated by reference to the overall net asset value of the fund, your unit price, the managed futures index, or any other hurdle rate or benchmark. Accordingly, a performance fee is payable on the dollar value of all net futures trading profits (see following), even where the performance of the fund is below the managed futures index. The performance fee is calculated and accrued daily and is payable at the end of each quarter out of the fund s assets, or on termination of the Investment Manager. It is calculated using the formula below: 20.5% x (futures trading profits adjusted carried forward losses) Where futures trading profits are calculated by: taking the change in the balance of the fund s futures account during the quarter; adjusting for any cashflows into or out of the futures account; and deducting any interest earned on the futures account over the quarter. Carried forward losses occur when the futures trading profits of the fund are negative. They are expressed in dollar terms. For example, if the fund has generated a futures trading loss of $1m, it must generate trading profits of at least $1m before further performance fees become payable. If at the end of the quarter the account is still in a loss position, these losses carry forward to the next quarter. There is no time limit on how long losses can be carried forward. Carried forward losses can be adjusted if the fund is experiencing net outflows. That is, if the total value of redemptions from the fund in any particular month exceeds the total value of new applications in that month. Carried forward losses will be reduced by net outflows at the end of a month divided by the average size of the fund over the month. This adjustment is made for the purpose of calculating performance fees, and reduces the amount that Winton has to recover before earning performance fees. It does not affect the actual amount of losses in the futures trading account that Winton will need to recover before investors experience positive performance. Carried forward losses are not adjusted if the fund is experiencing net inflows. That is, if the total value of new applications for units in the fund in any particular month exceeds the total value of redemptions in that month. The performance fee is determined with reference only to the trading profits for the entire fund and does not take account of the position of individual investors. In certain circumstances, where there are significant net inflows, a performance fee may start to accrue to Winton even where the value of a particular investor s units is lower than at the time they invested. We may seek to mitigate the potential of this occurring, by adjusting the buy spread as described on page 9. 8

11 Example The following is a simplified example that excludes the effect of cash interest, buy/sell spreads and management fees in order to illustrate aspects of the performance fee. This example is illustrative only and the actual performance of the fund may differ from that set out below. Assume that the first investor in the fund contributes $10m and receives 10m units at a price of $1.00. In the first quarter of trading Winton generates trading losses of $1m and this becomes an adjusted carried forward loss. At the end of the quarter, the second investor contributes $9m at 90c per unit (the current net asset value per unit). The size of the fund is now $18m and there are 20m units on issue. In the following quarter, Winton generates futures trading profits of $1.2m. At the end of the quarter, Winton is entitled to a performance fee of: 20.5% x ($1.2m $1.0m) = $41,000 (inclusive of GST) The net asset value of the fund is now approximately $0.96 per unit. Therefore, the first investor would have experienced a fall in net asset value despite the fact Winton had earned a performance fee. Conversely, it is possible for an investor to experience positive performance without any performance fees accruing to Winton. We may periodically adjust the buy spread (as described in the following section) in order to mitigate against such outcomes. As the fund has a limited history we are not able to provide an estimate of future performance fees. Transaction costs and buy/sell spread Transaction costs are paid from the fund. When you invest or withdraw all or part of your investment, we use what is called a buy/sell spread to recover transaction costs associated with buying and selling the fund s assets. We use the buy/ sell spread to direct these costs to transacting investors rather than the other investors in the fund. The buy/sell spread is an additional cost to you, it is paid to the fund and is not a fee paid to Macquarie. The initial buy/sell spread that applies to the fund is 0.11% of the application amount and is incorporated in the issue price of units ($11 for every $10,000 you invest) and 0.11% of the withdrawal amount ($11 for every $10,000 you withdraw). The transaction costs reflected in the above spread comprise brokerage paid on transactions, government taxes/duties/ levies, bank charges and the differential between the bid/offer price of the investments transacted. Estimates of these costs were arrived at by analysing broker quotes, taxes, duties and levies, and the difference between the market bid and offer prices of investments held for a portfolio with the same investment strategy as that of the fund. We may also adjust the buy/sell spread on applications (the buy spread ) in order to attribute an estimated value to carried forward losses in the fund. These have a notional value because investors who subscribe for units at a time when the fund is carrying losses are able to experience a period of positive performance in respect of their investment without incurring performance fees. Without an adjustment to the buy spread, this situation could advantage investors who apply for units when the fund is carrying losses, at the expense of existing investors. It also means the difference between the application and withdrawal price at any point in time may be greater than would otherwise be the case. We estimate the value of carried forward losses by reference to the size of the losses being carried forward in relation to the size of the fund and the expected risk and return characteristics of the fund. We intend to review the buy spread at least monthly and may vary it at any time, taking into account changes in the estimated value of carried forward losses and transaction costs. However, it is not possible to calculate and adjust the buy spread to match precisely the value of carried forward losses and transaction costs in all scenarios. While the buy spread is designed to assign a reasonable value to carried forward losses in order to promote a fairer outcome for investors, there can be no guarantee that this will always be achieved. In particular, if you invest when there are carried forward losses and the buy spread has been adjusted accordingly, and you then redeem your investment prior to experiencing sufficient positive performance to absorb the impact of the buy spread, your investment return will not offset the buy spread paid. Alternative Remuneration We do not pay any commissions to your financial adviser. However, if you have an adviser the dealer group to which your adviser belongs and your investor directed portfolio service ( IDPS ) operator may receive certain payments or other non-monetary benefits from us, such as business and technical support, professional development and entertainment. These payments and benefits are not an additional cost to you. We also 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 advisers. If you would like to review this register, please contact us via the contact details provided on page 16. Maximum fees The fund s constitution entitles us: to a management fee of up to 5% (exclusive of GST) per annum of the net value of the fund s assets. We also have the right, subject to the Corporations Act, to be reimbursed from the fund s assets for all expenses which we incur in the proper performance of our duties as Responsible Entity. Our current management fees and expense recovery are included in the management costs stated in the table on page 7. 9

12 to charge persons applying for units in the fund a contribution fee of up to 2% of the application money. We do not currently charge this fee. In addition, the constitution allows us to charge any user pay fees that are specified in the most recent PDS or other offering document for the fund. No such fees are currently charged. to charge you fees in the nature of service fees which may be paid by redemption of units where they are specified in the PDS. There is no limitation on the amount of these fees. We do not currently charge these fees. Changes to fees The fees are current as at the preparation date of this PDS and include the net effect of GST. This means that fees stated in this PDS represent the fee charged plus any applicable GST, less any reduced input tax credits that may be claimed by the fund. We reserve the right to increase fees, and to introduce additional fees. Factors which may lead us to vary fees include legal, economic, policy and procedural changes. The right to vary fees is at our discretion, and this is not an exhaustive list of circumstances which would lead us to vary the fees of the fund. We will give you prior notice of any change to the current fees and/or the introduction of any additional fee. Differential fees In line with ASIC policy on differential fee arrangements, fees may be negotiated on an individual basis with wholesale clients (within the meaning of the Corporations Act) e.g. institutional investors and the operators of master trusts and wrap accounts. This is generally because they invest very large amounts of money in the fund. We cannot negotiate individual fee arrangements with investors who are not wholesale clients within the meaning of the Corporations Act. How we calculate performance For comparison purposes only, the fund s performance will be measured against the Barclay CTA Index. To calculate the performance of the fund, we will adhere to the standards set by the Investment and Financial Services Association (IFSA). All returns and performance will be historical and will be quoted net of fees but before taxes and will assume that the income is reinvested and that the investment is held for the full period. All performance figures will be expressed net of fees and before taxes. To find out performance information on the fund, please contact us using the details provided on page 16, or go to the website at Taxation For information about the taxation implications of an investment in the fund, please refer to page 13. How to invest Investing in the fund can be done in one of two ways, depending on whether you are an indirect or a direct investor. Indirect investors You are known as an indirect investor if you invest through a master trust, wrap account, a nominee or custody service or an investor directed portfolio service (all referred to in this PDS as Wrap ). Indirect investors gaining exposure to the fund through a Wrap do not themselves become investors in the fund. Instead it is the operator of the Wrap (or its custodian) that has the rights of a direct investor and they may choose to exercise these rights in accordance with their arrangements with you. To invest in the fund, indirect investors need to follow the instructions of the Wrap operator, and will receive reports and other information from that operator. Any enquiries should be directed to them. Additional investments are also to be made through this operator. Direct investors To invest directly, you need to complete the application form that accompanies this PDS and send it to us with your initial payment. Initial investments made directly must be for a minimum of $20,000. Payments can be made by cheque, bank transfer or by real time gross settlement (RTGS). Cheque payments should be made out to: MIML Winton GAF a/c [full account name] We will confirm with you if we accept your application. If for any reason Macquarie is unable to process your application (e.g. if your application is incorrectly completed), we may delay your application for up to 30 days in which case your application monies will be held in an interest bearing trust account. Any interest earned on the account will be invested in the Fund. If your application is not processed by the end of the 30 day period, your application monies will be returned to you. Additional investments (minimum $10,000) can be made at any time by sending us a cheque with your account details, or via bank transfer or RTGS. Further investment is made on the basis of the PDS current as at the time of that investment. Generally, you need to maintain a minimum account balance of $20,000. The minimum amount requirement may be waived at our discretion. We may also establish higher minimum investment amounts or reject an application for investment in the fund at our discretion. Investors must contact us (contact details on page 16) for instructions before investing via bank transfer or RTGS. Where Macquarie receives and accepts your completed application together with the application money before 1pm (Sydney time) on a business day, you will be issued with units at the entry price calculated for that business day. For applications and application money received and accepted after 1pm (Sydney time) on a business day, units will be issued at the entry price calculated for the next business day. 10

13 Important additional information Ethical investment Generally, and in normal circumstances, the fund s investment decisions do not take into account labour standards, environmental, social or ethical considerations. However, these considerations may be taken into account if they have the potential to materially affect the value of the investments, but no specific methodology is applied. Cooling-off Direct investors If you invest an initial amount of $500,000 or more in the fund, or otherwise meet the criteria for a wholesale investor under the Corporations Act, then cooling-off rights are not available to you. If you invest less than $500,000 and do not otherwise meet the criteria for a wholesale client under the Corporations Act and decide that your investment in the fund does not meet your needs, you can request in writing to have it cancelled within the 14-day cooling-off period. The cooling-off period begins when your transaction confirmation is received by you or five business days after your units are issued, whichever is earlier. When calculating the amount to be returned to you, you will bear any fluctuation in the market and we may deduct costs and taxes that relate to your investment and the exercise of your cooling-off rights to the extent permitted by the Corporations Regulations. Making a withdrawal Indirect investors Indirect investors need to follow the instructions of the Wrap operator to make a withdrawal from the fund. Direct investors You may request to withdraw part or all of your investment in the fund at any time, subject to a minimum withdrawal amount of $10,000 and maintaining a minimum account balance of $20,000. Funds will be paid by electronic transfer to an Australian bank account. To make a withdrawal, write to us or fax us (subject to the facsimile instruction conditions outlined on page 16) providing your account name, the fund name, and the amount to be withdrawn, and your bank details if you require the funds to be transferred to your bank account. We generally process withdrawal requests on each business day. If we receive your request (or in the case of an indirect investor, a request from the operator) before 1pm Sydney time on a business day, proceeds will usually be available within five business days and will be based on the exit price calculated for that day. If we receive a withdrawal request after 1pm Sydney time on a business day, or on a nonbusiness day for us, units will be redeemed at the exit price calculated for the next business day. The fund s constitution generally allows for up to 30 days to pay withdrawals. While the fund is liquid we may refuse a withdrawal request from you where: the value of the units remaining after the withdrawal request is less than the minimum holding amount (in the case of partial withdrawal); or the fund is being wound up. While the fund is liquid we can delay withdrawal of your money in some circumstances such as: if something outside our control impacts on our ability to calculate a withdrawal price or fairly determine the fund s Net Asset Value (NAV) (for example, restricted or suspended trading in the market for an asset) then we can delay payment for as long as this goes on; if we have taken all reasonable steps to realise sufficient assets to satisfy withdrawal requests but we are unable to; if on a particular day we receive a quantity of withdrawal requests representing more than 10% of the units on issue, or which have an aggregate withdrawal price of more than 10% of the value of the fund s assets, then we can stagger processing of withdrawal requests over a number of days. This means that you may receive different prices for portions of your withdrawal request in which case you would be exposed to market movement over a number of days; or if we believe it is not in the best interests of unitholders as a whole to realise assets. In some circumstances, we can redeem some or all of your units without the need for a withdrawal request from you, for example: if we have reasonable grounds to believe that you are not, or are likely not to be, eligible as an investor in the fund (for example, if the value of your investment falls below $20,000 or such other minimum investment which we have determined); to prevent the fund being subject to income tax as if it were a company under tax legislation; for the fund to avoid other consequences which are detrimental to investors in the fund as a whole; if we request information from you in order to determine whether to redeem your units in accordance with the above provisions and we do not receive such information from you within 14 days of our request; or to recover any fees which we charge for any services provided to you at your request and which we have indicated in the PDS will be payable by you. The Responsible Entity considers that it is unlikely that the fund will become illiquid (as defined in the Corporations Act) but if it did, the law says we can, if we wish, make some money available, and requires us to allocate it on a pro rata basis amongst those wanting to withdraw. When the fund is illiquid, withdrawals may only be made in accordance with a withdrawal offer made in accordance with the Corporations Act. 11