Discovery Investment Services Core Income Fund Wholesale Units

Transcription

1 Discovery Investment Services Core Income Fund Wholesale Units ARSN Product disclosure statement 11 December 2006 IMPORTANT INFORMATION The Discovery Investment Services Core Income Fund Wholesale Units ARSN (the Fund ) offered under this Product Disclosure Statement (PDS) is an investment product issued by Australian Unity Funds Management Limited (AUFM) ABN , AFS Licence No in its capacity as Responsible Entity of the Fund. AUFM is the issuer of this PDS and takes full responsibility for this PDS. AUFM is a wholly owned subsidiary of Australian Unity Limited (AUL) ABN and is a member of the Australian Unity Group of companies. However, AUL is not an issuer of this PDS. The Fund allows for the issue of different classes of units including Retail Units and Wholesale Units. AUFM offers Wholesale Units under this PDS. The Fund offered under this PDS is distributed by Professional Investment Services Pty Ltd ( Professional Investment Services or PIS ) ABN , AFS Licence No , under the brand Discovery Investment Services Corporation Limited ( Discovery Investment Services or Discovery ) ABN PIS and Discovery are wholly owned subsidiaries of Professional Investment Holdings Limited (PIH) ABN Neither Discovery, PIS, nor PIH is an agent of the Responsible Entity. Neither Discovery, PIS, nor PIH has any authority to bind or make statements on behalf of the Responsible Entity or any member of the Australian Unity Group of companies. Monies invested in the Fund offered under this PDS do not represent investments in, or liabilities of, any member of the Australian Unity Group. You should be aware that investments in unit trusts carry risks including possible delays in repayment and loss of income and principal invested. An outline of some of the risks is contained in this PDS. Neither AUFM, AUL, any appointed investment manager nor any member of the Australian Unity Group guarantee the performance of the Fund offered under this PDS, nor any return of capital. This PDS contains some general investment advice. It does not take into account your individual objectives, financial situation or needs and you should consider the appropriateness of the advice to you (taking into account your individual objectives, financial situation and needs). You should seek your own financial advice from an appropriately licensed adviser or an authorised representative before investing. In this PDS, a reference to, Australian Unity, Australian Unity Investments, AUI, we, us and our is a reference to AUFM. This PDS is available in electronic format. If this PDS is received electronically, you should ensure that the complete PDS has been received. If you are unsure whether the electronic document you have received is complete, please contact us. A printed copy is available free of charge. This document can only be used by investors receiving it (electronically or otherwise) in Australia. In this PDS, all amounts are expressed in Australian dollars unless otherwise indicated. No investments will be accepted on the basis of this document once it is replaced with a later PDS. Your investment in this Fund will be through an IDPS, IDPS-like scheme, master trust or nominee and custody service (IDPS). In this PDS the operator of an IDPS will be referred to as your IDPS Operator. Terminology used in this PDS (e.g. market value or net asset value ), may not necessarily be consistent with terminology in the latest Australian accounting standards equivalent to International Financial Reporting Standards (AIFRS). The AIFRS accounting standards relate to financial statements. This PDS uses terminology generally used in the financial services industry when referring to the calculation of fees and unit prices, which may differ to that used in the Fund s financial statements. Obtaining Up To Date Information We reserve the right to change the terms and conditions in this PDS without notice, except as otherwise indicated. Where notice is required, investors who withdraw before the end of the notice period will not be bound by the changes. Any changes to the information in this PDS that are not materially adverse to investors may be incorporated from time to time. To obtain the most up to date information not contained in this PDS, please visit our website or call us on A paper copy of any updated information will be provided on request free of charge. Defined Terms Defined terms in this PDS have the meanings given to them in the Glossary contained on page 15 of this PDS. Defined terms are generally italicised when first appearing. 1

2 ABOUT DISCOVERY INVESTMENT SERVICES The Discovery Investment Services brand has been established to develop market-leading managed investment products specifically for clients of Professional Investment Services, one of Australia s largest financial planning networks with over 1,000 advisers and accountants and more than $10 billion funds under advice. As part of this strategy Discovery has requested that Australian Unity Investments manage the Discovery Investment Services Core Income Fund. ABOUT AUSTRALIAN UNITY INVESTMENTS Australian Unity Investments (AUI) is a specialist fund manager that creates and sources unique investment opportunities that have the potential to deliver better returns. AUI is consistently recognised as one of Australia s leading mortgage fund managers. With a mortgage portfolio valued at over $720 million, the AUI mortgage team maintains a core exposure to a diversified portfolio of registered first mortgages that provide consistent income and capital stability. AUI also follow some of the most rigorous risk management processes in the market. Highly respected and experienced, the AUI mortgage team shares an average tenure in the banking and finance industry of 18 years and have particularly strong relationships with mortgage-originators Australia-wide. ABOUT THE FUND Investment Objective To provide investors with attractive and regular income distributions, together with capital stability. Investment Strategy The Fund will use investor contributions to primarily acquire units in a blended portfolio of various Underlying Funds focused predominantly on the mortgage sector, including: AUI High Yield Mortgage Trust The Fund may also from time to time invest in other asset sectors through other Underlying Funds managed by AUI, or other funds not issued by AUI, in order to meet the investment objective and to diversify sector and income risk. The Fund aims to be fully invested with sufficient cash and short-term securities to manage liquidity in respect of income distributions and withdrawals. Investment Manager AUI undertakes the investment management of the Fund, and generally of the Underlying Funds. AUI s success in mortgage management can be attributed to strong lending practices, sound management of cash levels, excellent arrears record and well-defined risk constraints. The following investment approach and process relates to the AUI High Yield Mortgage Trust and the AUI Mortgage Income Trust. Investment Approach AUI maintains a core exposure to a diversified portfolio of registered first mortgages that provide consistent income and sound credit quality. Underpinning AUI s approach to managing mortgages is effective management of the risk/return trade off. AUI uses a proven analytical process for approving and managing mortgages: Loans are advanced on a property against the SECURITY of a registered first mortgage and supported by an independent valuation (and if required a quantity surveyor). Stringent CREDIT ANALYSIS is undertaken to ensure borrowers can meet interest payment commitments. RISK MANAGEMENT is important, with mortgages diversified by geographic location, sector, type, loan size, interest rate and maturity profile. AUI Mortgage Income Trust These Underlying Funds primarily invest in a portfolio of loans secured by registered first mortgages over quality retail, commercial, investment residential, and industrial property; and other income producing assets. The AUI High Yield Mortgage Trust also invests in vacant land; specialised loans such as for service stations, motels and cinemas; as well as construction and development loans. 2

3 Investment Process Some of the key elements of the current criteria (which may change from time to time) used by AUI in the selection of quality mortgages in each of the Underlying Funds include: Mortgage Selection Criteria AUI High Yield Mortgage Trust AUI Mortgage Income Trust Total assets in registered first mortgages Maximum single loan exposure Maximum Loan to Valuation Ratio (LVR) Loans secured by income producing property Loans secured by owner occupied property Loans secured by vacant land Exposure to specialised securities Exposure to construction and development loans Up to 100 Up to 90 No single loan amount to exceed the greater of $10 million or 5 of net assets of the Fund No single loan amount to exceed 5 of net assets of the Fund. Yes, however, annual rents must be greater than 80 of annual interest payments. Yes, however, borrowers must demonstrate strong repayment ability. Yes, however, borrowers must pre-pay interest for the term of the loan. Yes, however, no single loan to valuation ratio for specialised securities to exceed 70. Yes, however, borrowers must demonstrate an adequate level of presales or lease commitments. No Yes, however, no single loan amount for specialised securities to exceed 1 of net assets. No Credit and risk management AUI will only advance loans on property against the security of a registered first mortgage. Stringent protocols, procedures and processes have been put in place to manage market risk, investment risk and credit risk. Three separate committees have been established with specific functions and mandates designed to oversee the management of the Underlying Funds: The Investment Committee is responsible for the overall investment strategy of the Fund and the Underlying Funds. The Credit Committee oversees the Underlying Funds credit strategy, which includes monitoring credit risk and loan approvals where applicable. This committee is also responsible for setting credit policies and procedures, and for approving loans that exceed pre-determined levels. The Asset Management Committee is charged with overseeing the management of any delinquent loans to further reduce any risk of loss to investors. Portfolio diversification Benchmarks have been developed ensuring that prudent levels of diversification are achieved. Exposure to individual borrowers is also monitored and controlled by maximum exposure limits. The portfolio is continually monitored against general credit and property markets to determine its appropriateness. Lending process The following provides an overview of the lending and mortgage management process employed in the management of the Underlying Funds: 1. Initial analysis and portfolio suitability Loans are identified for preliminary analysis and suitability taking into consideration portfolio diversification objectives. 2. Information gathering and evaluation Borrower information is gathered, including financial statements, background information, exit strategies, references and credit checks. 3. Credit analysis Analysis of creditworthiness, capacity and suitability of security is undertaken in accordance with acceptable guidelines and the type of security offered. 4. Reviews and recommendations AUI will appoint a panel of third party service providers including registered valuers, solicitors, and any other expert deemed necessary. Independent valuation reports will be undertaken on all properties which are the subject of new mortgage applications. 3

4 Part of managing any successful mortgage portfolio is monitoring for any deterioration in the property sectors the Underlying Funds have exposure to, being retail, industrial, commercial, investment residential, and specialised properties, and construction and development. The AUI Mortgage management team are assisted in this regard by market research that they receive from the AUI inhouse property management team and research provided by third party service providers. Arrears and default management In the event that a borrower goes into default there is a documented process to remedy the default as quickly as possible. In cases where the borrower is unable to remedy the default AUI will take immediate action to take possession of the security property to recover the loan amount outstanding. Third party service providers will also assist in the recovery process. Derivatives It is not AUI s current policy to use derivatives for gearing purposes or for speculative activities for this Fund. AUI may use derivatives in the Underlying Funds for implementation of interest rate risk strategies and management of the Underlying Funds interest rate exposures. Indicative Risk Level The risk level indicator provides an estimate of the risks and volatility of the Fund. For more information about risks see Investment Risks on page 6. Low Medium High Indicative Return Composition The Fund is expected to provide income only with capital stability. Income 100 Growth 0 Suggested Investment Time Frame At least 3 years. Asset allocation Investments will initially be made in accordance with the following asset allocation: Asset Class Range Target Mortgage Funds Property Funds Fixed Interest Funds Cash Funds Investments will initially be made in accordance with the following Underlying Fund allocation: Underlying Fund Range Target AUI High Yield Mortgage Trust AUI Mortgage Income Trust Investments may be made in other Underlying Funds from time to time, as appropriate to the Fund s investment objective and investment strategy. As at 31 August 2006, the asset allocation of the Underlying Funds were: AUI High Yield Mortgage Trust Asset Class Range Registered first mortgages Cash AUI Mortgage Income Trust Asset Class Range Registered first mortgages Cash Income Distributions Monthly. Portfolio Details The information in this section may change from time to time. For up to date information please call Client Services on or visit 4

5 Sector allocation As at 31 August 2006, the sector allocation of the Underlying Funds were: AUI High Yield Mortgage Trust Asset Class Non Specialised Non Construction Residential investment 13 Retail 27 Office 18 Industrial 17 Vacant Land 20 Specialised Clubs 2 Car yard 1 Motel 2 Construction Development Other 0 AUI Mortgage Income Trust Asset Class Residential investment 9 Retail 29 Office 27 Industrial 31 Other (specialised property) 4 Interest rate type As at 31 August 2006, the interest rate type allocation of the Underlying Funds were: AUI High Yield Mortgage Trust Type Fixed rate loans 27 Variable rate loans 73 AUI Mortgage Income Trust Type Fixed rate loans 43 Variable rate loans 57 Geographic allocation As at 31 August 2006, the geographic allocation of the Underlying Funds were: AUI High Yield Mortgage Trust Location NSW 54 VIC 24 QLD 22 WA 0 SA 0 AUI Mortgage Income Trust Location NSW 46 VIC 37 QLD 13 WA 2 SA 2 Illustrative historical returns to 31 August 2006 The Fund is a new fund, and has no actual investment performance history. As a result, illustrative historical returns have been calculated based on the actual historical returns of the Underlying Funds in which the Fund will initially invest, with appropriate adjustments made to reflect the initial target Underlying Fund allocation and the fee structure that applies to the Fund. 3 mths 6 mths 1 year Total Return Illustrative historical returns are calculated after management costs and Fund expenses as outlined on page 10, assumes no abnormal costs and the reinvestment of distributions. You should remember that the illustrative historical returns outlined above are for illustrative purposes only. They do not represent the actual investment performance history of the Fund. In any event, past performance is not a reliable indicator of future performance. 5

6 INVESTMENT RISKS Investors should carefully consider all risks before making an investment decision. Investors should also consider their own personal circumstances (including financial and taxation issues). The following comments are general in nature and are intended as a guide only. We recommend that you seek professional financial advice when making an investment decision. Generally speaking, an investment with a higher expected return would exhibit a higher level of risk. Return generally refers to the change in value of an investment and includes any capital growth and income earned. It is possible for returns to be negative. Risk generally refers to the variability and volatility of returns and also may provide an indication of the frequency of a negative return. The graph below provides an estimate of the level of risk relative to the expected return from particular types of investments. Risk versus return High Relative Return Low Cash Low Fixed Interest Mortgages Relative Risk Aust. Shares Property Int l Shares The relationship of risk to return may change from time to time for each asset class. But over the long term (a period greater than five years) growth assets such as shares and property tend to achieve greater returns than income assets such as cash, mortgages and fixed interest. It is important to note, however, that in the short term (a period of less than three years), growth assets are likely to experience greater variation in returns (including the possibility of negative returns), than income assets. All investments are subject to risk. Some of the investment risks that we believe investors should consider before investing are listed below. The risks outlined in this PDS are not a comprehensive assessment of all possible risks. High General Investment Risks Government fiscal or monetary policy changes may impact on investment markets. Social and technological change may make certain investments less attractive. There may be changes in investment conditions including taxation treatment, new Government policy and statutory changes. Changes may occur in the interpretation and application of the law by the courts and revenue authorities. Economic conditions, global events, local and overseas political events, interest rates, inflation and inflationary expectations may cause adverse investment returns. Inadequate diversification associated with not spreading investments across different asset classes may impact on returns. Financial and investment market changes and values can impact directly or indirectly on investment returns. Natural disasters, social unrest and war can occur. Risks Associated with this Investment Where the Fund invests in Underlying Funds with a mortgage sector focus: The borrower may not be able to repay the principal or make interest payments. In the event of a default, sale proceeds from the property securing the loan may be less than the principal and interest outstanding. Income payments (which reflect the return on the investment) will vary depending on each individual borrower s ability to make interest payments and principal repayments and at current interest rates. Falling interest rates can result in lower income payments on variable rate loans. Conversely, rising interest rates can result in higher income payments on variable rate loans. Properties that are used as security against mortgages may experience movements in rental and occupancy levels as well as tenancy lease defaults. Properties can also rise and/or fall in value. Investments in construction and development loans carry the additional risk that the construction may not be completed and the value of the property may be less than the outstanding loan amount. Investors should be aware that all the risks outlined may impact returns. 6

7 Where the Fund invests in Underlying Funds with a property sector focus: Returns from properties and listed property trusts are affected by movements in rental and occupancy levels, tenancy lease defaults, fluctuations in interest rates, and the supply and demand for properties. Properties and listed property trusts can rise and/or fall in value. Unforeseen capital expenditures, repairs or maintenance expenditures may be required. The Government may introduce policy changes, statutory changes, or changes to taxation affecting property trusts. Where the Fund invests in Underlying Funds with a fixed interest sector focus: The market value of fixed interest securities can fall significantly when interest rates rise. An issuer of a fixed interest security may not be able to repay either the principal or make interest repayments (an event of default). The major sectors in the Australian fixed interest market are Commonwealth Government bonds, semi-government bonds, bonds guaranteed by the Commonwealth, mortgage and asset backed securities, and corporate bonds. An adverse event within a sector may impact investment returns. Managing Risk How we manage risk While we are not able to eliminate all investment risks, we seek to manage the impact of these risks through the use of carefully considered investment guidelines. Investment diversification is employed within the Underlying Funds to help reduce the impact of risk. Where possible, the investment managers seek to spread the Underlying Funds investment portfolios across different investments and sectors, as diversification can achieve long term objectives while minimising the impact of shortterm volatility. All related party transactions are conducted on normal commercial terms and conditions, and on an arms length basis. How can you manage your risk? We recommend that you seek your own professional advice to help you understand your current financial situation, set your investment objectives and establish a plan to meet them. It is important to consider your investment timeframe, your investment objectives and your risk tolerance. Diversifying your investments can also help reduce risk and the volatility of investment returns. Where the Fund invests in Underlying Funds where derivatives are used: There is the risk that the counter-party to the transaction may not be able to meet its obligations. The investment manager may then have to replace the transaction, which may be at rates that are not favourable to the Underlying Fund. The use of exchange traded derivatives mitigates this counter-party risk. Other Risks The following risks are inherent within any fund: There may be different tax outcomes if you invest in a managed fund compared to investing directly. There may be delays in withdrawing from a fund. A fund may be terminated. 7

8 INVESTING WITH US Investing through an IDPS As you are investing through a Master Trust or Investor Directed Portfolio Service (IDPS) in most cases, you do not yourself become an investor in the Fund. Instead, as the IDPS Operator is investing on your behalf, it acquires the rights of an investor. The IDPS Operator can exercise (or decline to exercise) those rights in accordance with the arrangements governing the operation of the IDPS. Some parts of the Fund s Constitution will not be directly relevant to you. For example, you will generally not be able to attend meetings, and you will receive reports from the IDPS Operator, not us. How to Invest and Withdraw Consult your IDPS Operator for instructions on their investment and withdrawal procedures. Application and withdrawal requests from an IDPS are generally processed each Melbourne business day using the unit price calculated for that day. Suspension of Applications and Withdrawals In exceptional circumstances where we consider it to be in the best interest of investors, we may choose to suspend the processing of all applications and/or withdrawals. If this occurs, your application or withdrawal will be processed using the next available price. For further information on withdrawing or transferring units, please call us on Labour Standards or Environmental, Social or Ethical Considerations We do not take into account labour standards or environmental, social or ethical considerations in the selection, retention or realisation of investments in the Fund offered under this PDS. However, we do have an overall policy of always acting legally, acting in the best interests of investors, and dealing with parties who, to the best of our knowledge, are reputable organisations. Your IDPS Operator s instruction (on your behalf) to invest or withdraw must be received at our registered office by 3.00pm (Melbourne time) on a Melbourne business day to receive the unit price effective for that day. This price is generally released the following Melbourne business day. If your IDPS Operator s instruction to invest or withdraw is received after 3.00pm (Melbourne time) on a Melbourne business day you will receive the unit price effective for the next Melbourne business day. The Responsible Entity will generally pay withdrawals within five Melbourne business days. While all reasonable steps are taken to meet withdrawal requests within five Melbourne business days, where a substantial unit holding is withdrawn, we will pay the withdrawal as soon as practicable, depending on our ability to realise assets, but no longer than 90 days after the request is received. Please note, as you are investing through an IDPS, the time taken to process application and withdrawal requests through your IDPS Operator may vary from times specified above due to the processing requirements of your IDPS Operator. You should refer to your IDPS Operator s offer document. 8

9 UNIT PRICES AND INVESTMENT INCOME Unit Pricing The unit price for the Fund is generally calculated for each Melbourne business day, taking into consideration the market value of the investments of the Fund, less any amounts owing and any accruals for expenses and interest (i.e. the net asset value of the Fund) then divided by the number of units issued in the Fund. The market value of the Fund's assets includes the value of all its investments, any cash held in the Fund and income accrued, but not received, less any amounts required for a distribution. These values are based on the information most recently available at the time of calculating the application and withdrawal unit price. The unit price for Wholesale Units is calculated taking into consideration only the Net Asset Value that relates to the number of units on issue in the Wholesale class and with a deduction of fees and costs relating to the Wholesale class at the relevant time. Where fees or costs relate to more than one class, the deduction is made on a pro rata basis. Where the Responsible Entity applies discretion to the unit price as per its powers under the Constitution (e.g. in determining an appropriate level for the buy/sell spreads, based on estimates of underlying transaction costs being incurred by the Fund), the Responsible Entity acts in accordance with its set policies. Investors may inspect a copy of these policies at our registered office at any time between 9.00am and 5.00pm (Melbourne time) on a Melbourne business day. The policies are also available to investors (free of charge) by contacting the Responsible Entity. Application price The application price is calculated as above taking into consideration any applicable buy spread. Withdrawal price The withdrawal price is calculated as above taking into consideration any applicable sell spread. For daily unit price updates please visit our website or call on Distribution reinvestment price For the purpose of reinvesting distribution proceeds, the distribution reinvestment price is the unit price at the end of the distribution period, excluding distributable income. We reinvest your distribution proceeds at this price at the beginning of the next distribution period. Reinvested distributions do not incur the buy spread. Distributions The Fund will earn income from its various investments, including dividends, distributions and interest from other investments. The Fund may also incur gains or losses on the sale of investments. Generally, net investment income is distributed to you at the end of the Fund s distribution period. Any net realised gains earned may not be distributed until the end of the financial year. Distributions are generally paid within 21 Melbourne business days of the end of the distribution period. Please note your IDPS Operator may pay income at different times. The amount of distribution income you receive is based on the number and class of units you hold at the end of each distribution period. The distribution income may also include any realised gains. Cooling Off Period As you are investing through an IDPS you should consult the IDPS Operator in relation to cooling off rights that may apply to your investment in the IDPS (if any). Tax Information The Fund does not generally incur an income tax liability. The Fund is a resident of Australia for taxation purposes. The Fund s net taxable income is assessable in the hands of Australian investors who receive distributions. If you are not an Australian resident, different rules may apply. Please note, as you are investing through an IDPS, we recommend that you refer to the taxation information in your IDPS Operator s offer document and that you seek professional taxation advice before making an investment decision. Please refer to page 11 for further information on buy and sell spreads. 9

10 FEES AND OTHER COSTS Government regulations require the inclusion of the following consumer advice warning in all product disclosure statements: 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 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 investment 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 the fund assets as a whole. Taxes are set out in another part of this document. You should read all the information about fees and costs because it is important to understand their impact on your investment. Type of Fee or Cost 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. Termination fee The fee to close your investment. Management costs 1 The fees and costs for managing your investment. Service fees Investment switching fee The fee for changing investment options. Nil Nil Nil Nil 1.10 per annum of the Net Asset Value relating to the Wholesale Units of the Fund. Nil Not applicable Not applicable Not applicable Not applicable Management costs are accrued daily and paid monthly in arrears by being deducted from the Fund s assets. Not applicable 1 This fee includes an amount payable to an adviser. (See Payments to financial adviser and intermediaries under the heading Additional Explanation of Fees and Costs ). 10

11 Example of Annual Fees and Costs for the Discovery Investment Services Core Income Fund Wholesale Units This table gives an example of how the fees and costs in the 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 the Discovery Investment Services Core Income Fund Wholesale Units BALANCE OF $50,000 WITH A CONTRIBUTION OF $5,000 DURING YEAR Contribution Fees Nil For every additional $5,000 you put in, you will be charged $0. PLUS Management Costs 1.10 pa And, for every $50,000 you have in the Fund you will be charged $550 each year. EQUALS Cost of Fund If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 during that year, you would (1) (2) be charged fees of $550. Additional fees may apply: (1) It is assumed that the contribution of $5,000 is made at the end of the year. (2) A buy/sell spread may be applicable to investments in and out of the Fund. (See Buy/Sell Spread under the heading Additional Explanation of Fees and Costs.) Additional Explanation of Fees and Costs Tax All fees and charges are inclusive of the impact of Goods and Services Tax (GST) and any Reduced Input Tax Credits (RITCs) available to the Fund. For further information on tax generally, see page 9. Abnormal operating expenses These charges represent a reimbursement to us from the Fund in accordance with the Fund s Constitution to cover abnormal operating expenses incurred by us in connection with the performance of our duties and obligations in administering the Fund. Other expenses and costs Expenses incurred in the day-to-day operation of the Fund (such as audit, compliance, custody, registry and regulatory costs) and which are recoverable under the Fund s Constitution are included in the Management Costs detailed in the table on page 10, except for the following: expenses that would have been incurred by a direct investor in the underlying assets such as transaction costs (see Fund transaction costs below); abnormal operating expenses these are costs not generally incurred in the day-to-day operation of the Fund (see Abnormal operating expenses below); and costs of borrowing (if any), including the interest expense, are paid directly by the Fund. The Fund may also incur other costs directly associated with transactions made on your account. Examples of these costs include Government taxes, bank dishonour and transaction fees, and any other charges resulting from you transacting on your account. These costs will be directly deducted from your account by reducing the number of units you hold within the Fund. We are unable to estimate these costs until they are incurred. These abnormal operating expenses are not generally incurred during the day-to-day operation of the Fund and are not necessarily incurred in any given year and have not been included in the Management Costs outlined in the table on the previous page. They are due to abnormal events such as the cost of running investor meetings or the legal costs of defending legal proceedings. Fund transaction costs Fund transaction costs are fund costs relating to the buying and selling of investments (such as asset acquisition and disposal costs), asset origination costs (including, where applicable, fees and commissions), brokerage and Government charges. These costs are incurred in the day-to-day management of the Fund and will be paid directly from the Fund. These costs are not included in the Management Costs referred to in the table on the previous page. Buy/Sell spread As at the date of this PDS, there is no buy/sell spread, however this may change in the future. Generally, the buy spread and sell spread aims to ensure that each investor bears the transaction cost associated with their investment decision to either enter or exit the Fund. They are charged because entering or 11

12 exiting the Fund may necessitate the purchase or sale of investments by the Fund. They are an estimate to cover the costs incurred when buying or selling assets, including brokerage, Government charges, taxes and the like. The buy and sell spreads are not an additional fee paid to the Responsible Entity. These monies are retained in the Fund to cover those transaction costs. The buy spread is an extra cost charged to enter a fund (buy units) and the sell spread is a cost charged to exit a fund (sell units). Sophisticated or professional investors From time to time, we may rebate some of our fees (or issue units in the Fund) to what the Corporations Act 2001 calls sophisticated or professional investors or wholesale clients or to employees of the Responsible Entity and related entities so that they pay reduced fees. We do not enter into individual fee arrangements with other investors. Where the Fund invests in other funds managed by us The Fund will invest in other funds or investment companies including those managed by us or our associates. Where we, or an associate, are the responsible entity or manager of that other fund, full management fees will not be received by us from both funds. Instead, our management fees will be adjusted to reflect the Fund s fees described on pages 10 and 11. Fee changes and maximum fees Fees may increase or decrease for many reasons, including changes in the competitive, industry and regulatory environment or simply from changes in costs. We can change fees without your consent. We will not increase fees without providing at least 30 days written notice to your IDPS Operator. If you withdraw within this notice period, the increased fees will not apply to you. The maximum fees we are allowed to charge the Fund (excluding any GST) is stated in the Fund s Constitution and is as follows: Contribution fee: 6 of each contribution to the Fund. Management fee: 3 pa of the gross value of the assets of the Fund. Withdrawal fee: 6 of each amount withdrawn. There is no limit in the Fund s Constitution on the amount that we can charge for expense recoveries. Indirect Cost Ratio (ICR) The ICR is a useful measure of the ongoing fees and expenses of investing in a fund. It is expressed as a percentage of the size of a fund. The ICR shows you the cost of using the Fund compared to investing directly in assets (such as shares and property). It is calculated by dividing the total ongoing fees and expenses (but not transaction costs) by the Fund size over the period. It is expressed as a percentage of the size of the Fund. The ICR does not include transaction costs, brokerage, borrowing costs and Government charges incurred by the Fund. The Discovery Investment Services Core Income Fund is a new fund. As a result, historical ICR s are not available. IDPS fees The fees and charges outlined do not include any IDPS Operator fees and charges that may apply. Payments to financial advisers and intermediaries The financial adviser providing you with initial and ongoing advice may receive payment (remuneration) from PIS or a related party for providing this advice. Your financial adviser has to meet his/her expenses from this remuneration and also relies on it for income. Your financial adviser is required to disclose all remuneration received for placing investments in your account. From time to time we may offer incentives to your financial adviser or other intermediaries, which we determine and pay out of our own money. All adviser remuneration quoted is inclusive of GST unless otherwise specified. We will pay PIS ongoing trail commission of pa ($27.50 per $10,000) of the Fund s net assets paid monthly in arrears. This remuneration forms part of the Management costs detailed in the table on page 10 and is not an additional cost to you. Alternative remuneration register The Responsible Entity maintains an Alternative Remuneration Register in accordance with the IFSA/FPA Industry Code of Practice on alternative forms of remuneration in the wealth management industry. The register outlines alternative forms of remuneration that are paid and received by us. Investors may inspect a copy of the register at our registered office at any time between 9.00am and 5.00pm (Melbourne time) on a Melbourne business day. For the actual fees currently charged, refer to pages 10 and

13 ADDITIONAL INFORMATION Constitution The Fund is a registered managed investment scheme and is governed by a Constitution and Compliance Plan lodged with the Australian Securities and Investments Commission (ASIC). The statements in this PDS only provide a summary of some of the provisions of the Constitution. Investors may inspect a copy of the Constitution at our registered office at any time between 9.00am and 5.00pm (Melbourne time) on a Melbourne business day. We may amend the Constitution at any time. The Corporations Act 2001, requires that we must, however, gain the consent of investors if the amendments may adversely affect investors rights. Powers and Duties of the Responsible Entity AUI is the Responsible Entity for the Fund. The Responsible Entity must act in accordance with the Constitution and the Corporations Act It is responsible for the administration and management of the Fund, including determining investment policy and objectives. The Responsible Entity is also responsible for protecting the rights and interests of investors, including acting honestly and exercising due care and diligence. The Responsible Entity is entitled to the benefit of various indemnities under the Fund s Constitution. The Responsible Entity is bound to recognise the registered holders of units as the absolute owners and is entitled to take no notice of equitable or other claims of interests in the Fund. The Responsible Entity may appoint agents and delegate some of its functions. The Responsible Entity is permitted to extend the period to effect a withdrawal of units in certain circumstances. Compliance Plan and Committee The Fund has a Compliance Plan that outlines the processes that the Responsible Entity will apply in operating the Fund to ensure compliance with the Corporations Act 2001 and the Constitution. Our compliance with the Compliance Plan is independently audited. The Responsible Entity has established a Compliance Committee. The majority of the members of the Compliance Committee must be, and are, independent of Australian Unity. The main role of the Compliance Committee is to monitor our compliance with the Fund s Compliance Plan and to report certain breaches of the Corporations Act 2001 and the Compliance Plan, should they occur, to the Responsible Entity s Board of Directors and/or ASIC. Interest in the Fund Each unit purchased entitles the unitholder to an equal and proportionate interest in the total investments of the Fund, but does not give the unitholder an interest in any particular asset of the Fund. The Responsible Entity has the right to create additional classes of units. Such units may be issued with any preferred, deferred or other special rights, obligations or restrictions, whether in regard to distributions, voting, return of capital, payment of calls or otherwise, that the Responsible Entity determines. Unitholder Liability The Fund s Constitution limits unitholder s liability to the Fund s creditors to the amount that they have invested in the Fund. However, the Responsible Entity cannot guarantee that liability is limited in all circumstances, as this decision lies with the courts. Investment Managers AUI as the investment manager appointed by the Responsible Entity is entitled to receive fees for investment management as agreed from time to time with the Responsible Entity. The Responsible Entity will notify investors of a change to, or removal of, AUI as the investment manager of the Fund; or the appointment of a further investment manager to the Fund. Authorised Investments Under the Constitution, the Responsible Entity can invest in a broad range of investments. However, the Responsible Entity currently limits the range of investments to those set out on pages 2 to 5. Where the Responsible Entity believes it to be in the investors' best interests, it can amend the Fund's investment guidelines without notice. Borrowing Under the Fund s Constitution and law, the Responsible Entity has the power to borrow and raise money for the purposes of the Fund and to grant security over the Fund s assets; and to incur all types of obligations and liabilities. The Responsible Entity only intends to borrow to meet short-term needs. 13

14 Meetings of Unitholders Subject to certain thresholds, the Responsible Entity or unitholders can call a meeting as outlined in the Fund s Constitution. Terminating the Fund The Fund can be terminated at any time, subject to the Fund s Constitution and the Corporations Act If this occurs, the Responsible Entity will convert the Fund s assets to cash, where possible, and pay off the Fund s liabilities. Unitholders are then entitled to a share of the balance of the assets, in proportion to the number and class of units that each unitholder may hold. Related Party Transactions All transactions, including with related parties, are conducted on normal commercial terms and conditions, and on an arms length basis. The Responsible Entity is also the investment manager of the Fund, and the investment manager of the various initial Underlying Funds. AUI may be a related entity to the investment manager of other Underlying Funds into which the Fund may invest from time to time. Please refer to page 12 for more information on fees where a Fund invests in other Funds managed by us. Entities of the Australian Unity Group may provide accounting and registry services, project services and other services to the Fund for which fees are charged at a commercial rate. Privacy We do not collect or hold your personal information in relation to your investment in the Fund. You should contact your IDPS Operator for information about the collection, storage and use of your personal information. Dispute Resolution If you have a complaint, please write to your IDPS Operator in the first instance. We will promptly acknowledge your complaint in writing within 14 days, investigate it and decide in a timely manner what action needs to be taken. We will notify you of our decision within 45 days after receipt of the complaint, together with any remedies that are available, or other avenues of appeal against the decision. If you are not satisfied with our handling of your complaint, and your complaint was put to us in writing, you may contact: Financial Industry Complaints Service Limited PO Box 579 Collins Street West Melbourne VIC 8007 Telephone: Facsimile: (03) Website: This service has been set up as an objective party to hear unresolved complaints. There is no cost to you for using this service. Keeping In Touch We will keep in touch with your IDPS Operator by sending them a distribution statement each quarter and a tax report and audited financial statements at the end of each financial year. You will receive reports from the IDPS Operator, not us. As you are investing through an IDPS, your first point of contact is your IDPS Operator. If you would like to contact us directly, you can at our registered office: Australian Unity Investments 114 Albert Road South Melbourne VIC 3205 Telephone: Australia-wide Facsimile: (03) investments@australianunity.com.au Website: We take complaints seriously and aim to resolve them as quickly as possible. You can either call us on , us at investments@australianunity.com.au or write to us at the following address: The Administration Manager Australian Unity Investments 114 Albert Road South Melbourne VIC

15 GLOSSARY AUFM means Australian Unity Funds Management Limited ABN , AFS Licence No AUI means Australian Unity Investments, which refers to AUFM AUI High Yield Mortgage Trust means the Australian Unity High Yield Mortgage Trust ARSN AUI Mortgage Income Trust means the Australian Unity Mortgage Income Trust ARSN Constitution means the deed poll dated 19 October 2006 which established the Fund, as amended from time to time. Corporations Act 2001 means the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 as amended from time to time. Discovery means Discovery Investment Services Corporation Limited ABN Distribution Period means the end of each calendar month. Net Asset Value means the total market value of the Assets, less the total value of the Liabilities excluding net assets attributable to Unitholders. For the purpose of determining distributions to Unitholders and valuations of investment, the impact of changes in accounting policies in accordance with AIFRS are added back to/deducted from the Net Asset Value. Responsible Entity means the Responsible Entity of the Fund, which is Australian Unity Funds Management Limited ABN , AFS Licence No RITC means Reduced Input Tax Credits. Underlying Fund means a fund in which the Discovery Investment Services Core Income Fund is invested. Unit means an undivided beneficial interest in the Fund, the value of which is calculated in accordance with the Fund s Constitution. Unitholder means the registered holder of Units in the Fund, which is the IDPS Operator where you are accessing this Fund through an IDPS. Fund means the Fund offered under this PDS, namely, the Discovery Investment Services Core Income Fund ARSN GST means Goods and Services Tax. IDPS means an Investor Directed Portfolio Service and/or like scheme, a master trust or a nominee and custody service. Melbourne Business Day means any day in which Australian banks are open for business in Melbourne excluding a Saturday and Sunday. 15