Reference Guide Complex Funds

Transcription

1 Reference Guide Complex Funds Issue No 2014/1, dated 1 February 2014 Issued by Colonial First State Investments Limited ABN AFS Licence

2 Contents Introduction 1 Benchmarks and disclosure principles for complex funds 1 Glossary 2 Acadian Wholesale Australian Equity Long Short 3 Acadian Wholesale Global Equity Long Short 7 Acadian Wholesale Quant Yield 11 Aspect Wholesale Diversified Futures 15 Colonial First State Wholesale Australian Share Long Short Core 20 Colonial First State Wholesale Enhanced Yield 24 Colonial First State Wholesale Global Resources Tactical 29 Platinum Wholesale Asia 34 Platinum Wholesale International 38 PM Capital Wholesale Absolute Performance 42 PM Capital Wholesale Enhanced Yield 47 The name and contact details for the products referred to in this document are: Colonial First State Investments Limited 11 Harbour Street Sydney NSW 2000 Telephone Facsimile (02) contactus@colonialfirststate.com.au This Reference Guide contains statements and information incorporated by reference and must be read in conjunction with the relevant offer document for the product you wish to apply for. A reference to the offer document in this Reference Guide is a reference to the offer document, the Investment Options Menu (if applicable) and all statements and information incorporated by reference as described and listed in the relevant offer document for the product you wish to apply for. You should read all parts of the relevant offer document. If you would like a paper copy to be sent to you, free of charge, contact Colonial First State on or us at contactus@colonialfirststate.com.au. Investments are offered by Colonial First State Investments Limited ABN AFS Licence ( Colonial First State, CFSIL, the Responsible Entity ). Colonial First State is a subsidiary of Commonwealth Bank of Australia ABN AFS Licence ( the Bank ). The Bank and its subsidiaries do not guarantee the performance of FirstChoice products or the repayment of capital by these products. Apart from FirstRate products, investments in FirstChoice products are not deposits or other liabilities of the Bank or its subsidiaries. Investmenttype products are subject to investment risk including loss of income and capital invested. However, the trustee has the benefit of a guarantee (in an approved form) limited to $5 million from the Bank in respect of the due performance of its duties as a Registered Superannuation Licensee. The guarantee is available for inspection by contacting the Company Secretary of the trustee. Other information about the role of service providers and investment managers can be found in the relevant offer document, including on the inside cover of the relevant offer document. The Responsible Entity (RE) may change any of the terms and conditions contained or referred to in the relevant offer document and, where a change is material, the RE will notify you in writing within the timeframes provided for in the relevant legislation. You should note that unless an investment fund is suspended, restricted or unavailable, you may withdraw from an investment fund in accordance with our normal processes. The information contained in this Reference Guide is general information only and does not take into account of your personal financial situation or needs. You should consider obtaining financial advice relevant to your personal circumstances before investing. The investment managers of the investment funds available for investment have given, and not withdrawn, their consent to be included in this Reference Guide in the form and context in which they are included. The investment managers are acting as investment managers only for the relevant funds. They are not issuing, selling, guaranteeing, underwriting or performing any other function in relation to the funds. Colonial First State Investments Limited is the entity which is licensed by ASIC to operate managed investment schemes (Fund) and is responsible for the holding and administering the Fund s assets in accordance with the Fund s constitution and the Corporations Act This information is current as at 1 February 2014 and may be updated from time to time. Please refer to our website or call us for the most up to date information.

3 Introduction ASIC Regulatory Guide 240 (RG240) Hedge Funds: Improving Disclosure has introduced several benchmarks and disclosure principles which aim to help investors make more informed decisions about investing in certain funds. These funds have been defined by ASIC as hedge funds and may be considered more complex than other funds if they satisfy certain characteristics. Hedge funds and funds with certain hedge fund characteristics can pose more complex risks for investors than traditional managed investment schemes. This can arise due to their diverse investment strategies, in many cases involving the use of leverage and complex and offshore structures. ASIC has identified some characteristics that distinguish hedge funds from other managed investment schemes, such as the use of leverage, derivatives and short selling, or seeking returns with low correlations to equity and bond markets. Where a fund exhibits two or more of the characteristics defined, ASIC now requires responsible entities to provide additional reporting and disclosure. In this Reference Guide we will be referring to these funds as complex funds. Benchmarks and disclosure principles for complex funds For those investment funds that have been identified as complex funds there are certain benchmarks and disclosure principles which must be described in detail. These benchmarks and additional disclosure may assist you in making your investment decision. The table below outlines the benchmarks and disclosure principles which must be explained for each fund that has been identified as a complex fund. Benchmarks Benchmark Benchmark 1 Valuation of assets Benchmark 2 Periodic reporting Description Colonial First State Investments Limited meets this Benchmark as it has a policy which requires that Fund assets, which are not exchange-traded, are valued by an independent administrator or an independent valuation service provider. The assets of a Fund are valued at market value or a value provided by an independent source in consultation with Colonial First State Investments Limited and in accordance with standard market practice. Colonial First State Investments Limited has policies in place to make available on our website the following information for each Fund as soon as practical after the relevant period: Daily unit prices Quarterly: Quarter-end invested asset allocation/regional allocation Quarterly top 10 holdings (if applicable) Quarter-end net historical performance and net return on a Fund s assets Market review, Fund performance and activity, and Outlook and Strategy for each Fund Material changes in a Fund s risk profile. Annually: Actual asset allocation for each Fund Annual investment returns over at least a five-year period Audited financial statements for each Fund Audited financial statements for Colonial First State Investments Limited Maturity profile of financial liabilities relative to the liquidity profile of the Fund s assets. The availability of the information above to unitholders will be subject to limitations around the nature of any commercially sensitive information that must be held confidential. Disclosure principles Disclosure principle Investment strategy Investment manager Fund structure Valuation, location and custody of assets Liquidity Leverage Derivatives Short selling Withdrawals Description Details of the fund s investment strategy, including the type of strategy, how it works and how risks are managed. Information about the people responsible for managing the fund s investments. Detailed information about the investment manager for each fund can be found in each Manager profile which is available on our website, colonialfirsstate.com.au/manager profile. An explanation of the investment structures involved. Disclosure of the types of assets held, where they are located, how they are valued and the custodial arrangements. The fund s ability to realise its assets in a timely manner and the risks of illiquid classes of assets. Outlines the maximum level of leverage (where applicable) of the fund. The purpose and types of derivatives used by the appointed investment manager and the associated risks. How short selling (where applicable) may be used as part of the investment strategy and the associated risks and costs of short selling. Circumstances in which the RE allows withdrawals. A full explanation of how your withdrawal will be processed can be found in the relevant offer document for the product you are investing, which is available on our website, colonialfirststate.com.au. The disclosure principles for each Fund identified as a complex fund are detailed on pages 3 to 50. Reference Guide Complex Funds 1

4 Glossary Term Absolute return Active risk Alpha Arbitrage Beta Cap-weighted benchmark Collar strategy Delta Derivative Event-driven long Floating rate notes Franking credit Futures ISDA ISDA master agreement Leverage Long position Mark to market Naked short-selling Options Paired trade Short selling SPI futures contract Standard deviation Value at Risk (VaR) Definition the return that an asset achieves over a certain period of time. Absolute return differs from relative return because it is concerned with the return of a particular assets and does not compare it to any other measure or benchmark. a type of risk that a fund or managed portfolio creates as it attempts to beat the returns of the benchmark against which it is compared. a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a fund and compares its riskadjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund s alpha. the simultaneous purchase and sale of an asset in order to profit from a difference in the price. a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. an equity index that has a limit on the weight of any single security. Thus, a capped index sets a maximum percentage on the relative weighting of a component that is determined by its market capitalisation. a protective options strategy that is implemented after a long position in a stock has experienced substantial gains. the ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. a type of security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. a strategy that attempts to take advantage of events such as mergers and restructurings that can result in the shortterm mispricing of a company s stock. long-term (one year or more) debt securities whose interest rates are adjusted periodically in line with a benchmark rate. a type of tax credit that allows domestic companies to pass through taxes that have already been paid on corporate profits. The investor receiving stock dividends will also receive a quantity of franking credits in proportion to the overall tax rate of the company per dollar in profits. a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a pre-determined future date and price. the International Swaps and Derivatives Association, which helps to improve the private negotiated derivatives market by identifying and reducing risks in the market. a basic, standardised swap contract created by ISDA in the late 1980s. The standard agreement identifies the two parties entering the transaction; describes the terms of the arrangement, such as payment, events of default and termination; and lays out all other legalities of the deal. using financial instruments or borrowing to increase the potential return of an investment. the buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. When the net asset value (NAV) of a fund is valued based on the most current market valuation. practice of short selling shares that are not owned by the seller. a financial derivative that represents a contract sold by one party (option writer) to another party (option holder). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down. Pair trades investing involves going long in one stock and short in a similar stock in the same industry, so hedging out the industry risk. the sale of a security that isn t owned by the seller or which the seller has borrowed. the benchmark equity index futures contract in Australia, based on the S&P/ASX 200 Index. a measure of the dispersion of a set of data from its mean. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment s volatility. A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time frame. VaR is used by risk managers in order to measure and control the level of risk which the firm undertakes. The risk manager s job is to ensure that risks are not taken beyond the level at which the firm can absorb the losses of a probable worst outcome. 2

5 Acadian Wholesale Australian Equity Long Short 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes The Fund s investment strategy is based on the belief that markets are inefficient, creating price anomalies that can be exploited by a disciplined, objective investment process. Acadian Australia s investment approach employs structured stock and peer group valuation models, which are designed to capture a broad range of relevant characteristics such as quality, value, earnings growth and pricerelated factors. This aims to systematically unearth securities with unrecognised value, as well as improving earnings prospects, to help unlock that value. Stocks that Acadian Australia believes are undervalued will be purchased and overvalued stocks will be selectively short sold. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30% (130/30), with an upper limit of 150/50. The Fund does not hedge currency risk. Australian shares and cash. Location Australia Currency denomination Australian and New Zealand dollars Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives The Fund may invest in exchange-traded index futures contracts to manage cash exposures. Short selling The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across the Australian equity market. The approach uses Acadian Australia s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30%. The Fund is benchmarked against the S&P/ASX300 Accumulation Index. The Fund is constructed using Acadian Australia s alpha model, which looks at a range of Value, Earnings, Quality and Technical metrics. The Fund seeks to achieve investment returns from long Australian equity positions with 130% of the portfolio s value and short Australian equity positions worth -30% of the portfolio s value. Being able to short securities allows Acadian Australia the additional benefit of capitalising on the negatively forecasted securities in its universe, thus potentially enhancing the ability to add value to the portfolio. A customised risk model is used to estimate risk. The Fund will tend to post positive returns relative to the S&P/ASX 300 Accumulation Index (Index) when the long positions increase in value and the short positions decrease in value. Conversely, the Fund will post negative returns relative to the Index when the short positions increase in value and the long positions decrease in value. Please refer to the relevant offer document for important information on fund risks. Acadian Australia s main measure of risk for this strategy is the standard deviation of the returns of the combined long and short portfolios relative to the benchmark. The Fund uses commercially available software and proprietary risk models to ensure that portfolio risk is carefully controlled while at the same time maximising expected return. The portfolio construction and review process conducted by Acadian Australia s portfolio managers includes a range of constraints including stock, industry, size and style factors. Acadian Australia s risk-control framework of stock, sector and industry constraints relative to the Index helps to ensure the Fund has an attractive diversification profile. Prior to rebalancing, the proposed portfolio undergoes a detailed review by investment personnel before it is approved for trading. This review focuses explicitly on sources of risk and compliance with stated risk targets. No portfolio is traded without sign-off from multiple members of the team. Once approved, the portfolio is traded and then continuously monitored for compliance using a suite of internally developed and commercially available software tools. The risk models continually assess the relative positions of the long and the short portfolios to ensure that they are typically within the designated constraints, leading to prudent security, industry and sector constraints. The Fund is managed by Acadian Asset Management (Australia) Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. Reference Guide Complex Funds 3

6 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Description of Investment Manager Consistent with Acadian Australia s belief that all relevant information about a company, including its risk characteristics, can be captured quantitatively. Acadian Australia performs all of its company analysis via its quantitative investment model and risk estimation models rather than through company visits. The investment team aims to ensure the investment model is effectively and efficiently processing the quantitative data in Australia. David Walsh, Head of Investments David joined Acadian Australia in February 2013 as Head of Investments and Deputy CEO. David is also a member of the Investment Policy Committee for Acadian LLC. David has over 20 years experience in the finance industry. Prior to joining Acadian Australia, David was at Baseline Capital, a quantitative investment management consulting firm which he founded. Before that, he was Managing Director and Senior Portfolio Manager for the Australian Equity Quantitative Team at BGI/BlackRock for 10 years, and preceding that was Head of Equities Research, Australia at State Street Global Advisors. Education: PhD (Finance), B.Engineering and M.Business. Jerome Blair, Vice-president, Portfolio Manager and Research Jerome is responsible for managing this Fund. Jerome joined Acadian Australia in February Jerome is the portfolio manager responsible for the active and alpha-driven portfolios, and carries out research on factors and portfolio construction. Prior to this, Jerome worked at MIR Investment Management in roles involving quantitative stock selection research and portfolio management. Before this he worked for BGI as quantitative research analyst in Australian Equities. Prior to this he worked in the broking division of Deutsche Bank focusing on quantitative analysis for Australian Equities in the areas of proprietary derivatives trading, structured products and real-time trading systems design. He has over 16 years experience in the financial industry. Education: PhD (Maths) Sydney, B.A (Maths & Computer Science) Sydney. Katrina Khoupongsy, Vice-president, Portfolio Manager and Research Katrina joined Acadian Australia in February 2009 and Katrina has 16 years experience in the finance industry. Prior to joining Acadian Australia, Katrina was a Senior Quantitative Analyst at ING. Prior to that she held quantitative roles at IFS Equities, BT Funds Management, County Investment Management and Mercantile Mutual Investment Management. Education: B Maths & Finance (Hons), Grad Dip App. Fin & Inv, CFA Charterholder. Matthew Picone, Associate Portfolio Manager Matt joined Acadian Australia in August 2007 and is responsible for Portfolio Construction and Trading. Matt is the co-portfolio Manager for Acadian Australia s High Yield strategy and also conducts quantitative research. Education: B Commerce (Finance and Econometrics), University of Sydney; CFA Charterholder. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Acadian Asset Management (Australia) Limited is the appointed investment manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a halfyearly review (if required), and to provide an opinion on the financial statements. Prime Broker: UBS AG, Australia Branch acts as a global Prime Broker and Custodian for the Fund. 4

7 Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Investment Manager: Acadian Asset Management (Australia) Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: UBS AG, Australia Branch Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts, periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Acadian Asset Management (Australia) Limited Australia UBS AG, Australia Branch Australia PricewaterhouseCoopers Australia Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. 4. Valuation, location and custody of assets Description Valuation policy The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Asset types and allocation ranges Australian shares (listed) % (expressed as a percentage of the Global shares (listed) 0 10% Fund s net asset value) Australian shares (unlisted) 0 10% Global shares (unlisted) Exchange-traded derivatives 0 15% Cash 0 5% Custodian arrangements A professional custodian (UBS AG, Australia Branch) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. Geographic location of assets or material assets The assets of the Fund are held by the Prime Broker/Custodian. UBS AG, Australia Branch is located in Australia. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across the Australian equity market. The approach uses Acadian Australia s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30% (130/30). Borrowed stock and cash via Prime Broker. Maximum allowed level of leverage The Fund s maximum allowed leverage is 150% and a gross short exposure of 50% (150/50). The maximum amount of leverage is $2.00 (gross) per $1 of net asset value invested in equities. Impact of leverage on investment The Fund has $150 in long positions and $50 in short positions for every $100 of Fund s net asset value. returns and losses The gross market exposure is $150 (longs) + $50 (shorts) = $200 So the leverage is $200 $100 = 2 If long and short positions each return 10%, the return in dollar terms is: (150) 0.1+ (50) 0.1= $20, which represents a 20% return calculated against the Fund s net asset value (or two times the unleveraged return of 10%). Assets used as collateral There are no assets of the Fund that are used for collateral. Reference Guide Complex Funds 5

8 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements Derivatives do not form a core part of the investment strategy and would only be used for the efficient management of transactional cash flows. Exchange-traded index futures. Not applicable. There is minimal counterparty risk as the counterparty is the exchange. The key collateral risk is credit risk with the Prime Broker. This is managed by the Responsible Entity, who ensures any excess margin is swept from the Prime Broker s account on a daily basis. Collateral requirements for exchange-traded index futures are generally minor. Please refer to the relevant offer document for additional information on fund risks. 8. Short selling Description Is short selling permitted? Yes. Rationale Short selling allows Acadian Australia not only to take advantage of those stocks on which it has a positive view by taking long positions, but also those on which it has a negative view by establishing a short position. The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across the Australian equity market. The approach uses Acadian Australia s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30%. Risks The main risk of short selling is getting stock selection wrong. The Fund mitigates this risk by implementing stock constraints to limit stock specific risk. Another risk lies in the credit worthiness of the Prime Broker. Acadian Australia, in conjunction with the Responsible Entity, undertakes thorough reviews of a Prime Broker s credit worthiness. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with our normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 6

9 Acadian Wholesale Global Equity Long Short 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes The Fund s investment strategy is based on the belief that markets are inefficient, creating price anomalies that can be exploited by a disciplined, objective investment process. Acadian s investment approach employs structured stock and peer group valuation models, which are designed to capture a broad range of relevant characteristics such as quality, value, earnings growth and price-related factors. This aims to systematically unearth securities with unrecognised value, as well as improving earnings prospects, to help unlock that value. Undervalued stocks will be purchased and overvalued stocks will be selectively short sold. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30% (130/30), with an upper limit of 150/50. The Fund may partially hedge currency risk up to 50% of the Fund s value. Global shares and cash. Location Global. The Fund primarily invests in markets included in the MSCI World index. Currency denomination Various. The currency of the assets are typically denominated in the local markets included in the MSCI World Index. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives While such instruments are not normally employed, from time to time Acadian may use certain derivatives such as forward currency contracts and equity index swaps and futures to help gain exposure to selected equity markets in a cost-efficient manner. The Fund is allowed opportunistic longerterm currency hedging (up to 50% of the Fund s value), as well as investment in equity index swaps and futures (up to 15% of the Fund s value). Short selling The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across developed and, on an opportunistic basis, emerging markets. The approach uses Acadian s security return forecasting and disciplined portfolio construction methodologies, resulting in a global equity portfolio with enhanced alpha potential relative to the firm s comparable long-only strategies. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30% (130/30). The Fund is benchmarked against the MSCI World Index. The Fund is constructed using Acadian s alpha model, which looks at a range of value, earnings, quality and technical metrics. The Fund seeks to achieve investment returns from long positions with 130% of the portfolio s value and short positions worth 30% of the portfolio s value. Being able to short securities allows Acadian the additional benefit of capitalising on the negatively forecasted securities in its universe, thus potentially enhancing the ability to add value to the portfolio. A customised risk model is used to estimate risk. The Fund will tend to post positive returns relative to the index when the long positions increase in value and the short positions decrease in value. Conversely, the Fund will tend to post negative returns relative to the index when the short positions increase in value and the long positions decrease in value. Please refer to the relevant offer document for important information on fund risks. The main measure of risk is the standard deviation of the returns of the combined long and short portfolios relative to the benchmark. The Fund uses commercially available software and proprietary risk models to ensure that portfolio risk is carefully controlled while at the same time maximizing expected return. The portfolio construction and review process conducted by Acadian s portfolio managers includes a detailed analysis of the sources of portfolio risk, including stock, industry, size and style factors. Acadian s risk-control framework helps to ensure an attractive diversification profile. The risk models continually assess the relative positions of the long and the short portfolios to ensure that they are typically within the designated constraints, leading to active country and industry weights of typically no more than +/ 5% of the Fund s value. In an effort to limit unwarranted risk from the short-term price movements of individual stocks, Acadian sets active position weights dynamically based on the recent volatility of each stock. Under this system, the portfolio s active position sizes, both long and short, may range up to the current maximum of 2%. We have found that this dynamic management of individual stock positions can be accomplished while still maintaining the desired degree of active portfolio risk at the overall portfolio level. Acadian does not employ capitalisation constraints unless directed by the Responsible Entity, preferring instead to invest freely across the full spectrum of capitalisation sizes. The portfolio s cap range distribution at any given time is a function of where we have identified the best potential opportunities at the stock level, subject to the risk controls applied in the process. The Fund is managed by Acadian Asset Management LLC (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. Reference Guide Complex Funds 7

10 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Description of Investment Manager For Acadian s traditional equity strategies, the same team oversees a single core process that produces all portfolios and is customized by client mandate. This team comprises of 18 portfolio managers all of whom are involved with the management of the Fund. John R. Chisholm, CFA Executive Vice President, CIO John joined Acadian in July He is the Chief Investment Officer and oversees Acadian s investment process and investment team. He continues to actively manage Acadian portfolios and direct research to enhance Acadian s approach, as he has since Earlier in his career, John served as systems engineer at Draper Laboratories and as an analyst for the International Asset Management Department at the State Street Bank and Trust Company (now SSgA). A CFA charterholder, he is a member of the Boston Security Analysts Society. Education: B.S., Engineering, MIT; M.S., Management, MIT. Alexandre Voitenok Senior Vice President, Director, Long/Short Strategies Alex joined Acadian in June His primary focus is to oversee the Acadian long/short equity products. Previously, Alex was a Portfolio Manager at Gartmore Investment Management in London and Boston where he focused on long/short funds while co-managing a global active book of business of US$3 billion. Alex was also the product architect behind Gartmore s next generation of quantitative models. Prior to Gartmore, Alex was a Quantitative Developer, working for Putnam Investments through a contract with Keane Canada. Education: M.Sc., Software Engineering, Minsk Radio Engineering Institute. Rui Tang Vice President, Associate Portfolio Manager Rui Tang is a Vice President, Associate Portfolio Manager in the long/short team, running long/short strategies at Acadian. Prior to joining Acadian in August 2009, he was a researcher investigating trading strategies at a prop desk for Goldman Sachs in New York. Education: A.M., Statistics, Harvard University; A.B., Economics, Harvard University. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Monitoring service providers Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Acadian Asset Management LLC is the appointed Investment Manager to manage the Fund s assets. Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Prime Broker: Goldman Sachs International acts as a global Prime Broker and Custodian for the Fund. Investment Manager: Acadian Asset Management LLC The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: Goldman Sachs International Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts and periodic on-site due diligence visits. 8

11 Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product you wish to invest in. Colonial First State Investments Limited Australia Acadian Asset Management LLC United States of America PricewaterhouseCoopers Australia Goldman Sachs International United Kingdom Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. 4. Valuation, location and custody of assets Description Valuation policy The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Asset types and allocation ranges Australian shares (listed) % (expressed as a percentage of the Fund s net asset value) Global shares (listed) Exchange-traded derivatives 0 15% Over-the-counter derivatives (excluding forward foreign currency contracts) Over-the-counter forward foreign currency contracts 0 50% Cash 0 5% Custodian arrangements A professional custodian (Goldman Sachs International) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. Geographic location of assets or material assets The assets of the Fund are held by the Prime Broker/Custodian. Goldman Sachs International is located in the United Kingdom. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across developed and, on an opportunistic basis, emerging markets. The approach uses Acadian s security return forecasting and disciplined portfolio construction methodologies, resulting in a global equity portfolio with enhanced alpha potential relative to the firm s comparable long-only strategies. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30% (130/30). Borrowed stock and cash via Prime Broker. Maximum allowed level of leverage The Fund s maximum allowed level of leverage is 150% and a gross short exposure of 50% (150/50). The maximum amount of leverage is $2.00 (gross) per $1 of net asset value invested in equities. Impact of leverage on investment The Fund has $150 in long positions and $50 in short positions for every $100 of Fund s net asset value. returns and losses The gross market exposure is $150 (longs) + $50 (shorts) = $200 So the leverage is $200 $100 = 2 If long and short positions each return 10%, the return in dollar terms is: (150) 0.1+ (50) 0.1= $20, which represents a 20% return calculated against Fund s net asset value (or two times the unleveraged return of 10%). Assets used as collateral There are no assets of the Fund that are used for collateral. Reference Guide Complex Funds 9

12 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements Derivatives do not form a core part of the investment strategy and would only be used for the efficient management of transactional cash flows and hedging currency exposures. Exchange-traded futures, over-the-counter swaps and currency forward contracts. Acadian has stringent initial requirements that all counterparties must satisfy before they can be approved for trading. Prior to dealing over-the-counter derivatives, all counterparties must have a long term credit rating of BBB or above. Executed ISDA documentation must be in place between the Investment Manager and the counterparty prior to dealing. The Fund currently does not use any derivative counterparties with respect to derivatives, therefore no collateral is required. 8. Short selling Description Is short selling permitted? Yes. Rationale Short selling allows Acadian not only to take advantage of those stocks on which it has a positive view by taking long positions, but also those on which it has a negative view by establishing a short position. The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across global equity markets. The approach uses Acadian s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30%. Risks The main risk of short selling is getting stock selection wrong. The Fund mitigates this risk by implementing stock constraints to limit stock specific risk. Another risk lies in the credit worthiness of the Prime Broker. Acadian, in conjunction with the Responsible Entity, undertakes thorough reviews of a Prime Broker s credit worthiness. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with our normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 10

13 Acadian Wholesale Quant Yield 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes The Fund s strategy is to adopt an active approach to managing a portfolio of money market and fixed income securities along with stocks listed on the Australian Securities Exchange. The majority of assets will be actively invested in high quality money market securities with short duration. The Fund will then seek to enhance returns by taking long and short positions in securities generally listed on the Australian Securities Exchange. Typically, this component of the portfolio will maintain a long/short exposure between 10% and 30%. The net market exposure of this component will typically be close to 0%. The long/short structure aims to minimise equity market risk whilst benefiting from franking credits and Acadian Australia s sophisticated analytical models for stock selection. This Fund may hedge currency risk. Australian shares, cash and fixed interest. Location Australia Currency denomination Australian dollars. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives Derivatives are typically used for duration management for the cash portion of the Fund. Short selling The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across the Australian equity market. The approach uses Acadian Australia s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 10-30% and a gross short exposure of 10-30%, with a net equity exposure of 0%. The Fund aims to generate a return of 2% to 3% pa above the RBA Cash Rate. It generates returns from three sources: 1 the cash component, 2 the market neutral component (ie long equity positions out-performing short equity positions, while maintaining a net equity exposure of 0%), 3 franking credits. These three components of the Fund result in a low risk, floating rate defensive strategy that benefits from franking credits whilst having low duration and low credit exposure. The RBA Cash rate is a key driver of investment return and changes in this rate will have an impact on the Fund s return. The Fund will perform most strongly relative to the RBA Cash rate when the long positions of the market neutral component increase in value by more than the short positions of the market neutral component. The risk of the overall Fund is tightly controlled with the aim of avoiding negative quarterly absolute returns. Please refer to the relevant offer document for important information on fund risks. One of the key aims of the strategy is to provide consistent quarterly returns. Acadian Australia s main measure of risk is the standard deviation of the returns of the combined long and short portfolios. The portfolio uses commercially available software and proprietary risk models to ensure that portfolio risk is carefully controlled while at the same time maximising expected return. The portfolio construction and review process conducted by Acadian Australia s portfolio managers includes a range of constraints including stock, industry, size and style factors. Acadian Australia s risk-control framework helps to ensure an attractive diversification profile. At every rebalance, or more often if required, the Fund is rebalanced to its strategic asset allocation of 100%, 0% net equity. This ensures the fund does not take significant equity market risk. The level of gross exposure to the market neutral component is also constantly monitored and risk is reduced where necessary to try and preserve the no negative quarterly absolute return objective. In addition, there are a range of portfolio constraints on stock, sector and industry positions to ensure the market neutral component is diverse. The Fund is managed by Acadian Asset Management (Australia) Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. Reference Guide Complex Funds 11

14 2. Investment Manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Description of Investment Manager Consistent with Acadian Australia s belief that all relevant information about a company, including its risk characteristics, can be captured quantitatively, Acadian Australia performs all of its company analysis using its quantitative investment model and risk estimation models rather than through company visits. The investment team in Australia works on improving the investment model that processes this quantitative information. The team comprises of: David Walsh, Head of Investments David joined Acadian Australia in February 2013 as Head of Investments and Deputy CEO. David is also a member of the Investment Policy Committee for Acadian LLC. David has over 20 years experience in the finance industry. Prior to joining Acadian Australia, David was at Baseline Capital, a quantitative investment management consulting firm which he founded. Before that, he was Managing Director and Senior Portfolio Manager for the Australian Equity Quantitative Team at BGI/BlackRock for 10 years, and preceding that was Head of Equities Research, Australia at State Street Global Advisors. Education: PhD (Finance), B. Engineering and M. Business. Jerome Blair, Vice-president, Portfolio Manager and Research Jerome is responsible for this Fund. Jerome joined Acadian Australia in February Jerome is the portfolio manager responsible for the active and alpha-driven portfolios, and carries out research on factors and portfolio construction. Prior to this, Jerome worked at MIR Investment Management in roles involving quantitative stock selection research and portfolio management. Before this he worked for BGI as quantitative research analyst in Australian Equities. Prior to this he worked in the broking division of Deutsche Bank focusing on quantitative analysis for Australian Equities in the areas of proprietary derivatives trading, structured products and real-time trading systems design. He has over 16 years experience in the financial industry. Education: PhD (Maths) Sydney, B.A (Maths & Computer Science) Sydney. Katrina Khoupongsy, Vice-president, Portfolio Manager and Research Katrina joined Acadian Australia in February 2009 and Katrina has 16 years experience in the finance industry. Prior to joining Acadian Australia, Katrina was a Senior Quantitative Analyst at ING. Prior to that she held quantitative roles at IFS Equities, BT Funds Management, County Investment Management and Mercantile Mutual Investment Management. Education: B Maths & Finance (Hons), Grad Dip App. Fin & Inv, CFA Charterholder. Matthew Picone, Associate Portfolio Manager Matt joined Acadian Australia in August 2007 and is responsible for Portfolio Construction and Trading. Matt is the co-portfolio Manager for Acadian Australia s High Yield strategy and also conducts quantitative research. Education: B Commerce (Finance and Econometrics), University of Sydney; CFA Charterholder. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Acadian Asset Management (Australia) Limited is the appointed Investment Manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Prime Broker: UBS AG, Australia Branch acts as a global Prime Broker and Custodian for the Fund. 12

15 Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Investment Manager: Acadian Asset Management (Australia) Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: UBS AG, Australia Branch Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts and periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Acadian Asset Management (Australia) Limited Australia PricewaterhouseCoopers Australia UBS AG, Australia Branch Australia Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. 4. Valuation, location and custody of assets Description Valuation policy The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Asset types and allocation ranges Australian shares (listed) The Fund will typically have a gross long equity exposure (expressed as a percentage of the Fund s net asset value) Australian shares (unlisted) of 10 30% and a gross short equity exposure of 10 30%, targeting a net equity exposure of 0% at every rebalance. Australian government bonds % Australian corporate bonds Structured products Cash equivalent investments Cash Global government bonds 0 10% Global corporate bonds Exchange-traded derivatives 0 25% Over-the-counter derivatives Custodian arrangements A professional custodian (UBS AG, Australia Branch) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. Geographic location of assets or material assets The assets of the Fund are held by the Prime Broker/Custodian. UBS AG, Australia Branch is located in Australia. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type Maximum allowed level of leverage The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across the Australian equity market. The approach uses Acadian Australia s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 10 30% and a gross short exposure of 10 30%, maintaining a net equity exposure of 0%. Borrowed stock and cash via Prime Broker. The Fund s maximum gross long equity exposure is 50% and maximum gross short equity exposure is 50% (50/50). The maximum total leverage is $2.00 (gross) per $1 of net asset value invested in cash. However, this Fund s long/short exposure would typically be managed at a maximum of 30%. Reference Guide Complex Funds 13

16 Impact of leverage on investment returns and losses Assets used as collateral 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements Assume the Fund has 30% invested in long positions, 30% invested in short positions and 100% invested in cash. Over the past quarter, the long positions posted a return of 4%, the short positions posted a return of 4%, and the cash portion posted a return of 3% (the Reserve Bank of Australia cash rate in January 2013). In this almost worst case scenario, the Fund would post an overall return of 0.6%. Holdings Cash and fixed interest 100% Long positions 30% Short positions 30% Net exposure 100% Gross exposure 160% Performance Cash 3% Long positions 4% Short positions 4% For every $100 in the Fund the return will be: Cash $3.00 ( ) Long position $1.20 ( )* Short position $1.20 ( )* Return $0.60 per $100 (or 0.6%) *Note: Investors experience a negative return when a long position decreases in value or a short position increases in value. There are no assets of the Fund that are used for collateral. Derivatives do not form a core part of the investment strategy and would only be used for duration management. Exchange-traded futures and exchange-traded options. Not applicable. There is minimal counterparty risk as the counterparty is the exchange. The risks associated with collateral requirements are minimal because exchange-traded futures are centrally cleared and margined daily. Please refer to the relevant offer document for additional information on fund risks. 8. Short selling Description Is short selling permitted? Yes. Rationale Short selling allows Acadian Australia not only to take advantage of those stocks on which it has a positive view by taking long positions, but also those on which it has a negative view by establishing a short position. In addition, this short selling ability provides additional risk control by maintaining a net equity exposure of 0%. The Fund s strategy uses a structured and disciplined approach to invest in long and short equity positions across the Australian equity market. The approach uses Acadian Australia s security return forecasting and disciplined portfolio construction methodologies. The Fund will generally maintain a gross long exposure of 10 30% and a gross short exposure of 10 30%. Risks The main risk of short selling is getting stock selection wrong. One of the ways the Fund mitigates this risk is by implementing tight stock constraints to limit stock specific risk. Another risk lies in the credit worthiness of the Prime Broker. Acadian Australia, in conjunction with Colonial First State Investments Limited, undertakes thorough reviews of a Prime Broker s credit worthiness. Furthermore, the structure of the Fund ensures that only a small amount of collateral is required. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 14

17 Aspect Wholesale Diversified Futures 1. Investment strategy Description Investment Strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Aspect takes a quantitative and systematic approach to investment management. Aspect has no market sector or directional preference, and markets are selected on the basis of diversification, liquidity and transaction costs. Aspect s trend-following systems trade in over 180 of the most liquid global futures and forward markets and employ a fully automated system to collect, process and analyse market data in order for the model to determine a view of the trend following opportunities in each market in the portfolio. By maintaining a comparatively small exposure to any individual contract, Aspect achieves sector and contract diversification, thereby allowing a wide range of opportunities to be exploited and maximising expected long-term risk-adjusted returns. The Fund aims to minimise unintentional currency exposure. Cash and derivatives (futures and forwards). The Fund operates with over 180 of the most liquid global financial and commodity futures, currency forwards and other derivative contracts in more than 140 markets. These contracts are categorised into the following sectors: Agriculturals, bonds, currencies, energies, metals, short-term interest rates and stock indices. Location Global. Investment positions and the margin required for those positions are held at the futures clearers and foreign exchange clearers used by the Fund. Currency denomination Global. Excess cash is controlled by the Responsible Entity and is split between an Australian dollar high interest at call account and an Australian dollar account with the Custodian, Bank of New York Mellon. The Fund is exposed to foreign currency movements via its holdings in futures contracts. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The strategy does not use leverage in the traditional sense of using actual financing from a prime broker or other sources in order to hold positions with a larger value than the Fund s net asset value. Instead, all positions are held in margin-funded derivatives (futures and forwards), and the Fund gains synthetic leverage from the fact that these markets require only a portion of their face value as the initial margin payment. Derivatives and Short selling - Derivatives (futures and forwards) are used to create a synthetic leverage from the fact that these markets require only a portion of their face value as the initial margin payment.in the context of the Fund strategy, leverage is defined as the gross exposure of all positions held, expressed as a percentage of the Fund s net asset value. Leverage is not explicitly controlled but rather it is a by-product of the strategy implementation. The Fund strategy can and does take short exposures through the futures and forward markets traded. However, short exposure is only through derivative positions, so the Fund does not rely on being able to borrow securities in order to sell them short. Aspect s investment philosophy centers on the conviction that sustainable and diversifying performance can be generated in a wide range of liquid markets through the application of systematic strategies which are designed to exploit the aggregate behaviour of market participants. The actual strategies used vary, but the general philosophy is that every strategy is based upon a clear and rational hypothesis about market behaviour or the persistent drivers of such market behaviour. The Fund strategy has historically performed well in a wide variety of market environments, in part due to its ability to equally exploit upward and downward trends across a wide range of different asset classes. The predominant driver of the investment strategy is momentum, enhanced by a range of other more fundamental modulations. The strategy does not attempt to forecast when trends will occur or in which asset classes, and so can perform well in any market environment where there are identifiable price trends, whether upwards or downwards. The strategy has a variable but near-zero correlation to traditional asset classes over the long term and so its ability to generate performance is not constantly related to the broad moves in these asset classes. Furthermore, the strategy is designed to take small and diversified positions across all of the markets in the portfolio rather than large positions in a few assets. This means that it will perform best where broad trends can be identified in multiple markets and where these trends are persistent in nature. The market environments in which the fund strategy and managed futures strategies generally tend to struggle include prolonged periods of directionless markets, which imply limited opportunities for the strategy (most specifically to the extent that these occur across multiple markets simultaneously). The strategy is able to maintain relatively stable positioning so that it does not suffer from over-trading during such conditions. Sharp and correlated reversals in trends across many markets are also a difficult scenario for the strategy but are often the precursors of new trends and are often transient in nature. Aspect s many years of research have led to the development of a number of techniques that can mitigate some of these effects. Reference Guide Complex Funds 15

18 Risk management strategy Please refer to the relevant offer document for important information on fund risks. (key aspects) Aspect divides risk into three types: portfolio or market risk, operational risk and business risk. As required by Aspect s home regulators, risk management in its broadest sense is a key component of Aspect s systems and controls. Fund level risk management is carried out systematically within the investment process by Aspect s dynamic risk allocation system. This process primarily uses Aspect s Value at Risk (VaR) measure as its main input to control and at times constrain risk at a number of levels within the portfolio, including the individual strategy, market, sector and overall portfolio levels. The process is designed to take a holistic approach to risk management: each individual component of the strategy has its risk levels managed in the manner that is most appropriate for it and will get the most out of that component. For the trend following models, this means adopting a relatively constrained and actively controlled risk management process which can adjust the position sizes where necessary in order to ensure that the VaR level remains controlled. While VaR is the main measure used by the risk management systems, it is supplemented by a range of non-var based limits that seek to ensure the portfolio remains diversified, liquid and is using its allocated risk effectively. Aspect s Risk Management Committee maintains continual oversight of this process (and the operation of the entire portfolio), and has a range of other risk tools and measures at its disposal including, but not limited to, scenario analysis. It also monitors other (non-market) risks, together with Aspect s Operational Risk Committee, and may take action within the portfolio in extreme situations and to address non-market risks facing the models. Operational risk is the focus of the Operational Risk Committee. Department heads from across the business sit on this committee, which has a wide remit from Aspect s Executive Board to monitor, investigate and remediate risk. Business risk is the responsibility of the Board, which looks at a range of scenarios and stress tests to inform its decision making. Diversification guidelines and limits The Fund s diversification is a core principle that permeates throughout the investment process. The Fund is constructed with no sector or contract bias. A long-term risk budget is established for each of the seven sectors with a view to ensuring long-term diversification in the Fund. The emphasis is on the structuring of a genuinely diversified set of sector risk allocations that is designed to maximise the probability of consistent returns wherever profit opportunities appear. Allocations of risk budget to individual contracts within each sector are also established with the aim of maximising long-term diversification, taking into account correlations and the liquidity of contracts. Nevertheless, the strategy s actual commitment to different sectors and contracts will usually deviate from the allocated long-term risk budgets. Although constrained by risk allocations and portfolio constraints, actual positions will vary depending on the extent of opportunities in each sector and contract, as identified by the model. On a quarterly basis, the sector risk allocations are reviewed. In keeping with the overall philosophy, sector risk allocations are re-balanced with the aim of maximising diversification rather than being optimised based on returns over any particular time period. This means that allocations remain reasonably stable, with larger changes generally occurring when new strategies are introduced which affect the correlation structure between sectors. Investment strategy changes The Fund is managed by Aspect Capital Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Anthony Todd, Chief Executive Officer Anthony co-founded Aspect in September Before establishing Aspect, he worked from March 1992 to October 1997 at Adam, Harding and Lueck Limited (AHL), initially as Director of Financial Engineering and Product Development, before moving to Switzerland as Director of Marketing and Institutional Sales. Prior to this role, Anthony was a strategy consultant at Mars & Co., a Paris based consultancy, from September 1990 to March From September 1982 to June 1989 he was with UBS, an international investment bank, in London as Assistant Director in the International Government Bond Group. Education: B.A. in Physics from Oxford University and an M.B.A. from INSEAD in France. Martin Lueck, Director of Research Martin co-founded Aspect in September He oversees the teams that are responsible for generating and analysing fundamental research hypotheses for development of all Aspect s Investment programmes. Prior to founding Aspect, Martin was with Adam, Harding and Lueck Limited, which he cofounded in February Man Group plc. (a leading global provider of alternative investment products and solutions) completed the purchase of AHL in 1994 and Martin left in At AHL, he initially focused on trading system research before taking on responsibility for the further development of the proprietary software language which provided the platform for all of AHL s product engineering and implementation. Martin was a Director of Research at Brockham Securities Limited, a London based commodity trading advisor, from October 1984 to February 1987 and an executive at Nomura International, a provider of financial services for individual, institutional, corporate, and government clients, from January to October Education: M.A. in Physics from Oxford University. 16

19 John Wareham, Chief Commercial Officer John joined Aspect in September 2005 and leads the company s Sales, Client Services and Marketing teams. He has more than twenty years of senior-level experience in the financial markets. From November 2001 to September 2005, John was globally responsible for the Foreign Exchange and Emerging Markets businesses at AIG Trading Group and AIG Financial Products (AIG is a provider of insurance and financial services). From April 2001 to November 2001, John was the Chief Operating Officer for Atriax Ltd., a foreign exchange trading platform. From February 1995 until April 2001, he was with Merrill Lynch (an international investment bank) where he held a number of positions, including Global Head of Foreign Exchange Options Trading, Head of Private Client Strategies Group and Global Head of Foreign Exchange Sales and Trading. John worked for Goldman Sachs (an international investment bank) from February 1991 to February 1995 as a Senior FX Options Trader and he was with Morgan Stanley (an international investment bank) as a foreign exchange options trader from January 1987 until February From June 1986 to January 1987, John was in Credit Analysis at Lehman Brothers (an international investment bank), and he was a Trainee Credit Analyst in the Republic Bank of Dallas NA from June 1985 to June Education: BSc (Economics) from the London School of Economics and an MPhil from St. Antony s College, Oxford University. Jean-Michel Fayolle, Chief Risk Officer Jean-Michel joined Aspect in March He is responsible for the oversight of all market, model and operational risks. Prior to joining Aspect, Jean-Michel was a partner at Venn Partners (an independent structured solutions business for financial institutions) from August 2010 to March 2011, where he was in charge of all quantitative aspects of the business. Previously, he worked as Managing Director at Banque AIG, a licensed French bank and subsidiary of AIG Financial Products (a provider of corporate finance, investment and financial risk management services) between January 2007 and June From September 2009 Jean-Michel assumed the duties of Chief Risk Officer of Banque AIG with responsibility for market, credit, operational and legal risks. Previously, he held a consultancy position at Banque AIG between May 2006 and December 2006 where he worked on various modelling issues in Fixed Income. From September 1997 to June 2004, Jean-Michel was Head of New Products (Europe) at Banque AIG. From September 1994 to September 1997, he was Head of Quantitative Research, Interest Rates and Foreign Exchange at Commerz Financial Products, a subsidiary of Commerzbank (an international financial services company). From April 1993 to September 1994, he was a quantitative researcher at Société Générale (an international bank). Education: MSc degree in Mathematics from the Université d Aix-Marseille and an Engineering degree, with a major in Signal Theory and Computer Science, from the École Nationale Supérieure des Télécommunications de Paris. MSc in Statistics from Texas A&M University. Termination of investment The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has management agreement (IMA) other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Aspect Capital Limited is the appointed Investment Manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Custodian: BNY Mellon is appointed as the Custodian to hold the assets of the Fund. Reference Guide Complex Funds 17

20 Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) 4. Valuation, location and custody of assets Valuation policy Asset types and allocation ranges (expressed as a percentage of the Fund s net asset value) Custodian arrangements Geographic location of assets or material assets Investment Manager: Aspect Capital Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Custodian: BNY Mellon Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts, periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Aspect Capital Limited United Kingdom PricewaterhouseCoopers Australia BNY Mellon Australia Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. Description The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Exchange-traded derivatives 0 100% Over-the-counter derivatives 0 100% Cash 0 100% A professional custodian (BNY Mellon) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. The assets of the Fund are held by the Custodian. BNY Mellon is located in Australia. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions See page 15, Section 1 Investment Strategy The role of leverage, derivatives and short selling. on the use of leverage Source of leverage including type The Fund is leveraged using derivatives (exchange-traded futures and over-the-counter forward foreign currency contracts). See Section 7 below. Maximum allowed level of leverage Aspect Diversified does not target a fixed level of leverage and there is no maximum allowed level of leverage. However, it is anticipated that the Fund will be managed at a gross leverage typically in the range of $1 to $9 per $1 of net asset value or 100% to 900% of net asset value and has averaged between $3 and $4 or 300% to 400% of the net asset value over the history of the Fund s strategy. Impact of leverage on investment returns and losses Assets used as collateral Futures and forwards are used to establish the market exposure of the Fund. The face value of the Fund s combined long and short positions will frequently be greater than 100% of the Fund s net asset value and as a result, the option will be leveraged. The Fund s maximum anticipated leverage is 9 times (9x) the Fund s Net Asset Value. If in a year an unleveraged (1 leverage) investment were to return 1%, a 9 leveraged investment would return 9%. If in a year an unleveraged (1 leverage) investment were to return 1%, a 9 leveraged investment would return 9%. Cash is posted as margin at the futures clearers. 18

21 7. Derivatives Description Purpose and rationale for the use of derivatives The Fund uses derivatives to implement the investment strategy. See page 15, Section 1 Investment Strategy. Types of derivatives used Exchange-traded futures and over-the-counter foreign exchange forward contracts. Criteria for engaging derivative counterparties Key risks associated with the collateral requirements Aspect performs varied and in-depth due diligence on all executing brokers prior to their appointment. This process includes business and operational due diligence, financial and reputational due diligence and business continuity due diligence. This analysis may include but is not limited to requesting due diligence questionnaires to be completed, conducting interviews and site visits and financial investigations. Counterparties are ultimately selected on the basis of their capabilities and the quality of service which they provide. Additionally, Aspect s specific considerations in appointing executing brokers include coverage, flow of information, efficiency and accuracy of execution and specialist knowledge of the instruments traded by the strategy. Specifically for the Fund, the clearing brokers, custodian and auditor are evaluated and selected by Colonial First State. Prior to dealing over-the-counter derivatives, all counterparties must have a long term credit rating of BBB or above. Executed ISDA documentation must be in place between the Investment Manager and the counterparty prior to dealing and there is a maximum limit to any one counterparty. Counterparty risk is the key risk associated with the collateral requirements of the Fund. Aspect, on behalf of Colonial First State, executes transactions exclusively via highly creditworthy counterparties, clearing agents and exchanges in the execution and management of the Fund s positions. Counterparty risk is monitored on a regular basis by a committee which reports to Aspect s Executive Board, while other safeguards are in place which involves having multiple clearers for the Fund and having the flexibility to react appropriately if needed. Please refer to the relevant offer document for additional information on fund risks. 8. Short selling Description Is short selling permitted? No. Rationale Not applicable as the Fund does not short sell. Risks Not applicable as the Fund does not short sell. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. Reference Guide Complex Funds 19

22 Colonial First State Wholesale Australian Share Long Short Core 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes The Fund does not seek any style bias, such as to growth or value, and seeks to consistently add value through the investment cycle. Mispriced investment opportunities are identified following detailed fundamental research. The investment process incorporates a high number of company visits and a proprietary database to analyse company financials. Importantly, every company is assessed using a consistent set of criteria, which enables potential investments to be compared on a like-for-like basis. The Fund will aim to have a net long exposure of 100%. It will also aim to short sell 30% of its net asset value and invest that amount in the long portfolio to around 130% of the net asset value, in order to expand active risk and seek higher long-term investment returns. Upper limits have been placed on the Fund s short exposure of 50% of the net asset value and on the long exposure of 150% of the net asset value. This Fund may use derivatives to obtain market exposure. This Fund predominantly invests in Australian companies and therefore does not hedge currency risk. Australian shares and cash. Location Australia. Currency denomination Australian dollars. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives Derivatives (exchange traded futures and options) may be used to equitise excess cash. Short selling The Fund aims to short sell around 30% of the Fund s net asset value in order to expand the Fund s active risk. The Fund aims to provide long-term capital growth with some income by investing predominantly in a broad selection of Australian companies, as well as taking short positions in order to invest more and expand investment returns. The Fund does not seek any style bias, such as to growth or value, and seeks to consistently add value through the investment cycle. Please refer to the relevant offer document for important information on fund risks. A commitment to risk management is one of the tenets of Colonial First State Asset Management (Australia) Limited s (CFSAMA) investment philosophy. It is the manager s belief that disciplined portfolio construction not only ensures superior risk management, but also enhances stock selection skills. The aim of portfolio construction is to align the risk/return profile of a stock and the recommendation from an analyst with an appropriate active position within the Fund. The tiering system was developed to deliver this alignment in a risk-aware, disciplined manner. The tiering system serves two purposes: i The tiering decision represents the team s view on the trade-off between return expectations, volatility, liquidity and conviction regarding the company s prospects. CFSAMA believe it is more sensible to consider these issues in their entirety, rather than treating them as separate factors. ii Tiering is a risk management tool. It allows for the effective management of risk such that positions in each company can be assessed, monitored and tracked as well as allowing for the monitoring of sectoral and total risk positions. Each of the five tiers implies an active position of varying magnitude. Each tier has a targeted position relative to the S&P/ASX 100 Accumulation Index (Benchmark) and a permitted range around it, affording investment managers some discretion in the positions they take. While pure quantitative ranking techniques are not used in the investment process, quantitative analysis is an important component of the stock screening and risk management process. Quantitative analysis ensures consistency of active stock positions across portfolios and is used to confirm that all portfolios are managed within operational risk constraints. The main components of the quantitative portfolio monitoring are portfolio risk analytics such as active risk decomposition (analysing each risk component), beta, number of stocks, marginal contribution to risk, active sector exposure and consistency of active exposures across portfolios. Deviations from a stock s benchmark weight are constrained to +/ 6.5%. No formal sector limits are in place. The Fund will hold an appropriate mix of securities at all times in order to reduce company specific risk through diversification. The minimum number of stocks held will be 30. Gross exposure of 0% to 50% short and 100% to 150% long. The Fund is managed by Colonial First State Asset Management (Australia) Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. 20

23 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The portfolio managers below are part of a broader investment team who are responsible for the stock selection element of the investment process. The portfolio managers for this strategy are purely focused on the management of the portfolios and dedicate 75% of each portfolio manager s time to implement the investment decisions for the Fund. Wayne Gentle, Senior Portfolio Manager Wayne is a Senior Portfolio Manager within the CFSAMA Australian Equities, Core team. His responsibilities include management of Australian Equities, Core portfolios and research and analysis of a range of Australian listed companies. Wayne joined the Australian Equities, Core team in September 2007 from RCM Capital Management, a global equities manager owned by Allianz Global Investors. In his role as Senior Analyst in the investment team at RCM, Wayne was an integral part of the investment process, incorporating comprehensive financial models, composite valuation methodologies and proprietary industry studies. Wayne has over 16 years experience as an Investment Analyst, including nine years with a highly rated research team within a major stockbroking firm, and six years in funds management. He has broad sector coverage experience as well as a strong background in finance theory, with an emphasis on return on capital, industry structure and quantitative analysis. Education: Bachelor of Economics from University of Sydney and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. Matthew Reynolds, Head of Australian Equities Core Matthew is responsible for the management of Australian Equities Core portfolios, research and analysis of Australian listed companies and input into all facets of the investment process. Matthew was promoted to Head of Australian Equities Core in February Prior to joining CFSAMA in March 2008, Matthew was employed at QED Capital as Portfolio Manager and Senior Analyst. In this role, he was responsible for the management of a sub-portfolio of the QED Absolute Plus Fund, with full discretion to implement and monitor long and short positions in the Fund for Australian and international equities. Before joining QED, Matthew was Executive Director at UBS Securities Australia as a Senior Research Analyst, and previously held a number of investment roles with BT Funds Management over an eight year period. Education: Bachelor of Economics from Sydney University and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and CFA charterholder. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Colonial First State Asset Management (Australia) Limited (CFSAMA) is the appointed investment manager to manage the Fund s assets and is a subsidiary of the Commonwealth Bank of Australia. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Prime Broker: Citigroup Pty Limited acts as a global Prime Broker and Custodian for the Fund. Reference Guide Complex Funds 21

24 Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Investment Manager: Colonial First State Asset Management (Australia) Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: Citigroup Pty Limited Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts and periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Colonial First State Asset Management (Australia) Limited Australia PricewaterhouseCoopers Australia Citigroup Pty Limited Australia Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. 4. Valuation, location and custody of assets Description Valuation policy The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Asset types and allocation ranges Australian shares (listed) % (expressed as a percentage of the Australian shares (unlisted) 0 10% Fund s net asset value) Exchange-traded derivatives 0 65% Cash 0 10% Custodian arrangements A professional custodian (Citigroup Pty Limited) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. Geographic location of assets or material assets The assets of the Fund are held by the Prime Broker/Custodian. Citigroup Pty Limited is located in Australia. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type The Fund cannot use derivatives or gearing to leverage the portfolio. However, the Fund s gross position can exceed 100% of net asset value where proceeds from short selling are used to fund additional long exposure. The Fund will generally maintain a gross long exposure of 130% and a gross short exposure of 30% (130/30). Borrowed stock and cash via Prime Broker. Maximum allowed level of leverage The Fund s maximum allowed level of leverage is 150% and a gross short exposure of 50% (150/50). The maximum amount of leverage is $2.00 (gross) per $1 of net asset value invested in equities. Impact of leverage on investment The Fund has $150 in long positions and $50 in short positions for every $100 of Fund s net asset value. returns and losses The gross market exposure is $150 (longs) + $50 (shorts) = $200 So the leverage is $200 $100 = 2 If long and short positions each return 10%, the return in dollar terms is: (150) 0.1+ (50) 0.1= $20, which represents a 20% return calculated against Fund s net asset value (or two times the unleveraged return of 10%). Assets used as collateral There are no assets of the Fund that are used for collateral. 22

25 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements 8. Short selling Description Is short selling permitted? Yes. Rationale Derivatives may be actively used for return enhancement and to obtain greater market exposure, both long and short the market. The manager may use SPI Futures to obtain market exposure, however effective exposure must be matched with equivalent cash. Exchange-traded futures and options. Not applicable. There is minimal counterparty risk as the counterparty is the exchange. Exchange-traded derivatives are collateralised through the standard margining process with futures clearing merchants and the relevant exchanges. The Fund will aim to short sell 30% of its net asset value and invest that amount in the long portfolio to around 130% of the net asset value, in order to expand active risk and seek higher long-term investment returns. Short selling is used to potentially enhance investment returns. Risks The short sale of a security can greatly increase the risk of loss, as losses on a short position are not limited to the purchased value of the security. An awareness and understanding of stock-specific issues is crucial when engaging in short selling of securities. In CFSAMA s investment process, it has a market factors investment criteria that incorporates an assessment of the additional risks associated with short selling, and is an established and integral part of the manager s current stock selection process. CFSAMA also incorporate stop losses into its portfolio construction process. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. Reference Guide Complex Funds 23

26 Colonial First State Wholesale Enhanced Yield 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions The Fund invests across a broad range of securities including cash, fixed interest, shares and hybrid securities. The Fund s strategy is principally to seek yield from these investments and makes use of the benefits of imputation credits where possible. Derivatives may be actively used for return enhancement and to adjust and/or control the risk characteristics of the Fund or individual holdings. The Fund seeks to enhance returns by only making an allocation where there is value for the risk taken and actively adjusting the investment mix as markets change. The Fund aims to hedge currency risk. Australian shares, hybrids, fixed interest and cash. Location Australia. Currency denomination Australian dollars. Leverage The Fund does not leverage. Derivatives The role of derivatives within the Fund varies depending on the type of instrument. The Fund is permitted to invest in exchange traded futures and options. The role of derivatives includes gaining long exposure when excess cash is unallocated within the Fund, earning additional income on physical long positions and managing market volatility. The Fund aims to achieve a return of 3% per annum above the Reserve Bank of Australia cash rate over three years (including franking credits), with a low degree of volatility and a low risk of capital loss. Financial markets provide opportunities to achieve this outcome which are exploited through the management of a range of investment risks, including term and credit risk within the fixed interest and hybrid securities universe, and from accessing mispricing opportunities such as undervalued franking credits. Accordingly, the Fund holds a core of investments in a diverse range of income producing securities, including government bonds, corporate bonds and cash. These are intended to provide a foundation for the achievement of the Fund s investment objectives. It also employs higher yielding investments (such as hybrid securities, high yield bonds and equity strategies) to provide additional yield enhancement, with an emphasis on investing in fully-franked securities to enhance overall grossed-up returns. Colonial First State Asset Management (Australia) Limited s (CFSAMA) cash, fixed interest and credit securities philosophy is to maximise the income of the Fund s earnings over the long term by pursuing Value for Risk. This is achieved by investing in securities that pay the most attractive yields, after taking account of security and portfolio risk. CFSAMA does not attempt to predict interest rates or the time path of the capital value of bonds, but rather focus on longer term risk and reward relationships within the available universe of securities. CFSAMA s approach to hybrid securities investment is based on the belief that returns in excess of the cash rate can be achieved in the Australian hybrid securities sector via a comprehensive credit and market risk assessment process to assess if the available return is commensurate with the risk of default of the hybrid security. Hybrid security selection is aided significantly by the interaction of the credit analysis capability of the CFSAMA Credit team with the proven stock selection process of the Australian Equities, Core team. Combining these skills provides the knowledge and expertise to successfully assess mispriced hybrid securities opportunities. Equity strategies are opportunistically structured to generate a relatively stable yield return in excess of the cash rate with reduced downside share price risk. Derivatives are used to adjust and/or control the risk characteristics of individual equities of the overall Fund to construct the most effective equities structure that captures both yield and franking benefits (where available) while seeking to protect the Fund from downside movements in the share price. The Fund is constructed from these three underlying components, with the allocation between these investments determined primarily by the assessment of the available opportunities in hybrid securities and equities strategies and relative value between fixed income securities and cash. The relative performance of these sectors will be expected to vary over a full market cycle. For example, equity strategies would be expected to perform most favourably at times of stable or rising equity markets. 24

27 Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes Please refer to the relevant offer document for important information on fund risks. The following risk control parameters have been set for the Fund and compliance with these parameters is mandatory for the Portfolio Managers. The purpose of the Risk Control Parameter is to ensure risk is managed at the portfolio level as well as the individual stock level. Fixed Interest and Credit Risk in the Australian nominal fixed interest asset class relates to the factors that can result in returns being below the investor s expectations, or which create volatility of returns in the short to medium term. Risk factors can relate to the drivers of absolute returns and their volatility around the portfolio s income earnings, or to active risks that produce a deviation in portfolio returns from its benchmark. The main risks, therefore, are: default risk; various kinds of interest rate risk (duration, yield curve and sector spread volatility); and liquidity. In addition, there are other less significant risk characteristics that are managed, such as derivatives risk. Overall, the most important risk context for CFSAMA is active risk management whereby CFSAMA deliberately position client portfolios differently to their neutral, or benchmark, portfolio in order to seek superior returns. The benchmark and the parameters for permitted deviations from the benchmark are the expression of the risk and return profile the client expects over time. CFSAMA often work with responsible entities to help them determine the most appropriate benchmark and risk parameters to ensure that its active processes deliver within their expectations and requirements. Equities The size and the risk/return profile of the structured equity strategy will depend on CFSAMA s return expectations, level of confidence and expectations of volatility. One of the key portfolio construction considerations for equity strategies is the assessment of downside share price risk. CFSAMA only seek to invest in equity positions when it believes the downside risk of the position is minimal. The degree of downside risk for an equity position will be controlled via an appropriately constructed derivative position and position size in the Fund. A number of factors in addition to the analyst stock recommendation are evaluated before an investment is made by the Fund. These factors include the yield characteristics of the stock, the availability of appropriate hedging instruments, the attractiveness of option pricing for the stock, the level of franking and the expected holding period. As a result of these additional considerations, not all stocks identified as having an overweight analyst recommendation will be included in the Fund. In addition to managing the downside risk of an equity position, the use of derivatives also allows the return profile of an equity position to be modified to enhance its income-producing characteristics. Long only stock positions are held in the portfolio where there is a lack of available derivative instruments that would otherwise have been used to provide downside protection. These positions are typically in stocks where there is a high conviction on company fundamentals and expectation of an attractive dividend yield. The appropriate size of each equity position taken by the Fund is dependent on the amount of downside protection incorporated into each strategy. A larger position, up to a maximum of 5% of the total Fund, will typically be taken where full downside protection via a collar strategy can be obtained cost-effectively. The portfolio construction process is also controlled by the risk control parameters of the Fund, which limit the total effective exposure (delta-adjusted) to equity and equity derivative strategies to 30% of the total market value of the Fund. Portfolio monitoring is crucial to the ongoing portfolio construction process. For equity derivative strategies, daily monitoring focuses on upcoming option maturity, analysis of early exercise of options and margin management. Hybrid Securities The aim of credit assessment is to identify the key risks inherent in each hybrid investment so that the credit decision can be made on a fully informed basis. CFSAMA do not rely solely on rating agencies, but also undertake detailed credit analysis internally. The risks of a potential investment are summarised by the manager s internal credit rating (default probability risk assessment). An internal credit rating is assigned to all potential hybrid security investments prior to purchase by the Fund. In addition to the assessment of credit risk described above, other risk factors considered as part of the risk assessment process include interest rate risk, company risk, industry risk, security issue risk and equity market risk. The Fund aims to achieve this by investing in cash, fixed interest and credit (domestic and global), domestic hybrid securities and domestic equity strategies. To ensure risk exposures in the Fund are efficiently controlled, limits are placed on the permitted allocations to the hybrid securities and equity strategies asset classes relative to their higher expected volatility. The asset allocation guidelines are below. Cash, fixed interest and hybrid securities % Fixed interest % Equity strategies 0 30% The Fund is managed by Colonial First State Asset Management (Australia) Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. Reference Guide Complex Funds 25

28 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The two portfolio managers below are part of a broader investment team who are responsible for the stock selection element of the investment process. The portfolio managers for this strategy are purely focused on the management of the portfolios and dedicate 75% of each portfolio manager s time to implement the investment decisions for the Fund. Rudi Minbatiwala Senior Portfolio Manager in the Australian Equities - Core In his role Rudi is responsible the management of the Enhanced Yield Fund and Equity Income Fund. This role involves analysis and implementation of equity derivative strategies and hybrid securities. Rudi has been part of the Australian Equities, Core team since January During that time, his prior roles have included Portfolio Manager for the index Australian equities portfolios, Senior Quantitative Analyst for the Core active portfolios and Equity Analyst covering small companies and the diversified financials sector. Education: Bachelor of Commerce degree (Actuarial Studies) and a Bachelor of Applied Finance from Macquarie University. Rudi earned the CFA charter in 2003 and is a graduate of the Australian Institute of Company Directors. Annette Mullen Head of Rates within the Global Fixed Interest and Credit team In her role, Annette is responsible for the team s global and Australian rates (duration and yield curve positioning) strategy processes. She is also the lead Portfolio Manager for the Wholesale Diversified Fixed Interest Fund. Annette is also responsible for the management of the CPI allocation process. She researches, develops and manages strategies for the core plus fixed interest funds and manages interest rate and currency hedging for the portfolios. Annette is also the Senior Portfolio Manager for our inflation-linked bond portfolios. Prior to joining CFSGAM in October 2008, Annette was Head of Client and Risk Services at the NSW Treasury Corporation where she managed the Client Services and Risk team. Annette was also responsible for the development of NSW Treasury Corporation s risk management products to provide solutions for NSW Government clients. Previously, Annette was Principal Portfolio Manager at NSW Treasury Corporation and a Senior Portfolio Manager, Fixed Interest at Westpac Financial Services. Education: Master of Business in Finance from the University of Technology, Sydney and a Graduate Certificate in Finance, University of Technology, Sydney. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Colonial First State Asset Management (Australia) Limited (CFSAMA) is the appointed investment manager to manage the Fund s assets and is a subsidiary of the Commonwealth Bank of Australia. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Prime Broker: Citigroup Pty Limited acts as a global Prime Broker and Custodian for the Fund. 26

29 Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Investment Manager: Colonial First State Asset Management (Australia) Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: Citigroup Pty Limited Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts and periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Colonial First State Asset Management (Australia) Limited Australia PricewaterhouseCoopers Australia Citigroup Pty Limited Australia Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. 4. Valuation, location and custody of assets Description Valuation policy The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Asset types and allocation ranges Australian shares (listed) 0 30% (expressed as a percentage of the Fund s net asset value) Australian shares (unlisted) Australian government bonds % International government bonds Australian corporate bonds International corporate bonds Structured products Cash equivalent investments Cash Exchange traded derivatives 0 10% Custodian arrangements A professional custodian (Citigroup Pty Limited) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. Geographic location of assets or material assets The assets of the Fund are held by the Prime Broker/Custodian. Citigroup Pty Limited is located in Australia. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions Not applicable as the Fund does not leverage. on the use of leverage Source of leverage including type Not applicable as the Fund does not leverage. Maximum allowed level of leverage Not applicable as the Fund does not leverage. Impact of leverage on investment Not applicable as the Fund does not leverage. returns and losses Assets used as collateral Not applicable as the Fund does not leverage. Reference Guide Complex Funds 27

30 7. Derivatives Description Purpose and rationale for the use of derivatives Derivatives may be actively used for return enhancement and to obtain greater market exposure, both long and short the market. The manager may use SPI Futures to obtain market exposure, however effective exposure must be matched with equivalent cash. Overall, derivatives may be used to gain long exposure when excess cash is unallocated within the Fund, earn additional income on physical long positions and manage market volatility. Exchange-traded futures and options. Not applicable. There is minimal counterparty risk as the counterparty is the exchange. Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements 8. Short selling Description Is short selling permitted? No. Rationale Not applicable as the Fund does not short sell. Risks Not applicable as the Fund does not short sell. 9. Withdrawals Description Significant risk factors/limitations Changes to withdrawal rights Exchange-traded derivatives are collateralised through the standard margining process with futures clearing merchants and the relevant exchanges. Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 28

31 Colonial First State Wholesale Global Resources Tactical 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) The Fund aims to generate returns by capitalising on both our positive and negative views on resource companies globally. Positive views are implemented by holding the company s securities (long positions) and negative views by selling the company s securities, including short selling (short positions). Short selling involves selling an asset that is not already held by the Fund and this is generally done by borrowing this asset from another party to make the sale. The difference between the amount invested in the long positions and short positions represents the Fund s net exposure to resource shares. This exposure will vary over time, depending on investment opportunities and market conditions, but will be managed within the range of 50% to +100% of total net portfolio value including cash. Investments are generally selected by careful examination of the underlying companies and their assets rather than trying to predict commodity prices. For long positions, we look for companies that generally have high quality assets and a low cost of production, with growing earnings, sound balance sheets and good management. Companies with characteristics opposite to these may offer shorting opportunities. Derivatives may be used by the fund to achieve its investment objectives and control risk. The Fund does not generally hedge currency risk. Australian shares, global shares and cash. Location Global. The Fund primarily invests in markets included in the HSBC Global Mining Accumulation Index and MSCI All Country World Energy Index. Currency denomination Various. The currency of the assets are typically denominated in Australian dollars. Leverage Leverage is defined as the use of financial products (such as derivatives) to amplify the exposure of capital to an investment. The Fund may be leveraged using derivatives for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives On occasion the Fund may invest in or have exposure to exchange-traded futures and options. Derivatives may be employed for the purposes of risk and liquidity management. Where options are not listed a Black Scholes option valuation model. Short selling The Fund employs short selling to protect capital in down markets and reduce volatility caused by broad equity market or commodity price movements. To reduce volatility caused by broad equity market or commodity price movements, sub-sector hedges may be employed via equity exchange traded funds. Investment returns and assumptions The Fund seeks to generate resources sector returns with lower volatility. The investment strategy involves high-conviction long and short equity positions, with an overall long bias. The Fund is managed using a bottom-up or stock picking approach where the quality of the underlying assets (rather than short-term commodity price views) is key to the investment decision. The net and gross exposure of the Fund and the weighting to different investment strategies will change over time as the market cycle progresses. The Fund actively manages both the long and short positions and seeks to maintain reasonable levels of diversification across sub-sectors in the resources space. Key risks associated with the strategy are outlined in the relevant offer document. Complementing the Fund s exposure to established resources companies are a range of investments in early stage exploration and development companies. In general terms, performance would be negatively impacted by weak equity markets and commodity prices. In the long term, the Fund is exposed to global growth trends, driven by emerging markets. Reference Guide Complex Funds 29

32 Risk management strategy Please refer to the relevant offer document for important information on fund risks. (key aspects) The key risks that the Fund is exposed to are commodity price risk, company risk, market risk, currency risk and liquidity risk. Investment decisions represent the team s view on the trade-off between return expectations, volatility, liquidity and conviction regarding a company s prospects. Colonial First State Asset Management (Australia) Limited (CFSAMA) believes that it is more sensible to consider these issues in their entirety, rather than treating them as separate factors. The Investment Selection Guidelines and the Risk Control Parameters are the two components of CFSAMA s governing Investment Disciplines. These detail the limitations placed upon security selection and portfolio construction. The investment team operates within a disciplined risk management structure: Investment Selection Guidelines (ISG) and Risk Control Parameters (RCP) Investment Compliance team monitors conformity Thorough financial and qualitative analysis of company prior to inclusion Stock guideline reviews completed for every company Portfolio management system (Charles River) uses hard coded rules to minimise risk of inadvertent breaches Daily performance sheet sent to the portfolio managers is used to monitor portfolio characteristics. It is the manager s belief that disciplined portfolio construction and investment selection ensures superior risk management. Quantitative Measurement While pure quantitative ranking techniques are not used in the investment process, quantitative analysis is an important component of the stock screening and risk management process. Quantitative analysis ensures that all portfolios are managed within operational risk constraints. The main components of the quantitative portfolio monitoring are portfolio risk analytics such as volatility, Value at Risk, beta, number of stocks, marginal contribution to risk, sub-sector exposure, market capitalisation exposure, country exposure, and liquidity. Diversification While most investment decisions are bottom up, portfolio diversification is continually monitored and measured in four ways: Sub-sector ie commodity type Geographic exposure Market cap exposure Investment strategy stable long positions, event driven long, pair/group, arbitrage, naked short. Diversification guidelines and limits The Fund will not have less than 50% net exposure, nor more than 100% net long exposure (ie cannot be leveraged net long) at any point in time. The Fund will at all times have a maximum long gross exposure of 150% and a maximum gross short market exposure of 100% (the maximum gross exposure will be 250%). Not more than 15% in total of the net asset value of the Fund shall be invested in unlisted securities (which includes securities held in escrow) at any one time, where such securities are to be listed within 12 months or the escrow conditions removed within 12 months. Not more than 15% of the net asset value will be invested in any one company. Investment strategy changes The Fund is managed by Colonial First State Asset Management (Australia) Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Todd Warren, Portfolio Manager Todd joined CFSAMA in January 1999 as a member of the Research and Information team, moving into his current position in the Global Resources team in March In October 2004, Todd was seconded to the London office where he was responsible for covering the energy sector as well as being the resources specialist in the Global Equities team. Todd took on a portfolio management role in July 2006, with a prime responsibility for the energy investments within the Global Resources portfolios, including the long/short funds. In March 2011, Todd became the prime manager of the long/short funds and continues to manage the energy strategy of the funds. Education: Bachelor of Commerce (Finance and Economics) degree from the University of Newcastle and is also a CFA Charterholder. 30

33 Tal Lomnitzer, Portfolio Manager Tal joined CFSAMA in 2011 with 13 years experience in buy-side global resources, energy research and investment. He brings significant experience in both long and short investing strategies within global resources equities. Tal joins the team from Merchant Global Resources Fund, which he founded and managed. Previously he was a partner and investment manager at NewSmith Capital and ORN Capital, where he managed the Global Long/Short Resources and Energy funds. Prior to this, he was a fund manager and buy-side equity analyst at Deutsche Asset Management, where he worked within the Global Energy team. Education: CFA Charterholder and holds a First Class honours BA and an MA in Economics from Cambridge University. Termination of investment The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has management agreement (IMA) other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Colonial First State Asset Management (Australia) Limited (CFSAMA) is the appointed investment manager to manage the Fund s assets and is a subsidiary of the Commonwealth Bank of Australia. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Prime Broker: Goldman Sachs International acts as a global Prime Broker and Custodian for the Fund. Investment Manager: Colonial First State Asset Management (Australia) Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: Goldman Sachs International Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts and periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Colonial First State Asset Management (Australia) Limited Australia PricewaterhouseCoopers Australia Goldman Sachs International United Kingdom Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. Reference Guide Complex Funds 31

34 4. Valuation, location and custody of assets Valuation policy Asset types and allocation ranges (expressed as a percentage of the Fund s net asset value) Custodian arrangements Geographic location of assets or material assets Description The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Australian shares (listed) 0 100% Australian shares (unlisted) Global shares (listed) 0 100% Global shares (unlisted) Exchange-traded derivatives 0 65% Cash equivalent investments 0 100% Cash A professional custodian (Goldman Sachs International) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. The assets of the Fund are held by the Prime Broker/Custodian. Goldman Sachs International is located in the United Kingdom. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type Maximum allowed level of leverage Impact of leverage on investment returns and losses Assets used as collateral 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements The Fund may leverage by employing short selling to protect capital in down markets and reduce volatility caused by broad equity market or commodity price movements. To reduce volatility caused by broad equity market or commodity price movements, sub-sector hedges may be employed via equity exchange traded funds. The Fund is restricted to a gross long exposure of 150% and a maximum gross short exposure of 100%. The maximum gross exposure of the Fund is 250%. Borrowed stock and cash from Prime Broker. The Fund s maximum gross exposure is 250% This is comprised of a gross long exposure of 150% and a gross short exposure of 100% (150/100). The maximum anticipated amount of leverage is $2.50 (gross) per $1 of net asset value invested in equities. The Fund has $150 in long positions and $100 in short positions for every $100 of Fund s net asset value. The gross market exposure is $150 (longs) + $100 (shorts) = $250 So the leverage is $250 $100 = 2.5 If long and short positions each return 10%, the return in dollar terms is: (150) (100) 0.1 = $25, which represents a 25% return calculated against Fund s net asset value (or 2.5 times the unleveraged return of 10%). There are no assets of the Fund that are used for collateral. Derivatives may be employed for the purposes of risk and liquidity management. On occasion, CFSAMA may invest in or have exposure to options or warrants. Where these are not listed the manager employs a Black Scholes option valuation model. Short selling is employed to protect capital in down markets and reduce volatility induced by broad equity market or commodity price movements. In general, single equity or index short exposure via direct shorts may be used for hedging purposes. Exchange-traded futures and options. Not applicable. There is minimal counterparty risk as the counterparty is the exchange. Exchange-traded derivatives are collateralised through the standard margining process with futures clearing merchants and the relevant exchanges. 32

35 8. Short selling Description Is short selling permitted? Yes. Rationale The cyclical nature of the resources sector makes it worthwhile to use both long and short strategies, particularly with a view to protecting capital in down markets and reducing the volatility that can be expected with a long only strategy. To reduce volatility caused by broad equity market or commodity price movements, sub-sector hedges may be employed via equity exchange traded funds. The long bias of the Fund is focused on companies with growth potential, low costs, healthy balance sheets and strong management. Short positions have the opposite characteristics namely low or no growth, high costs, weak balance sheets, bad management and poor exploration prospects. Special attention is paid to positive or negative catalysts when timing entry to, or exit from, positions. The Fund s net exposure to resource shares will be managed within the range of 50% to + 100% of the Fund s net asset value including cash. Risks Risks associated with short selling principally relate to recall of borrowed stock. To minimise this risk, short positions are focused on the more liquid mid and large cap companies in the resource sector. Care is taken not to take short positions in illiquid companies and the Fund may not take short positions in companies with a market capitalisation of less than US$200m. The other risk of short selling is the exposure to unlimited loss from share price appreciation. This is mitigated by employing a stop loss rule whereby a short position will be automatically closed out if a loss greater than 2% of the net asset value is generated (unless dual/multiple pair trade of the same underlying stock). For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. Reference Guide Complex Funds 33

36 Platinum Wholesale Asia 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Fund primarily invests in the listed securities of Asian companies. Asian companies may list their securities on exchanges other than those in Asia and the Fund may invest in those securities. The Fund may invest in companies not listed in Asia, but where their predominant business is conducted in Asia. The Fund may invest in companies that benefit from exposure to the Asian economic region. The Fund will ideally consist of 75 to 150 securities that the manager believes to be undervalued by the market. Cash may be held when undervalued securities cannot be found. The manager may short sell securities that it considers overvalued. The Fund will typically have 50% or more net equity exposure. The manager may also invest in unlisted securities, but in aggregate such investments will not exceed 20% of the value of the portfolio at the time of purchase. Derivatives (options, swaps and futures) may be used for risk management and for opportunities to increase returns. However, the effective exposure of derivative positions (excluding forward foreign exchange contracts and stock borrowing covering short equity positions) and stocks will not exceed 150% of the portfolio s value. The manager may also use foreign exchange contracts and derivatives on foreign exchange contracts to take currency positions. Global shares, fixed interest securities and cash. Location Asian region. The Fund primarily invests in markets included in the MSCI All Country Asia ex Japan Index. Currency denomination Various. The currency of the assets are typically denominated in the local markets included in the MSCI All Country Asia ex Japan Index. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives The Fund may use derivatives and short selling for risk management purposes and to take opportunities to increase returns. Short selling The Fund may short sell securities and derivatives over securities that it considers to be overvalued up to a maximum of 50% of the Fund s net asset value. Platinum seeks a broad range of investments whose businesses and growth prospects are being inappropriately valued by the market. The Fund primarily invests in international equities within the Asian region. The Fund is permitted to invest in a wide range of investments including but not limited to: cash; fixed income or debt securities; Derivatives (for example, options, futures, swaps); currency contracts; unlisted securities. At times, Australian shares may be held, although the investment focus is on international opportunities. Please refer to the relevant offer document for important information on fund risks. Risk management is an integral part of good management and corporate governance practice and in relation to investment strategy, an element of risk is inevitable. Platinum has a documented Risk Management Policy based on the relevant Australian/New Zealand Risk Management Standards, and Australian Securities Exchange Corporate Governance Council s Corporate Governance Principles and Recommendations incorporating a structured approach to managing and reviewing risk. Platinum will seek to manage a Fund s currency exposure using hedging instruments (for example, foreign exchange forwards, currency swaps, non deliverable forwards, and currency options) and cash foreign exchange trades. The Fund will typically have a net equity exposure of between %. The Fund may hold shares, options for shares and convertible notes of a company traded on and outside of a recognised market. Investments in unlisted companies will be limited in aggregate to 20% of the Fund s net asset value. The Fund will ideally hold between 75 and 150 securities at any one time with limitations on holding any one individual stock. The Fund is managed by Platinum Investment Management Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team member listed below spends the majority of his time implementing the strategy: Andrew Clifford, Portfolio Manager Andrew joined Platinum Investment Management Limited as a founding member in 1994 in the capacity of Director and Deputy Chief Investment Officer. Previously he was a Vice President at Bankers Trust Australia Limited covering Asian equities and managing the BT Select Markets Trust Pacific Basin Fund. Andrew holds a Bachelor of Commerce degree from the University of New South Wales. Andrew is responsible for stock research; that is, he is also an analyst. As Portfolio Manager he retains ultimate responsibility for the Fund s portfolio construction. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 34

37 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) 4. Valuation, location and custody of assets Valuation policy Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Platinum Investment Management Limited is the appointed investment manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Custodian: Citibank NA (Hong Kong) is appointed as the Custodian to hold the assets of the Fund. Investment Manager: Platinum Investment Management Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Custodian: Citibank NA (Hong Kong) Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts and periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Platinum Investment Management Limited Australia PricewaterhouseCoopers Australia Citibank NA (Hong Kong) Hong Kong Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. Description The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Reference Guide Complex Funds 35

38 Asset types and allocation ranges (expressed as a percentage of the Fund s net asset value) Custodian arrangements Geographic location of assets or material assets Global shares (listed) 0 100% Global shares (unlisted) Australian government bonds 0 100% International government bonds Australian corporate bonds International corporate bonds Cash equivalent investments Cash Exchange-traded derivatives 0 100% Over-the-counter derivatives A professional custodian (Citibank NA (Hong Kong)) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. The assets of the Fund are held by the Prime Broker/Custodian. Citibank NA (Hong Kong) is located in Hong Kong. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type Maximum allowed level of leverage Leverage is defined as the use of financial products (such as derivatives) or debt (such as a margin facility) to amplify the exposure of capital to an investment. The Fund is restricted to leverage up to 150% of its net asset value. The Fund invests in derivatives: For risk management purposes. Derivatives may be used to either increase or decrease the Fund s exposure to markets. To reduce transaction and administrative costs (eg the use of an equity swap to establish a short position in a security). To establish positions in securities that may otherwise not be readily available (eg to gain access to particular stock markets where foreign investors face restrictions). To aid in the management of the Fund s cash flows (eg some stock markets require pre-funding of stock purchases that may be avoided through the use of derivatives). Leverage is sourced from derivatives (exchange-traded and over-the-counter). See Section 7 below. The maximum allowed gross leverage in the Fund is limited to 150% of the net asset value of the Fund, ie for every $1 invested, the gross invested position of the Fund, taking into account all securities and derivatives held, would be limited to $1.50. For the purposes of this calculation, the underlying effective face value of the derivatives is used. Further, this limitation includes all positions and does not allow for netting off of any offsetting positions. For every $1.00 invested: Maximum allowed Five year range 1 Five year average 1 Long and Short $1.50 $0.63 $0.96 $0.84 Long 2 $1.50 $0.63 $0.95 $0.83 Short $0.50 $0.00 $0.07 $0.01 Net 3 $1.50 $0.63 $0.94 $0.81 Impact of leverage on investment returns and losses Assets used as collateral 1 Based on the CFC Platinum Asia, 31 May 2010 to 31 December Represents the exposure of physical holdings and long stock derivatives. 3 Represents the exposure of physical holdings and both long and short derivatives. The maximum allowable leverage with greatest impact on Fund s returns would likely be where the Fund was 150% long. In such a case, if the value of the Fund s securities (or the underlying securities of derivatives) increased in value by 10%, the increase in the Fund s unit price would be 15%. Conversely, a fall of 10% in the value of the Fund s securities (or the underlying securities of derivatives) would result in a fall of the Fund s unit price of 15%. It should be noted that as per the table above that the Fund has not in the past held positions of this magnitude. Cash is posted as margin at the futures clearers. 36

39 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements The Fund may use derivatives for risk management purposes (that is, to protect the Fund from either being invested or uninvested), to take opportunities to increase returns (eg to gain access to markets not readily available to foreign investors, to build a position in selected companies or issues of securities as a shortterm strategy to be reversed when physical positions are purchased, and to create short positions) and to aid in the management of the Fund s cash flows (eg some stock markets require pre-funding of stock purchases that may be avoided through the use of derivatives) Exchange-traded futures, options and over-the-counter swaps (currency and equity) and forward foreign currency contracts. Over-the-counter derivative transactions may only be entered into with counterparties that have been approved by the Board. Consideration is given to the financial position and credit rating of the counterparty. Counterparties are engaged through standard market contracts such as ISDA Master Agreements and the Investment Manager negotiates for equal rights, and same credit thresholds and transactional limits. Prior to dealing over-the-counter derivatives, all counterparties must have a long term credit rating of BBB or above; executed ISDA documentation must be in place between the Investment Manager and the counterparty prior to dealing and there is a maximum limit to any one counterparty. Trading in over-the-counter derivatives generally requires the lodgement of collateral (also known as credit support, such as a margin or guarantee) with the counterparty. This gives rise to counterparty risk ie the risk that the other party to a financial transaction may default on monies owing (under the financial contract) to the other. Financial transactions that are conducted over-the-counter generally carry greater counterparty risk than securities traded on a recognised exchange (where the other party to the transaction is the exchange s clearing house). Please refer to the relevant offer document for additional information on fund risks. 8. Short selling Description Is short selling permitted? Yes. Rationale The rationale behind short selling is to profit from a fall in the price of a particular security (eg share, index, exchange-traded fund). The Fund does apply an active short selling strategy from time to time and the level of short selling will differ. The Fund may use short selling to reduce the net invested position and thus reduce the level of market risk, or to take opportunities to increase returns. Where the Investment Manager considers securities that are overvalued, it may short sell securities and derivatives over securities up to a maximum of 50% of the Fund s net asset value. Risks The risk with short selling is that if the Fund sells short and the security price rises (instead of falling) the Fund is still obligated to replace the securities it borrowed but now must pay a higher price for them. Unlike a long security, losses can exceed the amount initially invested. The risks associated with short selling are managed in the same way as the risks associated with holding a long security ie through thorough research, daily reporting and ongoing monitoring of positions held. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. Reference Guide Complex Funds 37

40 Platinum Wholesale International 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions Risk management strategy (key aspects) Diversification guidelines and limits Investment strategy changes 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) Termination of investment management agreement (IMA) The Fund primarily invests in listed securities. The Fund will ideally consist of 100 to 200 securities that the manager believes to be undervalued by the market. Cash may be held when undervalued securities cannot be found. The manager may short sell securities that are considered to be overvalued and may engage in stock borrowing. The Fund will typically have 50% or more net equity exposure. The manager may also invest in unlisted securities, but in aggregate such investments will not exceed 20% of the value of the Fund at the time of purchase. Derivatives (options, swaps and futures) may be used for risk management and for opportunities to increase returns. However, the effective exposure of derivative positions (excluding forward foreign exchange contracts and stock borrowing covering short equity positions) and stocks will not exceed 150% of the Fund s value. The manager may also use foreign exchange contracts and derivatives on foreign exchange contracts to take currency positions. Global shares, fixed interest and cash. Location Global. The Fund primarily invests in markets included in the MSCI World Index. Currency denomination Various. The currency of the assets are typically denominated in the local markets included in the MSCI World Index. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives The Fund may use derivatives and short selling for risk management purposes and to take opportunities to increase returns. Short selling The Fund may short sell securities and derivatives over securities that it considers to be overvalued. Platinum seeks a broad range of investments whose businesses and growth prospects are being inappropriately valued by the market. The Fund primarily invests in international equities within the Asian region. The Fund is permitted to invest in a wide range of investments including but not limited to: cash; fixed income or debt securities; derivatives (for example, options, futures, swaps); currency contracts; and unlisted securities. At times, Australian shares may be held, although the investment focus is on international opportunities. Please refer to the relevant offer document for important information on fund risks. Risk management is an integral part of good management and corporate governance practice and in relation to investment strategy, an element of risk is inevitable. Platinum has a documented Risk Management Policy based on the relevant Australian/New Zealand Risk Management Standards, and Australian Securities Exchange Corporate Governance Council s Corporate Governance Principles and Recommendations incorporating a structured approach to managing and reviewing risk. Platinum will seek to manage a Fund s currency exposure using hedging instruments (for example, foreign exchange forwards swaps, non deliverable forwards, and currency options) and cash foreign exchange trades. The Fund will typically have a net equity exposure of between %. The Fund may hold shares, options for shares and convertible notes of a company traded on and outside of a recognised market. Investments in unlisted companies will be limited in aggregate to 20% of the Fund s net asset value. The Fund will ideally hold between 100 to 200 securities at any one time that the Investment Manager believes to be undervalued by the market. The Fund is managed by Platinum Investment Management Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify investors and relevant parties in writing within the timeframes as disclosed in the relevant offer document. The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team member listed below spends the majority of his time implementing the strategy: Kerr Neilson, Portfolio Manager Kerr has over 35 years of experience in financial markets both in broking and funds management. He left Bankers Trust as an Executive Vice President to form Platinum Investment Management Limited in February 1994, where he is the principal shareholder and the Chief Investment Officer. Kerr holds a Bachelor of Commerce from the University of Cape Town and is an Associate of the UK Society of Investment Professionals Kerr is responsible for stock research; that is, he is also an analyst. As Portfolio Manager he retains ultimate responsibility for the Fund s portfolio construction. The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 38

41 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) 4. Valuation, location and custody of assets Valuation policy Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: Platinum Investment Management Limited is the appointed investment manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Custodian: Citibank NA (Hong Kong) is appointed as the Custodian to hold the assets of the Fund. Investment Manager: Platinum Investment Management Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Custodian: Citibank NA (Hong Kong) Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts, periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia Platinum Investment Management Limited Australia PricewaterhouseCoopers Australia Citibank NA (Hong Kong) Hong Kong Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. Description The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Reference Guide Complex Funds 39

42 Asset types and allocation ranges (expressed as a percentage of the Fund s net asset value) Custodian arrangements Geographic location of assets or material assets Global shares (listed) 0 100% Global shares (unlisted) Australian government bonds 0 100% International government bonds Australian corporate bonds International corporate bonds Cash equivalent investments Cash Exchange-traded derivatives 0 100% Over-the-counter derivatives A professional custodian (Citibank NA (Hong Kong)) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. The assets of the Fund are held by the Prime Broker/Custodian. Citibank NA (Hong Kong) is located in Hong Kong. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type Maximum allowed level of leverage Leverage is defined as the use of financial products (such as derivatives) or debt (such as a margin facility) to amplify the exposure of capital to an investment. The Fund is restricted to leverage up to 150% of its net asset value. The Fund invests in derivatives: For risk management purposes. Derivatives may be used to either increase or decrease the Fund s exposure to markets. To reduce transaction and administrative costs (eg the use of an equity swap to establish a short position in a security). To establish positions in securities that may otherwise not be readily available (eg to gain access to particular stock markets where foreign investors face restrictions). To aid in the management of the Fund s cash flows (eg some stock markets require pre-funding of stock purchases that may be avoided through the use of derivatives). Leverage is sourced from derivatives (exchange-traded and over-the-counter). See Section 7 below. The maximum allowed leverage in the Fund is limited to 150% of the net asset value of the Fund, ie for every $1 invested, the gross invested position of the Fund, taking into account all securities and derivatives held, would be limited to $1.50. For the purposes of this calculation, the underlying effective face value of the derivatives is used. Further, this limitation includes all positions and does not allow for netting off of any offsetting positions. For every $1.00 invested: Maximum allowed Five year range 1 Five year average 1 Long and Short $1.50 $0.99 $1.16 $1.08 Long 2 $1.50 $0.80 $0.94 $0.89 Short $0.50 $0.11 $0.28 $0.19 Net 3 $1.50 $0.57 $0.94 $0.71 Impact of leverage on investment returns and losses Assets used as collateral 1 Based on the CFC Platinum International, 31 May 2010 to 31 December Represents the exposure of physical holdings and long stock derivatives. 3 Represents the exposure of physical holdings and both long and short derivatives. The maximum allowable leverage with greatest impact on Fund s returns would likely be where the Fund was 150% long. In such a case, if the value of the Fund s securities (or the underlying securities of derivatives) increased in value by 10%, the increase in the Fund s unit price would be 15%. Conversely, a fall of 10% in the value of the Fund s securities (or the underlying securities of derivatives) would result in a fall of the Fund s unit price of 15%. It should be noted that as per the table above that the Fund has not in the past held positions of this magnitude. Cash is posted as margin at the futures clearers. 40

43 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements The Fund may use derivatives for risk management purposes (that is, to protect the Fund from either being invested or uninvested), to take opportunities to increase returns (eg to gain access to markets not readily available to foreign investors, to build a position in selected companies or issues of securities as a short-term strategy to be reversed when physical positions are purchased, and to create short positions) to aid in the management of the Fund s cash flows (eg some stock markets require pre-funding of stock purchases that may be avoided through the use of derivatives). Exchange-traded futures and options and over-the-counter swaps (currency and equity) and forward foreign currency contracts. Over-the-counter derivative transactions may only be entered into with counterparties that have been approved by the Board. Consideration is given to the financial position and credit rating of the counterparty. Counterparties are engaged through standard market contracts such as ISDA Master Agreements and the Investment Manager negotiates for equal rights, and same credit thresholds and transactional limits. Prior to dealing over-the-counter derivatives, all counterparties must have a long term credit rating of BBB or above; executed ISDA documentation must be in place between the Investment Manager and the counterparty prior to dealing and there is a maximum limit to any one counterparty. Trading in over-the-counter derivatives generally requires the lodgement of collateral (also known as credit support, such as a margin or guarantee) with the counterparty. This gives rise to counterparty risk ie the risk that the other party to a financial transaction may default on monies owing (under the financial contract) to the other. Financial transactions that are conducted over-the-counter generally carry greater counterparty risk than securities traded on a recognised exchange (where the other party to the transaction is the exchange s clearing house). Please refer to the relevant offer document for additional information on fund risks. 8. Short selling Description Is short selling permitted? Yes. Rationale The rationale behind short selling is to profit from a fall in the price of a particular security (eg share, index, exchange-traded fund). The Fund does apply an active short selling strategy from time to time and the level of short selling will differ. The Fund may use short selling to reduce the net invested position and thus reduce the level of market risk, or to take opportunities to increase returns. Where the Investment Manager considers securities that are overvalued, it may short sell securities and derivatives over securities. Risks The risk with short selling is that if the Fund sells short and the security price rises (instead of falling) the Fund is still obligated to replace the securities it borrowed but now must pay a higher price for them. Unlike a long security, losses can exceed the amount initially invested. The risks associated with short selling are managed in the same way as the risks associated with holding a long security ie through thorough research, daily reporting and ongoing monitoring of positions held. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. Reference Guide Complex Funds 41

44 PM Capital Wholesale Absolute Performance 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions The Fund invests in a focused portfolio with approximately 35 to 45 stock-specific ideas diversified across global stock markets. All the portfolio positions are subject to intensive research and peer group review. If PM Capital cannot find appropriate opportunities, the Fund will hold cash and may also own interest bearing debt securities including corporate bonds and hybrid securities. If appropriate, the Fund may be 100% invested in cash. PM Capital can use derivatives and sell stocks short as a risk management tool. The primary use of derivatives and short selling is to reduce market risk in situations where the manager believes certain stocks are overvalued. Derivatives (including futures, options, swaps, credit derivatives, forwards and warrants) may be used for hedging purposes or to synthetically create or replicate an underlying position. The level of direct shorts (where shares are borrowed and sold in the market) generally will not be in excess of 30% of the portfolio. Leverage is used on a prudent basis; for example, where gross dividend yields exceed borrowing costs. Leverage generally shall not exceed 30% of the net asset value of the Fund. The Fund is managed from an Australian investor s perspective. Tax and currency exposures are important considerations in the daily management of the Fund. PM Capital may elect to hedge up to 100% of the foreign currency exposure. Australian shares, Global shares, fixed interest and cash. Location Global. The goal of the Fund is not to replicate the standard industry benchmarks such as the MSCI but to invest in stock-specific ideas diversified across global stock markets. Currency denomination Various. Leverage Leverage is defined as the use of financial products (such as derivatives, loans, or borrowed stock) to amplify the exposure of capital to an investment. The Fund may be leveraged for risk management purposes (to either increase or decrease a Fund s exposure to markets), to take opportunities to increase returns, or to gain access to particular stock markets where investors face restrictions. Derivatives and short selling PM Capital can use derivatives and short sell stocks as a risk management tool. The primary use of derivatives and short selling is to reduce market risk in situations where the manager believes certain stocks are overvalued. Individual short positions will be reduced if the position exceeds 3%. The Fund may have a maximum of 30% in direct shorts, where direct shorts are defined as shorts that are not paired with a long position, such as a spread trade. Options strategies may be employed to reduce market risk or to enhance yield. Derivatives may be used for hedging purposes or to replicate underlying positions. PM Capital s investment philosophy is based on the simple principle that the best way to preserve and enhance wealth over the longer term is to buy a good business at a good price. It is a common-sense businesspersons approach to investing, with four key ingredients: understand how the business works understand management s philosophy in managing the business understand the characteristics of the business that determine its intrinsic value, and given the above, what is the reasonable price a rational businessperson would pay for the business? Why a rational businessperson? Because in the end it is the businessperson, the real owner of a business, that will arbitrage any differential that persists between a stock market valuation and inherent business valuation. The past performance of the Manager is not a guide to future performance. There are risks inherent in the investment strategy that the Manager will employ including, but not limited to: restrictions on the ability of foreign-domiciled companies to pay principal, dividends or interest to investors located outside the country the Performance Fee creating an incentive for the Manager to make investments that are riskier or more speculative than would be the case in the absence of a fee based on the performance of the Company the Portfolio being less diversified than other similar investment funds. The performance of the Fund s investment strategy is also dependent on the market conditions and may be influenced by specific risk factors as detailed for this Fund. 42

45 Risk management strategy Please refer to the relevant offer document for important information on fund risks. (key aspects) All of the Fund s positions are subject to intensive research and peer group review. Stocks are selected on a risk reward basis where the objective is to focus on the risk of losing money before focusing on the potential return. Option strategies may be employed to reduce market risk or to enhance yield. However, equity derivatives (equity swaps, exchange-traded futures, options and warrants) may not be used to leverage the portfolio. Derivatives may be used for hedging purposes or to replicate underlying positions. If the Fund cannot find attractive equity investments, the Fund may be invested in cash and cash equivalents, when appropriate. From a risk control perspective the manager will monitor the stock positions and industry concentrations on a daily basis. The manager will also monitor the Fund s overall market exposure and, if deemed excessive, it would either sell equities or employ option strategies to reduce risk. In the long run, the best way to control risk is by owning a number of good businesses purchased at good prices, ie true diversification. The key risks associated with the fund include: the Manager may stop managing the fund or the Chief Investment Officer may leave the manager (manager risk) meaning the Company may have to find a new investment manager the value of the assets selected by the Manager may decline in value over time (asset risk) adverse changes in exchange rates (currency risk) may cause the value of the Portfolio to fluctuate loss of capital and income through the use of borrowing if there are adverse market movements (leverage risk) potential volatility associated with a lack of diversity within the Portfolio (concentration risk) potential losses on short positions where the market price of the asset sold rises (short selling risk) the Company may pledge its securities as collateral in order to borrow funds from the Prime Broker for investment purposes. The underlying securities pledged are at risk if the Prime Broker becomes insolvent (counterparty and credit risk), and the use of derivatives (futures, options, exchange-traded options, swaps and forward contracts) having a negative impact due to an adverse movement in the underlying asset or where the position is difficult or costly to reverse or maintain (derivatives risk). Investors should bear the above risks in mind when considering whether to invest in the fund. In addition, investors are strongly advised to regard any investment in the fund as a long term proposition (at least seven years) and be aware that substantial fluctuations in the value of their investment may occur during that period and beyond. Diversification guidelines and limits The Fund will hold a concentrated portfolio of global equities, typically 35 to 45 stock specific ideas. Individual equity positions may be purchased up to a limit of 10% of the Fund s market value. The individual sector exposure is restricted to the greater of 35% of the Funds Net Asset Value or three times the MSCI World Index sector weighting. The net equity exposure maximum is 110%, defined as long equity minus short equity, and is calculated on a net effective, option adjusted basis. The maximum gross equity exposure is 170%, defined as long equity (140%) plus short equity (30%), excluding pair trades and equity futures. The maximum allocation to interest bearing debt is 30% (includes corporate bonds and hybrid securities). If PM Capital cannot find attractive equity investments it will let cash levels build up. When appropriate, the Fund may be 100% invested in cash and cash equivalents (short dated securities with maturities <1 year). Investment strategy changes The Fund is managed by PM Capital Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Paul Moore, Chief Investment Officer Paul established PM Capital in 1998 and is the principal shareholder and Chairman. He has over two decades of investment experience. Prior to establishing PM Capital, he was employed with Bankers Trust Australia ( ) as Head of the Retail International Equity Group, acknowledged at the time to be Australia s leading mutual fund performer. Since its establishment in 1998, PM Capital has won several awards including the Sydney Morning Herald Boutique Skilled Fund Manager of the Year Award in 2003, Best International Fund 2004 at the Asia Hedge Fund Awards, InvestorWeb Rising Star 2004, the Citigroup Golden Calf Award for the Best Emerging Fund Manager for 2004 and the Money Magazine Best of the Best Award for Best International Share Fund in Education: Bachelor of Commerce (Hons) from University of New South Wales with 1st Class Honours. Reference Guide Complex Funds 43

46 Ashley Pittard, Portfolio Manager Ashley is the portfolio manager of the Absolute Performance Fund. He is responsible for analyst coverage of technology (software, hardware and semiconductors), commodities, energy, consumer and media. Education: Following the completion of his Bachelor of Engineering (Petroleum) (Honours) and Bachelor of Commerce degrees, Ashley began his career as a petroleum economist at Petro Consultants Australasia. He has had various articles published in professional journals. Before moving to PM Capital in August 1999, Ashley had previously worked with Paul Moore at Bankers Trust as a global energy analyst. Termination of investment The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has management agreement (IMA) other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: PM Capital Limited is the appointed investment manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Prime Broker: Goldman Sachs International acts as a global Prime Broker and Custodian for the Fund. Investment Manager: PM Capital Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Prime Broker: Goldman Sachs International Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts, periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia PM Capital Limited Australia PricewaterhouseCoopers Australia Goldman Sachs International United Kingdom Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. 44

47 4. Valuation, location and custody of assets Valuation policy Asset types and allocation ranges (expressed as a percentage of the Fund s net asset value) Custodian arrangements Geographic location of assets or material assets Description The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Australian shares (listed) 0 110% Australian shares (unlisted) Global shares (listed) Global shares (unlisted) Australian government bonds 0 30% International government bonds Australian corporate bonds International corporate bonds Structured products Exchange-traded derivatives 0 100% Over-the-counter derivatives Cash 0 100% Cash equivalent investments A professional custodian (Goldman Sachs International) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. The assets of the Fund are held by the Prime Broker/Custodian. Goldman Sachs International is located in the United Kingdom. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions on the use of leverage Source of leverage including type Leverage may be used on what is judged by PM Capital as a prudent basis (for example, taking advantage of gross dividend and income yields that may exceed borrowing costs). PM Capital has determined that the net invested position of the Fund shall generally not exceed the net asset value of the Fund by greater than 30%. Borrowed stock and cash via Prime Broker. Maximum allowed level of leverage The maximum anticipated total gross invested position of the Fund is 190%. The maximum anticipated amount of leverage is $0.90 (gross) per $1 of net asset value. The Fund s net effective exposure would typically run between 100% and 110% with a maximum of 130%. Impact of leverage on investment returns and losses Assets used as collateral An investor who buys an investment at the Fund s maximum allowable net invested position of 130% will lose 65% of their money if the investment falls 50%. Conversely the investor will realise a 65% gain on their money if the investment rises 50%. This worked example shows the impact of leverage, which multiplies gains and losses on investment returns. There are no assets of the Fund that are used for collateral. Reference Guide Complex Funds 45

48 7. Derivatives Description Purpose and rationale for the use of derivatives Types of derivatives used Criteria for engaging derivative counterparties Key risks associated with the collateral requirements Derivative strategies may be employed to reduce market risk or to enhance yield. However, equity derivatives (equity swaps, exchange-traded futures, options and warrants) may not be used to leverage the portfolio. Derivatives may be used for hedging purposes or to replicate underlying positions. Currency derivatives may be used to hedge an existing exposure or create a new synthetic currency exposure (within the maximum individual currency exposure limit of 100% of the Fund s net asset value). Exchange-traded futures and options and over-the-counter swaps, options and foreign currency forward contracts. PM Capital adheres to a strict due diligence process which is in line with the manager s Outsourcing Policy that is reviewed by its Board. To minimise the Company s counterparty risk associated with derivative transactions, the Manager will enter into derivative transactions with multiple counterparties (including the Prime Broker) on behalf of the Company. All derivatives are backed by collateral, like cash or other assets of the Company. The collateral for exchange traded derivatives is held by a third-party central clearing facility. Prior to dealing over-the-counter derivatives, all counterparties must have a long term credit rating of BBB or above; executed ISDA documentation must be in place between the Investment Manager and the counterparty prior to dealing and there is a maximum limit to any one counterparty. The risk of loss associated with the use of derivative contracts can be substantial, due to the leverage associated with low margin deposits. The Fund may contain futures contracts, options and other derivative contracts, which may have a significant effect on the performance of the Fund. Please refer to the relevant offer document for additional information on fund risks. 8. Short selling Description Is short selling permitted? Yes. Rationale Short selling is used in two ways: opportunistically, to take short positions in equities that the manager believes will have material downside, and as a risk management tool via pair trading. Risks The main risk of short selling is unlimited downside risk (losses can be infinite), hence PM Capital employs limits to manage such risks. Individual short positions may be sold up to a limit of 3.0% at market value. The Fund may have a maximum of 30% in direct shorts, where direct shorts are defined as short positions that are not paired with a long position, such as a spread trade. All positions are monitored on a daily basis. For further information on short selling risk, please refer to the relevant offer document. 9. Withdrawals Description Significant risk factors/limitations Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. Changes to withdrawal rights For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 46

49 PM Capital Wholesale Enhanced Yield 1. Investment strategy Description Investment strategy Asset classes Location and currency denomination of assets Role of leverage, derivatives and short selling (if applicable) Investment returns and assumptions The Fund aims to invest the majority of its assets in cash and interest bearing securities. The Fund will aim to hold a minimum cash weighting of 20% of the Fund s net asset value. If the Fund cannot find suitable low risk investments, it will let the cash build up. The Fund will aim to be invested in securities with a yield in excess of the RBA cash rate, including but not limited to hybrid securities, corporate bonds and asset-backed securities (both fixed and floating rate). The Fund has the ability to minimise or hedge against interest rate, credit spread and equity risk. Therefore, derivatives may be used to synthetically create or replicate underlying positions. However, derivatives may not be used to leverage the portfolio. Such derivatives may include options, futures, swaps, credit derivatives and warrants. The Fund may employ equity strategies to a maximum of 5% of the portfolio s net asset value. PM Capital attempts to hedge all foreign currency exposure back to the Australian dollar to substantially reduce the exposure of the Fund to the risks associated with movements in foreign exchange rates. Australian shares, global shares, fixed interest and cash. Location Australia. Currency denomination Australian and New Zealand dollars. Leverage the Fund does not leverage. Derivatives Derivatives are primarily used to hedge the foreign currency exposure of the Fund back to the Australian dollar. Derivatives may also be used to hedge out interest rate risk, credit spread and equity risk or to create or replicate an underlying equity position. Short selling The Fund does not short sell. The investment strategy is to deliver returns in excess of the Reserve Bank of Australia cash rate by investing in a combination of cash, higher yielding securities and companies listed on global stock exchanges. The Fund aims to outperform the RBA cash rate with a low degree of volatility and minimal risk of capital loss. PM Capital s default investment position is cash. The manager would then look to identify genuine pricing anomalies within a company s capital structure, with its main investments typically in securities such as corporate bonds and hybrid securities. PM Capital s initial investment time horizon is one to two years, over which time it believes the greatest inefficiencies in pricing exist. As long as a yield security continues to generate a satisfactory return, it will continue to hold the investment, unless of course the market in its opinion places an excessive valuation on the company s future cash flows, in which case the manager would sell. The Fund is managed from an Australian investor s perspective with consideration for tax and currency outcomes. Reference Guide Complex Funds 47

50 Risk management strategy Please refer to the relevant offer document for important information on fund risks. (key aspects) All of the Fund s positions are subject to intensive research and peer group review. Securities are selected on a risk reward basis where the objective is to focus on the risk of losing money before focusing on the potential return. PM Capital s default investment position is cash. The manager would then look to identify genuine pricing anomalies within a company s capital structure, with its main investments typically in securities such as corporate bonds and hybrid securities. The Fund will aim to hold a minimum cash weighting of 20% of the Fund s net asset value. If the Fund cannot find suitable low risk investments, it will let the cash levels build up. If appropriate, the Fund may be 100% invested in cash. The Fund has had a historical average of approximately 3% exposure to equity securities. The maximum allowable is 5% net exposure to equities Derivatives may be used for hedging purposes or to replicate underlying positions. Derivatives are actively used to manage currency risk, credit risk, equity risk and interest rate risk Any offshore currency will be hedged back to Australian dollars A net limit of 5% exposure at acquisition to any single yield security issuer (excluding cash and cash equivalents) Maximum exposure to BBB+ and below rated securities is 50% Maximum exposure to Unrated Securities is 30%. The key risks associated with the fund include: the Manager may stop managing the fund or the Chief Investment Officer may leave the manager (manager risk) meaning the Company may have to find a new investment manager the value of the assets selected by the Manager may decline in value over time (asset risk) adverse changes in exchange rates (currency risk) may cause the value of the Portfolio to fluctuate loss of capital and income through the use of borrowing if there are adverse market movements (leverage risk) potential volatility associated with a lack of diversity within the Portfolio (concentration risk) potential losses on short positions where the market price of the asset sold rises (short selling risk) the Company may pledge its securities as collateral in order to borrow funds from the Prime Broker for investment purposes. The underlying securities pledged are at risk if the Prime Broker becomes insolvent (counterparty and credit risk), and the use of derivatives (futures, options, exchange-traded options, swaps and forward contracts) having a negative impact due to an adverse movement in the underlying asset or where the position is difficult or costly to reverse or maintain (derivatives risk). Investors should bear the above risks in mind when considering whether to invest in the fund. In addition, investors are strongly advised to regard any investment in the fund as a long term proposition (at least seven years) and be aware that substantial fluctuations in the value of their investment may occur during that period and beyond. Diversification guidelines and limits Typically the Fund will be comprised of a combination of cash, yield securities and to a lesser extent equity strategies. Exposure Limit Guidelines Cash: Minimum 20%, Maximum 100% Yield Securities: Minimum 0%, Maximum 80% Equities: Minimum 0%, Maximum 5% Investment strategy changes The Fund is managed by PM Capital Limited (Investment Manager) on behalf of the Responsible Entity under a mandate arrangement. A mandate is an agreement with an Investment Manager that sets out how the money is to be invested. The mandate may specify an appropriate benchmark, acceptable investments and investment ranges. Any change to the investment strategy would require the consent of the Responsible Entity. Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. 2. Investment manager Description Key personnel (relevant experience, and proportion of time devoted to implementation of strategy) The Responsible Entity has appointed the Investment Manager to manage the Fund s assets in line with a similar pooled strategy that is also managed by the Investment Manager. The team members listed below spend the majority of their time implementing the strategy: Paul Moore, Chief Investment Officer Paul established PM Capital in 1998 and is the principal shareholder and Chairman. He has over two decades of investment experience. Prior to establishing PM Capital, he was employed with Bankers Trust Australia ( ) as Head of the Retail International Equity Group, acknowledged at the time to be Australia s leading mutual fund performer. Since its establishment in 1998, PM Capital has won several awards including the Sydney Morning Herald Boutique Skilled Fund Manager of the Year Award in 2003, Best International Fund 2004 at the Asia Hedge Fund Awards, InvestorWeb Rising Star 2004, the Citigroup Golden Calf Award for the Best Emerging Fund Manager for 2004 and the Money Magazine Best of the Best Award for Best International Share Fund in Education: Bachelor of Commerce (Hons) from University of New South Wales with 1st class honours. 48

51 Jarod Dawson, Portfolio Manager, Enhanced Yield Fund Jarod is responsible for managing the Fixed Income business. Prior to joining PM Capital in September 2004, he spent six years with UBS Global Asset Management, the last four years of which he held the title of Fixed Income Portfolio Manager, responsible for managing and growing their Credit Enhanced product suite. Before his time at UBS, Jarod spent two years at ING Funds Management, where he was responsible for managing relationships with key national firms and financial advisory groups. Education: Bachelor of Commerce from Macquarie University and a Graduate Diploma in Applied Finance & Investment from FINSIA. John Whelan, Portfolio Manager, Income Strategies John joined PM Capital from Babcock and Brown in 2009 with particular strengths in credit and currency analysis. He has seven years financial markets experience primarily analysing and implementing currency, interest rate and equity option strategies, and managing income/credit portfolios. Education: CFA Charterholder and holds a Masters of Business from the Smurfit School of Business, University College Dublin and a Bachelor of Business and Finance from Dublin City University. Termination of investment The Responsible Entity has the right to terminate the IMA without cause. The Responsible Entity has management agreement (IMA) other termination rights typical in investment management agreements such as (for example) on certain breaches of the agreement or insolvency events. 3. Fund structure Description Investment structure Each Fund is a managed investment scheme registered with the Australian Securities and Investments Commission. Super members Pension members Non-super investors Retail investment trust Responsible Entity Colonial First State Investments Limited Wholesale investment trust Direct assets Investment manager Custodian Auditor Key service providers Monitoring service providers Fees and costs payable to the Responsible Entity and Investment Manager Jurisdiction of entities involved in the fund structure Outline the risks of the structure with the entities involved (eg risks associated with holding overseas assets) Responsible Entity and Administrator: Colonial First State Investments Limited Investment Manager: PM Capital Limited is the appointed investment manager to manage the Fund s assets. Fund Auditor: PricewaterhouseCoopers is the registered company auditor for the Fund. The auditor s role is to audit the Fund s annual financial report (which includes the financial statements), perform a half-yearly review (if required), and to provide an opinion on the financial statements. Custodian: Citibank NA (Hong Kong) is appointed as the Custodian to hold the assets of the Fund. Investment Manager: PM Capital Limited The Responsible Entity (RE) has in place an Investment Management Agreement (IMA) with the Investment Manager that sets out the operational, investment and compliance requirements of the Investment Manager. The Investment Manager is responsible for reporting breaches of the IMA and the RE undertakes regular review and monitoring of the Investment Manager to verify the Investment Manager s compliance with its obligations. Fund Auditor: PricewaterhouseCoopers CFSIL s management has regular meetings with the Fund s auditor on the progress of the functions performed by the Fund s auditor in accordance with the service agreement. Custodian: Citibank NA (Hong Kong) Monthly Service Review meetings, discussion registers maintained, daily reconciliations of accounts, periodic on-site due diligence visits. The management costs payable by the investor includes investment management costs. These managements costs are outlined in the relevant offer document for the product that you wish to invest in. Colonial First State Investments Limited Australia PM Capital Limited Australia PricewaterhouseCoopers Australia Citibank NA (Hong Kong) Hong Kong Fund assets are held with each Fund s respective Custodian/Prime Broker. Cash, derivative contracts and the respective cash margin held as collateral on such derivatives are held by the counterparty and are subject to counterparty risk. Additional information on risks associated with the Fund s structure can be found in the relevant offer document. All investments are clearly identified as belonging to the appropriate Trust where Colonial First State Investments Limited is the Responsible Entity and Trustee. Reference Guide Complex Funds 49

52 4. Valuation, location and custody of assets Valuation policy Asset types and allocation ranges (expressed as a percentage of the Fund s net asset value) Custodian arrangements Geographic location of assets or material assets Description The Responsible Entity manages all applications and redemptions, the share registry as well as the Fund s valuations. The Responsible Entity is responsible for calculating the official net asset value and unit prices used to process applications and redemptions. There are a number of factors used to calculate unit prices. The key factors include asset valuations, liabilities, debtors, the number of units on issue and, where relevant, transaction costs (buy/sell spread). The key aspects of the Responsible Entity s valuation policy require asset pricing procedures and processes to be accurate and reviewed regularly, applied consistently, unbiased and equitable and documented and transparent. Asset prices are typically sourced from external pricing vendors or sources, compared against multiple sources before implementing and price movement tolerance limits are set and monitored. Please refer to the relevant offer document for further details. Australian shares (listed) 0 5% Global shares (listed) Australian government bonds 0 80% International government bonds Australian corporate bonds International corporate bonds Structured products Exchange-traded derivatives 0 100% Over-the-counter derivatives Cash equivalent investments % Cash A professional custodian (Citibank NA (Hong Kong)) holds the assets of the Fund. The custodian is appointed and contracted by the Responsible Entity (RE). The appointed investment manager and the RE may change the custodian arrangements from time to time, however, any new arrangements must meet all regulatory requirements. Investors will not be notified of a change in custodian. If the custodian is another company in the Commonwealth Bank Group, the RE must: satisfy ASIC that we are able to separate each fund s assets from our own, and satisfy ourselves that holding each fund s assets in this way would be cost-effective for investors. The assets of the Fund are held by the Prime Broker/Custodian. Citibank NA (Hong Kong) is located in Hong Kong. 5. Liquidity Description Liquidity The Responsible Entity reasonably expects to be able to realise at least 80% of its assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. 6. Leverage Description Use of leverage and restrictions Not applicable as the Fund does not leverage. on the use of leverage Source of leverage including type Not applicable as the Fund does not leverage. Maximum allowed level of leverage Not applicable as the Fund does not leverage. Impact of leverage on investment Not applicable as the Fund does not leverage. returns and losses Assets used as collateral Not applicable as the Fund does not leverage. 7. Derivatives Description Purpose and rationale for the use of derivatives The Fund may use derivatives for hedging purposes or to create or replicate an underlying position. Derivatives may also be used to hedge the foreign currency exposure of the Fund back to the Australian dollar. Types of derivatives used Exchange-traded futures and options and over-the-counter swaps, options and foreign currency forward contracts. Criteria for engaging derivative counterparties Key risks associated with the collateral requirements Assets used as collateral PM Capital adheres to a strict due diligence process which is in line with its Outsourcing Policy that is reviewed by its Board. To minimise the Company s counterparty risk associated with derivative transactions, the Manager will enter into derivative transactions with multiple counterparties on behalf of the Company. Prior to dealing over-the-counter derivatives, all counterparties must have a long term credit rating of BBB or above; executed ISDA documentation must be in place between the Investment Manager and the counterparty prior to dealing and there is a maximum limit to any one counterparty. The risk of loss associated with the use of derivative contracts can be substantial, due to the leverage associated with low margin deposits. The Fund may contain futures contracts, options and other derivative contracts, which may have a significant effect on the performance of the Funds. Please refer to the relevant offer document for additional information on fund risks. PM Capital will lodge equities or cash at a registered exchange for exchange-traded derivative positions. This cash or stock is held at the exchange and not otherwise encumbered by derivative counterparties. 50

53 8. Short selling Description Is short selling permitted? Rationale Risks No. 9. Withdrawals Description Significant risk factors/limitations Changes to withdrawal rights Not applicable as the Fund does not short sell. Not applicable as the Fund does not short sell. Where a Fund is suspended, restricted or unavailable, CFSIL may not process withdrawal requests. Any decisions whether to process withdrawals or partial withdrawals will be made in the best interests of investors as a whole, and if any payment is to be made, then the exit price used to calculate this payment will be the one determined at the time the payment is made. Please note that unless an investment fund is suspended, restricted or unavailable, investors may withdraw from an investment fund in accordance with normal processes. Additional information on withdrawals can be found in the relevant offer document for the product you are investing in. For up to date information on your account visit our website colonialfirststate.com.au or call Investor Services on Where a change is material, the Responsible Entity will notify you in writing within the timeframes provided for in the relevant legislation. Reference Guide Complex Funds 51

54 Colonial First State 2014_20101/FS5383/0114