MCG K2 Advisors Endowment Strategy Fund

Transcription

1 MCG K2 Advisors Endowment Strategy Fund ARSN APIR SLT0010AU Product Disclosure Statement Date issued 01 October 2014 Responsible Entity Equity Trustees Limited ABN AFSL No Fund Manager PMCG Pty Limited trading as MCG Wealth Management ABN AFSL No Portfolio Manager K2/D&S Management Co., L.L.C. K2 is exempt from the requirement to hold an Australian Financial Services licence (AFSL) under the Corporations Act in respect of its financial services. K2 is regulated by the Securities and Exchange Commission under United States laws which differ from Australian laws. 1

2 This Product Disclosure Statement ( PDS ) was issued on 01 October This PDS is for the offer of interests in the MCG K2 Advisors Endowment Strategy Fund ARSN (referred throughout this PDS as the Fund ). The PDS has been prepared and issued by Equity Trustees Limited (ABN , Australian Financial Services Licence ( AFSL ) No ) in its capacity as the responsible entity of the Fund (referred throughout this PDS as the Responsible Entity, EQT, us or we ). The fund manager is PMCG Pty Limited trading as MCG Wealth Management (referred to throughout this PDS as MCG, MCG Wealth or the Fund Manager ) and the portfolio manager is K2/D&S Management Co., L.L.C. (referred to throughout this PDS as K2 or the Portfolio Manager ). This PDS is prepared for your general information only. It is not intended to be a recommendation by the Responsible Entity, Fund Manager or Portfolio Manager, any of their associates, employees, agents or officers or any other person to invest in the Fund. This PDS does not take into account the investment objectives, financial situation or needs of any particular investor. You should not base your decision to invest in the Fund solely on the information in this PDS. You should consider the suitability of the Fund in view of your financial position and investment objectives and needs and you may want to seek advice before making an investment decision. The Responsible Entity has authorised the use of this PDS for the Fund as disclosure to investors and prospective investors of an investor directed portfolio service, master trust, wrap account or an investor directed portfolio service-like scheme ( IDPS ). This PDS is available for use by persons applying for units in the Fund through an IDPS ( Indirect Investors ). The operator of an IDPS is referred to in this PDS as the IDPS Operator and the disclosure document for an IDPS is referred to as the IDPS Guide. If you invest through an IDPS, your rights and liabilities will be governed by the terms and conditions of the IDPS Guide. Investors should carefully read the terms and conditions before investing in the Fund. Indirect Investors should note that you are directing the IDPS Operator to arrange for your money to be invested in the Fund on your behalf. Indirect Investors do not become unit holders in the Fund or have the rights of unit holders. The IDPS Operator becomes the unit holder in the Fund and acquires these rights. The IDPS Operator can exercise or decline to exercise the rights of a unit holder on your behalf according to the arrangement governing the IDPS. Indirect Investors should refer to the IDPS Guide for information relating to their rights and responsibilities as an investor through the IDPS, including information on any fees and charges applicable to your investment. Information regarding how to apply for units in the Fund (including an application form where applicable) will also be contained in the IDPS Guide. Please ask your adviser or the IDPS Operator if you have any questions about investing in the Fund through an IDPS. EQT accepts no responsibility for IDPS Operators or any failure by an IDPS Operator to provide investors with a current version of this PDS as provided by EQT or to withdraw the PDS from circulation if required by EQT. The Responsible Entity, the Fund Manager or the Portfolio Manager and their respective employees, agents or officers do not guarantee the success, repayment of capital or any rate of return on income or capital or investment performance of the Fund. Past performance is no indication of future performance. Units in the Fund are offered and issued by the Responsible Entity on the terms and conditions described in this PDS. You should read this PDS because you will become bound by it if you become a unit holder of the Fund. The offer made in this PDS is available only to persons receiving this PDS in Australia (electronically or otherwise). If you received this PDS electronically we will provide a paper copy free upon request during the life of this PDS. Please call Brent McGoldrick on for a copy. This PDS does not constitute a direct or indirect offer of securities in the US or to any US Person. EQT may vary its position and offers may be accepted on merit at EQT's discretion. The units in the Fund have not been, and will not be, registered under the US Securities Act unless otherwise determined by EQT and may not be offered or sold in the US to, or for, the account of any US Person. Information in this PDS that is not materially adverse is subject to change from time to time. We may update this information. You can obtain any updated information: by calling Brent McGoldrick on ; or by visiting MCG Wealth Management s website at A paper copy of the updated information will be provided free of charge on request. Unless otherwise stated, all fees quoted in the PDS are inclusive of GST, after allowing for an estimate for Reduced Input Tax Credits ( RITCs ), and all amounts are in Australian dollars. 2

3 Contents 1. Fund at a glance 4 2. ASIC benchmarks 5 3. ASIC disclosure principles 6 4. Who is managing the Fund? 8 5. How the Fund invests Managing risk Investing and withdrawing Keeping track of your investment Fees and other costs Taxation Other important information 38 Glossary of important terms 41 Application form 43 3

4 1 Fund at a glance Name of the Fund MCG K2 Advisors Endowment Strategy Fund ARSN APIR Investment objective Investments strategy and investments held The type(s) of investor(s) for whom the Fund would be suitable Recommended investment timeframe SLT0010AU To achieve returns net of fees in excess of CPI + 5% per annum whilst containing a level of volatility below 5% standard deviation per annum, in each case over rolling three to five year periods. Refer to the How the Fund invests section for further information. The Fund will try to achieve its investment objective by investing directly or indirectly in a range of asset classes using a range of investment strategies (including absolute return strategies), including listed and unlisted assets across domestic and international fixed income, property, equities and Alternative Assets. Investors seeking exposure to a range of Asset Classes. three to five years We recommend that you consider, with your financial adviser, the suggested investment period for the Fund in relation to your own investment timeframe. Minimum initial investment $250,000 Minimum additional investment $25,000 Minimum withdrawal amount $50,000 Minimum balance $250,000 Cut off time for applications and withdrawals Cooling Off Valuation frequency Access to funds Income distribution Management costs Monthly applications and withdrawals 2:00pm, on a Cut Off Date (usually the last Business Day of the month). Yes Monthly Withdrawal proceeds generally will be paid within 14 days following a Valuation Date. Withdrawals may be limited or delayed in some circumstances. See 5.9 Withdrawals on page 19 and Terms and conditions for withdrawals on page 29. Annual 0.96% per annum (including GST less RITCs) Buy/Sell Spread Buy +0.20% Sell -0.20% Unit Price Fund Manager Portfolio Manager Variable MCG Wealth Management K2/D&S Management Co., L.L.C. 4

5 2 Benchmarks The information summarised in the tables in section 2 and 3 of this PDS is explained in detail in the PDS (where shown.) It is intended to assist investors in making an informed decision about whether to invest. The Responsible Entity invests at least 50% of the Fund s assets in the MCG K2 Advisors Absolute Return Strategies Fund ( Absolute Return Fund ). The Responsible Entity invests the balance of the Fund s assets in a range of asset classes either indirectly via a diversified portfolio of underlying funds ( Direct Underlying Funds ), or directly holding the assets itself. The Absolute Return Fund likewise invests in a range of asset classes via a diversified portfolio of hedge funds, other investment entities, and/or separate accounts ( Indirect Underlying Funds ) and Derivatives. In this way it pursues a wide range of investment strategies. In this PDS: the Underlying Funds comprise both the Direct Underlying Funds and the Indirect Underlying Funds; and the Direct Underlying Investments comprise the Direct Underlying Funds and the direct investments held by the Fund. The Underlying Funds may be related to, or managed by, the Portfolio Manager. (See Fund Structure on page 15.) Benchmark Is the benchmark satisfied? For further information Benchmark 1 - Valuation of assets Yes This benchmark addresses whether valuations of the Fund s non-exchange traded assets are provided by an administrator or valuation service provider that is independent of the Responsible Entity, Fund Manager and Portfolio Manager. See Valuations risk on page 24. The Responsible Entity generally values interests in the Direct Underlying Funds at prices provided by the managers of the Direct Underlying Funds or their administrators. The Responsible Entity values interests in the Absolute Return Fund at prices provided by the manager of the Absolute Return Fund or its administrator. The Responsible Entity accepts that the Absolute Return Fund generally values interests in the Indirect Underlying Funds at prices provided by the managers of the Indirect Underlying Funds or their administrators (except where significant and unusual circumstances affecting a Indirect Underlying Fund may warrant a downward net asset value adjustment by the Absolute Return Fund where required by applicable accounting principles), and values Derivatives at values provided by the exchanges the Derivatives are traded on where exchange traded. Where Derivatives are nonexchange traded the Responsible Entity values such Derivatives at fair value, which may rely on multiple inputs, including, but not limited to, independent pricing services, counterparty valuations, and market prices, if any, for instruments similar to or underlying the Derivative instrument. Significant and unusual circumstances at an Underlying Fund may warrant a downward net asset value adjustment by the Responsible Entity if required by applicable accounting principles. Benchmark 2 - Periodic reporting Yes This benchmark addresses whether the Responsible Entity will provide periodic disclosure of certain key information on an annual and monthly basis. See Reporting to investors on page 31. The Responsible Entity provides annual reports of all key information to investors, with information updated on the website on a monthly basis. 5

6 3 Disclosure principles Investment strategy Investment manager Summary The Fund invests in a range of asset classes using a range of investment strategies (including absolute return strategies), including listed and unlisted investments across various asset sectors with an exposure to local and international fixed interest, property, equities, futures, options and Alternative Assets as well as cash. MCG Wealth does not choose any particular investment styles in order to achieve its required level of diversification. The assets of the Fund are managed by the Portfolio Manager and Underlying Managers who are experts in various sectors, styles and strategies to achieve the investment objective of the Fund. Diversification guidelines for the Fund are set out in section 5. The specific risks of investing in the Fund are described in section 6. MCG Wealth (the Fund Manager) is responsible for overseeing the investment and management of the Fund. K2 (the Portfolio Manager) has been appointed as investment advisor to the Fund and the Absolute Return Fund and is responsible for investing both the Fund s and the Absolute Return Fund s portfolios. The Portfolio Manager is regulated by the SEC in the United States. Further details in relation to the Fund Manager, the Portfolio Manager and the investment management agreement are set out in section 4. Section (for further information) See Investment strategy on page 10. See Leverage on page 16. See Derivatives on page 19. See Short Selling on page 18. See Managing Risk on page 21. See Who is managing the Fund? pages Fund structure Valuation, location and custody of assets The Fund is an Australian managed investment scheme. The Fund is registered scheme and regulated under the Corporations Act. EQT is the responsible entity of the Fund. The Fund invests at least 50% of its assets through a related entity the Absolute Return Fund, which is also an Australian registered managed investment scheme which has the same Responsible Entity. MCG Wealth is the fund manager for the Absolute Return Fund. The balance of the Fund s portfolio the Direct Underlying Investments (including cash) are held directly, and not through a related entity. The Fund holds units in the Absolute Return Fund, along with a diversified portfolio of Direct Underlying Investments (including cash). The assets are held by BNP Paribas Fund Services Australasia Pty Ltd as Custodian, with sub-custodians located globally. The Absolute Return Fund holds a portfolio of units and shares in the Indirect Underlying Funds, direct investments and Derivatives. The assets of the Absolute Return Fund are held by BNP Paribas Fund Services Australasia Pty Ltd as Custodian, with subcustodians located globally. The Responsible Entity values interests in the Absolute Return Fund at prices provided by the manager of the Absolute Return Fund or its administrator. The Responsible Entity generally values interests in the Direct Underlying Funds at prices provided by the responsible entities/trustees of the Direct Underlying Funds, or their administrators. The Absolute Return Fund generally values interests in the Indirect Underlying Funds at prices provided by the Indirect Underlying Managers or their administrators (except where significant and unusual circumstances affecting a Indirect Underlying Fund may warrant a downward net asset value adjustment by the Absolute Return Fund where required by applicable accounting principles), and values Derivatives at values provided by the exchanges the Derivatives are traded on where exchange traded. Where Derivatives are non-exchange traded the Responsible Entity values See Fund Structure on page 15. See Valuation, location and custody of assets on page 17. 6

7 Liquidity Leverage Derivatives such Derivatives at fair value, which may rely on multiple inputs, including, but not limited to, independent pricing services, counterparty valuations, and market prices, if any, for instruments similar to or underlying the Derivative instrument. The Responsible Entity does not expect to be able to realise at least 80% of the Fund assets, at the value ascribed to those assets in calculating the Fund s net asset value, within 10 days. The Fund s interests in the Underlying Funds (which may, at any time, make up 98% of the Fund value) may take longer than 10 days to realise. It may not always be possible for the Fund to redeem its interests in the Absolute Return Fund within 10 days because the Indirect Underlying Funds are subject to legal or other restrictions on transfer. An Indirect Underlying Fund may hold illiquid investments which may take many months, even years, to realise. The value of some Derivatives held by the Absolute Return Fund may be adversely affected by early termination. However, the Responsible Entity expects to be able (in the normal course) to realise sufficient assets, at the value ascribed to those assets in calculating the Fund s net asset value, to pay withdrawals, in accordance with the procedures for withdrawals determined by the Responsible Entity under the Constitution. The Underlying Funds may use Leverage, which magnifies any losses as well as any returns for the relevant Underlying Funds and, indirectly, for the Fund. The Fund may gain exposure to Derivatives directly or through investment in the Absolute Return Fund or the Underlying Funds. The Fund may use Derivatives to achieve and maintain the Fund s asset class allocations (as described more fully in Section 5.2 below). The Fund may also use Derivatives directly or indirectly to: gain access to returns linked to one or more Underlying Fund; replicate the strategies of Underlying Managers; Hedge selectively against undesirable market sensitivities in its portfolio of investments in Underlying Funds; and/or Hedge exposures between the Australian dollar and other currencies with the intention either to minimise the fluctuations in the Fund s returns caused by currency movements or to seek to benefit from anticipated currency movements. See Liquidity on page 18. See Illiquid portfolio risk on page 23. See Withdrawals on page 19. See Leverage on page 16. See Derivatives on page 19. Short selling Withdrawals The Fund does not engage in short-selling, but the Underlying Funds may do so. Generally, investors may withdraw funds monthly, by giving notice by 2pm on a Cut Off Date (usually the last Business Day of the month). Withdrawals may be delayed in some circumstances. See Short Selling on page 18. See Withdrawals on page 19. 7

8 4 Who is managing the Fund? About the Responsible Entity About the Fund Manager Equity Trustees Limited is a publicly listed company on the Australian Securities Exchange. Established as a trustee and executorial service provider by a special Act of the Victorian Parliament in 1888, EQT today is a dynamic financial services institution which will continue to grow the breadth and quality of the products and services on offer. Specialist services of EQT include the provision of estate management services, trustee services, financial and taxation advice, personal investment advice including superannuation and responsible entity services for external fund managers. EQT s responsibilities and obligations, as the responsible entity of the Fund, are governed by the Constitution as well as by the Corporations Act and general trust law. EQT also assists not-for-profit and charitable organisations with their services and financial product needs and offers philanthropy advice to families and individuals seeking to establish charitable trusts. EQT is committed to acting in the best interests of its clients via wealth management solutions over a range of Asset Classes carrying different risk profiles. EQT has appointed MCG Wealth as the fund manager and has appointed K2 as the portfolio manager of the Fund under an investment management agreement. From an investor s perspective the Responsible Entity considers that there are no unusual or materially onerous terms in the investment management agreement. Founded in 2005, MCG Wealth Management is a private investment firm based in Sydney, Australia. MCG s focus is on the provision of objective based investment solutions. In this capacity, MCG Wealth currently manages in excess of $450 million of assets. Through the use of an Open Architecture business model, MCG Wealth sits at the center of a network of global best of class service partners. This enables MCG to bring progressive investment management solutions and institutional quality wealth management services to its clients, whilst maintaining an independent investment approach and family office style approach to client relationships. MCG Wealth is wholly owned by its directors, who have considerable experience in managing individual client portfolios for high net worth investors. The primary focus of the directors when managing clients money has been on risk management. This focus, aims to best preserve capital across all market cycles, while aiming to achieve a constant reasonable return over the medium term, given the level of risk employed. The individuals playing a key role in the investment management of the Fund are as follows: Paul P McGoldrick - B.Com, M.Com, DipFP, CFP - Over his 35 years in the wealth management industry, Paul has been responsible for assisting private clients and institutions in Australia and globally in Canada, USA, Europe and Asia. Paul was a Vice President with Merrill Lynch in New York and Canada for over 13 years and was a Managing Director of the New York investment banking firm Furman Selz Mager Dietz and Birney who were subsequently acquired by ING. Paul was a consultant to the Canadian investment firm Loewen Ondaatje McCutcheon responsible for international private clients and worked as a full time advisor for a period of time to an ultra-affluent British investor based in Monaco. More recently Paul was a Director of PricewaterhouseCoopers in Sydney and a Director trustee of the PwC Superannuation Fund. Paul ultimately left the world of large financial institutions upon realizing his clients were not receiving the objective advice, access to outside investment services that better suited their needs or the personal services that so many of the affluent needed in order to simplify their lives. Brent McGoldrick - B. Ec - Brent commenced his professional career in 2002, by completing a two year graduate training programme with Marsh Pty Ltd, a world leader in Risk Management. On completion, Brent then joined MCG Wealth Management, where he was responsible for client servicing. In 2006 Brent accepted a position as an Analyst with Goldman Sachs JBWere, working in the Private Wealth Management division. After 2 years with GSJBW, he returned to MCG Wealth, where his responsibilities were expanded to portfolio management. Brent has a Bachelor of Economics from the University of Sydney Name Position Time on Investment Team / Industry experience (years) % of time spent managing the Fund. Paul P McGoldrick Investment Director 9 / Brent McGoldrick Investment Director 8 / The Fund Manager has not been subject to any significant adverse regulatory finding. The appointment of MCG can be terminated by the Responsible Entity at any time by written notice to MCG if MCG is in default under the investment management agreement (the IMA ) between the Responsible Entity and MCG, including where: (i) a receiver, manager, administrative receiver or similar person is appointed with respect to the assets and undertaking (or any part thereof) of MCG, (ii) MCG goes into liquidation, ceases to carry on business as a fund manager, breaches any material provision of the IMA and fails to rectify the breach within 10 days written notice by the Responsible Entity requiring it to do so, (iii) MCG sells or transfers its main business and undertaking, other than to a related body corporate for purposes of corporate reconstruction on terms previously approved in writing by the Responsible Entity, or (iv) relevant law requires the IMA to be terminated. The Responsible Entity may also terminate MCG s appointment in the absence of MCG s default by giving not less than 180 days written notice of termination 8

9 to MCG. About the Portfolio Manager K2 is a Delaware limited liability company founded in 1994 by William A. Douglass III and David C. Saunders. K2 has been managing fund of hedge funds since its inception in 1994 and has steadily grown into one of the largest multi-billion dollar hedge fund investment advisory firms in the world with approximately US$9.7 billion in assets under management as at 1 December K2 provides integrated hedge fund product solutions to hundreds of sophisticated institutional and high net worth investors across the globe, including corporations, large public and union pension funds, insurance companies, foundations, and endowments K2 has its head office in Stamford, Connecticut, and other offices in New York, Tokyo, Hong Kong and in Sydney. On November 1, 2012, K2 became a part of Franklin Templeton Investments as Franklin Templeton Institutional, LLC, a wholly owned subsidiary of Franklin Resources, Inc., acquired a majority interest in K2 Advisors Holdings, LLC, K2 s holding company. Franklin Templeton Investment is a global leader in asset management. K2 is registered with the U.S. Securities and Exchange Commission (the SEC ) as an investment adviser under the Investment Advisers Act of 1940, as amended (the Advisers Act ). The individuals at K2 playing a key role in the investment management of the Fund are as follows: William A. Douglass III, Founding Managing Director of K2, graduated from Vanderbilt University in 1984 with a B.A. in economics. He then joined Donaldson, Lufkin and Jenrette Securities, where he worked in equity sales. In 1991, Mr. Douglass joined Tiedemann International Research, Ltd. ("TIR") (Tokyo) as Director of Sales. He returned to the U.S. in 1992 to become Director of Sales for TIR's North American operation, where he co-managed the firm's U.S. business until April In July 1994, Mr. Douglass cofounded K2 Advisors. He also worked at Caspian Securities from June 1995 until July 1997, when he devoted his full attention to K2. Mr. Douglass, along with Mr. Saunders, and with input and guidance from Messrs. Ritchey and Walsh, has investment management responsibility for the Fund s portfolio. David C. Saunders, Founding Managing Director of K2, graduated from the University of Maryland, College Park, in 1981 with a B.S. degree in Business. He has been involved in the investment and trading of financial instruments since He has worked at Tucker Anthony & R.L. Day as an equity trader; First Boston Corp. as Vice President on the equity block trading desk; WaterStreet Capital, a hedge fund, as Head Trader; Tiger Management, as Head Trader; WorldSec Securities as President and ABN Amro Inc. as a Senior Managing Director. He co-founded K2 Advisors in Mr. Saunders, along with Mr. Douglass, and with input and guidance from Messrs. Ritchey and Walsh, has investment management responsibility for the Fund s portfolio. John Brooks Ritchey, Jr., Senior Managing Director, Head of Portfolio Construction at K2, graduated from Franklin & Marshall College in He began his investment career at Conklin, Cahill & Co., a NYSE Specialist Firm, where he was an off-floor proprietary trader. Since 1987, Mr. Ritchey has successfully managed portfolios for institutions and high net worth individuals across the equity, bond, commodity and currency markets while working with such groups as Steinhardt Partners, Citibank, Paribas Asset Management, ING Emerging Markets Investors, AIG International Asset Management (now DKR), and Finch Asset Management. Mr. Ritchey joined K2 in December As Head of Portfolio Construction, Mr. Ritchey is responsible for the composition of the Fund s portfolio. Rob Christian. Senior Managing Director, graduated from Stanford University in 1985 with a B.A.S. in Biology and Economics and received a M.B.A. in Finance from Leonard N. Stern School of Business New York University in From 1990 to 1995 he worked as a global strategist and proprietary trader at Chase Manhattan Futures Corporation. In 1995, he founded Modoc Capital focusing on short-term futures trading; in 1997 Modoc entered into a joint venture with Stonebrook Capital Management LLC as a portfolio manager and researcher. Mr. Christian worked at Graham Capital Management LP from 1998 to 2003 as a portfolio manager and researcher of quantitative-based trading strategies. At Julius Baer Investment Management from 2003 to 2005, he was the head of Macro Strategies. From September 2005 to March 2010 he worked at FRM Americas LLC where he was the Global Head of Directional Trading Strategies and portfolio advisor to numerous funds, including the award-winning FRM Sigma. Mr. Christian joined K2 in May These individuals will devote so much of their time to managing the Fund s portfolio as K2 deems necessary and appropriate to satisfy its obligations under the Investment Management Agreement. Name Position Time on Investment Team / Industry experience (years) William A. Douglass III Founding Managing Director 20 / 30 David C. Saunders Founding Managing Director 20 / 31 John Brooks Ritchey, Jr Head of Portfolio Construction 9 / 31 Rob Christian Head of Research 4 / 24 The Portfolio Manager has not been subject to any significantly adverse regulatory finding. The appointment of the Portfolio Manager can be terminated by the Responsible Entity as specified in the agreement, including if the Portfolio Manager is in default under the agreement. No termination payment is payable on termination of the Portfolio Manager for default. 9

10 5 How the Fund invests 5.1 Investment objective 5.2 Investment strategy The Fund aims to achieve long term, sustainable returns. The Fund aims to earn a return net of fees above CPI + 5% per annum, whilst containing a level of Volatility (calculated as the annualized standard deviation in monthly returns) below 5%, in each case over rolling three to five year periods. The Fund will try to achieve its investment objective by investing in a range of asset classes using a range of investment strategies (including absolute return strategies), including listed and unlisted investments across various asset sectors with an exposure to local and international fixed interest, property, equities, futures, options and Alternative Assets as well as cash. The Fund s Direct Underlying Investments may include direct investments as well as investments in managed investment schemes, special purpose investment vehicles or other investment vehicles managed by third-party or affiliated investment managers. The Direct Underlying Investments are domiciled in various jurisdictions, including, without limitation, Australia, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Grand Duchy of Luxembourg, the Republic of Ireland, or the United States and are denominated in various currencies, including, without limitation, U.S. and Australian dollars. The Fund s investment strategy may change over time. You will be notified of any material change in the Fund s investment strategy. (See Reporting to Investors on page 21.) The Portfolio Manager is responsible for managing the Fund s asset allocation, re-balancing the Fund s allocations to various asset classes and investment strategies. The key dependencies of the investment strategy are (i) the Portfolio Manager s skill in optimizing the blend of Asset Classes and strategies, and selection of Underlying Investment Managers, and (ii) the skill of the Underlying Investment Managers. The Fund may be exposed to foreign currencies due to investments made by third-party investment managers that manage Direct Underlying Funds and/or Indirect Underlying Funds ( Indirect Currency Exposures ). In addition, the Fund may have exposure to foreign currencies arising from direct investments denominated in currencies other than Australian dollars ( Direct Currency Exposures ). It is the intention of the Portfolio Manager to generally seek to Hedge out Direct Currency Exposures through the use of currency hedges. However, from time to time the Portfolio Manager may determine that it is in the best interest of the Fund to not be perfectly hedged against Direct Currency Exposures. Therefore the Portfolio Manager will have the discretion to cause the Fund to have a net Direct Currency Exposure of between -40% and +40%. The Fund s portfolio will be divided into three strategy categories: the Market Return Strategies, the Absolute Return Strategies, and the Real Return Strategies, each as described in greater detail below. There can be no assurance that the investment strategies of the Fund, or any of the Underlying Funds, will be successful in achieving their investment objectives. The following allocation ranges are expressed as percentages of the Fund as a whole: Asset Class/Strategy Min-Max Range (%) Market Return Strategies Australian Equity 0-25 Global Equity 0-25 Emerging Market Credit 0-20 High Yield and Credit 0-25 Fixed Income 0-20 Commodities 0-20 Other 0-10 Cash 2-50 Total Real Return Strategies Real Estate/Infrastructure 0-10 Agriculture

11 Alternative Assets 0-10 Total 0-12 Absolute Return Strategies Global Macro 0-40 Commodity Oriented 0-30 Equity Hedge 0-35 Credit Related Hedge Strategies 0-35 Relative Value 0-30 Event Driven 0-20 Insurance-Linked 0-20 Multi-Strategy 0-30 Alternative Beta 0-30 Other 0-10 Cash 0-10 Total Risk Mitigation Strategies Conditional Risk Overlay 0-40 (calculated as a percentage of (i) total net asset value of the portfolio; or (ii) the beta of the portfolio to the S&P 500 Index, whichever is greater) Investments will be classified into asset classes and strategies by the Portfolio Manager. Note that allocation to cash includes cash-equivalent assets and excludes amounts held as collateral for or otherwise in connection with Derivatives. Further information in relation to the Asset Classes and investment strategies for the Fund: The specific risks associated with the Fund s investment strategy are the risks associated with the Underlying Investments, particularly use of Derivatives and Leverage; International investing risk, Emerging Markets risk, Liquidity risk and Reliability of valuations. In addition the Fund is subject to risks specific to the Absolute Return Fund such as fund of hedge fund risks and risks specific to the Indirect Underlying Funds. See Underlying Investment Risks, Risks specific to the Absolute Return Fund and Indirect Underlying Fund Risks on page 21 to 27 for further information. Market Return Strategies As part of its investment strategy, the Fund will invest a portion of its assets in Market Return Strategies, which will consist of exposures to Australian Equity, Global Equity, Emerging Market Equity, high yield, credit, Fixed Income, Commodities, and Cash. These exposures may be achieved through investments in exchange traded funds, exchange traded notes, options, futures, swaps, forwards and other instruments. The Fund s exposures to these Asset Classes will be determined by the Portfolio Manager and may change from time to time. Real Return Strategies In managing the Real Return Strategies, the Portfolio Manager may make investments in certain Asset Classes that generally have lower levels of liquidity than the Asset Classes held in the Market Return Strategies. These investments may consist of real assets, infrastructure, agricultural land and related investments, Alternative Credit, co-investments, and other opportunistic strategies, in each case in various jurisdictions, including, without limitation, Australia, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Grand Duchy of Luxembourg, the Republic of Ireland, or the United States. Investments in the Illiquid/Opportunistic Portfolio will generally be made in cooperation 11

12 with a third-party investment manager, and may be made directly or through a single-investor or commingled investment entity established in any jurisdiction, including without limitation Australia, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Grand Duchy of Luxembourg, the Republic of Ireland, or the United States. Alternative Credit: Asset Class in which the investment managers invest in non-traditional debt securities such as private, infrastructure and mezzanine debt. These debt securities are not directly correlated to the broader debt markets and therefore offer diversification benefits as well as seeking to provide higher returns than traditional debt instruments. As of August 2014, the Real Return Strategies consists of a number of illiquid legacy investments selected by MCG in its capacity as investment manager for the Fund prior to October The Portfolio Manager will manage these legacy investments as part of the Real Return Strategies and may sell or liquidate these legacy investments at any time. Absolute Return Strategies The Fund holds at least 50% of its assets in the Absolute Return Fund. The Absolute Return Fund will be used as a separate vehicle for the Absolute Return and Risk Mitigation investments component of the Fund s Asset Allocation. The Portfolio Manager has selected the Absolute Return Fund as a customized solution for the Absolute Return investment strategies within the Fund. The Absolute Return Fund seeks to provide a source of positive asymmetric returns over the full market cycle with limited correlated to equity or credit markets, which are the predominant source of risk in the majority of the Direct Underlying Funds. The Asset Classes and investment strategies for the Absolute Return Fund also include the following. Alternative Beta: This investment strategy seeks to access investable systematic strategies that have low correlation to traditional beta investments. These strategies are designed to be liquid, transparent, and potentially offer an alternative source of return to complement a traditional asset class range. By designating a portion of the Absolute Return Fund to Alternative Beta strategies, the Portfolio Manager is seeking to capture the excess return associated with each investment, while also enhancing the risk-return profile of the Absolute Return Fund s overall portfolio. The Alternative Beta strategy may be accessed through over-the-counter derivative instruments, including, without limitation, structured notes and/or total return swaps. In addition, the Alternative Beta strategy may also invest in U.S. government securities (including, without limitation, agency debentures) and other high quality debt securities, cash, and cash equivalents. Hedge Fund Replication Strategies. A type of Alternative Beta strategy where the Portfolio Manager may allocate directly, or via hedge funds including Indirect Underlying Funds, with the objective to approximate synthetically the returns of a diversified pool of hedge fund investment strategies. This strategy seeks to provide capital appreciation consistent with the return and risk characteristics of a diversified portfolio of hedge funds with less volatility than major equity indices. Conditional Risk Overlay: The objective of the Conditional Risk Overlay strategy is to hedge selectively against undesirable market sensitivities which may exist in the Fund s portfolio in an attempt to enhance performance relative to risk by investing in a portfolio of securities, options, derivatives, or other instruments. When implemented, the Conditional Risk Overlay strategy is intended to take short-term relatively liquid positions in an effort to mitigate or otherwise hedge undesirable portfolio sensitivities in the Fund s portfolio. The Portfolio Manager intends for the Conditional Risk Overlay strategy to act as a hedge against negative market events. The Conditional Risk Overlay strategy may invest in a wide range of derivative contracts, including, without limitation, options, futures, swaps, forwards and other instruments as the Portfolio Manager determines in its discretion. The Conditional Risk Overlay strategy may also invest in U.S. government securities (including, without limitation, agency debentures) and other high quality debt securities, cash, and cash equivalents. The Portfolio Manager evaluates the exposure of the Fund s portfolio to a number of variables, including, without limitation, equities, bonds, currencies, and commodities. The Portfolio Manager evaluates these components to estimate whether the market environment is perceived as favorable or unfavorable to the Portfolio. If the Portfolio Manager determines that an outlook is unfavorable, the Portfolio Manager may enter into one or more transactions to mitigate such risk of loss conditions. This strategy may be implemented directly by the Fund and/or through the Absolute Return Fund and/or an Underlying Fund. As more fully described below, the Indirect Underlying Funds may pursue their investment strategies by investing in a wide variety of securities and other instruments, including but not limited to, Australian and international listed equities, preferred stocks, Australian and international government and corporate bonds, convertible bonds, notes, loans, commercial paper, exchange traded and overthe-counter (OTC) Derivatives (including futures contracts, options, and swaps), warrants, commodity and commodity linked contracts, foreign currency and cash equivalents. The Indirect Underlying Funds may be domiciled in various jurisdictions, including, without limitation, Australia, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Grand Duchy of Luxembourg, the Republic of Ireland, or the United States. The Fund generally invests in interests in Indirect Underlying Funds denominated in U.S. or Australian dollars. Indirect Underlying 12

13 Funds may be organized as offshore corporations, limited partnership or limited liability companies or other investment structures including managed or separate accounts, registered and unregistered investment companies, and unit trusts as well as alternative trading platforms (including underlying investment managers accessed through derivatives with returns linked to the underlying investment manager s strategies). By investing in a variety of Indirect Underlying Funds with different investment strategies, the Absolute Return Fund aims to produce returns with a low correlation with market indices or investment rates. The Absolute Return Fund aims to maintain exposure to a variety of Indirect Underlying Funds using a variety of investment strategies. There are no minimum or maximum guidelines as to the number of Underlying Funds in which the Fund invests. The Indirect Underlying Funds may use a wide variety of investment strategies, including, but not limited to, the following: Long/Short Equity. Long investments (holding the equities themselves or the right to buy the equities) and short investments (holding obligations to sell equities not yet owned) in listed equities. In general, the strategy entails varying degrees of residual market sensitivity. Strategy approaches typically vary by region, sector, capitalization focus, and investment process. These strategies could be net long or net short based upon the Underlying Manager s market view at the time. Equity Market Neutral. Long and short investments in listed equities which on a portfolio basis have very limited market exposure or sensitivity. Strategy approaches typically vary by region, sector, and investment process. Managed Futures. Managed futures strategies trade futures contracts and other Derivatives on financial assets and commodities worldwide. Such strategies may utilize systematic long-term trend-following, discretionary, and short-term active trading strategies. Event Driven. Investments in corporate securities and related Derivatives involving a variety of catalyst driven investment strategies, including, but not limited to, mergers and acquisitions, corporate restructurings, distressed investing, merger arbitrage, capital structure arbitrage, special situations, and related situations. Arbitrage Trading. The taking of a position in one security and an offsetting position in another related security where an investor attempts to profit from mispricings between the two securities. Mispricings may result from a variety of market factors. Distressed and Hedged Distressed. The investment in securities and claims of companies that are in weak or unstable financial condition with the anticipation that returns may be realized by a change in the financial structure and/or operations of the company. In Hedged distressed strategies, investments may be both long and short and may also involve market Hedges. Convertible Arbitrage. Convertible arbitrage involves taking a long position in a convertible bond or preferred shares and shorting common shares of the same issuer in an attempt to arbitrage mispricings between the two instruments. Equity Volatility Arbitrage. Equity volatility arbitrage entails long and short positions in equity options which attempt to take advantage of mispricings. Mispricings may result from a variety of market factors. Fixed Income Arbitrage. Fixed income arbitrage entails taking offsetting positions in related fixed income securities and attempts to take advantage of mispricings in fixed income securities. Credit Arbitrage. Credit arbitrage seeks to capitalize on pricing disparities between different credit instruments issued by the same issuer or between related credit instruments from different issuers. Profit opportunities can arise as the prices of credits reflect different assumptions about credit, liquidity and risks in related credit products. Instruments traded may include corporate bonds, convertible bonds, equities, sovereign securities, structured credit products and related Derivatives. Diversified or Specialist Credit. The investment in a wide variety of credit strategies that may include long/short credit, distressed, bank debt, high yield, direct credit origination, capital structure arbitrage, emerging markets and real estate related strategies among others. Global Macro. Global macro strategies focus on macroeconomic opportunities across a multiplicity of markets and instruments. Investments can be either long or short and can be made in cashequivalent securities, Derivatives equities, fixed income securities, currencies, or commodities. Currency-Related Strategies. Hedge funds engaged in currency-related strategies may utilize a wide variety of instruments, including, but not limited to systematic value, systematic trend, systematic carry, and discretionary selection. These funds will make use of spot, forward, futures and other Derivatives based on foreign currencies. These funds may utilize some non-currency instruments for hedging and cash management purposes. Bank Debt and High Yield Investing. Long and/or short investments in high-yield debt, syndicated bank debt, or direct credit origination. Indirect Underlying Funds may also invest in credit Derivatives as long or short positions. 13

14 Merger Arbitrage. The purchase of securities subject to tender offers, exchange offers or mergers, and then the tender of these securities for cash or other securities. The success of this strategy may depend on whether the transaction is consummated. In the event that the transaction is not consummated, the success will then depend on whether the positions were properly hedged. Credit Strategies. This strategy involves buying and selling loans to small and middle-market companies, usually with respect to the most senior capital in the company. These positions may be hedged both through seniority and often by taking assets such as accounts receivable or property, plant, and equipment as collateral. In certain cases, insurance structures may be used with the objective of providing further downside protection. Insurance-Linked Securities. This strategy invests in insurance and reinsurance risk like liferelated risks such as longevity and mortality, natural catastrophe risks such as hurricanes, earthquakes, flood, fire and others. Contracts are structured with the objective of achieving a relatively low risk of incurring a loss, although losses in the portfolio may be quite large when such events occur. Multi Strategy: The manager of this type of Hedge fund uses a combination of different strategies within the same pool of assets to reduce overall market risk. Risk is reduced through this divergence across asset classes and strategies and uses both long and short strategies. These funds may narrowly focus on specific sectors or can be broadly diversified across sectors and strategies. The specific risks for the Absolute Return Fund associated with this investment strategy are the risks associated with the Indirect Underlying Funds, particularly use of Derivatives and Leverage; reliance on key personnel; the unregulated nature of the many of the Indirect Underlying Funds; their broad investment strategies; their investments in Emerging Markets; and the lack of liquidity and volatility of the Indirect Underlying Funds. See Fund of hedge funds risks on page 23 for details. To mitigate and manage these risks, the Absolute Return Fund will employ a multi-manager strategy and each Indirect Underlying Manager will trade independently of the others. See Fund of hedge funds risks on page 23 for details. For up to date information on the Absolute Return Fund and the Underlying Managers please see the MCG Wealth Management website or contact Brent McGoldrick on

15 5.3 Fund Structure The Fund is an Australian managed investment scheme. The Fund is registered scheme and regulated under the Corporations Act. EQT is the responsible entity of the Fund. The Fund invests at least 50% of its assets through a related entity the Absolute Return Fund, which is also an Australian registered managed investment scheme which has the same responsible entity. MCG is the Fund Manager for the Absolute Return Fund and K2 is the Portfolio Manager. The direct investments may be direct holdings in local and international fixed interest, property, equities, futures or options. The Underlying Funds may be domiciled in various jurisdictions, including, without limitation, Australia, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Grand Duchy of Luxembourg, the Republic of Ireland, or the United States. The service providers and their relationship to the Fund and the flow of funds through the Fund are shown in the diagram below. Investor The Responsible Entity The Fund 0 The Fund Manager of the Fund and the Absolute Return Fund The Portfolio Manager of the Fund and the Absolute Return Fund Direct Underlying Fund Direct Investments Absolute Return Fund Indirect Underlying Fund Direct Investments As at the date of this PDS, the Responsible Entity has appointed the following service providers for the Fund: Fund ManagerPMCG Pty Limited trading as MCG Wealth Management See About the Fund Manager on page 8 for a description of the Fund Manager s role. Portfolio Manager: K2/D&S Management Co., L.L.C. See About the Portfolio Manager on page 9 for a description of the Portfolio Manager s role. Custodian: BNP Paribas Fund Services Australasia Pty Ltd Administrator: BNP Paribas Fund Services Australasia Pty Ltd Auditor: Ernst & Young The service providers engaged by the Responsible Entity may change without notice to investors. The Responsible Entity has entered into service agreements with the service providers. The Responsible Entity will regularly monitor the performance of the Fund Manager against service standards set out in the relevant agreement. The Responsible Entity will, with the assistance of the 15