AIM Gateway Fund ARSN 613 156 479 PRODUCT DISCLOSURE STATEMENT Date issued 28 September 2017 Responsible Entity Theta Asset Management Limited ABN 37 071 807 684, AFSL 230920 Investment Manager Sequoia Funds Management Pty Ltd ABN 30 611 555 581 This Product Disclosure Statement replaces the Product Disclosure Statement dated 13 March 2017.
Important Information This Product Disclosure Statement ( PDS ) is dated 28 Spetember 2017 and is for the offer of interests in the AIM Gateway Fund (ARSN 613 156 479) (referred to throughout this PDS as the Gateway Fund ). This PDS replaces the Product Disclosure Statement dated 13 March 2017. A prospective investor considering an investment in the Gateway Fund should read the entire contents of this PDS before making a decision to invest. The PDS has been prepared and issued by Theta Asset Management Limited (ABN 37 071 807 684, AFSL 230920) in its capacity as the Responsible Entity of the Gateway Fund (the Responsible Entity ). The investment manager is Sequoia Funds Management Pty Ltd (ABN 30 611 555 581) (the Investment Manager ). The Investment Manager has been appointed a corporate authorised representative (no. 001243250) of Sequoia Asset Management Pty Limited (ABN 70 135 907 550, AFSL 341506). The Gateway Fund is governed by the Constitution. The Gateway Fund comprises assets which are acquired in accordance with the Gateway Fund s investment strategy. Investors receive Units in the Gateway Fund, however these Units do not give the investor an interest in any particular asset of the Gateway Fund. The Responsible Entity has authorised the use of this PDS as disclosure to investors who invest directly in the Gateway Fund, as well as investors of an investor-directed portfolio service, master trust, wrap account or an investor directed portfolio service-like scheme (each referred to collectively as an IDPS ). This PDS is available for use by persons applying for Units 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. Indirect Investors should carefully read these terms and conditions before investing in the Gateway Fund. Indirect Investors should note that they are directing the IDPS Operator to arrange for their money to be invested in the Gateway Fund on their behalf. Indirect Investors do not become Unitholders in the Gateway Fund or have the rights of Unitholders. Instead, the IDPS Operator becomes the Unitholder in the Gateway Fund and acquires these rights. Indirect Investors should refer to their IDPS Guide for information relating to their rights and responsibilities as an Indirect Investor, including information on any fees and charges applicable to their investment. Information regarding how Indirect Investors can apply for Units in the Gateway Fund (including through an application form where applicable) will also be contained in the IDPS Guide. The Responsible Entity accepts no responsibility for IDPS Operators, or any failure by an IDPS Operator, to provide Indirect Investors with a current version of this PDS as provided by the Responsible Entity or to withdraw the PDS from circulation if required by the Responsible Entity. Please ask your adviser if you have any questions about investing in the Gateway Fund (either directly or indirectly through an IDPS). This PDS is prepared for your general information only. It is not intended to be a recommendation by the Responsible Entity or Investment Manager, any associate, employee, agent or officer of the Responsible Entity or Investment Manager or any other person to invest in the Gateway 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 Gateway Fund solely on the information in this PDS. You should consider the suitability of the Gateway Fund in light of your financial position and investment objectives and needs and you may want to seek financial, legal and tax advice before making an investment decision. The Responsible Entity and the Investment Manager and their associates, employees, agents or officers do not guarantee the success, repayment of capital or any rate of return on income or capital or the investment performance of the Gateway Fund. Past performance is no indication of future performance. Units in the Gateway Fund are offered and issued by the Responsible Entity on the terms and conditions described in this PDS. You should read this PDS in its entirety. Any forward-looking statements included in this PDS involve subjective judgment and analysis and are subject to significant uncertainties, risks and contingencies, many of which are outside the control of, and are unknown to, the Responsible Entity, the Investment Manager and their associates, officers, employees, agents or associates. Actual future events may vary materially from any forward-looking statements and the assumptions on which those statements are based. Given these uncertainties, you are cautioned to not place undue reliance on such forward-looking statements. In particular, in considering whether to invest in the Gateway Fund, investors should consider the risk factors that could affect the financial performance of the Gateway Fund. Some of the risk factors affecting the Gateway Fund are summarised in Section 4 Key Risks of Investing of this PDS. All amounts quoted in this PDS are in Australian dollars ( AUD ) unless stated otherwise. Unless otherwise stated, all fees quoted in the PDS are inclusive of GST. The offer made in this PDS is available only to persons receiving this PDS in Australia and New Zealand (electronically or otherwise). Important information for New Zealand investors This offer to New Zealand investors is a regulated offer made under Australian and New Zealand law. In Australia, this is Chapter 8 of the Corporations Act 2001 (Aust) and regulations made under that Act. In New Zealand, this is subpart 6 of Part 9 of the Financial Markets Conduct Act 2013 and Part 9 of the Financial Markets Conduct Regulations 2014. This offer and the content of the offer document are principally governed by Australian rather than New Zealand law. In the main, the Corporations Act 2001 (Aust) and the regulations made under that Act set out how the offer must be made. There are differences in how financial products are regulated under Australian law. For example, the disclosure of fees for managed investment schemes is different under the Australian regime. The rights, remedies, and compensation arrangements available to New Zealand investors in Australian financial products may differ from the rights, remedies, and compensation arrangements for New Zealand financial products. Both the Australian and New Zealand financial markets regulators have enforcement responsibilities in relation to this offer. If you need to make a complaint about this offer, please contact the Financial Markets Authority, New Zealand (http://www.fma.govt.nz). The Australian and New Zealand regulators will work together to settle your complaint. The taxation treatment of Australian financial products is not the same as for New Zealand financial products. If you are uncertain about whether this investment is appropriate for you, you should seek the advice of an appropriately qualified financial adviser. The offer may involve a currency exchange risk. The currency for the financial products is not New Zealand dollars. The value of the financial products will go up or down according to changes in the exchange rate between that currency and New Zealand dollars. These changes may be significant. If you expect the financial products to pay any amounts in a currency that is not New Zealand dollars, you may incur significant fees in having the funds credited to a bank account in New Zealand in New Zealand dollars. The dispute resolution process described in this offer document is available only in Australia and is not available in New Zealand. United States This PDS does not constitute a direct or indirect offer of securities in the US or to any US Person as defined in Regulation S under the US Securities Act of 1933 as amended ( US Securities Act ). The Responsible Entity may vary its position and offers may be accepted on merit at the Responsible Entity s discretion. The Units have not been, and will not be, registered under the US Securities Act unless otherwise determined by the Responsible Entity and may not be offered or sold in the US to, or for, the account of any US Person (as defined under the US Securities Act) except in a transaction that is exempt from the registration requirements of the US Securities Act and applicable US state securities laws. Changes to information 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 the Investment Manager on +61 2 8114 2222. Where the information is not materially adverse it will be made available on the Investment Manager s website at www.sequoiaam.com.au/aimgateway.
About the AIM Gateway Fund ( The Gateway Fund ) The Gateway Fund is an Australian unit trust and registered managed investment scheme providing investors (including Retail Clients) with exposure to the AIM Global High Conviction Fund (the AIM Fund ). The AIM Fund is a wholesale unit trust, managed by Charlie Aitken. Investment Objective of the Gateway Fund The Gateway Fund is a feeder fund which is managed by Sequoia Funds Management Pty Ltd and designed to provide investors with returns linked to the performance of the AIM Fund and Cash (net of fees). The Gateway Fund invests almost entirely in the AIM Fund, with the balance held in Cash. About the AIM Global High Conviction Fund ( the AIM Fund ) The AIM Fund is managed by Charlie Aitken, who is also the AIM Fund s Chief Executive Officer and Chief Investment Officer. Charlie Aitken has more than 22 years financial markets experience in macroeconomic forecasting and stock picking. For an overview of the Gateway Fund s investment strategy, please see Section 3.1 Investment Strategy of the AIM Fund. AIM is the acronym for Aitken Investment Management. The AIM Fund has a team of highly experienced portfolio managers, analysts and traders to ensure the AIM Fund generates maximum portfolio leverage to both domestic and international high conviction investments. Aitken Investment Management Pty Ltd (ACN 603 583 768) is the trustee and investment manager of the AIM Fund ( AIM Investment Manager ). The AIM Investment Manager is supported in its management of the AIM Fund by external legal, administration, taxation and audit service providers. Who is Charlie Aitken Charlie Aitken is the Chief Executive Officer and Chief Investment Officer of the AIM Fund. Charlie has more than 22 years of equity and futures market experience. He was the author of the Ringing the Bell newsletter and previously the Under the Southern Cross newsletter. He is an expert contributor to the Switzer Super Report and, previously, Alan Kohler s Eureka Report. He appears frequently on Australian and global financial media as an expert on Australian equities and global macroeconomic strategy. Charlie s career experience includes being a Director and Head of Sydney Sales Trading for Citigroup, Executive Director and Partner of Southern Cross Equities and Executive Director and Board Member of the ASX listed Bell Financial Group. He is best known for his high conviction, top down and bottom up investment ideas formulated from consistently meeting with listed and unlisted companies, policymakers and regulators. Investment Objective of the AIM Fund The AIM Fund aims to outperform the MSCI World Index (USD) on a net of fees basis. There is no guarantee that the objectives of the Gateway Fund or the AIM Fund will be achieved. These objectives are merely an indication of what the Investment Manager aims to achieve over the relevant period. The Investment Manager, and the AIM Investment Manager, may not be successful in meeting these objectives. Returns, and the return of all of your capital, are not guaranteed. These objectives do not take into account an investor s tax position or the impact of fees on returns.
Contents 1. Gateway Fund at a Glance...5 2. How the Gateway Fund Invests....10 3. How the AIM Fund invests...12 4. Key Risks of Investing...14 5. Fees and Other Costs....19 6. Applications & Redemptions...24 7. Taxation...28 8. About the Responsible Entity, Investment Manager and service providers...32 9. Other important information...34 10. Glossary.... 39 11. Directory...43 12. Identification.... 44 13. Application Form AIM Gateway Fund...46
1 Gateway Fund at a Glance 1.1. Key Features of the Gateway Fund A prospective investor contemplating an investment into the Gateway Fund should consider the entire contents of this PDS before making a decision to invest in the Gateway Fund. Summary Further Information Name AIM Gateway Fund ARSN 613 156 479 APIR Fund type Investment Manager Eligible investors Recommended investment timeframe Investment strategy of the Gateway Fund MMC0005AU The Gateway Fund is an Australian unit trust and registered managed investment scheme. The Gateway Fund s Units are not listed on any securities exchange. The Investment Manager of the Gateway Fund is Sequoia Funds Management Pty Ltd. Australian and New Zealand Wholesale Clients and Retail Clients¹. The minimum suggested investment timeframe for the Gateway Fund is 5 years. You should consider the suggested investment period for the Gateway Fund in relation to your own investment timeframe. You should review this regularly to ensure that the Gateway Fund continues to meet your investment needs. The Gateway Fund is a feeder fund designed to provide investors with returns linked to the performance of the AIM Fund and Cash (net of fees). The Gateway Fund invests exclusively into the AIM Fund and Cash. The target asset allocation is as follows: AIM Fund 99% - 99.5% Cash 0.5% - 1% Cash holdings will be invested only in Australian authorised deposit-taking institutions ( ADIs ). The Gateway Fund itself does not use any leverage, derivatives or short selling. However, the AIM Fund in which the Gateway Fund invests may use leverage, derivatives and short selling. The investment strategy of the Gateway Fund is unlikely to change but if a material change occurs, notification will be provided to investors. Section 8 Section 2 ¹ An investment in the Gateway Fund should only be undertaken by investors that have the capacity to withstand a partial or even complete loss of their investment and who have a capacity to assess and assume risk. There may be times when your investment in the Gateway Fund may be illiquid. Refer to Risk section of this PDS.
Valuation, location and custody of assets Liquidity The Responsible Entity has appointed Australian Executor Trustees Limited ( AET ) as the Custodian of the Gateway Fund. As Custodian, AET has overall responsibility for custody of the assets of the Gateway Fund, although it may appoint subcustodians from time to time. The Net Asset Value of the Gateway Fund will be calculated and reported monthly. The Net Asset Value will typically be calculated with reference to current and available market value but other valuation methods and policies may be applied by the Fund Accountant in consultation with the Responsible Entity, where it is appropriate to do so or if it is otherwise required by law or applicable accounting standards. In calculating the Net Asset Value, the Fund Accountant may rely upon automatic pricing services, brokers, market makers or other intermediaries as it determines. The liquidity of the Gateway Fund is determined by the liquidity of the AIM Fund and the underlying assets in which the AIM Fund invests. Under certain market conditions, such as during volatile markets when trading in a security or market is otherwise impaired, or due to economic, market, legal, political or other factors, the liquidity of the Gateway Fund may be impaired. If an investor or a group of investors in the Gateway Fund seek to make large redemptions, then the resulting sale of assets to meet those redemptions may result in a detrimental impact on the price the Gateway Fund receives for those assets. In certain circumstances the Gateway Fund may be required to suspend Redemptions (refer to Redemption risk of the AIM Fund below) to allow sufficient time for a more orderly liquidation of assets to occur. Section 8.2 Sections 2.3, 4.10, & 6 Leveraging² & Borrowing Leverage will not be used by the Gateway Fund. Section 3.1, 3.3 & 3.5 Derivatives² Derivatives will not be used by the Gateway Fund. Section 3.4 Short selling² The Gateway Fund will not engage in any short selling. Section 3.3 Minimum initial investment amount Minimum additional investment amount $10,000 (AUD). The Responsible Entity may in its discretion accept an initial investment amount lower than this amount. The number of Units in the Fund that the investor will receive will be determined by dividing your investment amount by the applicable Unit Price. $5,000 (AUD). The Responsible Entity may in its discretion accept an additional investment amount lower than this amount. ²Note: while the Gateway Fund will not use leverage, borrowing, derivatives, or short selling, the underlying AIM Fund (into which the Gateway Fund invests) does use all of these instruments. Please refer to Section 1.2 Key Features of the AIM Fund of this PDS for further details on the uses of each instrument by the AIM Fund. AIM Gateway Fund I Product Disclosure Statement 6
Minimum redemption amount Cooling Off $5,000 (AUD). The Responsible Entity may in its discretion vary this amount. Where a Redemption Request would have the effect of taking an investor s remaining investment balance below the initial investment amount (being either $10,000 or any other amount accepted as an initial investment amount by the Responsible Entity in its discretion), such redemption will not be permitted and a full withdrawal may be required. A cooling-off period applies to an investment in the Gateway Fund. This period is 14 days from the earlier of: (i) when you receive confirmation of your investment; or (ii) the end of the fifth Business Day after the day on which your Units were issued to you. Section 9.12 Valuation frequency Monthly Section 8.2 Unit Pricing Applications Determined at least monthly, based on the Net Asset Value of the Units of the AIM Fund. Application Forms and cleared Application Monies (or evidence of payment) must be received by the final business day of each month (unless otherwise determined by the Responsible Entity at its discretion). Applications received within this timeframe will be processed at the unit price determined for the particular month. For more information in relation to Applications please refer to Section 6 Applications & Redemptions of this PDS. Section 8.2 Section 6 Redemptions Income distribution Unitholders may redeem monthly. Redemption Forms must be received by the last Business Day of the Calendar Month PRIOR to the proposed Redemption Day. Due to the nature of the Gateway Fund s underlying investments (that is, its investments in the AIM Fund) and the redemption notice requirements of the AIM Fund, Units in the Gateway Fund may only be redeemed monthly, and the Responsible Entity will retain discretion over the time frame. It is expected that the Redemption Proceeds will be paid within 15 days of the Redemption Day. Redemptions may be suspended or deferred in certain circumstances. For more information in relation to Redemptions please refer to Section 6 Applications & Redemptions of this PDS. Investors with an Australian address on the Register can elect to either automatically reinvest any distributions or to receive distributions as a cash payment into their nominated bank account. If an election is not made on the Application Form, the default option will be to reinvest. Investors with an address on the Register that is outside Australia will not be eligible for automatic reinvestment of distributions and must provide a nominated bank account for payment of distributions. Distributions (if any) will be paid annually (usually around September each year for distributions declared at the conclusion of each financial year ending 30 June or as soon as reasonably practicable). Section 6 Section 7 AIM Gateway Fund I Product Disclosure Statement 7
Distribution Reinvestment Management costs Where eligible investors have elected to automatically reinvest distributions (if any), these will be reinvested at the next available Application Day at the relevant Application Price after the distribution has been calculated. The full terms of the distribution reinvestment plan will be made available on the Investment Manager s website at www.sequoiaam.com.au/aimgateway Direct Costs Gateway Fund management fee: 0.00% p.a. of the Net Asset Value. The Gateway Fund does not directly charge a management fee. Gateway Fund Performance fee: Nil Section 7 Section 5 Indirect Costs AIM Fund management fee: 1.65% p.a. of the Net Asset Value of the AIM Fund. AIM Fund Performance fee: 16.5% of the AIM Fund s outperformance of the MSCI World Index. The actual AIM Fund Performance fee charged for the financial year ending 30 June 2017 was 0.4004% of the Net Asset Value. Entry fee/ exit fee Gateway Fund: Nil. Section 5 Buy/Sell Spread Adviser Fee Periodic reporting A spread of +/- 15 basis points wider than the spread charged to direct investors in the AIM Fund will apply. An Adviser Fee may be payable, as negotiated with your Adviser. To keep you up-to-date with your investment, the following information will be provided: confirmation of every transaction you make; annual transaction reports including your opening and closing balances, a summary of all transactions on your account, any increases in contributions and any return on investments during the reporting period; following the end of the tax year, a report to help you with your tax return; each year (usually within 14 days of the end of September), the audited annual financial report of the Gateway Fund (you will be emailed the report and can access it on the Investment Manager s website at www.sequoia.com); and notice of any material changes to this PDS and any other significant events. Section 5 AIM Gateway Fund I Product Disclosure Statement 8
1.2. Key Features of the AIM Fund Investment strategy of the AIM Fund Leverage & Borrowing Derivatives Short Selling Summary The AIM Fund primarily invests in global listed equities, as well as selected commodities, currencies and derivatives. The AIM Investment Manager may also choose to move the AIM Fund s assets entirely to cash during times of extreme uncertainty. The AIM Fund may use leverage, derivatives and short selling. The AIM Fund is allowed to borrow and may use leverage to increase its exposure to underlying investments. The AIM Fund may also borrow securities for the purpose of short selling. The AIM Fund is allowed to use both over-the-counter and exchange traded derivatives including: equity index futures; volatility indexes; and call and put options. The AIM Fund is allowed to invest in both long and short positions and may engage in short-selling from time to time. The objective of short selling is to try and profit from a decrease in the value of a security. Generally, short selling involves borrowing the security from a third party to facilitate the sale. Short sales can involve much greater risk than taking long positions (i.e. buying securities to try and profit from an increase in the value of the security), as losses on long positions are generally restricted to the amount that has been invested. In contrast, losses on a short position can be much greater than the purchased value of the security. Whilst short selling can often reduce risk (as it may offset the risk of loss incurred with taking a long position), it is also possible for long positions and short positions to both lose money at the same time. Further information Section 3 Section 3.1,3.3 & 3.5 Section 3.4 Section 3.3 Management Costs AIM Fund: A management fee of 1.65% p.a. will be payable. Section 5 Performance Fee AIM Fund: 16.5% on the AIM Fund s outperformance of the MSCI World Index. Section 5 AIM Gateway Fund I Product Disclosure Statement 9
2 How the Gateway Fund Invests 2.1. Investment Strategy of the Gateway Fund The Gateway Fund is a feeder fund designed to provide investors with returns linked to the performance of the AIM Fund and Cash (net of fees). The Gateway Fund invests exclusively into the AIM Fund and Cash. The target asset allocation is as follows: AIM Fund 99% - 99.5% Cash 0.5% - 1% Cash holdings will be invested only in ADIs and the Investment Manager will seek to find Cash investments paying the highest level of interest. 2.2. Custody and valuation of assets Custody The Responsible Entity has appointed AET as Custodian of the Gateway Fund. The Custodian has overall responsibility for custody of the assets of the Gateway Fund, although it may appoint sub-custodians from time to time. Valuation The Gateway Fund will calculate and report its Net Asset Value ( NAV ) monthly. The Fund Accountant will calculate the NAV monthly in consultation with the Responsible Entity. The Net Asset Value will typically be calculated with reference to current and available market value but other valuation methods and policies may be applied by the Fund Accountant in consultation with the Responsible Entity, where it is appropriate to do so or if it is otherwise required by law or applicable accounting standards. In calculating the Net Asset Value, the Fund Accountant may rely upon automatic pricing services, brokers, market makers or other intermediaries as it determines. Calculating the value of the units in the Gateway Fund: The Gateway Fund will hold two classe s of assets: 1) units in the AIM Fund and 2) Cash. The NAV of the Gateway Fund will be determined with reference to the value of these assets, less any liabilities. Calculating the value of Cash in the Gateway Fund The Gateway Fund will directly hold Cash. Cash will be valued based on the balance of the relevant cash accounts. Calculating the value of the units in the AIM Fund The Gateway Fund will directly hold units in the AIM Fund. Units in the AIM Fund will be valued with reference to the monthly valuation report that is received from the AIM Fund, which outlines the current Net Asset Value of the AIM Fund.
2.3. Liquidity The liquidity of the Gateway Fund is determined by the liquidity of the AIM Fund. There may be times when the underlying investments held by the AIM Fund cannot be readily sold. This is more likely in the case of investments which are not listed on a recognised securities exchange, or are not traded frequently and are therefore less liquid. Due to the nature of the Gateway Fund s underlying investments (that is, its investments in the AIM Fund) and the redemption notice requirements of the AIM Fund, Units in the Gateway Fund may only be redeemed monthly (see Section 6 Applications & Redemptions ). 2.4. Labour, environmental, ethical, and social considerations Labour standards, environmental, ethical and social considerations are not taken in account in the selection, retention or realisation of investments in the Gateway Fund. AIM Gateway Fund I Product Disclosure Statement 11
3 How the AIM Fund invests 3.1. Investment Strategy of the AIM Fund The AIM Investment Manager employs a high-conviction thematic long-short strategy, investing primarily in global listed equities, as well as selected commodities, currencies and derivatives. The AIM Investment Manager may also choose to move the AIM Fund s assets entirely to cash during times of extreme uncertainty. The AIM Fund s investment philosophy is focused on identifying key macroeconomic thematics, finding undervalued securities exposed to such thematics and looking for asymmetric return profiles. The AIM Fund is a high conviction fund, which means the AIM Investment Manager will make concentrated risk-adjusted investments in its strongest ideas. The AIM Investment Manager is not constrained to invest in accordance with any benchmark or other index. This flexibility allows the AIM Investment Manager to take advantage of a wide variety of market opportunities. The AIM Investment Manager has the ability to invest in companies across a wide range of market sectors and industries located internationally (including emerging markets). In addition, it has the flexibility of using a variety of listed financial instruments such as equities, commodities and derivatives (including Options), to invest in both Long and Short Positions. 3.2. The AIM Fund Investment Process The AIM Fund uses a medium-term top down meets bottom up strategy. The AIM Investment Manager will identify top-down global macroeconomic structural growth themes and will then select, bottom-up, the best equities or instrument globally for access to those themes. This may involve Long or Short positions. The AIM Fund will also allocate capital for short-term opportunistic trading of liquidity events or equity capital markets transactions (including initial public offerings, secondary raisings and block trades). The AIM Investment Manager will employ stop-loss parameters that are intended to limit the capital drawdown of any losing investment or trading ideas. The AIM Investment Manager will also implement trading strategies aimed at minimising capital losses including moving fully into cash or utilising derivative protection. The AIM Investment Manager intends to let winners run and cut losing ideas quickly. The AIM Investment Manager will target a maximum exposure to any single investment at 15% of the Net Asset Value of the AIM Fund, as at the time of investment. 3.3. Investments of the AIM Fund The types of investments undertaken by the AIM Fund will reflect the objective of the AIM Fund and the investment strategy adopted. The AIM Fund may invest in a wide range of asset classes including: Australian and international listed securities (in both developed and emerging markets); securities expected to list on an Australian or international exchange within six months; exchange traded funds and other managed investment schemes; derivatives including equity index futures, volatility indexes, call and put options (both exchange traded and over-the-counter derivatives); American depositary receipts or similar instruments; Cash, cash-like investments and foreign currencies. The AIM Fund may short sell and may utilise leverage for investments.
3.4. Use of derivatives by the AIM Fund The AIM Fund is permitted to invest in derivatives under the Constitution. Financial derivatives, such as exchange traded options, may be used to adjust or implement investment decisions, to help manage certain risk and to gain or avoid exposure to a particular market or security rather than purchasing physical assets. There are certain risks involved in relation to the use of derivatives by the AIM Fund. Please refer to Derivative risk in the Key risks of investing sections for more information. 3.5. Borrowings It is the intention of the AIM Fund that no commercial borrowings of cash will be undertaken in the AIM Fund other than temporary overdrafts which may be used as a means of managing certain cash flows. The AIM Fund may borrow securities for the purposes of short selling. 3.6. More Information For a copy of the AIM Fund s Information Memorandum, please email info@aimfunds.com.au. AIM Gateway Fund I Product Disclosure Statement 13
4 Key Risks of Investing A degree of risk applies to all types of investments, including investments in the Gateway Fund. Prospective investors should be aware that there is no guarantee that the implementation of the Investment Manager s investment process will not result in losses to Unitholders, including losses of capital. As investing in the Gateway Fund involves exposing your investment to a range of risks, it is important that you understand: the risks involved in investing in the Gateway Fund, and in particular, the fact that the Gateway Fund invests almost entirely in the AIM Fund; how these risks compare with the risks of other investments; how comfortable you are in exposing your investment to risk; and the extent to which the Gateway Fund fits into your overall investment strategy. Risk can mean different things to different people. It can mean the risk that your investment may fail to achieve the returns that you expect. This includes situations in which your investment may suffer substantial declines in value. It also includes situations in which your investment goals will not be met because the type of investments you chose did not provide the potential for adequate returns. Risk can also mean investment volatility. That is the extent to which an investment varies in value over a given period. Often, investments offering higher levels of return in the longer-term also exhibit higher levels of short-term volatility. Investment strategies which seek to minimise risk are at times described in the context of diversification. Diversification of itself may not be sufficient to mitigate all risks described below. 4.1. Types of risk Investments are subject to many risks, not all of which can be predicted or foreseen. The risks listed below are considered to be the most relevant to investing in the Gateway Fund. The risks set out in this section are not intended to be exhaustive. Many risks are outside the control of the Investment Manager. Before making an investment decision, you should obtain your own investment advice, taking into account your own investment needs and financial circumstances. A prospective investor contemplating an investment into the Gateway Fund should consider the entire contents of this PDS before making a decision to invest in the Gateway Fund. The risks below are broken into two parts: 1. Risks specific to the Gateway Fund; and 2. Risks associated with the AIM Fund (in which the Gateway Fund invests almost all of its assets) Risks specific to the Gateway Fund 4.2. Fund risk of the Gateway Fund Fund risk refers to specific risks associated with the Gateway Fund, such as termination and changes to fees and expenses. Your investment in the Gateway Fund is governed by the terms of the Constitution. In accordance with the Constitution, the Responsible Entity may close the Gateway Fund to further investments if, for example, it considers it appropriate given the investment objective and investment strategy of the Gateway Fund. It may also terminate the Gateway Fund by notice to Unitholders. There is also a risk that investing in the Gateway Fund may (after the deduction of fees payable in the Gateway Fund) produce different results from those that would be obtained from investing in the AIM Fund directly, because of: income or capital gains accrued in the Gateway Fund at the time of investing; and the consequences of investment and redemption decisions made by other investors in the Gateway Fund. For example, a large level of Redemptions from the Gateway Fund may result in the need to sell underlying assets which may potentially realise income and/or capital gains.
Winding up the Gateway Fund will result in realisation of tax positions (both income and capital) at that time. There can be no assurance that the Gateway Fund s investment objective will be achieved, or that a Unitholder will receive a return on their investment. An investment in the Gateway Fund should only be undertaken by investors that have the capacity to withstand a partial or even complete loss of their investment and who have a capacity to assess and assume risk. 4.3. Illiquidity risk of the Gateway Fund There may be times when your investment in the Gateway Fund may be illiquid. Under certain market conditions, such as during volatile markets when trading in a security or market is otherwise impaired, or due to economic, market, legal, political or other factors, the liquidity of the Gateway Fund s investments may be reduced in line with a reduction in liquidity of the Gateway Fund. In certain circumstances the AIM Fund (and in turn, the Gateway Fund) may be required to suspend redemptions to allow sufficient time for a more orderly liquidation of assets by the AIM Fund to meet the redemptions, possibly resulting in significantly longer timeframes than would otherwise be expected (see Section 6 Applications and Redemptions for more information). 4.4. Conflict of interest risk of the Gateway Fund There may be times when the Responsible Entity, the Investment Manager and their affiliates encounter potential conflicts of interest in relation to the Gateway Fund. For example, some of the directors of the Investment Manager have shareholdings in third party dealer groups that distribute the Units. In addition, the Responsible Entity may appoint related bodies corporate to perform services in relation to the Gateway Fund from time to time (this includes any appointment made under the Fund Accounting Agreement). Any such related body corporate appointed by the Responsible Entity will be engaged on an arms length basis. 4.5. Investment Manager risk of the Gateway Fund Given that the Gateway Fund invests almost entirely into the AIM Fund, it therefore relies heavily on the ability of the AIM Investment Manager to identify investments that will outperform other investments. Should the AIM Investment Manager make the wrong decision, the Gateway Fund may have negative returns. Changes in the personnel of the AIM Investment Manager, in particular Charlie Aitken, may also have an impact on investment returns of the Gateway Fund. 4.6. Concentration risk of the Gateway Fund As the Gateway Fund invests exclusively in the AIM Fund and Cash, the Gateway Fund will be subject to significant concentration risk. If the AIM Fund does not perform well, the Gateway Fund will in turn will not perform well. As such, it is important for investors to consider and understand the risks that are specific to the AIM Fund, as these risks will ultimately flow through and apply indirectly to an investment in the Gateway Fund. 4.7. Regulatory risk of the Gateway Fund The risk that the value or tax treatment of an investment in a Trust or its underlying assets, or the effectiveness of the Trust s Investment Strategy may be adversely affected by changes in government (including taxation) policies, regulations and laws, or changes in generally accepted accounting policies or valuations methods. Such changes may make some Unit holders consider that a managed investment scheme to be a less attractive investment option than other investments, prompting greater than usual levels of withdrawals, which could have adverse effects on the Trust. AIM Gateway Fund I Product Disclosure Statement 15
Risks associated with the AIM Fund (in which the Gateway Fund invests almost all of its assets) 4.8. Market risk of the AIM Fund Generally, the investment return on a particular asset is correlated to the return on other assets from the same market, region or asset class. Market risk is impacted by broad factors such as interest rates, availability of credit, economic uncertainty, changes in laws and regulations (including government responses to financial crises and laws relating to taxation of the AIM Fund s investment), trade barriers, currency exchange controls, political environment, investor sentiment and significant external events (e.g. natural disasters). These factors may affect the level and volatility of the prices of securities or other financial instruments and the liquidity of the AIM Fund s investments. Volatility or illiquidity could impair the AIM Fund s profitability or result in losses. The AIM Fund may maintain substantial trading positions that can be adversely affected by the level of volatility in the financial markets - the larger the positions, the greater the potential for loss. 4.9. Volatility risk of the AIM Fund The AIM Fund s investment program may involve the purchase and sale of relatively volatile securities and other instruments. Fluctuations or prolonged changes in the volatility of such instruments can adversely affect the value of investments held by the AIM Fund. 4.10. Liquidity risk of the AIM Fund Under certain market conditions, such as during volatile markets when trading in a security or market is otherwise impaired, or due to economic, market, legal, political or other factors, the liquidity of the AIM Fund s investments may be reduced in line with a reduction in liquidity of the AIM Fund. For example, if a security held by the AIM Fund is not actively traded it may not be readily bought or sold without some adverse impact on the price paid or obtained. If an investor or a group of investors in the AIM Fund seek to make large redemptions, then selling assets to meet those redemptions may result in a detrimental impact on the price they receive for those assets. In certain circumstances the AIM Fund (and in turn, the Gateway Fund) may be required to suspend redemptions to allow sufficient time for a more orderly liquidation of assets by the AIM Fund to meet the redemptions, possibly resulting in significantly longer timeframes than would otherwise be expected (see section 6 Applications & Redemptions for more information). 4.11. Derivative risk of the AIM Fund Derivatives, such as options, futures and swaps, may be used by the AIM Fund for hedging and investment purposes. The value of derivative instruments is linked to the value of an underlying asset (which may constitute an interest rate, share index or some other reference point) and can be highly volatile. While derivatives offer the opportunity for higher gains for a smaller initial cash outlay, they can also result in significant losses, sometimes significantly in excess of the amount invested to obtain the derivative. Risks associated with using derivatives include the value of the derivative failing to move in line with that of the underlying asset, potential illiquidity of the derivative, the AIM Fund not being able to meet payment obligations as they arise, and counterparty risk (where the counterparty to the derivative contract cannot meet its obligations under the derivatives contract). 4.12. Counterparty risk of the AIM Fund Generally, the AIM Fund will not be restricted from dealing with any particular counterparty. The AIM Fund is always subject to the risk that a counterparty may not timely settle a transaction, perform its obligations in accordance with contractual terms and conditions, or otherwise not perform its obligations to make due payment or delivery (thus causing the AIM Fund to suffer a loss which may be material), although counterparty risk is lessened in the case of exchange traded options. AIM Gateway Fund I Product Disclosure Statement 16
Moreover, for many transactions, the AIM Fund is required to post collateral to its counterparty, and a failure of that counterparty or its affiliates could result in a loss of that collateral. In the event that a counterparty defaults on its obligations for any reason, the AIM Fund may incur replacement costs of transactions, losses associated with other assets which the failed transaction was intended to hedge, and fees and expenses in seeking redress (which may be uncertain in outcome). Furthermore, any misconduct on behalf of counterparties, including, without limitation, fraudulent activities, will increase the AIM Fund s exposure to risk of loss. See also Prime Broker and Custodian risk of the AIM Fund below. 4.13. Prime Broker and Custodian risk of the AIM Fund The AIM Fund s investments may be borrowed, lent, pledged, charged, rehypothecated, disposed of or otherwise used by the prime broker for its own purposes, whereupon such assets will become the absolute property of the AIM Fund s prime broker (or that of its transferee) or become subject to the charge created by such charge, pledge or rehypothecation, as the case may be. The AIM Investment Manager will have a right against the prime broker for the return of equivalent assets and will rank as an unsecured creditor in relation thereto. This is normal in the context of prime brokerage arrangements. As such, there is a risk that the AIM Investment Manager may not be able to recover such equivalent assets in full in the event of the insolvency of the prime broker. Any cash which the prime broker receives on the AIM Fund s behalf will not typically be subject to the client protections conferred by relevant laws. The AIM Fund will rank as an unsecured creditor to the prime broker in case of their insolvency. Accordingly, the AIM Fund may not be able to recover equivalent assets in full should the prime broker become insolvent. 4.14. Credit risk of the AIM Fund There is a risk that an issuer of a security in which the AIM Fund has invested will default on its obligations due to insolvency or financial distress, resulting in an adverse effect on the value of the AIM Fund s investments and hence the Net Asset Value of the AIM Fund s units. 4.15. Regulatory risk of the AIM Fund Regulatory actions by governments and government agencies could materially affect the global markets, including the pricing of securities, and may limit the AIM Fund s activities or investment opportunities. 4.16. Systemic risk of the AIM Fund The AIM Fund is actively involved in globally linked financial markets and is subject to risk arising from a default by one or several large institutions that engage in substantial transactions and other activities with each other, and are dependent on one another to meet their liquidity or operational needs, so that a default by one institution creates the risk of a series of defaults by the other institutions. This risk is separate from the risk of dealing directly with a counterparty that fails and can impact participants in markets even if they do not have direct relationships or exposure to the defaulted financial institution. This is sometimes referred to as systemic risk and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which the AIM Fund interacts on a daily basis. 4.17. Leverage risk of the AIM Fund The AIM Fund may leverage its capital because the AIM Investment Manager believes that the use of leverage may enable the AIM Fund to achieve a higher rate of return. Accordingly, the AIM Fund may pledge its securities in order to borrow additional funds for investment purposes. The AIM Fund may also use leverage in its investment return with derivatives and short sales. The amount of borrowings which the AIM Fund may have outstanding at any time may be substantial in relation to its capital. Leverage can magnify both the gains and losses. Unitholders may experience increased volatility in the value of their investments. AIM Gateway Fund I Product Disclosure Statement 17
4.18. Currency risk and Hedging risk of the AIM Fund Foreign exchange fluctuations may have a positive or adverse impact on the investment returns of the AIM Fund. The Aim Fund s foreign currency exposure may be over or under hedged or not hedged at all. It may not always be possible to hedge all foreign currency exposures and there is no guarantee that hedging will be successful. 4.19. Foreign Investment and Emerging Markets risk of the AIM Fund The AIM Fund may, through its foreign investments (including emerging markets) and exposure to foreign currencies, have exposure to risks not usually associated with investing in Australia and other developed markets such as political, social and economic instability, difficulty in enforcing legal rights, unforeseen taxes and less stringent regulatory protections, reporting and disclosure. These factors may affect the value of the AIM Fund, volatility of the AIM Fund s returns and liquidity of the AIM Fund s investments. AIM Gateway Fund I Product Disclosure Statement 18
5 Fees and Other Costs DID YOU KNOW? Small differences in both investment performance and fees and costs can have a substantial impact on your long- term returns. For example, total annual fees and costs of 2% of your fund balance rather than 1% could reduce your final return by up to 20% over a 30 year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs. You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the Gateway Fund or your financial adviser. TO FIND OUT MORE If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website (www.moneysmart.gov.au) has a managed investment fee calculator to help you check out different fee options. The above notice is prescribed by law. The fee example it contains does not relate to the Gateway Fund. This table shows fees and other costs that you may be charged. These fees and costs may be deducted from your money, from the returns on your investment or from the Gateway Fund s assets as a whole. Information about Taxation is set out in another part of this document. You should read all the information about fees and costs because it is important to understand their impact on your investment. For Indirect Investors, the fees listed in the Fees and other costs section of this PDS are in addition to any other fees and charges charged by your IDPS Operator. GATEWAY FUND Type of fee or cost Amount How and when paid Fees when your money moves in or out of the Gateway Fund Establishment fee The fee to open your investment Contribution fee The fee on each amount contributed to your investment Nil Nil There is no establishment fee payable when you set up your investment in the Gateway Fund. There is no contribution fee payable when you invest in the Gateway Fund. Withdrawal fee The fee on each amount you take out of your investment Nil There is no withdrawal fee payable when you redeem investments from the Gateway Fund. Exit fee The fee to close your investment Nil There is no termination fee payable when you close your investment in the Gateway Fund.