Theta Capital Growth Fund

Transcription

1 Theta Capital Growth Fund ARSN This product disclosure statement is issued by Australian Mutual Holdings Limited ABN Australian Financial Services Licence (295393) and is dated and prepared on 1 November 2010.

2 Corporate Directory Investment Manager Theta Capital Investments Pty Ltd ACN: Level Flinders Street, Melbourne, VIC 3000 PO Box 232, Albert Park, VIC 3206 Australia ph fax admin@thetainvestments.com.au Responsible Entity Australian Mutual Holdings Limited Governor Phillip Tower Level 40, 1 Farrer Place, Sydney NSW 2000 ph fax info@amhonline.com.au web Investors Service Centre (02) Accounting and Taxation Stature ARW Accounting Pty Ltd Suite 2, Level 2, 92 Pitt Street Sydney NSW 2000 Auditing Dawson Evett Chartered Accountants Level 7, 70 Castlereagh Street Sydney NSW 2000 Custodian Australian Executor Trustees Limited Level 22, 207 Kent Street Sydney NSW 2000 Theta Capital Growth Fund Product Disclosure Statement

3 Contents How to use this PDS... 2 About the Theta Capital Growth Fund... 3 Investing in the Theta Capital Growth Fund... 5 Theta Capital Growth Fund Philosophy... 7 Option strategies available to the Investment Manager... 9 Asset Description What are the benefits of investing in The Fund? Fees and other costs Applications, Withdrawals and Distributions The Risks of Investing Statutory and General Information Taxation Considerations Declarations, Conditions and Acknowledgements Application Process Application Form Identification for Individuals Glossary Important Note: No Entry or Exit Fee Minimum Investment $10,000 No Government Fees or Charges. Product Disclosure Statement Theta Capital Growth Fund 1

4 How to use this PDS This document is a Product Disclosure Statement ( PDS ). Investments in the Theta Capital Growth Fund are offered by Australian Mutual Holdings Limited ABN: AFSL: Australian Mutual Holdings Limited is the Responsible Entity of the Theta Capital Growth Fund and the issuer of this PDS. Australian Mutual Holdings Limited is referred to in this PDS as the Responsible Entity, we or us. Disclaimer - Important Neither the Responsible Entity, nor any of its related body corporate guarantees the performance of the Theta Capital Growth Fund or the return of capital or income. About this PDS The investments offered in this PDS are Available only to persons receiving this PDS (Electronically or otherwise). Units in the trust cannot be issued unless you use the application form attached to either a paper or electronic copy of this PDS. How to obtain a copy of this PDS A paper copy of this PDS (and any supplementary PDS) is available free of charge by contacting us on or ing info@amhonline.com.au. If you are printing an electronic copy of this PDS, you must print all pages including the application forms. If you make this PDS available to another person, you must give them the entire electronic file or printout, including the application forms. How to find updated information Information in this PDS is subject to change from time to time and may be updated by us if it is not materially adverse to you. Updated information can be obtained at anytime by: Contacting our Operations Manager on ing info@amhonline.com.au A paper copy of the updated information will be provided free of charge on request. If a material change is made, we will provide you with prior written notice. Seeking financial advice before you invest An investor in the trust is referred to in this PDS as investor, unit holder or you. Please note that this PDS does not constitute a personal recommendation, advice or opinion. You should consider this PDS in its entirety before making any decision to invest. Before investing in the trust, you should seek independent advice to ensure this is appropriate for your particular financial objectives, needs and circumstances. We recommend that you also obtain independent taxation and accounting advice in relation to the impact of a managed investment gain or loss on your particular financial situation. If you have any queries about the trust described in this PDS, please contact us on info@amhonline.com.au or Theta Capital Growth Fund Product Disclosure Statement

5 About the Theta Capital Growth Fund Overview TCI s fund management philosophy is to actively manage a diverse portfolio of international index based derivatives with a view to producing returns in both rising and falling markets, as distinct from a traditional form of buy and hold investment strategy. The Fund is managed using a combination of fundamental and technical market analysis. Technical analysis is the forecasting of future price activity based on past price movements and although not conclusive, it helps to determine low risk entry and exit points so that when combined with multiple hedging strategies, the Fund operates at the conservative end of the Hedge or Absolute Return funds management discipline. Although capable of achieving short term gains from operating in a climate of high market volatility, TCI looks for lower, on-going returns with low volatility. This makes the Fund ideally suited to long term investment however individual Fund performance may provide for income as well as capital appreciation. Importantly, TCI s Fund tends to have a negative risk correlation with asset classes such as shares, property and fixed interest. This makes them desirable to investors looking to smooth out the volatility associated with the balance of their investment portfolio. Although TCI s primary focus is trading with reference to global stock market indices, the actual future trading strategy at any particular time may differ significantly due to market conditions and may include a combination of stocks in the Australian Securities Exchange (ASX) AUD, the Financial Times Index (FT100) UK, Deutscher Aktien Index (DAX) GER and Standard and Poor s (S&P) US indices, futures contracts, equities, exchange traded options (ETOs), spot foreign exchange and contracts for difference (CFDs). The diversity and flexibility of investments is part of the investment philosophy and investment strategy, so you should read carefully the description of them in this PDS before deciding whether to invest in he Fund. The Fund has a small management fee and there is a performance fee payable to TCI as Investment Manager. Investors are able to closely monitor their investment performance via the Unit Price which is updated monthly on the AMH Investment Services website: or by simply calling the Investor Services Centre on 61 (2) S&P/ASX200, FT100, DAX, S&P500 S&P/ASX200, FT100, DAX, S&P500 are recognised as the benchmark indices for investment purposes in Australia, UK, Germany and the US respectively. Index constituents are drawn from eligible companies listed on these exchanges. For example, the DAX is a blue chip stock market index consisting of the securities of the 30 major German companies trading on the Frankfurt Stock Exchange. The index value does not represent any particular stock value. It is a benchmark measure of a group of companies performance and as such it is the change in the index value that is relevant as a measure of the overall index constituents performance. How much income will I receive? The income paid to Investors is generated from the earnings of the Fund. The main objective of the Fund is to achieve long term capital growth. For further information on your entitlement to income and income distributions refer to page 24 of this PDS. How safe is my money? Investing always involves risk. We understand that money is hard to come by, so capital preservation is at the forefront of our investment philosophy and strategy. The Fund initiates its investment with strict money management controls, which are explained further on page 6. In certain instances stop-orders are used to exit the market or to lock-in profits by continuously adjusting the stop-loss level if the market moves in a favourable direction. Product Disclosure Statement Theta Capital Growth Fund 3

6 When can I access my money? Investing in the Fund is designed to be flexible. It is recommended that Investors keep their investment with the Fund for a minimum period of three years. Investors are, however, able to access funds at the end of each Calendar Quarter. For further information on how to access your money refer to page 22 of this PDS. Limited liability for Investors Unlike an individual who invests directly in derivatives or leveraged securities, your liability should be limited to the amount of your investment in the Fund. Although no absolute assurance can be given on this point. The responsible entity will only contract with agreements with counterparties, whether by way of initial investment, reinvested income or any undistributed income entitlement, that limit the counterparty s recourse to the Fund s assets. 4 Theta Capital Growth Fund Product Disclosure Statement

7 Investing in the Theta Capital Growth Fund What is a Managed Fund? A managed fund is an investment vehicle combining your investment with that of other investors into a larger fund. The Fund is managed by an investment manager using specific investment objectives as a guide. Managed investments are generally structured as unit trusts ie. you, the investor, are issued with units in the trust in proportion to the amount you have invested. Your units represent your share in the net assets of the Fund. Any increase or decrease in the investment of the Fund are reflected in the Unit Price. In addition, as an investor, you are entitled to your share of the income that the Fund earns. Who is the Investment Manager? Theta Capital Investments Pty Limited (TCI) is the Investment Manager and is responsible for investing the assets of the Fund. TCI may appoint external fund managers. The Team The Team TCI is made up of highly skilled market professionals. TCI may add additional personnel from time to time to enhance the strength of the team and to provide an appropriate succession plan. Jon Cox Jon Cox, a director of TCI, is the founder of an associate company Theta Trading Pty Ltd, an options education and data dissemination service provider. As a derivative market professional, Jon has had more than a decade of investment market experience in the worldwide derivatives markets. His personal investment in the share market dates back 20 years. Jon s experience includes trading his own private account, as an educator to students wishing to trade and invest in the global derivatives markets. He s the author of the Theta daily Derivative Index Trading Report and his trading workbooks. Jon has developed a unique market analysis that offers an individual market insight in a user friendly manner. His applied methodology is based on objective statistics. Jon has attained the appropriate professional accreditations to operate and is RG146 compliant in Derivatives and is an authorised representative of Halifax Investment Services Ltd. Paul Ainsworth Paul Ainsworth, a director of TCI, has 20 years management experience having obtained an MBA (Executive) from the highly acclaimed Australian Graduate School of Management. Paul is also the Chairman of a public company and holds directorships in other finance related ventures. Paul is a derivative trader and advocate of the Theta Trading strategies and philosophy, both as a Theta Member and presently Director of TCI. Paul has traded his own private account for many years having achieved consistently enhanced returns through a disciplined and structured approach. It is this approach to his own funds management that brings great depth and strength to TCI. Paul has attained the appropriate professional accreditations to operate and is RG146 compliant Product Disclosure Statement Theta Capital Growth Fund 5

8 About Australian Mutual Holdings Limited Australian Mutual Holdings is the Responsible Entity of the the Fund. Australian Mutual Holdings holds an Australian Financial Services Licence issued by the Australian Securities and Investments Commission (ASIC). Australian Mutual Holdings is made up of four directors and a compliance committee. They are: Matthew Barnett, Andrew Baxter, Cable Belousoff (compliance committee), Clayton Christie and Jeff Worboys. Matthew Barnett, Responsible Manager, has over ten years experience in financial markets and is RG146 compliant in Derivatives, Foreign Exchange, Securities and Managed Investments. Andrew Baxter, Responsible Manager, has over ten years experience in financial markets and is RG146 compliant in Derivatives, Securities and Managed Investments. Cable Belousoff has over ten years experience in financial markets and holds a degree in Commerce. In addition Mr Belousoff is RG146 compliant in Derivatives, Securities and Managed Investments. Clayton Christie has over four years experience in financial markets and holds a degree in Management Accounting. He also holds ADA Level 1 and Level 2 Accreditation and has an Advanced Diploma of Financial Services. Clayton is RG146 compliant in Securities and Derivatives. Jeff Worboys, Responsible Manager, has over ten years experience in financial markets and is RG146 compliant in Derivatives, Foreign Exchange, Securities and Managed Investments. The Corporations Act 2001 requires that a Responsible Entity of a registered scheme must establish a compliance committee unless the majority of the directors are external. AMH has provided for a compliance committee with a majority of independent members as and when that is required. It should be noted that in the Fund s compliance plans, which we have registered with ASIC, as required under the Corporations Act, we have included effective measures and procedures that will ensure the continuing independence of those directors or relevant members of a Compliance Committee. Furthermore, provisions have been made in relation to the appointment and removal of external directors, external director s access to our books and records in relation to the Fund and for associated matters that especially have an impact on the performance of their duties and functions as external directors. 6 Theta Capital Growth Fund Product Disclosure Statement

9 Theta Capital Growth Fund Philosophy TCI s trading success stems from a philosophy of trading many years in both steadily trending markets and periods of high volatility. TCI believes this will provide a robust trading strategy that can provide for profits not only during a steady or trending market (bull or bear), but during times of extreme volatility and a turning market. TCI believes that taking a short or long term directional view on any market and investing on that basis alone is unsustainable. This is because markets react to multiple inputs in ways that even the most comprehensive market analysis will not be able to predict. Premise TCI s trading philosophy is based on a number of core assumptions about the way in which markets and in particular futures and options on futures operate: Long contracts (bought) can only yield a return if the market price for the contact goes up and (importantly) the contract is in turn sold at a premium. The clear benefit of going long is that the risk is limited to the price paid for the contract in the first place. Short contracts (sold) is traditionally viewed as being of greater risk than long contracts because of the potential obligation for the seller to buy back the contract at an unlimited price premium. The obligation to buy back a short contract does not exist if the contract expires at or out of the money on the contract expiry date when trading in the correct market (this rule does not apply to all markets). The premium payable to buy back a short contract (all other things being equal) will diminish over time the effect of time decay. TCI takes a non-directional approach to trading (and thus eliminates the need to predict short or long term market movement) by utilising the effect of time decay and seeking to minimise the risks associated with shorting contracts by using a combination of long contracts to hedge against volatility or sustained market movement in a particular direction and technical analysis to ensure that contracts are well away from the market on entry and seek to ensure that they remain out of the money until expiry. Portfolio Construction In constructing the Fund portfolio, TCI seeks to achieve a balanced portfolio by mixing short and long contracts on both sides of a market. By maintaining an adequate margin in cash, TCI is able to respond to market volatility and absorb price pressure on contract positions until such time that they expire or other trading strategies are implemented. Diversification TCI believes that diversification within an investment portfolio provides no tangible benefit to the investor if that diversification does not encapsulate investments with a negative risk correlation. TCI achieves diversification within the options market, not by trading more options markets (where the risk is the same), but by minimising the effects of individual market influences (such as an oil price rise) by trading within an index that reflects a diverse portfolio of companies. For example, an increase in the price of oil might have a detrimental effect on the share price of a company involved in heavy lift equipment whilst having a positive effect on the share price of an oil refinery. Therefore the overall effect of an oil price rise might be neutralised. Technical Analysis TCI conducts technical analysis to help it determine risk bands on either side of a market price. From these bands, TCI seeks to minimise the risk of that contract being in the money prior to expiry. Clearing House TCI uses a clearing house to reduce counterparty risk on exchange-traded investments, furthermore this minimises brokerage to ensure that its Fund can maximise profits at a lower risk (lower premium) strike range. Contracts are usually held until expiry or bought and sold prior to expiry in order to maximise the annualised return. Product Disclosure Statement Theta Capital Growth Fund 7

10 Why the Theta Capital Growth Fund is different and why it offers real diversification of sectors and strategies. History suggests that most investment sectors undergo periods of high risk and high volatility, whether they are bonds, property, shares, commodities and/or other asset classes. Also, investment markets are three-way in that they go up, sideways as well as down. It makes sense for investors to spread their risk and also possibly increase opportunity by diversifying into investments that are structured to profit in either upmoves, sideways or downmoves. History has also shown that markets do not continue on the up forever, without intermittent periodic corrections, very severe market corrections may occur. Investment in the Fund gives the Investor the potential to achieve positive returns even when the markets are sideways or falling. The aim of the Fund is to deliver positive returns independent of the direction of the broader market trend. Theta Capital Growth Fund As an alternative asset manager, the Fund has the same methodology when it comes to investing in the financial markets. The Fund aims to achieve performance via fundamental technical analysis and chart-based strategies. After an opinion is formed by the Investment Manager, the strategy is to construct a medium to longer term investment outcome. The Fund could invest in either/or directional and non directional strategies with the aim to generate a consistent capital gain over the long term. Amongst other things the Investment Manager uses a variety of tools to both indicate and manage trading opportunities. Theta employs a disciplined, systematic process to ensure an unbiased process to investment management. Anticipated and unanticipated corporate events such as earnings announcements, interest rate movements, mergers and acquisitions, regulatory actions and natural disasters can trigger volatility in underlying investments used by the counterparty to a Fund s investment contracts, thereby affecting the potential gain to the Fund. The objective is to protect the Fund from short term fluctuations against price volatility and to protect medium to long term investment positions. The World of Financial Markets United Kingdom FT100 Germany DAX North America S&P 500 North America Dow Jones Index France CAC40 Japan Nikkei 225 Hong Kong Hang Seng Australia S&P / ASX200 An example of equity, derivative and currency pairs. 8 Theta Capital Growth Fund Product Disclosure Statement

11 Option strategies available to the Investment Manager TCI uses a variety of strategies to attempt to enhance returns to its investors. Some are used individually or in conjunction with others. This could be to take a directional view and/or to hedge positions. Here are some examples. BULL STRATEGIES Overall, these positions will do better if the stock or index market rises. Synthetic Long NEUTRAL STRATEGIES Overall, these positions will do better if the stock or index market does not move very much. Long Butterfly Short Straddle BEAR STRATEGIES Overall, these positions will do better if the stock or index market falls. Synthetic Short Example: Buy 1 Call and Sell 1 Put at the same strike Market Outlook: Bullish Risk: Substantial Reward: Unlimited Increase in Volatility: Neutral Time Decay: Neutral Example: Sell 2 Calls, Buy 1 Call at higher strike and Buy 1 Call at lower strike Market Outlook: Neutral Risk: Limited Reward: Limited Increase in Volatility: Typically hurts position Time Decay: Typically helps position Example: Sell 1 Call and Sell 1 Put at the same strike Market Outlook: Neutral Risk: Unlimited Reward: Limited Increase in Volatility: Hurts position Time Decay: Helps position Example: Buy 1 Put and Sell 1 Call at the same strike Market Outlook: Bearish Risk: Unlimited Reward: Substantial Increase in Volatility: Neutral Time Decay: Neutral Long Call Long Put Example: Buy 1 Call Market Outlook: Bullish Risk: Limited Reward: Unlimited Increase in Volatility: Helps position Time Decay: Hurts position Example: Buy 1 Put Market Outlook: Bearish Risk: Limited Reward: Substantial Increase in Volatility: Helps position Time Decay: Hurts position Call Backspread Put Backspread Example: Sell 1 Call and Buy 2 Calls at a higher strike Market Outlook: Bullish Risk: Limited Reward: Unlimited Increase in Volatility: Typically helps position Time Decay: Typically hurts position THE OPTIONS STRATEGY SPECTRUM Bullish Neutral write straddles or combinations Bearish Example: Sell 1 Put and Buy 2 Puts at a lower strike Market Outlook: Bearish Risk: Limited Reward: Substantial Increase in Volatility: Typically helps position Time Decay: Typically hurts position Bull Spread bull spreads bear spreads Bear Spread Example: Buy 1 Call (Put) and Sell 1 Call (Put) at higher strike Market Outlook: Moderately Bullish Risk: Limited Reward: Limited Increase in Volatility or Time Decay: Helps or hurts depending on strikes chosen buy call buy stock, sell call buy bonds, sell put overwrite buy protective put buy put Example: Sell 1 Put (Call) and Buy 1 Put (Call) at higher strike Market Outlook: Moderately Bearish Risk: Limited Reward: Limited Increase in Volatility or Time Decay: Helps or Hurts depending on strikes chosen Buy Write Short Butterfly Long Straddle Short Call Example: Buy 1000 shares and Sell 1 Call Market Outlook: Neutral to Slightly Bullish Risk: Substantial Reward: Limited Increase in Volatility: Hurts position Time Decay: Helps position Example: Buy 2 Puts, Sell 1 Put at higher strike and Sell 1 Put at lower strike Market Outlook: Strong move in either direction Risk: Limited Reward: Limited Increase in Volatility: Typically helps position Time Decay: Typically hurts position Example: Buy 1 Call and Buy 1 Put at the same strike Market Outlook: Strong move in either direction Risk: Limited Reward: Unlimited Increase in Volatility: Helps position Time Decay: Hurts position Example: Sell 1 Call Market Outlook: Neutral to Slightly Bearish Risk: Unlimited Reward: Limited Increase in Volatility: Hurts position Time Decay: Helps position Product Disclosure Statement Theta Capital Growth Fund 9

12 Asset Description This section of the PDS describes the kind of investments that are made by the Fund and the markets for those investments. What are Equities? When you buy shares in a company, you own part of that company and may benefit by receiving a part of the profits (in the form of dividends) and by sharing in any capital growth in the value of the company. The company benefits by raising funds (capital) to operate and expand its business without needing to borrow money to do so. History demonstrates that shares, as a long-term investment, have the potential to provide better returns than any other major investment. However, past performance is not a guarantee of future returns. Share values have historically risen over the longterm, but this has been punctuated with periods of short-term volatility, where prices can go up or down very quickly. For this reason, it is usually important to adopt a medium to long-term share investment view of five years or more. This can assist in realising capital growth and minimising the impact of shortterm volatility. What are Derivatives? Derivatives are as defined for the purposes of the Section 761D of Corporation Act and includes futures contracts and options on futures contracts. A futures contract is a standardised forward contract made on a futures exchange and calls for the future delivery of specified quantities of various commodities at a specified time and place and at a price determined by competitive auction on the futures exchange. A wide variety of different commodities, financial instruments, stock indices and future options are traded on the futures markets. What is Foreign Exchange (FX)? Foreign Exchange (Forex, FX) refers to the simultaneous buying of one currency and the selling of another at a specified exchange rate. All foreign exchange is determined by a rate of exchange, or a ratio valuing one currency against another. It may be executed for immediate (spot), future (forward) delivery, and in the case of a forward contract, a forward margin is usually added or subtracted to the exchange rate to calculate the forward rate or over the counter currency option. The Fund could invest in over the counter (OTC) investments that aim to make a profit by purchasing or exchanging currencies for another when the value of that currency changes in favour of the Fund s investment contracts, whether from market news or events that take place in the world. The forex market has more daily volume (buyers and sellers), than any other market in the world. Taking place in the major financial institutions across the globe, the forex market is open 24-hours a day from Monday 7am through to Saturday 8am (AEDT). Trading by the Fund In addition to exchange traded options the Fund may be trading futures contracts and options on futures contracts, CFDs and Spot FX. Generally those products are used to hedge or enhance results. It is appropriate that we provide you with an explanation of futures contracts, managed futures and options on futures contracts and the risks associated with trading them. What is a futures contract? A futures contract is a standardised forward contract made on a futures exchange and calls for the future delivery of specified quantities of various commodities at a specified time and place and at a price determined by competitive auction on the futures exchange. A wide variety of different commodities, financial instruments and stock indices are traded on the futures markets. Unlike most other forms of investment, investors in futures contracts may decide to either buy or sell a commodity, financial instrument or index at a future time. Someone who buys a futures contract is known as being long or having a long position. The holder of a long futures contract will receive delivery of the underlying commodity or financial instrument if the futures contract is held until the settlement date of the contract. Some futures contracts provide for a cash adjustment to take place on settlement rather than actual delivery. Someone who takes a long position will profit if the price of the underlying commodity, financial instrument or index rises and will incur a loss if the price falls. 10 Theta Capital Growth Fund Product Disclosure Statement

13 Holders of futures contracts may also profit when the price of a commodity, financial instrument or index falls. The rules surrounding futures contracts allow people to sell a futures contract before they buy it. When someone does this they are said to be going short or having a short position. The idea of going short involves selling something you do not have. If you hold a short position until expiry of the futures contract you will be expected to deliver the actual commodity or financial instrument or, as in the case with some futures contracts, make a cash adjustment for the appropriate profit or loss. Someone who takes a short position will profit if the price of an underlying commodity, financial instrument or index falls and will incur a loss if the price rises. The obligations imposed by a futures contract may be discharged in one of two ways. The buyer and seller may, respectively, accept delivery or deliver an approved grade of commodity or, as will be done in the case of the Fund, may make an offsetting sale or purchase of an equivalent futures contract on the same futures exchange before the expiration of trading in the futures contract. The difference between the price at which a futures contract is purchased or sold and the price paid for the offsetting sale or purchase, after allowance for brokerage, fees and transaction costs, is the profit or loss to the Fund. All trades made on behalf of the Fund will be closed out by making an offsetting sale or purchase of an equivalent futures contract. The Fund does intend to take delivery, or put itself in a position where it is required to make delivery of, the underlying commodity or financial instrument. Holders of futures contracts are required to put up an initial margin, representing a fraction of the value of the underlying commodity or financial instrument. If a futures contract subsequently generates unrealised losses as a result of adverse price movements, the Executing Broker may call for additional monies. These additional calls are called variation margins and they attempt to protect the Clearing House and the Executing Broker against default by the buyer or seller. What are Managed Futures and Derivatives? The two broad classes of persons who trade futures contracts and futures options are hedgers and speculators. The usual objective of the hedger is to protect the profit they expect to earn from some other activity or the value of an asset against fluctuations in the price of that asset. Unlike hedgers, speculators risk their capital with the hope of making profits from price fluctuations in the underlying commodity, financial instrument or index. In essence, managed futures are dealings in futures contracts and futures options through professional money managers who manage investors funds using futures exchanges worldwide as the medium to trade in both physical and financial instrument futures contracts. These professional money managers are known in the industry as Commodity Trading Advisors and use futures markets for speculating on the likely direction of prices of futures contracts and futures options. Managed futures differ from the more traditional forms of investment because they provide the opportunity to diversify into more than one type of asset. The profitability of a managed futures investment is dependent upon the success of the fund manager in correctly predicting the movements in futures prices. The profitability of most traditional forms of investment is dependent upon the performance of a particular asset or asset class. What is a futures option? An option on a futures contract is a contract between two parties giving the taker (buyer) the right, but not the obligation, either to buy or sell a futures contract at a specified price on, or before a specified date. To acquire this right, the taker pays a premium to the writer (seller) of the contract. Option sellers are referred to as writers because they underwrite the obligation to deliver or accept the futures contract covered by an option. Buyers are referred to as takers because they take up the right to buy or sell a futures contract. European and American Options It is important to distinguish between European and American style options. The style of options on futures contracts traded will differ according to the operating rules of the relevant futures exchange on which they are traded. European options cannot be exercised prior to the expiry date. American options on the other hand, can be exercised at any time up to the date the option is due to expire. Call Options and Put Options There are two types of options call options and put options. Call options give the taker the right, but not the obligation to buy the underlying futures contract, while put options give the taker the right, but not the obligation to sell the underlying futures contract. Product Disclosure Statement Theta Capital Growth Fund 11

14 By combining positions in both puts and calls, an investor can create a strategy that attempts to meet a range of investment objectives, including the protection of existing portfolios. Options on futures contracts are created by the exchange on which the underlying equity or index is listed. The price of an option on a futures contract (premium), if any, is negotiated between the buyer and the seller. A futures option s premium will fluctuate during its life and depends on a range of factors including the exercise price, the price of the underlying securities and the volatility of the underlying futures contract. Whilst buyers of options on futures contracts must pay the seller of the option a premium, they are not required to pay any margins as they can never lose more than the premium paid for the option. Sellers of options on futures contracts on the other hand are subject to the same system of initial and variation margins as the holders of the futures contracts. As with other futures contracts, the owner may discharge the option on a futures contract by making an offsetting purchase or sale of an equivalent option on the same futures exchange. Settlement When a futures contract or an option on a futures contract is open at the close of trading on the last day of trading (ie. the expiry date) there arises an obligation to either deliver, or take delivery of and pay the full contract price for the underlying commodity or financial instrument the subject of the contract. Depending on the price movement of the underlying commodity or financial instrument, this may amount to an obligation to pay or have a right to receive an amount of money. The contract specifications for settlement of futures options differ according to the exchange on which they are traded. Spot/Margin Foreign Exchange In every Foreign Exchange contract there are two currencies. The currency being priced is known as the commodity currency. The exchange rate is quoted such that a fixed number of units (usually one) of the commodity currency is expressed in terms of a variable number of the other currency, the terms currency. Foreign exchange can be quoted as either a price quotation or a volume quotation. In a priced quotation, the foreign currency (or commodity currency) is priced in terms of the local currency (or terms currency) e.g. In USA, USD$1=Yen 120. In a value quotation the local currency (the commodity currency) is priced in terms of the foreign currency (the terms currency). For example, in Australia AUD$1 = USD A cross rate is an exchange rate derived from two other exchange rates (and not the local currency). In the market, the quoting party (usually a bank or broker) will make a two way quote. The two parties to the quotation are the quoting bank and the market participant (which can be a bank or broker). The quoting bank is the party that makes the market while the market participant is the party that calls and asks the quoting bank to make a market. The market participant seeking the market performs the opposite side of the transaction to the quoting bank. If the quoting bank wishes to buy dollars then the market participant sells dollars. If the market participant wishes to buy dollars then the quoting bank is selling dollars. The first rate quoted is the bid rate and the second rate quoted is the offer rate. The bid rate is the rate at which the quoting bank is willing to buy the commodity currency. The offer rate is the rate at which the quoting bank is willing to sell the commodity currency. If the market participant wishes to sell dollars to the quoting bank it must sell dollars at the quoting bank s bid rate (i.e.: its buying rate). If the market participant wishes to buy dollars from the quoting bank it must buy dollars at the quoting bank s ask rate (i.e.: its selling rate). The difference between the bid rate and the ask rate is called the bid/offer spread. The quoting bank is seeking to make a profit by buying the commodity currency more cheaply then it sells it. Spot and Forward Exchange Rate Contracts The spot market is for delivery within two (2) business days. The forward market is for delivery at some specified future date. Spot Market Whilst transactions in the spot market involve delivery, some may require immediate delivery today or tomorrow. Others may involve delivery up to seven (7) days later and are traditionally considered to be spot transactions, and carry a different rate depending on the specific delivery date (except for transactions in Canadian dollars, which settle on a value tomorrow basis). 12 Theta Capital Growth Fund Product Disclosure Statement

15 Forward Market The forward value date is usually computed as a number of months from the spot value date at the time of the transaction which must be a business day in the home country of the currencies involved in the transaction. Market Liquidity Market liquidity describes the volumes which can be readily transacted in the market, and has sometimes been described as being the life blood of exchange traded markets. Market Liquidity Risk is the risk that it may not be possible to execute the full amount of a transaction without seriously impacting the market price. Billions of dollars of transactions are executed everyday in USD/EUR, USD/JPY, USD/GBP. On the other hand, exotic currencies (developing countries) can be very thin or illiquid. Even in the major currencies, liquidity can be scarce at times. After New York inter bank trading closes and before Asian trading opens it can be difficult to obtain quotes in GBP/EUR which is a very liquid market during European trading. Market Liquidity is reflected in the bid-offer spread. The more participants there are in the market prepared to quote two way prices in a particular currency, the narrower will be the bid/offer spread. Therefore the bid/offer spread represents the profit that the quoting party must obtain in order to take on the risk. An imminent news release which may have significant affect on the market can affect market prices by drying up liquidity temporarily. The Interest Rate Market and its Mechanics The interaction between the money market and the foreign exchange market provides the basis for the relationship between the spot rate and the forward rate and the justification of the spread between the two dates. Forward rates differ from spot rates to reflect the differing interest rates prevailing in the two countries. The Interest Rate Market will influence the difference between the forward rate and the spot rate. The forward rate will generally reflect the mechanism of borrowing one currency to invest in another and the impact of the futures value of these currencies based on the amount of Interest received and paid. As such, whilst the futures price will tend to reflect the expected price at a future date, the forward rate is not what the market expects the spot rate to be at a future date but a rate that reflects the spot interest rates. The interest rates used reflect those rates which are available to the parties involved in the transaction. For example if a resident borrows from or lends to a non-resident, the transaction may be subject to interest withholding tax rules. The interest rate used to calculate the forward exchange rates will be marked up to reflect the inclusive of withholding tax, so that after the payment of the tax, the net result would reflect the value as if the withholding tax had not been liable in the first place. At times, monetary authorities will use a tightening of interest rates to reduce the inflationary effect on a weakening currency which may be causing price inflation, and vice versa. They can also consider the stability of the country s currency and implement a monetary policy to achieve targeted exchange rates. Raising interest rates will tend to attract capital thereby supporting the exchange rate, whilst falling interest rates can lead to capital being exported, thereby placing pressure on the exchange rate. Factors Affecting Foreign Exchange Rates over the Short Term and Long Term There are many different short and long term factors that will affect the foreign exchange rates and these can be inter-related, or they can assume changed significance at different times. None of the numerous theories of exchange rate determination are sufficiently comprehensive or dynamic to explain exchange rate movements on their own let alone accurately predict the future direction and level of exchange rates. The factors that are likely to affect the movement over an extended period of time can be defined within the fundamental factors that affect the overall financial markets as a whole. These factors are: The current account balance is an important determinant of exchange rates. Currencies with increasing current account surpluses or decreasing current deficits tend to strengthen against currencies with decreasing current account surpluses or increasing current account deficits. It is the change in the current account deficit or surplus which is relevant. A diminishing current account surplus will tend to cause a currency to depreciate, while a shrinking current account deficit will tend to cause the currency to appreciate. However, in practice exchange rates do not always move to reflect current account figures. While over time the relationship holds true there may be sustained periods during which exchange rates move in the opposite direction. Product Disclosure Statement Theta Capital Growth Fund 13

16 Inflation Rates impact upon the ability to purchase goods and services. Over a period of time, the inflationary impact on prices tends to result in price increases for goods and services to offset the impact of inflation. This means that exchange rates should change so as to reflect the relative purchasing power of two currencies. Interest Rates and how they affect the forward rates have already been described. They can also affect the flow of currencies between countries. Over a period of time it is possible for currencies with a trend towards high local interest rates to attract capital inflows, and vice versa. If all three fundamental factors point in the same direction there is a high probability that exchange rates will trend in that direction. Also the relative importance of these fundamental factors can change over a period of time, depending on current policy slants and even fashion. The fundamental factors are normally very poor predictors of short term exchange rate movements. In the short term, exchange rates tend to be affected by a different set of factors. Various factors, including market flows, central bank intervention, release of economic statistics, market sentiment and even technical analysis can influence spot rates in the short term, primarily through how they affect market expectations. Also, if a country s central bank significantly reduced interest rates then the rate would be reduced. A substantial decline in interest rates will also put pressure on the spot exchange rate for the relevant currency. 14 Theta Capital Growth Fund Product Disclosure Statement

17 What are the benefits of investing in The Fund? Apart from giving Investors access to the experience and capability of the Fund, investors will benefit from the following: Potential for Enhanced Portfolio Returns It is important that an investment portfolio has a blend of different types of investments. A balanced portfolio with diversification in conjunction with the traditional investment markets of cash, fixed interest, shares and property which may reduce the impact of a downturn in any one or more of these markets. Ability to Trade in Any Economic Environment The Fund will trade both long and short, seeking to obtain profits from both rising and falling price movements. Financial Integrity and Independent Valuation The Fund is independently valued on a mark-tomarket basis every month through the appointment of a third party fund administrator, ARW. The role of the administrator is to independently determine the value of the Fund each month. This allows the valuation process of the Fund to be independently open and transparent which is in the best interests of Investors. In addition, AMH has appointed an independent ASIC approved auditor, ARW Mac, who will conduct an audit on an annual basis in order to verify the accuracy of the performance and the management of the Fund. Financial Integrity of the Marketplace Australian equity and options, futures and futures options contracts benefit from standardisation and registration with a Clearing House and settlement facility which reduces counterparty default risk. Once the Clearing House has the trades registered in its name, the direct link between the initial buyer and seller is broken. By breaking the link between the original buyer and seller and allowing each to operate independently, the system provides maximum trading flexibility. By ensuring the financial integrity of all open positions, the system eliminates the need to be concerned with the creditworthiness of the party on the other side of the transaction. As compared with the physical and over the counter markets, the futures and futures options markets provide a regulated environment to protect Investors. It is important to note however, that although it is unlikely, there still remains a risk that a counterparty to a contract, such as an Executing Broker or bank, may default. This risk is greatly diminished due to the fact that intervention by the Clearing-House may take place to enable open positions to be transferred to another Executing Broker. Product Disclosure Statement Theta Capital Growth Fund 15

18 Incentive to Perform Typical derivative strategy breakdown The fee structure of the Fund is centered on the performance fee which closely aligns the interests of Investors with that of the Investment Manager. Institutional Rates The Fund will seek to benefit from reduced brokerage rates. This should allow the Fund to access trading opportunities where profit margins are finer. This is because Theta Capital Investments Pty Limited has access to discounted brokerage rates % short puts 21.66% in short calls 21.66% long puts 25% (Floating Margin of cash) 10% in long calls What does the Fund invest in? The Fund invests in the kind of financial products described earlier in this PDS predominantly in European index markets as well as relating to leading companies in the S&P/ASX 200, FT100, DAX, S&P500 or companies making broad or limited public offerings before listing. The Fund may invest in futures contracts and options on futures contracts, equities, exchange traded options (ETOs), spot foreign exchange and contracts for difference (CFDs). In addition, the Fund will aim over time to retain at least 25% of its investments in cash and fixed interest securities. Although the strategic allocation and ranges shown above are indicative, the Fund may assign 0 to 100% in any or all sectors respectively. This is subject to change without notice at our discretion. Any monies not allocated in these sectors will remain on deposit with the Fund s chosen bank or broker. The Fund may invest by way of exchange-traded investments or over the counter investments. The Fund does not have fixed or planned allocations as between exchange traded and over the counter investments. Over the Counter (or OTC) investments refers to investments which are not exchange traded. The Fund is not limited by their respective Constitutions as to the legal nature of the investments. 16 Theta Capital Growth Fund Product Disclosure Statement

19 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 fund or your financial advisor. To find out more If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website has a managed investment fee calculator to help you check out different fee options. This document shows fees and other costs that you may be charged. These fees and costs may be deducted from your money or from the fund assets as a whole. Taxes are set out in another part of this document. See Taxation considerations on page 32. You should read all the information about fees and costs because it is important to understand their impact on your investment. Type of fee or cost Fees when your money moves in or out of the fund Amount How and when paid Establishment Fee The fee to open your investment. Nil N/A Contribution fee The fee on your initial and each additional amount contributed Withdrawal fee The fee on each amount you take out Nil N/A Termination fee The fee to close your investment Nil N/A Management Costs The fees and costs for managing your investment Administration Fee Nil N/A Management Fee INVESTMENT ManageR Fee Performance fee The performance fee is payable to the Investment Manager. The Fund pays the fee when the Fund out-performs the High Water Mark. Service Fees An advisor service fee may be payable of up to 3.3% (Inc. GST); however, if you apply as a direct client, this fee is waived. See below for further details. Nil From 1 January 2010: nil. (Prior to 1 January 2010, AMH is entitled to be paid an equivalent of up to 1.1% (Inc. GST) of the net asset value of the Fund (see Management Fee on page 19). TCI is entitled to be paid an amount equivalent to 2.2% (Inc. GST) of the Net Asset Value of the Fund. For the period from 1 January 2010; prior to that the fee is 1.1% (Inc. GST) If the performance of the Fund has exceeded the High Water Mark for that Calendar Quarter the Investment Manager is entitled to 22.0% (Inc. GST) of the excess performance. No additional Service Fee is payable. N/A (The management fee payable for the period prior to 1 January 2010 is for recovery of expenses payable out of the Fund to AMH, paid Calendar Quarterly (in arrears).) The Investment Manager fee is an expense payable out of the Fund to TCI, calculated monthly paid Calendar Quarterly (in arrears). The performance fee is an expense payable out of the Fund to the Investment Manager. Please refer page 20 for more details. Unless otherwise stated, all fees quoted in this PDS are quoted on GST inclusive basis. To the extent GST applies, it will be charged and, if Input Tax Credits can be claimed, the fees paid may be less. The Investment Manager fee can be negotiated for wholesale clients see page 21 Product Disclosure Statement Theta Capital Growth Fund 17

20 This table gives an example of how the fees and costs in the Theta Capital Growth Fund affect your investment over a 1 year period from 1 January You should use this table to compare this product with other managed investment products. EXAMPLE Theta Capital Growth Fund BALANCE OF $50,000 WITH A CONTRIBUTION OF $5,000 DURING YEAR ConTribuTion Fee Nil For every additional $5,000 you put in, you will be charged $0. PLUS ManaGeMenT CoSTS (made up of Investment Manager Fee and Performance Fee) 2.0% p.a. 1 and, for every $50,000 you have in your Account you will be charged $1, each year (2% per annum). EQUALS CoST of Fund If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 during that year, you will be charged $1, what it costs you will depend on the performance of the fund, the transaction costs of the year (the buy/ sell spread if any) and the advisor service fee you negotiate with your financial advisor. Unless otherwise stated, all fees quoted in this PDS are quoted on GST inclusive basis, but this example is required to show GST exclusive fees. To the extent GST applies, it will be charged and, if Input Tax Credits can be claimed, the fees paid may be less. 1. The Management Costs from 1 January 2010 comprise investment Manager fee (see heading additional Fees and Costs ) and a performance Fee of 22% (inc. GST) per quarter of any new profits assuming the high water Mark level for existing clients has been achieved for that Calendar Quarter. The simplified example assumes no performance fee. See page 24 for an explanation of a performance fee. 2. This example assumes no Investment Manager fee is paid at the end of the year. The fees and the performance fee are based on the Net Asset Value of the Fund, which is calculated net of those fees. Income earned and realised and unrealised capital gains on the Fund s investments (whether or not paid as a distribution) and adjusted for any other accrued liabilities for fees or expenses during the period. The Additional Fees which may apply if applicable: Buy/Sell Spread of up to 0.3% may apply (see Transaction Costs under the heading Additional Explanation of Fees and Costs ). EXAMPLE 18 TheTa CapiTal GrowTh Fund Product Disclosure Statement