(ARSN 158 717 072) PRODUCT DISCLOSURE STATEMENT PRODUCT DISCLOSURE STATEMENT FOR THE OFFER OF 42,723,833 FULLY PAID ORDINARY UNITS. THIS OFFER IS NOT UNDERWRITTEN. RESPONSIBLE ENTITY Walsh & Company Investments Limited (ACN 152 367 649) (AFSL 410 433) a member of the Dixon Advisory Group.
DIRECTORY Emerging Markets Masters Fund (ARSN 158 717 072) Level 15, 100 Pacific Highway North Sydney NSW 2060 T 1300 454 801 F 1300 883 159 E info@emergingmarketsmastersfund.com.au www.emergingmarketsmastersfund.com.au Responsible Entity Walsh & Company Investments Limited (ACN 152 367 649) (AFSL 410 433) Level 15, 100 Pacific Highway North Sydney NSW 2060 T 1300 454 801 F 1300 883 159 E info@dixon.com.au Investment Manager Walsh & Company Asset Management Pty Limited (ACN 159 902 708) Authorised representative of Walsh & Company Investments Limited (ACN 152 367 649) (AFSL 410 433) Level 15, 100 Pacific Highway North Sydney NSW 2060 T 1300 454 801 F 1300 883 159 E info@dixon.com.au Legal Advisor Watson Mangioni Lawyers Pty Limited Level 13, 50 Carrington Street Sydney, NSW 2000 T +61 2 9262 6666 F +61 2 9262 2626 E mail@wmlaw.com.au www.wmlaw.com.au Share Registrar Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 T 1300 737 760 (Australia) T +61 2 9290 9600 (International) F 1300 653 459 www.boardroomlimited.com.au AUDITOR KPMG 10 Shelley Street Sydney NSW 2000 T +61 2 9335 7000 F +61 2 9335 7001 www.kpmg.com.au
CONTENTS V IX XIII XIII XIV XIX 1 7 11 17 23 27 31 35 IMPORTANT NOTICES LETTER OF INTRODUCTION Key DATES AND GENERAL INFORMATION OFFER STATISTICS Key Investment Benefits Key Investment RISKS 01. Summary of the Offer 02. Information for Applicants 03. Fund PORTFOLIO UPDATE 04. RISKS 05. FEES AND COSTS 06. IMPACT ON THE FUND 07. Additional Information 08. GLOSSARY EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT III
IMPORTANT NOTICES
General This substitute product disclosure statement (PDS) is dated 5 April 2013 and was lodged with the Australian Securities & Investments Commission (ASIC) on that date. This PDS replaces the product disclosure statement dated 20 March 2013 which was lodged with ASIC on that date. Neither ASIC nor any of their officers take any responsibility for the contents of this PDS. This PDS was prepared and issued by Walsh & Company Investments Limited (ACN 152 367 649) (referred to in this PDS as Walsh & Co, Responsible Entity, we, our and us). Walsh & Co is the Responsible Entity of the Emerging Markets Masters Fund (Fund). This document is important and requires your immediate attention. It should be read in its entirety. You may wish to consult your professional advisor about its contents. No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this PDS. Any information or representation not so contained or taken to be contained may not be relied on as having been authorised by Walsh & Co in connection with the Offer. This PDS contains general financial and other information only. It has not been prepared having regard to your investment objectives, financial situation or specific needs. It is important that you carefully read this PDS in its entirety before deciding to invest in the Fund and, in particular, in considering the PDS, that you consider the risk factors that could affect the financial performance of the Fund and your investment in the Fund. You should carefully consider these factors in light of your personal circumstances (including financial and taxation issues) and seek professional advice from your accountant, stockbroker, lawyer or other professional advisor before deciding whether to invest. Information relating to the Fund may change from time to time. Where changes are not materially adverse, information may be updated and made available to you on the Fund s website at www.emergingmarketsmastersfund.com.au. A paper copy of any updated information is available free on request. INCORPORATION BY REFERENCE Regulation 7.9.15DA of the Corporations Regulations provides that this PDS need not include information if that information is in writing and is publicly available in a document other than this PDS. The replacement product disclosure statement issued by the Responsible Entity dated 29 August 2012 (IPO PDS) sets out important information appropriate to your decision whether to invest in Units. You should read the IPO PDS as well as this PDS before deciding to invest in Units under this PDS. Information that may be relevant to investors as set out in the IPO PDS includes: a) information on the Fund set out in 3 of the IPO PDS; b) information on the investment and management team set out in 4 of the IPO PDS; c) overview of global emerging markets set out in 6 of the IPO PDS; d) independent investigating accountants report set out in 9 of the IPO PDS; e) independent taxation report set out in 10 of the IPO PDS; f) information on material contracts set out in 11 of the IPO PDS; and g) additional information set out in 12 of the IPO PDS. A copy of the IPO PDS may be obtained from the Responsible Entity on request at no charge. To obtain a copy please call 1300 454 801 or download a copy from www.emergingmarketsmastersfund.com.au. CURRENCY OF INFORMATION Unless otherwise stated, information in this PDS is at 28 February 2013. No Guarantee None of Walsh & Co nor any other party makes any representation or gives any guarantee or assurance as to the performance or success of the Fund, the rate of income or capital return from the Fund or that there will be no capital loss or particular taxation consequence of investing in the Fund. An investment in the Fund does not represent a deposit or any other type of liability of the above parties. An investment in the Fund is subject to investment risk. These risks are discussed in 4. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT V
rounding Totals provided in tables and figures within the PDS may not sum due to rounding. Restrictions on the distribution of this PDS This PDS does not constitute an offer of Units in any place in which, or to any person to whom, it would not be lawful to do so. The distribution of this PDS in jurisdictions outside Australia may be restricted by law and any person into whose possession this PDS comes (including nominees, trustees or custodians) should seek advice on and observe those restrictions. This document is not an offer or an invitation to acquire securities in any country. In particular, this document does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the US or to, or for the account or benefit of, any US person (US Person), as defined in Regulation S under the US Securities Act of 1933 (Securities Act). This document may not be released or distributed in the United States of America (US) or to any US Person. Any securities described in this PDS have not been, and will not be registered under the Securities Act or the securities laws of any state or other jurisdiction of the US, and may not be offered or sold in the US, or to, or for the account of benefit of, any US Person, except in a transaction exempt from, or not subject to, the registration requirements under the Securities Act. Electronic PDS An electronic version of this PDS is available from the Fund s website at: www.emergingmarketsmastersfund.com.au. The Offer to which this PDS relates is available to persons receiving this PDS (electronically or otherwise) in Australia. It is not available to persons receiving it in any other jurisdiction. If you download the electronic PDS, please ensure you have received the entire PDS accompanied by the Application Form. The Units offered under the Offer to which the electronic PDS relates will only be issued on receipt of a printed copy of the Application Form. Copy of this PDS The Responsible Entity will give you a copy of the PDS free of charge if you ask during the offer period and in any event within 5 days after receiving such a request. APPLICATION FOR UNITS To apply to invest in the Fund, you must complete the Application Form attached to the back of this PDS and return it with a cheque for your investment to us at the address provided on the Application Form. Please refer to 2 for further details on how to apply for Units in the Fund. QUOTATION We will apply within 7 days after the date of this PDS for the Units to be issued pursuant to this PDS to be quoted on the ASX. The fact that the Units may be quoted on the ASX is not to be taken as an indication of the merits of the Fund or the Units. Neither the ASX nor its officers take any responsibility for the contents of this PDS. If granted admission to the ASX, quotation will commence as soon as practicable after holding statements are dispatched. We do not intend to allot any Units unless, and until, the Units have been granted permission to be quoted on the ASX. If permission is not granted before the end of three months after the date of this PDS or such longer period permitted by the Corporations Act or with the consent of ASIC, all Application Monies received pursuant to the PDS will be refunded without interest to Applicants in full within the time prescribed by the Corporations Act. Allotment We will not allot Units until permission has been granted for quotation of the Units unconditionally or on terms acceptable to us. It is expected that allotment of the Units will take place by 24 April 2013. An Application constitutes an offer by the Applicant to subscribe for Units on the terms and subject to the conditions set out in this PDS. Where the number of Units allotted is less than the number applied for or where no allotment is made, the surplus Application Monies will be returned by cheque within 7 days of the Closing Date. Interest will not be paid on the refunded Application Monies. CHESS The Fund will apply to participate in the Clearing House Electronic Subregister System (CHESS). This system operated by the ASX Settlement Pty Limited (ASX Settlement) in accordance with the Listing Rules and the ASX Settlement Operating Rules. VI EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
Under CHESS, the Fund will not issue certificates to Investors who elect to hold their Units on CHESS. After allotment of Units, Unitholders will receive a CHESS statement. The CHESS statements, which are similar to bank account statements, will set out the number of Units allotted to each Unitholder pursuant to this PDS. The statement will also advise holders of their holder identification number and explain the sale and purchase procedures under CHESS for future reference. Further statements will be provided to holders which reflect any changes in their Unitholding in the Fund during a particular month. Taxation implications Taxation implications of investing in the Fund depend on each Investor s circumstance. Walsh & Co, its advisors and its directors and officers do not accept any responsibility or liability for any tax consequences. As a result, you should consult your own professional tax advisors before subscribing for Units pursuant to the Offer. A general summary of the Australian tax implications for certain Investors who subscribe for Units pursuant to the Offer is included in 10 of the IPO PDS. Application Form Applications and Application Monies for Units under the Offer received after 5:00pm (AEST) on the Closing Date will not be accepted and will be returned to Investors. Interest will not be paid on Application Monies which are returned. Applications must be accompanied by payment in Australian currency. Cheques in respect of Applications should be made payable to Walsh & Company Investments Limited ATF Emerging Markets Masters Fund Trust Account and crossed Not Negotiable. No brokerage or stamp duty is payable by Applicants. Completed Application Forms, together with Application Monies, should be forwarded to one of the following addresses: HAND DELIVERED Canberra Emerging Markets Masters Fund Units Offer c/ Dixon Advisory Level 1, 73 Northbourne Avenue Canberra ACT 2601 Sydney Emerging Markets Masters Fund Units Offer c/ Dixon Advisory Level 15, 100 Pacific Highway North Sydney NSW 2060 Melbourne Emerging Markets Masters Fund Units Offer c/ Dixon Advisory Level 2, 250 Victoria Parade East Melbourne VIC 3002 When to Apply Completed Applications under the Offer must be received by 5:00pm (AEST) on the Closing Date. The Responsible Entity may close the Offer at any time without prior notice or extend the period of the Offer in accordance with the Corporations Act and the Listing Rules. The Responsible Entity reserves the right to allocate any lesser number of Units than those for which the Applicant has applied. Where the number of Units allotted is fewer than the number applied for, surplus Application Monies will be refunded without interest. Enquiries Applicants with enquiries concerning the Application Form or relating to this PDS and the Offer should contact the Responsible Entity on 1300 454 801. Glossary of Terms Defined terms and abbreviations included in the text of this PDS are set out in the Glossary in 8. POSTAL Emerging Markets Masters Fund Units Offer c/ Dixon Advisory PO Box 575 Canberra ACT 2601 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT VII
LETTER OF INTRODUCTION
Dear Investor The Emerging Markets Masters Fund (Fund) provides investors access to the emerging markets universe, primarily using a fund-of-funds strategy targeting global emerging market investment funds, which are generally not available to Australian retail investors. Emerging markets are broadly defined and comprise countries in Latin America, Central and Eastern Europe, Africa, the Middle East and Asia (excluding Japan). A fund-of-funds style of investment is based on investing in a range of underlying funds to build a diversified portfolio. Please refer to 4.2 of this PDS for an explanation of the risks associated with a fund-of-funds structure. The Fund has assembled a portfolio of emerging market investments and as at 28 February 2013 was invested in 15 leading funds and one exchange traded fund (ETF), providing exposure across a number of emerging markets including the BRIC (Brazil, Russia, India and China) countries, Mexico, South Africa and several frontier countries (as described in the IPO PDS). See 3 for further details of the Fund s portfolio (Portfolio). The Fund has taken a differentiated approach to investing in emerging markets, unconstrained by arbitrary views. Using the Investment Manager and Advisory Board s broad network and experience, the Fund has only invested in emerging markets where fundamental value is believed to exist. Through its underlying funds, the Fund has exposure to a diverse range of emerging market companies operating across a range of sectors and businesses. Since the allotment of units as part of the Fund s IPO on 2 October 2012 to 28 February 2013, the MSCI Emerging Markets Index (the industry-recognised benchmark for emerging market equities) gained 5.7% (including dividends in AUD terms). Over the same period, the Fund has gained 7.2% compared to the post issue pro forma net tangible asset value of $1.53. At 28 February 2013, the Fund s closing price was $1.70, a 6.3% increase from the issue price of $1.60 per Unit under its IPO PDS dated 29 August 2012. Investors are reminded that past performance is no guarantee of future performance. To date, the Fund s China A-shares exposure was the biggest contributor to the Fund s performance, followed by Brazilian shares and frontier market equities. China A-shares are generally only available for purchase by mainland citizens, with foreign investment only allowed through tightly-regulated structures. Further information regarding the Fund s investments may be found on the Fund s website at www.emergingmarketsmastersfund.com.au To mitigate the potentially dilutive effects of adverse currency movements for Australian dollar investors, the Fund implemented a hedging strategy to limit foreign currency exposure to approximately 50%. The Fund s hedging strategy has had a neutral impact on the Fund s performance over the period. The Responsible Entity believes the case for investment in global emerging markets remains strong. Since 2000, economic growth rates across emerging markets outpaced developed markets, underpinned by young, growing populations, abundance of resources and the continuation of longterm shifts in urbanisation, industrialisation and consumerism. Emerging markets account for over 85% of the world s population and 75% of its landmass. In 2012 emerging markets made up half of the globe s gross domestic product (GDP), with this figure expected to increase as economic growth in global emerging markets outpaces that of developed economies. With only approximately 13% of the world s stock market capitalisation residing in emerging markets, it is clear that financial markets are not reflective of the increased economic influence of emerging markets, creating an opportunity for investors to participate in the continued growth of this important asset class. The Responsible Entity believes emerging markets have become an important component in the construction of a well-balanced, diversified investment portfolio, rather than just an opportunistic investment as may have been the case several years ago. IX
Valuations of emerging market equities remain low in absolute terms and when compared to developed markets, and are supported by strong earnings potential, rising yields and durable balance sheets. This combination of strong fundamentals and attractive valuations has created an opportune time for investors to enter broad global emerging markets. To capitalise on this opportunity, the Fund is undertaking the Offer to raise up to an additional 42,723,833 Units. Based on the closing market price on 28 February 2013 of $1.70, this would be a consideration of approximately $72.6 million. Funds raised under this PDS will be invested in underlying funds operated by leading investment managers specialising in the emerging market equity asset class. The investment strategy is consistent with the strategy outlined in the IPO PDS and employed by the Investment Manager since the Fund s initial public offering in 2012. The precise allocation of funds towards potential investments has yet to be determined. The Investment Manager retains a broad discretion to allocate such investments. Unitholders approved the issue of up to 42,723,833 Units pursuant to this PDS at a Unitholders meeting held on 20 March 2013. The Application Price for this Offer will be the Volume Weighted Average Price (VWAP) of Units of the last 5 trading days in which Units were traded, within the 20 trading days immediately prior to the offer Closing Date. The Fund is managed with the goal of providing long-term total returns through a combination of capital appreciation and a consistent and growing income stream. Reflecting this strategy, the Fund intends to make a distribution of $0.06 per Unit for the financial year ending 30 June 2013. No guarantee can be given in respect of future earnings of the Fund or that distributions after 30 June 2013 will be paid. To the extent there is insufficient income to make this $0.06 per Unit distribution, this may be paid from capital. See 1 for details. Like all investments, an investment in the Fund carries risk. The investment universe available to the Investment Manager of the Fund is extremely wide and the emerging markets in which investments will be made are diverse. As well as the developing nature of the economies in many of these markets, it is particularly important for potential investors to review carefully the risks associated with an investment in the Fund, including the risks associated with investing in emerging markets. These are set out in detail in 4 and summarised in the Key Investment Risks section of this PDS. Key risks include the risk that investing in underlying funds through the Fund may give different results from holding the underlying investments directly, the potential that trading of Units on ASX may be limited, exposure to risks associated with emerging markets that are not usually associated with investing in developed markets, the Investment Manager s broad investment mandate and limited restrictions regarding geographical regions, sector or industry may render it difficult for investors to assess risks associated with the Fund, the potential for investments to be affected by future government actions in regions in which the Fund holds investments and exposure to fluctuations in foreign currency exchange rates. We encourage you to read this PDS carefully together with the IPO PDS before making your investment decision because these documents contain detailed information about the Fund and the Offer of Units to investors. We commend the Offer to you and look forward to welcoming you as an investor in the Emerging Markets Masters Fund. Yours faithfully Maximilian Walsh Chairman of the Advisory Board Alex MacLachlan Chairman of the Responsible Entity X
Key Dates and General Information DATE OF PDS 5 April 2013 OPENING DATE 5 April 2013 CLOSING DATE 17 April 2013 ALLOTMENT OF UNITS 24 April 2013 DESPATCH OF HOLDING STATEMENTS 26 April 2013 TRADING OF UNITS EXPECTED TO COMMENCE 29 April 2013 The dates are indicative only and may vary subject to the requirements of the Listing Rules and the Corporations Act. The Responsible Entity may vary the dates and times of the Offer (including closing the Offer early) without notice. Accordingly, Investors are encouraged to submit their Applications as early as possible. Offer Statistics OFFER PRICE PER UNIT 5 trading day VWAP 1 MINIMUM APPLICATION $2,000 MAXIMUM OFFER SIZE 2 (If all subscriptions are taken up, up to a maximum of 42,723,833 Units) TOTAL UNITS ON ISSUE ON COMPLETION OF OFFER IF MAXIMUM SUBSCRIPTION IS ACHIEVED $75,000,000 85,447,666 LAST REPORTED NET ASSET VALUE BACKING PER UNIT (NAV) AT 28 FEBRUARY 2013 3 $1.64 1. Being the volume weighted average price at which Units trade on ASX over the last 5 days out of the 20 trading days on which Units traded on ASX up to the Closing Date. If Units do not trade on 5 days within the 20 trading days up to the Closing Date, the Offer Price will be the price per Unit determined by an independent expert with reference to the Closing Date. 2. There is no minimum total offer size. 3. Announced to ASX on 14 March 2013. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT XIII
Key Investment Benefits The Responsible Entity considers that emerging markets present an exciting opportunity for investors. s 1 to 4 of the Key Investment Benefits below set out the key benefits of emerging markets generally (which may or may not be realised through an investment in the Fund). s 5 to 10 of the Key Investment Benefits set out how you can access those benefits through an investment in the Fund. 1. Strong economic growth rates Since 2000, economic growth rates across emerging markets have consistently outpaced developed markets. The relative outperformance is expected to continue, with the International Monetary Fund (IMF) projecting developing and emerging economies to grow at a rate of 5.5% in 2013 compared with a growth rate of 1.4% for developed economies. This is illustrated in Figure 1. FIGURE 1: GDP GROWTH OF EMERGING MARKETS AND DEVELOPED MARKETS (2000-2013) 10% 8% 6% EMERGING ECONOMIES DEVELOPED ECONOMIES 4% 2% 0% -2% -4% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: IMF World Economic Outlook Database, January 2013 2. YOUNG, GROWING POPULATIONS AND ABUNDANT NATURAL RESOURCES Emerging markets house over 85% of the world s population and 75% of its landmass. As globalisation continues to open world trade and increase access to global capital, emerging markets are well placed to reap significant benefits that will reshape their economic landscape. With only approximately 13% of the world s stock market capitalisation residing in emerging markets, it is clear that financial markets are not reflective of the increased economic influence of emerging markets. This is illustrated in Figure 2. XIV EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
FIGURE 2: VAST RESOURCES, LOW CAPITALISATION FIGURE 3: URBAN POPULATION GROWTH FORECASTS (MILLION) 2010-2030 100% 80% 60% of the world s population 86% of the world s landmass and resources 75% of the world s foreign reserves 68% of the world s GDP (at PPP) 50% SOUTH EAST ASIA CHINA BRIC TOTAL EMERGING MARKETS DEVELOPED NATIONS 2030-2050 40% 20% of the MSCI AC World Index 13% of US institutions portfolios 0 500 1000 1500 2000 2500 Source: United Nations, Population Division of the Department of Economic and Social Affairs 0% 3.6% Source: Merrill Lynch Global Equity Survey, BP, CIA World Factbook, IMF World Economic Outlook, MSCI, Council of Institutional Investors 2010 Asset Allocation Survey. 3. LONG-TERM URBANISATION AND A GROWING CONSUMER CLASS While most developed regions have already reaped the majority of economic benefits from urbanisation, the trend of urbanisation in emerging economies is expected to continue to boost economic growth in those markets. Urbanisation and industrialisation have propelled growth across emerging markets. This long-term urbanisation trend has given rise to a growing middle class, underpinning increased consumption. McKinsey Global Institute estimates the middle class from emerging markets will spend US$20 trillion annually during the next decade double the current consumption in the United States (in absolute terms). Additionally, by 2025, more than half of the world s population are forecast to join the consuming classes, driving annual consumption in emerging markets to US$30 trillion. This urbanisation trend is illustrated in Figure 3. 4. ATTRACTIVE INVESTMENT VALUATIONS Valuations of emerging market equities have fallen since the global financial crisis, in absolute terms and relative to developed markets, particularly when compared to previous decades. Combined with strong forecast economic fundamentals and earnings growth, the Responsible Entity and Investment Manager believe this is an attractive time for investors to enter global emerging markets. Table 1: VALUATION COMPARISON EMERGING MARKETS VS. DEVELOPED MARKETS Forward Price Earnings Ratio Emerging Markets Developed Markets 10.3x 1 13.2x 1 Dividend Yield 3.0% 2 2.5% 2 1. Source: MSCI Emerging Markets Index and MSCI World Index sourced from MSCI as at 28 February 2013. 2. Source: FTSE All Emerging All-Cap Index and FTSE Developed All-Cap sourced from the Financial Times as at 4 March 2013. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT XV
5. FOCUS ON PROVIDING ATTRACTIVE RETURNS THROUGH A COMBINATION OF LONG-TERM CAPITAL GROWTH AND DISTRIBUTIONS The Fund s target investments will be selected with the objective of providing attractive returns through a combination of long-term capital growth and a consistent and growing distribution stream. Reflecting this strategy, the Fund intends to make a minimum distribution of $0.06 per Unit for the financial year ending 30 June 2013, although no guarantee can be given in respect of future earnings of the Fund. To the extent that there is insufficient income to make this distribution, it may be paid from capital. There can be no guarantee that future distributions will be paid. 6. DIFFERENTIATED APPROACH TO EMERGING MARKET INVESTING The emerging markets asset class spans a wide geography and includes companies domiciled in Asia, Central and Eastern Europe, Latin America, Africa and the Middle East. The MSCI Emerging Markets Index covers an investment universe of over 2,700 securities in 21 markets. The Fund has the ability to invest across the entire emerging market investment universe and will take a differentiated approach to investing, unconstrained by traditional, arbitrary or outdated views on what constitutes an emerging market. 7. EXPERIENCED INVESTMENT TEAM Investing in emerging markets requires specialist skills and years of experience through a number of market cycles. The investment team of the Investment Manager of the Fund, a member of the Dixon Advisory Group, brings experience and expertise both in the emerging market equity asset class and in providing comprehensive financial advisory services. The Dixon Advisory Group has substantial experience in the management of listed and unlisted funds, representing more than $1.2 billion of funds in a variety of asset classes including emerging markets, Asian and Australian equities, natural resources, domestic and international fixed income and US residential property and private equity. As outlined in the IPO PDS, the experienced Advisory Board provides the Investment Manager with expert advice and recommendations in relation to portfolio and investment strategy, evaluation of investment opportunities and potential disposals, fund administration and other commercial matters for the Fund. The Advisory Board consists of executives from the Dixon Advisory Group and independent, highly experienced investment professionals with significant experience in emerging markets. Profiles of the members of the Investment Manager and Advisory Board are provided in s 4.4 and 4.8 of the IPO PDS. 8. ACCESS TO LEADING GLOBAL FUND MANAGERS Through the experience, knowledge and contacts of the investment team of the Investment Manager and the Advisory Board, the Fund will invest in underlying investment vehicles pursuing a variety of mandates. This will provide investors with access to leading global emerging market equity fund managers and products, most of which may not be readily accessible by Australian-based retail investors. 9. Diversification benefits The Responsible Entity believes the Fund offers the opportunity for investors to diversify their investment portfolio beyond equities traded in Australian and other developed markets while increasing their return potential. See 6.5.3 of the IPO PDS for details. 10. Convenient investment platform Many of the best international global emerging market investment funds are restricted to institutional or high net worth individuals and as such have high minimum investment requirements, usually at least US$500,000 and often over US$5,000,000. The Fund provides investors with access to a diverse range of global emerging market investment vehicles, circumventing the usual size and access restrictions required to invest in such opportunities directly. The Fund is designed to enable investors to access leading global emerging market specialist funds, enhance diversification, while minimising the administrative, reporting, and tax filing burden and providing for ease of contact and reporting via a single point of contact. Investors will also have the benefit of the ability to trade Units on the ASX, subject to the maintenance of liquidity. XVI EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
Key Investment RISKS Topic Emerging Markets Broad investment mandate Sovereign Risk Currency Risk Derivatives and hedging Risk Government Policy Summary The Fund will have exposure to currencies and securities of emerging markets and thereby have exposure to risks not usually associated with investing in developed markets. These factors may affect the level and volatility of securities prices and the liquidity of underlying investments. Businesses within some emerging markets may not have a long history of operating within a market-orientated economy and may have a lack of management experience, modern technology and sufficient capital base with which to develop their operations. The Investment Manager has a broad investment mandate and, there are limited restrictions regarding the specific emerging market geographic regions (other than as set out in 3.6 of the IPO PDS), sector or industry or the type of underlying equity funds that may be included in the Portfolio. Accordingly, it may be difficult for investors to assess the risk associated with the type of underlying investments that may be made by the Fund. Underlying investment entities may have agreements with foreign entities. Future government actions in the relevant countries or regions could have a significant effect on the Fund. Should sovereign risks arise, these could have an adverse impact on the Fund s performance. The Fund s investments will be primarily in foreign currency denominated fund investments. The value of the Units will be affected by increases and decreases in the value of the foreign currency to the extent of any unhedged portion of the Portfolio. The Fund intends to use derivative instruments for hedging purposes. The hedging strategies employed by the Fund may fail to hedge the exposure of the Fund to the extent desired, leading to realised returns different from those expected. The Fund may also invest in underlying funds that deal with derivatives. This may give rise to certain investment risks such as the inability to complete a futures contract or option caused by an illiquid secondary market and an imperfect correlation between the price movements of the futures contracts or options with price movements of the subject portfolio security. Changes in government, monetary policies, taxation and other laws and actions (including such matters as compliance with environmental regulations) in the relevant countries or regions can have a significant influence on the outlook for underlying companies and, in turn, affect the Fund s performance. More info 4.1(a) 4.1(b) 4.1(c) 4.1(d) 4.1(e) 4.1(f) EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT XIX
Topic Regulatory Risk Credit or counterparty risk Fund Risk Underlying Investment Manager Risk Potential for increased costs Market Risk Equity Risk Liquidity Risk Summary The Fund is exposed to the risk of changes to applicable laws or their interpretation which could have a negative effect on the Fund, its investments or returns to Unitholders or the risk of noncompliance with reporting or other legal obligations. The strategies of the Fund and of the underlying funds rely on the successful performance of contracts with external counterparties. There is a risk that these counterparties may not meet their responsibilities, including as a result of the insolvency, financial distress or liquidation of the counterparty. There is a risk that investing in funds may give different results from holding the underlying investments directly. As the Fund will invest with a number of underlying funds, there is a risk that the investment managers of those funds may not be able to achieve the stated aims and objectives for their funds or that an underlying manager selected by the Investment Manager may cease to manage a particular underlying fund. The fund-of-funds style of investment may result in the Fund paying higher level of fees than if the Fund invested directly in the assets held by the underlying funds as fees are payable at two separate levels of management. Investment returns are influenced by market factors and can experience wide fluctuations as a result of a number of non-entity specific influences. As a result, no guarantee can be given in respect of the future earnings of the Fund (and so no guarantee can be given with respect to the distributions payable to investors by the Fund) or the earnings and capital appreciation of the Fund s investments. There is a risk that securities will fall in value over short or extended periods of time. Share markets tend to move in cycles, and individual share prices may fluctuate and underperform against other asset classes over extended periods of times. Investors in the Fund are exposed to this risk both through their holding in Units and then through the investment in securities through the underlying funds in which the Fund will invest. Units may trade at a price less than the Application Price and may not reflect the underlying NAV of Units The Fund is a listed entity; therefore the ability to sell Units will be a function of the turnover of the Fund s Units at the time of sale. Turnover itself is a function of the size of the Fund and also the cumulative investment intentions of all current and possible investors in the Fund at any one point in time. More info 4.1(g) 4.1(h) 4.2(a) 4.2(b) 4.2(c) 4.3(a) 4.3(d) 4.3(f) XX EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
Topic Key personnel LIMITED PERFORMANCE HISTORY Summary The Investment Manager plays an active part in reviewing the performance of investments and selecting fund managers and has appointed the Advisory Board. The loss of key personnel available to the Investment Manager could have a negative effect on the Fund, as could the termination of the appointment of the Investment Manager. Prior to the Fund s initial public offering, the Responsible Entity had not previously managed a portfolio of emerging market investments. However, key personnel of the Investment Manager and Advisory Board have considerable experience in this market. The information in this PDS (including the IPO PDS) about the investment objectives of the Fund are not from costs or projections or the result of any simulation of future performance. There is a risk that the Fund s investment objectives will not be achieved. More info 4.3(h) 4.3(i) Taxation risk Tax laws (including Australian tax laws) are in a continual state of change and reform which may affect the Fund and Unitholders. 4.3(j) EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT XXI
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01. Summary of the Offer About the Offer Question WHO IS THE ISSUER OF THIS PDS AND THE UNITS? What is the Offer? What is the purpose of the Offer? Is there a coolingoff period? How do investors obtain further information? Summary This PDS and the Units are issued by Walsh & Company Investments Limited (Walsh & Co or the Responsible Entity), the Responsible Entity of the Fund. The Offer is for Units at an issue price equal to the volume weighted average price at which Units trade on ASX over the last 5 days out of the 20 trading days on which Units traded on ASX up to the Closing Date. The Fund will issue up to 42,723,833 Units. The Fund is seeking to raise capital to invest in emerging market equity funds, primarily employing a fund-of-funds investment strategy. No, there is no cooling-off period for Investors. This means that once you have submitted an Application Form you will not be able to withdraw your Application, other than as permitted by the Corporations Act. However, you will be able to offer your Units for sale on ASX once the Fund is listed. Please contact Dixon Advisory Group on 1300 454 801 or visit the website at www.emergingmarketsmastersfund.com.au if you have questions relating to the Offer. If you are uncertain about whether an investment in the Fund is suitable for you, please contact your stockbroker, financial advisor, accountant, lawyer or other professional advisor. More info 4 of the IPO PDS 2.1 3.1 of the IPO PDS 2.10 About the Fund Question What is the structure of the investment? What will the Fund invest in? Summary The Fund will primarily employ a fund-of-funds or multi-manager style of investment. The net proceeds of the Offer will be invested by the Fund to gain access to leading investment securities and managers specialising in the global emerging markets equity asset class. The investment strategy is consistent with the strategy outlined in the IPO PDS and employed by the Investment Manager since the Fund s initial public offering in 2012. Until the Investment Manager identifies opportunities for investment, funds raised will be invested by the Fund in cash, cash equivalents and interests in cash management trusts. More info 3.1 of the IPO PDS s 3.2 and 3.10 of the IPO PDS EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 1
Question What is the Fund s investment objective? What is the Fund s distribution policy? What is the Fund s foreign exchange policy? Will the Fund undertake borrowings? What is the investment term? What are the significant tax implications of the Fund? Summary The investment objective of the Fund is to achieve an attractive total return for Unitholders through a combination of long-term capital appreciation and a consistent and growing distribution stream. The Fund will invest in a range of high quality fund investments and managers specialising in the relevant sector. The Fund does not have a set investment term. However, because of the nature of the underlying investments in emerging market securities, an investment in the Fund should be viewed as long-term. The Fund intends to provide a consistent and growing distribution stream. Initially, the Fund intends to make a minimum distribution of $0.06 per Unit for the financial year ending 30 June 2013. Units issued under the Offer will participate in this distribution. There can be no guarantee that future distributions will be paid. The Fund s distributions will include all net taxable income of the Fund. However, the Responsible Entity may determine that distributable income for the income year will be some other amount, whether income or capital, which the Responsible Entity considers appropriate for the year. Distributions are expected to be paid on a semi-annual basis. The Fund employs currency hedging (currently approximately 50%) to convert some of its exposure to international assets back to Australian dollars. As a result, the Fund s exposure to currency fluctuations and the risk of decline in the Australian dollar value of the Fund s investments due to these fluctuations will be reduced. Conversely, a decrease in the value of the Australian dollar relative to other currencies could increase the value of the Fund s investments. However, because the Fund employs hedging, it would not fully benefit from this type of exchange rate movement. The Fund s policy is not to undertake borrowings, but the Responsible Entity has the discretion to gear up to 10% of the value of total gross assets of the Fund. Underlying funds in which the Fund has invested may borrow from time to time. As the Fund will not hold a majority interest in these funds, it will not be in the position to exercise any control over such borrowings. The Fund does not have a set investment term. However, because of the nature of the underlying investments in emerging market securities, an investment in the Fund should be viewed as longterm in nature. There are significant tax implications for Investors with respect to an investment in the Fund. A general summary of the Australian taxation consequences for certain Investors is provided in 10 of the IPO PDS. Investors should seek independent tax advice based on their specific circumstances before making a decision to invest in the Fund. More info 3.3 of the IPO PDS 3.9 of the IPO PDS 3.7 of the IPO PDS 3.11 of the IPO PDS 10 of the IPO PDS 2 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
Management of the Fund Question Who is the Investment Manager? Summary Walsh & Company Asset Management Pty Limited is the Investment Manager of the Fund. The Investment Manager is a member of the Dixon Advisory Group. The Investment Manager is an authorised representative of the Responsible Entity. More info 4.1 of the IPO PDS What is the term of the management agreement? The Investment Manager has a management agreement with the Responsible Entity which has a term of 10 years, expiring on 2 October 2022. The management agreement may be terminated early in certain limited circumstances including material unrectified breach of the agreement and the occurrence of an insolvency event with respect to a party. A summary of the terms of the management agreement including the termination events is included in 11.1 of the IPO PDS. 11.1 of the IPO PDS Who are the key officers of the Investment Manager? The officers of the Investment Manager with the primary responsibility for the Portfolio of the Fund will be Kevin Smith and Alex MacLachlan. Kevin Smith and Alex MacLachlan are also directors of the Responsible Entity. 4.4 of the IPO PDS WHO IS ON THE ADVISORY BOARD? The Investment Manager has assembled an Advisory Board to provide it with expert advice, on a non-binding basis, in relation to portfolio and investment strategy, evaluation of investment opportunities and potential disposals, fund administration and other commercial matters for the Fund. The Advisory Board comprises: Maximilian Walsh; David Thomas; John Holland; and June Aitken. An outline of the experience of each member of the Advisory Board is set out in 4.8 of the IPO PDS. 4.8 of the IPO PDS Investing in the Fund Question Summary More info Who can participate in the Offer? Only investors with a registered address in Australia can participate in the Offer. 2.1 Can superannuation funds invest? Superannuation funds can invest subject to the investment mandate of the particular fund and the trustee s general powers and duties. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 3
Question How do Investors apply for Units? Summary The procedures for making an investment in the Fund are described in 2. The Responsible Entity may be required to obtain identification information from Applicants. The Fund reserves the right to reject an Application if that information is not provided upon request. More info 2.4 What are the fees and costs of the Offer? The Responsible Entity will charge a structuring and arranging fee of 2.2% (including GST) and a handling fee of 2.2% (including GST) of the gross proceeds raised under this PDS. The Responsible Entity (in its personal capacity) has elected to incur the costs and expenses associated with the Offer. This includes legal, tax and accounting advice costs, printing and other expenses, and excludes ASX listing costs. s 5.1 and 5.2 (g) What are the ongoing fees and costs payable by the Fund? Is the Offer underwritten? The fee payable by the Fund to the Responsible Entity is a responsible entity fee of 0.088% per annum (including GST) of the gross asset value of the Fund. The Fund will also be responsible for ongoing expenses such as registry services, listing fees, investor communications, taxes and bank fees, preparation of financial statements and tax returns, audit, legal, insurance, compliance costs and other expenses. The management agreement provides that the Investment Manager may receive a management fee up to 2.2% per annum (inclusive of GST). The Investment Manager has agreed to waive part of this fee and will receive a management fee of 1.1% per annum (inclusive of GST). This waiver will extend for at least the first year of the Fund from listing on the ASX and may be terminated on delivery of three months notice. This fee is charged on the gross asset value of the Fund and is payable monthly by the Fund. Fees may also be charged by managers of funds in which the Fund invests. The Offer is not underwritten. 5.1, 5.2 (b) and 5.2 (c) 2.5 4 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
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02. Information for Applicants This is a summary only. This PDS should be read in full before making any decision to apply for Units. The performance of the Fund is not guaranteed by the Responsible Entity, the Investment Manager or any advisor to the Fund. 2.1. The Offer Walsh & Company Investments Limited (Walsh & Co or Responsible Entity), as the Responsible Entity of the Fund, is the issuer of Units under this PDS. The Responsible Entity will offer for subscription a maximum number of 42,723,833 Units. There is no minimum subscription. To participate in the Offer, your Application Form must be received by 5:00pm (AEST) on the Closing Date. The Closing Date may be brought forward by the Responsible Entity, and accordingly, Investors are urged to apply for Units early. The Offer will only be made to investors who have a registered address in Australia. 2.2. APPLICATION PRICE The Application Price for Units under this Offer will be the volume weighted average price (VWAP) at which Units trade on ASX over the last 5 days out of the 20 trading days on which Units traded on ASX up to the Closing Date. The last reported NAV was $1.64 at 28 February 2013, (reported to the market on 14 March 2013). On this date, the last traded price on the ASX was $1.70. An Application Price based on a pricing methodology using the VWAP is in line with the Constitution and reflects the improved trading liquidity of Units since the Fund s admission to the ASX on 11 October 2012. If Units do not trade on 5 days within the 20 trading days up to the Closing Date, the Offer Price will be the price per Unit determined by an independent expert with reference to the Closing Date. 2.3. Minimum application The minimum application for the offer is $2,000. 2.4. Applications You must use the Application Form issued with, and attached to, this PDS and complete the Application Form in accordance with the instructions contained within the Application Form. Applications and Application Monies for Units under the Offer received after 5:00pm (AEST) on the Closing Date will not be accepted and will be returned to Investors. Applications must be accompanied by payment in Australian currency. Cheques should be made payable to Walsh & Company Investments Limited ATF Emerging Markets Masters Fund Trust Account and crossed Not Negotiable. Payments by cheque will be deemed to have been made when the cheque is honoured by the bank on which it is drawn. The amount payable on Application will not vary during the period of the Offer and no further amount is payable on allotment. No brokerage or stamp duty is payable by Applicants. Completed Application Forms and accompanying cheques may be lodged with: a. Postal Emerging Markets Masters Fund Offer c/- Dixon Advisory PO Box 575 CANBERRA ACT 2601 b. Hand delivered Canberra Emerging Markets Masters Fund Offer c/- Dixon Advisory Level 1, 73 Northbourne Avenue CANBERRA ACT 2600 Sydney Emerging Markets Masters Fund Offer c/ Dixon Advisory Level 15, 100 Pacific Highway NORTH SYDNEY NSW 2601 Melbourne Emerging Markets Masters Fund Offer c/ Dixon Advisory Level 2, 250 Victoria Parade EAST MELBOURNE VIC 3002 A binding contract to issue Units will only be formed at the time Units are allotted to Applicants. Application Forms will be accepted at any time after the date of the PDS and prior to 5.00pm (AEST) on the Closing Date. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 7
The Responsible Entity may close the Offer at any time without prior notice or extend the period of the Offer in accordance with the Corporations Act. 2.5. Offer not underwritten The Offer is not underwritten. 2.6. QUOTATION Applications will be made to the ASX within 7 days after the date of this PDS for quotation of the Units issued pursuant to this PDS. The fact the ASX may quote the Units is not to be taken as an indication of the merits of the Fund or the Units. Quotation, if granted, will commence as soon as practical after holding statements are despatched. 2.7. Allotment It is expected that Allotment of the Units under the Offer will take place by 24 April 2013. Application Monies will be held in a separate account until Allotment. This account will be established and kept by the Responsible Entity on behalf of the Applicants. The Responsible Entity may retain any interest earned on the Application Monies held on behalf of the Fund pending the issue of Units to successful Investors. The Application constitutes an offer by the Applicant to subscribe for Units on the terms and subject to the conditions set out in this PDS. Where the number of Units allotted is less than the number applied for, or where no Allotment is made, the surplus Application Monies will be returned by cheque within 7 days of the Closing Date. Interest will not be paid on refunded Application Monies to Applicants. 2.8. CHESS The Fund currently participates in the Clearing House Electronic Subregister System (CHESS). CHESS is operated by ASX Settlements Pty Limited (ASX Settlement) in accordance with the Listing Rules and the ASX Settlement Operating Rules. Under CHESS, the Fund will not issue certificates to Unitholders. After allotment of Units, Unitholders will receive a CHESS statement. CHESS statements, which are similar to bank account statements, will set out the number of Units allotted to each Unitholder pursuant to this PDS. The statement will also advise holders of their holder identification number and explain, for future reference, the sale and purchase procedures under CHESS. Further CHESS statements, which reflect any changes in their Unitholding in the Fund during a particular month, will be provided to holders. 2.9. Overseas Unitholders Only members of the general public who have a registered address in Australia can participate in the Offer. The Offer does not constitute an offer in any place in which, or to any person to whom, it would be unlawful to make such an offer. It is the Fund s intention, and, to the extent within its control, the Fund shall use its commercially reasonable efforts to ensure that the Units will not be resold, whether through the ASX or otherwise, to any persons, including US Persons (as defined below), other than members of the general public who have a registered address in Australia. This document is not an offer or an invitation to acquire securities in any country. In particular, this document does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States (US) or to, or for the account or benefit of, any US person (US Persons), as defined in Regulation S under the US Securities Act of 1933 (Securities Act). This document may not be released or distributed in the US or to any US Person. Any securities described in this announcement have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction of the US, and may not be offered or sold in the US, or to, or for the account or benefit of, any US Person, except in a transaction exempt from, or not subject to, the registration requirements under the Securities Act. 2.10. cooling-off period There is no cooling-off period for Investors. This means that once you have submitted an Application Form you will not be able to withdraw your Application, other than as permitted by the Corporations Act. However, you will be able to offer your Units for sale on the market, once the Units to be issued pursuant to this PDS are quoted on the ASX. 2.11. Transfer of Units The Fund s Constitution provides that while the Fund is listed, Unitholders may make transfers in any manner permitted by CHESS, which may include off-market 8 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
transfers of Units. You may instruct your stockbroker or financial advisor to sell any, or all, of your Units on any trading day in which the Fund is trading. 2.12. Privacy When you apply to invest in the Fund, you acknowledge and agree that: a. you are required to provide the Fund with certain personal information to: i. facilitate the assessment of an Application; ii. enable the Fund to assess the needs of Applicants and provide appropriate facilities and services for Applicants; and iii. carry out appropriate administration. b. the Fund may be required to disclose this information to: i. third parties who carry out functions on behalf of the Fund on a confidential basis; ii. third parties if that disclosure is required by law; and iii. related bodies corporate (as that term is defined in the Corporations Act) which carry out functions on behalf of the Fund. Under the Privacy Act 1988 (as amended), Applicants may request access to their personal information held by (or on behalf of) the Fund. Applicants may request access to personal information by telephoning or writing to Walsh & Co. A copy of the privacy policy of the Fund is available to Applicants on request. 2.13. Anti-Money Laundering/Counter- Terrorism Financing Act 2006 The Responsible Entity may be required under the Anti-Money Laundering/Counter-Terrorism Financing Act 2006 (Cth) or any other law to obtain identification information from Applicants. The Responsible Entity reserves the right to reject any Application from an Applicant who fails to provide the required identification information upon request. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 9
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03. FUND PORTFOLIO UPDATE The Emerging Markets Masters Fund (Fund) provides investors access to the full emerging markets universe, primarily using a fund-of-funds strategy targeting global emerging market investment funds, which are generally not available to Australian retail investors. At 28 February 2013, the Fund had total assets of $69.8 million. Initial Fund performance has been positive in absolute and relative terms. From the allotment of Units on 2 October 2012 to 28 February 2013, the MSCI Emerging Markets Index, the industry-recognised emerging markets equities benchmark, gained 5.7% including dividends in AUD terms. Over the same period, the Fund gained 7.2% compared to the pro forma net tangible asset value of $1.53. At 28 February 2013, the Fund s closing price was $1.70, a 6.3% increase from its listing price of $1.60 per Unit. Investors are reminded that past performance is no guarantee of future performance. 3.1 CURRENT PORTFOLIO (as at 28 february 2013) The following table outlines a summary of the Fund s underlying managers: Table 2: Current Portfolio MANAGER TYPE Portfolio Return (%) 1 AUD (%) 2 JP Morgan China Pioneer A-Share Fund China country specialist 9.3% 19.0% East Capital Russian Fund Russia country specialist 9.1% 9.7% APS China A-Share Fund China country specialist 8.9% 18.4% Nevsky Eastern Europe Fund Eastern Europe region 7.5% 9.9% Steadview Capital Fund India country specialist 6.8% 1.0% Arisaig Africa Consumer Fund Africa consumer specialist 5.9% 15.0% Brasil Capital Equity Fund Brazil country specialist 5.9% 16.4% IP Brazil Fund Brazil country specialist 5.8% 14.3% Arisaig Latin America Consumer Fund Latin America consumer specialist 5.5% 11.6% Fama Brazil Challenger Fund Brazil country specialist 5.4% 8.8% Investec Active Quant Fund South Africa country specialist 5.3% 5.5% Bankinvest New Emerging Markets Equities Global 5.0% 17.3% Polunin Discovery Frontier Markets Fund Global 4.7% 12.3% ishares MSCI Emerging Markets Fund Global 4.6% 6.8% Somerset Emerging Markets Dividend Growth Fund Global 4.6% 5.9% GBM Fondo Crecimiento Mexico country specialist 3.3% 16.2% Cash 3 2.5% Total 100.0% 1. Due to rounding, numbers may not add up to 100%. 2. Underlying fund manager returns are calculated from 31 October 2012 to 28 February 2013. 3. Excludes any cash held by underlying investment managers. Note: these returns relate to the returns on underlying funds and may not be reflective of the return to the Fund. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 11
3.2 PORTFOLIO ALLOCATION (as at 28 february 2013) The following tables outline the Fund s investments by country, region and sector. The portfolio allocation is compared to the benchmark: Table 3: Region Weights Fund Benchmark 1 Active weight EMEA 2 37.8% 17.4% 20.4% Asia 33.9% 61.0% (27.1%) Latin America 25.9% 21.6% 4.2% Cash 3 2.5% 0.0% 2.5% Total 100.0% 100.0% Table 4: Country Weights fund Benchmark 1 Active weight China 19.4% 18.4% 1.0% Brazil 17.7% 12.6% 5.2% Russia 13.1% 6.0% 7.1% India 7.4% 6.5% 0.9% South Africa 7.4% 7.1% 0.2% Mexico 5.1% 5.3% (0.1%) Frontier 15.4% - 15.4% Satellite 12.1% 44.1% (32.1%) Cash 3 2.5% - 2.5% Total 100.0% 100.0% Table 5: Sector Weights Sector weight Fund Benchmark 1 Active weight Consumer 34.7% 16.7% 18.0% Financials 22.9% 27.3% (4.4%) Energy 9.8% 12.0% (2.2%) Industrials 8.9% 6.5% 2.4% Materials 8.2% 11.1% (3.0%) Telecom services 5.1% 7.4% (2.3%) Healthcare 2.9% 1.3% 1.6% IT 2.6% 14.1% (11.5%) Utilities 2.4% 3.5% (1.0%) Cash 3 2.5% - 2.5% Total 100.0% 100.0% 1. MSCI Emerging Markets Index, the industry-recognised emerging markets equities benchmark. 2. EMEA represents Europe, Middle East and Africa. 3. Excludes any cash held by underlying investment managers. 12 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
3.3. TOP 50 HOLDINGS The following is an indicative look-through of the stock exposure derived from the Fund s portfolio of underlying funds at 28 February 2013: Table 6: Top 50 Holdings Name Country % of Portfolio Itausa SA Brazil 1.8% Sberbank Rossii OAO Russia 1.7% Oil Company Lukoil Russia 1.4% Gazprom OAO Russia 1.3% Gree Electric Appliances Inc of Zhuhai China 1.3% Cosan Ltd Brazil 1.2% Nestle Foods Nigeria Plc Nigeria 1.1% Kroton Educacional SA Brazil 1.1% Restoque Comercio e Confeccoes de Roupas SA Brazil 1.0% China Vanke Co Ltd China 1.0% Kweichow Moutai Co Ltd China 0.9% Yes Bank Ltd India 0.9% Natura Cosmeticos SA Brazil 0.9% Raia Drogasil SA Brazil 0.9% Ojsc Rosneft Oil Company Russia 0.8% Brazil Realty SA Brazil 0.8% Cetip SA Mercados Organizados Brazil 0.8% Megafon OAO Russia 0.8% Jubilant Foodworks Ltd India 0.8% Citic Securities Co Ltd China 0.8% Shriram City Union Finance Ltd India 0.8% Marmagoa Steel Ltd India 0.7% Poly Real Estate Group Co Ltd China 0.7% East African Breweries Ltd Kenya 0.7% Even Construtora e Incorporadora Brazil 0.7% Fuyao Group Glass Industries Company Ltd China 0.7% Famous Brands Ltd South Africa 0.7% Ping An Insurance Group Ltd China 0.7% Nigerian Breweries Plc Nigeria 0.7% Novatek OAO Russia 0.7% Page Industries Ltd India 0.7% Corporativo Fragua SAB de CV Mexico 0.7% EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 13
Name Country % of Portfolio V-Guard Industries Ltd India 0.7% Hypermarcas SA Brazil 0.7% Sistema Joint Stock Financial Corporation Russia 0.6% Transneft Russia 0.5% Fomento Economico Mexicano SAB de CV Mexico 0.5% Surgutneftegas OAO Russia 0.5% Forus SA Chile 0.5% Jsc Kazmunaigas Exploration & Production Kazakhstan 0.5% Shoprite Holdings Ltd South Africa 0.5% EcoRodovias Infraestrutura e Logistica SA Brazil 0.5% Eicher Motors Ltd India 0.5% Zhengzhou Yutong Bus Co Ltd China 0.5% International Meal Company Holdings SA Brazil 0.5% Multiplus SA Brazil 0.5% Dimed SA Distribuidora de Medicamentos Brazil 0.5% Mr. Price Group Ltd South Africa 0.5% Brazil Pharma SA Brazil 0.5% Anhanguera Educacional Participacoes SA Brazil 0.5% Total 39.3% Note: The above information is current at 28 February 2013. The stock exposure of the underlying funds and the Fund s investment in underlying funds may have changed since that date. 14 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
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04. RISKS Prior to investing, you should consider the risks involved in investing in the Fund and whether the Fund is appropriate for your objectives and financial circumstances. Some of the risks are outside the control of the Responsible Entity and you should read this PDS in its entirety to fully understand the risks associated with an investment in the Fund. This PDS contains forward-looking statements based on certain assumptions that are inherently uncertain. Actual events and results of the Fund s operations could differ materially from those anticipated. Some of the risks may be mitigated by the use of safeguards and appropriate systems and actions, but some are outside the control of the Responsible Entity and cannot be mitigated. The Responsible Entity does not guarantee any rate of return in terms of income or capital or investment performance of the Fund. The value of the Units will reflect the performance of the investments made by the Fund and current market conditions. There can be no certainty that the Fund will generate returns or distributions to the satisfaction of the Investor. Investors can undertake several steps to help minimise the impact of risk. First, seek professional advice suited to your personal investment objectives, financial situation and particular needs. Nothing in the PDS can replace or offer that. Second, invest for at least the time frame recommended by your professional advisor. 4.1 RISKS SPECIFIC TO THE FUND A. EMERGING MARKETS The Fund will have exposure to currencies and securities of emerging markets and thereby have exposure to risks not usually associated with investing in developed markets. These factors may affect the level and volatility of securities prices and the liquidity of investments. Businesses within some emerging markets may not have a long history of operating within a market-orientated economy and may have a lack of management experience, modern technology and sufficient capital base with which to develop their operations. B. BROAD INVESTMENT MANDATE The Investment Manager has a broad investment mandate and, as at the date of this PDS, no decision had been made as to the specific emerging market geographic regions (other than as set out in 3.6 in the IPO PDS), sector or industry or the type of underlying equity funds that may be included in the initial Portfolio. Accordingly, it may be difficult for investors to assess the risk associated with the type of underlying investments that may be made by the Fund. C. SOVEREIGN RISK Underlying investment entities may have agreements with foreign entities. Future government actions in the relevant countries or regions concerning the economy, dealing with foreign entities, repatriation of funds, corporate policies, taxation policies, environmental policies and change in political conditions could have a significant effect on the Fund. Should sovereign risks arise, these could potentially have an adverse impact on the Fund s performance. D. CURRENCY RISK The Fund may hedge for currency risk depending on prevailing exchange rates and economic conditions. The Fund s investments will be primarily in foreign currency denominated fund investments. The value of the Units will be affected by increases and decreases in the value of the foreign currency to the extent of any unhedged portion of the Portfolio. An increase in the value of other currencies against the Australian dollar will mean the NAV of the Fund will be worth more when converted into Australian dollars, but if the value of the other currencies fall, the NAV will be worth less in Australian dollar terms. The value of the Australian dollar has been subject to significant fluctuations with respect to foreign currencies in the past and may be subject to significant fluctuations in the future. The capital value of the assets held by the Fund may be hedged through use of derivatives such as foreign exchange forward contracts. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 17
E. DERIVATIVES AND HEDGING RISK The Fund intends to use derivative instruments for hedging purposes. The hedging strategies employed by the Fund may fail to hedge the exposure of the Fund to the extent desired, leading to realised returns different from those expected. Whether the Fund s use of derivatives is successful will depend on the ability to correctly adjust the hedging requirements of the Fund. Derivatives are leveraged investments to the extent that the cash outlaid to establish a position is substantially smaller than the total amount of the transaction. This may make the Fund s return more volatile, magnifying gains and losses. Investing in underlying funds that deal with derivatives, such as futures and options, gives rise to certain investment risks such as the inability to complete a futures contract or option caused by an illiquid secondary market and an imperfect correlation between the price movements of the futures contracts or options with price movements of the subject portfolio security. Further, the risk of loss in trading futures contracts is potentially great due to both the low margin deposits required and the high degree of leverage involved in futures pricing. Accordingly, a relatively small price movement in a futures contract may have a significant impact on the underlying fund, which, in turn, may have an impact on the Fund s performance. F. GOVERNMENT POLICY Changes in government, monetary policies, taxation and other laws and actions (including such matters as compliance with environmental regulations) in the relevant countries or regions can have a significant influence on the outlook for underlying companies and in turn, affect the Fund s performance. G. REGULATORY RISK The Fund is exposed to the risk of changes to applicable laws or their interpretation which have a negative effect on the Fund, its investments or returns to Unitholders or the risk of non-compliance with reporting or other legal obligations. H. CREDIT OR COUNTERPARTY RISK The strategies of the Fund and underlying funds rely on the successful performance of contracts with external counterparties, including securities brokers, issuers of securities and derivatives to which the Fund and/or underlying investment funds may have investment exposure. There is a risk that these counterparties may not meet their responsibilities, including as a result of the insolvency, financial distress or liquidation of the counterparty. I. SUSPENSION OF REDEMPTIONS There is a range of circumstances under which investment funds may impose suspensions in redemptions, including in the context of a downturn in values of the underlying investments where insufficient liquidity exists through its investments to meet redemption requests. Any suspension by underlying funds will limit the ability of the Fund to liquidate its investments, thereby limiting the capacity of the Fund to reduce its exposure to a particular asset class or to take advantage of other investment opportunities. 4.2 RISKS ASSOCIATED WITH THE FUND-OF-FUNDS STRUCTURE As the Fund will adopt a fund-of-funds style of investment, it is also exposed to risks particular to this type of investment. These risks include the following: A. FUND RISK There is a risk that investing in funds may give different results from holding the underlying investments directly because of: - income or capital gains accrued in the funds at the time of investing; and - the consequences of investment and withdrawal decisions made by other investors in an underlying fund, for example, a large level of withdrawals from an underlying fund may lead to the need to sell underlying investments which would potentially realise capital gains. B. UNDERLYING INVESTMENT MANAGER RISK As the Fund will invest with a number of underlying funds, there is a risk that the investment managers of those funds may not be able to achieve the stated aims and objectives for their funds or that an underlying manager selected by the Investment Manager may cease to manage a particular underlying fund. 18 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
C. POTENTIAL FOR INCREASED COSTS The Management Agreement provides that the Investment Manager may receive a management fee equal to 2.2% per annum (inclusive of GST). The Investment Manager has agreed to waive part of this fee and so will receive only a management fee of 1.1% per annum (inclusive of GST). This waiver will extend for at least the first year of the Fund and may be terminated on delivery of three months notice. The Investment Manager will invest on behalf of the Fund in managed funds. Fund managers are also entitled to receive fees associated with performance of their management function. These fees may include entry fees, transaction fees, exit fees, ongoing management fees and performance fees. The Fund is responsible for payment of these fees. The fund-of-funds style of investment may result in the Fund paying a higher level of fees than if the Fund invested directly in the assets held by the underlying funds as fees are payable at two separate levels of management. The Responsible Entity considers that the benefits associated with a fund-of-funds style of investment outweigh the potential for higher fees. See 3.2 of the IPO PDS for details. In addition, the Responsible Entity considers that the scale of investment to be undertaken by the Fund in underlying funds will provide the Investment Manager with an opportunity to negotiate with individual fund managers to reduce such fees. D. LIQUIDITY RISK Liquidity risk refers to the risk that the Fund s investments or the underlying funds investments cannot, at short notice, be easily converted into cash to realise underlying investment positions. In particular, the underlying funds may invest in illiquid investments which could be difficult or impossible to sell at short notice or at desired prices. Some of the underlying funds may only permit redemption on a semi-annual or annual basis. Excessive exposure to these events, if they materialise, could result in diminished returns for the Fund or, in declining markets, loss of capital through a decline in the value of the investment in the underlying fund. E. RELATED POSITION RISK A number of managers of the underlying funds could independently invest in the same securities at the same time, possibly making them difficult or impossible to sell at short notice, resulting in concentrated exposure and reduced diversification for the Fund. The Investment Manager will use its selection techniques and undertake due diligence of underlying funds and managers with the objective of mitigating this type of risk. F. KEY PERSON RISK The performance of the Fund s investments is dependent on both the selection of fund managers of the underlying funds and the selection of investments by these fund managers. Accordingly, the Fund is indirectly exposed to the risk that key individuals employed by underlying managers and the Investment Manager are no longer able to fulfil their obligations. The returns of the underlying funds and the Fund may be dependent on the management skill of a particular individual or team. 4.3 GENERAL RISK FACTORS The value of securities listed on securities exchanges can change considerably over time and the value of your investment can increase and decrease with the value of the Portfolio. The fluctuation in value is known as volatility and the level of volatility depends on the type of investment. Generally, in order of risk of asset classes, shares are the riskiest, then fixed interest, then cash. As with most investments, performance is not guaranteed. These risks may result in loss of income and principal invested. The Fund should not be seen as a predictable, low risk investment. The Fund s investments will be concentrated in investment funds investing in listed securities and the Fund is therefore, considered to have a higher risk profile than cash assets. It is not possible to identify every risk associated with investing in the Fund. The following provides a list of significant risks associated with the Fund, although there may be others. A. MARKET RISK Investment returns are influenced by market factors, both in Australia and internationally. In particular, the market prices for many listed entities have in recent times experienced wide fluctuations, which in many cases may reflect a diverse range of non-entity specific influences. These include changes in the economic environment (for example, changes in interest rates) and the legislative and political environment, as well as changes in investor EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 19
sentiment. In addition, exogenous shocks, natural disasters and acts of terrorism can (and sometimes do) add to equity market volatility as well as impact directly on individual entities. As a result, no guarantee can be given in respect of the future earnings of the Fund (and so no guarantee can be given with respect to the distributions payable to investors by the Fund) or the earnings and capital appreciation of the Fund s investments. B. FINANCIAL MARKET VOLATILITY Financial market volatility may discourage investors from moving money into, or out of, equity markets. This may have a negative effect on the price at which Units trade. C. INDUSTRY RISK There are a number of industry risk factors that may affect the future operation or performance of the Fund. These factors are outside the control of the Fund. Such factors include increased regulatory and compliance costs and variations in legislation and government policies generally. D. EQUITY RISK There is a risk that shares will fall in value over short or extended periods of time. Share markets tend to move in cycles, and individual share prices may fluctuate and underperform other asset classes over extended periods of times. Investors in the Fund are exposed to this risk both through their holding in securities and then through the investment in securities through the underlying funds. Units may trade at a price less than the Application Price and may not reflect the underlying NAV of Units. E. PERFORMANCE OF OTHER ASSET CLASSES Good performance (or anticipated performance) in other assets classes can encourage individuals to divert money away from equity markets. This may have a negative impact on the price at which the Units trade. F. LIQUIDITY RISK The Fund is a listed entity; therefore the ability to sell Units will be a function of the turnover of the Fund s Units at the time of sale. Turnover itself is a function of the size of the Fund and also the cumulative investment intentions of all current and possible investors in the Fund at any one point in time. G. OPERATIONAL COSTS Operational costs for the Fund as a proportion of total assets will be affected by the level of total assets of the Fund and by the level of acceptance of this Offer. Operational costs will represent a greater proportion of total assets and will reduce the operating results of the Fund and accordingly the ability to make dividend payments if the Fund only achieves the minimum subscription under this Offer than if it secures a greater level of acceptance. As many, or all of, the investments to be made by the Fund will be undertaken using internationally based fund managers, the Investment Manager may be required to travel internationally from time to time to meet with prospective and existing fund managers and to assess investment opportunities. As a result, the operating costs of the Investment Manager may be higher than would otherwise be the case if the Fund had an Australian-focused investment strategy. H. KEY PERSONNEL The Investment Manager plays an active part in reviewing the performance of investments and selecting fund managers and has appointed the Advisory Board. The loss of key personnel available to the Investment Manager could have a negative effect on the Fund, as could the termination of the appointment of the Investment Manager. I. LIMITED EXPERIENCE OF INVESTMENT MANAGER Prior to the Fund s initial public offering, the Responsible Entity had not previously managed a portfolio of emerging market investments. However, key personnel of the Investment Manager and Advisory Board have considerable experience in this market. The information in this PDS about the investment objectives of the Fund are not forecasts, projections or the result of any simulation of future performance. There is a risk that the Fund s investment objectives will not be achieved. J. TAXATION RISK Tax laws (including Australian tax laws) are in a continual state of change and reform, which may affect the Fund and Unitholders. Tax liabilities are the responsibility of each individual Unitholder. The Fund is not responsible either for taxation or penalties incurred by Unitholders. 20 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
Unitholders should consult their own taxation advisors to ascertain the tax implications of their investment. Foreign jurisdiction tax liabilities may impact upon Unitholder returns. K. INFLATION RISK Your investment may not maintain its purchasing power with increases in the prices of goods and services (inflation). The real value of your investment may decline if investment returns are lower than the rates of inflation. L. TIMING RISK Your funds may be invested in an unfavourable point of the investment cycle. The Manager may invest funds at higher prices than those available soon after and may redeem funds at lower prices than those that were recently available or that may have been available soon thereafter. M. SYSTEMIC RISK Systemic risk is the risk of major movements occurring simultaneously across several asset classes or to the entire financial system. 4.4 INVESTOR CONSIDERATIONS Before deciding to subscribe for Units, Applicants should consider whether they are a suitable investment. There may be tax implications arising from the application for Units, the receipt of distributions from the Fund and on the disposal of Units. Applicants should carefully consider these tax implications and obtain advice from an accountant or other professional tax advisor in relation to the application of tax legislation. If you are in doubt as to whether you should subscribe for Units, seek advice on the matters contained in this PDS from a stockbroker, solicitor, accountant or other professional advisor immediately. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 21
05
05. FEES AND COSTS Government regulation requires the inclusion of the following standard consumer advisory warning as set out below. The information in the consumer advisory warning is standardised across all product issuers and does not provide any specific information on the fees and charges in this Fund. 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 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 (www.moneysmart.gov.au) has a superannuation or managed investment fee calculator to help you check out different fee options. This shows fees and costs you may be charged. These fees and costs may be deducted from your money, from the returns on your investment or from the Fund assets as a whole. Taxes are set out in 10 of the IPO PDS. You should read all the information about fees and costs because it is important to understand their impact on your investment. 5.1 Fees and COSTS TABLE 7: FEES AND COSTS TYPE OF FEE OR COST AMOUNT HOW & WHEN PAID Fees when your money moves in or out of the fund Establishment fee The fee to open your investment Contribution fee The fee on each amount contributed to your investment either by you or your employer Withdrawal fee The fee on each amount you take out of your investment Termination fee The fee to close your investment MANAGEMENT COSTS The fees and costs for managing your investment Initial costs Structuring and arranging fee 1 The fee for structuring and arranging the Fund Nil Nil Nil Nil 2.2% (inclusive of GST) 6 of the gross proceeds raised by the Offer Not applicable Not applicable Not applicable Not applicable A one-off payment, payable after the close of the Offer out of the Application Monies and due on allotment by the Fund. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 23
TYPE OF FEE OR COST AMOUNT HOW & WHEN PAID Handling fee 2 The fee for handling and arranging Applications for the Offer Ongoing costs Responsible Entity fee 3 The fee payable to the Responsible Entity by the Fund Investment Manager fee 4 Underlying Fund Manager fee 5 SERVICE FEES Investment switching fee The fee for changing investment option 2.2% (inclusive of GST) 6 of the gross proceeds raised by the Offer 0.088% (inclusive of GST) 6 of the gross asset value of the Fund Initially 1.1% per annum (inclusive of GST) 6 of the gross assets of the Fund 1.4% per annum of the gross assets of the Fund Nil A one off payment, payable after the close of the Offer out of the Application Monies and due on allotment by the Fund. The fee is charged on the gross asset value of the Fund and is payable monthly by the Fund. The fee is charged on the gross asset value of the Fund and is payable monthly by the Fund. This will depend on the fee structure of the underlying fund. Not applicable 1. This fee is an amount payable to the Responsible Entity (see Application Fees under the heading Additional Explanation of Fees and Costs in 5.2). 2. This fee is an amount payable to an advisor or the Responsible Entity (see Application Fees under the heading Additional Explanation of Fees and Costs in 5.2). 3. This fee is an amount payable to the Responsible Entity (see Management Fees under the heading Additional Explanation of Fees and Costs in 5.2). 4. This fee is an amount payable to the Investment Manager (see Investment Manager Fee under the heading Additional Explanation of Fees and Costs in 5.2). The Investment Manager is entitled to an investment management fee of 2.2% per annum (inclusive of GST) of the gross assets of the Fund. The Investment Manager has waived this fee to the extent necessary to receive only 1.1% per annum (inclusive of GST) of the gross assets of the Fund. This waiver may be terminated at any time after 29 August 2013. See 5.2(c) for details. 5. This fee is an amount payable to underlying fund managers (see Underlying Fund Manager Fee under heading Additional Explanation of Fees and Costs in 5.2). 6. These amounts include GST but it is anticipated that the Fund will be able to recover at least 55% of GST component of fees charged to it under the reduced credit acquisition provisions of the GST Act (see GST under the heading Additional Explanation of Fees and Costs in 5.2). TABLE 8: EXAMPLE OF ANNUAL FEES AND COSTS FOR AN INVESTMENT IN THE FUND This table gives you an example of how the fees and costs for this product can affect your investment over a one-year period. You should use this table to compare this product with other managed investment products. EXAMPLE INVESTMENT INVESTMENT OF $50,000 Contribution Fees Nil Not applicable PLUS Management Costs 2.588% And, if you had an investment of $50 000, you will be charged $1,294 (inclusive of GST) 1 each year. EQUALS Cost of Fund 2.588% If you had an investment of $50 000 during a year and your balance was $50 000, then for that year, you would be charged fees of $1,294 (inclusive of GST)* 1,2 * Additional fees may apply a structuring and arranging fee of 2.2% (inclusive of GST) 1 of the gross proceeds raised by the Offer and a handling fee of 2.2% (inclusive of GST) 1 of the gross proceeds raised by the Offer will be payable after the close of the Offer. See 5.2 for further details. 1. These amounts include GST but it is anticipated the Fund will be able to recover at least 55% of GST component of fees charged to it under the reduced credit acquisition provisions of the GST Act (See GST under the heading Additional Explanation of Fees and Costs in 5.2). 2. The Investment Manager is entitled to an investment management fee of 2.2% per annum (inclusive of GST) of the gross assets of the Fund. The Investment Manager has waived this fee to the extent necessary to receive only 1.1% per annum (inclusive of GST) of the gross assets of the Fund. This waiver may be terminated at any time after 29 August 2013. See 5.2(c) for details. 24 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
5.2 ADDITIONAL EXPLANATION OF FEES AND COSTS a. Application Fees The Constitution of the Fund provides that the Responsible Entity may charge application fees (referred to as a structuring and arranging fee and handling fee in Table 7) of up to 5.5% (inclusive of GST) of the price at which Units in the Fund are issued, and accordingly, the Responsible Entity can increase the application fees it charges, up to that amount without seeking Unitholder approval. In respect of this Offer, the Responsible Entity will only charge 4.4% (inclusive of GST) of the gross proceeds of the Offer, in a one-off payment, payable after the close of the Offer and due on allotment of Units. b. Management Fees The Constitution of the Fund provides that the Responsible Entity will charge management fees (referred to as the Responsible Entity fee in Table 7) of up to 0.55% per annum (inclusive of GST) of the gross asset value of the Fund and, accordingly, the Responsible Entity can increase the management fees it charges the Fund up to that amount without seeking Unitholder approval. The current management fees to be charged by the Responsible Entity will be 0.088% per annum of the gross assets of the Fund, charged on the gross asset value of the Fund and payable monthly. c. Investment Manager Fee The Management Agreement provides that the Investment Manager will receive a management fee up to 2.2% per annum (inclusive of GST). The Investment Manager has agreed to waive part of this fee and so will receive a management fee of 1.1% per annum (inclusive of GST). This waiver will extend for at least the first year of the Fund and may be terminated on delivery of three months notice. This fee is charged on the gross asset value of the Fund and is payable monthly by the Fund. d. Expenses Relating to the management of the Fund The Responsible Entity is entitled to be reimbursed out of the assets of the Fund for all out-of-pocket expenses it properly incurs in operating and administering the Fund. This includes expenses such as taxes and bank fees, preparation of financial statements, all listing fees, tax returns and compliance costs. The amounts of these fees will be dependent on the costs and size of the Fund. All external administration fees and costs are paid out of the assets of the Fund. e. Form of Payment of Fees Fees may be paid in cash or, in the case of fees paid under the Constitution, and subject to the Corporations Act, in the form of ordinary Units. f. Advisor Remuneration The Responsible Entity may pay commissions to advisors who introduce Applicants to the Offer. The Responsible Entity will pay these commissions from the handling fee it is entitled to receive if it chooses to do so or out of its own resources. g. Expenses of the Offer The Responsible Entity (in its personal capacity) has elected to incur the costs and expenses associated with the Offer. This includes legal, tax and accounting advice costs, printing and other expenses, and excludes ASX listing costs. h. Unitholder administration If asked to do something outside our normal administration function, there may be a fee. The fees vary depending on the request by a Unitholder. i. Benefits to the Responsible Entity Except for the interest, fees and remuneration disclosed in this PDS, the Responsible Entity and its Directors and employees have not received, and are not entitled to, any benefit in relation to this Offer. Subject to law, Directors may receive a salary as employees of the Responsible Entity, consulting fees, directors fees, dividends and may, from time to time, hold interests (directly or indirectly) in the Units in the Fund or shares in Walsh & Co. j. Underlying fund manager fees Managers of underlying funds may charge fees associated with the performance of their management function. These fees may include entry fees, transaction fees, exit fees, ongoing management fees and performance fees. These management fees are commonly in the range of 1-2% and may include rebates. Table 7 assumes a 1.4% ongoing management fee payable on all investments in underlying funds. K. GST It is anticipated that the Fund will be able to recover at least 55% of the GST component of fees charged to it under the reduced credit acquisition provisions of the GST Act. There may be circumstances where the GST recovery rate may be higher or lower. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 25
06
06. IMPACT ON THE FUND 6.1 INTRODUCTION THIS SECTION CONTAINS A SUMMARY OF: the unaudited pro forma statements of financial position of the Fund at the date of Issue ( pro forma financial information ) (see 6.2); material assumptions of the Directors of Walsh & Co, the Responsible Entity of the Fund, in preparation of the unaudited pro forma financial information (see 6.3); and the impact of the Offer on the capital structure of the Fund ( 6.4). The pro forma financial information has, except as otherwise noted, been prepared in accordance with the measurement and recognition requirements, but not the disclosure requirements, of the Australian Accounting Standards and any other mandatory reporting requirements in Australia. The presentation currency of the pro forma financial information is Australian dollars, unless otherwise stated. The pro forma financial information has not been audited or auditor reviewed. The information in this should also be read in conjunction with the risks set out in 4 and other information contained in this PDS. 6.2 UNAUDITED PRO FORMA STATEMENTS OF FINANCIAL POSITION AT THE DATE OF ISSUE The unaudited pro forma statements of financial position at the date of Issue set out below have been prepared to illustrate the financial position of the Fund following completion of the Offer and the expenditure of funds associated with the Offer. These pro forma statements of financial position are intended to be illustrative only and will not reflect the actual position and balances as at the date of this PDS or at the completion of the Offer. The pro forma Statements of Financial Position have been prepared in accordance with the significant accounting policies set out in 8.4 of the IPO PDS and applying the assumptions outlined below. HISTORICAL AND PRO FORMA STATEMENTS OF FINANCIAL POSITION A$ unless otherwise stated Historical 31 Dec 2012 Pro forma Offer raises $20,000,000 Pro forma Offer raises $40,000,000 Pro forma Offer raises $60,000,000 Maximum subscription $75,000,000 Cash $2,121,300 $21,285,300 $40,449,300 $59,613,300 $73,986,300 Total assets $68,175,310 $87,339,310 $106,503,310 $125,667,310 $140,040,310 Total liabilities $399,589 $399,589 $399,589 $399,589 $399,589 Net assets $67,775,721 $86,939,721 $106,103,721 $125,267,721 $139,640,721 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 27
Reconciliation of the pro forma cash balances A$ Assets/liabilities Historical 31 Dec 2012 Offer raises $20,000,000 Offer raises $40,000,000 Offer raises $60,000,000 Offer rasies $75,000,000 Cash $2,121,300 $2,121,300 $2,121,300 $2,121,300 $2,121,300 Pro forma adjustment - Proceeds of the Offer Pro forma adjustment - Expenses of the Offer (Refer to 6.3(F) Pro forma net cash position - $20,000,000 $40,000,000 $60,000,000 $75,000,000 - ($836,000) ($1,672,000) ($2,508,000) ($3,135,000) $2,121,300 $21,285,300 $40,449,300 $59,613,300 $73,986,300 6.3 KEY ASSUMPTIONS The pro forma Statements of Financial Position have been prepared on the basis of the following assumptions by the Directors of Walsh & Co: a. application of the significant accounting policies set out in 8.4 of the IPO PDS; b. the column headed Offer raises $20,000,000 has been prepared as if the Offer raises $20,000,000 under this PDS; c. the column headed Offer raises $40,000,000 has been prepared as if the Offer raises $40,000,000 under this PDS; d. the column headed Offer raises $60,000,000 has been prepared as if the Offer raises $60,000,000 under this PDS; e. the column headed Offer raises $75,000,000 has been prepared as if the Offer raises $75,000,000 under this PDS. f. expenses related to the Offer to be paid by the Fund include a structuring & arranging fee of 2.2% (including GST), a handling fee of 2.2% (including GST). These fees are based on gross proceeds raised by the Offer and will be reduced by the portion of input tax credit that is entitled; and g. no interest is earned by the Fund during the offer period. 6.4 CAPITAL STRUCTURE As at the date of this PDS, a total of 42,723,833 Units are on issue. The table below shows the capital structure of the Fund on completion of the Offer, assuming an Application Price of $1.70 and an Offer size of $20,000,000, $40,000,000, $60,000,000 and $75,000,000. Funds Raised New Units 1 Total Units Post Issue 1 Units as % of Post-Total $20,000,000 11,764,706 54,488,539 21.6% $40,000,000 23,529,412 66,253,245 35.5% $60,000,000 35,294,118 78,017,951 45.2% $75,000,000 44,117,647 86,841,480 50.8% 1. Rounded to the nearest Unit. The Offer will not affect control of the Fund. The anticipated effect of the Offer on the Fund is illustrated in the unaudited pro forma statements of financial position set out in 6.2. 28 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
6.5 UNIT TRADING PERFORMANCE AND REPORTED NAV The following chart sets out the Unit s daily closing price since Units commenced trading on the ASX on 11 October 2012 to 28 February 2013. At 28 February 2013, the NAV was $1.64 and the Unit closing price was $1.70, a 3.7% premium to NAV. UNIT TRADING PERFORMANCE SINCE LISTING ON THE ASX The following table summarises the monthly trading data of the Fund since admission to the ASX on 11 October 2012 and reported NAV. Value traded Close NAV October $138,400 $1.60 $1.50 November $71,995 $1.56 $1.49 December $36,710 $1.60 $1.59 January $37,889 $1.69 $1.63 February $94,373 $1.70 $1.64 UNIT PRICE ($) $1.75 $1.70 $1.65 $1.60 $1.55 $1.50 $1.45 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 As the NAV is reported in A$, fluctuations in reported NAV are primarily due to changes in the foreign exchange rates underlying fund managers use. Since Units commenced trading on the ASX on 11 October 2012 to 28 February 2013, 233,850 Units have traded, representing 0.5% of the Units on issue. Source: Bloomberg. This graph has been compiled using trading data sourced from Bloomberg as at 28 February 2013. Bloomberg has not provided its consent to the inclusion of trading data attributed to it in this PDS. EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 29
07
07. Additional Information 7.1 INCORPORATION BY REFERENCE Regulation 7.9.15DA of the Corporations Regulations provides that this PDS need not include information if that information is in writing and is publicly available in a document. The replacement product disclosure statement issued by the Responsible Entity dated 29 August 2012 (IPO PDS) sets out important information appropriate to your decision whether to invest in Units. Information that may be relevant to investors as set out in the IPO PDS includes: a. information on the Fund set out in 3 of the IPO PDS; b. information on the investment and management team set out in 4 of the IPO PDS; c. overview of global emerging markets set out in 6 of the IPO PDS; d. independent investigating accountants report set out in 9 of the IPO PDS; e. independent taxation report set out in 10 of the IPO PDS; f. information on material contracts set out in 11 of the IPO PDS; and g. additional information set out in 12 of the IPO PDS. A copy of the IPO PDS may be obtained from the Responsible Entity on request at no charge. To obtain a copy please call 1300 454 801 or download a copy from www.emergingmarketsmastersfund.com.au. 7.2. COMPLAINTS The Responsible Entity seeks to resolve any potential and actual complaints over the management of the Fund to the satisfaction of Unitholders. You may lodge any complaints by writing to us at the address shown in the Directory at the front of this PDS. The Constitution provides that complaints in writing will be acknowledged as soon as possible and responded to not more than 45 days after receipt by the Responsible Entity. If you remain unhappy, you can contact the Financial Ombudsman Service Limited, an independent body, on 1300 780 808. 7.3. INTERESTED DEALINGS Subject to the Corporations Act, the Responsible Entity must act in the best interest of the members and, if there is a conflict between the members interests and its own interests, give priority to the members interests. The Responsible Entity has procedures in place to identify actual or potential conflicts of interest and to implement measures to address such conflicts including certain monitoring and reporting obligations. These include (among others) internal procedures to indentify, assess and evaluate potential and actual conflicts of interest, maintaining a schedule of potential and actual conflicts on the register of conflicts of interests and putting into place intra-firm barriers or Chinese Walls where required. Where a conflict is assessed as being likely to have a material impact, it will be disclosed to the parties concerned in a timely fashion. Subject to the Corporations Act, the Responsible Entity or any officer, employee or associate of the Responsible Entity may: a. hold Units in the Fund; b. act in any fiduciary, vicarious or professional capacity; c. have an interest in, or enter into any contract or transaction with the Responsible Entity (or its associates), a Unitholder of the Fund or any other person (including a person whose units or other securities form an asset of the Fund); and d. hold or deal in or have any other interest in an asset of the Fund, and may retain any benefit derived by doing so. 7.4. CONSENTS Watson Mangioni Lawyers Pty Limited has given, and has not withdrawn as at the date of this PDS, its consent to being named in this PDS as the legal advisor for the Fund. Watson Mangioni Lawyers Pty Limited does not make any statements in, or take any responsibility for, any parts of the PDS. Boardroom Pty Limited has given, and has not withdrawn as at the date of this PDS, its consent to being named in this PDS as the provider of unit registry services for the Fund. Boardroom Pty Limited has not been involved in the preparation of EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 31
any part of this PDS and specifically disclaims liability to any person in the event of omission from, or a false or misleading statement included in the PDS. Boardroom Pty Limited has not authorised or caused the issue of this PDS and takes no responsibility for its contents. KPMG has given, and has not withdrawn as at the date of this PDS, its consent to be named in this PDS as auditor of the Fund. KPMG do not make any statement in this PDS nor is there any statement based on a statement by KPMG in this PDS. KPMG, and KPMG Transaction Services, a division of KPMG Financial Advisory Services Australia Pty Ltd (KPMG Transaction Services) were respectively the Australian tax advisor and Australian Investigating Accountant in relation to the IPO PDS, which is taken to be included in this PDS by reference. KPMG and KPMG Transaction Services respectively prepared and consented to the inclusion of their tax opinion in 10 of the IPO PDS and Investigating Accountant s Report in 9 of the IPO PDS and they have not withdrawn their consent to be named in the IPO PDS in the form and context in which they are named. Except in relation to their respective reports in s 9 and 10 of the IPO PDS, KPMG Transaction Services and KPMG take no responsibility for any part of this PDS and they do not make any statement in this PDS and nor is there any statement based on a statement by KPMG and KPMG Transaction Services in this PDS. Walsh & Company Asset Management Pty Limited has given, and as at the date of this PDS has not withdrawn, its written consent to being named in the PDS as Investment Manager in the form and context in which it is so named. 32 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
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08. GLOSSARY TERM EXPLANATION A$ or $ Australian dollars Allotment Applicant Application Application Form Application Monies Application Price ASIC ASX ASX Settlement Australian Accounting Standards Australian Taxation Office Business Day CGT CHESS Closing Date Constitution Directors Dixon Advisory Group The allocation and allotment of Units to Investors following acceptance of an Application An applicant for Units under this PDS An application for Units pursuant to this PDS An application form in the form attached to this PDS The Application Price multiplied by the number of Units applied for An amount for each Unit applied equal to the VWAP at which Units trade on ASX over the last 5 trading days on which Units trade on ASX up to the Closing Date Australian Securities & Investments Commission ASX Limited ASX Settlement Pty Limited Australian Accounting Standards means accounting standards and interpretations issued by the Australian Accounting Standards Board The principal revenue collection agency for the Australian Government in charge of administering the Australian taxation system A day, other than a Saturday or Sunday, on which banks are open for general banking business in Sydney Capital gains tax Clearing House Electronic Sub-register System The date by which valid acceptances must be received by the Registrar being 17 April 2013 or such other date as the Responsible Entity may determine in its absolute discretion The Constitution of the Fund The Board of Directors of the Responsible Entity Dixon Advisory Group Limited (ACN 080 207 076) and its subsidiaries EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT 35
TERM EXPLANATION Fund Emerging Markets Masters Fund (ARSN 158 717 072) GST The value added tax, if any, on goods and services payable in accordance with the GST Act or another relevant and applicable legislation or law whether in Australia, the US or another jurisdiction GST Act A New Tax System (Goods and Services Tax) Act 1999 Investment Manager Walsh & Company Asset Management Pty Limited (ACN 159 902 708) Investor IPO PDS Listing Rules NAV Offer An Applicant or an investor in Units The replacement product disclosure statement issued by the Responsible Entity dated 29 August 2012 The listing rules of the prescribed financial market that the Units are listed on Net asset value of Units The offer of up to 42,723,833 Units pursuant to, and in accordance with, this PDS Opening Date The date the Offer will be opened, expected to be 5 April 2013 PDS Portfolio This substitute product disclosure statement dated 5 April 2013 as modified or varied by any supplementary product disclosure statement made by Walsh & Co and lodged with the ASIC from time to time Portfolio of investments of the Fund Responsible Entity Walsh & Company Investments Limited (ACN 152 367 649) Unit Unitholder Underlying Fund An ordinary unit in the Fund, being an undivided share in the beneficial interest in the Fund A holder of a Unit A fund in which the Fund invests Walsh & Co Walsh & Company Investments Limited (ACN 152 367 649) VWAP Volume weighted average price 36 EMERGING MARKETS MASTERS FUND PRODUCT DISCLOSURE STATEMENT
RESPONSIBLE ENTITY: ACN 152 367 649 AFSL 410 433 A member of the Dixon Advisory Group