Listed ManagedInvestmentsListed Investment Companies, Property Trusts,

Infrastructure Funds, Pooled Development Funds,

Exchange Traded Funds, Absolute Return Funds

*The information contained in this booklet is for educational purposes only and doesnot constitute financial product advice. ASX does not represent or warrant that theinformation is complete or accurate. You should consider obtaining independentadvice before making any financial decisions. To the extent permitted by law, noresponsibility for any loss arising in any way (including by way of negligence) fromanyone acting or refraining from acting as a result of this material is accepted by ASX.

© copyright ASX Operations Pty Limited ABN 42 004 523 782. 2002. All rights reserved.This publication should not be reproduced, stored in a retrieval system or transmittedin any form, whether in whole or in print, without the prior written consent of ASXO.

ListedManaged

Investments

LMIs can achieve a variety of goals forinvestors, from the accumulation andpreservation of wealth to providing taxationadvantages or a regular income flow. LMIsenjoy the benefits of employing professionalinvestment managers from a number of well-known institutions at a lower cost than mightbe expected. Listed Managed Investments can also offer instant diversification, reducingrisk without sacrificing returns.

While many have been around for decades,they are less than sedentary. To the contrary,LMIs have experienced a rising wave ofinterest, with investors now able to accesssuch diverse investment products as:

• Listed Property Trusts

• Listed Investment Companies

• Exchange Traded Funds

• Pooled Development Funds• Infrastructure Funds, and• Absolute Return Funds (Hedge Funds)

Many of the assets held by LMIs are onlynormally available to large institutions.Therefore, these investments give individualinvestors access to these assets, such asportfolios of airports and toll roads, whilealso allowing investors to trade into and outof those portfolios as easily as shares.

Although use of LMIs has grown recently, they have been trading successfully for morethan 70 years, making them some of the oldest companies listed on the AustralianStock Exchange (ASX). Now, depending on the investor’s individual requirements, ListedManaged Investments present the opportunityto invest in over 110 established listed fundswith more than $65 billion in assets.

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Supervised by the Australian Stock Exchange, Listed ManagedInvestments (LMIs) are a simple, transparent and cost-effective way to invest across a number of asset classes and investment styles.

Listed Managed Investments –choice and transparency

Growth in ASX Listed Managed Investments$ Billion

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These investments may suit:• Small investors looking for professional

investment management without an up-frontentry fee (brokerage will generally apply);

• Independent investors interested in low-cost, simple to track, investment choices;

• Experienced investors looking for robustproducts offering liquidity and profitabilitypotential, or products not otherwiseavailable to individual investors;

• Investment advisers interested in givingclients high levels of diversification at low cost;

• Large institutional investors searching for attractive investment opportunities or inexpensive ways to reduce risk in their portfolio;

• Charitable organisations and foundationslooking for growth and/or income;

• DIY Superannuants interested ininvesting in a range of asset classes;

• Retirees looking for strong dividend yields.

All LMIs are listed on and supervised by theAustralian Stock Exchange, meaning theyneed to comply with strict rules dealingwith their disclosure of information andgeneral conduct.

A more detailed examination of thesedifferent products and the risks associatedwith them are included on the followingpages and should be read before making an investment.

What Are LMIs?LMIs provide investors with an interest in a professionally managed portfolio of assets. These investment portfolios consistof domestic or international shares, bonds, cash, real estate and other assets, or a combination of these. Investmentprofessionals manage them on behalf oftheir investors, with their size allowing them

to invest in assets or securities that wouldotherwise be unavailable to the public.

There is a wide variety of management stylesemployed, ranging from very conservative toaggressive. Investors benefit from any profitsand distributions made, but can also besubject to any losses in value as well.

Listed Managed Investments offer an exciting and diversearray of opportunities for a wide range of investors.

They provide choice, transparency and simplicity to assistinvestors in reaching their financial goals.

ListedManagedInvestments

3

Their ongoing popularity can be attributed to:TransparencyInformation on investments is availablethrough daily newspapers and through manywebsites, including www.asx.com.au. Thisincludes prices, volumes traded, the high/lowprice, news, and graphs of performance.

DiversificationLMIs allow investors to decrease the risk intheir portfolio in three ways:• Investors become part of a much larger

portfolio that can access many assets.This diversification decreases theindividual investor’s risk by limiting theirexposure to any one asset or security.

• Diversification across asset classes. Byholding investments in multiple assetclasses the investor may reduce their riskto one asset class performing poorly.

• Access to a range of investment styles.Investors can alter their portfolio of LMIsto match their risk profile reducingexposure to any one investment style.

Low CostAs investors in listed managed investments arepart of a large fund pool, they can typicallyaccess lower rates of fees and administrationthan may otherwise be available.

Investment Ease and Flexibility There is easy and immediate access to buy and sell LMIs. Purchases and sales can beconducted immediately through any ASXbroker (full service, discount or online) andmany financial planners during normal ASXtrading hours (10am to 4pm on Business Days).As is the case with shares, investors can buy

and sell ‘at limit’ to give greater protectionagainst short-term price fluctuations.Transactions are settled in three businessdays, providing quick access to sale proceeds.

Security and SupervisionAll LMIs are required to satisfy the listingrequirements of ASX and are supervised onan on-going basis. Supervision by ASX allowsinvestors access to detailed informationabout these investments.

The integrity of LMIs is heightened by initialand on-going scrutiny of ASX Listing Rules,while transactions in these securities aresubject to ASX Business Rules. In the case of fraud or insolvency of a stockbroker, under certain circumstances the SecuritiesExchange Guarantee Corporation Ltd’s, $160million (as at 31/12/01) National GuaranteeFund may cover investors.

ConvenienceInvestors have the benefits of a diversifiedportfolio through one easy to track invest-ment, reducing the amount of paperworkand taxation calculations.

AccessInvestors can access opportunities that mayotherwise be unavailable. Investors canaccess assets such as office buildings, tollroads and private equity, among others, thatare usually not available to retail investors.

Many LMIs have related securities such asconvertible notes, options and warrants, thatoffer investors the ability to gain exposure ina variety of ways or adopt more sophisticatedstrategies such as gearing or hedging.

There are several ways an LMI may be structured:

• As a company, where investors are issued shares anddividends are generally fully franked.

• As a trust, where investors own units. Distributions andfranking credits are passed through to investors in the yearthey are received and based on the underlining assets.

• As a stapled security, where investors own two or moresecurities which trade in tandem, as if they are ‘stapled’together.

ListedManaged

Investments

ListedManagedInvestments

As LMIs are transacted and settled throughASX, they can be easily integrated into aportfolio with other investments. Brokerageand margin lending accounts can includethese investments, while most of the majorproviders of portfolio services like mastertrusts and wrap accounts can alsoaccommodate them.

You can invest with as little asa few thousand dollars.

Periodic DistributionsLMIs declare distributions based on theperformance of their underlying investments.Although the frequency and size of thesedistributions depends on the individualproduct, managers commonly make them ona regular basis – monthly, quarterly, yearly.This can allow investors to better managetheir personal cash flow.

Dividend Re-investment PlansMany LMIs offer dividend re-investment andshare purchase plans. These plans allowinvestors to increase their investmentwithout brokerage and generally at adiscount to market prices.

Taxation AdvantagesLMIs can improve investors’ taxationoutcomes. Distributions from LMIs can befully franked (tax paid), or tax advantaged.Certain LMIs offer particularly attractivetaxation advantages. See the attributes ofindividual products for more information.

A Growing SectorLMIs have been operating in Australia since1928, but there has been a marked increasein activity in the sector recently. There arenow six types of products making up morethan 110 investment choices.

Risks Associated with InvestmentLike all market-related investments, investorsshould be aware of the risks involved wheninvesting. These risks include:• Market Risk – the value of LMIs can fall

in line with market movements;• Security Risk – different securities may

perform differently within an asset class;• Diversification Risk – a lack of

diversification ties an investor’sperformance with a narrow section ofthe market;

• Liquidity Risk – there are two levels ofliquidity risk. The first is the ability of themanager to buy and sell assets. Thesecond is the investor’s ability to buy orsell the LMI;

• Structure Risk – the individual structureand operations of an LMI may affect itsperformance;

• Gearing Risk – some LMIs may borrowfunds to increase potential returns. Thistechnique can magnify both gains andlosses;

• Legislative Risk – the government canalter legislation.

Different types of LMIs have particular risks.These risks are described later in this booklet. Ifyou are unsure of the risks or what they maymean, speak with your investment adviser.

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Listed Property Trusts (LPTs) are one of themost successful investment products on theAustralian Stock Exchange. When investingin LPTs, you invest in one of the largestsectors on ASX, with over $45 billion inassets, and approximately 8% of the world’slisted real estate assets (as at December2001). The sector has provided investors withhigh yields, capital growth and relatively lowlevels of volatility over the past 20 years.

What Are LPTs?LPTs allow investors to buy an interest in a professionally managed portfolio of realestate. LPTs offer a number of benefits overinvestment properties. Investors in propertytrusts gain exposure to both the value of thereal estate the trust owns, and the regularrental income generated from the properties.

Listed Property Trusts

The LPT sector’s investments include the following types ofreal estate:• Office Buildings and Parks• Industrial Estates• Retail and Shopping Centres• Hotels• Tourism and Leisure• Car Parks• Warehouses• International• Diversified (multi-sector) Portfolios.

LPTs use a closed-end trust structure. Thismeans that apart from new capital raisings,the units on issue in the trust remain fixed.These units are available to be bought andsold on ASX. Income and/or tax benefits ofthe property assets flow through to investorsin the year they are earned. Moderateamounts of gearing are normally used toenhance investor returns.

There are more than 40 LPTs trading on ASX. Most trusts have external managers,although some trusts have internalised theirmanagement through a ‘stapled security’. Astapled security gives exposure to both thetrust via a unit and to a management and/ordevelopment company via a ‘stapled’ share.

LPTs can be bought and sold at any timeduring ASX trading hours through anaccredited stockbroker or financial adviser.The same buy/sell strategies used for shares

can also be applied to LPTs, including placingorders ‘at limit’.

What Listed Property Trusts Can Achievefor You:Regular Income with some CapitalGrowthThe distribution (dividend) yields on LPTs are between 6% and 10% a year (based oncurrent prices), higher than most shares. Thedistributions are made quarterly or twiceyearly, allowing investors to regulate theircash flow.

Apart from distributions, LPTs also offer theopportunity for capital growth. Rising yields,attractive valuations or movements in othermarkets among other reasons, can cause unit prices to rise. During periods of highinflation real estate assets have traditionallyacted as an effective hedge against inflation.

ListedProperty

Trusts

Lower Levels of VolatilityCompared to industrial or resource companies,the price movements of LPTs generally tend to be more stable in the short term. TheListed Property Trust sector has historicallybeen 40% less volatile than the wider share market.

Diversification and LiquidityMost LPTs do not invest in only one property,preferring to invest across properties in adiversity of geographic regions, lease lengthsand tenant types to decrease investor risk.Although listed on ASX, LPTs have beenfound to have a low correlation with the rest of the share market. Investments in LPTs can therefore be used to furtherdiversify an investment portfolio.

Unlike private real estate transactions, unitsin LPTs can be bought and sold via anystockbroker on ASX and many financialplanners, with the proceeds of sales received

in three business days.

Cost-Effective Exposure to the PropertySectorProperty is one of the four main assetclasses and may play an important role in an investor’s portfolio. Property trusts offer access to the property market andprofessional investment management withlow transaction and management costs.

Taxation AdvantagesDue to LPT’s access to tax concessions likedepreciation (capital) allowances, some ofthe tax associated with the rental incomeearned by the LPT is deferred.

As an example, an investor makes a $10,000investment in an LPT with an 8% dividendyield of which 40% is tax deferred. Forsimplicity, this example assumes no changesin dividends or the tax-deferred portion ofthe dividends.

ListedPropertyTrusts

6

The tax-deferred component is generally between 15% and100% of the total dividend. The tax-deferred portion of thedividend is passed through to investors, meaning they donot pay tax on this portion of the dividend until they sellunits in the trust and then at the concessional capital gainstax rate. This can lead to attractive results net of tax.

Growth of $10,000 Investment

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Each year the investor holds the LPT: • $800 is received in dividends ($10,000 at

8%) • Tax is payable on $480 (60% of the

dividend)• Original cost base is reduced by $320

(40% of the dividend) After 5 years the investor sells their units inthe property trust at the market price of$11,500.

The original cost base of $10,000 has beenreduced by $320 each year for five yearsresulting in a new cost base of $8,400. Thesale price of $11,500 less the new cost baseof $8,400 results in a capital gain of $3,100.However, under the concessional capitalgains tax regime 50% of capital gains aretaxable. Therefore the investor will pay taxon $1,550 (50% of $3,100). This means theinvestor has earned, in effect, $1,550 taxfree due to the CGT concession. Of the$1,550 earned tax free $800 is from taxdeferral (50% of $1,600) and $750 fromcapital growth (50% of $1,500).

The tax can be deferred indefinitely until the investor decides to sell his or her units,meaning they can also more easily controlwhen a tax liability will be triggered. Ask youradviser about your personal circumstances.

Risks InvolvedAlthough property trusts are less volatilethan many other investments, LPTs carryrisks. These include:• Interest Rates – changes in interest rates

can affect the value of LPTs;• Market Risk – the value of LPTs can fall as

other assets become more attractive or thevalue of their underlying portfolio falls;

• Distribution Risk – future distributionsare not guaranteed by the LPT or ASX;

• Security Risk – LPTs may performdifferently due to the operations of theirunderlying assets or their structure;

• Diversification Risk – a lack ofdiversification within a LPT can tie aninvestor’s performance to a narrowsection of the market;

• Liquidity Risk – there are two levels ofliquidity risk. The first is the ability of themanager to buy and sell properties. Thesecond is the investor’s ability to buy orsell the LPT.

The back flap of this booklet contains thedetails of LPTs.

See your investment adviser for moreinformation about LPTs, or visitwww.asx.com.au/LMI

ListedProperty

Trusts

ListedInvestmentCompanies

Listed Investment Companies (LICs) are theoldest type of Australian Listed ManagedInvestments, with the first listed in 1928.There is a wide range of LICs, offeringadvantages to investors searching for arange of outcomes, from regular incomeflows through to providing a diversifiedexposure to specialised investment areas.

What Are LICs?Investment companies and trusts invest in a portfolio of assets on behalf of theirinvestors. Their investment techniques andappetite for risk differ substantially from oneproduct to the next. Investment professionalsmanage LICs. They are closed-end, meaningthey will not continuously issue new sharesor cancel them to cover investors joining orleaving the fund. Instead, investors buy andsell from each other on ASX.

Listed Investment Companies can providetaxation advantages to individual investors.The net income of the LIC is taxed at the30% taxation rate and the net income plusfranking credit is passed on to investors.With some LICs capital gains may bereturned gross to shareholders, who areliable for capital gains tax. Many LICs use‘buy and hold’ investment strategies whichreduce realised capital gains, and thosecapital gains are typically eligible for the50% capital gains tax concession.

An example of this is where a LIC sells someshares that it has held for more than 12

months, producing an eligible capital gain of $100. The LIC pays tax on that gain at the corporate taxation rate of 30%, leaving$70 to distribute to shareholders. Theshareholders add the net dividend of $70 to the imputation credit of $30 (for the taxalready paid). Therefore, the grossed-up gainis $100. However, due to the CGT concession,shareholders calculate tax on only $50 (halfthe gain) at their marginal rate of tax. If ashareholder is at the top marginal taxationrate (48.5% including the Medicare levy),then the tax payable comes to $24.25. Thisfigure is then subtracted from the imputationcredit ($30), to arrive at a total tax credit of$5.75. You should consult a qualified advisorto assess how these tax treatments affect your situation.

LICs are very convenient, as they are tradedon ASX like shares. LICs can be bought andsold at any time during ASX trading hoursthrough an accredited stockbroker and many financial planners. The same buy/sellstrategies used for shares can also be appliedto LICs, including placing orders ‘at limit’.

The price of a LIC is ultimately determined by supply and demand for the shares on the market. Although, they can trade atdiscounts or premiums to the value of theirinvestment portfolio, or Net Tangible Assets(NTA), LICs’ market prices tend to revolvearound their NTA. The NTA is generallydeclared monthly to ASX and is available toinvestors on the company and ASX websites.

Listed Investment Companies

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What Listed Investment Companies CanAchieve for You:A Diversified Portfolio Through a SingleInvestmentThrough investing in a LIC, investors gainexposure to a range of underlying securities.This reduces risk, as the investor’s funds are not tied closely to the fortunes of one security. You can begin investing in a LIC with a few thousand dollars.

Both Capital Appreciation and IncomeThe philosophy of each LIC differs. However,most LICs offer the opportunity for capitalappreciation as well as regular dividends. As the NTA of a fund rises, it can usually be expected that the market price of the LIC will rise as well.

Relative Consistency in ReturnsThe closed-end nature of LICs means theirmanagers can concentrate on investmentselection without having to factor in theeffects of money coming into or leaving the fund. Research shows that this canimprove investment performance. Many LICs have outperformed the Australian share market benchmark, the All OrdinariesAccumulation Index.

Due to their company structure, LICs canalso hold back returns from one year to the next. This allows the ability to ‘smoothout’ dividend flows, making them morepredictable over time.

ListedInvestmentCompanies

Investment companies can be classified into four categories:

• Australian equities – investing principally in shares listedon ASX;

• International equities – investing principally in shareslisted on international stock exchanges;

• Private equity – investing in Australian or internationalunlisted private companies;

• Specialist – investing in special assets or investmentsectors such as wineries, technology, resources andtelecommunications.

Growth in Listed Investment Companies$ Million

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Taxation AdvantagesLIC dividends are commonly fully franked(tax paid), while trust distributions can befranked, semi-franked and unfranked. Taxadvantaged dividends can reduce theamount of taxation payable by the investoron income earned (see below).

Many LICs take a ‘buy and hold’ investmentphilosophy. This allows investors in theseLICs to also access the concessional capitalgains tax rate. LICs that own internationalsecurities can generate franking credits fortheir investors.

A Concentrated Exposure to SpecificInvestment SectorsSome LICs invest in particular areas of the market, including domestic andinternational wine assets, agriculture,biotechnology, telecommunications andtechnology. Investing in individual securitiesin these areas can be risky. Investing in a LIC may reduce risk by giving instantdiversification across a range of stocks in thesector with professional management.

Transparency in a Managed InvestmentIt is difficult for LICs to hide bad investments.They reveal their NTA on a monthly basis andthey regularly disclose their holdings.

A Low Cost Investment MethodOn average LICs incur a relatively low rate of management expense compared withsimilar products. The investor usually pays

brokerage on the purchases and sales, butthere are no entry or exit fees. Some LICs are internally managed, while others aremanaged by external consultants that arepaid management fees.

Risks InvolvedListed Investment Companies carry risks.These include:• Market Risk – the value of LICs can fall

as other assets become more attractiveor the value of their underlying portfoliofalls;

• On market prices may reflect a discountor premium to the LICs’ NTA;

• Distribution Risk – future distributionsare not guaranteed by the LIC or ASX;

• Security Risk – LICs may performdifferently due to the operations of theirunderlying assets or their structure;

• Diversification Risk – a lack ofdiversification within a LIC can tie aninvestor’s performance to a narrowsection of the market;

• Liquidity Risk – there are two levels ofliquidity risk. The first is the ability of theLIC to buy and sell assets. The second isthe investor’s ability to buy or sell the LIC.

The back flap of this booklet contains thedetails of LICs.

See your investment adviser for moreinformation about LICs, or visitwww.asx.com.au/LMI

ListedInvestmentCompanies

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Exchange Traded Funds (ETFs) are one of themost rapidly growing investment products in the world. First launched in Canada in 1989,they currently represent assets of more than $200 billion in over 200 products listed on theNorth American, European and Asian markets.

Since coming to Australia, ETFs have madetheir mark, offering investors a choicebetween management styles, asset classesand investment objectives at low cost.

What Are ETFs?An ETF is a type of investment fund thatcombines some of the benefits of shares andmanaged funds. They allow investors toaccess a portfolio of securities and are tradedin the same way as shares. ETFs invest in aportfolio of securities, which may includeAustralian shares, international shares, fixedincome securities, listed property trusts, or acombination of asset classes.

Investors in ETFs can be sure that they will buy at, and sell at, the value of theunderlying portfolio’s net assets. ETFs ensurethat close price parity is maintained betweenthe traded unit price and the net asset valueof the units, giving certainty that the valueof the units will very closely track theperformance of the fund.

This price parity is possible because ETFs are‘open-ended’ meaning they can create orcancel units as investors enter or leave thefund. The size of the ETF, rather than itsprice, will fluctuate based on the supply anddemand for the ETF.

ETFs can be bought and sold through astockbroker (full service, discount or online)and many financial planners during ASXopening hours and the proceeds are availablein three business days.

Exchange Traded Funds

There are three major types of ETFs:

• Classical ETFs are based on and aim to match theperformance of any one of a number of indices. ClassicalETFs use special off market issue and redemption proceduresto increase their attractiveness to institutional investors.

• Hybrid ETFs can either be based on an index or be ‘activelymanaged’ by the fund manager selecting the securitiesthat they favour.

• ASX World Link™ provides access to a range of internationalETFs, including funds from Singapore and the US.

Most ETFs are designed to be cost-effectivevehicles, charging investors comparativelylow Management Expense Ratios (MERs).

What Exchange Traded Funds CanAchieve for You:Diversification in a Single Investment Investing in an ETF typically gains exposureto a portfolio of assets. This lessens investors’risks compared with investing in oneasset alone.

Exposure to Additional Asset Classes orSectorsThrough ETFs, Australian investors candirectly access Australian or internationalshare markets at comparatively low cost.They can also access actively managedfunds or funds that cover a specific sectorof the market.

Transparency and CertaintyETFs use an ‘open-ended’ structure and are

ExchangeTraded Funds

designed to trade at or very close to their net asset value. This means the share marketprice of an ETF should fully reflect theperformance of the underlying portfolio,with no other factors affecting it.

Regular income distributions are made toinvestors based on the performance of theunderlying portfolio.

A Cost and Tax Effective Investment Although ETFs vary in investment philosophyand goals, they offer comparatively lowcosts. All investors can access these funds at wholesale fee rates. There are no up-frontentry fees payable by the investor.

ETFs pass their earnings on to investorsuntaxed, with the investor then paying tax inthe normal fashion. However, some of theseearnings can be tax advantaged via frankingcredits earned by the underlying portfolio,and index based ETFs do not generatesignificant capital gains due to their lowportfolio turnover. If the ETF is held for morethan a year, the investor is also eligible forthe concessional rate of capital gains tax.

Ease of AccessETFs can be bought and sold during ASXtrading days and prices are continuallyupdated throughout the day.

The same buy/sell strategies used for sharescan also be applied to ETFs, including placingorders ‘at limit’ and using margin loans or

instalment warrants to fund investments.

Access to a Growing SectorETFs are a rapidly growing investmentvehicle for investors across the globe. Theirability to maintain low fees and trackunderlining investments has proven popularwith a wide range of institutional andindividual investors.

Risks InvolvedLike all market-related investments, ETFscarry risks. These include:• Market Risk – the value of an ETF is

based on the value of its individualassets and will decline if the value ofthose assets falls;

• Distribution Risk – future distributionsare not guaranteed by the ETF or ASX;

• Security Risk – ETFs may performdifferently due to the operations of theirunderlying assets or their structure,including the value of their assets andcurrency fluctuations;

• Diversification Risk – a lack ofdiversification within an ETF can tie aninvestor’s performance to a narrowsection of the market.

The back flap of this booklet contains thedetails of ETFs.

See your investment adviser for moreinformation about ETFs, or visitwww.asx.com.au/LMI

Sour

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ExchangeTraded Funds

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Global Growth in Exchange Traded Funds$ Billion

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Pooled Development Funds

Pooled Development Funds (PDFs) offerexciting opportunities to invest in companiesand technologies that would traditionallyhave only been accessible to institutions orthe very wealthy. PDFs invest in small tomedium-sized companies and/or promisingtechnologies – the future of the Australianeconomy – that may or may not be listed on a share market. Although PDFs can bevolatile and are long-term investments, they can offer attractive returns.

What Are PDFs?PDFs were established through the PooledDevelopment Act (1992) (Cth) to encourageinvestment in small to medium-sized

Australian companies. The venture capitalprovided by PDFs allows investee companiesto grow their businesses. In return, the PDFs and their investors have access to the sometimes remarkable rates of growthachieved by small companies.

Like all small companies, some organisationsor technologies that receive funding fromPDFs can be unsuccessful. Others may taketime before substantial growth can beachieved. Therefore, the market price of aPDF can be volatile over the short term.Advisers recommend PDFs for investors withat least a five-year time horizon and with amoderate appetite for risk.

PDFs can make certain types of investments. The criteria forthese investments include:

• Investments must be made in Australian companies;

• PDFs must purchase at least 10% of a company’s shares;

• Investee companies must be smaller than $50 million inassets;

• PDFs cannot invest in retail or real estate businesses.

PooledDevelopment

Funds

Pooled Development Funds Market Capitalisation$ Million

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Some PDFs specialise in one area of themarket, such as biotechnology or resourceswhile others spread their investments acrossa number of different industries. Some PDFsare internally managed, while others aremanaged by external consultants that arepaid management fees.

As they provide capital to growing Australiancompanies, PDFs have been granted specialtax concessions for both the PDF itself andits investors. See below for more detail onthese concessions.

What Pooled Development Funds CanAchieve for You:Diversification into Small AustralianCompaniesHistorically, small and medium-sizedcompanies have generally higher growthrates than larger companies. PDFs allowindividual investors to access these highgrowth potential companies or technologieswithout the high levels of risk associatedwith investing in one developing company.PDFs may invest in a portfolio of small and

medium-sized companies, reducing risk viadiversification while still giving investorsaccess to returns generated by the sector.

A Tax Effective Long Term InvestmentAs investing in smaller companies is high risk and encourages economic growth, theFederal Government offers extensivetaxation concessions to the PDF and itsinvestors. While the PDF itself benefits froma taxation rate of 15% from investments insmall enterprises, and 25% in unregulatedinvestments like cash, investors’ taxationadvantages include:• Franking credits are calculated at the

normal 30% corporate taxation rate,despite the PDF paying only 15%,generating additional franking credits forinvestors.

• Exemptions from income tax on unfrankedPDF dividends. Franked dividends aretreated either as exempt income (nofranking credits) or assessable (taxable)but investors can claim franking benefits;

• Exemption from capital gains tax on thesale of PDF shares.

For example, a shareholder in a PDF receives $100 in unfrankeddividends. This $100 in income is tax-free. If that dividendwas fully franked (tax paid), the shareholder has the choice of electing to take the $100 tax-free, or to take it as a fullyfranked dividend. If this is the case, the grossed up amount is $142.86, with the imputation credit being $42.86. If theshareholder decides to sell shares in the PDF, then any gainsmade are tax-free.

However, capital losses on PDFs cannot be used to offsetgains, and the cost of gearing into a PDF cannot be claimedas an investment expense for income tax purposes. Consultan advisor on your specific tax consequences.

PooledDevelopmentFunds

14

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Potential High ReturnsSpecialist investment managers employed by PDFs search for investee companies andtechnologies that could generate significantreturns over time. This may lead to a sharemarket listing or a trade sale of the business.The gains realised by the PDF and passed onto investors can be significant, many timesits initial investment.

Concentrated Exposure to One IndustryPDFs can choose to specialise in certainindustry sectors, allowing investors to accessan ‘instant portfolio’ in that sector managedby industry experts.

Risks InvolvedPDFs are higher risk investments. These risksinclude:• Market Risk – due to their nature, the

value of PDFs can be volatile in the shortterm, with no guarantee of share pricegains in the long term.

• Security Risk – PDFs may performdifferently due to the operations of theirunderlying assets. The performance ofPDF’s share prices depends on theperformance of underlying companies ortechnologies.

• Diversification Risk – a lack ofdiversification within a PDF can tie aninvestor’s performance to a narrowsection of the market.

• Liquidity Risk – there are two levels ofliquidity risk. The first is the ability of themanager to buy and sell assets. Thesecond is the investor’s ability to buy orsell the PDF.

The back flap of this booklet contains thedetails of PDFs.

See your investment adviser for moreinformation about PDFs, or visitwww.asx.com.au/LMI

PooledDevelopment

Funds

Infrastructure Funds are a cousin of the more familiar Listed Property Trust, but thiscousin is quickly growing up in terms ofsophistication and depth. InfrastructureFunds and their investors have recognisedthe desire of governments around the globeto privatise assets, a trend that continues togather pace. Infrastructure Funds allowordinary investors to own significant assetssuch as airports and toll roads. Australia is a pioneer in this lucrative field, withInfrastructure Funds listed in Australiarepresenting more than $6 billion in assets.

What Are Infrastructure Funds?Infrastructure funds are similar in principleto Listed Property Trusts. Instead of buyingproperties, Infrastructure Funds invest inassets that are used every day by companiesand the public. These assets include:• Toll roads;• Airports;• Communications assets such as

broadcasting towers;• Materials handling facilities such as

docks;• Rail facilities;• Utility facilities such as electricity power

lines and gas pipelines.

The distributions from Infrastructure Fundstend to be tax advantaged, and asset valuesare generally stable over the short term

while offering strong long term growthpotential.

Specialist investment professionals whomake all buy and sell decisions manageInfrastructure Funds. Managers generallyseek to diversify across multiple assets,industries or geographical regions.

Because of the generally stable nature of infrastructure assets and thereforedistributions to investors, movements intheir prices are not generally correlated toprice movements in other asset classes.

Infrastructure Funds are listed on the sharemarket and can be bought and sold at anytime during ASX opening hours through a stockbroker or financial planner. Theproceeds of sales are available in threebusiness days.

What Infrastructure Funds Can Achievefor You:Diversification from other AssetClassesInfrastructure Funds have a low correlationwith more traditional asset classes, meaningthey do not tend to move in the samedirection as other markets. This provides the opportunity for investors to decreaseportfolio risk while gaining access to assetsthat would not usually be available toindividual investors.

Infrastructure Funds

InfrastructureFunds

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Infrastructure Fund Turnover$ Million

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0Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02

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Exposure to Infrastructure AssetsGovernments around the globe are realisingthe benefits of privatising assets or, with theassistance of private investors, building newassets that may not otherwise be affordable.Infrastructure Assets are becoming aninvestment sector in their own right, but it isnot easy for individual investors to accessthem. Infrastructure Funds allow investors toaccess a diversified range of InfrastructureAssets managed by investment professionals.

A Tax Effective Income StreamInfrastructure Funds offer investors taxadvantaged income streams as well as accessto the concessional rate of capital gains taxif held for longer than a year. See example inListed Property Trust section of this booklet.

Stability of Earnings from EssentialAssetsAirports, roads, and docks – all are essentialto the workings of a modern society, usedeveryday and are difficult to replace. Thistends to decrease the volatility of fundsinvesting in these assets, as earnings arerelatively predictable.

Risks InvolvedAlthough Infrastructure Funds invest inassets that are typically less volatile than thegeneral share market, they do carry risks. These include:• Market Risk – the value of Infrastructure

Funds can fall as other assets becomemore attractive or the value of theunderlying assets in the portfolio decline;

• Distribution Risk – future distributionsare not guaranteed by the InfrastructureFunds or ASX;

• Security Risk – Infrastructure Funds mayperform differently due to the operations oftheir underlying assets or their structure;

• Diversification Risk – a lack ofdiversification within an InfrastructureFund can tie an investor’s performanceto a narrow section of the market;

• Liquidity Risk – there are two levels ofliquidity risk. The first is the ability of themanager to buy and sell infrastructureassets. The second is the investor’s abilityto buy or sell the Infrastructure Fund.

The back flap of this booklet contains thedetails of Infrastructure Funds.

See your investment adviser for moreinformation about Infrastructure Funds, orvisit www.asx.com.au/LMI

InfrastructureFunds

Although Absolute Return Funds have seenan explosion of interest in the past few years,they are not a new phenomenon. AnAustralian, Alfred Winslow Jones, establishedthe world’s first Absolute Return Fund, or‘hedge’ fund as he called it, in 1949.

Since then, Absolute Return Funds havegrown in number and complexity. Whileformerly only available to the wealthy andinstitutions, they can now be accessed by allinvestors. Although they can be difficult tounderstand, taking the time to investigateAbsolute Return Funds and their merits canbe worthwhile. Absolute Return Funds are agrowing sector of the investment marketoffering access to strong returns with varyinglevels of volatility over the long term.

What Are Absolute Return Funds?

This is why they are known as ‘Absolute’Return Funds, as they do not rank theirperformance relative to that of anyparticular market.

As they attempt to create positive returns inall market conditions, they use derivativeslike options and futures, ‘short-selling’ andexotic securities. As they are not tied to aparticular benchmark, such as the AllOrdinaries Index for the Australian sharemarket, they have much greater scope intheir use of different investment strategies(a short list of strategies can be accessed atwww.asx.com.au/LMI).

Absolute Return Funds can invest in allsecurities, including shares, derivatives,commodities and fixed interest. However,due to the strategies used, their performancedoes not typically move with the rise and fallof a particular asset class, giving investorsdiversification benefits.

They take one of two general structures: • Fund of funds, where the fund invests in

a variety of Absolute Return Funds;• Direct investment, where the manager

invests directly in securities.

Absolute Return Funds can be conservativeor aggressive in their attitude to risk.Depending on the fund, investors can accessreturns from both income and capital gains. The managers of Absolute Return Fundsgenerally use strategies such as investingtheir own cash in the funds and feestructures linked to the performance of thefund to ensure the investor’s and manager’sinterests are aligned.

What Absolute Return Funds CanAchieve for You:An Investment Offering AbsoluteReturns Absolute Return Funds aim for positivereturns in both rising and falling markets.Some Absolute Return Funds have shownreturns of more than 40% a year, while othershave experienced investment losses that haveled to their closure. Rather than aiming forhigh short-term gains, more Absolute ReturnFunds now target achieving ongoing positivereturns with relatively low levels of volatility.

Risk ManagementWhile Absolute Return Funds have yet tocompletely shed their risky image, researchhas found that they tend to trade with levelsof volatility similar to bonds, but providereturns superior to bonds. Some largesuperannuation funds are now usingcombinations of Absolute Return Funds inplace of bonds to reduce risk whileproducing better returns.

Diversification and Non-Correlationwith Traditional Asset ClassesAbsolute Return Funds provide diversi-fication into non-traditional financialinstruments and management techniques.The diversification benefits are furtherenhanced by Absolute Return Funds’ non-correlation with traditional asset classes. Insimple terms, this means that if the sharemarket, property market or any of the

Absolute Return Funds

AbsoluteReturnFunds

18 Absolute Return Funds,including hedge funds, aimto deliver returns in bothrising and falling markets.

19

traditional asset classes move up or down, itdoes not mean that Absolute Return Fundswill move in the same direction. ThereforeAbsolute Return Funds can act as acounterbalance against falling markets.

Pricing Transparency and Liquidity inan Absolute Return Fund With Absolute Return Funds listed on ASX,investors can buy and sell at any time duringASX trading hours through an accreditedstockbroker or financial planner. The proceedsof sales are available three business daysafter the trade is executed.

Returns from both Income and Capital GainsAbsolute Return Funds differ in theirdistribution policies. However, investors canaccess returns in the form of income and/orcapital gains.

Risks InvolvedAbsolute Return Funds can range from lowto high risk. The general risks include:• Market Risk – the value of Absolute

Return Funds can fall as other assetsbecome more attractive or the value of

the underlying assets in the portfolio fall; • Manager Risk – Absolute Return Funds

are generally run by small groups ofpeople using their own investmentstrategies. These may not be successful;

• Distribution Risk – future distributionsare not guaranteed by the AbsoluteReturn Funds or ASX;

• Security Risk – Absolute Return Fundsmay perform differently due to theoperations of their underlying assets ortheir structure;

• Diversification Risk – a lack ofdiversification within an Absolute ReturnFund can tie an investor’s performanceto a narrow section of the market;

• Liquidity Risk – there are two levels ofliquidity risk. The first is the ability of themanager to buy and sell securities. Thesecond is the investor’s ability to buy orsell the Absolute Return Funds. This riskis lessened by funds being listed on ASX.

The back flap of this booklet contains thedetails of Absolute Return Funds.

See your investment adviser for moreinformation about Absolute Return Funds,or visit www.asx.com.au/LMI

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Choosing Listed Managed InvestmentsThis seven-step process may assist investors inmaking an appropriate investment decision:

1. Establish a goalKnowing your investment goals, such asfunding retirement, saving to pay foreducation or current income, is critical tofinding the right managed investment. Yourgoal should include a timeframe and an ideaof how much money you need.

2. Understand the risk/reward trade-offWith greater returns comes greater risk. Yourrisk profile and investment goals will determinewhat types of investment are appropriate.

3. Research the productsFind those products that fit your goals and riskprofile. Collect information on the managedinvestments that interest you (see below forways to collect information). Educate yourselfabout how the products work, what theyinvest in and their level of risk and return, aswell as the taxation implications.

4. Understand the value of diversificationLMIs can be an excellent way to hold a diversified portfolio within a singleinvestment. However, it is also important to spread your investments across multipleasset classes, thereby limiting your exposureto any one type of investment.

5. Factor in fees and taxesThe fees and taxes you pay on LMIs will impactyour returns. Understand what you are paying,how it will affect your performance, andpossible strategies to reduce tax or other costs.

6. Consult an investment adviserAdvisers can help you with choosing an LMI,including the place of LMIs in a diversifiedportfolio, the possible risks involved and thetaxation implications.

7. Choose your Listed Managed InvestmentsMatch your goals and time frame to theappropriate Listed Managed Investments.

For Further InformationInformation on Listed Managed Investmentsis nearly as widespread as shares and can beaccessed in similar ways. LMIs are verytransparent in their operations so you, oryour adviser, can access information on theirpast investment performance, share pricegraphs and recent announcements. The ASXwebsite contains a variety of information onLMIs including performance, research, prices,and annual reports. This free information isavailable at: www.asx.com.au/LMI

Websites of the product providers and thecompanies who operate Listed ManagedInvestments are a good source of informationabout individual products. Links to therelevant websites can be found at the ASX site.

Daily newspapers contain details of opening/closing prices and volumes traded.

The assistance of a financial services licenseeor other professional adviser can also bevaluable in selecting managed investmentsand ensuring the investment choices youmake suit your circumstances, objectives and needs.

LMIs are traded on ASX and are availablethrough stockbrokers, financial planners,accountants, margin lenders, and manyportfolio account services.

If you require assistance visitwww.asx.com.au/LMI or call ASXcustomer service on 1 300 300 279

Listed Managed Investments– choice and transparency

Where to go from here

Where to go from here

20

Exchange Centre, 20 Bridge Street, Sydney NSW 2000, Telephone: 1300 300 279, Internet: www.asx.com.au/LMI