Capital International Group | PRISM Brochure

PRISMR E D E F I N I N G I N V E S T M E N T

CapitalInternational Group

CapitalInternational

Our ValuesWe seek to achieve this through the enduring values of innovation, integrity and excellence

Our VisionThe Capital International Group exists to improve lifestyles through increased prosperity

The Capital International Group is an award winning investment group with our headquarters in the Isle of Man

Innovation Integrity Excellence

PRISM combines low costs with the professionalism of highly diversified active institutional asset management, together with the service of a discretionary management service.

PRISM offers a wide range of defined return profiles with different risk and return characteristics so that clients and their advisers can match their specific investment requirements with precision and clarity of execution.

Our Client Requirement Profiler can assist clients and their advisers in the process of identifying the most suitable investment strategy to meet their requirements.

Outline

The underlying Master Investment Strategy seeks to maximise diversification across a wide range of asset classes and high quality investments.

Security

No direct costs; the defined return profiles are delivered without deduction of any cost. The underlying Master Investment Strategy has an annual management charge of 0.25%.

Low Cost

Defined return profiles that are truly compelling in comparison to traditional investments and strategies.

Investment Excellence

A full spectrum of defined return profiles to choose from ensuring suitability can be established and maintained as circumstances change.

Suitability

Many profiles enjoy capital protection over their respective time horizons.

Capital Protection

Knowledge of how their investment will perform.

Peace of Mind

PRISM can be ideal for financial and tax planning.

Financial & Tax Planning

No lock-in periods or exit penalties. Clients can switch or exit as they chose.

FlexibilityWeekly dealing without restriction or penalty.

Liquidity

Where returns are mathematically calculated in accordance with pre-published, pre-defined risk and return profiles.

Defined Return Profiles

PRISM delivers Defined Return Profiles within a discretionary investment managed service - a competitive alternative to other discretionary services, passive investment offerings and structured products.

IntroducingPRISM

PRISM offers a full spectrum of defined return profiles to match a broad range of requirements and objectives. Each profile has a defined average return and a defined volatility which, together with the performance of the Master Investment Strategy, are used to mathematically calculate the return in each period. The Master Investment Strategy is a highly diversified investment portfolio which aims to optimise returns per unit of risk.

The defined average return and volatility of each profile are published in advance, giving investors clarity as to the performance characteristics of their investment and enabling them to select the profile that is most suitable to their requirements.

Investment Time HorizonsAlthough PRISM has no lock-in periods or exit penalties, each profile is structured to deliver an optimal balance between risk and return over a given investment time horizon.

NOTESPRISM defined return profiles may change over time in response to the changing economic and investment environment. See fact sheets for the latest profiles

Profiles with short investment time horizons therefore have low defined volatility levels in order to minimise the potential for short-term losses. For profiles with longer time horizons it is preferable to target higher average returns and to accept a higher level of short term volatility.

The time horizon is important because the impact of short term volatility on a strategy’s expected return diminishes over time. Profiles are designed to maximise the expected return and minimise the effect of negative risks.

PRISMDefined Return Profiles

CapitalInternational

Defined Average Annual Return

Defined Volatility

Investment Time Horizon

Capital Protected over Time Horizon

Horizon 1 1.25% 0.50% 12 months 100%

Horizon 1+ 2.00% 1.10% 18 months 100%

Horizon 2 3.00% 2.10% 2 years 99%

Horizon 2+ 4.00% 3.25% 2.5 years 97%

Horizon 3 5.00% 4.60% 3 years 95%

Horizon 3+ 6.00% 6.00% 3.5 years 90%

Horizon 4 7.00% 7.50% 4 years 85%

Horizon 5 8.00% 9.00% 5 years 80%

Horizon 6 9.00% 10.60% 6 years n/a

Horizon 8 10.00% 12.50% 8 years n/a

Horizon 10 12.00% 16.00% 10 years n/a

Enhanced Growth 14.00% 20.00% 12 years+ n/a

Innovation Integrity Excellence

Some profiles enjoy an element of capital protection over their stated investment time horizon, giving greater peace of mind to clients with less risk appetite.

Capital protections apply over the full investment time horizon of the respective profile. For example the Horizon 1 profile is fully protected over its 1 year time horizon. In contrast the Horizon 3 strategy enjoys 95% capital protection over its full 3 year time horizon.

Return ExpectationsDue to the fact that PRISM’s return profiles are pre-defined, we are able to determine the range of possible future returns with a high degree of confidence. The table above sets out the range of returns over each profiles specified time horizon and over one year, stated with 97.5% confidence.

Horizon 3, by comparison, is expected to produce a higher average annualised return of 5% over time. In any one year returns are expected between -4.02% and +14.02%. Over the profiles full three year time horizon, the returns are expected between +0.15% and +31.38%. Again there is a 1 in 40 chance that returns may be below these ranges, although Horizon 3 also enjoys 95% capital protection over its three year time horizon.

For example, Horizon 1 is expected to produce an average annualised return of 1.25% over time. In any one year returns are expected between +0.27% and +2.23%. The profile’s time horizon is also one year and hence the minimum and maximum expected returns over 1 year are the same. There is a 1 in 40 chance that returns may be below this range, although Horizon 1 also enjoys 100% capital protection over one year.

PRISMCapital Protection

Expected Returns (over full time horizon) Expected Returns (over 1 year)Minimum* Average Maximum* Minimum* Maximum*

0.27% 1.25% 2.23% 0.27% 2.23% Horizon 1

0.37% 3.01% 5.66% -0.16% 4.16% Horizon 1+

0.27% 6.09% 11.91% -1.12% 7.12% Horizon 2

0.23% 10.30% 20.37% -2.37% 10.37% Horizon 2+

0.15% 15.76% 31.38% -4.02% 14.02% Horizon 3

0.62% 22.62% 44.62% -5.76% 17.76% Horizon 3+

1.68% 31.08% 60.48% -7.70% 21.70% Horizon 4

7.49% 46.93% 86.38% -9.64% 25.64% Horizon 5

16.82% 67.71% 118.60% -11.78% 29.78% Horizon 6

45.06% 114.36% 183.65% -14.50% 34.50% Horizon 8

111.42% 210.58% 309.75% -19.36% 43.36% Horizon 10

246.00% 381.00% 517.00% -25.20% 53.20% Enhanced Growth*There remains a 2.5% chance of returns below this range

PRISMInvestment Excellence

CapitalInternational

PRISM has been designed so that each profile delivers a risk-return balance which exceeds those available from typical investments such as equities, property and gilts, as well as the characteristics of traditional conservative, balanced or growth investment strategies.

Indeed, PRISM materially expands the efficient frontier of investment possibilities available to investors, providing a powerful investment rationale as to why PRISM should be considered as an alternative to traditional investments and strategies.

This is illustrated in the chart below, which plots the return and risk characteristics of the profiles compared to a range of traditional investments and strategies.

For a given level of risk, PRISM offers a return expectation that exceeds those of traditional investments.

Expanding the Investment Frontier

The economic and investment environment is ever changing. In response, the PRISM Defined Return Profiles may vary to ensure that they remain truly compelling at all times. The latest profiles will be published in advance on our website.

Updating the Defined Return Profiles

Risk Level

Expe

cted

Ret

urns

p.a

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15%

10%

5%

0 Low Medium High

▲Money Market

▲Gilts

▲Balanced

▲Property

▲EM Equity

▲UK Equity

● H1

● H1+

● H2+

● H2

● H3

● H3+

● H4

● H5

● H6

● H8

● H10Traditional Efficient Frontier

● Enhanced Growth

The Master Investment Strategy is managed by the Investment Team at Capital International, whose performance track record over fifteen years has been consistently good.

Every profile is linked to the same Master Investment Strategy, from which the investment performance is derived. Profiles at the lower end of the defined return scale enjoy the first allocation and the most stable returns, but limited to the defined return and risk of the respective profile. Whereas profiles at the higher end of the spectrum enjoy the excess performance but with increasing levels of volatility.

Effective diversification enables risk to be substantially reduced per unit of return achieved. Most traditional investment strategies suffer from a lack of effective diversification. This is particularly problematic for lower and higher risk investors.

The lower risk investor typically finds their investment portfolio increasingly dominated by one asset class, such as bonds or gilts. The result is often a substantial deterioration in the return with only a modest reduction in risk. Far from getting a risk-free return, low risk investors can find themselves trapped in a return-free risk.

Similarly, the higher risk investor typically finds their strategy increasingly dominated by equities, leading to a substantial increase in risk but often for only a modest increase in returns. Both are inefficient investment strategies, but investors are constrained by the structure of a traditional investment portfolio.

By contrast, the objective of the Master Investment Strategy is to maximise return per unit of risk. It is not necessary for the strategy to target aggressive returns, but to achieve the optimal balance between risk and return.

To achieve this, the strategy pursues maximum diversification, based firmly on the fundamental principles of Modern Portfolio Theory and the Capital Asset Pricing Model, investing across a wide range of asset classes including equities, bonds, property and alternatives.

Maximum Diversification

Financial & Tax PlanningReturns from PRISM are typically subject to capital taxes and no income is payable from PRISM. Depending on a client’s tax residence and domicile, PRISM can be useful for financial and tax planning purposes. PRISM can also be delivered in the form of bespoke Spread Bet contracts, which are typically free from Capital Gains Tax in the UK.

You should always seek advice from a Financial Adviser or Tax specialist to determine the suitability of any financial service to your specific circumstances. Tax laws may change and your personal tax position is your sole responsibility at all times.

PRISMThe Master Investment Strategy

Innovation Integrity Excellence

Suitability & Risk ProfilingPRISM is ideal for life-styling and financial planning as profiles can be selected with precision and gradually adjusted over time to meet very specific planning requirements.

Clients should consider their specific financial circumstances and investment objectives when assessing the suitability of PRISM. Capital International can perform that suitability assessment, or assist Financial Advisers to deliver it, using its own in-house specialist Investment Suitability Assessment process. An additional charge of up to 1.0% may apply where Capital International assesses suitability.

Simplicity The process of applying for PRISM is simple and straightforward and on-going investment reporting is transparent and comprehensive, with valuations available on the Capital International’s secure online client portal.

Availability The minimum initial investment is £15,000 and there is no maximum limit. PRISM is ideal for clients wishing to make regular contributions or for those requiring regular distributions. PRISM can also be structured to facilitate pension scheme withdrawal schedules, such as drawdown.

AccessibilityPRISM does not levy any exit penalties and has no set minimum investment term, should clients require access to their funds at any time. The profiles price and deal weekly. Clients should note that any capital protections apply over the full stated time horizon and may not provide protection if the position is encashed at an earlier time.

No Direct Cost PRISM is delivered without deduction of any client charges. Furthermore, the underlying Master Investment Strategy has a low annual charge of only 0.25% per annum. To compensate for these very low charges, in periods where investment performance exceeds the defined return profiles, Capital International reserves the right to levy a performance fee on the underlying Master Investment Strategy.

Client Service & ReportingCapital International is founded on the core values of innovation, integrity and excellence, and we aim to deliver the highest quality of customer service. All clients, and their advisers, can register for online access to their PRISM account. We will also send a quarterly valuation and PRISM fact sheet upon request. In addition, each month there will be performance reports published on each profile.

PRISMThe Main Features

CapitalInternational

Innovation Integrity Excellence

Can I use PRISM on an ‘execution only’ basis?Clients who wish to make their own investment decision can buy PRISM Limited Liability Contracts directly on an ‘Execution only’ basis, which can be ideal for Financial Advisers, Asset Managers and Experienced Investors who prefer to make their investment decisions. It should be noted that by undertaking activities on an ‘execution only’ basis we will prescribe you as a non-retail client, and as a consequence this will reduce the level of investor protection offered to you.

Who is Capital Financial Markets Limited?Capital Financial Markets is a wholly owned subsidiary of Capital International that is separately licenced to issue principal contracts and is ring-fenced from the rest of the Group. Capital Financial Markets is the issuer of the Limited Liability Contracts that deliver the PRISM profile returns.Capital Financial Markets has appointed Capital International’s Investment Team to manage the Master Investment Strategy and to deliver the underlying investment performance.

Are returns guaranteed?All investments carry risk, including cash and gilts. No investment can offer a genuine guaranteed return. After all, who guarantees the guarantor?PRISM returns should not be confused with fixed or other so called guaranteed return investments, such as structured deposits or fixed interest securities.PRISM provides a range of defined return profiles. The return achieved in any period is mathematically calculated based on the defined average return and defined volatility of each profile respectively, together with the performance of the Master Investment Strategy.The range of likely returns over time from each PRISM profile can therefore be stated with a high degree of precision, giving investor’s confidence to select the balance of risk and return that is suitable for them.The range of likely returns are stated with 97.5% confidence.

What is capital protection?Each profile from Horizon 1 to 5 incorporates a self stabilisation mechanism such that the profile value will not fall below a specified percentage of its initial value over the profile’s rolling time horizon. Nonetheless, each client’s profile valuation may fall below this level during the rolling time horizon.

How does the capital protection operate?The capital protection is provided by the Master Investment Strategy prior to the allocation of returns and is similarly recovered by the Master Investment Strategy in periods of subsequent growth.Capital protections apply over a profile’s full time horizon. For example the price of the Horizon 1 strategy after a full year should be no lower than the initial price. Whereas the price of the Horizon 3 strategy should be no lower than 95% of its initial price after a full three year period. It is entirely possible that the price may fall below the protected level in the interim period.

When can clients invest into the PRISM Service?Applications can be made at any time as access is open-ended. Any new investments are then transacted into the relevant profile on a weekly basis at the next weekly dealing date.

What is the risk of the PRISM Service?Each Profile has a defined average return and a defined volatility which, together with the performance of the Master Investment Strategy, are used to determine the return in each period.The risk therefore depends on the profile selected. Clients and their advisers can select as low a risk or as a high a risk profile as they are comfortable with to meet their investment requirements.The underlying Master Investment Strategy is invested across a wide range of asset classes and high quality investments, within an overall risk budget that is strictly controlled.Additional risk factors are set out in the operating memorandum of each PRISM profile; which are available on request.

How likely is it that a client will receive the defined return within the Profile they select?The returns in any period are calculated mathematically based on the defined average return and volatility of each profile. There is a high probability that returns will be within the ranges specified for each profile, which are stated with 97.5% confidence.

What are the charges?The PRISM defined return profiles are delivered without deduction of any client charges.The underlying Master Investment Strategy has a low annual charge of 0.25% per annum. To compensate for these very low charges, in periods where investment performance exceeds the defined return profiles, Capital International reserves the right to levy a performance fee on the underlying Master Investment Strategy.Your adviser may also levy charges or remuneration in addition, but they must agree this with you first. A Suitability Charge of up to 1.0% may apply where Capital International assesses suitability.There are no exit penalties or lock in periods. Clients can exit or switch at any weekly dealing point and the underlying Master Investment Strategy invests predominantly in securities with high levels of liquidity.

Who will I be contracting with?PRISM clients will enter into a contract with Capital International for discretionary investment management. Retail clients will need to obtain investment advice and this will normally be provided by your Financial Adviser. Capital International can provide a suitability assessment as to the appropriate PRISM Horizon strategy based on your investment and risk requirements.Once a discretionary account has been established, the Investment Team will buy the PRISM profile which is appropriate for you, based on your investment and risk requirements. The Investment Team will acquire a PRISM Limited Liability Contract from Capital Financial Markets. Your investment is held on your behalf by Capital International (Nominees) Limited, a subsidiary of Capital International.Capital International have been appointed as the Investment Manager of the Master Investment Strategy portfolio, which is owned by Capital Financial Markets.Capital International and Capital Financial Markets are regulated by the Isle of Man Financial Supervision Commission. Both companies are members of the Capital International Group.

PRISMFrequently Asked Questions

What if a bank, which is allocated cash deposits from the Master Investment Strategy, defaults?Similarly, the loss will be incurred by the Master Investment Strategy, reducing its performance and the subsequent performance of each PRISM profile according to its defined return and defined volatility parameters. (See above for more detail on how the capital protection feature operates)

What is a Limited Liability Contract?A Limited Liability Contract (LLC) is a principal financial contract that legally binds the issuer, Capital Financial Markets Limited, to deliver the financial performance specified by the contract.The terms of each LLC are set out in their respective SRI operating memorandums which are available on request.An LLC is not a margined transaction and is not leveraged. The liability of the owner is explicitly limited to the amount paid for the LLC.PRISM specifies a range of defined return profile LLCs including many that incorporate an element of capital protection, providing significantly enhanced protection in addition to the limited liability nature of the contract itself.

Is PRISM a fund?PRISM is not a fund or collective investment scheme. PRISM uses principal financial contracts to deliver the defined return profiles.

Are there any limitations on investments that can be made?In order to maintain the integrity of the service at all times, PRISM reserves the right to restrict access or limit the maximum size of investment into one or more PRISM profiles. This may occur if there is excessive demand for one or more PRISM profile(s). Similarly, PRISM reserves the right to close part or all of an existing position in the event that the integrity of the PRISM service cannot be adequately maintained.

Can a client’s IFA be paid from PRISM?An IFA can be paid initial and/or ongoing servicing remuneration with regards to their client’s PRISM account.

How can a client track investment performance?Monthly factsheets on each profile will be published. In addition, all clients will receive a quarterly valuation and investment report. Finally, if clients want more frequent access they can log-in to our website to get up to date valuation information at any time.

Can a client change Profiles if required?A client can request to switch Profile at any time. The switch will be transacted on the next available dealing date.

When and how can a client withdraw their investment?A client can request to withdraw part or all of their investment at any time. The withdrawal will be transacted on the next available dealing date.

Are the capital protections guaranteed?The capital protections provided are highly robust; nevertheless, it is again impossible to provide an absolute guarantee. In circumstances where a ‘catastrophic’ or ‘force majeure’ market event occurs it is conceivable that the capital protections may fail to an extent.There are no examples in recent history of such a catastrophic event occurring. Historical testing indicates that neither the dot.com crash of 2000-2003 nor the financial crashes of 2008 and 2012 presented any material threat to the capital protections provided within the PRISM structure.

Will actual returns always exactly match the defined returns?The periodic nature of returns means that when viewed in hindsight there are always likely to be periods when returns are above or below each profile’s average expected return. This can be seen in the historic performance shown in the respective fact sheet of each profile.However, PRISM returns are mathematically calculated by reference to the defined return and volatility of each profile and over time the actual returns are therefore likely to converge toward the defined return profiles specified.

Will the Defined Return Profiles change?The PRISM profiles are designed to be truly compelling when compared to traditional investments and investment strategies. This means that the profiles will need to be updated over time to reflect the ever changing economic and investment environment.For example, should interest rates and inflation rise, it is unlikely that the current defined returns profiles would remain sufficiently attractive in comparison to other investments, and vice versa. In response, the expected return and risk of each profile will be adjusted over time to remain compelling.The latest defined return profiles are available on the Capital International Group’s website.

What are the underlying assets of the Master Investment Strategy?The underlying assets of the Master Investment Strategy will be carefully selected by our experienced team of investment professionals across a wide and diversified range of different asset classes including equities, corporate and government debt, property, commodities and selected alternative strategies. Actual investments will be drawn largely from individual securities, although investment trusts, exchange traded funds, actively managed funds and other investments may also be used.

What happens if an underlying asset within the Master Investment Strategy defaults?The Master Investment Strategy will remain highly diversified at all times and the default of any one asset is unlikely to have a significant impact on the overall strategy. Nevertheless, any loss would be absorbed by the Master Investment Strategy, reducing its performance and the subsequent performance of each PRISM profile according to its defined return and defined volatility parameters. (See above for more detail on how the capital protection feature operates)

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Regulated activities are carried out on behalf of the Capital International Group by its licensed member companiesCapital International Limited and Capital Financial Markets Limited are both licensed by the Isle of Man Financial Supervision CommissionCapital International Limited is a member of the London Stock ExchangeRegistered Address: Capital House, Circular Road, Douglas, Isle of Man, IM1 1AG

Isle of Man | Head OfficeCapital International GroupCapital HouseCircular RoadDouglasIsle of ManIM1 1AG

www.capital-iom.com

T : +44 (0) 1624 654200 F: +44 (0) 1624 654201 E: [email protected]

South Africa OfficeCapital International SAOffice NG101AGreat Westerford240 Main RoadRondebosch 7700South Africa

www.capital-sa.com

T : +27 (0) 21 201 1070 E: [email protected]

CapitalInternational Group

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