INVESTMENT OBJECTIVE

The Company’s objective is to generate a positive return over the medium to long-term, regardless of the movements of the broader share market, from an actively managed portfolio of small cap ASX listed and unlisted investments, and provide shareholders with a consistent stream of dividends.

INVESTMENT PHILOSOPHY

Ozgrowth’s investment philosophy is based on the premise that financial markets and individual securities can and do deviate away from fair value. By detailed analysis of a range of valuation parameters, a portfolio of listed and unlisted securities can be assembled to generate an acceptable level of return over the medium to long term.

Ozgrowth believes that an investment focus with a longer term horizon can generate significant benefits due to an ability to hold securities that are not actively traded. This allows for a greater focus on listed companies with market capitalisations below $50 million, those listed securities that are not actively researched by broking houses, and unlisted securities.

A medium to long-term investment horizon is required and large non-investment driven cash flows can adversely impact long term performance.  Hence, a listed investment company structure is the most appropriate form of the investment vehicle.

INVESTMENT STRATEGY

Ozgrowth has appointed the Manager to undertake the management of its investment portfolio in a manner consistent with its Investment Philosophy.

Ozgrowth will mainly invest in listed securities. From time to time, a portion of the Portfolio may be held in short term cash deposits. Due to the geographic location of the Manager, it is anticipated that the majority of investments will have a connection to Western Australia.  Derivatives may be used where considered appropriate.

The Manager will use a variety of sources to generate investment ideas. A range of parameters are used to assess value, but a key input to the analysis is the expected growth potential of the company. After completing the necessary analysis, a set of stock recommendations will be presented to the Manager’s Investment Committee.

The Investment Committee will review the recommendations and put them in the context of the overall equity environment. It will then review the Company’s current Portfolio in light of the information presented to it and adjust holdings in the Portfolio to ensure the targeted performance is achieved.

The Investment Committee can also use a variety of instruments to achieve its performance objectives. Where they are allowed, short positions may be held where a compelling reason exists. Derivatives may also be used to generate additional income in the Portfolio or to protect the Portfolio from market downturns.

INVESTMENT MANAGEMENT FEES

The manager is paid a base fee of 1% per annum of funds managed. In addition, a performance fee is payable where the increase in the portfolio value exceeds 7% over a twelve month period to end of June and is calculated at 20% of the increase exceeding the threshold. The starting point for the calculation of the threshold is the greater of the starting portfolio value and the number of shares on issue multiplied by $0.20.

PERMITTED INVESTMENTS

Subject to the conditions of the Australian Financial Services licence held by the Manager, the Manager may invest in the following types of investments:

• Listed Securities and unlisted securities;
• Rights to subscribe for or convert to securities (whether or not such rights are tradeable on a securities exchange);
• Securities for the purpose of short selling;
• Warrants or options to purchase any investment and warrants or options to sell any investment permitted under the Management Agreement;
• Discount or purchase of bills of exchange, promissory notes or other negotiable instruments accepted, drawn or endorsed by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or by any corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia;
• Deposits with any bank;
• Debentures, unsecured notes, loan stock, bonds, promissory notes, certificates of deposit, interest bearing accounts, certificates of indebtedness issued by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or any Australian government authority, or, if authorised by its Directors, a corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia;
• Units or other interest in cash management trusts; and;
• Any other investment, or investment of a particular kind, approved by the Board in writing.

RISK CONTROL

Performance of the Portfolio will be generated from investment in suitable stocks. However, diversification of holdings will be used to limit the risk where the actual performance of individual stocks does not meet expectations. Risk control features of the Portfolio will include:

• No one stock will represent more than 20% of the total Portfolio Value at the time of acquisition.
• No investment will represent more than a 20% stake in the issued securities of a company.
• It is anticipated that the Portfolio will consist of between 10 and 25 stocks, although more or less may be held depending on the number of securities identified that are expected to meet the performance expectations.
• Where suitable stocks can not be identified, the portfolio may invest in cash. Whilst unlikely over the medium term, the Portfolio may consist from time to time of significant cash deposits.
• Any short positions will not represent more than 20% of the total Portfolio Value.
• Leverage may be employed in the Portfolio, but total exposure will not exceed 120% of the Portfolio Value.
• Any breach of these risk control measures will be reported to the Company by the Manager and the Company will determine the appropriate action to remedy the breach.