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Carter Rock Limited www.carterrock.

com

Fund Prospectus Statistical Arbitrage March 2012


Carter Rock Ltd

Disclaimer
Carter Rock Limited, the fund management company, shall henceforth be known as CRL. This prospectus is intended to provide investors with an overview of the objectives and investment principles of the fund (which may vary from time to time) and to assist investors when deciding on whether to participate. Investors should carefully examine this document in its entirety, and seek further professional advice for a more detailed understanding on all aspects of this opportunity so as to be fully aware and understanding of the inherent risks associated with this fund including loss. CRL is not an education provider and therefore expects investors to conduct their own research into the subject to ensure a reasonable level of understanding is achieved before considering whether to participate. This prospectus may be distributed outside of New Zealand only with the express permission of CRL. Investors located in a foreign country are advised to take into consideration that the measures adopted for the protection of investors in one country do not always extend to transactions of a fund registered in another country. In countries which require the translation of this prospectus into the official language of that country, the English version shall prevail in the case of any incongruity. This prospectus does not constitute an offer of investment in a jurisdiction where such an offer is unlawful or to persons to whom such an offer is restricted by law. This prospectus is not required to be authorized, registered or vetted by the Government of New Zealand. The information related to investors of CRL is confidential and subject to disclosure only in the cases provided for in legislation and the client agreement pertaining to this fund.

Table of Content
Definitions ..................................................................................................................................................... 4 General Provisions ........................................................................................................................................ 5 CRL Investment Objectives: .......................................................................................................................... 5 CRL Conservative Fund.............................................................................................................................. 5 CRL Aggressive Fund ................................................................................................................................. 5 Risks Associated with CRL Funds................................................................................................................... 6 Market Risks .............................................................................................................................................. 6 Operational Risks ...................................................................................................................................... 6 Credit Risks ................................................................................................................................................ 6 CRL has absolute discretion as to trades ...................................................................................................... 7 Rights of CRL Fund Investors ......................................................................................................................... 7 Limitations of CRL Fund Investors ................................................................................................................. 7 Redemption of investment ........................................................................................................................... 7 Fees and other obligations............................................................................................................................ 8 Miscellaneous ............................................................................................................................................... 8 About the Company ...................................................................................................................................... 8

Definitions
For the purposes of this document the following definitions shall assist with interpretation unless otherwise provided for:

AUM

Assets Under Management

Fund Manager(s)

Person(s) responsible for general trading of assets

NAV

Net Asset Value associated with invested asset

High Watermark

Performance minimum achieved to initiate incentive fee

Incentive Fee

fee payable to CRL for the general fund growth a request to be submitted by investor ahead of next available Redemption Date

Redemption Request

Redemption Date

dates where fund redemptions are freely available Hedging is the act of taking a combination of financial products to minimum unwanted risk, with exposure exclusively to uncertainties where a gain is expected. A hedged portfolio is truly market neutral if it exhibits near-zero correlation with general economic/market risks Excess return of an invested portfolio with respect to general market returns. A legal document between Carter Rock Limited and an investor

Hedging

Market/Beta Neutral

Alpha Client Agreement

General Provisions
1. 2. CRL funds are non-public open-ended risk capital funds. CRL funds shall not guarantee to investors the yield (rate of return) of the managed portfolios or the preservation of initial investments. The base currency of CRL funds shall be the New Zealand Dollar. Investors of the Fund must qualify as Eligible Persons as provided for in Section 5 of the Securities Act 1978 (NZ), and are aware of all possible risks associated thereto. Minimum initial investment is currently set at $100,000 NZD.

3. 4.

5.

CRL Investment Objectives: CRL Conservative Fund


Expected Annual Return: 20%, Expected Volatility of Return: 10% CRL expects the Conservative Fund to suit risk-averse investors with an investment outlook of not less than 1 year. Minimal or zero leverage shall be utilized in this fund All positions are hedged to achieve general market neutrality. CRL aims to generate Alpha from relative value inefficiencies between traded asset combinations. CRL aims to minimize short term fund value volatility (risk) by exploiting a basket of low correlation market inefficiencies. The trading strategies are opportunistic. Fund manager(s) utilize strategies considered most profitable with respect to market conditions. There may be periods where a significant portion, no more than 40%, of the fund may be positioned in cash.

CRL Aggressive Fund


Expected Annual Return: 35%, Expected Volatility of Return: 26% CRL expects the aggressive fund to suit investors desiring high expected returns with moderate short term volatility, with an investment outlook of not less than 1 year. Leveraged derivative instruments are utilized in this fund. Some positions are not Beta hedged to achieve the highest expected returns over time. CRL aims to generate alpha from financial product structure inefficiencies. CRL aims to minimize short term fund value volatility (risk) by exploiting a basket of low correlation market inefficiencies.

The trading strategies are opportunistic. Fund manager(s) utilize strategies considered most profitable with respect to market conditions. There may be periods where a significant portion, no more than 40%, of the fund may be positioned in cash.

Risks Associated with CRL Funds


Despite CRLs active hedging and expected returns favourable for the funds, everything need not realize in the manner and extent specified in the Prospectus. Upon investing in the Fund, the investor must take into consideration all dimensions of risk related to investments which may affect rate of return. Values of funds fluctuate in time, with some periods greater than others. Investment in the funds cannot be considered as deposits since preservation and increase of capital are not guaranteed.

Market Risks
Accelerated Inflation Risk: inflation adjusted value of an investment may not overcome actual rate of inflation. Interest Rate Risk: Change in interest rates may affect the relative valuation and volatility of certain financial products unfavorably for the fund (e.g. treasury futures, index options). Market Liquidity Risk: Products with a significant decrease in liquidity may experience high price volatility, and are likely to incur increased transaction costs. Currency Exchange Risk: CRL funds trade mostly US and Asian financial products which are not priced in NZD. Exchange rate risk is generally not hedged as the cost of hedging may negatively affect the funds expected returns.

Operational Risks
Regional Legislation Risk: Possible changes in regional legislation related to general investments may negatively affect CRL funds regular activities. Exchange Policy Risk: Possible changes in exchange policies (e.g. short-selling ban, uptick-rule, etc.) may negatively affect CRL funds regular activities. Depository Risk: Possible threat of loss or destruction of assets kept by the regional depositary institution through negligence or an intentional illegal act.

Credit Risks
Issuer Risk: Inability of an issuer of a credit instrument to perform its debt obligations. 6

Settlement Risk: Inability of the counterparty of an agreed transaction to transfer in the course of settlement the required amount of money or securities.

CRL has absolute discretion as to trades


CRL funds may trade in all types of financial instruments, including but not limited to listed companies, Exchange Traded Funds, Exchange Traded Notes, and derivative instruments. CRL funds may invest in instruments related to all sectors of the economy. The assets of the fund may be invested in instruments globally without limitation. CRL funds may trade options and futures of all classes. Fund manager(s) may trade options and futures for the purpose of both hedging as well as Alpha generation.

Rights of CRL Fund Investors


Investors have the right to demand that CRL redeem their Investment Amount pursuant to the provisions of the Carter Rock Client Agreement document. Investors have the right to obtain individual performance reports individual to them. Performance reporting standards are detailed in the Carter Rock Client Agreement document.

Limitations of CRL Fund Investors


It is recommended that an investor seek independent professional advice on all matters relating to this opportunity including associated risks, taxation and other obligations. Investors do not participate in the management of the funds, unless otherwise requested by CRL management.

Redemption of investment
To redeem an Investment Amount, an investor shall submit to CRL a Redemption Request. Redemption Request details are explained in the Carter Rock Client Agreement document. Redemptions are available with terms and conditions and may incur fees; details are explained in the Carter Rock Client Agreement document.

Fees and other obligations


Expenses related to the preservation and operation of the funds is detailed in the Carter Rock Client Agreement document. CRL shall be paid an Incentive Fee based on positive performance of the funds; details are explained in the Carter Rock Client Agreement document.

Miscellaneous
This document shall not be relied upon and is provided for informational purposes only. Before investing a client must meet the requirements as detailed in Section 5 of the Securities Act 1978 (NZ) and accept all terms and conditions stipulated by CRLs Client Agreement. CRL shall obtain significant statistical information around interest assets and counterparties before taking positions on behalf of the funds. CRL may manage assets of the Conservative/Aggressive Funds separately from its own assets and/or from assets from other investment funds managed by CRL.

About the Company


The funds are managed by Carter Rock Limited, a New Zealand registered corporation. Members of the CRL management: 1) CEO: 2) CFO: 3) COO: Alex Smith Josh Carter Rocko Chen Client relationship management, general administration. Economic advisor, financial reporting, risk management. Quantitative analyst, asset management.