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Section 4 – Investment Fundamentals

TIC Retirement Plan offers a flexible and simple choice of investment options to suit a variety of investment objectives, investment timeframes and tolerances to risk. You can invest in up to 5 investment options; please refer to page 21 for more information.

Investment Objectives & Strategy

To gain maximum benefit from your superannuation savings it is important to have the right investment strategy. This applies both when you are accumulating your superannuation and when you are drawing a pension income. With the help of your financial adviser, you can choose the investment strategy that is suitable for you in terms of your investment objectives, investment timeframe and tolerance to risk.

The investment objectives are not intended to be a forecast, but are an indication of what the investment options aim to achieve.

The TIC Plan offers the same investment options within TIC Employer Sponsored Super, TIC Personal Super and TIC Pensions. This allows you to retain a seamless investment strategy commencing in your superannuation account and continuing into your pension account.

If you have multiple TIC Plan accounts - for instance, a TIC Personal Super account and a TIC Pension account you can choose different investment options for each account.

The Relationship Between Risk and Return

The fundamental rule of investment is that the more return you desire, generally, the more risk you must take. For example, if you put all your money in a traditional bank deposit account, your return will probably be very low but you have the comfort of knowing your money will always be there. If, on the other hand, you put all your money into international shares, you might be rewarded with a high return one year, followed by a much lower return the next. In other words, your returns, particularly over the short-term, are likely to be volatile and your exposure to loss of income and capital is increased.

These same principles apply to superannuation investments.

Neither of these investments would necessarily be right or wrong for you. The ‘right’ investment depends on issues such as your age, your income, your savings, your investment objectives, and your personal preference.

The Different Types of Asset Classes

The main types of investments - also called asset classes - are Cash, Fixed Interest, Property and Shares. An additional investment class is Alternatives. Each asset class has certain characteristics which are used as part of an investment strategy.

Cash

Cash is usually the preferred asset class when you have a very short investment timeframe and want a stable return. Cash is typically defined as ‘money in the bank’ or short-term money market investments with a maturity date of less than one year.

Fixed Interest

Fixed interest or Bonds are often the core investment in conservative portfolios because of their reliable returns and lower risk, at least compared with Shares and Property. The market price of the bond varies according to movements in interest rates. If interest rates rise, then bond prices fall with a corresponding rise in yields.

Property

Property investments are investments in land and the facilities on it. Property investments can include residential property, offices, shopping centres, hotels and resorts, industrial premises, or farms. The returns from these investments are paid in the form of rental payments and capital growth. You may also be able to claim a tax deduction for the depreciation of the building and fittings.

Residential property investments are often held directly. Buying and selling property is expensive, and there are many costs to consider, including stamp duty, loan costs, valuation, and agent’s fees. It also takes time to buy and sell a property. However, direct ownership gives you full control over the property.

Another way to invest in property is to pool your money with other investors in a property fund. Rather than concentrate your investment in one or a few properties, you can use a property fund. In this instance, a fund manager buys and manages a portfolio of properties on your behalf. Some of these property funds can be traded on the sharemarket, so it is much easier to sell them for cash than to sell a property.

Property is usually a long-term investment. It is a useful asset to hold in an investment portfolio because the rental payments will generally provide a steady income and there is potential for capital growth.

Property investments are not free from risk. If the property is not let, there will be no rent paid, which will affect the flow of income. In addition, the value of properties can fall significantly, particularly in the short term. Property investments are more risky than fixed interest investments.

Shares represent part-ownership of a company. If shares are ‘listed’, it means they may be bought and sold on a securities exchange. Owning shares in a company usually entitles the investor to a proportion of the profits, distributed in the form of dividends. The total return to the investor consists of dividends (income) and increases in the share price (capital gain). Share prices can be very volatile, which means that share market investors should be prepared to invest for the longterm (generally more than seven years).

Alternatives

Alternative assets can involve exposure to the risks applying to the traditional asset classes described above. In addition, many alternative assets also involve the use of derivatives, gearing, short selling and illiquid assets.

Alternative investments can include investments by the TIC Plan into instruments issued by one or more of the service providers to the Plan, provided that such investments are made on reasonable commercial terms for the benefit of members.

Your Investment Timeframe

Superannuation is generally a longterm investment. Even when you retire, your funds may need to be invested for another 20 years or more while you draw a pension income from your savings. Over time, short-term fluctuations in investment values may become less important than longer-term investment performance.

Your investment timeframe is an important factor in selecting your investment strategy. If you are mainly concerned about protecting your capital in the shorter term, then a more defensive strategy which involves assets such as Cash or Fixed Interest investment may be more suitable. If your objective is to achieve investment growth in the longer term, investing a greater portion of your portfolio in growth investments, such as Shares or Property, may be more appropriate.

Appropriate investment timeframes are included in the investment option profiles from page 22, but they are a guide only. You should consider what is appropriate for your personal circumstances in consultation with your financial adviser.

Diversifying Investments to Spread Risk

Diversification means spreading your investments across some or all of the different asset classes to reduce the impact that a poor return in one asset class may have on your overall return.

The Different Types of Risk

There are risks in choosing to invest in superannuation. For information on risks associated with the TIC Retirement Plan see below.

The Trustee and its related entities do not guarantee the return of capital or the performance of the TIC Plan or any of the Plan’s investment options. You should be aware that, if you leave the Plan or withdraw monies from any one or more of the investment options within a few years of joining, you may get back less than the amount that you have invested because of the level of returns earned by each investment option in which you have invested (including negative returns) and the Plan’s fees and other costs.

How We Manage Risk

The managers of the investment options manage risk by selecting and monitoring investment managers with specific expertise in managing the different types of investment in each asset sector. We also manage investment risks by selecting and continuing to review the investment options so as to maximise investment returns within defined risk levels.

Risks Associated with TIC

There are risks in choosing to invest in superannuation. There are also risks in choosing particular investment options. All investments are subject to varying risks and, generally, all change in value. Different asset classes perform differently at different times.

Since each investment option has a different investment mix, the risks of investing in each investment option are different.

The sources and types of investment risk are many and varied. The following are examples of the risks that may apply to the investment options available in the TIC Plan. It is a guide only. You should seek professional advice about risks relevant to your personal situation.

Market Risk

Market risk is the risk of events which have a negative effect on the prices of all types of investments within a particular market, for example the stock market for shares or the bond market for fixed interest securities. These events may include changes in economic, social, technical, political, legal, or accounting conditions, as well as market sentiment. These factors can affect both Australian and international markets and, in particular, less developed financial markets.

Movements in investment markets will result in the value of the Plan’s underlying assets, and the value of your investment, moving up or down.

Investment Specific Risk

This is the risk that a single asset or concentrated investment made by the TIC Plan, for example an investment in a particular company’s shares or a specific portfolio, could have a significant adverse effect upon the overall performance of the Plan’s investments.

Country Risk

As the Plan’s investments have the capacity to be exposed to businesses that have some proportion of their operations outside Australia, some investments will be subject to country risk. In assessing country risk, it is appropriate that investors be aware of the potential impact on asset prices of political and sovereign risk, expropriation, and regulatory differences in enforcement of contracts especially in those countries where there is a less robust, regulatory, and investor protection network. Socio-economic issues, including cultural differences and attitudes to foreign ownership, may also impact on asset price.

Currency Risk

Investment in international markets usually involves currency risk. Currency risk is the potential for adverse movements in exchange rates to reduce the Australian dollar value of international investments. For example, if the Australian dollar falls, the value of international investments expressed in Australian dollars can increase; if the Australian dollar rises, the value of international investments can decrease. In order to protect TIC’s investments from the risks of the effects of currency fluctuation, where it is considered appropriate, investments in businesses with operations outside Australia may be fully or partially hedged.

Interest Rate Risk

Changes in interest rates can have a positive or negative impact directly or indirectly on investment value and returns. Interest rates can change due to a variety of reasons, including government policy and the outlook for inflation. For example, the cost of a company’s borrowing can increase or decrease or the interest return on a fixed interest security can make it more or less favourable.

Liquidity Risk

Liquidity risk is the extent to which investments can be converted into cash or other liquid securities without suffering a substantial reduction in value. This risk may arise in circumstances where, in order to liquidate an asset quickly, it may be necessary to sell that asset at a substantial discount and so have a negative impact on the overall performance of the Plan’s investments.

As previously stated, the TIC Diversified Australian Residential Property Fund investment option, in particular, is subject to liquidity risk.

Manager Risk

This is the risk that a fund manager engaged to manage a portfolio of assets on behalf of the Plan may suffer an unexpected loss of key personnel the consequences of which could have a negative impact upon the performance of those assets within TIC. The Trustee attempts to reduce this risk by employing a variety of different fund managers to ensure that the manager risk is diversified.

Credit Risk

This is the risk that institutions in which the Plan has invested may become insolvent and so be unable to meet their interest payments and be in a position to repay the monies invested by the TIC Plan. The Trustee attempts to reduce this risk by only investing in those institutions which, after investigation, it is ascertained have good credit ratings, competent management, and a satisfactory performance history.

Asset Risk

Within investment markets specific risks may apply to individual investment assets. For example, investment in the shares of a particular company can be affected by changes in company management, its business environment or profitability.

Derivatives Risk

Some investment options may use derivatives to reduce risk or to gain exposure to certain types of investments.

Risks involved with derivatives are that they may be more volatile and can magnify losses or gains when there is an adverse movement in underlying assets. Derivatives may be illiquid and may also create an exposure to credit risk.

Other Risks

The list is by no means exhaustive. Some other risks include:

changes to the investment managers or their investment methodology. Also, the performance of investment options may be affected by changes to the investment professionals or to the underlying investment managers.
termination of an investment option.
increase in fees for the TIC Plan or for individual investment options. (Refer to Section 2 for information regarding variations to fees).
different results from investing in an investment option compared with investing directly in the underlying assets because of income and capital gains accrued within the investment option and due to the flow of investment and withdrawals by other members.

In addition to the risks explained here, other possible influences include natural disasters, new technology, pandemic, war, and acts of terror. Clearly, these are beyond the control of the Trustee, ISARF, the TIC Plan or the fund managers employed.

Operational Risk

Risks specific to the TIC Plan, as with any other superannuation fund, include the possibility of changes to ISARF, the Plan or its internal operations such as changes to key staff involved in the management of the Plan, or failure of its systems or procedures. The Trustee seeks to minimise these risks by taking into account the best interests of members at all times when making decisions about the Plan and by having a compliance and risk management framework in place in accordance with legislative requirements. The Trustee maintains a Risk Management Plan for ISARF which is available on request.

Diversifying Investments to Spread Risk

A diversified investment that holds a cross-section of asset classes should provide a competitive return without the volatility sometimes found in pure growth investments. Inadequate diversification may increase risks associated with particular investments. Diversification means spreading your investments across some or all of the different asset classes to reduce the impact that a poor return in one asset class may have on your overall return.

Legislative Changes

Changes made to superannuation, taxation, and Social Security legislation may affect the value of your investment, your ability to access your benefits, the conditions relating to the tax treatment, and the payment of pensions offered by TIC, and your eligibility for Social Security benefits.

Setting Your Investment Profile

Investment risk is the risk of not meeting your investment objectives. The lower your risk tolerance, the more defensive your investment strategy should be. Investments which offer higher potential returns may carry a higher level of risk. For example, a member nearing retirement, who is relying on his or her investment to provide a stable income stream may be less risk tolerant than a younger member, who, with many years before retirement, can withstand short term volatility in the value of his or her superannuation account. Once you and your adviser have determined your risk profile an appropriate investment strategy may be adopted

The investment option profiles in this Section describe various risk profiles as follows:

High: May lead to volatile returns in the short term but higher returns in the longer term.

Medium: May lead to volatile returns in the short term, but with less fluctuation than high risk profiles. May offer an opportunity for higher growth than low risk in the long term.

Low: Less volatility and less likelihood of negative returns. Lower returns expected in the long term.

Automatic Rebalancing

Over time, the investments within your account may change in value at different rates until they no longer reflect the investment option allocations that you originally selected. The Trustee monitors your investment option allocation twice a year (normally in September and in March) and will ‘rebalance’ your investments if your investment allocation exceeds allowable maximum limits (please refer to the investment options on the following pages for information on any maximum investment limits that may apply). We will rebalance your investments based on the last notification we received from you about your investment option allocation. Such a rebalance may incur an Investment Switching Fee. Please refer to Section 2 for more details on when the Investment Switching Fee may be charged.

Investment Objective and Approach

The primary investment objective of the Trustee in relation to the TIC Plan is to achieve relatively high long-term returns for TIC Plan members with the minimum of market volatility and the minimum of cost.

This is achieved through the use of a combination of both an absolute return equity investment strategy, diversification across major asset classes, and a simplified multi-manager approach in order to ensure that costs and fees are kept as low as possible.

Investment Choice – Portfolio Options

Investment Choices

Within TIC you have five investment
choices:

TIC Cash Plus Fund
TIC Conservative Fund
TIC Balanced Fund
TIC Growth Fund
TIC Diversified Australian Residential Property Fund

Default Investment Choice

If you fail to make a choice, or choose not to make a choice, or just need further time to consider your options, the Trustee will invest your account balance in the TIC Balanced Fund.

Investments – Further Information

When you join the TIC Plan, we open an individual account for you. All investments (i.e. contributions, rollovers and transfers) we receive (net of taxes that apply) are invested in the investment option/s you have selected less buy/sell fees and charges that apply.

Related Parties – arrangements between Trustee and relatednparty of the Distributor

The investment manager of the TIC Diversified Australian Residential Property Fund is TIC Diversified Property Investments Pty Ltd, which is part of the same corporate group as the Distributor of the TIC Plan.

As with most of the TIC Plan’s other underlying investments in registered managed investment schemes, TIC Diversified Property Investments Pty Ltd as the investment manager of the TIC Diversified Australian Residential Property Fund may receive management and performance fees and costs in relation to the Trustee’s investment in the TIC Diversified Australian Residential Property Fund which are paid from the assets of the TIC Retirement Plan. All investments made by the Trustee into the TIC Diversified Australian Residential Property Fund are on arms’ length commercial terms and are regularly reviewed by an independent Asset Consultant appointed by the Trustee and the Trustee’s Investment Committee.

The Distributor provides distribution services to the Trustee in respect of the TIC Plan. Neither the Distributor nor TIC Diversified Property Investments Pty Ltd is the issuer of interests in ISARF or the TIC Plan and neither guarantees the capital invested by members, the performance of the TIC Diversified Australian Residential Property Fund or the TIC Plan generally.

Changes to the Investment Options

The features of the investment options, including the investment approach, selection of underlying assets, fees, investment strategy and guidelines can change. CCSL may also add or withdraw investment options, and sometimes without notice to you. Where an investment option in which you have funds invested is closed, CCSL may transfer your investment to another compatible option, which most closely matches your investment profile, if you do not provide alternative investment instructions.

Use of Financial Derivatives

Derivatives are financial contracts such as futures, forwards, swaps and options. The Trustee does not enter into any derivative contracts on its own account. It does, however, allow the investment manager to use derivative instruments to assist with the effective management of portfolio assets. The investment managers’ use of derivative securities is governed by the Trustee’s Risk Management Statement in relation to ISARF which summarises the policies the Trustee has in place covering the investment managers’ use of derivatives, controls on their use, and the process to ensure compliance with those controls.

Labour Standards and Environmental, Social and Ethical Considerations

CCSL does not take into account labour standards or environmental, social or ethical considerations when making decisions regarding the selection, retention or realisation of investments of the TIC Plan, except to the extent such considerations may financially affect an investment. While the underlying investment managers may have various policies regarding the extent to which they take into account these considerations, CCSL does not consider such factors when selecting external investment managers.

Units and Unit Prices

Buying Units

Your investment buys units in your selected investment option/s. The number of units issued to you in each investment option is calculated as the net amount of your investment in that investment option.

How Unit Prices are Calculated

Generally, we calculate unit prices for each investment option at least weekly on the last business day (in NSW) of each week. Unit prices reflect the market value of underlying assets of the investment option (less the Investment Management Fee and accruals for the Trustee Fee, expense recoveries and any taxes), divided by the number of units on issue. For more information regarding Fees and Costs refer to Section 2.

This means that unit prices will generally move up and down with the market value of the underlying investments for each investment option.

We determine the unit prices based on the most recently available information. If you request a unit price, the unit price we provide will be the most recently calculated unit price. When you invest, switch or withdraw, you will receive the unit price applicable when we receive your request.

The Value of Your Investment

The value of your investment in each investment option at any time is the number of units you hold multiplied by the withdrawal (sell) price on that day. Contributions, rollovers and transfers are credited (added) to your account balance. Any tax payable, contribution charges and withdrawals are debited (deducted) from your account balance. All benefits paid are net of any applicable tax. We will send you yearly statements showing your account balance.

Selling Units

We may sell units to pay taxes, any insurance premiums (if applicable) and fees, by deducting units from your account. We also sell units from your investment options when you withdraw or transfer to another superannuation fund. If you switch between investment options, we sell units in the investment option you are switching from, and buy units in the investment option you are switching to.

The Trustee may suspend or delay the processing of a withdrawal in certain circumstances. This may occur in the case of a large withdrawal, or in certain other situations.

Switching Between Options

Over time, your investment requirements may change and you may wish to switch your investment option/s. You may switch your account balance to any other investment option/s once each financial year and pay no switching fee (see Section 2 for details on the ‘Investment Switching Fee’). In order to make a switch, you must complete a Switching Form which can be obtained from the Plan (details on the inside front cover). Buy/sell spreads may also apply.

The Trustee may also automatically switch your investment option/s when ‘rebalancing’ your investments (see ‘Automatic Rebalancing’ in Section 4).

The Trustee reserves the right to delay or suspend the implementation of investment switches, including where unit pricing information is unavailable or unreliable, the switch involves an illiquid investment option or processing the switch would not be in the best interests of other members of the TIC Plan.

Investment Management Fee

The Investment Management Fee varies depending on your chosen investment option/s. The percentage charges are shown in the investment option profiles earlier in this Section. This fee is deducted from the earnings of the investment option before unit prices are calculated. For example, if you had a balance of $50,000 invested in the TIC Balanced Fund for a year, the reduction to Net Investment Earnings for one year due to the Investment Management Fee would be approximately $625. For further information on fees and costs please see Section 2.

Investment Managers’Transaction Costs

If the Trustee changes underlying investment managers or the asset allocation in an investment option, or changes the amount an underlying investment manager invests on behalf of the TIC Plan, transaction costs are incurred which may reduce the earnings of the relevant option before unit prices are calculated.

Please note that these estimated fees are current at the date of publication. The underlying investment managers may change their transaction costs and/or their investment manager line-up or the asset allocation of the investment option may change which may result in a change to the above fees. If the fees are to change, the Trustee will notify you as soon as possible.