Capital International Group | Kinesis

KINESIST R A D I N G A C C O U N T

CapitalInternational Group

Innovation Integrity Excellence

Outline

Flexibility

Tax PlanningFinancial Planning

Managed Investment StrategiesSelf-Select Investment Strategies

Contact Type

Kinesis is a specialist and bespoke service for professionals and the clients they advise, offering the ability to significantly enhance net returns from exposure to a huge range of securities, indices and managed strategies.

IntroducingKINESIS

Kinesis provides an alternative to direct investment, delivering equivalent returns with substantial additional benefits.

Contracts executed in a Kinesis trading account can be structured as limited liability contracts, spread bets, options, CFDs, option CFDs or any other variety of principal contract.

Expiry dates, contract types, investment options, separation of margin and trading accounts all combine to make the Kinesis Trading Account highly flexible to be tailored to a client’s exact requirements.

Kinesis can enhance an individual’s financial arrangements by becoming an integral tax planning solution that will complement a well structured and diversified investment strategy.

Principal contracts are non-income producing assets so returns are typically taxed as capital.

In addition, spread bet contracts can be particularly advantageous in certain countries where profits are deemed winnings and are therefore free of capital gains tax.

Clients can gain exposure to investment strategies managed on a discretionary basis, either by Capital International or by a third party investment managers of the clients’ choice.

Clients can gain exposure to a bespoke investment strategy selected themselves or with advice from their preferred adviser.

Instruments that can be used include collective investment schemes as well as any investment listed on an exchange.

FeesDependent on the structure and investment strategy undertaken, fees are typically made up of cost effective contract spreads and ongoing administration charges.

LiquidityNo lock in periods or exit penalties so clients can switch strategies or exit contracts at any time.

Asset SecurityAll Kinesis contracts are executed with a ring-fenced counter-party for full client security.

Flexible Margin RequirementsTypically, most Kinesis contracts have a 100% margin requirement. However, where off-setting contracts combine margin requirements can also be offset.

In addition, leverage can be included where the underlying investment can be leveraged.

CapitalFinancial Markets

The Kinesis Trading Account is an extremely efficient and effective method of gaining exposure to the performance of any underlying investment strategy without actually investing directly in the assets.

Whatever your investment objectives or investment strategy, you can achieve the same performance by executing principal contracts in a Kinesis Trading Account, with many additional benefits:

■ No direct ownership of assets – akin to trust, corporate and life policy structures

■ Flexibility – accessible, easy to trade and switch

■ Range of reference assets – open architecture so virtually unlimited universe of assets

■ Tax efficiency – choice of option, CFD, spread bet structures to suit your tax purposes

■ Bespoke structures – dependent on your needs, contracts within a Kinesis Trading Account can be tailored bespoke to your exact requirements

■ Flexibility - choice of strategy options, huge range of assets

KINESISSophisticated Financial Solutions

Many traditional principal contracts, such as CFDs and spread bets are often perceived as high risk due to high levels of leverage and limited high risk assets which are referenced. Kinesis reinvents the proposition of principal contracts so that leverage risk is removed meaning that clients know their maximum downside risk is covered by the assets in their Kinesis account (no different to a traditional investment account).

Furthermore, Kinesis enables clients to reference a diversified strategy and a virtually unlimited universe of assets meaning that the investment risk can be as low or as high risk as the client’s risk profile and appetite.


KINESISContract Types

Contracts executed in a Kinesis trading account can be structured as limited liability contracts, spread bets, options, CFD, option CFDs or any other variety of principal contract.

A contract for difference (CFD) is a contract between two parties, typically described as “buyer” and “seller”, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (If the difference is negative, then the buyer pays instead to the seller). In the Kinesis Trading Account the “seller” is Capital Financial Markets and the “buyer” is the client.

An option is a contract which gives the buyer (the owner) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. The seller has the corresponding obligation to fulfil the transaction – that is to sell or buy – if the buyer (owner) “exercises” the option. The buyer pays a premium to the seller for this right. An option which conveys to the owner the right to buy something at a specific price is referred to as a call; an option which conveys the right of the owner to sell something at a specific price is referred to as a put. Both are commonly traded, but for clarity, the call option is more frequently discussed.

Spread betting is a strategy, where participants do not actually own the underlying asset they bet on, such as a stock or commodity. Rather, spread bettors simply speculate on whether the asset’s price will rise or fall using the prices offered to them by a broker. Key characteristics of spread betting include the use of leverage (although leverage is not necessary), the ability to go both long and short, the wide variety of markets available and tax benefits.

The Kinesis Trading Account enables clients to trade any of the primary contract types above as well as other principal contract types structured on a bespoke basis.

Under all Kinesis contracts, the client lodges cash or assets as margin to the value of the maximum potential loss under their contract(s) so the counter-party can never suffer any shortfall and the client is not required to lodge further cash should asset prices move against the client.


KINESIS enables clients to reference a diversified strategy and a virtually unlimited asset universe

Kinesis contracts can be written against an almost unlimited spectrum of financial instruments either individually or as part of a portfolio strategy. Assets that can be referenced include:

■ Mutual Funds

■ Investment Trusts

■ Hedge Funds

■ Alternative Investment Funds

■ Private Equity Funds

■ FX Strategies

■ CFDs and other derivative strategies

■ ETF and other passive tracker strategies

■ Third party managed strategies

■ Structured products

■ Listed equities, included AIM and Plus markets

KINESISInvestment Strategies

Clients who are clear about their investment strategy can select their own assets to reference or they appoint their preferred financial or investment adviser to provide them with recommendations.

Alternatively for clients who prefer a discretionary managed strategy they can appoint a third party investment manager to manage the strategy referenced in their Kinesis account or indeed appoint Capital International on favourable terms.



For clients referencing multiple assets or a diversified strategy in their Kinesis account, Capital will create a bespoke index called a ‘Specialist Reference Index’.

KINESISBespoke Indices

These indices collectivise the individual assets being referenced into a single reference contract and make for much simpler administration and enables highly tailored bespoke strategies to be created.

In addition, specialised bespoke indices can also be created such as binary, straddle, strangle, floor and upside outcomes.

Like with all Capital International Group products and services Kinesis has been designed to offer clients as much flexibility as possible.

Default contract terms are typically 3 months but daily, weekly, monthly contracts are all available too on request to provide additional flexibility. The margin requirement across Kinesis contracts is also flexible providing that the counter-party can fully hedge any liability it may have to any client(s).

All contracts can be closed at any time, even prior to expiry. This means clients are not locked in and can access their capital at any time. There are no surrender penalties on the Kinesis Trading Account so positions and accounts can be closed without penalty (there may be a small closing spread factored into the closing price).

Closing positions will also reflect the liquidity of the underlying asset(s) referenced so if market conditions result in some asset(s) being illiquid, then settlement of any closing position may be delayed or may be paid in units of the underlying asset rather than cash. Again this delivers clients the flexibility to change their contracts as their circumstances change irrespective of market conditions.

While the primary aim of Kinesis is to offer clients a flexible and tailored environment for trading contracts, rather than leverage or gearing, Kinesis will facilitate leverage where required providing that the counter-party’s liabilities remain fully hedged at all times.

The large range of investment options available for referencing in Kinesis, and the variety of contract structure, provides clients and their advisers with the flexibility to create their strategy of choice.

KINESIS Flexibility

Principal contracts are non-income producing assets so returns are typically taxed as capital. Therefore by taking out a CFD or option referencing a certain investment strategy often mean that the investment return is more tax efficient than if the client invested directly. In particular any income or dividend growth from the strategy would be returned as capital.

In certain countries, such as UK and Ireland, spread betting can offer further taxation efficiencies. This is because there is an express exemption in legislation from capital gains tax on winnings from bets. Financial spread betting is betting because the client is taking exposure to risk on an uncertain future outcome, essentially staking any potential losses against the winnings that will be receive if the client has predicted the market movement of the asset(s) bet against correctly.

KINESISTax and Financial Planning

Clients who enter spread bet contracts should note that any losses incurred under a spread bet cannot be offset against gains made elsewhere.

Due to its flexibility and varied contracts, which have differing tax treatment, Kinesis can be ideal for financial planning.

The performance graph below demonstrates the benefit over time of using Kinesis spread bets to gain exposure to an investment strategy rather than wrapping the strategy in an investment bond (such as a life insurance issued personal portfolio bond) or a fund (such as an Open Ended Investment Company) or indeed when compared to simply investing in the underlying assets directly.

Comparative Investment Returns

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Notes on assumptions: ■ 7% gross return assumed of which 3% is dividends ■ Annual portfolio turnover assumed to be 30% ■ Tax rate on dividends is assumed at 37.5% and on income at 45% ■ Capital Gains Tax is assumed at 28% with capital gains tax allowances used elsewhere ■ Offshore Bond has an assumed 0.4% set up fee and 0.2% annual fee ■ Direct Investment portfolio is assumed to be on a platform with a 0.15% annual fee


KINESISAsset Security

Clients using Kinesis clearly want to ensure that their cash lodged with the counter-party is secure and they want comfort that the counter-party will deliver the profits achieved by any contract executed.

All cash paid into Kinesis is received into a segregated client money account and then applied to a ring-fenced nominee for the benefit of the client. These accounts carry segregated trust status and are 100% protected from the balance sheets of the underlying companies of the Capital International Group.

All Kinesis contracts are then executed with a ring-fenced counter-party (Capital Financial Markets, ‘CFM’) for full client security. CFM is regulated by the Isle of Man Financial Supervision Commission. In order to execute any Kinesis contract, CFM requires the client to lodge sufficient margin to cover the maximum loss of the client’s investment strategy under the contract the client selected. This means the client knows they have lodged sufficient security with CFM to cover any losses and there will be no further call on them from CFM to lodge further monies. This is the same position as if the client had invested directly in the underlying assets referenced in their contract.

Once the Kinesis contract is executed, CFM will actually hedge its liability to the client by using the monies lodged as security to purchase the underlying constituents of the strategy against which the client is referencing their Kinesis contract (unless CFM has other contracts which hedge each other in which case CFM will not need to trade in the market to hedge its exposure).

Any assets purchased for its hedging purposes are held in the name of CFM and are completely ring-fenced. Indeed, CFM’s regulatory permissions only permit the company to hold assets to back its Kinesis liabilities and its must also remain 100% hedged at all times. CFM cannot undertake any other activity. CFM is obliged to make quarterly reports to its regulator and must provide audited accounts (Auditors are currently PwC).

This means that in the event that Capital International, Capital Financial Markets or any other company within the Capital International Group, has financial difficulties the assets in CFM cannot be touched to help other businesses. Assets in CFM can only be used to discharge the company’s liabilities back to its Kinesis clients.

Therefore Kinesis clients are secure in the knowledge that there are assets backing their Kinesis contract, that CFM must always hold sufficient assets to match these liabilities and the ring-fenced structure means that the assets cannot be used for anything else apart from to pay out to Kinesis clients what they are due.


KINESISOnline ServicesAt Capital International we provide all clients with the ability to view your account online and to download it via a secure log-in so you can monitor transactions on your account as well as the value of your account as it changes over time.

Please see example screen prints below:

CG12345 - Mr A N & Mrs A N Other

Mr Andrew N & Mrs Anne N Other : Valuation Summary

Welcome Andrew Other

CG12345 - Mr A N & Mrs A N Other

Welcome Andrew Other

Mr Andrew N & Mrs Anne N Other : All Available Transactions

Date Asset Description Currency Amount Balance

28/02/2014 Winnings/Losses Close Long Spread Bet 64.9211 CFM Delta Index 28-Feb-14 GBP 2,144.40 263,939.58

28/02/2014 Open Open Long Spread Bet 64.8562 CFM Delta Index 31-May-14 GBP 0.00 263,939.58

15/04/2014 Open Open Long Spread Bet 69.081 CFM Alpha Index 15-Jul-14 GBP 0.00 263,939.58

15/04/2014 Winnings/Losses Close Long Spread Bet 69.1502 CFM Alpha Index 15-Apr-14 GBP -199.54 263,740.04

30/04/2014 Winnings/Losses Close Long Spread Bet 45.2229 CFM Gamma Index 30-Apr-14 GBP 3,728.95 267,468.99

30/04/2014 Open Open Long Spread Bet 45.1777 CFM Gamma Index 31-Jul-14 GBP 0.00 267,468.99

30/04/2014 Open Open Long Spread Bet 47.5457 CFM Beta Index 31-Jul-14 GBP 0.00 267,468.99

30/04/2014 Winnings/Losses Close Long Spread Bet 47.5933 CFM Beta Index 30-Apr-14 GBP -133.13 267,335.86

31/05/2014 Winnings/Losses Close Long Spread Bet 64.8562 CFM Delta Index 31-May-14 GBP 1,046.17 268,382.03

31/05/2014 Open Open Long Spread Bet 64.7913 CFM Delta Index 31-Aug-14 GBP 0.00 268,382.03

15/07/2014 Open Open Long Spread Bet 69.012 CFM Alpha Index 15-Oct-14 GBP 0.00 268,382.03

15/07/2014 Winnings/Losses Close Long Spread Bet 69.081 CFM Alpha Index 15-Jul-14 GBP -200.40 268,181.63

31/07/2014 Winnings/Losses Close Long Spread Bet 45.1777 CFM Gamma Index 31-Jul-14 GBP 352.25 268,533.88

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Reference Expiry Open Avg. In Price Movement Notional SBC% Margin Win/LossCFM Alpha Index 15-Jan-15 68.9431 1,054.1200 1,054.1200 0.0000 72,674.30 100% 72,674.30 0.00CFM Beta Index 31-Jan-15 47.4508 1,029.0201 1,029.0201 0.0000 48,827.83 100% 48,827.83 0.00CFM Gamma Index 31-Jan-15 45.0873 1,404.1448 1,404.1448 0.0000 63.309.10 100% 63,309.10 0.00CFM Delta Index 30-Nov-14 64.7284 1,281.4886 1,277.8503 -3.6383 82,710.65 100% 82,710.65 -235.49

Totals 267,521.88 267,621.88 -235.49

Total Cash Balance: 267.757.39Winnings/Losses: -235.49

Total Account Value: 267,521.90Margin Cash Received: 267,521.88

Available Cash Balance: 0.02

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KINESIS offers clients a flexible and tailored environment for trading contracts

KINESISFrequently Asked QuestionsWhen can clients invest into Kinesis? Applications can be made at anytime. Any new contracts may be executed immediately or, if the reference asset is open for existing contracts, it may be transacted at the next available dealing date.

What is the risk of the Kinesis service? All investments carry an element of risk. The level of risk is determined by your choice of investment strategy and it is important that you seek appropriate advice from your investment adviser before setting a strategy for your Kinesis contract. There is also a separate notice on the risks contained within Kinesis as part of the Kinesis terms. For a copy, please speak to your financial adviser or contact Capital International.

Who will clients be contracting with? Clients will open a Kinesis account with Capital International, in which they can trade principal contracts including options, CFDs and spread bets.

All contracts will be executed on the client’s instructions by Capital International with the counter-party, Capital Financial Markets (CFM). CFM is a subsidiary of Capital International and a specialist provider of principal financial contracts.

How does Kinesis work? Kinesis is a trading account in which clients can trade principal financial contracts, such as options, Contracts for Difference (CFDs) and spread bets. The asset, or portfolio of assets, which clients wish to reference under their Kinesis contract will typically be administered using a Specialist Reference Index.

Typically Kinesis contracts will operate on a 3 month term, although a variety of different terms are available on request. All contracts will, by default, roll into a new contract on the same terms.

What is a Specialist Reference Index? A Specialist Reference Index (SRI) is a bespoke investment strategy defined by an adviser or by a client or by CFM. It is then priced on a regular price and provides the basis for reference the performance of Kinesis contracts linked to the SRI.

What assets can be referenced in Kinesis? As long as CFM can trade in and value an asset we are generally willing to allow it as a reference asset within Kinesis. This allows clients and their advisers to create a strategy that exactly matches their requirements. If clients prefer for Capital International to take responsibility for your investment strategy you can take advantage of our Fusion or PRISM discretionary services managed by the Capital International investment team. For further details please contact CIL.

What about tax? Kinesis can be used as part of a tax efficient investment strategy. However, investors should consult their professional adviser on the tax consequences of using Kinesis. These consequences will vary with the law and practice of the relevant country of citizenship, residence, domicile or incorporation and with your personal circumstances. It will also depend on the type of financial contract that you elect to execute within your Kinesis account.

Currently, under UK and Irish legislation, winnings from betting, including spread betting, are free from Capital Gains Tax. In addition, no income arises from a spread bet and any winnings are therefore not subject to income tax (please note Spread Bet investors who do not have any other income and rely on professional spread betting activities as their sole income may be subject to income tax). Participants should note that Spread Bet loses cannot be offset against other CGT gains. Neither Capital International nor Capital Financial Markets offer tax advice.



What if the tax rules change? Tax rules are always subject to change. However, the longest duration Kinesis contracts end at the end of a three month period and all contracts automatically roll into a new contract on the same terms unless you request otherwise. Therefore any tax benefits are “locked in”, at the latest, every three months should tax rules change in the future.

What base currencies are available? Any tradeable asset is available for inclusion in Kinesis and it can be denominated in any currency. Where a base currency is required for reporting purposes due to a number of assets being held in different currencies, then the base currency is available in three alternative base currencies: Sterling, US Dollars, and Euro.

How do I open a Kinesis account? Opening a Kinesis account is easy. Simply complete the application form and the due diligence form, then return it to Capital International with the copy due diligence requested in the application form (i.e. certified copy passport and recent certified utility bill). If you require further information or assistance, please speak to your financial adviser or contact Capital International. Once your account is opened we will provide bank details to arrange the transfer with you in order to activate your Kinesis contract.

What is the minimum/maximum investment? The minimum investment is £75,000, $150,000, or €150,000. There is no maximum investment.

Is it possible to make subsequent contributions into Kinesis? Yes. Typically dealing occurs monthly but where more complex assets are referenced in an index, dealing may only occur on a quarterly basis.

Can encashments be made? Access to Kinesis is typically at the end of the 3 month term, although if access is required before the end of the term we will endeavour to accommodate it where possible. Encashments are made by simply sending appropriate instructions to CIL in writing. They can either forward you a cheque, arrange a BACS payment or effect a wire transfer into your bank account. Please allow a minimum of fourteen days to effect a withdrawal.

How much will Kinesis cost? Charges vary dependent on the nature of the contract required and investment strategy selected but typically include a set up fee, annual administration fee and contract spreads.

For further details please speak to a Financial Adviser.

Value Added Tax (VAT) VAT is not due on the charges.

How do I monitor performance? At the end of each contract we will send you a valuation detailing the progress of your Kinesis contract. On request, via your financial adviser, more frequent valuations may also be accessible online.

Spread Bet CounterpartyCapital Financial Markets Limited

Service ProviderCapital International Limited

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The 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]

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Capital International Group | Kinesis