Picture The exclusive manager of Julius Baer Funds. A member of the GAM group. Why Do Diamond...

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The exclusive manager of Julius Baer Funds. A member of the GAM group.

Why Do Diamond Traders Need A Diamond Fund?

Presentation by Stephan MuellerProduct Management & Development

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Product Idea – Key Elements

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Product InnovationWrap the most precious goods in a transparent and fully regulated fund

Diamonds as an investment theme – the worlds’ first transparent diamond fund

• Diamonds are considered a hedge against inflation, uncertainty and crisis.

• Their popularity has risen since the 19th century as an important source of liquidity with a diamond’s value not been determined by currency parity, government laws or geopolitical concerns.

• Growth pattern similar to a synthetic bond (2% p.a. – 3% p.a.), due to the diversified portfolio.

Source: PMD & PolishedPrices

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Analogies between Metals and Diamonds – SuitabilityThe selection of standardised components and quality labels are the prerequisite of product and portfolio engineering for financial assets

Selective diamond and metal segments are traded as commodities

• All segments from raw to refined diamonds cover pricing standards that facilitate the trading and valuation. But not all of them are suitable for financial assets.

• Not all standards are suitable to match the needs of the financial industry as they may not deliver the comfort level and transparency required:


Good Valuation Suitability re financial asset

Remark

Precious metal coins, medallions, semi-refined bars

Auctions, individual certifications by smelters etc.

Not suitable: implicit premiums can only be discovered from auctions

Price determination and methodology are not transparent to the public

LBMA, LPPM precious metal bullion bars

Standardised price discovery and publication via BBG/Reuters etc.

Suitable: pricing standards, good delivery rules are worldwide recognized

Every bullion bar is an individual good (fine weight, smelter, shape) but its valuation is standardised

Raw diamonds, jewellery, art pieces

Auctions, individual negotiations

Not suitable: real value can only be discovered from auctions (affection is not a price source!)

Like medallions and coins the price determination is not standardised and transparent to the public

Polished and certified diamonds with GIA, IGI, HRD international digital passport

Pricing parameters are standardised and certified by laboratories and published on BBG/Reuters

Suitable: pricing parameters, standards, good delivery rules are worldwide recognized and public

The pricing of polished and certified diamonds is transparent and can be reconciled on its standardised parameters

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Transparency & LiquidityThe combination of both is unique as the B2C market has no interest to disclose pricings and profit margins

Support & project team

• The project is supported and critically assessed by un-conflicted stakeholders from the diamond industry who bring in their particular expertise and whose independence and credibility ensures the fund is fully transparent and carries no reputational risks in relation to ‘conflict diamonds’ to realise the world’s first transparent fund on polished certified diamonds.

Transparency

• The fund follows strict rules and regulations ensuring the traceability from the source up to the purchase and trading of polished diamonds on behalf of the fund.

• The fund accounting and trading is based on the transparent methodology of ‘PolishedPrices’ an independent and transparent data provider that publishes up-to-date wholesale diamond prices and indices on Bloomberg (PLPR<GO>) and Reuters (<Diamonds/PP>).

Liquidity

• The investment objective is strictly linked to the most liquid and standardised categories of polished certified diamonds (daily availability; i.e. colour distribution, clarity, cut and carat weight).


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Product Conception & Implementation of Key Elements

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Investment FocusThe fund invests exclusively in polished certified diamonds

Restrictions in favour of the investors’ security and liquidity

• The fund provides access to polished certified diamonds that are stored in our bonded vault in Zurich.

• The cooperation with ‘PolishedPrices’ and the additional requirements for selected brokers guarantee that every link of the value chain takes on the full responsibility for the sourcing and traceability of every single diamond.

• The fund will not get involved in processing or trading rough diamonds and its concept ensures that every single diamond is certified.

• The diamond portfolio is focussed strictly on liquidity and the most promising mix of standardised, certified diamonds.


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Methodology – fair value price model

• Prices for single polished price points are based on currently traded selling prices that are weighted intraday to calculate a fair value price for every polished category, provided daily by companies in the different market centres all over the world.

• The portfolio is based on those diamond categories for which ‘PolishedPrices’ has the highest level of direct daily price feeds; i.e. official BBG ticker for every price point.


Transparency Official data feeds on Bloomberg/Reuters guarantee transparency to everyone

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The fund focuses on the most promising categories re liquidity and price stability

• The selection of core categories are based on the insight of ‘PolishedPrices’ and access the most liquid part of the standardised polished diamond market.

• The whole retail market carried retail turnover of about US$ 84 bn in 2013.

• 2/3rd of the portfolio are invested in the following categories:• Colour: F to J• Clarity: VVS1 to SI1• Cut: Excellent or Very Good• Carat Weight: 0.3 points to 2.0 carat

• 1/3rd of the portfolio is designated to select market opportunities

LiquidityAssessment of the core investment objectives


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Portfolio Management & ImplementationFully automated portfolio engine with real time link to Bloomberg/Reuters

carat_color D E F G H I J carat_clarity IF VVS1 VVS2 VS1 VS2 SI1 2 0 17,766 42,714 91,476 97,104 128,583 86,079 2 0 0 106,785 76,839 126,693 153,4051.5 0 53,280 65,712 87,024 87,136 150,624 89,952 1.5 0 13,136 144,912 92,448 100,736 182,4961 13,629 88,368 138,191 231,168 271,677 341,040 194,712 1 22,481 88,862 264,621 203,774 318,381 380,6670.90 0 16,615 20,682 40,581 43,847 60,370 39,358 0.90 0 13,469 47,895 40,176 52,504 67,4080.70 6,127 30,791 52,466 97,658 125,349 130,373 65,712 0.70 9,087 36,578 108,425 76,094 141,318 136,9740.50 14,742 70,643 82,474 141,269 155,801 185,209 130,923 0.50 28,809 96,293 158,463 118,714 198,639 180,1440.40 8,572 33,827 39,257 65,348 61,900 79,901 66,599 0.40 12,940 39,451 73,895 68,498 83,404 77,2170.30 23,075 76,579 91,277 151,837 155,050 201,661 176,730 0.30 31,117 94,368 177,498 173,437 211,171 188,618carat_color / distribution 5,018,837 carat_clarity / distribution 5,018,837

D

EFGHIJ

0

100,000

200,000

300,000

400,000

2 1.5 1 0.90 0.70 0.50 0.40 0.30

carat_color / distribution

D

E

F

G

H

I

JIF

VVS1VVS2VS1VS2SI1

0

100,000

200,000

300,000

400,000

2 2 1.5 1 0.90 0.70 0.50 0.40 0.30

carat_clarity / distribution

IF

VVS1

VVS2

VS1

VS2

SI1

All diamonds in the portfolio are 1:1 linked to the corresponding BBG Ticker for the respective category; i.e. similar to precious and industrial metals.

Changes in underlying prices are reflected real-time in the portfolio engine and trade templates to facilitate the automated daily flow handling.


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Systematic Exclusion of Conflict DiamondsStrict procedures and controls to ensure proper sourcing of all diamonds

Prosperity diamonds only with approved certification

• The fund will under no circumstances get involved in processing or trading rough diamonds but will strictly invest in certified diamonds only.

• All diamonds purchased are accompanied by certificates from Gem Laboratories*: GIA, IGI, HRD or AGS.

Source: PMD; *GIA = Gemmological Institute of America, IGI = International Gemmological Institute, HRD = Hoge Raad voor Diamant Antwerp,AGS = American Gem Society Laboratories

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Inventory Reports – Similar to Metal CustodyCustomized logistics to provide state of the art vaulting and reconciliation

Source: PMD & BRINKS

Every diamond is reported as a unique part of the funds portfolio

• Based on the GEM certification, every diamond is scanned with its specific parameters.

• Reconciliation, internal and external auditors as well as the portfolio management can rely on the inventory report.

• Every change of the inventory is reported by end of each business day.

Audit SOP in relation to physical handling (Standard Operation Process)

• Auditors and GEM experts can physically examine the portfolio holdings on site.

• In order to avoid conflicts of liability custom made SOP have been developed and implemented with special regard to the needs of internal and external audits.

Sample of inventory report

Barcode number

Stone number

GIA Report Number

Shape and cutting style Measurements Weight Depth Table Girdle Cullet

Finish Polish

Finish Symetry Clarity Colour Flouresence

1111111111 BS001 123456789 Round Brilliant6.90-6.97 x 4.20mm 1.25 carat 60% 61%

Medium to slightly thick, faceted Very small Verg good Very Good VS1 F None

1111111112 BS002 123456790 Round Brilliant6.90-6.97 x 4.20mm 1.25 carat 60% 61%

Medium to slightly thick, faceted Very small Verg good Very Good VS2 F None

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Investment Characteristics

Long-term Stable Growth Diamonds show a stable growth between 2% p.a. to 3% p.a.Uncorrelated to equities, fixed income, currencies and other asset classes


Key to investors is to access diamonds through a regulated and transparent fund.

Diamonds short in supply soonWidening supply gap implies substantial price increase going forward, as already seen for the last four years

The left-hand chart aggregates rough production data. A majority of mining companies have been reporting a stagnation of output since several years. Some of the expected shortfall can be met by adding new mining capacity but the whole supply gap cannot be closed.

The shortfall in supply will lead to both, less available stones for the cutting centres, and an expected price increase of polished stones (right-hand chart).


16 Source: PMD & PolishedPrices

Summary

• The fund invests in the most liquid and standardised part of the polished diamond market; similar to precious and industrial metals.

• Conflict diamonds are systematically excluded, i.e.:- no involvement in sourcing or trading rough diamonds and - all polished diamonds purchased are accompanied by certificates from reputable gemmological laboratories and can be traced to the source.

• The fund carries maximum transparency as all prices are based on actual traded prices that are provided daily by contractual brokers in the different market centres all over the world. The price feeds/constituants are contributed on Bloomberg, Reuters and are publically available.

• «Real Assets» such as metals and diamonds will be in demand once the “reflation” trade of central banks has to be unwound.

Investment Characteristics

• Un-correlated to EQ, FI, FX and commodities.

• Growth pattern similar to a synthetic bond (2% p.a. – 3% p.a.) due to the diversified portfolio.

• Positive performance in the commodity and equity sell-off periods from 2008 – 2014.

Executive SummaryWrap the most precious goods in a transparent and fully regulated fund

This document is destined exclusively for internal use by intermediaries appointed by Swiss & Global Asset Management and/or institutional or qualified investors and shall not be passed on to third parties. Particularly, this document shall not be used as advertising material for public distribution or any other kind of public offering of funds, their sub-funds or share categories. The responsibility for the further use of fund descriptions contained in this document lies solely with the intermediary.

The information in this document is given for information purposes only and does not qualify as investment advice. No liability is assumed for the accuracy and completeness of the information. Opinions and assessments contained in this document may change and reflect the point of view of Swiss & Global Asset Management in the current economic environment. This document qualifies as marketing material. Investments should only be made after a thorough reading of the current prospectus and/or the fund regulations, the Key Investor Information Document “KIID”, the articles of association, and the current annual and semi-annual reports (the “legal documents”), as well as after consulting an independent finance and tax specialist. The legal documents can be obtained in hard copy and free of charge by calling [+41 58 426 60 00] or from the addresses indicated below. The value of the units and the return they generate can go down as well as up. They both are affected by market volatility and by fluctuations in exchange rates. Swiss & Global Asset Management does not assume any liability for possible losses. The performance of past values and returns is no indicator of their current or future development. The performance of values and returns does not include the fees and costs which may be charged when buying, selling and/or switching units. Swiss & Global Asset Management is not a member of the Julius Baer Group. EU-harmonized funds qualifying as Part I funds of the Luxembourg law (Undertakings for Collective Investment in Transferable Securities, UCITS) are, as a general rule, registered for public offering in Luxembourg. Due to the different registration proceedings, no guarantee can be given that each fund, sub-fund or share category is or will be registered in every jurisdiction and at the same time. Namely the funds of funds are registered exclusively in some of the countries. You find an up-to-date registration list, on www.jbfundnet.com. As far as UCITS are registered for public offering in other countries, please refer to the country-specific information indicated below. Non-harmonised funds („non-UCITS“), such as funds under Swiss law, specialised investment funds („SIF“) as well as Part II funds under Luxembourg law, may not be eligible for sale in all jurisdictions or to certain categories of investors. Please note that in any jurisdiction where a fund, sub-fund or share category is not registered for public offering, they may, subject to the applicable local regulation, only be sold in the course of private placement or institutional investments. Particularly, the funds are not registered and, therefore, may not be offered for sale or be sold in the United States of America and their dependencies.

Particularities regarding Switzerland

The legal documents can be obtained in German, free of charge, from the following addresses: Funds according to Swiss law: Fund Management Company is Swiss & Global Asset Management Ltd., Hardstrasse 201, P.O. Box, CH-8037 Zurich, custodian bank is Bank Julius Bär & Co. AG, Bahnhofstrasse 36, Postfach, CH-8010 Zurich or RBC Investor Services Bank S.A., Esch-sur-Alzette, Zurich Branch, Badenerstrasse 567, CH-8048 Zurich or Royal Bank of Canada (Suisse) SA, Rue François-Diday 6, CH-1204 Geneva or State Street Bank GmbH, München, Zurich branch, Beethovenstrasse 19, CH-8002 Zurich. Funds domiciled in Switzerland are admitted for public distribution and offering exclusively in Switzerland. Representative in Switzerland for funds according to Luxembourg law: Swiss & Global Asset Management Ltd., Hardstrasse 201, Postfach, CH-8037 Zurich. Paying Agent: Bank Julius Baer & Co. AG, Bahnhofstrasse 36, Postfach, CH-8010 Zurich.

Particularities regarding GermanyThe legal documents can be obtained in German, free of charge, from the information agent. Paying Agent is DekaBank Deutsche Girozentrale, Hahnstrasse 55, D-60528 Frankfurt am Main; Information Agent is Swiss & Global Asset Management Kapital AG, Taunusanlage 15, D-60325 Frankfurt am Main.

Particularities regarding AustriaThe legal documents can be obtained in German, free of charge, from the paying and information agent: Erste Bank der oesterreichischen Sparkassen AG, Graben 21, A-1010 Vienna.

Particularities regarding the United KingdomAs far as UCITS domiciled in Luxembourg described herein are recognised schemes under section 264 of the Financial Services and Markets Act 2000: Facilities Agent is GAM Sterling Management Limited, 20 King Street, London SW1Y 6QY. Copies of the legal documents can be obtained in English, free of charge, from the Facilities Agent or by Swiss & Global Asset Management (Luxembourg) S.A. - UK Branch, UK Establishment No. BR014702, 20 King Street, London SW1Y 6QY (authorised and regulated by the Financial Conduct Authority). Investments in the funds are not protected by the Financial Services Compensation Scheme.

Particularities regarding SpainThe legal documents can be obtained in Spanish, free of charge, on the internet at www.jbfundnet.com. Registration number of the CNMV: Julius Baer Multibond (No. 200), Julius Baer Multicash (No. 201), Julius Baer Multistock (No. 202), Julius Baer Multicooperation (No. 298), Julius Baer Multipartner (No. 421) and Julius Baer Special Funds (No. 1131).

Particularities regarding the Asia Pacific regionThe funds mentioned herein are not authorised or registered for public sale in Asia Pacific. Therefore, no public marketing must be carried out for it in the region. In Hong Kong, the document is restricted to professional investors (as defined in the Securities and Futures Ordinance (Cap. 571)) only. In Singapore, this material is limited to investors as defined in s. 305(5) of the Securities and Futures Act (Cap. 289)) ('SFA') only. The fund is not authorized by the Monetary Authority of Singapore and Shares in the fund are not allowed to be offered to the retail public in Singapore; and any written material issued in connection with the offer is not a prospectus as defined in the SFA and, accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. This document may not be circulated or distributed to persons in Singapore other than (i) to an institutional investor specified in Section 304 of the SFA, (ii) to a relevant person, or any person pursuant to Section 305(2), and in accordance with the conditions, specified in Section 305 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. In Japan, the funds mentioned herein are not registered for public sale or private placement pursuant to the Law on Investment Trusts and Investment Companies and shall not be disclosed publicly pursuant to the Financial Instruments and Exchange Law (the "FIEL"). Therefore, none of the Shares of the funds mentioned herein may be solicited in Japan or to residents in Japan. This material is intended for circulation to professional, institutional and/or qualified investors only. Any person in receipt of this material is not allowed to distribute it to residents in Japan nor communicate to residents in Japan about the fund mentioned herein. In other countries in Asia Pacific, this document is intended only for circulation to professional, institutional and/or qualified investors (as defined in the jurisdiction of the reader).

Copyright © 2014 Swiss & Global Asset Management Ltd. – all rights reserved

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