### Investment risk and Standard Risk Measure

Investment risk is determined using the Standard Risk Measure (SRM), which is a guide as to the likely number of negative annual returns expected over any 20 year period. Its purpose is to provide you with a label to assist in comparing investment options.

The following table demonstrates the estimated number of negative annual returns over a 20-year period applied to determine the risk band and label.

Risk Band | Risk Label | Estimated number of negative annual returns over a 20-year peiod |
---|---|---|

1 | Very low | Less than 0.5 |

2 | Low | 0.5 to less than 1 |

3 | Low to medium | 1 to less than 2 |

4 | Medium | 2 to less than 3 |

5 | Medium to high | 3 to less than 4 |

6 | High | 4 to less than 6 |

7 | Very high | 6 or greater |

### The methodology applied to calculate the Standard Risk Measure

The Risk Band and Risk Labels disclosed in the CSCri Product Disclosure Statement apply a Standard Risk Measure.

The Standard Risk Measure is based on industry guidance to allow members to compare investment options that are expected to deliver a similar number of negative annual returns over any 20 year period. It is not a complete assessment of all forms of investment risk, for instance it does not detail what the size of a negative return could be or the potential for a positive return to be less than a member may require to meet their objectives. Members should still ensure they are comfortable with the risks associated with their chosen investment option or options.

The Standard Risk Measure (that is, the estimated number of negative return years over any 20 year period) is derived from a set of conservative, forward-looking capital market assumptions (return, volatility and correlation) for the assets classes which make up the investments of the investment option. A conservative alpha (active management) assumption is incorporated where appropriate.

These assumptions, together with the strategic asset allocation for each investment option, are used to calculate the expected return distribution for each option. This determines the estimated probability of a negative return over one year and the estimated number of negative return years in 20 for each investment option (the Standard Risk Measure).

To be conservative, we also examined the historical return time series for each of the investment options. Where relevant, our Standard Risk Measures are based on the historical proportion of negative-return years (rather than the estimates calculated using forward-looking assumptions). In this way, we try to capture the drawdown characteristics of assets, rather than their simple volatility (or return variability). The Standard Risk Measure is calculated taking investment management fees into account. It does not include administration fees and tax.

- Calculations have been made taking investment management fees into account. Administration fees have not been included to avoid unintended differentiation of identical investment options, for example, where the same investment option is offered by different superannuation funds or even by the same superannuation fund at different administration fee levels.
- Calculations do not take taxation into account. This is considered a more appropriate approach as super funds have differing assumptions about various tax issues, such as the future realisation of capital gains and franking levels. In addition, while including tax may impact on the size of a negative return it is unlikely to impact on the incidence of a negative return.
- The Standard Risk Measure is not a tool to disclose and compare fees. It does not take into account the impact of administration fees and tax on the likelihood of a negative return. Higher fees will increase the probability of a negative return.