July 2014

The 1st Dollar Fund offer in Sri Lanka

CEYLONBOND FUND

INFORMATION MEMORANDUM

Page 01

Ceylon Dollar Bond Fund

The Pioneering Dollar Denominated Unit Trust Fund in Sri Lanka

Licensed by

Fund Manager

Ceylon Asset Management is anAssociate Company of

Audited by

Securities and Exchange Commission of Sri Lanka

281, Union Place, Colombo 02, Sri Lanka.Tel: +94 11 739 4000 Fax: +94 11 739 4007E-mail: info@ceylonam.comWeb: www.ceylonam.com

Trustee and Custodian

Page 02

“Sri Lanka to grow at 7.5% in 2014, the fastest growing economy in South Asia...”

- ADB - www.adb.org

“Sri Lankan economy stable & set to grow over 7%”- IMF - www.imf.org

“Trade deficit narrows by 47.9% in May 2014”- Central Bank of Sri Lanka - www.cbsl.gov.lk

“France’s Coface lists Sri Lanka among 10 emerging countries hot on the heels of BRICS”

www.ft.lk - April 29, 2014

“Fitch affirms Sri Lanka at 'BB-'; Outlook Stable”www.reuters.com - April 28, 2014

“Will place Sri Lanka on the global toursim map”Mr. Greg Dogan, President & CEO, Shangri-La Hotels & Resorts

500 room Shangri-La hotel under construction, scheduled to open in 2016 - 17

“Sri Lanka’s time to shine in Asia”James Packer- Opening Crown Casino & Mixed Development in 2016 - 17

Page 03

The "Independent Square Arcade" in Sri Lanka was constructed by converting the old office complex of Auditor General's Department into an upmarket shopping mall under

the phase two of Independence Square renovation project.

The Ceylon Dollar Bond Fund is an open-ended fund that offers US

Dollar returns by investing in Sri Lankan sovereign bonds, bank and

corporate dollar bonds, rated by an international rating agency and

listed on a recognised global stock exchange.

The fund risk is currently limited to sovereign risk and bank guaranteed

risk whilst avoiding exposure to Sri Lankan rupee currency risk.

The fund is dollar denominated while capital and income can be

repatriated freely in foreign currency to the investors’ bank account by

the Trustee and Custodian Bank.

Investment Plan Invests in “rated”, interest bearing, US Dollar denominated Sri Lankan sovereign bonds, bank bonds and bank deposits.

Nature of Fund Open-ended unit trust offering units on a daily basis.

Issue of Units The manager shall have the absolute discretion to accept or decline any application for units.

Original Issue Price of a Unit US$ 1.00

Minimum Investment US$ 1,000 /-

Front End Fee 0.1%

Management Fee 0.25% per annum (p.a.) of assets under management.

Trustee & Custodian Fee 0.165% p.a. of assets under management.

TaxationAll income distributions and capital gains on units are tax-free to investors.

RepatriationAll capital and interest earned can be repatriated overseas without restrictions.

Eligible Investors

– Companies registered outside Sri Lanka– International fund managers – Companies approved by the Board of Investments of Sri Lanka (BOI)– Individuals with foreign passports

Exit Fee Nil

The offer at a glance

Page 04

Sovereign Dollar Bonds issued by Sri Lanka

Sri Lanka’s debut international sovereign bond for US$ 500 million with a five year maturity and a coupon rate of

8.25% per annum was oversubscribed by over three (03) times. 2007The second international sovereign bond for US$ 500 million with a five year maturity and a coupon of 7.40% per

annum was oversubscribed by thirteen (13) times. This was the first international offering following the end of the

thirty year old internal conflict.

The net proceeds of both bond issues were utilised by the Government of Sri Lanka to supplement available concessional funds to

develop infrastructure projects that have been previously approved by the Government and included in the 2007 and 2009 Budgets,

including in areas such as electricity generation, water supply, roads, ports, roads and railways development.

2009

Global investors’ demand exceeded over US$ 6 billion for the Sri Lankan sovereign bond issue of US$ 1 billion,

being over-subscribed by more than six (06) times.

Sri Lanka finalised a US$ 1 billion 10 year sovereign bond issue with a coupon rate of 6.25% on 27 September 2010. Orders were

received from 362 investors globally.

2010

Successfully launched and priced a US$ 1 billion 10-year international sovereign bond issue at a yield of 5.875%

per annum.

Fitch Ratings, Moody's Investors Service and Standard and Poor’s have rated the issue at 'BB-' with a stable outlook, ‘B1’ with positive

outlook and ‘B+' with a stable outlook respectively.

2012

On 06th January 2014, a 5-year US$ 1 billion international sovereign bond was offered at 6% to the international

market and was oversubscribed by 3.2 times receiving US$ 3.2 billion from 200 accounts.2014On 07th April 2014, Sri Lanka issued another US$ 500 million at the lowest yield of 5.125% per annum among all

five-year international sovereign bond issuances to date as a result of the heavy demand worth US$ 4.2 billion.

Sri Lanka successfully launched a US$ 1 billion 10-year global bond offering at a fixed-rate yield of 6.25%,

representing its fourth US Dollar benchmark offering in the global bond markets since 2007. 2011

USA 62%

EU 26%

Asia 12%

January 2014

USA 46%

EU 22%

Asia 32%

April 2014

Source of Global Investor Fundsfor Sovereign Bond Issues

Page 05

The Central Bank of Sri Lanka relaxed guidelines to enable licensed commercial and specialised banks in the country to issue dollar bonds to

foreign investors. As a result, several commercial banks raised US$ 1.35 billion in international markets during the year 2013.

SEPTEMBER 2013Rated “BB-” by Fitch RatingsState-run National Savings Bank (NSB) issued a dollar bond in

September 2013 and successfully raised US$ 750 million at 8.875%.

The issue was oversubscribed by 6.8 times.

National Savings Bank is the premier Licensed Specialised Bank in Sri

Lanka owned by the Government of Sri Lanka (GOSL). It is the only

bank whose deposits are fully guaranteed by the GOSL as expressed

explicitly in the statute governing the Bank: 'The repayment of the

monies deposited in the bank and of the interest thereon and the

payment due on the surrender of a savings certificate shall be

guaranteed by the GOSL.' (NSB Act No.30 of 1971, Section 18:

Guarantee by the GOSL).

OCTOBER 2013Rated “B-” by Fitch Ratings

Development Finance Corporation of Ceylon (DFCC Bank) launched a

five year dollar denominated bond in international markets, raising US$

100 million at a rate of 9.625%.

The DFCC Banking Business attempts to create synergies through

integrated banking. The bank offers a seamless gamut of financial

solutions by integrating the expertise of a pioneer development bank

and the energy of a dynamic commercial bank. DFCC Bank,

incorporated by an Act of Parliament in 1955 is the country’s first

specialised development bank.

APRIL 2013Rated “BB-” by Fitch RatingsRated “B1” by Moodys

Sri Lanka's largest lender, sold a US$ 500 million 5-year bond at

5.325% attracting two billion dollars in orders from 140 European and

Asian based investors.

Lead managed by UBS, the bank initially went to the market for US$

300 million but sold US$ 500 million, after it was oversubscribed by

6.8 times.

Asian investors had taken 74 percent of the bond with rest being sold

to investors in Europe. It was not marketed to investors based in the

US. Bank of America Merrill Lynch, Citi and HSBC were the Joint Lead

Managers and 'book runners' for the issue.

APRIL 2012Rated “BB-” by Fitch Ratings Rated “B1” by Moodys

Bank of Ceylon raised US$ 500 million through a five-year bond, Sri

Lanka's first non-sovereign debt offering since 2004 and the latest

illustration of the country's financial progress since the end of a

protracted civil war.

The state-owned commercial bank priced the bond at par to yield

6.875%, a much lower yield than expected, after attracting US$ 3.86

billion in orders from 215 accounts. Initial guidance had suggested a

yield of around 7.125%.

Dollar Bonds Issued by Licensed Banks in Sri Lanka

Page 06

The 5-year government guaranteed international bond by Sri Lankan

Airlines (SLA) has been rated ‘B+’, the same as Sri Lanka’s sovereign

rating by Standard & Poor’s and ‘BB-(EXP)’ by Fitch Ratings, due to

the unconditional and irrevocable guarantee provided by the

Government. The Sri Lankan Government holds 92% of SLA directly

and 7% indirectly through State-owned entities.

The bonds constitute direct, unsubordinated, and unsecured

obligations of SLA. The proceeds of the issuance are to be used to

acquire aircrafts and as working capital. Sri Lankan Airlines has

ordered a fleet of new A300 and A350 aircrafts from Airbus.

SLA is the national airline of Sri Lanka and has a 54% market share of

travellers to and from the island. Passenger numbers have increased

to 4.3 million in 2013 from 2.6 million in 2010.

Rating sensitivities: Negative - Future developments that may lead to

negative rating action include a downgrade of Sri Lanka’s sovereign

ratings; Positive - Future developments that may lead to positive rating

action include an upgrade of Sri Lanka’s sovereign ratings.

Source : www.dailynews.lk/www.ft.lk

Dollar Bond Issued by Sri Lankan Airlines

Page 07

The Sri Lanka Economy

The Sri Lanka economy grew 7.3% in 2013 due to the high growth

rates recorded by the provinces responding to peace. The

accelerated infrastructure roll-out in highways, ports, airports, energy

and urban development have created the platform for growth. As a

result, the Construction, Tourism and Banking sectors have been

growing rapidly over the last four years.

The trade deficit has narrowed dramatically by 47.9% in May 2014 as

a result of reducing imports and fast growing exports to enable the

rupee to stabilise. Containing the budget deficit to 5.9% in 2013 and

reduction of inflation to 4.7% in 2013 has resulted in 1-year treasury

bill rates declining from 10.85% in June 2013 to 6.79% in July 2014.

Analysts expect low interest rates to boost the economy to achieve

the target GDP growth rates of around 7% per annum over the next 5

years.

The opening of Shangri-La and Crown Casino in 2016, together with

Colombo regeneration as a lake and garden city is expected to attract

regional tourists. Fuel bunkering at the Hambanthota Port and the

exploration for off-shore gas and oil are some areas of opportunity

currently unaccounted for as Sri Lanka strives to achieve regional hub

status for South Asia in ports and tourism.

Sri Lanka economic goals for 2016:

– US$ 4,000 per capita income (US$ 100 billion GDP by 2016)

– GDP Growth above 8% p.a. on average

– ICT Literacy rate to increase to 75% from 30% at present

– 2.5 Million tourist arrivals and US$ 3 billion revenue

326

576

830

1,000

1,800

0

500

1,000

1,500

2,000

2009 2010 2011 2012 2013

Tourism Revenue (US$ Mn.)

448

654

856

1,006

1,275

0

200

400

600

800

1000

1200

1400

2009 2010 2011 2012 2013

Tourist Arrivals ('000)

Page 08

Source: Central Bank of Sri Lanka

Growth rebounded last year from a slowdown in 2012, and the

current account deficit narrowed substantially. As inflation eased, the

central bank relaxed its monetary policy. The outlook is for sustained

rapid growth leveraging easy private access to credit and the

government’s continued drive to expand infrastructure. An improving

external environment will lift trade, but the current account deficit will

expand on higher imports. Fiscal consolidation will focus on revenue

enhancement.

ECONOMIC PERFORMANCE

GDP growth by sector

GDP growth rebounded to 7.3% in 2013. The recovery reflected

domestic demand strengthening and a pickup in exports and tourism.

Faster growth in the wholesale and retail trade, hotels and restaurants,

transport, banking, insurance, and real estate lifted performance in the

large service sector to 6.4% from 4.6% a year earlier, providing the

impetus for the rebound. The industry grew by 9.9%, slightly less than

a year earlier, as slower growth in mining and quarrying and in

construction offset a pickup in manufacturing and utilities. Favourable

weather helped maintain agriculture growth at a relatively favourable

4.7%.

Inflation

Inflation trended downwards in 2013, averaging 6.9% for the year.

Food inflation was at about 12% during the first quarter, as drought late

in 2012 had disrupted domestic food supplies, but then dropped

markedly to 0.9% in February 2014. Non-food inflation also moved

lower over the year but picked up to 7.1% in January 2014 with large

increases in communications and transport prices during that month.

Economic Overview - Sri Lanka, Asian Development Bank

Fiscal indicators

The 2013 fiscal deficit is estimated at 5.8% of GDP, in line with the

target. The target was hit, despite unexpectedly weak revenues, by

compressing current expenditure. Capital expenditure was largely

maintained but was again slightly below the target of 6% of GDP.

Revenue including grants is estimated at 13.8% of GDP, lower than

both the budget and the 2012 performance. The shortfall in revenue

partly reflected measures that curbed certain imports such as automo-

biles, which suppressed value-added tax (VAT) collections and

import-related taxes.

Agriculture Industry Services Gross domestic product

Source: Department of Census and Statistics Sri Lanka.

FebJanJan JanJan Jan

OverallOtherFood

Source: Department of Census and Statistics Sri Lanka.

Tax revenueNontax revenueGrants

Budget balance

Investment & net lendingRecurrent expenditureDomestic financingForeign financing

SLRs trillion

Budgetestimate

Source: Annual Report

Page 09

Exchange rates

After the sharp depreciation of the Sri Lankan rupee in the early

months of 2012, when the exchange rate was allowed to float, the

currency has been broadly stable against the US dollar. Foreign

investors’ exit from emerging markets in mid-2013 had only a modest

and temporary effect on the exchange rate. The rupee depreciated

against the dollar by only 1.9% over 2013. The real effective exchange

rate has risen markedly since April 2012, essentially moving back to

the rate prevailing prior to the decision to let the currency float.

Page 10

The ratio of government debt to GDP fell to 78.4% in September 2013

from 79.1% in 2012. Debt composition is changing with the gradual

move towards market and non-concessional instruments, with foreign

investment in government securities, and with the rise in income as a

middle-income country.

Credit growth and interest rates

To address weak growth, which was evident in 2012, the Central

Bank of Sri Lanka relaxed its monetary stance for 2013, which was

facilitated by a declining trend in inflation during the year. The bank

began its relaxation in mid-December 2012 by cutting policy rates by

25 basis points and continued in May and October 2013 with rate

reductions of 50 points in each adjustment. Commercial bank lending

interest rates declined markedly during the year from 14.3% in January

2013 to 9.9% in December. However, credit to the private sector

continued to decelerate, with year-on-year growth slowing to 7.5% in

December 2013 from 17.6% at the end of 2012.

Current account components

Exports and imports both posted positive growth only in the second

half of 2013, following weakness a year earlier. Export earnings

increased by 6.3% for the year to US$ 10.4 billion, reflecting the

gradual recovery of demand in partner countries, with garment exports

increasing by 13.0% and agricultural exports, mostly tea, advancing

by 10.7%. Imports, on the other hand, declined by 6.2% during 2013

to US$ 18 billion as a result of the less demand for oil, the policy

measures adopted in 2012 to rationalise imports, and the subdued

commodity prices in international markets. Most of the fall was due to

reduced imports of transport equipment by 32.7% and fuel by 14.7%.

The trade deficit fell to 11.4% of GDP, a marked decline of 4.4

percentage points from 2012.

The tourism boom continued in 2013 with the number of visitors

growing by 27% to reach 1.2 million and earnings expanding by 35%

to US$ 1.4 billion. Tourist arrivals from the People’s Republic of China

and the Russian Federation increased significantly, but Western

Europe continued to be a large source of visitors. Workers’

remittances expanded by 13% to $6.8 billion in 2013. The main

factors boosting

Government debt

ForeignDomestic

Sep

Source:

Economic Overview – Sri Lanka, Asian Development Bank

Government sectorcredit growth

Private sectorcredit growth

JanJulJanJulJan

Weighted averageprime lending rate

Repurchase rateReverse-repurchase rate

Source: Central Bank of Sri Lanka. Weekly Economic

Monthly average

naJ luJ ceDnaJ luJnaJ luJ

Source: Central Bank of Sri Lanka. http://www.cbsl.lk

Contd.

ECONOMIC PROSPECTSAn improving external environment, higher investments, and a

recovery in domestic consumption will sustain a rapid pace of GDP

growth in during the next 2 years. The recent relaxation in the

monetary policy will allow more lending to the private sector and

provide an impetus for expansion. Sri Lanka’s post-conflict growth has

been buoyed by construction, which has increased its share of GDP

from 6.6% in 2009 to 8.1% in 2012, and by transport and

telecommunications, its share up from 12.8% to 14.3% in the same

period. The government’s focus on infrastructure and post conflict

reconstruction and development has supported this expansion and

will continue to drive growth in the medium term. The expansion in

tourism and related construction has been noteworthy and is reflected

in hotel and restaurant expansion, though modest scale limits the

contribution to growth. As tourist numbers continue to rise rapidly and

large hotel projects in the pipeline open their doors, economic growth

and foreign exchange earnings from tourism will continue to be

buoyant over the next several years.

On the demand side, the investment ratio improved from 28% in 2010

to 31% in 2013. This gradual gain reflects the government’s

infrastructure drive and the expansion in construction. The monetary

policy relaxation will start to take effect on private sector credit around

mid-2014 and continue in 2015, facilitating private investment.

Moreover, foreign direct investment is expected to continue to expand

as the economy strengthens and the investment climate improves.

Exports, having recovered since mid-2013, will continue to expand.

With these factors pushing up income, private consumption will pick

up after slowing down in 2013 and will contribute significantly to higher

growth.

Growth is thus expected to accelerate to 7.5% in 2014 and maintain

that rate in 2015. While high inflation has been a problem in the past,

it has been contained below 10% since 2009. Inflation is expected to

remain in the middle single digits in 2014 and 2015. Broadly stable

international fuel and food prices will help to keep inflation in check

over the next 2 years, assuming normal weather conditions. While

high inflation in the past has been attributed to government’s

borrowing from banks, among other things, improved fiscal discipline

and a falling fiscal deficit have eased such inflationary pressures in

recent years. As the pace of economic growth picks up, the central

bank will use monetary policy to keep inflation acceptable. In January

2014, the bank compressed the policy rate corridor, now renamed the

standing rate corridor, to reduce variability in the transmission of its

policy intentions, and then continued with monetary easing. The

standing lending facility rate (the upper band) was cut by 50 basis

points to 8.0%, narrowing the corridor to 150 basis points from 200.

Credit to the private sector, which decelerated throughout 2013, will

remittance inflows were increased labour migration under the profes-

sional and skilled category, the expansion of formal channels for

remitting money, and the introduction of a swift web-based money

transfer system. These earnings held the current account deficit to an

estimated US$ 1.4 billion, which is an estimated 2.0% of GDP and a

marked improvement on the 6.6% deficit seen a year earlier.

Portfolio investments recorded a net inflow of US$ 269.9 million for the

year, of which about half went into the Colombo Stock Exchange in

the form of secondary market transactions. Foreigners’ monthly net

purchases on the exchange were broadly stable throughout the year.

Foreign direct investment increased by 42% to US$ 870.1 millionin

the first 9 months of 2013 from the corresponding period in 2012.

Financial account net inflows brought the balance of payments surplus

to an estimated US$ 700 million. Consequently, Sri Lanka’s gross

official reserves increased to US$7.2 billion in December 2013, equal

to 4.5 months of imports.

Gross official reserves

Services balanceExportsImportsIncome balanceCurrent account balance

Current transfers

Source: Annual Report

DecJanJanJanJanJan

Months of imports

Import coverAmount

Source: Central Bank of Sri Lanka. Weekly Economic Indicators.

Economic Overview – Sri Lanka, Asian Development Bank

Page 11

Contd.

Page 12

POLICY CHALLENGE - BOOSTING FISCAL REVENUESGovernment finance

GDP share of tax revenue

Sri Lanka has been focusing on fiscal consolidation and has been

taking many steps in recent years to improve revenue collection.

However, the revenue ratio excluding grants remains low, at 13.6% of

GDP in 2013.

In fact, it has fallen over the past few years, underperforming its target

each year. As the government continues its fiscal consolidation,

reversing the revenue ratio’s declining trend is critical.

The main cause for the erosion of the revenue ratio has been the VAT,

which accounts for 25% of tax revenue. VAT revenue has declined

from 5.8% of GDP in 2004 to 2.7% of GDP in 2012. The VAT was

introduced in 2002, replacing the goods and services tax with rates of

0%, 10%, and 20%. There are many exemptions: food such as rice,

wheat, tea, and domestically produced sugar; machinery, including

expand in 2014 by 16%, according to central bank projections.

However, broad money is expected to grow at a slower pace as credit

demand from the public sector declines. Average inflation in 2014 is

expected to fall to 5.0% from 6.9% in 2013, and then accelerate

slightly to 6.0% in 2015. The fiscal deficit steadily shrank to 5.8% of

GDP in 2013 from a peak of 9.9% in 2009. The government has

deployed both revenue measures and expenditure reduction to

narrow the deficit. However, the revenue ratio - tax collections as a

percentage of GDP - has not picked up as expected, so deficit

reduction has been achieved mainly by rationalizing expenditure. The

government expects the deficit to narrow further over the medium

term. The 2014 budget estimates the deficit at 5.2%, with a higher

revenue ratio and expansive 16% growth in expenditure. Better

economic performance and more imports will catalyse higher revenue

collection in 2014 and 2015, but continued policy action is also

needed, together with improved revenue administration, to achieve a

higher revenue ratio. Some measures are being introduced through

the 2014 budget to broaden the revenue base, such as expanding

the nation building tax to the financial sector and lowering the VAT

threshold for retail and wholesale trade. The nation building tax is an

indirect tax that has been levied since 2009 to help finance the

rehabilitation of conflict damage; it is passed on in the price of goods

or services sold.

One risk to achieving the targeted revenue ratio is that the measures

to expand the revenue base may take effect more slowly than

anticipated. If revenue collection is lower than anticipated, the capital

budget will be hard pressed to meet its target of 6%-7% of GDP, as

expenditure rationalization is already substantial in the 2014 budget

and 2015 projections.

Exports are expected to strengthen with better economic

performance in the European Union and the US, Sri Lanka’s main

export destinations. After declining in 2013, imports will pick up in

2014 as domestic demand normalizes. However, policy measures

taken to limit food imports to support local production will affect

imports in the medium term. Measures that helped improve remittanc-

es will continue to bolster such inflows in 2014 and 2015. The current

account deficit is projected to widen from an estimated 2.0% in 2013

to 2.6% in 2014 and 3.5% in the following year.

Current account indicators

Current account balance

Forecast

ImportsExports

Note:Source: Annual Report

Budgetestimate

Budget deficit

Revenue excluding grantsExpenditure

Source: Annual Report

Economic Overview – Sri Lanka, Asian Development BankContd.

that for agriculture and construction; and other items such as crude

oil, diesel, kerosene, liquefied petroleum gas, electricity, and public

transportation. The VAT Act has been amended many times since

2002, mainly to improve collection. However, VAT collection has

relentlessly declined, affected by exemptions, the unification of the

rate at 12% in 2011, and the poor performance of imports since 2009.

In the context of faster growth reached in the post-conflict years and

increased income per capita, the low revenue ratio implies that

revenue generation has not kept pace with the rising capacity of the

population to pay. Average tax buoyancy—how well revenue mobiliza-

tion tracks GDP growth—has hovered for the past 5 years at 0.78,

which is significantly below unity. This indicates that tax collection has

been unresponsive to the pace of economic expansion. A study

released in 2013 by the International Monetary Fund entitled Under-

standing Countries’ Tax Effort estimates Sri Lanka’s tax capacity at

21.9% of GDP, one of the lowest in South Asia. This suggests that

strengthening institutions and improving administration can increase

tax capacity. With regard to efforts at fiscal consolidation, so far the

reduction in the deficit has come about mainly by rationalizing expendi-

ture. However, improving the revenue ratio is key to reining in the fiscal

deficit to a sustainable level and ensuring that public investment is not

curtailed. As interest payments are a large drain on Sri Lanka’s budget,

higher revenue collection will contribute to lowering the borrowing

requirement and future borrowing costs to the government.

The government recognises the importance of improving the revenue

ratio and has set up a tax reform committee. The committee submitted

reform recommendations in 2009 that were first introduced through

the 2010 budget. The major tax reform in 2011 reduced rates as it

sought to broaden the tax base. Many rationalization measures were

introduced, including simplifying the economic service charge (a tax

withholding system) and lowering the tax slabs of the personal income

tax. In 2013, the government expanded the VAT base by bringing in

the retail trade, which had been exempt. The 2014 budget introduced

further measures to expand coverage and lower the threshold for

certain taxes, such as expanding the nation building tax to the financial

sector and lowering the VAT threshold for the retail and wholesale

trades.

The government has brought the Board of Investment under the Inland

Revenue Act in an effort to limit exemptions and tax holidays provided

to new companies that apply for incentives. Many existing conces-

sions are ending in the near future, which will broaden the tax base.

The government expects the reforms introduced in recent years to

contribute to a higher revenue ratio in 2014. It is currently being

implemented in the Inland Revenue Department the new revenue

administration information system to make revenue collection more

efficient.

Source: www.adb.org

Taxes on foreign tradeIncome tax, etc.Excise taxValue-added tax

Others

Source: Central Bank of Sri Lanka.

Economic Overview – Sri Lanka, Asian Development BankContd.

Page 13

Page 14

GLOBAL CREDIT RESEARCHSingapore, July 03, 2014

Moody's Investors Service says that the outlook for the Sri Lankan

banking system is stable, as the economy - now recording a GDP

growth rate of 7% - remains one of Asia's fastest growing economies.

"Since the end of the long civil war in 2009, the country has been

rebuilding, and a pipeline of infrastructure projects is expected to

boost economic growth, together with an accommodative monetary

policy. In such an environment, loan growth will rebound and asset

quality will stabilize" says SrikanthVadlamani, a Moody's Vice President

and Senior Analyst.

"Our stable outlook for the Sri Lankan banking system is also consist-

ent with our stable outlook on the Sri Lankan government's B1 rating,"

says Vadlamani.

Vadlamani was speaking on the release of Moody's "Banking System

Outlook Sri Lanka", which is Moody's first banking system outlook for

Sri Lanka.

The report - whose outlook expresses Moody's expectation of how

bank creditworthiness will evolve in this system over the next 12-18

months - looks at Sri Lanka's banking system in terms of five factors:

operating environment (which is classified as "stable"), asset quality

and capital ("stable"), funding and liquidity ("stable"), profitability and

efficiency ("stable") and systemic support ("stable").

"Our analysis estimates 14% loan growth this year and we do not view

this as excessive. Instead, the key risk to the outlook for economic

growth is Sri Lanka's high current account deficit and a resulting

reliance on external debt capital flows. This structural weakness

exposes the economy and currency to shifts in investor sentiment,"

says Vadlamani.

However, in this context, the Moody's report notes that Sri Lanka's

banks and sovereign have been able to access the international debt

markets at relatively attractive yields, compared to past averages, over

the last year, indicating the high confidence of foreign investors in the

economy.

On the issue of pawning loans, the report says that non-performing

loans (NPLs) - which had risen because of the widespread use of

these gold-secured loans - should stabilize after a sharp increase in

2013.

"We note that lending standards have tightened and, given that these

loans have a tenure of only around 12 months, we expect NPLs in this

segment to start stabilising from around the third quarter of 2014,"

says Vadlamani.

Moody's rates two of the 10 largest banks in Sri Lanka by assets. The

two - Bank of Ceylon and Hatton National Bank - accounted for about

30% of system assets in March 2014. The 10 largest banks together

represent 87% of banking system assets.

The rated banks' baseline credit assessments (BCA) are in the b1-b2

range, corresponding to a bank financial strength rating (BFSR) of E+.

Source: www.moodys.com

Moody's: Outlook for Sri Lanka banking system: stable

Manager of the Fund

INVESTMENT COMMITTEE

Dhanuka Liyanagamage, CFA

Assistant General Manager, Investments - Sri Lanka Insurance Corporation Ltd.

Dulindra Fernando, CFA

Managing Director - Ceylon Asset Management

Michael Preiss, CWA

Economic Advisor - Ceylon Asset Management

Page 15

CEYLON ASSET MANAGEMENT – BOARD OF DIRECTORS

Dulindra Fernando - (Managing Director)

CFA, USA. A member of the Institute of Chartered

Accountants in Australia (CA). Bachelor of

Economics, Monash University, Australia. Former

CEO of MAS Investments. The Founder of Ceylon

Asset Management.

Ravi Fernando

MBA, University of Colombo. Fellow of the

Chartered Institute of Marketing, UK. Post

Graduate Certificate in Sustainable Business and

Masters in Sustainability leadership from

Cambridge University. Guest Lecturer on

Strategic Corporate Sustainability at

INSEAD-AMP, France and University of Deusto,

Spain.

Piyadasa Kudabalage - (Chairman)

BCom, FCA, FCMA, FCPM. Managing Director of

Sri Lanka Insurance Corporation Ltd., Managing

Director/Chief Executive Officer of Litro Gas

Lanka Limited and Executive Director of Peoples

Bank. He has over 30 years of experience and

has held several senior positions with reputed

companies.

Sivendran Vettivetpillai

CFA, USA. Bachelor of Engineering, (Hons)

Imperial College, London. Partner, Abraaj Group,

UK (a Global Private Equity Company). Member

of Executive and Investment Committees and

Chairman of the Partners Council. Has over 20

years of Private Equity investing experience.

Former CEO of Aureos Advisers Ltd.

Michael Preiss

Chartered Wealth Manager. A Graduate of the

European Business School with a major in

Finance and International Economics. A guest

commentator on International Business TV and

newspaper columns. Emerging market

investment advisor in international banks in Dubai,

Hong Kong, Singapore and London.

Roshan Egodage

CEO of Commercial Credit PLC. BSc. Eng.

(Hons), University of Peradeniya. MBA, University

of Colombo. FCMA, Dip.M(UK), ACIM and

ASCMA.

Page 16

Investment Rationale

The fund aims to provide US Dollar returns by investing in Sri Lankan

sovereign bonds, bank and corporate dollar bonds, rated and listed

on recognised global stock exchanges. The fund risk is limited to

sovereign risk and bank guaranteed risk whilst avoiding exposure to

Sri Lankan rupee currency risk.

Following the array of recent high yielding Sri Lankan Dollar Bond

issues, foreign investors can now gain diversified exposure to Sri

Lanka issued dollar debt securities via the Ceylon Dollar Bond Fund.

The Dollar fund launch follows the success of the “AAA” rated Ceylon

Gilt Edged Fund and the “A-” rated (by Fitch Ratings) Ceylon Income

Fund managed by Ceylon Asset Management.

The Ceylon Gilt Edged Fund, rated “AAA” was the best performing Gilt

Edged Fund in Sri Lanka in 2013. Ceylon Income Fund is the first

corporate debt fund to be rated in Sri Lanka. It received an “A-” rating

from Fitch Ratings upon the strength of underlying ratings of individual

debt issues, security backing and duration matching techniques

employed. The fund was the best performing fixed income fund in Sri

Lanka during 2010, 2011 and 2013 Q1.

Risk Factors

Being invested in listed bonds, the fund is exposed to the financial and

rated credit risks of the individual issuers and trading price volatility of

the bonds on the listed exchange.

Nevertheless, the fund invests only in dollar denominated bonds

issued by Sri Lanka that are rated by an international rating agency.

This risk is diversified with a maximum exposure limit of 25% for each

individual issuer. Liquidity is provided by bonds traded and respective

market makers on the US Dollar denominated Singapore Stock

Exchange and other recognised Stock Exchanges.

Income Distribution Policy

Distributable income will be derived principally from interest earned

and realised capital gains. Net income will be distributed at the

discretion of the manager, after satisfying operating expenses of the

fund. All such income distributions are tax exempt in Sri Lanka.

Investors have the option to re-invest their distribution in units of the

funds. Investors selling units before distributions can realise interest

earned in the form of capital gains.

Taxation

All capital gains and income distributions earned by unit holders are

exempt from tax in Sri Lanka. The fund will pay a tax rate of 10% on

net income earned by the fund. Information is based on the latest

amendments to the Inland Revenue Act at the time of printing this

document. Investors who are in doubt as to their tax position should

consult their tax advisors on the implications of investing and

disposing of units.

Foreign investors are also exempt from income or with holding tax on

returns earned from the fund.

Eligible Investors and Repatriation

This Fund will be only eligible for the following investors in foreign

currencies:

a) Foreign citizens

b) Sri Lankan diaspora with foreign citizenship

c) Companies registered outside Sri Lanka

d) Foreign fund managers

e) BOI companies

Foreign investors are free to repatriate dollar capital and profits without

restriction.

Investment Restrictions

The manager will make investments within the parameters set out by

the Securities and Exchange Commission of Sri Lanka (SEC),

directives and guidelines issued by the SEC from time to time as well

as the unit trust deed of the fund. Unless permitted by the SEC, the

manager will not make the following investments:

A. Any investment for the purpose of gaining management control of a

company.

B. Any investment in equity shares.

C. Any investment that involves the trust in unlimited liability.

D. Leverage by borrowing against securities or buying on margin.

E. Make loans or act as a guarantor or indemnify any person.

F. Underwrite securities

G. Investment in commodities

H. Investment in real estate.

Please refer to the trust deed for more information on investment

restrictions.

General information of the fund

Page 17

– Management fees

• 0.25% p.a. on assets under management

– Trustee and Custodian fees

• 0.165% p.a. on assets under management

– Front-end fee

• 0.1%

General Information of the fund

Details of Other Administrative and Professional Expenses Payable by the Fund

*Any cost including legal fees incurred in preparation and modifying the unit trust deed.

*All professional fees including audit, tax and rating agency fees.

*Any taxes, stamp duties, brokerages, commissions (not including commission to agents), bank charges and other duties payable on the

trust deed in connection with or arising from the establishment, execution, management or termination of the trust.

*Cost of printing and distributing dividend warrants, and accounts and reports of the trust.

*Any cost incurred in respect of meetings of unit holders.

*Costs incurred in preparing and publishing communications to unit holders.

*All other charges or fees expressly authorised by the trust deed or by law, any or all of which may be discharged out of the deposited

property of the trust.

Rights of Unit Holders

* To redeem units registered in their names.

* To receive annual accounts, as at 31st December and the report of auditors.

* To receive half yearly reports on the accounts and performance of the fund.

* To participate and vote at a meeting of the unit holders.

* To transfer units on the payment of a US$ 10/- fixed fee.

For further information and clarifications of provisions appearing in the Information Memorandum, investors may inspect the Trust Deed of the

unit trust and the Memorandum & Articles of Association of Ceylon Asset Management Company Limited free of charge at the business

office.

Reports and Accounts

Annual accounts will be prepared up to 31st December and will be distributed amongst the unit holders within three months of the end of

the said date. Investors will be provided with half yearly reports on the accounts and the performance of the fund within three months of the

period covered. An interim report for the first half-yearly accounting period shall not be prepared; in the case such period is less than six

months.

Suspension of Dealings

The manager may, with the approval of the trustee and the Securities and Exchange Commission of Sri Lanka, suspend the dealings during:

*Any period when the dealings of the Singapore Stock Exchange is restricted or suspended.

*The existence of any state of affairs during any period, which, in the opinion of the manager, would be detrimental to the interests of the

unit holders.

*Any period during which there is a breakdown of communication in determining the prices of their investments.

*Such suspension shall take effect immediately upon declaration thereof by the manager subject to the provisions of the trust deed, and

shall terminate, once the manager is satisfied that the conditions giving rise to such suspension shall have ceased to exist.

The following fees will be charged at cost from the fund:

Contd.

Page 18

Investment and Redemption

The fund, managed by Ceylon Asset Management Company Limited (CAM) is regulated by the Securities and Exchange Commission of Sri Lanka

(SEC) Act No. 36 of 1987 and amended by Act No. 26 of 1991 and Act No. 18 of 2003. The trustee and custodian of the investment fund is

Deutsche Bank AG, Colombo Branch.

Please read the application form at the back of this Information

Memorandum for further details.

Minimum Investment

Applications for units could be for any amount subject to a minimum

value of US$ 1,000/-. The investment will be divided by the manager's

selling price to determine the number of units allotted.

Payment

You may apply for units and make payment by telegraphic transfer,

cheque or bank draft crossed “A/C Payee Only” made payable to:

“Ceylon Dollar Bond Fund” and deposit in:

A/C No: 2523710 - 08 - 1 Deutsche Bank, Singapore Branch

SWIFT Code: DEUTSGSG

“Ceylon Dollar Bond Fund” and deposit in:

A/C No: 042 - 242 - 007 Deutsche Bank, Colombo Branch

SWIFT Code: DEUTLKL

Ceylon Asset Management Company Limited does not accept cash.

Allotments

Allotment of units will be made after the monies being realised by

Deutsche Bank or the application received at the office of Ceylon

Asset Management Company Limited, whichever is later. Dealing is

carried out daily. Where this falls on a holiday, the next market day is

considered to be the dealing day.

Valuation of Units

The price at which investors may subscribe for or redeem units is

calculated on each dealing day. In calculating a unit price, the Net

Asset Value (NAV) of the fund is ascertained daily (after adjusting for

charges) and divided by the number of units in issue.

Redemption of Units

Units can be redeemed with a written request to Ceylon Asset

Management at the manager’s buying price published on each

dealing day. Where a unit holder wishes to redeem units which

constitutes an aggregate of three percent (3%) or more of the units of

that fund, such holder shall give the manager at least fourteen (14)

days written notice in advance. Payment of redemption proceeds in

foreign currency will be made by telegraphic transfer by Deutsche

Bank AG, within 14 business days from the date of receipt of

instructions for redemption.

DISCLAIMER & DISCLOSURE

Please note that prices, valuations and rates as indicated in this document are valid as at July 16, 2014 and are subject to change on

a daily basis. Investors are advised to refer the newspapers, contact Ceylon Asset Management or log on to www.ceylonam.com for

up-to-date values.

The unit trust is regulated by the

SECURITIES AND EXCHANGE COMMISSION OF SRI LANKA

Act No. 36 of 1987 and amended by Act No. 26 of 1991 and Act No. 18 of 2003

Page 19

This document does not constitute an offer or solicitation to anyone in

any jurisdiction in which such offer or solicitation is not authorised or to

any person to whom it is unlawful to make such offer or solicitation and

may be used only in connection with this offering of units to which it

relates by distributors as contemplated herein.

“The board of directors of the trustee hereby declare that it will carry

out the transactions with the managing company at arm’s length basis

and on terms which are best available for the fund, as well as act, at

all times, in the best interests of the fund’s unit holders and also that

the requirements of the guidelines have been compiled with. The

trustee further certify that it has read and agrees with the

representations contained herein.”

Authorised Signatory

On behalf of the board of directors of the trustee

The board of directors of the managing company hereby declare that

it will carry out the transactions with the trustee at arm’s length basis

and on terms which are best available for the fund, as well as act, at

all times, in the best interests of the fund's unit holders and also that

the requirements of the guidelines have been compiled with.

“This Information Memorandum has been seen and approved by the

directors of the managing company and they collectively and individu-

ally accept full responsibility for the accuracy of the information given

and confirm that, after making all reasonable inquiries to the best of

their knowledge and belief, there are no other facts, the omission of

which, would make any statements herein misleading.”

Authorised Signatory

On behalf of the board of directors of the managing company

TRUSTEE & CUSTODIAN

Deutsche Bank AG

Trust & Securities Services

Colombo Branch

86, Galle Road,

Colombo 3,

Sri Lanka.

Deutsche Bank, Sri Lankan branch is a fully owned branch office

of Deutsche Bank, Frankfurt.

LAWYERS

Nithya Partners

Attorneys at Law

97A, Galle Road,

Colombo 3,

Sri Lanka.

FUND MANAGER & FUND REGISTRAR

Ceylon Asset Management Company Ltd.

281, Union Place,

Colombo 2,

Sri Lanka.

Company Registration No: P B 995

A venture between Sri Lanka Insurance Corporation Ltd.

(22.5%), Ceylon Capital Trust (Pvt) Ltd. (67.5%) and Commercial

Credit PLC (10%).

AUDITORS

Ernst & Young

201, De Saram Road,

Colombo 10,

Sri Lanka.

Key Information

Please fill in BLOCK letters

Date of Incorporation/ Date of Birth

Nationality

Postal/ Zip Code

O�ce Owner Lease/ Rent

Other

InvestmentAmount Currency / Fund Transfer Cheque deposit

Agents are not authorised to accept Cash

Country

*Status of abovePermanent Address

Joint Applicant

Company Registration No/Passport No

First Applicant

Investor Application FormCeylon Asset Management Co. Ltd.

281, Union Place, Colombo 2, Sri Lanka. +94 (11) 739 4000 / +94 (71) 703 0000 www.ceylonam.com, cdbf@ceylonam.com

Type of Account Corporate Joint Account Sole Account

Office use only

Agent Code:

Account No:

Full Name ofthe Investor

PermanentAddress*

D D M Y Y Y YM D D M Y Y Y YM

Title Company Mr Mrs Ms Dr Mr Mrs Ms Dr

Postal/ Zip Code

Country

CorrespondenceAddress(If di�erent toabove)

Contactdetails

O�ce Owner Lease/ Rent

Other

Cheque No

Bank & Branch

E - Mail Address**

O�ce/HomeTel No.

Mobile No.

E - Mail Address**

O�ce/HomeTel No.

Mobile No.

**A monthly account statement will be sent to the email address

Investment Details

Amount in words

Sales/ Business Turnover

Applicable for joint application

Relationship to the First Applicant

Spouse Family Other

Marital Status Single Married

Spouse Name

Occupation

Bank Name & Branch Address A/c No Account Type

1. Investment Process 2. Redemption Process

A) A)

B) Please submit the following documents along with the application form:

Corporate Investors- Copy of Certificate of Incorporation C)

- Copy of Board Resolution as per the Articles of Association

D)

- Passport copies of Authorised Signatories E)

Individual Investors- Copy of the Passport F)

- Billing proof of Address

C) Transfer funds to :Account Name : Ceylon Dollar Bond Fund

Bank Account Number

Deutsche Bank, Singapore 2523710-08-1 DEUTSGSG Deutsche Bank, Sri Lanka 042-242-007 DEUTLKL

Corporates must sign under the seal as provided in the Letter of Authorisation

- A letter of Authorisation with specimen signatures and company seal to operate the investment

In case of a joint account, both first & joint applicant should sign the redemption request.

B)

Units will be redeemed based on buying price of the day the redemption request is received.

SWIFT Code

Applications are available at www.ceylonam.com or Ceylon Asset Management Co. Ltd., 281, Union Place, Colombo 02, Sri Lanka.

Funds will be remitted to the source bank account of the orginal investment

For queries, please contact us on cdbf@ceylonam.com or 0094 11 739 4000

Redemption request should be made by the investor via e-mail, with a copy of a scanned signed letter to cdbf@ceylonam.com or posting the originals.

Joint Applicant

Source of funds

First Applicant

Corporates

Profit/ Capital

Savings

Marital Status Single Married

Spouse Name

Occupation

Salary / Professional Income

Individuals

Occupation

Other (Please specify)

Sales/ Business Turnover

Corporates

Profit/ Capital

SavingsSalary / Professional Income

Individuals

Occupation

Other (Please specify)

Investor Information Required - KYC

Declaration

Instructions

Bank Account Details of Source of Funds

Signature Signature

I/We hereby declare that the details furnished above are true and correct to the best of my/our knowledge and belief and I/we undertake to inform you of

any changes therein, immediately. In case any of the above information is found to be false or untrue or misleading or misrepresenting, I am/we are aware

that I/we may be held liable for it.

281, Union Place, Colombo 02, Sri Lanka.Tel: +94 11 739 4000 Fax: +94 11 739 4007

E-mail: info@ceylonam.comWeb: www.ceylonam.com