HSBC Investment Grade Bond Fund 2013

Transcription

1 HSBC Investment Grade Bond Fund 2013 Summary of the Explanatory Memorandum March 2009 Important information: The HSBC Investment Grade Bond Fund 2013 (the Sub-Fund ) aims to invest in a portfolio of investment grade bonds primarily denominated in United States dollars issued by issuers located in emerging as well as developed markets. Investing in the Sub-Fund may involve credit/counterparty, market, volatility, liquidity, regulatory, downgrading and political risks. The credit quality and liquidity of the Sub-Fund s investment portfolio may deteriorate when any investment held by the Sub-Fund falls below investment grade. The Sub-Fund may continue to hold such investment, and higher risks may result. Investors may suffer substantial loss of their investments in the Sub-Fund. The investment decision is yours but you should not invest unless the intermediary which sells you the Sub-Fund has advised you that the Sub-Fund is suitable for you and has explained why, including how investment in the Sub-Fund will be consistent with your investment objectives.

2 IMPORTANT : If you are in any doubt about the contents of this letter, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser. 28 March 2009 Dear Investor, HSBC Investment Funds Trust (the Fund ) HSBC Investment Grade Bond Fund 2013 (the Sub-Fund ) Extension of Initial Offer Period In order to allow interested investors to capture the opportunity to invest, we are pleased to inform you that the closing date of the initial offer period of the Sub-Fund will be extended from 30 March 2009 to 17 April As such, certain dates in relation to the Sub-Fund are amended as follows: Initial offer period First dealing date Expected maturity date (i.e. Expected termination date) Original dates before change Up to 30 March April 2009 On or around 2 April 2013 New dates after change Up to 17 April May 2009 On or around 17 April 2013 The Addendum relating to the offering document of the Sub-Fund prepared for the changes is enclosed with this letter. Investors who do not wish to continue with their investment in the Sub-Fund as a result of the above changes are entitled to withdraw their application prior to the close of the extended initial offer period. Upon receipt of a written withdrawal request, the Manager will refund the subscription monies (without interest and net of any bank charges) paid by the investors within 14 Hong Kong business days after receipt of such written withdrawal request. The Manager accepts responsibility for the accuracy of the information contained in this notice at the date of posting. If you have any queries, please direct these to your bank or financial adviser or alternatively you should contact the Manager at Level 22, HSBC Main Building, 1 Queen s Road Central, Hong Kong (telephone number: (852) ). HSBC Investment Funds (Hong Kong) Limited Manager of HSBC Investment Funds Trust Investment involves risk. Please refer to the offering document for further information including the risk factors. ADDENDUM This Addendum forms part of and should be read in conjunction with the Summary of the Explanatory Memorandum of HSBC Investment Grade Bond Fund 2013 (a sub-fund of HSBC Investment Funds Trust) dated 16 March If you are in any doubt about the contents of this Addendum, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser. 1. On page 1 and 14, references to the closing date of the Initial Offer Period are to be changed from 30 March 2009 to 17 April On page 1, reference to the first Dealing Day is to be changed from 16 April 2009 to 7 May On page 2, 6 and 14, references to the expected Termination Date are to be changed from around 2 April 2013 to around 17 April All other provisions contained in the Summary of the Explanatory Memorandum, unless inconsistent with the provisions set forth in this Addendum, shall continue to apply. HSBC Investment Funds (Hong Kong) Limited accepts responsibility for the accuracy of the information contained in this Addendum at the date of publication. 28 March 2009

3 This Summary has been written and authorised for distribution in the Hong Kong Special Administrative Region ( Hong Kong ) only. It does not constitute a distribution of information or an offer in any other jurisdiction. Nationals or residents of, or persons domiciled in, countries other than Hong Kong should inform themselves, as to (a) possible tax consequences, (b) legal requirements and (c) any foreign exchange restrictions or exchange control requirements which they may encounter under the law of their country of domicile or residence, and which may be relevant to the subscription, holding and disposal of units or shares in any HSBC fund. HSBC Investment Funds (Hong Kong) Limited Level 22, HSBC Main Building 1 Queen s Road Central Hong Kong Telephone: (852) Facsimile: (852) Issued by HSBC Global Asset Management (Hong Kong) Limited

4 Contents Page 1. General information 1 2. Investment objective and policy 6 3. Risk factors 6 4. Investment restrictions Terms and conditions of application Summary of fund information Administration 16

5 General information Important: If you are in any doubt about the contents of this document you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser. This Summary has been written and authorised for distribution in the Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ) only. It does not constitute a distribution of information or an offer in any other jurisdiction. Nationals or residents of, or persons domiciled in, countries other than Hong Kong should inform themselves, as to (a) possible tax consequences, (b) legal requirements and (c) any foreign exchange restrictions or exchange control requirements which they may encounter under the law of their country of domicile or residence, and which may be relevant to the subscription, holding and disposal of units of the sub-funds of the HSBC Investment Funds Trust. The HSBC Investment Funds Trust (the Fund ) is a unit trust established under Cayman Islands Law by a Trust Deed dated 13 November 1995, as amended. Details of the administration of the Fund are set out at the end of this Summary. The Fund has been authorised by the Securities and Futures Commission ( SFC ) in Hong Kong. In granting such authorisation the SFC takes no responsibility for the financial soundness of the Fund or for the accuracy of any of the statements made or opinions expressed in this Summary and does not imply the Fund is recommended by it. This Summary contains details of the sub-fund HSBC Investment Grade Bond Fund 2013 (the Sub-Fund ). The investment objectives and policy of the Sub-Fund are set out in the section headed Investment objective and policy below. Dealings in the Sub-Fund take place through HSBC Investment Funds (Hong Kong) Limited (called we or us in this Summary), which acts as the Manager of the Sub-Fund. Initial issue of Class A units of the Sub-Fund Class A units of the Sub-Fund will be available for subscription during the period commencing 9:00 a.m. (Hong Kong time) on 16 March 2009 to 4:00 p.m. (Hong Kong time) on 30 March 2009 (or such other date as the Manager may determine) (the Initial Offer Period ) at the initial offer price (the Initial Offer Price ). The Initial Offer Price per Class A unit in the Sub-Fund is US$ (which includes a preliminary charge of up to 3 per cent of the Initial Offer Price). Units in the Sub-Fund will be issued on the last day of the Initial Offer Period in respect of applications received by the Manager prior to 4:00 p.m. (Hong Kong time) on the last day of the Initial Offer Period. Unless otherwise agreed by the Manager, application monies in cleared funds must be received by the Manager on behalf of the Sub-Fund on or before the close of the Initial Offer Period. The Manager may exercise its discretion to extend the Initial Offer Period for a maximum of 20 Hong Kong Business Days (i.e. every day (other than a Saturday) on which banks in Hong Kong are open for normal banking business). In such circumstances, the relevant dates in relation to the Sub-Fund, such as the expected first Dealing Day and Termination Date, may be adjusted accordingly. The minimum initial fund size of the Sub-Fund is USD50 million. In the event that the total initial subscription received by the Sub-Fund before the close of the Initial Offer Period is less than the minimum initial fund size, the Manager may (but is not obliged to) exercise its discretion not to issue any units and subscription monies previously paid by the investors will be returned (without interest and net of any bank charges) by cheque through the post or by telegraphic transfer within 14 Hong Kong Business Days at the risk and expense of the investors. It is expected that the first Dealing Day of Sub-Fund will be 16 April The Manager may at its discretion and without any prior notice close the Sub-Fund to new subscriptions at any time after the Initial Offer Period. Notwithstanding this, unitholders may continue to redeem their holdings in the Sub-Fund on any Dealing Day even when the Sub-Fund is closed to new subscriptions. Furthermore, the Manager may also exercise its discretion to re-open the Sub-Fund for new subscriptions without any prior notice to existing unitholders. Subscriptions made after the Initial Offer Period will be executed according to the then prevailing offer price of the Sub-Fund which could be higher or lower than the Initial Offer Price as well as the subsequent realisation price or the value at the Termination Date. For the avoidance of doubt, the Manager will not extend the investment period of the Sub-Fund even if the Sub-Fund is re-opened for new subscriptions. 1

6 Investment period of Class A units of HSBC Investment Grade Bond Fund 2013 It is expected that the HSBC Investment Grade Bond Fund 2013 will have an investment period of up to approximately 4 calendar years and the Sub-Fund will be terminated automatically at the end of the investment period. The Termination Date is expected to be on or around 2 April The Manager may also exercise its discretion to terminate the Sub-Fund before such scheduled Termination Date when the net asset value of the Sub- Fund falls below USD10,000,000 (for details see the section headed Termination of funds ), in such case the Termination Date described above will be the effective date of such early termination. Termination proceeds will be distributed to unitholders (who hold units in the Sub-Fund as at the Termination Date) according to the then net asset value of the Sub-Fund. It is expected the termination proceeds will be distributed to unitholders within 1 month after the Termination Date (normally within 7 days on which banks in Hong Kong and the United States are open for normal business (excluding Saturday)). Realisation of units at the Termination Date will be subject to the value of the portfolio of securities held by the Sub-Fund and the realisation proceeds may be lower or higher than the investors initial investments. Subsequent issue of units Applications for the issue of units in the Sub-Fund will, if received and accepted by us prior to the dealing deadline on a Dealing Day and provided that the relevant application monies have been received in cleared funds on behalf of the Sub-Fund prior to such dealing deadline, be dealt with on that Dealing Day. The dealing deadline shall be 4:00 p.m. Hong Kong time on the Hong Kong Business Day before a Dealing Day. Dealing Day is the first and third Thursday of each month. If such day is not a day on which banks in Hong Kong are open for normal banking business, then the Dealing Day will be the immediate following Hong Kong Business Day. Applications or application monies received after the dealing deadline for a particular Dealing Day will be dealt with on the next Dealing Day. Notwithstanding the above, the Sub-Fund may rely upon application orders received, even prior to receipt of application monies, and may issue units to investors according to such orders and invest the expected application amounts. If payment is not cleared within 4 business days (during which banks in the principal financial centre for the denomination currency of the Sub-Fund are open for business) after the relevant Dealing Day, we reserve the right to cancel the transaction at any time thereafter. In such circumstances, an investor may be required to settle the difference between the offer price (i.e. the subscription price) and the bid price (i.e. the redemption price) of the units concerned. Application for units To apply for units in the Sub-Fund, please complete an application form (available either from us or from any designated financial intermediary) and return it to us together with payment for the units. The minimum investment of the Sub-Fund is USD1,000. Minimum subsequent investment is USD1,000. Payment can be telegraphically transferred to our bank accounts (the details of which are shown on the application form) in US dollars. Please note that bank charges may be deducted by the remitting bank. Such charges will be borne by investors. Payment may also be made in other methods acceptable to us from time to time. Investor shall notify us as soon as practicable if there is any change in the information provided by the investor in the application form. No money should be paid to any intermediary in Hong Kong who is not licensed or registered to carry on the Type 1 (dealing in securities) regulated activity under Part V of the Securities and Futures Ordinance. Any payment made other than in United States dollars, which is the Sub-Fund s currency of denomination, will be converted into United States dollars before being used to purchase units. The cost of currency conversion and other expenses will be borne by investor. Units will be issued at the offer price of the Sub-Fund which includes a preliminary charge of up to 3.0% of the offer price. Units will be issued in registered form. Certificates will not be issued unless specifically requested by an investor. If certificates are requested, they will be sent by post to the investor upon acceptance of the investor s application and the receipt of cleared funds, at the investor s risk. A contract note will normally be issued within 2 business days of issue of units and will be sent by post. We have discretion to accept or reject any application for units. No application may be made by any resident, corporation or partnership of the United States, Canada or Cayman Islands, and if any investor becomes a United States person as defined in Regulation S of the United States Securities Act of 1933, a Canadian resident or a Cayman Islands resident, units held by the investor may be compulsorily redeemed. 2

7 At our discretion, the Sub-Fund may be closed for new subscriptions without any prior notification from us. For the avoidance of doubt, unitholders can continue to redeem their holdings on the Sub-Fund on a Dealing Day even when it is closed for new subscription. Furthermore, at our discretion, the Sub-Fund which is previously closed for new subscription may be re-opened for new subscription without any prior notices to existing unitholders. Realisation of units Investors may redeem their units in the Sub-Fund on any Dealing Day except when dealings are suspended. Partial redemptions are permitted of amounts greater than USD1,000 (we have discretion to accept partial redemptions of smaller amounts), provided that the remaining holding is not less than the minimum investment. Units will be redeemed at the bid price of the Sub-Fund (taking into account any applicable realisation charge). Written redemption requests are required for redemption. Redemption requests must be received by us before the dealing deadline applicable to the Sub-Fund. The dealing deadline shall be 4:00 p.m. Hong Kong time on the Hong Kong Business Day before a Dealing Day. Certificates issued must be received by us before redemption proceeds can be released. The Sub-Fund will charge a realisation charge of 1 per cent of the net asset value per unit for realisations before the Termination Date and such charge will be retained by the Sub-Fund for its own benefit. We reserve the right not to accept instructions to pay third parties. Payment will be made by cheque, or by telegraphic transfer if bank details have been provided, normally within 7 days on which the banks in Hong Kong and the United States are open for normal business (excluding Saturday), and not more than one calendar month. Please note that any bank charges imposed will be borne by the investor. Switching between sub-funds Subject to any suspension of dealings, investors can switch all or part of their units in the Sub-Fund into units in any other sub-funds of the Fund. A switching charge of up to 2% (currently, the Manager only intend to charge a fee of up to 1%) may be charged (in addition to the applicable realisation charge). Details can be obtained from us. Investors should note that subject to the valuation time of each sub-fund and the time required to remit redemption proceeds for switching between sub-funds, the dealing day on which the units are created in the new sub-fund may be later than (or in certain cases, the same as) the dealing day on which investments in the old sub-fund are redeemed or the day on which switching instructions are received by us. Details can be obtained from us. Prevention of Money Laundering The Fund, its service providers and other members of the HSBC Group are required to act in accordance with the laws, regulations and requests of public and regulatory authorities operating in various jurisdictions which relate to, amongst other things, the prevention of money laundering, terrorist financing and the provision of financial and other services to any persons or entities which may be subject to sanctions. The Fund, any of its service providers or any member of the HSBC Group may take any action which in their sole and absolute discretion consider appropriate to take in accordance with all such laws, regulations and requests. Such action may include but is not limited to: the interception and investigation of any payment messages and other information or communications sent to or by an investor or on behalf of such investor via the systems of the Fund, any service provider of the Fund or any member of the HSBC Group; and making further enquiries as to whether a name which might refer to a sanctioned person or entity actually refers to that person or entity. The Fund, its service providers and other members of the HSBC Group shall not be liable for loss (whether direct or consequential and including, without limitation, loss of profit or interest) or damage suffered by any party arising out of: (a) (b) any delay or failure of the Fund, any of its service providers or any member of the HSBC Group in processing any such payment messages or other information or communications, or in performing any of their duties or other obligations in connection with any accounts or the provision of any services to an investor, caused in whole or in part by any steps which the Fund, any of its service providers or any member of the HSBC Group, in their sole and absolute discretion, consider appropriate to take in accordance with all such laws, regulations and requests; or the exercise of any of the rights of the Fund, its service providers and other members of the HSBC Group under this section. 3

8 In certain circumstances, the action which the Fund, any of its service providers or any member of the HSBC Group may take may prevent or cause a delay in the processing of certain information. Therefore, the Fund, its service providers and other members of the HSBC Group do not warrant that any information on their systems relating to any payment messages or other information and communications which are the subject of any action taken pursuant to this section is accurate, current or up-to-date at the time it is accessed, whilst such action is being taken. Valuation Bid and offer prices of the Sub-Fund are calculated for each Dealing Day and the prices calculated will apply to all applications/redemptions/switching processed on that Dealing Day. Since the prices are calculated after the dealing deadline, the unit prices are not yet available at the time when application, redemption or switching instructions are received by us, and investors deal at an unknown unit price. Charges A preliminary charge of up to 3.0% of the offer price will be imposed by us. In addition, we currently charge a management fee of 0.75% per annum based on the net asset value of the Sub-Fund. We may pay the whole or a part of these charges to any intermediary. Details of these charges, and the trustee fees are set out in the section headed Summary of fund information below. Publication of prices The Sub-Fund is valued for every Dealing Day. The prices of units are quoted in The South China Morning Post, The Hong Kong Economic Journal and The Hong Kong Economic Times. Reports and accounts The Sub-Fund s financial year ends on 31 July each year. Audited accounts for the Sub-Fund (the first audited account will be prepared for the Sub-Fund for the period ended 31 July 2009) are prepared and sent to investors within 4 months of the financial year end. Unaudited interim accounts (the first interim account will be prepared for the Sub-Fund for the period ended 31 January 2010) are also prepared and sent to investors within 2 months of the Sub-Fund s financial mid-year. Inspection of documents The constitutive documents establishing the Fund and the full Explanatory Memorandum of the Fund can be inspected free of charge at our offices during normal business hours. Copies can be obtained and a small fee may be charged for copies of the constitutive documents. All investors are entitled to the benefit of, are bound by, and are deemed to have notice of the provisions of the constitutive documents and the full Explanatory Memorandum as may be amended, modified or supplemented from time to time. Taxation in Hong Kong The Sub-Fund is not expected to be subject to Hong Kong profits tax in respect of any of its authorised activities. No tax will be payable by investors in Hong Kong in respect of dividends or other income distributions of the Sub-Fund or in respect of capital gains arising on a sale, redemption or other disposal of units, except that Hong Kong profits tax may arise where such transactions form part of a trade or business carried on in Hong Kong. Prospective investors are advised to check their own tax position, particularly if they may be subject to the laws of a jurisdiction other than Hong Kong. Suspension and deferral of dealings The circumstances in which issue and redemption of units in the Sub-Fund may be suspended and the payment of redemption proceeds delayed include:- (a) (b) (c) (d) there is a closure or restriction or suspension of trading on any market on which a substantial part of the Sub- Fund s investments are normally traded, or a breakdown in any of the means normally employed in establishing the prices of investments of the Sub-Fund; or for any other reason the prices of the Sub-Fund s investments or the amount of any significant liability cannot be established or ascertained; or circumstances exist as a result of which it is not reasonably practicable to realise any investments of the Sub- Fund; or the remittance or repatriation of funds cannot be carried out promptly at normal rates of exchange. 4

9 The Sub-Fund shall not be bound to redeem on any Dealing Day more than 10% of the number of Class A units of the Sub-Fund then in issue. If the Sub-Fund receives requests on any Dealing Day for redemption of a greater number of units, it may defer such redemption applications exceeding the 10% limit in accordance with the provisions of the Fund s constitutive documents. Termination of funds The circumstances in which the Fund/a sub-fund can be terminated are listed in the Trust Deed. In summary, the Fund/a sub-fund may be terminated under the following circumstances:- (a) (b) if the Manager of the Fund goes into forced liquidation or becomes incapable of performing its duties properly; or if the Fund or the relevant sub-fund ceases to be authorised under the Securities and Futures Ordinance of Hong Kong or any law is passed which makes it illegal, impracticable or inadvisable to continue the Fund or the relevant sub-fund; or (c) if the Manager of the Fund retires and the Trustee fails to appoint a successor manager within a period of 30 days; or (d) (e) (f) if the net asset value of the Fund falls below USD50 million; or if the net asset value of the relevant sub-fund falls below USD10 million; or if the termination is approved by the relevant investors in a general meeting of the Fund or the relevant subfund. It is expected that the HSBC Investment Grade Bond Fund 2013 will have an investment period of up to approximately 4 calendar years and the Sub-Fund will be terminated automatically at the end of the investment period. Investors should refer to the full Explanatory Memorandum and the constitutive documents of the Fund for further details and the risks involved. Investors should be aware that investment involves risk. The Fund should be regarded as a medium to long term investment. HSBC Investment Funds (Hong Kong) Limited accepts responsibility for the information contained in this document as being accurate at the date of publication. 16 March

10 Investment objective and policy HSBC Investment Grade Bond Fund 2013 Investment Objective and Policy The Sub-Fund aims to invest in a portfolio of investment grade bonds primarily denominated in United States dollars issued by issuers selected by the Investment Adviser at its discretion, which may include issuers located in emerging as well as developed markets. The Investment Adviser will manage the risk level of the portfolio during the investment period with the aim to, on a best effort basis, provide stable income over the investment period and preserve the initial investment capital received by the Sub-Fund during the Initial Offer Period (excluding preliminary charge) at the end of the investment period. Investment grade bond refers to a fixed income security which, or the issuer of which has a minimum credit rating of Baa3/BBB- by Moody s, Standard & Poor s or other recognised credit rating agencies. The Investment Adviser will monitor the credit rating of the portfolio during the investment period. When the credit rating of a security or issuer falls below investment grade after initial purchase, the Investment Adviser will, at its full discretion, decide whether to hold or realise such security after considering various factors including but not limited to risk of default, time to maturity, liquidity and market price. The Investment Adviser will aim to ensure that the weighted average credit rating of the portfolio of the Sub-Fund is maintained at investment grade and at least 70% of the non-cash assets of the Sub-Fund are invested in investment grade securities. It is expected that the Sub-Fund will have an investment period of up to approximately 4 calendar years and the Sub- Fund will be terminated automatically at the end of the investment period. The termination date is expected to be on or about 2 April 2013 (the Termination Date ). All units will be compulsorily redeemed at the Termination Date and proceeds will be distributed to unitholders (who hold units in the Sub-Fund as at the Termination Date) according to the then net asset value of the Sub-Fund. The underlying investment of the Sub-Fund may have a date to maturity longer or shorter than the investment period of the Sub-Fund. Upon request of the investors, a copy of the indicative initial investment universe of the Sub-Fund is available for inspection at the office of the Manager before the close of the Initial Offer Period of the Sub-Fund. As soon as practicable after each Dealing Day (or more frequently as the Manager may determine at its discretion) of the Sub-Fund, a copy of the latest portfolio of the Sub-Fund is available for inspection at the office of the Manager. Investors may also visit the web-site of HSBC Global Asset Management in Hong Kong at to obtain information on the latest portfolio. Summary of risk factors The Sub-Fund may invest in instruments connected to emerging markets. Investment of the Sub-Fund may involve substantial credit/counterparty, market, volatility, liquidity, regulatory, downgrading and political risks. The duration of investment in the Sub-Fund is limited (i.e. up to the Termination Date). Neither the income nor the capital of the Sub-Fund is guaranteed. There are risks that the Sub-Fund may not make any distribution and investors may not recoup the original amount invested in the Sub-Fund during the investment period as well as at the Termination Date. The credit quality and liquidity of the Sub-Fund s investment portfolio may deteriorate when any investment held by the Sub-Fund falls below investment grade, resulting in higher risks. Please refer to the section Risk Factors below for more information on these and other risks. Risk factors The Sub-Fund is subject to market fluctuations and to the risks inherent in all investments, and the price of units of the Sub-Fund and the income from it may go down as well as up. Risk Factors Investment in the Sub-Fund carries with it a degree of risk, including, but not limited to those referred to below. Potential investors should review the full Explanatory Memorandum in its entirety prior to making a decision to invest. There can be no assurance that the Sub-Fund will achieve their investment objectives and past performance should not be seen as a guide to future returns. An investment may also be affected by any changes in exchange control regulation, tax laws, withholding taxes and economic or monetary policies. Investment in the Sub-Fund may decline in value and investors should be prepared to sustain a substantial or total loss of their investment. 6

11 Deterioration in the liquidity of the Sub-Fund s underlying investments may adversely affect the value of the Sub- Fund and may affect the Sub-Fund s ability to pay out redemption or termination proceeds to investors. The Sub-Fund invests mainly in fixed income securities. The risks may include or relate to, among others, foreign exchange, interest rate, credit, liquidity, market volatility, regulatory and political risks and any combination of these and other risks mentioned in this section below. The value of fixed income securities such as bonds may fluctuate as a result of changes in a number of factors such as interest rates and credit quality of the issuer. If the issuer of any of the securities in which the Sub-Fund is invested defaults or its credit quality deteriorates, the performance of the Sub-Fund will be adversely affected. The Sub-Fund may, subject to its investment objectives and policies, invest in securities of issuers located in different countries and regions. The economic and political environment of the relevant countries and regions may affect the performance of the Sub-Fund. Dividends, interests and capital gains received or earned by the Sub-Fund on their investments may be subject to non-recoverable withholding taxes in the countries of origin. The Sub-Fund may invest in financial derivative instruments for investment purposes as well as for hedging and efficient portfolio management. The financial derivative instruments that may be used by the Sub-Fund include but are not limited to futures, options, forwards and swaps (such as total return swaps). The price of financial derivative instruments can be very volatile because a small movement in the price of the underlying security, index, interest rate or currency may result in a substantial movement in the price of the financial derivative instrument. In addition, financial derivative instruments are subject to a variety of other risks, including liquidity risk (e.g. when particular derivative instruments become difficult to purchase or sell), credit risk (e.g. when an issuer or counterparty fails to honour its obligations under the derivative contract, or a lowering of the credit rating of an instrument leading to decreased liquidity of the instrument) and the risk of non-performance by the counterparty, including risks relating to the financial soundness and creditworthiness of the counterparty. The Sub- Fund may obtain collateral from the counterparty. Such collateral may include cash, securities issued or guaranteed by any OECD or European Union government, government agencies or any other public or supranational bodies or organisations or any other issuer which is, in the opinion of the Manager, of similar standing and certificates of deposit with maturity of no more than one year. Investors are reminded to consider the risks set out in this section for details of the risks involved in financial derivative instruments. General Market Risk The value of investments and the income derived therefrom may fall as well as rise and investors may not recoup the original amount invested in the Sub-Fund. In particular, the value of investments may be affected by uncertainties such as international, political and economic developments or changes in government policies. General Emerging Market Risk Prospective investors should note that investment in emerging markets such as China and other countries such as Indonesia, Malaysia, Philippines, Thailand, Argentina, Brazil, Korea, Israel, Chile, Colombia, Russia, Poland, Mexico, Turkey and South Africa, involve special considerations and risks. These include a possibility of nationalisation, expropriation or confiscatory taxation, foreign exchange control, political changes, government regulation, social instability or diplomatic developments which could affect adversely the economies of such countries or the value of the Sub-Fund s investments, and the risks of investing in countries with smaller capital markets, such as limited liquidity, price volatility, restrictions on foreign investment and repatriation of capital, and the risks associated with emerging economies, including high inflation and interest rates and political and social uncertainties. In addition, it may be difficult to obtain and enforce a judgement in a court in an emerging country. The economies of many emerging market countries are still in the early stages of modern development and are subject to abrupt and unexpected change. In many cases, governments retain a high degree of direct control over the economy and may take actions having sudden and widespread effects. Underlying investments of emerging market funds may also become illiquid which may constrain the Manager s ability to realise some or all of the portfolio. Accounting standards in emerging market countries may not be as stringent as accounting standards in developed countries. Brokerage commissions, custodial services and other costs relating to investment in emerging markets generally are more expensive than those relating to investment in more developed markets. Lack of adequate custodial systems in some markets may prevent investment in a given country or may require the Sub-Fund to accept greater custodial risks in order to invest. In addition, such markets have different settlement and clearance procedures. In certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. The inability of the Sub-Fund to make intended securities purchases due to settlement problems could cause the Sub-Fund to miss attractive investment opportunities. 7

12 Inability to dispose of a portfolio security caused by settlement problems could result either in losses to the Sub-Fund due to subsequent declines in value of the portfolio security or, if the Sub-Fund has entered into a contract to sell the security, could result in potential liability to the purchaser. The risk also exists that an emergency situation may arise in one or more developing markets as a result of which trading of securities may cease or may be substantially curtailed and prices for the Sub-Fund s securities in such markets may not be readily available. Investors should note that income and capital gains received or earned by the Sub-Fund on its investments may be subject to withholding taxes in the countries of origin. There may be uncertainties over the tax rules and legislations in emerging markets and changes in the political climate and economic policy in emerging markets may result in significant shifts in the attitude to the taxation of foreign investors. Such uncertainties and changes may result in changes to legislation, the interpretation or application of legislation, or the granting of foreign investors the benefit of tax exemptions or international tax treaties. The effect of such changes can be retrospective and can (if they occur) have an adverse impact on the investment return of the Sub-Fund. In case there is any uncertainty, the Manager reserves the right to provide for withholding tax on the relevant gains or income and withhold the tax for the account of the Sub-Fund. Markets are not always regulated in emerging markets and generally there are a relatively small number of brokers and participants in these markets and when combined with political and economic uncertainties this may result in illiquid markets in which prices are highly volatile. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Currency Risk As the assets and liabilities of the Sub-Fund may be denominated in currencies different from the base currency of the Sub-Fund, the Sub-Fund may be affected favourably or unfavourably by exchange control regulations or changes in the exchange rates between the base currency and other currencies. Changes in currency exchange rates may influence the value of the Sub-Fund s units, the dividends or interest earned and the gains and losses realised. Exchange rates between currencies are determined by supply and demand in the currency exchange markets, the international balance of payments, governmental intervention, speculation and other economic and political conditions. If the currency in which a security is denominated appreciates against the base currency of the Sub-Fund, the value of the security will increase when measured in the base currency of the Sub-Fund. Conversely, a decline in the exchange rate of the denomination currency of a security would adversely affect the value of such security. Hedging Transactions The Sub-Fund may utilise financial instruments such as derivatives to seek to hedge against fluctuations in the relative values of the Sub-Fund portfolio positions as a result of changes in exchange rates, interest rates, equity prices and levels of other interest rates and prices of other securities. Such hedging transactions may not always achieve the intended effect and can also limit potential gains. While the Sub-Fund may enter into such transactions to seek to reduce currency, exchange rate, interest rate and other risks, unanticipated changes in currency, interest rates and the relevant markets may result in a poorer overall performance of the Sub-Fund. For a variety of reasons, the Sub-Fund may not obtain a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent the intended hedge or expose the Sub-Fund to risk of loss. Interest Rate Risk Change in interest rate may affect the value of a security as well as the financial markets in general. Bonds and other fixed income securities are more susceptible to fluctuation in interest rates and may fall in value if interest rates change. Generally, the prices of debt securities rise when interest rates fall, whilst their prices fall when interest rates rise. Longer term debt securities are usually more sensitive to interest rate changes. Credit Risk An issuer suffering an adverse change in its financial condition could lower the credit quality of a security, leading to greater price volatility of the security. A lowering of the credit rating of a security or its issuer may also affect the 8

13 security s liquidity, making it more difficult to sell. The Sub-Fund s investment is also subject to the risk that issuers may not make payments on the securities they issue. If the Sub-Fund invests in lower quality debt securities it is more susceptible to these problems and its value may be more volatile. Downgrading Risk Investment grade bonds may be subject to the risk of being downgraded to non-investment grade bonds. In the event of downgrading in the credit ratings of a security or an issuer relating to a security, the Sub-Fund s investment value in such security may be adversely affected. The relevant Manager/ Investment Adviser may or may not dispose of the securities, subject to the investment objective of the Sub-Fund. If downgrading occurs, the non-investment grade debt risk outlined in the paragraph below will apply. Non-investment Grade Debt Risk Whilst the Sub-Fund aims to invest in a portfolio of investment grade bonds, there may be times where the credit rating of securities held by the Sub-Fund is below investment grade. Credit risk is greater for investments in fixedincome securities that are rated below investment grade. It is more likely that income or capital payments may not be made when due. Thus the risk of default is greater. The amounts that may be recovered after any default may be smaller or zero and the Sub-Fund may incur additional expenses if it tries to recover its losses through bankruptcy or other similar proceedings. The market for these securities may be less active, making it more difficult to sell the securities. Valuation of these securities is more difficult and thus the Sub-Fund s price may be more volatile. Sovereign Risk Certain developing countries are especially large debtors to commercial banks and foreign governments. Investment in debt obligations ( Sovereign Debt ) issued or guaranteed by developing countries governments or their agencies and instrumentalities ( governmental entities ) involves a high degree of risk. The governmental entity that controls the repayment of Sovereign Debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity s willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity s policy towards the International Monetary Fund and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearage on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity s implementation of economic reforms and/or economic performance and the timely service of such debtor s obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties commitments to lend funds to the governmental entity, which may further impair such debtor s ability or willingness to service its debt on a timely basis. Consequently, governmental entities may default on their Sovereign Debt. Holders of Sovereign Debt, including the Sub-Fund, may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which Sovereign Debt on which a governmental entity has defaulted may be collected in whole or in part. Potential Conflict of Interests The Manager, the Investment Adviser or other investment sub-adviser(s) as may be appointed by the Manager and/or the Investment Adviser from time to time (together the Service Providers ) or their respective associated companies or any director may, in the course of their business, have potential conflicts of interests in relation to the Sub-Fund and may promote, manage, advise or otherwise be involved in any other investment schemes while they act as the Service Providers of the Sub-Fund and may enter into any transactions with the Sub-Fund provided that such transactions are carried out as if effected on normal commercial terms negotiated at arm s length. For instance, associated companies or directors of the Service Providers may act as underwriters for securities sold to the Sub- Fund or provide investment management and/or advisory services to other clients (including other investment schemes). The Service Providers or their respective associated companies or any director will be free to render services similar to those which the Service Providers are providing to the Sub-Fund to other clients (including other investment schemes). Further, the Service Providers or their respective associated companies may receive income, commission, brokerage and other charges in relation to the sale or purchase of any investment by the Sub-Fund. At present, the Service Providers are also the manager or investment adviser of a number of investment schemes whose investment objectives, investment approach and investment restrictions are similar to those of the Sub-Fund. 9

14 The Service Providers are aware of the potential conflicts of interests in allocating investment opportunities between the Sub-Fund and such other investment schemes. The Service Providers will on a best effort basis ensure that all the investment schemes and accounts which they manage, including the Sub-Fund, are treated fairly, after considering whether or not the acquisition or disposition of investment is economical to a particular investment scheme or account and the objectives, restrictions and strategies of such investment scheme or account. Financial Derivatives Risk The Sub-Fund may have exposure in financial derivatives such as futures, forwards (including non-deliverable forwards), and swaps (including total return swaps and inflation swaps) as well as other financial derivative instruments. While the use of financial derivatives may aim to achieve return enhancement and investment objectives of the Sub-Fund, the price of a financial derivative instrument can be very volatile which may result in losses in excess of the amount invested in the financial derivative instruments by the Sub-Fund. The Sub-Fund may invest and trade in swaps, synthetic or derivative instruments, certain types of options and other customised financial instruments issued by banks, brokerage firms and other financial institutions. A swap is an agreement between the Sub-Fund and a financial intermediary whereby cash payments are periodically exchanged between the parties based upon changes in the price of an underlying asset (such as an equity security, an index of securities or another asset or group of assets with a readily determinable value). Swaps and other derivatives are subject to the risk of non-performance by the counterparty, including risks relating to the financial soundness and credit worthiness of the counterparty. Swaps and other forms of derivative instruments are not guaranteed by an exchange or clearing house or regulated by any governmental authority. It may not be possible to dispose of or close out a swap or other derivative position without the consent of the counterparty, and the Sub-Fund may not be able to enter into an offsetting contract in order to cover this risk. The Sub-Fund may enter into a total return swap in which one party receives interest payments on a reference asset plus any capital gains and losses over the payment period, while the other receives a specified fixed or floating cash flow unrelated to the credit worthiness of the reference asset, especially where the payments are based on the same notional amount. The reference asset may be any index or basket of assets. Transactions in futures carry a high degree of risk. The amount of the initial margin is small relative to the value of the futures contract so that transactions are leveraged or geared. A relatively small market movement will have a proportionately larger impact which may work for or against the investor. The placing of certain orders which are intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. Transactions in options also carry a high degree of risk. Selling ( writing or granting ) an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will also be exposed to the risk of the purchaser exercising the option and the seller will be obliged either to settle the option in cash or to acquire or deliver the underlying investment. If the option is covered by the seller holding a corresponding position in the underlying investment, the risk may be reduced. For avoidance of doubt, structured products which replicate the economic exposure of an inflation linked bond will not be treated as financial derivatives instrument. Risk of Trading on Over-the-counter Markets There are special risks associated with financial derivatives instruments, participation notes, structured products and other investments traded on over-the-counter (OTC) markets. In general, there is less governmental regulation and supervision of transactions in the OTC markets (in which many different kinds of financial derivatives instruments and structured products are generally traded) than of transactions entered into on organized exchanges. In addition, many of the protections afforded to participants on some organized exchanges, such as the performance guarantee of an exchange clearing house, may not be available in connection with transactions carried out on OTC markets. Therefore, if the Sub-Fund enters into OTC transactions it will be subject to the risk that its direct counterparty will not perform its obligations under the transactions and that the Sub-Fund will sustain losses. The Sub-Fund will only enter into transactions with counterparties which it believes to be creditworthy, and may reduce the exposure incurred in connection with such transactions through the receipt of letters of credit or collateral from certain counterparties. Regardless of the measures the Sub-Fund may seek to implement to reduce counterparty credit risk, however, there can be no assurance that a counterparty will not default or that the Sub-Fund will not sustain losses as a result. From time to time, the counterparties with which the Sub-Fund effects transactions may cease making markets or quoting prices in certain of the instruments. In such instances, the Sub-Fund may be unable to enter into a desired transaction or to enter into an offsetting transaction with respect to an open position, which may adversely affect its performance. 10