FINANCIAL INSTRUMENTS (All asset classes)

Transcription

1 YOUR INVESTMENT KNOWLEDGE AND EXPERIENCE KNOWLEDGE SHEETS FINANCIAL INSTRUMENTS (All asset classes) What are bonds? What are shares (also referred to as equities)? What are funds without capital protection? What is branch 21 savings insurance? What is investment insurance without capital protection (branch 23)? What is a structured product with 100% capital protection on the expiry date? What is a structured product without 100% capital protection on the expiry date? Trackers or Exchange Traded Funds (ETF) What are subordinated bonds? What are convertible bonds? What are perpetual bonds or perpetuals? What are property bonds? Investing in physical gold or other precious metals What are derivative products (such as options, warrants and turbos)? What are hedge funds? What are individual investments through commodity derivatives (commodity trackers using futures)? DS 5170

2 WHAT ARE BONDS? Entrepreneurs need money to start a company and enable it grow. They can obtain this money in various ways. They can invest their own money or obtain a loan from a bank. They can also appeal directly to savers and investors by issuing bonds. The government also issues bonds. A bond issued by the Belgian government is commonly referred to as a treasury bill. The government issues these bonds to obtain money from the public at large. The company or government issuing the bonds is referred to as the issuer. If you purchase a bond from a company or a government, you are lending money to the issuer. The company or government must pay back your loan after a term agreed upon beforehand. In exchange for making your money available, you receive interest from the issuer during the term. This is called the coupon. At the end of the term, on the maturity date, you normally get your original deposit back. However, you should take into account that, if the issuer becomes bankrupt, your original deposit may be paid back only in part or not at all. So if you wish to minimise this risk, you should choose an issuer with an excellent creditworthiness rating. Do not become blinded by a very high coupon or returns that look too attractive. After all, a high coupon or a very low quoted price for a bond can be an indication that the issuer is in financial difficulties, which means that you may very well be paid back only part or none of your original deposit on the maturity date. You can buy bonds when a company or a government decides to issue bonds. You then buy them on the primary market. When a bond is issued for the first time, it is given a value: the par value. The par value is not always the amount you actually have to pay to buy the bond. It is quite possible that you will have to pay a bit more or a bit less than the par value. The price that you have to pay for the bond is called the issue price. For instance: the par value of the bond is 1000, but the issue price is 1,010. The difference of 10 is an issue premium of 1%. You can also buy bonds that were issued a while back. You then do not buy them from the company or government itself but from someone who wishes to sell his bonds before the maturity date. In that case, you buy them on the secondary market. The price you pay for a bond on the secondary market can be lower or higher than the original issue price. This is determined, among other things, by the changes in the market rate of interest and the creditworthiness of the issuer (refer to risks). Accordingly, if someone wishes to sell his bonds on the secondary market before the maturity date, he will book a gain or a loss compared to his original deposit, depending on the market conditions. He can therefore realise a profit or sustain a loss. Features Issuer: The company, the government, or the organisation that issues the bond. Interest: Most bonds have a fixed interest. Usually, the interest is paid out annually. This annual interest is called the coupon. The interest on your bonds is automatically paid into your bank account. There are also bonds with a variable interest rate. The interest that you receive then usually fluctuates in line with the fluctuations in the market rate of interest. Make sure you receive sufficient information from your bank or financial intermediary before you invest in bonds with a variable interest rate. For some bonds, all the interest amounts are paid out at one go on the maturity date. These are zero-coupon bonds. As the interest on these bonds is not paid out each year, the price or value of these bonds increases annually. On the maturity date, the amount you are paid back is then higher than the price you paid when you bought the bond. Term: most bonds have a fixed term. The company or the government to which you are lending money will tell you on which day they will repay your loan. Currency: a bond can be issued in euros or in a foreign currency.

3 Risks Credit risk: if the issuer performs badly financially, there is a risk of the investment being lost fully. Though they vary greatly from one issuer to another, there is always a risk both when the issuer is a company or when the issuer is a government institution. Ratings assigned to issuers by rating agencies give an indication of insolvency risk, but these are not infallible. Note that the risk is significantly higher in the case of subordinated bonds. Liquidity risk: the liquidity of a bond indicates whether it is easy to buy (or sell) on the secondary market. Liquid bonds are easy to buy (or sell). Non-liquid bonds are difficult, if not impossible, to buy (or sell). The liquidity risk varies depending on the bond. Interest-rate risk: the value of a bond is considerably dependent on the market interest rate. If the market interest rate increases, the value of your bond decreases. The interest paid on your bond is lower than the market rate interest. This means your bond will be less desirable on the secondary market. On the other hand, if the price falls, the value of your bond will increase. Volatility risk: the price of a bond is subject to fluctuations, depending on the remaining lifetime of the bond (the farther away the maturity, the more sensitive the bond will be to fluctuations) and the progress of the issuer s financial situation (the bond price reacts negatively to a drop in the issuer s rating or a risk thereof). Currency risk: a bond issued in a foreign currency is subject to currency risk against the euro. Due to changes in the exchange rate, the amount you receive in euros when you sell the bond or when it matures may be higher or lower than the amount originally invested. Costs and taxes If you buy bonds, you should also take into account the costs and taxes that you need to pay. After all, these will influence the return on your bond. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Broker margin: margin payable to the broker for executing (selecting the best price, accessing the market and executing) an order on the secondary market. Exchange costs (for bonds in foreign currencies): costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Placing commission: commission paid to the bank for placing the issue. Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on interest: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Capital gains tax: if you sell bonds before maturity for more than the price you paid at the time of purchase, you make a capital gain. You don t have to pay any tax on this capital gain. Would you like to know more about bonds? Read our Information brochure on financial instruments on our website Some sections of this document were taken from Printed on 100% recycled paper DS4814

4 WHAT ARE SHARES (ALSO REFERRED TO AS EQUITIES)? Entrepreneurs need money to start a company and enable it grow. They can invest their own money or obtain a loan from a bank. But entrepreneurs can also appeal directly to savers and investors by issuing shares. Savers that buy shares in a company help the company to develop new products or explore new markets. An investor who buys a share becomes a shareholder and therefore also a part-owner of the company. Accordingly, a shareholder is prepared to take risk. He is entitled to a share of the profits of the company if things go well, and he will also share in any loss the company sustains if things go less well, as the value of the share then generally goes down. In the worst case, the value can even fall to zero, for example in case of bankruptcy. As part owner of a company, you have certain rights. You have a right to: a share in any annual distributed profit, referred to as the dividend. A part of the assets of the company if it stops operating and is liquidated. The right to vote at the general meeting of shareholders and information about the company. If you buy a share of a company, you are entitled to an annual dividend. To receive this dividend, two conditions must be fulfilled. First, the company must make a profit or build up reserves; second, the general meeting of shareholders must decide to pay out a part of the profit to the shareholders. If one of these two conditions is not fulfilled, then you will not receive any dividend. You can buy shares when the company decides to acquire capital from the public at large. The company then issues new shares. But usually shares are bought and sold on an exchange. This is a market where buyers and sellers of shares find each other. Shares that are traded on an exchange are referred to as listed shares. The market price indicates the price of a share. This is the price at which shares can be bought and sold on the exchange. In theory, the market price is a compromise between the expected return on the one hand and the internal and external risks associated with the share on the other. This is because the supply of and demand for a share are also influenced by the risks to which it is exposed at any given time. As a result, the price fluctuates not only from day to day, but usually also within the same day. If you buy and sell shares on the exchange, you can also benefit from a capital gain in addition to dividend. If you sell a share at a higher price than the price you paid for it in the past, you benefit from a capital gain. If you sell the share for less than the amount you paid for it, you sustain a capital loss. Features Issuing company: this is the company that acquires capital by issuing shares. Dividend: you receive a dividend for the share in which you invest only if the general meeting of shareholders decides to pay out a part of the profit or the accumulated reserves to the shareholders. So you have no assurance that you will receive an annual dividend. Some companies give the shareholders an optional dividend. You then have the choice to take payment of the dividend in cash or to buy new shares with your dividend. This choice is not always straightforward. Choosing to receive payment in cash makes sense if your focus is on minimising risk, if the shares in the company in question comprise a rather large part of your portfolio, or if the share is expensive. Otherwise, you can choose to have the dividend paid out in shares, as this gives you a tax benefit (i.e. no withholding tax) in some cases. Capital gain: the price that you paid for a share in the past can be higher or lower than the current market price. If you sell your share on the exchange, then you will book a profit (i.e. capital gain) or loss (i.e. capital loss), depending upon the market conditions. Term: in contrast to bonds, for example, shares do not have a fixed term. You get (part of) your initial investment back when you sell your share on the exchange. Please bear in mind that this can take quite some time. Currency: a share may be listed on the exchange in a foreign currency.

5 Information: you can find information online about the company you invest in. For example, you can usually find the annual report, the reports of the shareholder meetings et cetera. If you would like more information, then you must ask for it. Costs and taxes If you buy or sell shares, you should also take into account the costs and taxes that you need to pay. After all, these will influence the return on your share. Risks Currency risk: a share that is listed on the exchange in a foreign currency constitutes a currency risk against the euro. Each time that you buy or sell a share, your euros are converted into the foreign currency or vice versa. In other words, due to fluctuations in exchange rates, the amount in euros that you receive if you sell it may end up being less or more than the amount you originally invested. Liquidity risk: the liquidity of a share is an indication of how easy or difficult it is to buy or sell it on the market. Liquid shares are easy to buy or sell. Non-liquid shares are difficult or impossible to buy or sell. This risk largely depends on the share in question. Capital risk: If a company is in financial difficulties, the value of its shares on the exchange can drop steeply. In the worst case involving a bankruptcy, you will be paid back only after the debtors have been paid first. The chance that you will then still receive something is practically zero. The price of a share often anticipates difficulties. Even without bankruptcy, the value of the share can still fall to almost zero. So obtain sufficient information before investing in shares of a company, and preferably invest in shares of companies that you are familiar with. Interest rate risk: changes in interest rates can have an indirect influence on the stock markets. If interest rates rise, it becomes more difficult for companies to borrow, and this increases the costs incurred by the company. Price volatility risk: the price of a share fluctuates. This is referred to as volatility. The volatility of share depends heavily on the quality of the company, its activities, its results, and the general market situation. If a share is volatile, its price fluctuates strongly, and you can make a great deal of profit as well as sustain a great deal of loss. Performance risk: for shares, this represents the risk of not receiving dividends. This risk is clear, as dividends are variable income. Additionally, some years companies may decide not to pay out dividends for various reasons. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Exchange costs (for bonds in foreign currencies): costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on dividends: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, that is, the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Would you like to know more about shares? Read our Information brochure on financial instruments on our website Some sections of this document were taken from Printed on 100% recycled paper DS4815

6 WHAT ARE FUNDS WITHOUT CAPITAL PROTECTION? Most funds are Undertakings for Collective Investments in Transferable Securities (UCITS). Each UCITS is effectively a separate company, and its goal is to collect the savings of a great many different investors in one big pot. For each fund, there are managers that invest the collected savings in accordance with predetermined strategies and conditions. The manager can invest in products such as shares (i.e. equities), bonds, derivatives, real estate etc. Often, investments are made in a mix of these products. As soon as you have chosen a fund, you can buy units or shares in that fund. The price you pay depends upon the net asset value. If the fund ends the day with a closing value of 200 per share and you wish to invest 5000, then you will receive 25 units in that fund for that amount (not including costs). If you invest in distribution shares, you will receive a dividend at regular intervals. In most cases, this is done annually, but there are also funds that pay out a dividend on a monthly basis, for example. The dividend consists of the revenues realised by the fund minus the costs incurred by the fund. The revenues can come from the products in which the fund invests: dividends from shares, interest from bonds, capital gains, etc. The fund will pay out a dividend only if two conditions are fulfilled. First, the company must make a profit or have accumulated reserves; second, the management company must decide to pay out a dividend. If these two conditions not met, you will not receive any dividend. If you choose for capitalisation shares, you will not receive any dividend. In that case, the fund uses its annual revenues for new investments. You receive the revenues, i.e. the capital gain, when you sell your units in the fund. The revenues are then reflected in the value of the fund. Funds can also be divided into open and closed funds. An open-ended fund (investment fund with variable capital) is one where it is possible, within certain limits, to deposit money into the fund and take money out of it when you wish to do so. When you put money in, the fund buys new investment products with your money. When you take money out of the fund, the fund sells part of your investment products to cover the amount of your withdrawal. A closed fund (investment fund with fixed capital) has a fixed number of units. It s more difficult to sell units in a closed fund. The fund rarely buys back its own units, which means that they must be sold to other investors on the exchange. You can also realise a profit or a loss when you sell a unit in a fund. If you sell your unit for a higher price than the price at which you purchased it, you realise a capital gain. However, if you suffer a loss, you sustain a capital loss. Features Management company: the company that issues and manages funds. Diversification: a fund invests in a variety of investment products to spread its risk over a range of products. If one product in the portfolio performs less well, the income from the other products will limit the loss if everything goes well. Funds are sometimes also referred to as bond funds, equity funds, etc., which is an indication of the products included in the fund. If a fund is referred to as a strategic fund, it indicates that the fund manager invests in line with a predetermined strategy. Professional management: The fund in which you invest is managed by a manager. Within the framework of the predetermined strategy and conditions, he will actively manage the portfolio of the underlying investment products in order to optimise its return and adjust it to changing market conditions. Dividend: if you invest in distribution shares, then you may receive dividends if the fund makes a profit. Capital gain: just like a bond or a share, you can realise a capital gain if you sell your unit in the fund. For funds, we call it a capital gain if you sell your unit for a higher price than the price you bought it for. If you buy capitalisation shares, the capitalised profit is also referred to as a capital gain.

7 Term: some funds have a final maturity date. On that date, the fund ceases to exist. Everyone who has invested in the fund is paid back on the final maturity date. The exact amount paid depends upon the value of the investment products present in the fund on the final maturity date. Costs and taxes If you buy or sell units in a fund, you should also take into account the costs and taxes that you need to pay. After all, these will influence the return on your fund units. However, most funds do not have a final maturity date. In these funds, you can decide for yourself when it is best for you to put money in or take money out. It s a good idea for you to take the minimum recommended investment horizon into account. After a few days or weeks, you will then have the money you invested back again. Currency: funds can be issued in a foreign currency. Risks Generally, risks associated with an ICB are linked to the risks of the assets in which the ICB invests. Currency risk: a fund in a foreign currency constitutes a currency risk against the euro. Each time that you buy or sell a unit in the fund, your euros are converted into the foreign currency or vice versa. In other words, due to fluctuations in exchange rates, the amount in euros that you receive if you sell it may end up being less or more than the amount you originally invested. Liquidity risk: liquidity is an indication of how easy it is to buy or sell an investment product. The liquidity risk for funds is very small. In the case of open funds, the units are repurchased by the issuing institution. Units of a closed fund are traded on the exchange. The liquidity on the exchange differs from fund to fund. Interest rate risk: changes in interest rates can have an indirect influence on the performance of a fund. This depends heavily on the products in which the fund is invested. Interest rate risk is higher for a bond fund than for an equity fund. Capital risk: you run the risk of receiving less than your original investment when your participation in the fund are sold. Volatility risk: we say that the unit price is volatile if it fluctuates greatly. The price volatility depends primarily on the products in which the fund invests and its investment strategy. By way of example, an equity fund therefore has a higher volatility risk than a bond fund. All funds are given a risk class. This score gives an indication of the global risk of price fluctuations for the investment products in which the fund is invested. The upward and downward price movements of the underlying investment products can have various causes: the exchange rates of foreign currencies, an increase or decrease in the interest rates, and of course also the stock market price trends. Risk lack of income: a capitalisation fund dos not distribute income, unlike a distribution fund. It is, though, possible that a distribution fund will occasionally fail to pay out an income. COSTS Ongoing charges: recurrent costs included in the value of the financial instrument and therefore directly factored into the return calculations. The ongoing charges include, amongst other things, the distribution and management fees. Also known as the Ongoing Charge Ratio (OCR) for funds or Total Expense Ratio (TER) for insurance products. Entry fee: one-off fee to be paid by the investor when subscribing to a financial instrument. Exchange costs: costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Arbitrage costs: costs charged for transfer (arbitrage) from a sub-fund of one fund to a sub-fund of another fund. Conversion costs: transfer from one sub-fund of a BNP Paribas Asset Management fund to another sub-fund of the same fund or conversion of distribution shares into capitalisation shares (or vice versa) within the same sub-fund of a BNP Paribas Asset Management fund. Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on dividends: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, that is, the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Withholding tax on capital gains: capital gains realised on the settlement of a collective investment vehicle in securities where more than 25% of the assets are invested in debt claims, or on the redemption or sale of its units on the secondary market, are taxed as interest and therefore subject to withholding tax. Would you like to know more about funds? Read our Information brochure on financial instruments at Some sections of this document were taken from Printed on 100% recycled paper DS4816

8 WHAT IS BRANCH 21 SAVINGS INSURANCE? Branch 21 insurance products are part of the wider category of life insurance products. Life insurance is a contract under which an insurer undertakes to pay capital (or interest) to one or more beneficiaries in the case of life and/or death of a particular individual (the insured party), in return for the payment of a premium. A branch 21 insurance is a life insurance policy which offers protection of the capital invested and the return (excluding fees, taxes and any death insurance costs). By taking out an insurance policy, you receive the premiums you have paid, less costs, on the expiry date. You usually also receive a guaranteed interest rate as well as a share in the profits if these are paid out by the insurer. The branch 21 insurance contract is a medium to long-term savings product. Additionally, only branch 21 insurance policies offer the option to benefit from a tax advantage when your contract is used to built up a supplementary pension or in the case of long-term savings. You can opt to take out additional death cover in your insurance policy. If you do that, the insurer will ask you for an additional premium. The larger the amount that you want to bequeath, the higher the premium will be. In this way, financial insurance forms an excellent component for your inheritance planning. Features Insurer: this is the insurance company that offers you your insurance. Policyholder: this is the person who takes out the insurance and pays the premium. This can be the same person as the insured, but this need not be the case. Insured: this is the person who is insured. Their life or death is insured. Beneficiary: if the insurance expires or the insured dies, the money is paid out to the beneficiary designated in the insurance policy. In this way, you can support your loved ones financially. Premium: when you pay money into an insurance policy, you are actually paying a premium. This can be a one-off premium, but it is also possible to pay different premiums during the life of the policy. Term: the policy can have a final expiry date and so a fixed term (e.g. 10 years), but it can also be open-ended. An open-ended policy expires upon the death of the insured or when you surrender your insurance. Guaranteed return: the return guaranteed by the insurer. In most cases, the return is not paid out annually but is capitalised. It is then added to the originally-invested capital so that this return can, in turn, generate a return the following year. When you take your capital, at the same time you will receive the capital and all returns. With-profits: in principle, you can receive a share in the profits every year. This is not predetermined or guaranteed, but depends on how much profit your insurer makes. Once the profits have been allocated, the insurer cannot take them back. The allocation of profits may be subject to conditions being met. Capital protection: your capital is protected on the final expiry date. This means that you will recoup your capital in full on the expiry date. Capital guarantee: your capital is guaranteed by the Special Protection Fund. If the insurer experiences problems, the Fund guarantees that you will recoup up to EUR 100,000 of your money. Risks Currency risk: the majority of branch 21 savings insurance policies are denominated in EUR. A savings insurance policy may occasionally be denominated in a foreign currency. As exchange rates can fluctuate considerably, all investments made in foreign currencies come with an extra risk attached. Liquidity risk: insurance products cannot be traded. The repurchase right which is established by the insurance contract defines the conditions for making invested capital available. Market risk: the value of an insurance policy varies over time. You have capital protection and a guarantee, as a result of which you can be certain that you will receive both the return and the capital on the final expiry date.

9 Insolvency risk: this risk is low. The legislator obliges all insurers to have a safety net amounting to a certain percentage of the funds invested with them in branch 21 financial insurance. If the insurance company fails, the policyholder is reimbursed before the other creditors. This product is also guaranteed by the Special Protection Fund for Deposits and Life Insurance. This comes into play when the insurer experiences financial problems. Each policyholder is protected for an amount of EUR 100,000 for each insurance company. If you have more capital with the same company, only the first EUR 100,000 are guaranteed. You therefore run the risk that you will lose some or all of the remaining amount. Costs and taxes When you take out branch 21 savings insurance, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your investment. COSTS Commission: One-off fee to be paid by the investor on subscribing to a financial instrument. Costs on surrender: Costs of repurchase by the bank. Exit fees: you do not pay any exit fees in the event of death or on the expiry date of the policy. TAXES Tax on life insurance: In principle you pay a premium tax of 2% (as a natural person) or 4.4 % (as a legal entity) on the premiums for an individual life insurance policy. However, there are certain exceptions: you pay no premium tax (0%) on deposits for pension savings insurance policies you pay only 1.1% premium tax on deposits for your loan protection insurance that are used to guarantee a mortgage loan to acquire or retain real estate. Withholding tax: Income from capital is taxable income in Belgium. Withholding tax on the interest/dividends: The bank or the company that pays your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax discharges you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Withholding tax on capital gains: Capital gains realised on the settlement of a collective investment vehicle in cash where more than 25% of the assets are invested in debt claims, or on the repurchase or the sale of its units on the secondary market, are taxed as interest and therefore subject to withholding tax. Want to know more about savings insurance? Read our Financial Instruments information sheet on our website at Some sections of this document were taken from Printed on 100% recycled paper DS4817

10 WHAT IS INVESTMENT INSURANCE WITHOUT CAPITAL PROTECTION (BRANCH 23)? Branch 23 insurance combines an investment component with insurance against risks: death and life. They are linked to high-risk investment products. Consequently, they can offer a potentially greater return, but without any guarantee. You pay premiums to your insurer for your branch 23 life insurance. Your insurer will initially deduct costs, taxes and, where appropriate, a fee for death cover from these premiums. You use the remainder of your premium to buy units of one or more internal funds that are linked to your branch 23 life insurance. You can liken an internal fund to a large piggy bank managed by the management company. Insurers have lots of different piggy banks or internal funds. For each internal fund, the insurer will invest the money received in bonds, equities, real estate, funds, etc. One internal fund will, for example, invest more in equities, while another fund will invest more in bonds. Your contract states the piggy bank or internal fund in which your premium will be deposited. The value of these internal funds and so of your branch 23 life insurance changes constantly because the value of the products in which the internal funds invest is constantly fluctuating. When you choose branch 23 instead of branch 21 life insurance, you are opting for an investment that might generate a greater return. But this greater return also entails more risk. The risks inherent in the internal funds are related to the risks inherent in the products in which the fund invests. So, it is more risky to invest in shares of start-up technology companies than in German or Belgian government bonds. You can opt to take out additional death cover in your insurance policy. If you do that, the insurer will ask you for an additional premium. The larger the amount that you want to bequeath, the higher the premium will be. In this way, financial insurance forms an excellent component for your inheritance planning. Features Insurer: this is the insurance company that offers you your insurance. Policyholder: this is the person who takes out the insurance and pays the premium. This can be the same person as the insured, but this need not always be the case. Insured: this is the person who is insured. Their life or death is insured. Beneficiary: if the insurance expires or the insured dies, the money is paid out to the beneficiary designated in the insurance policy. In this way, you can support your loved ones financially. Premium: when you pay money into an insurance policy, you are actually paying a premium. This can be a one-off premium, but it is also possible to pay different premiums during the life of the policy. Term: the contract has an indefinite term and only expires upon the death of the insured or when you surrender your insurance. Risks Currency risk: insurance taken out in a foreign currency entails a currency risk against the euro. Whenever you buy or sell such an insurance policy, your euros are converted to the foreign currency (or back). The amount in euros that you receive in the event of sale can be more or less than the amount that you originally invested owing to the exchange rate. Liquidity risk: insurance products cannot be traded. The repurchase right which is established by the insurance contract defines the conditions for making invested capital available. Interest rate risk: interest fluctuations may influence the result of the investment.

11 Risk of lack of income: during the lifetime of the contract, no income is distributed. Capital risk: there is generally no capital protection, you run the risk of not recouping your original outlay in full if you withdraw from the insurance. Owing to the large diversification of investment products in which the underlying funds invest, the potential is more limited than for an investment in an individual share, for example. Risk of volatility and other risk: the risk of volatility and the other risks associated with a branch 23 insurance largely depend on the assets in which the fund invests. Costs and taxes When you buy branch 23 insurance, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your investment. TAXES Tax in life insurance premium: in principle you pay a premium tax of 2% (if you are a natural person) or 4.4% (as a body corporate) on premiums on individual life insurance. However, there are a number of exceptions. on deposits made to pension savings insurance, you do not pay a premium tax (0%). on deposits for your loan protection insurance, needed as a guarantee for a mortgage to acquire or maintain property, you only pay a premium tax of 1.1%. Withholding tax: in principle no withholding tax is owed on the added value at maturity, or in the case of early redemption (i.e. if your contract has not yet reached 8 years and 1 month). Withholding tax will only be owed on added value if you choose a branch 23 formula with a guaranteed minimum return and if you want to redeem your added value before your contract has reached 8 years and 1 month. COSTS Commission: one-off payment to be paid by the investor when subscribing to a financial instrument. Management payment: payments linked to the management of a financial instrument are calculated daily and are included in the inventory value. These costs vary depending on the instrument and/or the type of management. These costs are included in the running costs. Redemption costs (insurance): costs charged when redeeming an insurance product. Conversion costs: costs which may be charged when transferring from an investment fund to another investment fund in a Branch23 insurance product. Exit fees: you do not pay any exit fees in the event of death or on the expiry date of the policy. Do you want to find out more about investment insurance without capital protection? Read our Financial Instruments information sheet on our website at Some sections of this document were taken from Printed on 100% recycled paper DS4818

12 WHAT IS A STRUCTURED PRODUCT WITH 100% CAPITAL PROTECTION ON THE EXPIRY DATE? Just like a bond, a structured product has a fixed term and, all being well, 100% capital protection. However, the return is not or only partially guaranteed. If you are looking for a potentially greater return, you must often forgo capital protection. A structured product is a combination of different financial instruments, such as options and bonds. Derivatives such as options are generally used to achieve a greater return. However, bonds are used to guarantee repayment of the deposit on the final expiry date. A structured product combines capital protection on the final expiry date with financial market volatility without making a direct investment. Structured products offer considerable flexibility and diversity. Structured products differ from one another owing to their return mechanism, their underlying assets (basket of equities, stock exchange indices, commodities, etc.) or the form of their profit (fixed and/or variable coupons, increase in value granted on the expiry date). Before investing, therefore, you are advised to go through the strategy adopted for the structured product. This will allow you to become familiar with the underlying assets. Structured products can be split up into three investment categories: bonds, funds and branch 23 insurance. (You can find more information on each individual product in the specific information sheets.) One difference compared with these individual products is that structured products always have a fixed term and 100% capital protection on the final expiry date. When new structured bonds are issued, you can subscribe for them on the primary market for a specific period at a fixed price. Buying structured bonds after the issue period or selling them before the expiry date is possible on the secondary market. In that case, the purchase or sale price is determined by the price of the structured bond less costs. Funds with guaranteed capital are also structured products. These fixed funds, or funds with capital protection, ensure that you at least recoup your deposit, i.e. the sum you had originally invested, on the final expiry date. The third category of structured products is branch 23 insurance with 100% capital protection. This offers you the same benefits as standard branch 23 insurance combined with protection of your capital on the final expiry date. Features The features depend on the type of structured product in which you are investing. You will find all the features in the information sheets. Please find below a summary of the features that specifically depend on the structured nature of the product. Term: structured products always have a fixed term. In this way, you know how long you will have to go without your money at the time of purchase. Capital protection: you benefit from protection of your capital on the expiry date. This means that you will recoup your capital in full on the expiry date. This type of protection can also affect your return. As for all investments, the following also applies here: the lower the risk, the lower the return. In addition, capital protection only applies on the maturity date of the structured product. This protection does not apply if you withdraw before the proposed date. Capital guarantee: you also benefit from a capital guarantee in the case of some structured products. This means that a third party (e.g. a bank) will guarantee to repay your capital on the expiry date. Risks The risks depend on the type of structured product in which you are investing. You will find all the risks in the relevant information sheets. Please find below a summary of the risks that specifically depend on the structured nature of the product. Liquidity risk: the liquidity of a structured product indicates whether it is easy to buy (or sell) on the secondary market. The risk is substantial here because there is not always a market for trading structured products. If you want to withdraw early, you might receive an amount that is more or less than the actual value of your product.

13 Currency risk: all structured products issued in a foreign currency are exposed to a currency risk against the euro. When you buy or sell this kind of fund, your euros are converted into this foreign currency (or vice versa). It is very possible, depending on exchange rate trends, that the amount of euros gained from selling will be higher or lower than your original investment. Capital risk: capital protection at maturity depends on the creditworthiness of the party that undertakes to protect the capital on the final expiry date. In the case of structured bonds, the issuer and any guarantor are important. In the case of branch 23 financial insurance, you should always check which party undertakes to repay the capital on the final maturity date: there is usually no guarantee for this. There is also usually no guarantee on the final maturity for fixed funds. Performance risk: the capital at maturity is protected, but the return is uncertain. This is because it is always dependent on the evolution of the underlying assets. Don t let yourself be dazzled by attractive conditions (e.g. coupons). Returns and payments cannot be guaranteed. You should therefore pay close attention to the underlying products which will determine the return. Risk of lack of income: the risk of a lack of income depends on the characteristics of each product, and on the payment policy. When income is expected, the actual payment of this income may depend on the evolution of certain assets and the debtor s creditworthiness. OTHER RISKS: Risks linked to the assets making up the structure: as structured products comprise various financial instruments (such as shares, bonds and derivatives), all of the risks which apply to the underlying assets apply. Risk arising from the grouping of two or more financial instruments: the risks inherent in each product can be individually reinforced by the risks inherent in the other products with which they are combined. The ultimate risk may therefore be greater than that for each individual product. Early exit risk: opportunities to exit may be limited. The run-down time and possibilities to recover the initial costs may vary depending on the structure. Costs and taxes When you buy a structured product, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your investment. Please find below a summary of the costs and taxes that specifically depend on the structured nature of the product. You will find all the risks in the relevant information sheets. COSTS Placing commission: commission to the bank for placing the share issue. Income commission: commission paid to the bank for distributing and promoting the financial instrument. Running costs: recurrent costs included in the financial instrument s value, and therefore immediately included in the performance calculations. The transaction costs include, amongst other things, the income and management fees. Also known as the Ongoing Charge Ratio (OCR) for funds, or the Total Expense Ratio (TER) for insurance products. Management fees: costs linked to the management of a financial instrument, calculated daily and included in the asset value. These costs vary depending on the instrument and/or the type of management. These costs are included in the running costs. Structuring payment: costs charged by the producer for putting a financial instrument together. Redemption costs (insurance): costs charged when redeeming an insurance product. Exit fee in favour of the sub-fund: exit fee in favour of the sub-fund, borne by an investor when exiting a sub-fund, to ensure the rights of the other investors in that sub-fund. Transaction costs: payment for the bank acting as an intermediary for transactions on the secondary market (shares and bonds). Purchase-sale range: the difference between the buyers and sellers of a financial instrument on the secondary market. Exchange costs: costs of exchange transactions, owed on transactions in a foreign currency with settlement in euros. Withholding tax: income from capital is taxable income in Belgium. Withholding tax on interest/dividends: The bank or company which pays interest or dividends to you pays a withholding tax to the tax authorities. This means you receive the net amount: i.e. the (gross) interest or dividends less any foreign levy at source and applicable withholding tax. Withholding tax discharges you from paying other taxes on this income, meaning you do not have to state it on your personal income tax return (though you may choose to do so). Printed on 100% recycled paper

14 Withholding tax on added value: Added value realised when settling a collective investment institution in securities, of which more than 25% of the assets are invested in claims, or when redeeming or selling participation rights on the secondary market, are taxed as interest and are therefore subject to withholding tax. Tax on stock exchange transactions: the stock exchange tax or tax on stock exchange transactions (TOB) is a tax levied when you execute certain transactions - such as buying and selling - on certain financial instruments which have already been issued (shares, funds, bonds, etc.). This means that when issuing new securities you do not pay stock market tax. Conversion charges: transferring from a sub-fund in a BNP Paribas Asset Management fund to another sub-fund in the same fund, or transferring distribution shares into capitalisation shares (or vice-versa) within the same sub-fund of a BNP Paribas Asset Management fund. Do you want to find out more about structured products? Read our Financial Instruments information sheet on our website at Some sections of this document were taken from DS4819

15 WHAT IS A STRUCTURED PRODUCT WITHOUT 100% CAPITAL PROTECTION ON THE EXPIRY DATE? Just like a bond, a structured product without 100% capital protection has a fixed term. Unlike a structured product with 100% capital protection, this product offers less than 100% capital protection or even no capital protection at all on the predetermined final expiry date. A structured product without 100% capital protection is a combination of different financial instruments, such as options and bonds. Derivatives, such as options, are generally used to achieve a greater return. Bonds are used to achieve the minimum objective (e.g. repayment of 90% of the initial investment on the predetermined final expiry date). With this type of structured product, you combine a target on the final expiry date (e.g. 90% capital protection) with financial market volatility without making a direct investment. Structured products offer considerable flexibility and diversity. Structured products differ from one another owing to their return mechanism, their underlying assets (basket of equities, stock exchange indices, commodities, etc.) or the form of their profit (fixed and/or variable coupons, increase in value granted on the expiry date). We therefore recommend that you always look at the strategy adopted for the structured product. Structured products without 100% capital protection can be divided into three investment categories: bonds, funds and branch 23 insurance. (You can find more information on each individual product in the specific information sheets.) One difference compared with these individual products is that structured products always have a fixed term and a specific objective (e.g. 90% capital protection on the final expiry date). When new structured bonds are issued, you can subscribe to them on the primary market for a specific period at a fixed price. Buying structured bonds after the issue period or selling them before the expiry date is possible on the secondary market. In that case, the purchase or sale price is determined by the price of the structured bond, less costs. The second category of structured products without 100% capital protection is fixed funds, which offer less than 100% capital protection on the predetermined final expiry date. Finally, there are branch 23 insurance policies without 100% capital protection. They offer you the same benefits as standard branch 23 insurance combined with partial protection of your capital on the final expiry date. Features The features depend on the type of structured product in which you are investing. You will find all the features in the information sheets. Please find below a summary of the features that specifically depend on the structured nature of the product. Term: structured products always have a fixed term. In this way, you know how long you will have to go without your money at the time of purchase. Partial capital protection: you often benefit from partial protection of your capital (e.g. 90%) on the expiry date. This means that you will recoup at least a predetermined portion of your capital on the expiry date. This type of (partial) protection can also affect your return. As for all investments, the following also applies here: the lower the risk, the lower the return. In addition, any capital protection only applies on the maturity date of the structured product. This protection does not apply if you withdraw before the proposed date. Risks The risks depend on the type of structured product in which you are investing. You will find all the risks in the relevant information sheets. Please find below a summary of the risks that specifically depend on the structured nature of the product. Liquidity risk: the liquidity of a structured product indicates whether it is easy to buy (or sell) on the secondary market. The risk is substantial here because there is not always a market for trading structured products. If you want to withdraw early, you might receive an amount that is more or less than the actual value of your product. Currency risk: all structured products issued in a foreign currency are exposed to a currency risk against the euro. When you buy or

16 sell this kind of fund, your euros are converted into this foreign currency (or vice versa). It is very possible, depending on exchange rate trends, that the amount of euros gained from selling will be higher or lower than your original investment. Capital risk: capital protection (if any) on maturity depends on the creditworthiness of the party that undertakes to protect the capital on the final expiry date. In the case of structured bonds, the issuer and any guarantor are important. In the case of branch 23 financial insurance, you should always check which party undertakes to repay the capital on the final maturity date: there is usually no guarantee for this. There is also usually no guarantee on the final maturity for fixed funds. Performance risk: the capital at maturity may be partially protected, but the return is uncertain. This is because it is always dependent on the evolution of the underlying assets. Don t let yourself be dazzled by attractive conditions (e.g. coupons). Returns and payments cannot be guaranteed. You should therefore pay close attention to the underlying products which will determine the return. Risk of lack of income: the risk of a lack of income depends on the characteristics of each product, and on the payment policy. When income is expected, the actual payment of this income may depend on the evolution of certain assets and the debtor s creditworthiness. OTHER RISKS Risks linked to the assets making up the structure: as structured products comprise various financial instruments (such as shares, bonds and derivatives), all of the risks which apply to the underlying assets apply. Risk arising from the grouping of two or more financial instruments: the risks inherent in each product can be individually reinforced by the risks inherent in the other products with which they are combined. The ultimate risk may therefore be greater than that for each individual product. Early exit risk: opportunities to exit may be limited. The run-down time and possibilities to recover the initial costs may vary depending on the structure. Costs and taxes When you buy a structured product, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your investment. Please find below a summary of the costs and taxes that specifically depend on the structured nature of the product. You will find all the risks in the relevant information sheets. COSTS Placing commission: commission paid to the bank for placing the investment. Distribution commission: commission paid to the bank for placing the issue. Commission paid to the bank for distributing and promoting the investment. Ongoing charges: recurrent costs included in the value of the financial instrument and therefore directly factored into the return calculations. The ongoing charges include, amongst other things, the distribution and management fees. Also known as the Ongoing Charge Ratio (OCR) for funds or Total Expense Ratio (TER) for insurance products. Management fees: fees related to the management of a financial instrument, calculated daily and included in the net asset value. These fees vary depending on the instrument and/or the type of management. They are included in the ongoing charges. Structuring fee: fee paid to the issuer of a structured bond for setting up the structure. Redemption fees (insurance): fees charged when an insurance product is redeemed. Exit fee paid into the sub-fund: exit costs paid into the sub-fund by the investor on exiting a sub-fund to safeguard the rights of the other investors in this sub-fund. Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Difference between the bid price and ask price (bid-ask spread): a structured bond will be sold on the secondary market at a lower price, the bid price, than the ask price at which the same structured bond is purchased. The difference between these prices is called the bid-ask spread. Exchange costs: costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Withholding tax: income from capital is taxable income in Belgium. Withholding tax on interest/dividends: The bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Withholding tax on capital gains: Capital gains realised on the settlement of a collective investment vehicle in securities where more than 25% of the assets are invested in debt claims, or on the redemption or sale of its units on the secondary market, are taxed as interest and therefore subject to withholding tax. Printed on 100% recycled paper

17 Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Do you want to find out more about structured products? Read our Financial instruments information sheet on our website at Some sections of this document were taken from Printed on 100% recycled paper

18 TRACKERS OR EXCHANGE TRADED FUNDS (ETF) An ETF is a listed fund that tracks the movements of a specific index or basket of equities or bonds, etc. That is why this type of investment is also called a tracker. We make a distinction between ETFs with physical and synthetic replication: An ETF with physical replication buys practically all the shares, bonds, etc. which are part of the tracked index. If the index changes, the tracker buys or sells the corresponding securities. In this way, the ETF can continue to track the index closely. The benefits of this method are simplicity and transparency, but the costs are slightly higher than for a tracker with synthetic replication. An ETF with synthetic replication enters into swap agreements with one or more counterparties in order to generate a return on the index. The swap counterparty assures a return on the index in exchange for a return on the collateral (= the investors money in the ETF). Consequently, there is a risk for investors: if the swap counterparty cannot fulfil its obligations, investors could lose some of their investment. Features An ETF has no fixed term. An ETF combines the benefits of shares and investment funds. An ETF offers both the simplicity of a share (buying and selling via the stock exchange) and the diversification of an investment fund. Compared with mutual funds, ETFs have the advantage of allowing transactions in real time. SICAVs and mutual funds can only be traded once a day, and the price is (usually) the closing price of the markets in which the fund invests. An ETF cannot choose what to invest in because it has to replicate the underlying index; this is in contrast to an actively managed investment fund where, for example, the manager can invest in more defensive securities if the market displays a downward trend. ETFs can pay out a dividend. Read the prospectus to see whether a specific ETF pays out a dividend. Risks Currency risk: if you invest in an ETF in foreign currency, there is a currency risk against the euro. The amount in euro that you receive in the event of sale or on the expiry date can be more or less than the amount that you originally invested owing to the exchange rate. Liquidity risk: we use the word liquidity to express how easy it is to buy and sell an investment product. The liquidity risk is generally low for ETF. Market risk: the return on an ETF depends on the underlying asset. For example, if you invest in an ETF that tracks a European equity index, the return will be determined by the evolution of that equity index. Concentration risk: in many indexes, a small number of major shares predominate. A price fall for those shares can/will therefore have a major impact on the EFT. This is because, unlike an actively managed fund, an ETF cannot change its composition. Price volatility risk: we say that a price is volatile when it fluctuates significantly. The risk of price volatility depends largely on the assets in which the fund invests, and on the strategies applied. The upward and downward price movements of the underlying investment products can be due to various factors: the exchange rate of foreign currencies, rising or falling interest rates, and of course the evolution of market prices. Performance risk: this risk only arises if you invest in an ETF that pays out dividends. It may be that the ETF does not pay out a dividend, as a result of which you will receive less income than you hoped. In addition, you must take into account the fact that dividends are sometimes also taxed by foreign authorities. Counterparty risk: if the swap counterparty cannot fulfil its obligations concerning an ETF with synthetic replication (see above), investors could lose some of their deposit. Capital risk: in principle, there is no protection against the loss of capital (aside from having a diversified index).

19 Costs and taxes When you buy an ETF, it is in your best interest to take the fees and taxes that you will have to pay into account. This is because they will affect the return on your investment. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Broker margin: margin payable to the broker for executing (selecting the best price, accessing the market and executing) an order on the secondary market. Exchange costs (for bonds in foreign currencies): costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Custody fee: fee charged by the bank for keeping securities in a custody account. Withholding tax on dividends: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Capital gains tax: ETFs that invest more than 25% of their assets in debt instruments (bonds, cash, etc.) are, in principle, subject to capital gains tax in the event of sale. Want to know more about ETFs? Read our Financial instruments information sheet on our website at TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Printed on 100% recycled paper DS4821

20 WHAT ARE SUBORDINATED BONDS? A subordinated bond is only repaid once all other creditors have been repaid if the issuer goes bankrupt. Holders of a subordinated bond are repaid before shareholders. Features A subordinated bond has the same basic features as a standard bond. The issuer is the entity issuing the bond. This entity (usually a financial institution) borrows money from investors and will pay interest (the coupon) to those investors in return. Interest is usually paid annually. Subordinated bonds are often rated. This rating gives an indication of the creditworthiness of the issuer when it is awarded. It is awarded by specialised, independent firms (mainly Moody s and Standard & Poor s). Most subordinated bonds also have a fixed term. Once the term has expired (on maturity), the issuer repays the borrowed capital, provided, of course, that the issuer has not gone bankrupt. A subordinated bond differs from a standard bond in the following ways: If the issuer goes bankrupt, the holder of a subordinated bond is not repaid until the other bondholders have been repaid. Holders of subordinated bonds are repaid before shareholders. Subordinated bonds pay more interest precisely because the risk inherent in subordinated bonds is greater than that of standard bonds. Risks Currency risk: currency, there is a currency risk against the euro. In other words, due to fluctuations in exchange rates, the amount in euros that you receive if you sell it before the maturity date or wait until the maturity date may end up being less or more than the amount you originally invested. This may also apply to coupon payment. Liquidity risk: a bond s liquidity reflects whether it is easy or difficult to sell the bond on the market. Liquid bonds are easy to buy and sell. Illiquid bonds are more difficult to buy and sell. Subordinated bonds are usually less liquid than ordinary bonds. Interest rate risk: the value of a bond is considerably dependent on the market interest rate. Consequently, the longer the bond s useful life is, the higher the downward risk. For example: you have a bond bearing interest at 4%. Now let s suppose that the market interest rate rises to 5%. Your bond then becomes immediately less appealing because investors seeking an attractive bond can in any case find bonds in the market bearing interest at 5%. The value (price) of your bond will then fall until an equilibrium is reached. Of course, the reverse is also true: if the market interest rate falls to 3%, your bond will be in high demand in the market; the value (price) of your bond will then rise. Credit risk: if the issuer of a bond gets into financial difficulties, it is possible that you will recoup only part of your investment or even not recoup it at all. Please note: an issuer s creditworthiness is sometimes expressed as a rating. It is best to check this before buying a bond. Note that there will not always be a rating; check all the details, therefore, before buying subordinated bonds. Please note: note that the credit risk for subordinated bonds is greater than for ordinary bonds. If the issuer goes bankrupt, you will not be repaid until all ordinary bondholders have been repaid. Call risk: subordinated bonds with a longer maturity (10 years or more) will often have a call clause. This means that the issuer can redeem the issue at a predefined time (usually after 5 or 7 years), usually at par. If the issuer does not exercise this option, the issue will continue under the same terms, or under new terms, as defined on the original issue. Specific risk: subordinated paper issued by financial institutions has an additional risk. The regulator may require these bonds to be fully or partially written down. This is why you should only buy subordinated bank bonds that are issued by banks with a top credit rating. Currently a new category of bonds is being issued by the financial sector: senior non-preferred (or Tier 3) bonds. These are pitched between non-subordinated and subordinated bonds as we know them. So they are less risky than the traditional subordinated bonds, but in the event of the institution having financial difficulties, they will be used to write off losses instead of the non-subordinated bonds.

21 Costs and taxes When you buy bonds, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your bonds. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Broker margin: margin payable to the broker for executing (selecting the best price, accessing the market and executing) an order on the secondary market. Exchange costs (for bonds in foreign currencies): costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Placing commission: commission paid to the bank for placing the issue. out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on interest: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Capital gains tax: if you sell bonds before maturity for more than the price you paid at the time of purchase, you make a capital gain. You don t have to pay any tax on this capital gain. Note: on the difference between the issue price and the refund price of a zero coupon bond you must pay withholding tax. Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry Do you want to find out more about subordinated bonds? Read our Financial instruments information sheet on our website at Printed on 100% recycled paper DS4822

22 WHAT ARE CONVERTIBLE BONDS? Just like classic bonds, convertible bonds pay a fixed coupon and have a fixed term. The difference is that holders of these bonds have the right (but not the obligation) to convert their bonds into shares or new shares of the issuer or, as an exception, of another company during one or more periods and under conditions specified in advance. The conversion period is the period during which the exchange (or conversion) can take place. The conversion price is determined by the issuer when the convertible bonds are issued. It is the price to be paid in convertible bonds (at their par value), at which the issuing company will sell shares during the conversion period. The conversion ratio is established as follows: this is the number of shares received from a bond conversion (based on the par value). Features A convertible bond has the same basic features as an ordinary bond. The issuer is the entity issuing the bond. This entity borrows money from investors and will pay interest (coupon) to those investors in return. Interest is usually paid annually. Convertible bonds can also be rated. This rating gives an indication of the creditworthiness of the issuer when it is awarded. It is awarded by specialised, independent firms (mainly Moody s and Standard & Poor s). Most convertible bonds also have a fixed term. Once the term has expired (at maturity), the issuer repays the borrowed capital. A convertible bond differs from an ordinary bond in the following ways: Bondholders have the right (not the obligation) to convert their bonds into shares or new shares of the issuer (or, as an exception, of another company) during one or more periods and under conditions specified in advance. Just like ordinary bonds, you will recoup your invested capital at maturity if you don t exercise this right. As bondholders enjoy an additional right, convertible bonds usually pay less interest than classic bonds. Risks Capital risk: The loss of your total investment is possible, if the issuer performs poorly (financially), goes bankrupt, or in the event of a bail-in (rescue). After conversion (of the bond into a share) you are then exposed to the risks associated with shares. See What are Shares? Interest risk: the interest rate risk that leads to a fall in prices is limited in principle, as interest rates are generally far lower than those for a normal bond. On the other hand, if shares undergo a significant discount and lower notes than their nominal value, the convertible bond becomes a normal bond with the associated interest rate risk. Volatility risk: the risk of volatility leading to depreciation is very high, as the price of the convertible bond follows the price of the share very closely. After conversion, the risks are those of the share. Liquidity risk: this can be important as the secondary market is generally limited. Costs and taxes When you buy bonds, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your bonds. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Broker margin: margin payable to the broker for executing (selecting the best price, accessing the market and executing) an order on the secondary market. Exchange costs (for bonds in foreign currencies): costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Placing commission: commission paid to the bank for placing the issue. Custody fee: fee charged by the bank for keeping securities in a custody account.

23 TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Do you want to find out more about convertible bonds? Read our Financial instruments information sheet on our website at Withholding tax on interest: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Capital gains tax : if you sell bonds before maturity for more than the price you paid at the time of purchase, you make a capital gain. You don t have to pay any tax on this capital gain. Printed on 100% recycled paper DS4859

24 WHAT ARE PERPETUAL BONDS OR PERPETUALS? Perpetuals are bonds with no maturity date. So they can last forever. These bonds usually have a callable feature. This means that the issuer is entitled to terminate the loan and pay back the bondholder at a predetermined price on certain dates or in certain periods defined when the loan was issued. Features Perpetuals have the same basic features as ordinary bonds. The issuer is the entity issuing the bond. This entity borrows money from investors and will pay interest (coupon) to those investors in return. Interest is usually paid annually. Perpetual bonds can also be rated. This rating gives an indication of the creditworthiness of the issuer when it is awarded. It is awarded by specialised, independent firms (mainly Moody s and Standard & Poor s). A perpetual bond differs from an ordinary bond in the following ways: As the name suggests, perpetual bonds have no maturity date. Perpetual bonds usually have a callable feature. This entitles the issuer to pay back the bond early under certain conditions. If the issuer gets into financial difficulties, it may be decided to reduce the coupons or not to pay them at all. The coupon is therefore not guaranteed. A perpetual bond also has a number of features of an equity investment. The risk inherent in such an investment is therefore considerably greater than that in a classic bond. Please note: always read the prospectus carefully before buying a perpetual bond. Risks Currency risk: if you invest in perpetual bonds in foreign currency, there is a currency risk against the euro. The amount in euro that you receive in the event of sale or on the expiry date can be more or less than the amount that you originally invested owing to the exchange rate. Liquidity risk: a bond s liquidity reflects whether it is easy or difficult to sell the bond on the market. Liquid bonds are easy to buy and sell. Illiquid bonds are more difficult to buy and sell. This type of bond can only be traded on a limited market. Interest rate risk: the value of a bond is considerably dependent on the evolution of the market interest rate: if the interest rate rises, a bond s value falls; and if the interest rate falls, the bond s value rises. The longer the term of the bond, the more the value will rise or fall if there is a change in the market interest rate. The interest rate risk inherent in perpetuals is therefore greater than in classic bonds. Insolvency risk: the lengthy term means that investors are inevitably exposed for a long period to the issuer s credit risk, which can increase in regard to the time of issue or of purchase at a later date. Perpetual bonds are often very strongly subordinated bonds. This means that, in the event of bankruptcy, you will only be paid back after all creditors and after the holders of classic subordinated bonds. It is therefore highly unlikely that in such a case you will recoup any of your outlay. Specific risk: subordinated perpetual bonds issued by financial institutions contain an additional risk. This is because these bonds can be written off, either wholly or in part, or converted into shares at the request of the regulator if the institution is no longer viable (to prevent bankruptcy) or is involved in a bankruptcy. This means that anyone buying bonds runs the risk of ultimately receiving shares. This is why you should only buy subordinated bank bonds issued by banks with the highest credit rating. The existence of a callable feature is also a risk for investors: this is because the issuer will exercise the call if it sees an opportunity to obtain finance at a better price. This is often the case with a low market interest rate. Bondholders are then obliged to reinvest at less favourable terms. Fluctuations: as you will almost certainly receive nothing in the event of bankruptcy, and as even the coupon is not always guaranteed in difficult periods, the price of a perpetual bond will behave considerably like a share. Price fluctuations can therefore be very significant. This is why, in terms of risk profiles, perpetual bonds are compared to shares, in that their future value is also not guaranteed and the return is uncertain in difficult financial periods.

25 Costs and taxes When you buy bonds, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return on your bonds. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Broker margin: margin payable to the broker for executing (selecting the best price, accessing the market and executing) an order on the secondary market. Exchange costs (for bonds in foreign currencies): costs of the exchange operation, payable for transactions in currencies with settlement in euros. Placing commission: commission paid to the bank for placing the issue. Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on interest: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Capital gains tax: if you sell bonds for more than the price you paid at the time of purchase, you make a capital gain. You don t have to pay any tax on this capital gain. Do you want to find out more about perpetual bonds? Read our Financial instruments information sheet on our website at Printed on 100% recycled paper DS4860

26 WHAT ARE PROPERTY BONDS? A company that wants to finance the purchase of an existing property (office block, shopping complex, etc.) or a construction project, can issue property bonds. The issuing company is the legal owner of the property (shopping complex, office block, etc.); it is also responsible for its rental and maintenance. The certificate holder is the economic owner of a part of the property. In exchange for their investment, they receive an annual coupon and, on the maturity date of the certificate, a share of the sales price of the property. A property bond is therefore a security that gives the holder an entitlement to a part of the income from the investment in the property (purchase of offices, shop premises, etc.). If you buy a property bond, you are therefore a creditor. In contrast to what applies to regulated property companies (such as, for example, Cofinimmo and Befimmo), the exposure of a property bond is limited to one specific building or a limited number of buildings. Features A certificate is issued for a specific term (usually 20 to 25 years). The certificate expires at the time that the property is sold. The certificate holder receives an annual coupon. This always includes the rental income (less the management costs) and a part of the reimbursement (repayment) of the invested capital. Given that the rental incomes are index-linked, the coupon will rise and fall with the index. On the final maturity date or on the sale of the property, the certificate holder will receive a share of the sales price of the property. Risks Liquidity risk: the liquidity of an exchange-listed security is determined by the number of marketable securities. For most property bonds, the number of marketable securities is relatively small. Investors who want to sell their property bonds may find it less easy to find a buyer, which has a negative effect on the price. Market risk: the value on the secondary market depends on what happens to the underlying property. Interest rates also have a major impact on prices. A rise in market interest rates will generally lead to a fall in the value of the property bond. Credit risk: a property bond is a debt instrument. If the company that issues the property bond starts to have financial problems or goes bankrupt, you may lose (some of) the capital you invested. Yield risk: the coupon payment is uncertain. If vacant, or when renovation work is needed, the rental income falls; it is possible that a lower or even no coupon at all is paid out. And the sales price of the property on final maturity is also uncertain: property prices can stagnate or fall, which means that the property may finally have to be sold at a loss. Concentration risk: the diversification of the underlying assets is generally less in comparison to other investments, such as real estate funds. This highly increases the investment risk. Costs and taxes If you buy a property bond, then you also have to allow for the costs and taxes you need to pay. These also affect the return on your property bond. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax.

27 Withholding tax on the coupon: The part of the coupon that matches the payment of a net rental profit is treated as an interest from which withholding tax is deducted. The part of the coupon that corresponds to the partial repayment of capital remains untaxed. Withholding tax on capital gains: when selling the property, withholding tax is paid on the part of the payment that exceeds the remaining balance of the invested capital. In other words, withholding tax is payable on the profits, but not on the capital repayments. Want to know more about property bonds? Read our Financial Instruments information sheet on our website Printed on 100% recycled paper DS4825

28 INVESTING IN PHYSICAL GOLD OR OTHER PRECIOUS METALS Gold is the precious metal most commonly treated as an investment. Gold is also known as a safe haven for investors in times of uncertainty on the stock exchanges, they will often flee into gold. Investing in physical gold can be done in the following ways: 1 Purchase of a gold bar or gold coins (Krugerrand, American Eagle, Napoleon, etc.). The buyer can ask for physical delivery of the gold, or can opt for a deposit in a custody account. This works in the same way as, for example, shares and bonds (account statements after each transaction, reporting on the custody account). 2 Purchase of an ETC (a tracker or an exchange traded certificate) that invests in gold. The ETCs buy physical gold and store it for you in vaults; this gold is used as collateral for your investment. By purchasing an ETC you are tracking, in principle, one-to-one the price movements of gold. Allow for the fact that there are costs associated with a tracker, which means your return can vary from the price of gold. You can also invest in physical silver or other precious metals. In the same way as for gold, this can be done by buying silver directly, or by investing via an ETC. Characteristics Gold offers protection against inflation (long-term, gold will hold its value in real terms). Gold is a non-correlated asset. The gold price does not move in the same way as the traditional asset categories (shares, bonds). This means that gold has a place in a well-diversified portfolio. The physical gold market is always very liquid. Risks Exchange rate risk: the gold prices on the world market are expressed in US dollars. The exchange rate movement of the US dollar compared to the euro can therefore be responsible for an investor getting back less in euros than they originally invested, even if the price of gold itself (expressed in dollars) did not fall. Risk of lack of income: investments in gold or other previous metals no not provide income for the investor. Market risk: the price of gold is very volatile, and can fluctuate wildly as a result of central banks selling gold, the demand for gold from emerging countries, the worldwide economic situation, geopolitical problems, etc. Interest rate risk: the evolution of interest rates may impact the price of gold. Generally, in increase in the interest rate has a negative impact on the price of gold. Counterparty risk: an ETC can entail other risks or costs, such as if the issuer or an intermediary defaults. Physical gold ETCs are fully hedged with physical gold bars which are held in a separate account in the ETC s name. Capital risk: gold and precious metals do not benefit from deposit protection. Cash payments to an account at the bank in response to transaction in gold are, in principle, covered by the deposit guarantee. Costs and taxes When you buy gold or other precious metals, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return. COSTS Purchasing precious metals (gold bars, physical silver, etc.) Bank margin: banks apply a margin whenever you buy physical gold, silver, etc. Custody fee: most banks will charge you fees to hold your physical gold on a custody account. Purchasing precious metals via an ETC (or tracker) Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Custody fee: most banks will charge you fees to hold your ETCs on a custody account.

29 Running costs on an ETC: recurrent costs included in the financial instrument s value, and therefore immediately included in the performance calculations. The transaction costs include, amongst other things, the income and management payments. Also known as the Ongoing Charge Ratio (OCR) for funds, or the Total Expense Ratio (TER) for insurance products. TAXES Purchasing precious metals (gold bars, physical silver, etc.) No stamp duty (TOB), no withholding tax, no capital gains tax. VAT: When you purchase gold coins or gold bars, you do not pay any VAT. However, if you purchase gold coins that are treated as collectors items, VAT is charged. Note: if you buy physical silver, you pay VAT. Purchasing precious metals via an ETC (or tracker) Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on dividends: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, namely the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Do you want to find out more? Read our Financial instruments information sheet on our website at Printed on 100% recycled paper DS4826

30 WHAT ARE DERIVATIVE PRODUCTS (SUCH AS OPTIONS, WARRANTS AND TURBOS)? Derivatives are complex financial instruments whose properties and whose value are determined by the properties and the values of the underlying assets, usually a commodity, bond, share, currency or index. Listed derivatives have a published price and so can be traded on the financial markets. All these products share the characteristic of leverage. Leverage ensures that a limited increase or decline in the underlying value results in a relatively larger change in the value of the derivative product. The price fluctuations for products of this type can therefore be very significant. Characteristics The most common forms of derivatives are options, warrants and turbos. OPTIONS Anyone who buys an option is acquiring the right (but not the obligation) to buy (call option) or sell (put option) an underlying value on a given date, or during a defined time period, at a price that is fixed in advance (the strike price). The underlying value is the security or goods to which the option relates. These may be shares or a stock index, but can also be currencies, commodities, bonds, etc. The holder of the option can exercise their right up to the expiration date. For this right, they pay an option premium to a counterparty, the option writer (issuer). This writer is another investor who undertakes, in return for the option premium, to buy or to sell the underlying value at the established price, if the holder decides to exercise their right. You can use options for all kinds of purposes: to cover yourself against a risk, to earn an extra return, to speculate on the rise or fall in value of all kinds of assets such as commodities, interest rates, exchange rates, shares, indices, etc. Options are traded on an exchange exclusively for options. The holder can resell their option to someone else on this exchange. WARRANTS A warrant has some features in common with an option. A warrant gives the right to trade shares, other securities and more at a fixed point in the future for a fixed price. Warrants that give the right to buy a specific underlying value, are known as call warrants; Warrants that give the right to sell a specific underlying value, are known as put warrants. But there are also key differences: Unlike an option, that is traded on an exchange exclusively for options (options exchange), warrants are listed on the classic stock exchanges (such as Euronext). Warrants are issued by a company or a financial institution that trades in warrants on specific shares, while options are issued by the options exchange. The exercise period for a warrant (the period during which the investor can exercise their right) is usually longer than that for an option. The conditions for options are defined by the options exchange and are very standardised. The conditions for a warrant are defined by the issuing financial institution. TURBOS A turbo (also known as a speeder or sprinter depending on the issuing financial institution) has some common features with an option. A turbo is also an exchange-listed security where you can use leverage to profit rapidly from a rise or fall in a given underlying value, such as shares, exchange indices, commodities, etc. If you want to profit from an increase in the underlying value, you buy a turbo long. If you buy a turbo short, you are expecting a fall in the underlying value. An important difference to options is the way in which the leverage effect is created. In the case of a turbo, it is possible because you only invest in a limited part of the underlying value. The remaining amount is lent out by the financial institution that issues this turbo on the market (financing level). Therefore, with a turbo you receive the whole of the rise or fall in the underlying value, but you only buy a fraction of the underlying value. The leverage indicates how much more steeply the price of the

31 turbo will change for each step change in the underlying value. A turbo on the BEL20 with a leverage of 5 means that if the BEL20 rises by 1%, the value of the turbo rises by 5%. Unlike options, turbos do not have an expiration date. However, to avoid a customer losing more than they invested, there is always a stop loss level. When the price of the underlying value hits this stop loss level, the turbo ceases to exist. Because of the high leverage, these are very risky products, where a small rise or fall in the underlying value can quickly lead to enormous losses. Risks Derivatives generally entail significant risks, as a result of which investment losses sometimes exceed the amount invested. They are therefore more suitable for investors with experience. Generally, the following risks apply to options, warrants and turbos alike: Risks which result from a combination of two or more financial instruments: this risk is clearly present in the context of derivatives. The combination of two financial products may lead to greater risks than those inherent to each of the individual products. Risks linked to limiting exit solutions: possibilities for exit, in the context of derivatives, may be limited and entail considerable costs, particularly in cases where the investor wishes to unilaterally terminate a contract. Costs and taxes When you buy derivative products, it is in your best interest to take the costs and taxes that you will have to pay into account. This is because they will affect the return. COSTS Transaction costs: fee for the bank s involvement in secondary market transactions (shares and bonds). Volatility risk: this risk is important in the context of certain derivatives and may be exacerbated by the leverage effect. It is possible to loose the full amount invested if the expected forecasts are not realised. Liquidity risk: this depends on the class of the derivative in question. Generally, this risk is low for standardised derivatives as these products can be traded on the secondary market. Some derivatives, however, cannot be traded on these markets and therefore have a high liquidity risk. Exchange risk: this risk depends chiefly on the composition of the underlying assets, and in which currency they are denominated. Interest risk: this risk chiefly depends on the composition of the underlying assets. Counterparty risk: this risk, including risks related to counterparty insolvency, exists for derivatives. Risk of absence of income: in principle this risk is limited, as this product does not provide for income. OTHER RISKS: Risk by leverage effect: some derivatives used for speculative purposes strongly exacerbate the fluctuations of the underlying value. This is known as the leverage effect. Derivatives are subject to a strong leverage effect and may lead to a total loss of investments (which may, in some cases, be higher than the amount invested). Custody fee: fee charged by the bank for holding securities in a custody account. TAXES Stamp duty on stock exchange transactions (TOB): if you buy listed derivatives on the market, you need to pay the exchange stamp duty. Do you want to find out more about derivative products? Read our Financial instruments information sheet on our website at Printed on 100% recycled paper DS4827

32 WHAT ARE HEDGE FUNDS? Hedge funds are investment instruments that usually take the legal form of a fund. The verb to hedge means to cover. You might be tempted to think that the whole purpose of these funds is to neutralise risk. In fact, the opposite is the case. The term hedge fund covers a number of funds that invest in very different asset classes with very different risk levels. It is difficult to come up with a precise definition of a hedge fund. Features Generally, a hedge fund is an investment instrument with the following general characteristics: The fund manager wants to achieve an absolute level of return, and so detach the fund from the general market trends. To achieve this, the fund makes use of a very broad swathe of investment instruments (including derivatives such as options and futures), and often it will also use very illiquid instruments. The fund allows for the option to short securities, which allows value to be created if the manager believes that the price of a security will fall in the near future (they sell the security and buy it back cheaper a little later), or where the market risk for the portfolio as a whole can be reduced by balancing the relative amounts of purchased to (fully or partially) shorted assets. Frequent use is made of leveraging. With an eye on this, the fund can take out loans to finance investments that it thinks are of interest. Hedge funds generally are subject to less strict regulations than normal funds, and have a large amount of freedom in how they invest. Hedge funds do not compare their results to a benchmark. Their goal is to achieve a positive return, whatever the market may be doing. A hedge fund in fact targets the achievement of an absolute performance, not a relative performance (which would mean compared to a market index such as BEL20, the Dow Jones or the MSCI). In addition, hedge funds generally show only a weak correlation to the traditional share and bond markets, which makes them excellent instruments for diversifying an investment portfolio. If the stock market prices fall, then the hedge funds returns will usually drop less than the rest of the market. Hedge funds can therefore offer protection in a falling market. This does not rule out potential negative results. Risks Capital risk: because of the instruments they use, which include derivatives, and the option of adding leverage through borrowing, hedge funds are (much) riskier than classic investments. A misjudgement by the fund manager can lead to heavy losses, even including the total loss of the investment. Exchange risk: depends on the currency in which the hedge fund is listed and the currency in which the assets in the fund are denominated. For a European investor from the euro zone, this risk is irrelevant if the listing and the underlying assets are restricted to the euro zone. For other currencies, on the other hand, it is considerable. Liquidity risk: the investments in hedge funds are never very liquid. There is often a lock up period; during this time the hedge fund cannot be sold. Volatility risk: can be substantial and lead to a loss of value. The volatility also depends on the strategy that is adopted. Other risks Certain hedge fund issue documents (prospectus, etc.) ensure special restrictions, such as: a minimum investment horizon that prevents the transfer of positions ( hard lock-up ), sanctions on transfers, by enforcing important costs before sale ( soft lock-up ), specific registration conditions (e.g. a set or deferred frequency for calculating the net value compared with the date of registration). specific buyback conditions (the gates which limit the maximum percentage of possible buybacks at the date of calculating the net asset value). Conditions of this nature may make it difficult to reduce or adjust portfolios invested in hedge funds.

33 Costs and taxes If you buy or sell units in a fund, you also have to allow for the costs and taxes you need to pay. These also affect the return on your fund units. COSTS Ongoing charges: recurrent costs included in the value of the financial instrument and therefore directly factored into the return calculations. The ongoing charges include, amongst other things, the distribution and management fees. Also known as the Ongoing Charge Ratio (OCR) for funds or Total Expense Ratio (TER) for insurance products. Entry fee: one-off fee to be paid by the investor when subscribing to a financial instrument. Exchange costs: costs of the exchange transaction, payable for transactions in foreign currencies with settlement in euros. Arbitrage costs: costs charged for transfer (arbitrage) from a sub-fund of one fund to a sub-fund of another fund. Conversion costs: transfer from a sub-fund of one BNP Paribas Asset Management fund to another sub-fund of the same fund or conversion of distribution shares into capitalisation shares (or vice versa) within the same sub-fund of a BNP Paribas Asset Management fund. Custody fee: fee charged by the bank for keeping securities in a custody account. TAXES Tax on stock exchange transactions (TOB): stock exchange tax or tax on stock exchange transactions is payable when you carry out certain transactions such as purchasing or selling certain financial instruments that have already been issued (shares, funds, bonds, ). When subscribing to an issue of new securities, you don t have to pay any stock exchange tax. Withholding tax on dividends: the bank or company paying your interest or dividends forwards the withholding tax to the tax authorities. You therefore receive the net amounts, that is, the (gross) interest or dividends minus any foreign levy at source and the withholding tax deducted. The withholding tax releases you from any further tax liabilities, which you are not required to (but may) indicate in your personal income tax declaration. Withholding tax on capital gains: capital gains realised on the settlement of a collective investment vehicle in securities where more than 25% of the assets are invested in debt claims, or on the redemption or sale of its units on the secondary market, are taxed as interest and therefore subject to withholding tax. Want to know more about hedge funds? Read our Financial instruments information sheet on our website at Printed on 100% recycled paper DS4828

34 WHAT ARE INDIVIDUAL INVESTMENTS THROUGH COMMODITY DERIVATIVES (COMMODITY TRACKERS USING FUTURES)? Anyone who wants to invest in commodities (wheat, oil, etc.) or precious metals (gold, silver, etc.) can also do this via an ETC, or exchange traded commodity. ETCs track the performance of a commodity (raw material) or of an index. The ETC usually does this by means of derivatives (futures). In practice, the manager of an ETC will buy futures on commodities: the manager then makes an agreement with a counterparty to take delivery of the commodities on a fixed future date at an agreed price. Before the maturity date of the future contract is reached, the contract is rolled over, to avoid any physical delivery of the commodities. The manager does not normally own the large warehouses needed to actually store the ordered commodities. Rolling-over means that the manager sells a future contract with delivery in the near future and buys a contract with delivery further out, so that they never actually take delivery of the commodity. Roll-over also has a major impact on the returns that you can achieve; in financial jargon this is called the roll yield: If the contract with future delivery is more expensive, this means a cost to the manager after all you are selling a contract at a fixed price and buying another at a higher price. In this context, that is also called a contango, the yield paid on an ETC will be less than the actual price change in the underlying commodities. Conversely, if the contract for delivery further out is cheaper than the contract with delivery in the near future, a situation referred to as backwardation, then you are buying at a lower price and selling at a higher price. This also means a profit for the manager; in this case the return on the ETC (before costs) will be higher than the actual price change in the underlying commodities. Depending on the situation on the financial markets (futures are exchange-listed), the yield can therefore be lower or higher than the yield on the underlying commodities. In some cases your yield can in fact differ sharply from the movements in the price of the underlying commodities. In a contango market, your yield can fall sharply. Before investing in an ETC, it is therefore necessary to know how commodity contracts work, and to understand the principles behind the futures markets. Features ETCs are listed and can therefore also be traded on the financial markets. ETCs have no fixed term. These ETCs invest in underlying commodity futures, not directly in commodities. The underlying value is therefore fairly complex and the effects on the final returns are therefore not always clear or transparent. Risks Given that the prices of commodities are expressed on the world markets in US dollars, there is a currency risk. Volatility risk: The price of commodities (and the value of ETCs) is determined by many factors, including climatic conditions (drought, failed harvests, etc.), the general economic climate and geopolitical unrest. Prices can fall and rise sharply in a short period. ETCs use derivatives in order to achieve their objective (tracking the price changes in the commodity or the index). There is a counterparty risk: if the counterparty is not able to fulfil their obligations, you can lose (part of) your investment. Other risks: even if the prices of the underlying commodities increase, the value of my ETC may still decrease precisely because an ETC invests in futures, and those futures are systematically rolled over. The reverse also applies: my ETC may also outperform the price development of the underlying value.