Deutsche Asset Management. Deutsche Asset Management S.A. DWS Global Value. Sales Prospectus and Management Regulations January 1, 2018

Transcription

1 Deutsche Asset Management Deutsche Asset Management S.A. DWS Global Value Sales Prospectus and Management Regulations January 1, 2018

2 Deutsche Asset Management S.A. currently manages the following investment funds in accordance with Part I of the Law of December 17, 2010, on Undertakings for Collective Investment (As of November 1, 2017): Investment fund in the legal form of a fonds commun de placement (FCP) AL DWS GlobalAktiv+ ARERO Der Weltfonds Bethmann Vermögensverwaltung Ausgewogen Bethmann Vermögensverwaltung Defensiv Ausgewogen Bethmann Vermögensverwaltung Ertrag Bethmann Vermögensverwaltung Wachstum DB Advisors Emerging Markets Equities Passive DB Advisors Strategy Fund* DB Fixed Coupon Fund 2018 DB Fixed Coupon Fund 2018 II DB Portfolio* Deutsche Bank Zins & Dividende Deutsche AM Multi Asset PIR Fund Deutsche ESG European Equities Deutsche Floating Rate Notes Deutsche Multi Opportunities Deutsche USD Floating Rate Notes DWS Concept ARTS Balanced DWS Concept ARTS Conservative Investment company with variable capital (SICAV) DB DB Advisors SICAV db Advisory Multibrands db PBC db Platinum db Platinum IV db PrivatMandat Comfort DWS Concept ARTS Dynamic DWS Concept DJE Alpha Renten Global DWS Emerging Markets Bonds (Short) DWS Etoile DWS Euro-Bonds (Long) DWS Euro-Bonds (Medium) DWS Eurorenta DWS Euro Reserve DWS Garant 80 FPI DWS Global* DWS Global Equity Focus Fund DWS Global Value DWS India DWS Osteuropa DWS Rendite* DWS Rendite Optima DWS Rendite Optima Four Seasons DWS Russia DWS Strategic Balance DWS Strategic Defensive DWS Top Balance DWS Top Dynamic DB PWM DB Vermögensfondsmandat db x-trackers db x-trackers II DeAWM Fixed Maturity Deutsche Concept Deutsche Institutional DWS Türkei DWS Vermögensmandat* DWS Vola Strategy DWS Vorsorge* DWS World Protect 90 DWS Zeitwert Protect Global Emerging Markets Balance Portfolio Multi Opportunities Multi Opportunities III Multi Style Mars PAM International Fund Selection Portfolio* SOP CorporateBondsTotalReturn Südwestbank Vermögensmandat* Vermögensfondsmandat flexibel (80% teilgeschützt) Zurich* Zurich Vorsorge Premium II * Umbrella-FCP Deutsche Invest I Deutsche Invest II DWS FlexPension DWS Funds DWS Garant DWS Select

3 Contents A. Sales Prospectus General Section 2 General regulations 2 Management Company 2 Depositary 2 Risk warnings 4 Investment principles 7 Risk management 10 Potential conflicts of interest 10 Money laundering prevention and data protection 12 Legal status of investors 12 Units 12 Costs 14 Fund liquidation / Changes to the management regulations 15 Taxes 15 Selling restrictions 15 Investor profiles 17 Performance 17 B. Sales Prospectus Special Section 18 DWS Global Value C. Management Regulations 20 Legal structure FCP according to Part I of the Law of December 17, 2010, on Undertakings for Collective Investment. General information The legally dependent investment fund described in this Sales Prospectus is a Luxembourg investment fund (fonds commun de placement) organized under Part I of the Luxembourg Law on collective investment undertakings of December 17, 2010 ( Law of 2010 ), and in compliance with the provisions of Directive 2014/91/EU (amending Directive 2009/65/EC ( UCITS Directive )), Commission Delegated Regulation (EU) 2016/438 of December 17, 2015, supplementing Directive 2009/65/EC of the European Parliament and of the Council with regard to obligations of depositaries ( UCITS Regulation ), as well as the provisions of the Grand-Ducal Regulation of February 8, 2008, relating to certain definitions of the Law of December 20, 2002, on Undertakings for Collective Investment, as amended, 1 ( Grand- Ducal Regulation of February 8, 2008 ) and implementing Directive 2007/16/EC 2 ( Directive 2007/16/EC ) in Luxembourg law. With regard to the provisions contained in Directive 2007/16/EC and in the Grand-Ducal Regulation of February 8, 2008, the guidelines of the Committee of European Securities Regulators (CESR) set out in the document CESR s guidelines concerning eligible assets for investment by UCITS, as amended, provide a set of additional explanations that are to be observed in relation to the financial instruments that are applicable for UCITS falling under the UCITS Directive, as amended. 3 It is prohibited to provide any information or to make any representations other than those contained in the Sales Prospectus and in the Management Regulations. Deutsche Asset Management S.A. shall not be liable if and insofar as information or representations are supplied that diverge from the Sales Prospectus or Management Regulations. 1 Replaced by the Law of Commission Directive 2007/16/EC of March 19, 2007, implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions. 3 See CSSF circular 08/339 in the currently applicable version: CESR s guidelines concerning eligible assets for investment by UCITS March 2007, Ref.: CESR/07-044; CESR s guidelines concerning eligible assets for investment by UCITS The classification of hedge fund indices as financial indices July 2007, Ref.: CESR/

4 A. Sales Prospectus General Section General regulations Attached to this sales prospectus are the management regulations for the fund. The sales prospectus and management regulations form a unit, providing information on and explanations of one and the same subject, and therefore supplement one another. The sales prospectus, the key investor information document and the management regulations, as well as the annual and semiannual reports, are available free of charge from the Management Company and the paying agents. Other important information will be communicated to unitholders in a suitable form by the Management Company. Notices to unitholders may be viewed on the Management Company website funds.deutscheam.com/lu. Where provided for in a country of distribution, notices shall additionally be published in a newspaper and/or in another publication medium as directed by law. In cases where this is required by Luxembourg law, the publications shall continue to appear in at least one Luxembourg daily newspaper and, if necessary, in the Recueil Electronique des Sociétés et Associations (RESA) of the Commercial Register. Management Company The fund is managed by Deutsche Asset Management S.A., Luxembourg (the Management Company ), which fulfills the requirements of chapter 15 of the Law of 2010, and thus the provisions of the UCITS Directive. The Management Company was established on April 15, 1987, with subsequent publication in the Mémorial C taking place on May 4, Its subscribed and paid-in capital is EUR 30,677,400. The management of the investment fund includes, but is not limited to, those tasks specified in Appendix II of the Law of The Management Company may, in compliance with the regulations of the Luxembourg Law of 2010, and regulation of the Commission de Surveillance du Secteur Financier ( CSSF ) and related circulars if applicable, delegate one or more tasks to third parties under its supervision and control. (i) Investment Management The Management Company, under its responsibility and control and at its own expense, has entered into a fund management agreement for the fund with Deutsche Asset Management Investment GmbH, Frankfurt/Main. Deutsche Asset Management Investment GmbH is an investment company under German law. The contract may be terminated by either of the parties on three months notice. In this respect, fund management shall encompass the day-to-day implementation of the investment policy and direct investment decisions. The designated fund manager may delegate fund management services in whole or in part, under its supervision, control and responsibility, and at its own expense. The fund manager may also appoint investment advisors at its own expense and under its control and responsibility. The investment advisory function shall in particular encompass analysis and recommendations of suitable investment instruments for the fund. The fund manager is not bound to the recommendations offered by the investment advisor. Any investment advisors designated by the fund manager are listed under Management and Administration. The designated investment advisors shall have the corresponding supervisory approvals. (ii) Administration, registrar and transfer agent The first responsibility of the Management Company, Deutsche Asset Management S.A., is to perform central administration functions, in particular fund bookkeeping and net asset value calculation. In addition, Deutsche Asset Management S.A. is responsible for the remaining administrative tasks. These include, among other things, the retrospective monitoring of investment limits and restrictions as well as the functions of domiciliary agent and registrar and transfer agent. With regard to the function as registrar and transfer agent, Deutsche Asset Management S.A. has entered into a sub-transfer agent agreement with State Street Bank GmbH in Munich. Within the scope of this agreement, State Street Bank GmbH in particular assumes the duties of managing the global certificate, which is deposited with Clearstream Banking AG in Frankfurt/ Main. (iii) Distribution Deutsche Asset Management S.A. acts as the main distributor. Deutsche Asset Management S.A. may enter into nominee agreements with credit institutions, Professionals of the Financial Sector ( PFS ) in Luxembourg and/or comparable entities under the laws of other countries, that are under obligation to identify unitholders. The nominee agreements give the respective institutions the right to sell units and be entered as nominees in the register of units. The names of the nominees can be requested from Deutsche Asset Management S.A. at any time. The nominee shall accept buy, sell and exchange orders from the investors it works for and arrange for the required changes to be made in the register of units. In this capacity, the nominee is particularly required to take into account any special prerequisites governing the purchase of units for the existing unit classes. If there are no conflicting practical or legal considerations, an investor who acquired units through a nominee can submit a written declaration to Deutsche Asset Management S.A. or the transfer agent demanding that he himself be entered into the register as a unitholder once all necessary proofs of identity have been supplied. Special notice The Management Company draws investors attention to the fact that any investor can only assert his investor rights in their entirety directly against the fund if the investor subscribed the fund units himself and in his own name. In cases where an investor invested in a fund via an intermediary, who invested in his own name but for the account of the investor, the investor may not be able to directly assert all his investors rights directly against the fund. Investors are advised to find out about their rights. Depositary The Depositary of the fund is State Street Bank Luxembourg S.C.A. The Depositary is a credit institution under Luxembourg Law. It is responsible for the safe keeping of the net assets. It also performs special monitoring tasks. Duties of the Depositary The Depositary is entrusted with the following main tasks: to ensure that the sale, issue, redemption and cancellation of the units are in compliance with the applicable law and the management regulations; to ensure that the value of the units is calculated in compliance with the applicable law and the management regulations; to carry out the Management Company s instructions, provided these do not violate the applicable law and the management regulations; to ensure that the consideration for transactions in relation to the fund s assets is remitted within the customary periods; to ensure that the income of the fund is appropriated in compliance with the applicable law and the management regulations; to monitor the cash and cash flows of the fund; to hold the fund s assets in safe-keeping, including financial instruments to be held in safe-keeping, the verification of ownership and the retention of records in relation to other assets. 2

5 Liability of the Depositary In the event of a loss of a financial instrument held in safe-keeping, which is determined in accordance with the UCITS Directive and particularly in accordance with article 18 of the UCITS Regulation, the Depositary shall immediately return financial instruments of the same type to the Management Company acting on behalf of the fund or shall immediately reimburse the corresponding amount. The Depositary shall not be liable if it can prove that the loss of a financial instrument held in safe-keeping is due to external events that could not reasonably have been controlled and whose consequences could not be avoided despite every reasonable effort being made in accordance with the UCITS Directive. In the event of the loss of financial instruments held in safe-keeping, the unitholders can assert claims for compensation directly against the Depositary or indirectly via the Management Company, provided this does not lead to a duplication of recourse claims or to the unequal treatment of unitholders. The Depositary shall be liable to the fund for all other losses that the fund suffers as a result of the Depositary failing either through intent or negligence to fulfill the obligations of the Depositary arising out of the UCITS Directive. The Depositary shall not be liable for indirect damages or consequential damages or special damages or losses that arise due to or in connection with the fulfillment or non-fulfillment of tasks and obligations by the Depositary. Transfer The Depositary has full authority to transfer some or all of its safe-keeping functions, however its liability shall not be affected by the fact that it has entrusted some or all of the assets to be held in safe-keeping by it to a third party. The Depositary s liability remains unaffected by the transfer of its safe-keeping functions within the framework of the Depositary agreement. The Depositary has delegated the safe-keeping tasks set out in article 22 (5) (a) of the UCITS Directive to State Street Bank and Trust Company with registered office at Copley Place 100, Huntington Avenue, Boston, Massachusetts 02116, USA, which it has appointed as its global sub-custodian. As a global sub-custodian, State Street Bank and Trust Company has appointed local sub-custodians within the State Street Global Custody Network. Information on the safe-keeping functions that were transferred and the identification of the respective contractors and sub-contractors is available at the registered office of the Management Company or on the following website: luxembourg/subcustodians.html. Unit classes The investor can be offered one or more unit classes at the sole discretion of the Management Company. All unit classes of the sub-fund are invested collectively in line with the investment objectives of the fund, but they may vary particularly in terms of their fee structures, their minimum investment amounts required for initial and subsequent subscriptions, their currencies, their distribution policies, the requirements to be fulfilled by investors or other special characteristics, such as hedging, as specified in each case by the Management Company. The net asset value per unit is calculated separately for each issued unit class of the fund. The fund does not manage a separate portfolio for the individual unit classes. The Management Company reserves the right to offer only one or only certain unit classes for sale to investors in certain jurisdictions in order to comply with the legal requirements, customs and business practices. Furthermore, the Management Company reserves the right to adopt principles that apply to certain investor categories or transactions with respect to the acquisition of certain unit classes. The unit classes FD, ID, LD, ND, SC and TFD are offered for the fund. The unit classes are denominated in euro. Further information about the currently launched unit classes can be found on the internet at funds.deutscheam.com/lu. Possible currency influences for unit classes in a currency other than the base currency: If unit classes are offered in a currency other than the base currency (e.g., a fund in euro that offers a unit class in U.S. dollars), attention is drawn to the fact that possible currency influences on the net asset value per unit are not systematically hedged. These currency impacts are related to the time lags in the required processing and booking of orders in a non-base currency, which may lead to exchange rate fluctuations. In particular, this is true for redemption orders. The possible influences on the net asset value per unit may be positive or negative and are not limited to the relevant unit class that is denominated in a currency other than the base currency, i.e., they can affect the respective fund and all of the unit classes it contains. Description of designators At present, the fund generally offers unit classes with different characteristics, which can be recognized from the designators described below: Type of investor The designators F, I, L, N and S specify the type of investor for which the unit classes are intended. Unit classes with the L and N designators are available to individual investors, while those with the F designator are open to semi-institutional investors. Unit classes with the I designator are offered exclusively to institutional investors within the meaning of article 174 (2) of the Law of Unit classes with the designator S are available to special investor groups. The units of the unit classes bearing the TF designator are available for investors: who acquire the units through distributors located in the Netherlands or the United Kingdom, or who acquire units through distributors located in other countries which have concluded separate remuneration arrangements for the provision of independent advisory services or discretionary asset management; or who are institutional investors within the meaning of article 174 (2) of the Law of In accordance with Luxembourg administrative practice, institutional investors are, in particular, credit institutions and other professionals in the financial sector, (re)insurance companies, social insurance institutions, pension funds/pension plans (provided that the beneficial owners are not entitled to hold the units directly); Undertakings for Collective Investment ( UCI ), public corporations, such as those of regions, German federal states, provinces, cantons and municipalities (when investing in their own name); holding companies and similar companies; foundations. The Management Company shall not pay remuneration to distributors for the TF unit classes, with the result that the investor s costs associated with investing in the TF unit classes may be lower than those associated with investing in other unit classes of the same fund. Distribution policy For unit classes with the designator C, the income is reinvested (reinvesting units). Unit classes with the designator D indicate that the income is distributed (distributing units). Minimum investment A minimum investment of EUR 2,000,000 applies for the acquisition of units of the FD unit class. Different provisions may apply to unit classes with the TF designator; details on this can be found in the special section of this sales prospectus. A minimum investment of EUR 10,000,000 applies for the acquisition of units of the ID unit class, and a minimum investment of EUR 1,000,000 applies to the SC unit class. The Management Company reserves the right to deviate from these provisions in justified individual cases. Subsequent deposits may be made in any amount. 3

6 Risk warnings Investing in the units involves risks. These can encompass or involve equity or bond market risks, interest rate, credit, default, liquidity and counterparty risks as well as exchange rate, volatility, or political risks. Any of these risks may also occur in conjunction with other risks. Some of these risks are addressed briefly below. Potential investors should possess experience of investing in instruments that are employed within the scope of the proposed investment policy. Investors should also have a clear picture of the risks involved in investing in the units and should not make a decision to invest until they have fully consulted their legal, tax and financial advisors, auditors or other advisors about (i) the suitability of investing in the units, taking into account their personal financial and tax situation and other circumstances, (ii) the information contained in this sales prospectus, and (iii) the fund s investment policy. It must be noted that investments made by a fund also contain risks in addition to the opportunities for price increases. The fund s units are securities, the value of which is determined by the price fluctuations of the assets contained in the fund. Accordingly, the value of the units may rise or fall in comparison with the purchase price. No assurance can therefore be given that the investment objectives will be achieved. Market risk The price or market performance of financial products depends, in particular, on the performance of the capital markets, which in turn are affected by the overall economic situation and the general economic and political framework in individual countries. Irrational factors such as sentiment, opinions and rumors have an effect on general price performance, particularly on an exchange. Credit risk The credit quality (ability and willingness to pay) of the issuer of a security or money market instrument held directly or indirectly by the fund may subsequently decline. This usually leads to price drops in the individual security in excess of the usual market fluctuations. Country or transfer risk A country risk exists when a foreign borrower, despite ability to pay, cannot make payments at all, or not on time, because of the inability or unwillingness of its country of domicile to execute transfers. This means that, for example, payments to which the fund is entitled may not occur, or be in a currency that is no longer convertible due to restrictions on currency exchange. Settlement risk Especially when investing in unlisted securities, there is a risk that settlement via a transfer system is not executed as expected because a payment or delivery did not take place in time or as agreed. Legal and tax risk The legal and tax treatment of funds may change in ways that cannot be predicted or influenced. In the case of a correction with tax consequences that are essentially unfavorable for the investor, changes to the fund s taxation bases for preceding fiscal years made because these bases are found to be incorrect can result in the investor having to bear the tax burden resulting from the correction for preceding fiscal years, even though he may not have held an investment in the investment fund at the time. Conversely, the investor may fail to benefit from an essentially favorable correction for the current or preceding fiscal years during which he held an investment in the investment fund if the units are redeemed or sold before the correction takes place. In addition, a correction of tax data can result in a situation where taxable income or tax benefits are actually assessed for tax in a different assessment period to the applicable one and that this has a negative effect for the individual investor. Currency exposure To the extent the fund invests in assets denominated in currencies other than the fund currency, the fund will receive income, repayments and proceeds from such investments in the respective currency. If the value of these currencies falls in relation to the fund currency, the value of the fund s assets is reduced. Custody risk The custody risk describes the risk resulting from the basic possibility that, in the event of insolvency, violation of due diligence or improper conduct on the part of the Depositary or any sub-depositary, the fund may, in whole or in part and to its detriment, be deprived of access to the investments held in custody. Company-specific risk The price performance of the securities and money market instruments held directly or indirectly by the fund is also dependent on company-specific factors, for example on the business situation of the issuer. If the company-specific factors deteriorate, the market value of the individual security may significantly and persistently decline, even if the market is performing strongly in general. Concentration risk Additional risks may arise from a concentration of investments in particular assets or markets. The fund s net assets then become particularly heavily dependent on the performance of these assets or markets. Risk of changes in interest rates Investors should be aware that investing in units may involve interest rate risks. These risks may occur in the event of interest rate fluctuations in the denomination currency of the securities or the fund. Legal and political risks Investments may be made for the fund in jurisdictions that are not subject to Luxembourg law or that in the event of legal disputes are beyond Luxembourg jurisdiction. The resultant rights and obligations of the Management Company for the account of the fund can differ from those in Luxembourg to the disadvantage of the fund and/or the investor. The Management Company may be too late in perceiving political or legal developments including changes to legal framework conditions in these jurisdictions or may not perceive them at all, or such developments may lead to restrictions with respect to acquirable or already acquired assets. Such consequences can also come to pass if the legal framework conditions for the Management Company and/or the management of the fund in Luxembourg should change. Operational risk A risk of loss may exist for the fund, which can arise, for example, as a result of inadequate internal processes or human or system failures at the Management Company or external third parties. These risks can impair the performance of the fund and thus impact negatively on the net asset value per unit and on the capital invested by the investor. Inflation risk All assets are subject to a risk of devaluation through inflation. Key individual risk The exceptionally positive performance of certain funds during a particular period is also attributable to the abilities of the individuals acting on behalf of such funds, and therefore to the correct decisions made by their respective fund management. Fund management personnel can change, however. New decision-makers might not be as successful. Change in the investment policy The risk associated with the fund may change in terms of content due to a change in the investment policy within the range of investments permitted for the fund. Changes to the management regulations; liquidation or merger In the management regulations for the fund, the Management Company reserves the right to change the management regulations. In addition, the Management Company may, in accordance with the provisions of the management regulations, liquidate the fund entirely or merge it with 4

7 another fund. For the investor, this entails the risk that the holding period planned by the him will not be realized. Credit risk Bonds or debt instruments involve a credit risk with regard to the issuers, for which the issuer s credit rating can be used as a benchmark. Bonds or debt instruments floated by issuers with a lower rating are generally viewed as securities with a higher credit risk and greater risk of default on the part of the issuer than those instruments that are floated by issuers with a better rating. If an issuer of bonds or debt instruments runs into financial or economic difficulties, this can affect the value of the bonds or debt instruments (this value could drop to zero) and the payments made on the basis of these bonds or debt instruments (these payments could drop to zero). In addition, some bonds or debt instruments are categorized as subordinated in the financial structure of an issuer. This can result in heavy losses in the event of financial difficulties. At the same time, the probability that the issuer fulfills these obligations is lower than with other bonds or debt instruments. This, in turn, results in a high price volatility for these instruments. Risk of default In addition to the general trends on capital markets, the particular performance of each individual issuer also affects the price of an investment. The risk of a decline in the assets of issuers, for example, cannot be eliminated even by the most careful selection of the securities. Risks associated with derivatives transactions The buying and selling of options, as well as the conclusion of futures contracts or swaps (including total return swaps) involves the following risks: Price changes in the underlying can cause a decrease in the value of the option or futures contract, and even result in a total loss. This can have a negative effect on the value of the fund s assets. Changes in the value of the asset underlying a swap or total return swap can also result in losses for the fund s assets. Any necessary back-to-back transactions (closing of position) incur costs, which can reduce the value of the fund s assets. The leverage effect of options, swaps, futures contracts and other derivatives may alter the value of the net assets more strongly than the direct purchase of underlyings would. The purchase of options entails the risk that the options are not exercised because the prices of the underlying assets do not change as expected, meaning that the fund loses the option premium it paid. If options are sold, there is the risk that the fund may be obliged to buy assets at a price that is higher than the current market price, or obliged to deliver assets at a price which is lower than the current market price. In that case, the fund will incur a loss amounting to the price difference minus the option premium collected. Futures contracts also entail the risk that the fund assets may make losses due to market prices not having developed as expected at maturity. Risk connected to the acquisition of units of investment funds When investing in units of target funds, it must be taken into consideration that the fund managers of the individual target funds act independently of one another and that therefore multiple target funds may follow investment strategies which are identical or contrary to one another. This can result in a cumulative effect of existing risks, and any opportunities might be offset. Risks of investments in contingent convertibles Contingent convertibles ( CoCos ) are hybrid capital instruments. From the issuer s perspective, as capital buffers they contribute to the fulfillment of certain regulatory capital requirements. In accordance with the terms of issue, CoCos are either converted into equities or the investment amount is amortized when certain trigger events occur in conjunction with regulatory capital limits. The conversion event may be triggered by the supervisory authorities, independent of the trigger events and the control of the issuer if the supervisory authorities call into question the long-term viability of the issuer or companies affiliated with it in the sense of a going concern (conversion/depreciation risk). After a trigger event, the recovery of the capital invested depends mainly on the structure of the CoCo. CoCos can use one of the following three methods to write back up their wholly or partially amortized nominal amount: Conversion into equities, temporary amortization or permanent amortization. In the case of temporary amortization, amortization is completely discretionary, taking into account certain regulatory restrictions. All payments of the coupon after the trigger event are based on the reduced nominal value. Under certain circumstances, a CoCo investor may suffer losses before equity investors and other debt holders in respect of the same issuer. In accordance with minimum requirements established in the EU Capital Requirements Directive IV/Capital Requirements Regulation (CRD IV/CRR), the structure of the conditions of CoCos may be complex and may vary according to issuer or bond. Investing in CoCos is also associated with some additional risks, such as: a) Risk of falling short of the specified trigger (Trigger Level Risk) The probability and risk of a conversion or writeoff are determined by the difference between the trigger and the current capital ratio for the CoCo issuer required under the regulations. The mechanical trigger is at least 5.125% of the regulatory capital ratio or more, as defined in the issuing prospectus of the relevant CoCo. In particular, if a trigger is set at a high level, CoCo investors can lose invested capital, for example in the event of a depreciation of the nominal value or a conversion to equity capital. At fund level this means that the actual risk that a trigger will not be reached is difficult to predict because, for example, the equity capital ratio is only published on a quarterly basis and therefore the actual difference between the trigger and the regulatory capital ratio is only known at the time of publication. b) Risk of suspension of coupon payment (coupon termination risk) The issuer or supervisory authority can suspend coupon payments at any time. Any lost coupon payments will not be made up when coupon payments are resumed. CoCo investors risk not receiving all of the coupon payments expected at the point of acquisition. c) Risk of a coupon change (risk that the coupon will be revalued) If the CoCo is not terminated by the CoCo issuer on the defined termination date, the issuer can redefine the issuing conditions. The coupon value may change at the termination date if the issuer does not terminate it. d) Risk due to regulatory requirements (risk of a reversal of the capital structure) A number of minimum requirements for the equity capital of banks were defined in CRD IV. The amount of the capital buffer varies from country-to-country, depending on the regulatory laws that apply to the issuer. The different national requirements at fund level mean that conversion as a result of the discretionary trigger or the suspension of coupon payments can be triggered depending on the regulatory laws that apply to the issuer and that another source of uncertainty exists for the CoCo investor or investor, depending on the national conditions and the independent assessment of the responsible supervisory authority. Furthermore, the assessment of the responsible supervisory authority and the relevant specific criteria cannot be conclusively estimated in advance. 5

8 e) Risk that the responsible supervisory authority will exercise its termination right or prevent termination (prolongation risk) CoCos are long-term bonds with no fixed term which the issuer has the right to terminate at particular dates defined in the issuing prospectus. The decision to exercise termination rights is a discretionary right of the issuer, however it requires the approval of the responsible supervisory authority. The supervisory authority will reach a decision in accordance with the applicable regulatory law. The CoCo investor can only sell the CoCo in a secondary market; such a sale is associated with corresponding market and liquidity risks. f) Equity capital and subordination risk (risk of a reversal of the capital structure) When an investment is converted into equities, CoCo investors become shareholders when a trigger is activated. In the event of insolvency, shareholders can only be serviced on a subordinate basis, depending on the remaining available assets. Hence, conversion of the CoCo can lead to a complete loss of capital. g) Risk of industry concentration The special structure of CoCos means that the uneven distribution of the risks in terms of financial equities can lead to a risk of industry concentration. According to legal regulations, CoCos are part of the capital structure of financial institutions. h) Liquidity risk CoCos are associated with a liquidity risk in tense market situations. The reason for this is the special investor group and the lower overall volume in the market compared to conventional bonds. i) Income valuation risk Because the conditions for terminating CoCos are flexible, it is not clear what date is to be used to calculate income. On any termination date there is always a risk that the maturity of the bond will be deferred, so that the income calculation has to be adjusted to the new date, which can result in a change in returns. j) Unknown risk Because of the innovative nature of the CoCos and the constantly changing regulatory environment for financial institutions, risks may arise that cannot be foreseen at present. Further information can be found in the statement from the European Securities and Markets Authority (ESMA/2014/944) dated July 31, 2014, regarding the potential risk associated with investments in contingent convertible instruments. Liquidity risk Liquidity risks arise when a particular security is difficult to dispose of. In principle, acquisitions for the fund shall only consist of securities that can be sold again at any time. Nevertheless, it may be difficult to sell particular securities at the desired time during certain phases or in particular exchange segments. There is also the risk that securities traded in a rather narrow market segment will be subject to considerable price volatility. Counterparty risk The following risks can arise within the framework of a contractual relationship with another party (counterparty). This includes the risk that the contractual partner will no longer be able to meet his obligations under the contract. These risks can impair the performance of the fund and thus impact negatively on the net asset value per unit and on the capital invested by the investor. When the fund conducts over-the-counter (OTC) transactions, it may be exposed to risks relating to the credit standing of its counterparties and to their ability to fulfill the conditions of the contracts it enters into with them. The fund may consequently enter into futures transactions, options transactions and swap transactions or use other derivative techniques, such as total return swaps, that will subject the fund to the risk of a counterparty not fulfilling its obligations under a particular contract. In the event that the counterparty becomes bankrupt or insolvent, the fund may suffer significant losses due to a delay in liquidating positions, including the loss in value of the investments while the fund pursues its rights. Likewise, it is possible that the use of the agreed techniques may be halted, for example due to bankruptcy, illegality or changes to the law in comparison with the laws that applied at the time the agreements were concluded. Funds can also enter into transactions on OTC and interdealer markets, for example. Typically, participants in these markets are not subject to the same financial supervision as participants in regulated markets. A fund that invests in swaps, total return swaps, derivatives, synthetic instruments or other OTC transactions in these markets bears the counterparty credit risk and is also subject to risk of default by the counterparty. These risks can differ significantly from those for transactions in regulated markets, as the latter are safeguarded by means of guarantees, daily mark-to-market valuation, daily settlement and corresponding segregation, as well as minimum capital requirements. Transactions concluded directly between two counterparties do not generally benefit from this protection. The fund is also subject to the risk that the counterparty will not execute the transaction as agreed due to a disagreement regarding the terms of contract (regardless of whether or not this is in good faith) or due to a credit or liquidity problem. This can lead to losses for the respective fund. This counterparty risk increases for contracts with a longer maturity period, as events may preclude agreement, or if the fund has oriented its transactions to a single counterparty or to a small group of counterparties. In the event of default by the counterparty, the fund may be subject to adverse market movements while replacement transactions are being carried out. The fund can conclude a transaction with any counterparty. It can also conclude an unlimited number of transactions with one counterparty. The fact that the fund can conduct transactions with any counterparty, the lack of meaningful and independent evaluation of the financial characteristics of the counterparty as well as the lack of a regulated market for the conclusion of agreements may increase the loss exposure of the fund. Risks in connection with the use of securities lending transactions and repurchase agreements If the counterparty of a securities lending transaction or repurchase agreement defaults, the fund may suffer a loss due to the fact that the income from the sale of the collateral held by the fund in connection with the securities lending transaction or repurchase agreement is less than the securities lent or sold. In addition, the fund may suffer losses due to bankruptcy or due to similar proceedings against the counterparty of the securities lending transaction or repurchase agreement or due to any other type of non-fulfillment of the return of the securities, e.g., loss of interest or loss of the respective security as well as default and enforcement costs in relation to the securities lending transaction or repurchase agreement. It is assumed that the use of a purchase with a repurchase option or of a reverse repurchase agreement and securities lending agreement does not have any substantial influence on the performance of the fund. However, the use of such instruments can have a significant effect, either positive or negative, on the net asset value of the fund. Risks associated with receiving collateral The fund receives for derivatives transactions, securities lending transactions and repurchase agreements. Derivatives, lent securities or securities sold under repurchase agreements can increase in value. The collateral provided may then no longer suffice to cover in full the fund s right of supply or of return transfer with respect to the counterparty. 6

9 The fund can invest cash collateral in blocked cash accounts, in government bonds with high credit ratings or in money market funds with a short maturity structure. The credit institution holding the bank balances can fail however. Government bonds and money market funds can perform poorly. At the end of the term, the full amount of the invested collateral may no longer be available, even though it must be returned by the fund in the amount originally granted. The fund may then be obliged to top up the collateral to the granted amount and thus compensate for the losses suffered by the investment. Risks associated with collateral management The management of this collateral requires the use of systems and the definition of certain processes. The failure of these processes as well as human or system failure at the Management Company or external third parties in connection with collateral management can give rise to the risk that the collateral may lose value and no longer be sufficient to cover in full the fund s right of supply or of return transfer with respect to the counterparty. Investment principles Investment policy The fund s net assets shall be invested in compliance with the principle of risk-spreading and within the general investment policy guidelines specified in the special section of the sales prospectus and in accordance with the investment options and restrictions of article 4 of the management regulations. Performance benchmark The fund can use a financial index as a performance benchmark for comparing performance, however it will not try to reproduce the composition of such an index. If a performance index is used for the fund, further information can be found in the special section of the sales prospectus. When a financial index is used as part of the fund s investment strategy, the fund s investment policy will reflect this approach (see also the Use of financial indices section of this sales prospectus). Techniques for efficient portfolio management In accordance with CSSF circular 14/592, techniques for efficient portfolio management may be used for the fund. These also include any forms of derivatives transactions as well as securities lending transactions and repurchase agreements (securities financing transactions). Securities financing transactions other than those mentioned here are not used, such as margin lending transactions, buy-sell-back and sell-buy-back transactions. Should the Management Company make use of these securities financing transactions in the future, the sales prospectus will be updated accordingly. The use of securities financing transactions shall take place in compliance with the legal requirements, especially Regulation (EU) 2015/2365 of the European Parliament and of the Council of November 25, 2015, on transparency of securities financing transactions and of reuse and amending Regulation (EU) no. 648/2012 (SFT Regulation). Use of derivatives The fund may provided an appropriate risk management system is in place invest in any type of derivative that is permissible according to the Law of 2010 and is derived from assets that may be purchased for the fund or from financial indices, interest rates, exchange rates or currencies. In particular, this includes options, financial futures and swaps (including total return swaps), as well as combinations thereof. Their use need not be limited to hedging the fund s assets; they may also be part of the investment strategy. Trading in derivatives is conducted within the confines of the investment limits and provides for the efficient management of the fund s assets, while also regulating investment maturities and risks. Swaps The Management Company may conduct the following swap transactions, among others, for the account of the fund within the scope of the investment principles: interest rate swaps, currency swaps, equity swaps, total return swaps or credit default swaps. Swap transactions are exchange contracts in which the parties swap the cash flows or risks underlying the respective transaction. Total return swaps A total return swap is a derivative whereby a counterparty transfers to another party the total return from a reference liability, including income from interest and fees, gains and losses from price fluctuations as well as credit losses. If the fund exercises the opportunity to use total return swaps or other derivatives with comparable features to substantially implement the investment strategy, information on the underlying strategy or the counterparty, for example, is to be found in the special section of the sales prospectus and in the annual report. The use of total return swaps takes place in compliance with the legal requirements, especially the requirements of the SFT Regulation. Swaptions Swaptions are options on swaps. A swaption is the right, but not the obligation, to conduct a swap transaction, the terms of which are precisely specified, at a certain point in time or within a certain period. Credit default swaps Credit default swaps are credit derivatives that enable the transfer of a volume of potential credit defaults to other parties. As compensation for accepting the credit default risk, the seller of the risk (the protection buyer) pays a premium to its counterparty. In all other aspects, the information for swaps applies accordingly. Securitized financial instruments The Management Company may also acquire the financial instruments described above if they are securitized. The transactions pertaining to financial instruments may also be just partially contained in such securities (e.g., warrant-linked bonds). The statements on opportunities and risks apply accordingly to such securitized financial instruments, but with the condition that the risk of loss in the case of securitized financial instruments is limited to the value of the security. OTC derivatives transactions The Management Company may conduct both derivatives transactions admitted for trading on an exchange or included in another organized market and over-the-counter (OTC) transactions. It shall include a process for accurate and independent assessment of the value of OTC derivative instruments. Securities lending transactions and repurchase agreements (securities financing transactions) The fund is permitted to lend or sell securities from its assets to a counterparty for a specified period and in return for appropriate market compensation. The fund ensures that all securities transferred within the framework of a securities lending transaction can be transferred back at any time and that all securities lending agreements entered into can be terminated at any time. a) Securities lending transactions Unless further restricted by the investment policies of the fund as described in the special section below, the fund is permitted to conclude securities lending transactions. The respective restrictions are to be found in CSSF circular 08/356, in the currently applicable version. Securities lending transactions may in principle only be carried out in respect of permissible assets in accordance with the Law of 2010 and the investment policies of the fund. Those transactions may be entered into for one or more of the following aims: (i) reduction of risk, (ii) reduction of cost and (iii) generation of additional capital or income with a level of risk which is consistent with the risk profile of the Fund and with the risk diversification rules applicable to it. Generally up to 80% of the fund s securities may be lent to counterparties within the context of securities lending transactions. 7