BLACKROCK INSTITUTIONAL JERSEY FUNDS REVISED PROSPECTUS 25 November 2010 1
BLACKROCK INSTITUTIONAL JERSEY FUNDS INVESTMENT WARNING BlackRock Institutional Jersey Funds (the "Trust") has been established in Jersey as an Expert Fund. It is suitable only for those who fall within the definition of "Expert Investors" published by the Jersey Financial Services Commission and set out below. Requirements which may be deemed necessary for the protection of retail or non-expert investors do not apply to Expert Funds. By acknowledging this statement you are expressly agreeing that you fall within the definition of an "Expert Investor" and accept the reduced requirements accordingly. On making an application to invest in the Trust, you must acknowledge to the Manager in writing that you have received and accept this investment warning in the form of the declaration set out in the Application Form, copies of which are available from the Manager and the Investment Adviser. If you are an investment manager acquiring an interest in the Trust, directly or indirectly, for or on behalf of non-expert investors, the Jersey Financial Services Commission expects you to be satisfied that the investment is suitable for the underlying investors and that the underlying investors are able to bear the economic consequences of investment in the fund, including the possibility of the loss of the entire investment. You are wholly responsible for ensuring that all aspects of the Trust are acceptable to you. Investment in Expert Funds may involve special risks that could lead to a loss of all or a substantial portion of such investment. Unless you fully understand and accept the nature of the Trust and the potential risks inherent in the Trust you should not invest in the Trust. Further information in relation to the regulatory treatment of Expert Funds in Jersey may be found on the website of the Jersey Financial Services Commission at www.jerseyfsc.org. An "Expert Investor" is defined by the Jersey Financial Services Commission as: (a) an investor who makes a minimum initial investment or commitment of US$100,000 (or currency equivalent) in the Expert Fund, whether through the initial offering or by subsequent acquisition (it is noted that the minimum subscription for each Fund is 1,000,000. The Manager may waive this minimum amount either generally or in a particular case in its absolute discretion subject to a minimum limit of 100,000); or 2
(b) (c) (d) (e) (f) (g) (h) (i) (j) a person, partnership or other unincorporated association or body corporate, whose ordinary business or professional activity includes, or it is reasonable to expect that it includes, acquiring, underwriting, managing, holding or disposing of investments whether as principal or agent, or the giving of advice on investments; or an individual who has a net worth, or joint net worth with that person's spouse, greater than US$1,000,000 (or currency equivalent) excluding that person's principal place of residence; or a company, partnership, trust or other association of persons which has (or which is a wholly owned subsidiary of a body corporate which has) assets available for investment of not less than US$1,000,000 (or currency equivalent) or every member, partner or beneficiary of which falls within the definition of Expert Investor; or a fund service provider to the expert fund or an associate of a fund service provider to the expert fund; or a person who is an employee, director, consultant or shareholder of or to a fund service provider of the expert fund or an associate of a fund service provider to the expert fund, who is acquiring an investment in the expert fund as part of his remuneration or an incentive arrangement or by way of co-investment; or any employee, director, partner or consultant to or of any person referred to in paragraph (b) above; or a trustee of a family trust settled by or for the benefit of one or more persons referred to in paragraph (f) or (g) above; or a trustee or an employment benefit or executive incentive trust established for the benefit of persons referred to in paragraphs (f) or (g) or their dependants; or a government, local authority, public authority or supra-national body in Jersey or elsewhere. 3
IMPORTANT NOTICES This Revised Prospectus contains important information about the Trust and should be read carefully and in its entirety before investing. If you are in any doubt about the contents of this Revised Prospectus or whether an investment in the Trust is suitable for you, you should contact your discretionary investment manager, benefit consultant, stock broker, bank manager, solicitor, accountant or other financial adviser. This Revised Prospectus has been prepared in accordance with the Collective Investment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995, as amended. The Trustee has been granted a certificate in respect of the Trust under the Collective Investment Funds (Jersey) Law 1988 (the "Funds Law") by the Jersey Financial Services Commission (the "Commission"). The Commission is protected by the Funds Law against liability arising from the discharge of its functions under the Funds Law. The Trustee, the Manager and the Administrator of the Trust are licensed for the conduct of fund services business in respect of the Trust under the Financial Services (Jersey) Law 1998 (the "Financial Services Law"). The Commission is protected by the Financial Services Law against liability arising from the discharge of its function under the Financial Services Law. The Trust is an unregulated collective investment scheme in the United Kingdom. Units may not be offered or sold in the United Kingdom except as permitted by the Financial Services and Markets Act 2000 and the regulations made thereunder, and this Prospectus may not be communicated to any person in the United Kingdom except in circumstances permitted by that Act or those regulations or to a person to whom this Prospectus may otherwise lawfully be issued in the United Kingdom. The Manager is not authorised to carry on investment business in the United Kingdom and investors are advised that the protections afforded by the United Kingdom regulatory system may not apply to an investment in the Trust and compensation may not be available under the United Kingdom Financial Services Compensation Scheme. The distribution of this Revised Prospectus and the offering of the Units in certain jurisdictions may be restricted. Persons into whose possession this Prospectus comes are required to inform themselves about and to observe any such restrictions. This Prospectus does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. The Units have not been registered under the Securities Act of 1933 (the "1933 Act") of the United States of America and, except in the case of a transaction which does not violate US securities laws, it is 4
prohibited for the Manager or any other person to offer any Units for sale, or to sell any Units to any other person for offering or re-sale, directly or indirectly, in the United States of America or to any US Person. US Persons are not permitted to participate in the Trust. For the purpose of this paragraph, "the United States of America" includes its possessions, its territories and all areas subject to its jurisdiction and a "US Person" shall be defined as including a national, citizen or resident of the United States of America or a corporation or partnership organised under the laws of the United States of America or any state and other categories of US Persons under Regulation S of the 1933 Act and Commodity Futures and Trading Commission Regulations. The Units have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law no. 25 of 1948, as amended) and, accordingly, none of the Units nor any interest therein may be offered or sold, directly or indirectly, in Japan or for the benefit, of any Japanese person or to others for re-offering or resale, directly or indirectly in Japan or to any Japanese person. It should be remembered that the price of the Units and the income from them (if any) can go down as well as up and that investors may not receive, on the redemption of their Units, the amount that they initially invested. Your attention is drawn to the Risk Considerations section of this Prospectus. The Manager has taken all reasonable care to ensure that the facts stated in this document are true and accurate in all material respects and that there are no other material facts, the omission of which would make misleading any statement herein whether of fact or opinion. The Manager accepts responsibility accordingly. This Revised Prospectus should be read in conjunction with the most recent set of published accounts of the Trust. 25 November 2010 5
TABLE OF CONTENTS SECTION PAGE NO. Definitions 7 Directory 10 Summary Information 12 Principal Features of the Trust 14 Investment Policy, Objectives and Investment Restrictions 17 Risk Considerations 22 Management and Administration 27 Fees and Expenses 30 Unit Dealings 34 Calculation of Dealing Price and Valuation of the Funds 45 Taxation 47 Other Information 50 6
DEFINITIONS In this Prospectus unless the context requires otherwise: "Accounting Date" means 31 December in each year; "Administrator" means J.P. Morgan Management (Jersey) Limited; Barclays Group means the Barclays group of companies, the ultimate holding company of which is Barclays plc; "Bank of America Group" means the Bank of America group of companies, the ultimate holding company of which is Bank of America Corporation; "BlackRock Group" means the BlackRock group of companies, the ultimate holding company of which is BlackRock, Inc.; "Business Day" means a day on which banks are generally open for business in Jersey and London and any such other day or days as the Manager may from time to time with the approval of the Trustee determine either generally or in any particular case; "Dealing Day" means each Wednesday that is a Business Day (or if such day is not a Business Day the day immediately preceding such day) provided always that where the last Business Day of each calendar month is not a Wednesday, the last Business Day of each calendar month will also be deemed to be a Dealing Day, (other than a Business Day falling within a period of suspension and/or deferral of dealings), and such other days as the Manager may from time to time with the approval of the Trustee determine and notify to Unitholders to be a day upon which dealings in Units may be transacted; "Dealing Price" means the price at which shares may be subscribed or redeemed on a Dealing Day; "Eligible Investors" means those persons who comply with the conditions specified on page 35; "Expert Investors" means those persons who meet the criteria for 'Expert Investors' formulated by the Jersey Financial Services Commission and set out in the Investment Warning in this Prospectus; "Extraordinary Resolution" means a resolution passed by a majority of not less than two-thirds of votes cast at a meeting or ballot of Unitholders; "Fixed Income Funds" means the High Performance Over 5 Year Index Linked Gilt Fund and the High Performance Over 15 Year Gilt Fund classes of Units; 7
"Fund" means an investment portfolio maintained in accordance with the Trust Instrument, each such portfolio being a separate trust fund related to and being represented by a separate class or classes of Units (and, where applicable, categories of Units within the same class); "Fund Rules" means written rules adopted from time to time in relation to a class or classes of Units in relation to each Fund pursuant to the provisions of the Trust Instrument; "Initial Dealing Price" means the amount per Unit as set out in the relevant Fund Rules; "Initial Offer Period" means in respect of any class or category of Units the initial offer period during which Units of the relevant class or category are initially offered for subscription, as determined in accordance with the relevant Fund Rules; "Initial Trustee" means RBSI Custody Bank Limited; "Investment Adviser" means BlackRock Investment Management (UK) Limited; "Manager" means BlackRock (Channel Islands) Limited; "Net Asset Value" or "NAV" means in respect of any Fund or class or category of Units within a Fund the net asset value determined in accordance with the Trust Instrument; "PNC Group" means the PNC group of companies, the ultimate holding company of which is PNC Bank N.A.; "Previous Trustee" means State Street Custodial Services (Jersey) Limited; "Prospectus" or "Revised Prospectus" means this document dated 25 November 2010, as amended from time to time; "Register" means the register of Unitholders to be maintained in accordance with the trust instrument establishing the Trust; "Sterling" or "GBP" or " " means the currency of the United Kingdom; "Sub-Investment Advisers" means, in relation to the Fixed Income Funds, BlackRock Financial Management, Inc., BlackRock International, Ltd, BlackRock Japan Co. Ltd and BlackRock Investment Management (Australia) Limited; "Trust" means the trust known as "BlackRock Institutional Jersey Funds", comprising separate Funds and classes of Units (and, where applicable, categories within such classes of Units); 8
"Trustee" means J.P. Morgan Trust Company (Jersey) Limited; "Unit" means an undivided share in the relevant Fund to which the Unitholder is entitled under the Trust Instrument and reference to a class or classes of Units (and, where applicable, categories of Units within the same class) means a separate class or classes of Units (and, where applicable, categories of Units within the same class) attributable to a particular Fund it being understood that a Fund may be represented by more than one class and category of Units; "Unitholder" means the person for the time being entered in the Register as the holder of a Unit and includes persons so entered as joint holders; "Unit Price" means the price at which a Unit may be subscribed for, or redeemed; "United Kingdom" or "UK" means the United Kingdom of Great Britain and Northern Ireland; "US Person" has the meaning given above in the introduction to this Prospectus; and "Valuation Point" means such time on any Dealing Day (or such other times as the Manager may from time to time determine) as is set out in the relevant Fund Rules. 9
DIRECTORY The Trust Manager Administrator and Registrar BlackRock Institutional Jersey Funds BlackRock (Channel Islands) Limited Forum House Grenville Street St Helier Jersey JE1 0BR Channel Islands Tel: 01534 600800 Fax: 01534 600801 J.P. Morgan Management (Jersey) Limited JP Morgan House Grenville Street St Helier Jersey JE4 8QH Channel Islands Tel: 01534 626262 (switchboard) Fax: 01534 626300 Trustee Registered Office and Principal place of business Investment Adviser Sub-Investment Advisers J.P. Morgan Trust Company (Jersey) Limited JP Morgan House Grenville Street, St. Helier Jersey JE4 8QH Channel Islands Tel: 01534 626262 (switchboard) Fax: 01534 626300 BlackRock Investment Management (UK) Limited 33 King William Street London EC4R 9AS United Kingdom Tel: 020 7743 3000 Fax: 020 7743 1000 BlackRock Financial Management, Inc., Park Avenue Plaza 55 East 52 nd Street New York NY 10055 USA BlackRock International, Ltd 40 Torphichen Street Edinburgh EH3 8JB Scotland 10
BlackRock Japan Co., Ltd Maranouchi Trust Main Tower 1-8-3 Marunouchi Chiyoda-ku Tokyo 100-8217 Japan BlackRock Investment Management (Australia) Limited Level 18 120 Collins Street Melbourn Victoria 3000 Australia Auditors Jersey Legal Advisers Deloitte LLP Hill House 1 Little New Street London EC4A 3TR United Kingdom Bedell Cristin PO Box 75 26 New Street St Helier Jersey JE4 8PP Channel Islands 11
SUMMARY INFORMATION The following is a summary of the principal features of the Trust and is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus and should be read in conjunction with the full text of this Prospectus. BlackRock Institutional Jersey Funds is an open-ended unit trust established as an Expert Fund under the laws of Jersey, Channel Islands by a trust instrument dated 31 May 2005 as amended by Supplemental Trust Instrument dated 16 December 2005, both made between the Manager and the Initial Trustee and amended by a deed of retirement and appointment of trustee dated 3 May 2007 whereby the Previous Trustee was appointed as the trustee of the Trust and the Initial Trustee retired and further amended by a deed of retirement and appointment of trustee dated 25 November 2010 whereby the Trustee was appointed as the new trustee of the Trust and the Previous Trustee retired (the "Trust Instrument"). The Trust is organised in the form of an umbrella fund comprising a number of different portfolios (each a "Fund" and collectively the "Funds"), each having a separate portfolio of investments to which different investment policies may apply. Each Fund may in turn be divided into different classes of Units, and each class of Units may be divided into different categories. Classes of Units of the same category in the same Fund will rank pari passu with all other Units of the same class and category in the same Fund. Different classes and categories of Units may have differing proportionate interests in the same Fund. The Manager and the Trustee are required to segregate the assets and liabilities of each of the Funds from the others and will carry out their duties in relation to each Fund, and manage the assets of each Fund, independently of the others. The nature of the right represented by a Unit in the Trust is that of a beneficial interest under a trust. At the date of this Prospectus, the following Funds and their associated classes of Units are currently being offered: (i) (ii) (iii) Dynamic Diversified Growth Fund; High Performance Over 15 Year Gilt Fund; and High Performance Over 5 Year Index Linked Gilt Fund. 12
The Trust Instrument requires Fund Rules to be settled in respect of each Fund. The Manager may create new Funds or issue further classes or categories of Units. As at the date of this Prospectus, each Fund represents a single class of Units. The Class I Units of the Dynamic Diversified Growth Fund are divided into two categories: Accumulation Units and Income Units. This Prospectus will be supplemented to refer to the creation of any new Funds, classes or categories. The Base Currency of Units in the Funds set out in this Prospectus is Sterling. The Base Currency of any new Fund will be determined by the Manager in its discretion. 13
PRINCIPAL FEATURES OF THE TRUST Eligible Investors: Investment Objectives And Policies: The minimum amount required for initial investment in each Fund is 1,000,000. The Manager may waive this minimum amount either generally, or in a particular case, in its absolute discretion (subject to a minimum limit of 100,000). The Manager also has the right to exclude categories of persons, (including US Persons), whose participation may adversely affect the Trust or may impact on its status as an Expert Fund under Jersey Law. Each Fund is managed separately and in accordance with the following investment objectives: Dynamic Diversified Growth Fund The objective of the Fund is to seek capital growth. The Fund will seek to achieve its investment objective by investing primarily in a diversified portfolio of equities, bonds, property and cash, with a low tolerance for capital loss. Asset allocation changes may be made through the use of derivatives as well as through the purchase and sale of physical assets. Derivatives may only be used for efficient portfolio management and to hedge underlying positions. Such derivatives may include index futures, covered options, swaps and Contracts for Difference ("CFDs"). These may be either exchange traded or Over-the-Counter ("OTC"). Exposure to currency strategies may be obtained through investment in collective investment schemes. The Fund may also obtain exposure to the asset classes through other investments including collective investment schemes, structured products (such as OPALS and PERLES), Exchange Traded Funds (ETFs) and Funds of Hedge Funds. The Fund may invest in both listed and unlisted securities.further details of the Fund s investment policy and strategy, are set out in the Investment Policy, Objectives and Investment Restrictions section tof this Prospectus. The Dynamic Diversified Growth Fund was established on 31 May 2005. High Performance Over 15 Year Gilt Fund 14
The Fund seeks to maximise long term performance and provide returns superior to the FTSE Actuaries Over 15 Year Gilt Index, using a range of global bond and currency strategies implemented through physical and/or financial derivative instruments. Further details of the Fund s investment policy and strategy, are set out in the Investment Policy, Objectives and Investment Restrictions section of this Prospectus. The High Performance Over 15 Year Gilt Fund was established on 31 May 2005. High Performance Over 5 Year Index Linked Gilt Fund The Fund seeks to maximise long term performance and provide returns superior to the FTSE Actuaries Over 5 Year Index Linked Gilts Index, using a range of global bond and currency strategies implemented through physical and/or financial derivative instruments. Further details of the Fund s investment policy and strategy, are set out in the Investment Policy, Objectives and Investment Restrictions section of this Prospectus. The High Performance Over 5 Year Index Linked Gilt Fund was established on 31 May 2005. Currency of Units: Initial Offer Period: Initial Dealing Price: Minimum Initial Investment and Holding in each Fund: Pounds Sterling. the period (if any) during which Units are offered for subscription at the Initial Dealing Price in accordance with the relevant Fund Rules unless extended or shortened by the Manager in its absolute discretion, either generally or in relation to a specified Fund. The amount per Unit as set out in the relevant Fund Rules. The minimum initial subscription and holding amount is 1,000,000. The Manager may waive this minimum amount either generally, or in a particular case, in its absolute discretion (subject to a minimum limit of 100,000). 15
Minimum Additional Investment in each Fund: Minimum Redemption Amount for each Fund: Subscriptions: No minimum. No minimum Subscriptions for the Funds may be made on a Dealing Day subject to receipt by the Administrator of the relevant documentation by 12 noon (London time) on the relevant Dealing Day or such other days as the Manager may from time to time with the approval of the Trustee determine (either generally or in relation to a specified Fund) and subject to the Deferral and Suspension of Dealings section of this Prospectus). Units will be issued on the Dealing Day. Redemptions: Accounting Date: Accounts: Taxation: Distributions: Redemptions for the Funds may be made on a Dealing Day, subject to receipt by the Administrator of the relevant documentation by 12 noon (London time) on the relevant Dealing Day or such other days as the Manager may from time to time with the approval of the Trustee determine, (either generally or in relation to a specified Fund) and subject to the Deferral and Suspension of Dealings and Compulsory Redemption section of this Prospectus). 31 December of each year. The first Accounting Date being 31 December, 2006. Audited accounts will usually be made available for Unitholders within four months following the Accounting Date. Unaudited interim accounts will usually be made available for Unitholders three months after 30 June in each year - with the first interim accounts being made available three months after 30 June, 2007. It is intended to administer and manage the Trust so that it is not subject to tax in Jersey and so as to prevent it being resident in the UK for tax purposes (which could cause the Trust to be subject to UK taxation). It is not anticipated that the Trust s classes of Units currently offered in the High Performance Over 15 year Gilt Fund, the High Performance Over 5 year Index Linked Gilt Fund or the Class I Accumulation Units in the Dynamic Diversified Growth Fund will pay any dividends. Any income 16
Income and Accumulation Units: received from a Funds' investments attributable to such Units will be accumulated (rolled up) within the relevant Fund and will not be distributed. It is anticipated that the Class I Income Units in the Dynamic Diversified Growth Fund will pay dividends in accordance with the Dividend Policy set out in this Prospectus. The Manager may in the future issue classes or further categories of income distributing Units. Units of different classes, and different categories of Units of the same class, may be issued which accumulate or distribute income. Each Unit, either accumulating or distributing, represents an undivided share in the property of the relevant Fund. If distributing Units are held you will receive dividends payable in accordance with the relevant Fund Rules and in accordance with the Dividend Policy set out in this Prospectus. If Accumulating Units are held you will not receive any dividends. At each calendar quarter end the income attributable to the Accumulating Units will remain as property of the Fund attributable to such Units, such that the proportionate interest in the Fund of such accumulating Units will increase accordingly. The number of Units you hold remains the same. Minimum Value for Launching each Fund: Minimum value for launching the Trust: 20,000,000 or such lesser amount as the Manager may in its absolute discretion decide. 20,000,000 or such lesser amount as the Manager may in its absolute discretion decide. INVESTMENT POLICY, OBJECTIVES and INVESTMENT RESTRICTIONS Investors should read the section headed Risk Considerations in this Prospectus before investing in any of the Funds. There can be no assurance that the objectives of each Fund will be achieved. Each Fund is managed separately and in accordance with the investment and borrowing restrictions specified below and in the Fund Rules of each Fund. The Trust Instrument provides that the investment limitations for each Fund shall be laid down in the Fund Rules for the Fund. The Fund Rules contain the restrictions contained below in this section of the 17
Prospectus on the nature of assets in which each Fund may invest. Unless otherwise stated, these restrictions apply only to determine whether the Manager may acquire additional assets of the kind concerned, and are not triggered by changes in the value of existing assets or by disposals from each Fund. DYNAMIC DIVERSIFIED GROWTH FUND Investment Policy and Objective The objective of the Dynamic Diversified Growth Fund is to seek capital growth. The Fund will seek to achieve its investment objective by investing primarily in a diversified portfolio of equities, bonds, property and cash, with a low tolerance for capital loss. Asset allocation changes may be made through the use of derivatives as well as through the purchase and sale of physical assets. Derivatives may only be used for efficient portfolio management and to hedge underlying positions. Such derivatives may include index futures, covered options, swaps and Contracts for Difference ("CFDs"). These may be either exchange traded or Over-the-Counter ("OTC"). Exposure to currency strategies may be obtained through investment in collective investment schemes. The Fund may also obtain exposure to the asset classes through other investments including collective investment schemes, structured products (such as OPALS and PERLES), Exchange Traded Funds (ETFs) and Funds of Hedge Funds. The Fund may invest in both listed and unlisted securities. The securities, instruments and obligations referred to above are not exhaustive and such other securities, instruments and obligations which are consistent with the Fund s investment objectives and policies may be used from time to time. No guarantees or assurances are made with regards to the level of performance of the Fund. Investment Restrictions The Fund may not hold greater than 90% of NAV in U.K. equities. The Fund may not hold greater than 70% of NAV in equities outside the U.K. The Fund may not hold greater than 90% of NAV in corporate bonds and gilts. 18
The Fund may not hold greater than 20% of NAV in property. Exposure to property will be obtained through investment in collective investment schemes and property shares. Investment may not be made in physical property. The Fund may hold up to 100% of NAV in cash. The Fund may hold up to 100% of NAV in collective investment schemes. The Fund may only invest more than 40% of NAV in a single collective investment scheme where that scheme is a sub fund of the Institutional Cash Series, a Dublin based UCITS cash fund. The Manager does not anticipate investing more than 40% of NAV in any of the schemes listed in the paragraph above for extensive periods of time under normal market conditions, but may do so in order to preserve capital and to manage expected inflows to and outflows from the Fund. The Fund may not be leveraged. The Fund may not invest in physical commodities (except via collective investment schemes and commodity shares). High Performance Over 15 Year Gilt Fund Investment Policy and Objective The Fund seeks to maximise long term performance and provide returns superior to the FTSE Actuaries Over 15 Year Gilt Index, using a range of global bond and currency strategies implemented through physical and/or financial derivative instruments. The Fund will utilise a number of macro, credit asset allocation, currency and credit selection strategies to achieve its investment objectives. The Fund may invest in physical assets or derivatives of inflation linked bonds, investment grade corporate bonds, high yield bonds, non-sterling denominated bonds, money market instruments and currencies. Bonds may include emerging market debt. The Fund may invest in both listed and unlisted securities. Derivatives will be managed as an integral part of the Manager s investment strategy. The Fund intends to take full advantage of implementing both long and short positions primarily through derivatives. Such derivatives may include interest rate swaps, currency forwards, Credit Default Swaps ("CDS s"), Total 19
Return Swaps, futures, options, Repurchase Agreement ("Repos") and Reverse Repurchase Agreements ("Reverse Repos"). These may be either exchange traded or OTC. The securities and instruments referred to above are not exhaustive and such other securities, instruments and obligations, which are consistent with the Fund s investment objectives and policies, may be used from time to time. No guarantees or assurances are made with regards to the level of performance of the Fund. Investment Restrictions The Fund's Value at Risk (VaR) limit must not exceed 8% annualised relative to its benchmark with a 95% confidence interval. This means that there is a 95% probability that the portfolio will lose no more than 8% relative to its benchmark in a year. VaR is the maximum percentage of value likely to be gained or lost as the result of price movement. The Fund may hold up to 100% of NAV in collective investment schemes. The Fund may only invest more than 40% of NAV in a single collective investment scheme where that scheme is a sub fund of the Institutional Cash Series, a Dublin based UCITS cash fund. The Fund s duration must not deviate from its benchmark by more than 5 years. The Fund will not invest in, or obtain exposure to, physical property or physical commodities either directly or through derivatives, collective investment schemes or any other structure which may give such exposure. Maximum exposure to high yield debt instruments (including emerging markets) shall not exceed +/- 25% of NAV. Maximum net exposure to any one currency (excluding the Base Currency) shall not exceed +/- 20% of NAV. High Performance Over 5 Year Index Linked Gilt Fund Investment Policy and Objective The Fund seeks to maximise long term performance and provide returns superior to the FTSE Actuaries Over 5 Year Index Linked Gilt Index, using a range of global bond and currency strategies implemented through physical and/or financial derivative instruments. 20
The Fund will utilise a number of macro, credit asset allocation, currency and credit selection strategies to achieve its investment objectives. The Fund may invest in physical assets or derivatives of inflation linked bonds, investment grade corporate bonds, high yield bonds, non-sterling denominated bonds, money market instruments and currencies. Bonds may include emerging market debt. The Fund may invest in both listed and unlisted securities. Derivatives will be managed as an integral part of the Manager s investment strategy. The Fund intends to take full advantage of implementing both long and short positions primarily through derivatives. Such derivatives may include interest rate swaps, currency forwards, CDS s, Total Return Swaps, futures, options, Repos and Reverse Repos. These may be either exchange traded or OTC. The securities and instruments referred to above are not exhaustive and such other securities, instruments and obligations, which are consistent with the Fund s investment objectives and policies, may be used from time to time. No guarantees or assurances are made with regards to the level of performance of the Fund. Investment Restrictions The Fund's Value at Risk (VaR) limit must not exceed 8% annualised relative to its benchmark with a 95% confidence interval. This means that there is a 95% probability that the portfolio will lose no more than 8% relative to its benchmark in a year. VaR is the maximum percentage of value likely to be gained or lost as the result of price movement. The Fund may hold up to 100% of NAV in collective investment schemes. The Fund may only invest more than 40% of NAV in a single collective investment scheme where that scheme is a sub fund of the Institutional Cash Series, a Dublin based UCITS cash fund. The Fund s duration must not deviate from its benchmark by more than 5 years. The Fund will not invest in, or obtain exposure to, physical property or physical commodities either directly or through derivatives, collective investment schemes or any other structure which may give such exposure. Maximum exposure to high yield debt instruments (including emerging markets) shall not exceed +/- 25% of NAV 21
Maximum net exposure to any one currency (excluding the Base Currency) shall not exceed +/- 20% of NAV. 22
RISK CONSIDERATIONS An investment in the Trust involves certain risks. This section contains explanations of some of the main risks applicable when investing in the Trust. The risks described in this section do not purport to be a complete explanation or list of all the specific risk factors involved in investing in the Trust. Investors should be aware that other risks may also be relevant from time to time either generally or for a specified Fund within the Trust. Requirements which may be deemed necessary for the protection of retail or non-expert Investors, do not apply to Expert Funds. Investment in Expert Funds may include risks which could lead to the loss of a substantial part of, or the entire, investment of an investor. Prospective Investors should read this entire Prospectus and consult their own advisers before deciding to invest in any of the Funds. Investment, trading and business risks The price of units of each Fund will fluctuate over time in accordance with each Fund s underlying investments. Such investment risk may result in the loss of income or capital investment and possible delays in payment. An investor could receive back less than initially invested. The Funds may utilise such investment techniques as short sales, option transactions, forwards, futures contracts, investing in derivative instruments, and concentrating their portfolios in the securities of particular companies, industries or countries- each of which in certain circumstances can magnify the adverse impact of market movements so that they, and therefore a Fund, could lose all or substantially all of its investment. No guarantee or representation is made that a Fund s investment programme will be successful, and investment results may vary substantially over time. Furthermore, as the Funds are newly formed, there is no operating history by which to evaluate their likely performance. Finally, no guarantees or assurances can be made with regards to the level of performance of any of the Funds. Fixed Income Securities Debt securities are subject to both actual and perceived measures of creditworthiness. Each of the Funds may invest extensively in fixed income (i.e. debt) securities. The "downgrading" of a rated debt security or adverse publicity and investor perception, which may, or may not, be based on fundamental analysis, could decrease the value and liquidity of the security, particularly in a thinly traded market. Noninvestment grade debt may be highly volatile and carry a greater risk of default. 23
An economic recession may adversely affect an issuer s financial condition and the market value of debt securities issued by such entity. The issuer s ability to service its debt obligations may be adversely affected by specific issuer developments, or the issuer s inability to meet specific projected business forecasts, or the unavailability of additional financing. In the event of bankruptcy of an issuer, a Fund may experience losses and incur costs. In addition, non-investment grade securities tend to be more volatile than higher rated fixed-income securities, so that adverse economic events may have a greater impact on the prices of non-investment grade debt securities than on higher rated fixed-income securities. A Fund may also be affected by changes in prevailing interest rates. Changes in market rates of interest will generally affect a Fund s asset values as the prices of fixed rate securities generally increase when interest rates decline and decrease when interest rates rise. Prices of shorter-term securities generally fluctuate less in response to interest rate changes than do longer-term securities. Use of Derivatives Each of the Funds may utilise a variety of financial derivative instruments. The use of derivatives may expose a Fund to a higher degree of risk. In particular, derivative contracts can be highly volatile and the amount of the initial margin is generally small relative to the size of the contract so that transactions are geared. However, derivative positions are monitored on the basis of the notional outstanding. The Funds may also take short positions through the use of derivatives. A short sale of a security involves the risk of a theoretical unlimited increase in the market price of the security, which could result in an inability to cover the short position and a theoretically unlimited loss. There can be no guarantee that securities necessary to cover a short position will be available for purchase. The Funds may also enter into a number of swap arrangements including interest rate swaps, credit default swaps, total return swaps and Contracts for Difference. Payments under a swap contract may be made at the conclusion of the contract or periodically during its term. If there is a default by the counterparty to a swap contract, the Trustee will be limited to contractual remedies pursuant to the agreements related to the transaction. There is no assurance that swap counterparties will be able to meet their obligations pursuant to swap contracts or that, in the event of default, the Trustee will succeed in pursuing contractual remedies. Each Fund assumes the risk that it may be delayed in or prevented from obtaining payments owed to it pursuant to swap contracts. The use of swaps involves investment techniques and risks different from and potentially greater than those associated with ordinary portfolio securities transactions. The Funds may also use derivatives to facilitate more complex efficient portfolio management techniques. In particular this may involve using swap contracts to adjust interest rate risk and using credit default swaps to buy or sell credit risk. The use of credit default swaps carries a higher risk than investing in 24
bonds directly. A credit default swap allows the transfer of default risk. This allows investors to effectively buy insurance on a bond they hold (hedging the investment) or buy protection on a bond they don t physically own in the expectation that the credit will decline in quality. One party, the protection buyer, makes a stream of payments to the seller of protection, and a payment is due to the buyer in the event that there is a "credit event" (a decline in credit quality, which will be pre-defined in the agreement). If the credit event does not occur the buyer pays all the required premiums and the swap terminates on maturity with no further payments. The risk of the buyer is therefore limited to the value of the premiums paid. The risk for the seller is of having to make a payment in the event of a default. Counterparty risk Each of the Funds may enter into transactions with counterparties (including any custodian) who become unable or unwilling to fulfil their contractual obligations. There can be no assurance that any such counterparty will not default on its obligations to a Fund. In the event of a counterparty default, the respective Fund could experience significant losses. Emerging Markets risk The Funds may invest in developing market securities and foreign exchange instruments which may lead to additional risks being encountered when compared with investments in developed markets. Investments and instruments in developing market securities may involve a greater degree of risk than an investment in securities of issuers based in developed countries and exhibit higher levels of price and currency volatility. Among other things, developing market securities and instruments may carry the risk of: Significant differences between countries in relation to accounting, auditing, financial reporting, government regulation, securities exchanges and transactional procedures. Foreign markets may have different levels of liquidity, pricing availability and settlement and clearance procedures. In adverse social and political circumstances, governments have been involved in policies of expropriation, confiscatory taxation, nationalisation, intervention in the securities market and trade settlement, and imposition of foreign investment restrictions and exchange controls, and these could be repeated in the future. In addition to withholding taxes on investment income, some emerging markets may impose different capital gains taxes on foreign investors. 25
General economic and market risk The success of a Fund s investment programme may be affected by general economic and market conditions, such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws, and national and international political circumstances. These factors may affect the level and volatility of securities prices and the liquidity of investments held by the Funds. Limited liquidity Each Fund may obtain exposure to asset classes through investment in other investment funds. In such circumstances, a Fund will depend upon such investment funds to provide liquidity. Such investment funds may themselves impose limits on the number of redemptions and may provide for deferrals or suspension in circumstances similar to those applicable to the Trust. In most cases these investment funds will not be listed or have an active secondary market. Currency risk The Funds may be invested in securities denominated in various currencies and in other financial instruments the prices of which are determined by reference to such currencies. The Trust s Base Currency is Pound Sterling. Accordingly, the value of such investments and assets may be affected favourably and unfavourably by fluctuations in exchange rates. The Funds may seek to hedge their currency exposures but will necessarily be subject to foreign exchange risk. This may be for a number of reasons including, without limitation, (i) the likelihood that not all currencies within the Funds will be hedged, (ii) hedging transactions may be effected some time after subscription proceeds are credited to the Funds, (iii) constructing a hedging strategy that ensures ongoing compliance with limits in the Prospectus and/or under applicable law and regulation relating to the use of derivatives can result in a strategy that is unlikely to result in a perfect hedge of currency exposures at all times. While the Funds may attempt to hedge this risk, there can be no guarantee that it will be successful in doing so. The use of hedging strategies may substantially limit Unitholders in the relevant Fund from benefiting if the Fund s Base Currency falls against the currency in which some or all of the assets of the relevant Fund are denominated. In addition, the Dynamic Diversified Growth Fund may also invest a portion of its assets in a collective investment scheme employing various currency strategies primarily through the use of derivatives. See further under the heading "Use of Derivatives" above for an outline of some of the risks related to derivatives. Risks relating to taxation 26
The tax information provided in the Taxation section is based, to the best knowledge of the Manager, upon tax law and practice as at the date of this Prospectus. Tax legislation, the tax status of the Manager and the Funds, the taxation of Unitholders and any tax reliefs, and the consequences of such tax status and tax reliefs, may change from time to time. Any change in the taxation legislation in UK or in any jurisdiction where a Fund is registered, marketed or invested could affect the tax status of the Funds, affect the value of the relevant Fund s Investments in the affected jurisdiction, affect the relevant Fund s ability to achieve its investment objective, and/or alter the post tax returns to Unitholders. Where the Fund invests in derivatives the preceding sentence may also extend to the jurisdiction of the governing law of the derivative contract and/or the derivative counterparty and/or to the market(s) comprising the underlying exposure(s) of the derivative. The availability and value of any tax reliefs available to Unitholders depend on the individual circumstances of Unitholders. The information in the Taxation section is not exhaustive and does not constitute legal or tax advice. Prospective investors are urged to consult their tax advisors with respect to their particular tax situations and the tax effects of an investment in the Funds. Where a Fund invests in a jurisdiction where the tax regime is not fully developed or is not sufficiently certain, for example the Middle East, the relevant Fund, the Manager, the Investment Adviser, the Trustee, the Registrar and the Administrator shall not be liable to account to any Unitholder for any payment made or suffered by the relevant Fund in good faith to a fiscal authority for taxes or other charges of the Fund notwithstanding that it is later found that such payments need not or ought not have been made or suffered. 27
MANAGEMENT AND ADMINISTRATION The Trustee Under the terms of the Trust Instrument, J.P. Morgan Trust Company (Jersey) Limited is the trustee of the Trust. The Trustee is a company incorporated in Jersey on 20 September 1974 with limited liability under the Companies (Jersey) Law 1991, as amended. It has an issued and fully paid-up share capital of $3,000,000. The ultimate holding company of the Trustee is JPMorgan Chase and Co., a company incorporated in the United States of America. The principal business activity of J.P. Morgan Trust Company (Jersey) Limited is the provision of custodial and trustee services. The Trustee will appoint JPMorgan Chase Bank NA, Jersey Branch to provide custodial services. The Trustee holds (either itself or with or through its agents, delegates or nominees) all the assets of the Trust and all documents of title to such assets. The Trustee may appoint sub-custodians, nominees and agents to perform its duties. The Trustee is responsible for the safekeeping of the assets of the Trust. It has no responsibility for the investment policy of each Fund, which is a matter for the Manager, but it monitors compliance with the Trust Instrument and the investment restrictions set out in this Prospectus and in the Fund Rules. The Trustee monitors the activities of the Manager as they relate to the Trust and is entitled at any time and at its discretion to give notice to the Manager that it is not prepared to accept the transfer of any investment which in its opinion infringes the terms of the Trust Instrument and Fund Rules of the relevant Fund. The Trustee is entitled to require the Manager to deposit other investments which are acceptable to the Trustee or cash in place of such investments. The Trustee is required to take reasonable care to ensure that the acquisition of investments does not breach any investment restrictions contained in the Fund Rules of the relevant Fund and that the methods used by the Manager for valuing the property of the Trust, for calculating the Issue Price and Redemption Price of Units and for the issue and redemption of, and other dealings in, Units are in accordance with the Trust Instrument and Fund Rules of the relevant Fund. The Trustee can also make provision for any liabilities of the Trust by setting aside a quantity of cash or investments approved by the Manager for that purpose. The Trustee conducts compliance reviews of the Trust normally once a year. 28