ChinaAMC Select RMB Bond Fund Fund Factsheet * Morningstar Rating TM As of 27 Apr 2018 37/F, Bank of China Tower, 1 Garden Road, Hong Kong ChinaAMC Select RMB Bond Fund (the Fund ), through the Renminbi Qualified Foreign Institutional Investors ( RQFII ) quota obtained by the Manager, invests primarily in RMB denominated fixed income securities issued or distributed in the People s Republic of China ( PRC ). The Fund is subject to restrictions and requirements applicable to RQFII investment. The regulations which regulate investments by RQFIIs in the PRC which have just been announced and novel in nature. Any uncertainty and change to the relevant laws and regulations (such as PRC tax laws and repatriation policy) in the PRC may adversely impact the Fund. Investment in single contry (the PRC) markets involves concentration and other risks not typically associated with investment in more developed economies or markets. Investment in RMB debt instruments in the PRC involves liquidity risk, credit risk, credit rating risk and downgrade risk. There may not be a liquid or active market for such RMB debt instruments; the Fund may also be exposed to credit/ insolvency risk of issuers of the debt securities. As the credit ratings of the debt instruments of the Fund are largely assigned by the credit agencies in the PRC, the methodologies adopted by such local rating agencies may not be consistent with the international rating agencies. In the event of downgrading in the credit ratings of debt instrument or its issuer, the Fund's investment value in such security may be adversely affected. Investment in the Fund is subject to interest rate risk. Change of macro-economic policies in the PRC such as monetary and fiscal policy may cause changes to market interest rates, affecting the pricing of bonds and thus the return of the Fund. The Fund is denominated and settled in RMB; subscription and redemption must be made in RMB. RMB is not freely convertible and is subject to exchange control. There is no guarantee that RMB will not depreciate. If you convert HKD or any other currencies into RMB in investing in the Fund and subsequently convert the RMB redemption proceeds back to HKD or such other currencies, you may suffer a loss if RMB depreciates against HKD or such other currencies. You should not invest in the Fund unless the Intermediary who sells it to you has explained to you that the product is suitable for you having regard to your financial situation, investment experience and investment objectives. You should not base on this material alone to make investment decision and should refer to the Explanatory Memorandum and the Product Key Facts Statement of the Fund for further details, including the risk factors. Investment involves risks. Past performance is not indicative of future performance. Investment Objective Fund Information 2 The Fund seeks to achieve capital appreciation and income generation by primarily investing in RMB denominated fixed income securities issued and distributed within the People s Republic of China ("PRC") through the RMB Qualified Foreign Institutional Investors ("RQFII") quota obtained by the fund manager. Legal Structure Manager Fund Size Base Currency Dealing Frequency Custodian Trustee Fund Performance 1 Cumulative Return 1 30% 25% 20% Class A-DIST-RMB Class A-DIST-USD Class I-ACC-USD Hong Kong domiciled umbrella structure unit trust China Asset Management (Hong Kong) Limited Daily Bank of China (Hong Kong) Limited 1-Month 6-Month 1-Year 3-Year RMB 239 million RMB BOCI-Prudential Trustee Limited Since Inception +0.44% +0.67% +1.64% +7.43% +25.60% -0.45% +5.56% +10.82% +5.94% +12.07% -0.34% +6.12% +11.96% +8.61% +16.10% 6 8 5 15% 10% 5% 0% -5% 02/2012 02/2013 02/2014 02/2015 02/2016 02/2017 02/2018 Calendar Year Return 1 2014 2015 2016 2017 2018 YTD Class A-DIST-RMB +7.97% +6.33% +1.36% +0.87% +1.16% Class A-DIST-USD Class I-DIST-RMB +2.96% +0.99% -4.21% +8.00% +4.19% +6.81% +7.12% +2.98% - - 8 Class I-ACC-USD +3.90% +1.64% -3.50% +9.03% +4.50% 6 7 Class A-DIST-RMB Latest Fund Distribution - Annualized Dividend Yield: 3.60% 4 Record Date Distribution (RMB) Class A-DIST-RMB Mar 27, 2018 0.03 Feb 26, 2018 0.03 Jan 28, 2018 0.03 Class A-DIST-RMB Class A-DIST-USD Class I-DIST-RMB Class I-ACC-USD Launch Date 21-Feb-2012 14-Jul-2014 17-Mar-2014 26-Jun-2014 NAV per unit 3 RMB 10.20 USD 9.73 RMB 10.55 USD 11.61 Bloomberg Ticker CAMSRMB HK CAMSBAU HK CAMSBIR HK CAMSIUA HK ISIN Code HK0000098829 HK0000165487 HK0000146701 HK0000165537 Initial Charge 2 Up to 5% Up to 5% Up to 5% Up to 5% Management Fee 2 1.25% p.a. 1.25% p.a. 0.75% p.a. 0.75% p.a. Min. investment 2 RMB 10,000 USD 1,000 RMB 5,000,000 USD 1,000,000 *Source: 2018 Morningstar. All Rights Reserved. As of April 27, 2018. 1 NAV-to-NAV performance with dividends reinvested; The investment returns are denominated in RMB. US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar/rmb exchange rate. With effect from 9 February 2018, the investment strategy of the Fund was changed. Performance information prior to 9 February 2018 was achieved under circumstances that no longer apply. The investment objective of the Fund has also been changed on 11 April 2014. 2 Please refer to the Fund s Explanatory Memorandum for further details (including fees). 3 NAV per unit will be published daily in the South China Morning Post and the Hong Kong Economic Times. 4 Annualized Dividend Yield = [(1 + distribution per unit / ex-dividend NAV)^12] - 1. The annualized dividend yield is calculated based on the latest dividend distribution with dividend reinvested, and may be higher or lower than the actual annual dividend yield. Positive distribution yield does not imply positive return. Dividend is not guaranteed. 5 Calculated since the inception date of class A-DIST-RMB. 6 Calculated since the inception date of class A-DIST-USD. 7 Calculated since the inception date of class I-DIST-RMB. 8 Calculated since the inception date of class I-Acc-USD. 9 All shares of class I-DIST-RMB have been redeemed on 18th November, 2016. Cumulative return and calendar year return of this share class are calculated based on the NAV as of 17th November, 2016.
ChinaAMC Select RMB Bond Fund Manager's Comment On the data side, macro economy continued to provide no clear indication of trend. On one hand, much watched Industrial Value Added showed a healthy sign of manufacturing activities. On the other hand, inventory looked high in major commodities such as steel and coal, which might point to a relatively weak demand. All in all, both bulls and bears could find what they need to justify their respective views. PBoC shocked the market by lowing RRR by full 100 bp. However, looking beneath the surface, the main purpose of the move is to replace expensive Open Market Operation funding with cheap money, a good relief to banks. This is a long-proposed action, but the timing that PBoC chose to take this action might suggest that RMB exchange rate is not a concern for PBoC for the time being. The cut of reserve requirement ratio brought about a steep drop of yield on the day by about 15 bp, which was only reverse by the end of April when tight liquidity started to haunt the market. The Fund remains modestly optimistic about bond market and will look for market correction to adjust positions. Portfolio Allocation Asset Allocation Cash, 6.11% Fixed Income Funds, 4.83% Convertible Bonds, 3.98% Credit Products, 85.08% Average Local Credit Rating for Credit Products 10 Average Duration 12 AA+ 11 1.49 years 10 Credit Products include Medium Term Notes, Convertible Bonds, Corporate Bonds, Enterprise Bonds. 11 Source: Wind. Rating agencies include Dagong, China Lianhe, Pengyuan, CCXI, CCXR, Shanghai Brillance, China LianHe. 12 Does not include Fixed Income Funds and Cash. Top 5 Holdings Name XJ ELECTRIC CO LTD 6.75% A 30NOV2018 Weight 8.49% CHUZHOU CITY CONSTRUCTION INVESTMENT CO LTD 1YR S+3.05% A 30NOV2021 7.87% GUIZHOU RAILWAY INVESTMENT CO LTD 7.2% A 27MAR2022 7.01% RUSHAN CITY STATE-OWNED ASSET OPERATION CO LTD 6.9% A 11SEP2020 5.42% WUZHOU URBAN RURAL CONSTRUCTION INVESTMENT DEVELOPMENT CO LTD 7.18% A 12OCT2020 5.19% Customer Hotline: (852) 3406 8686 Website: www.chinaamc.com.hk Email: hkfund_services@chinaamc.com Risk Warning Investment involves risks. The price of the Fund s units may go up as well as down. Past performance is not indicative of future performance, future return is not guaranteed and a loss of your original capital may occur. This material does not constitute an offer or solicitation of any transaction in any securities or collective investment schemes, nor does it constitute any investment advice. This document is provided for information purposes only and shall not be relied upon for making any investment decision. Certain information or data in this document has been obtained from unaffiliated third parties; we have reasonable belief that such information or data is accurate, complete and up to the date as indicated; China Asset Management (Hong Kong) Limited accepts responsibility for accurately reproducing such data and information but makes no warranty or representation as to the completeness and accuracy of data and information sourced from such unaffiliated third parties. You should read the Fund s offering documents for further details, including risk factors. If necessary, you should seek independent professional advice. This material has been prepared and issued by China Asset Management (Hong Kong) Limited. This material has not been reviewed by the Securities and Futures Commission.
PRODUCT KEY FACTS ChinaAMC Select Fund - ChinaAMC Select RMB Bond Fund (the Sub-Fund ) February 2018 This statement provides you with key information about this product. This statement is a part of the offering document and must be read in conjunction with the Explanatory Memorandum of ChinaAMC Select Fund ( Explanatory Memorandum ). You should not invest in this product based on this statement alone. Quick facts Fund Manager and RQFII holder China Asset Management (Hong Kong) Limited (the Manager ) Trustee: Custodian: RQFII Local Custodian: Base currency: Financial year end of the Sub-Fund: Dealing frequency: Dividend policy: BOCI-Prudential Trustee Limited Bank of China (Hong Kong) Limited Bank of China Limited RMB 31 December Daily Distributing Units Currently monthly, subject to the discretion of the Manager. Distributions may be paid out of capital or effectively paid out of capital, which will result in an immediate reduction of the net asset value per Unit. Accumulating Units No dividends will be declared or distributed. All interest and other income earned on the investment will be accumulated and re-invested into the Sub-Fund on behalf of Unitholders of the Classes of accumulating Units. Ongoing charges over a year: Class A-DIST-HKD Units*: 1.64% Class A-DIST-RMB Units^: 1.64% Class A-DIST-USD Units^: 1.64% Class I-DIST-HKD Units*: 1.14% Class I-DIST-RMB Units#: 1.14% 1
Class I-DIST-USD Units*: 1.14% Class I-ACC-HKD Units*: 1.14% Class I-ACC-RMB Units#: 1.14% Class I-ACC-USD Units^: 1.14% * As the unit class is newly set up, the figure is an estimate only and represents the sum of the estimated ongoing expenses chargeable to the relevant unit class expressed as a percentage of the estimated average net asset value of the relevant unit class. The actual figure may be different upon actual operation of the fund and may vary from year to year. ^ The ongoing charges figure is based on expenses for the year ended 31 December 2017. This figure may vary from year to year. It represents the sum of the ongoing expenses chargeable to the relevant unit class expressed as a percentage of the average net asset value of the relevant unit class. # As all units of the class have been redeemed before the year ended 31 December 2017, the figure is an estimate only and represents the sum of the estimated ongoing expenses chargeable to the relevant unit class expressed as a percentage of the estimated average net asset value of the relevant unit class. The actual figure may be different upon actual operation of the fund and may vary from year to year. Min. investment: Class Initial Additional Class A-DIST-HKD Units HKD10,000 HKD10,000 Class A-DIST-RMB Units RMB10,000 RMB10,000 Class A-DIST-USD Units USD1,000 USD1,000 Class I HKD Units HKD5,000,000 HKD1,000,000 Class I RMB Units RMB5,000,000 RMB1,000,000 Class I USD Units USD1,000,000 USD100,000 Min. holding: Class Class A-DIST-HKD Units Minimum Holding HKD10,000 Class A-DIST-RMB Units RMB10,000 2
Class A-DIST-USD Units Class I HKD Units Class I RMB Units Class I USD Units USD1,000 HKD5,000,000 RMB5,000,000 USD1,000,000 Min. redemption: Class Class A-DIST-HKD Units Minimum Redemption HKD10,000 Class A-DIST-RMB Units RMB10,000 Class A-DIST-USD Units Class I HKD Units Class I RMB Units Class I USD Units USD1,000 HKD100,000 RMB100,000 USD10,000 What is this product? ChinaAMC Select RMB Bond Fund is a sub-fund of ChinaAMC Select Fund, a Hong Kong domiciled umbrella structure unit trust. It is governed by the laws of Hong Kong. The Sub-Fund is a new type of fund offered in Hong Kong that is denominated in RMB. The Sub-Fund, through the RQFII quota obtained by the Manager, principally invests in RMB denominated fixed income securities. Investment Objective and Investment Strategy Investment Objective The Sub-Fund seeks to achieve capital appreciation and income generation by principally (i.e. up to 100% of its Net Asset Value) investing in (i) RMB denominated fixed income instruments, including bonds, issued or distributed within the PRC which (a) are denominated and settled in RMB and (b) are traded on the interbank bond market or are traded or transferred on the exchange market in the PRC ( PRC RMB Debt Securities ), and (ii) fixed income funds (including money market funds ) approved by the China Securities Regulatory Commission ( CSRC ) and offered to the public in the PRC* (collectively, PRC RMB Fixed Income Securities ). The Sub-Fund currently does not intend to invest in RMB denominated debt instruments issued outside the PRC, the Sub-Fund will seek the prior approval of the SFC and provide at least one month s prior written notice to Unitholders before investing in these instruments. * Investment in fixed income funds approved by the CSRC which are offered to the public in the PRC will not exceed 10% of the Net Asset Value of the Sub-Fund. 3
Investment Strategy The PRC RMB Debt Securities that the Sub-Fund may invest in will be issued by (a) the PRC government, local governments, quasi-government organizations including policy banks or local government financing vehicles; and/or (b) corporations, provided that either the PRC RMB Debt Securities themselves or the issuers of such PRC RMB Debt Securities carry a credit rating grade of at least BBB- assigned by one of the local rating agencies recognized by the relevant authorities in the PRC or a credit rating grade of at least BBB-/rated by Standard & Poor s, Baa3 rated by Moody s or equivalent ratings by other internationally recognized credit rating agencies of similar standing. Before investing in a PRC RMB Debt Security, the Manager will first consider the credit rating of such PRC RMB Debt Security and if such PRC RMB Debt Security is not rated, the Manager will consider the credit rating of the issuer of such PRC RMB Debt Security, which will be deemed as its credit rating. In the event that the credit ratings of the PRC RMB Debt Securities are downgraded to below BBB- (in the case of being assigned by one of the local rating agencies recognized by the relevant authorities in the PRC) or below BBB-/Baa3 (in the case of being assigned by an internationally recognized credit rating agency), the Manager will, having regard to the interests of the Unitholders, seek to dispose of all such downgraded PRC RMB Debt Securities gradually within a reasonable period of time in light of the prevailing market conditions. The Sub-Fund will not invest in bonds with credit ratings below BBB- assigned by one of the local rating agencies recognized by the relevant authorities in the PRC or below BBB-/Baa3 assigned by an internationally recognized credit rating agency. Nor will the Sub-Fund invest in unrated securities (i.e. securities which neither themselves nor their issuers have a credit rating). The Sub-Fund may invest up to 100% of its Net Asset Value in urban investment bonds ( 城投債 ) (i.e. debt instruments issued by local government financing vehicles ( LGFVs ) and traded on the exchange market and interbank bond market in the PRC). These LGFVs are separate legal entities established by local governments and/or their affiliates to raise financing for local development, public welfare investment or infrastructure projects. The Sub-Fund may invest less than 30% of its Net Asset Value in convertible bonds. The Manager actively manages the Sub-Fund, which relies on the professional judgment of the Manager in making decisions about the Sub-Fund s portfolio investments. Portfolio construction is based on the Manager s fundamental view of the RMB debt markets. The Manager seeks to generate positive risk-adjusted returns in the fixed income securities of the Sub-Fund via sector allocation, issue selection, duration, term-structure weighting, convertible bond selection, and individual security issuer selection. The Sub-Fund will not invest in any derivatives for hedging or non-hedging purposes, and it will not invest in structured deposits, structured products or asset backed securities (including asset backed commercial papers). The Manager currently does not intend to enter into any securities lending, repurchase or reverse repurchase transactions in respect of the Sub-Fund. The Manager will seek the prior approval of the SFC and provide at least one month s prior notice to Unitholders before the Manager engages in any such transactions. Indicative Asset Allocation Asset Class Sub-Fund s percentage allocation (indicative only) PRC RMB Fixed Income Securities Up to 100% RMB Cash or Cash Equivalents or Short-term Money Market Instruments (such as certificates of deposit, treasury bills and commercial papers): no more than 30% Under exceptional circumstances (e.g. in times of extreme volatility of the markets or during severe adverse market conditions, the Manager may temporarily hold a substantial portion of the Sub-Fund s 4
assets in cash or cash equivalents, or invest in short-term money market instruments (such as certificates of deposit, treasury bills and commercial papers) to preserve the value of the assets in the investment portfolio of the Sub-Fund. What are the key risks? Investment involves risks. For further information on risk, refer to the Sub-Fund s Explanatory Memorandum. 1. Investment risk The Sub-Fund is an investment fund and not a bank deposit. The Sub-Fund may both gain and lose value and there is no guarantee of repayment of capital. There can be no assurance that the Sub-Fund will make any dividend or distributions payment during the period an investor holds units in the Sub-Fund. 2. Debt instruments risk Volatility and Liquidity risk The RMB debt securities market is at a developing stage and the trading volume may be lower than those of more developed market. The Sub-Fund may invest in debt securities which are not listed. Even if the debt securities are listed, there may not be a liquid or active market for such securities. The RMB debt securities market may also be subject to higher volatility and lower liquidity compared to more developed markets. The prices of securities traded in such markets may be subject to fluctuations. The bid and offer spreads of the price of such securities may be large, and hence, the Sub-Fund may incur significant trading and realisation costs and losses may be suffered. In respect of the listed debt securities, the Sub-Fund may be subject to the risk of not being able to sell its bonds on the exchange on a timely basis, or will have to sell at a deep-discount to their face values. Therefore, the Sub-Fund s value and liquidity will be adversely affected. Credit Risk The Sub-Fund is exposed to the credit/default risk of issuers of the PRC RMB Debt Securities that the Sub-Fund may invest in. The PRC RMB Debt Securities that the Sub-Fund invests in are typically unsecured debt obligations and are not supported by any collateral. The Sub-Fund will be fully exposed to the credit/insolvency risk of its counterparties as an unsecured creditor. Interest Rate Risk Investment in the Sub-Fund is subject to interest rate risk. Generally, the prices of fixed income securities rise when interest rates fall, whilst their prices fall when interest rates rise. Changes of macro-economic policies in the PRC, such as the monetary and fiscal policy, will have an influence over capital markets which may cause changes to market interest rates, affecting the pricing of the bonds and thus the return of the Sub-Fund. Credit Rating Risk Credit ratings assigned by rating agencies are subject to limitations and do not guarantee the creditworthiness of the securities and/or the issuers at all times. As the credit ratings of the debt instruments of the Sub-Fund are largely assigned by the credit agencies in the PRC, the credit appraisal system in the PRC and the rating methodologies adopted by the local rating agencies might not be consistent with or might be different from other international rating agencies. Credit ratings given by the local rating agencies recognized by the relevant authorities in the PRC may therefore not be directly comparable with those given by other international rating agencies. 5
For debt instruments issued by issuers that are either not rated or lower rated, greater risks will be assumed because of generally lower creditworthiness and liquidity, and greater fluctuation in value and higher chance of default than higher investment rated debt instruments. Valuation Risk Valuation of the Sub-Fund s investments may involve uncertainties and judgmental determinations, and independent pricing information may not at all times be available. If such valuations turn out to be incorrect, this may affect the calculation of the net asset value of the Sub-Fund. Downgrade Risk The credit rating of an issuer or a debt instrument may subsequently be downgraded due to changes in the financial strength of an issuer or changes in the credit rating of a debt instrument. In the event of downgrading in the credit ratings of a debt instrument or an issuer relating to a debt, the Sub-Fund s investment value in such security may be adversely affected. The Manager may or may not be able to dispose of the debt instruments that are being downgraded. Risk associated with Urban Investment Bonds The Sub-Fund may invest up to 100% of its net asset value in urban investment bonds. Urban investment bonds are issued by local government financing vehicles ( LGFVs ). Although local governments may be seen to be closely connected to urban investment bonds, such bonds are typically not guaranteed by local governments or the central government of the PRC. As such, local governments or the central government of the PRC are not obliged to support any LGFVs in default. In the event that the LGFVs default on payment of principal or interest of the urban investment bonds, the Sub-Fund could suffer substantial loss and the net asset value of the Sub-Fund could be adversely affected. 3. Risks associated with RQFII regime The Sub-Fund s ability to make relevant investments or to fully implement or pursue its investment objective and strategy is subject to the applicable laws, rules and regulations (including restrictions on investments and repatriation of principal and profits) in the PRC, which are subject to changes and such change may have potential retrospective effect. In the event of any bankruptcy/default/disqualification from performing its obligations of either a PRC broker or the RQFII Local Custodian in the execution or settlement of any transaction or in the transfer of any funds or securities in the PRC, the Sub-Fund may encounter delays in recovering its assets which may in turn impact the net asset value of the Sub-Fund. The Sub-Fund is subject to restrictions and requirements applicable to RQFII investment. The regulations which regulate investments by RQFIIs in the PRC have only been announced recently and are novel in nature. Application of these relevant rules depends on the interpretation of the PRC authorities. Any uncertainty and change to the relevant laws and regulations in the PRC may adversely impact the Sub-Fund. The Sub-Fund may suffer substantial losses if the approval of the RQFII is being revoked/terminated or otherwise invalidated as the Sub-Fund may be prohibited from trading of relevant securities and repatriation of the Sub-Fund s monies. Repatriation by RQFIIs in respect of a fund such as the Sub-Fund conducted in RMB is not subject to any restrictions, lock-up periods or prior approval. There is no assurance, however, that PRC rules or regulations will not change or that repatriation restrictions will not be imposed in the future. Any restrictions on repatriation of the invested capital and net profits may impact on the Sub-Fund s ability to meet redemption requests from Unitholders. A RQFII has the flexibility to allocate its RQFII quota across different fund products under its management. The Sub-Fund does not have exclusive use of all the investment quota of the RQFII. There can be no assurance that sufficient RQFII quota can be allocated to the Sub-Fund to meet all application for subscriptions to the Sub-Fund, and the Sub-Fund may suffer substantial losses. 6
4. RMB currency risk RMB is not freely convertible and is subject to exchange controls and restrictions. Under exceptional circumstances, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB. As the Sub-Fund s base currency is in RMB, investors may be adversely affected by the movements of the exchange rates between RMB and other currencies. There is no guarantee that RMB will not depreciate. If investors convert HKD, USD or any other currencies into RMB in investing in the Sub-Fund and subsequently convert the RMB redemption proceeds back to HKD, USD or such other currencies, they may suffer a loss in the event that RMB depreciates against HKD, USD or such other currencies. 5. Currency conversion risk Where an investor subscribes for Units denominated in a non-rmb currency, the Manager will convert such subscriptions into RMB prior to investment at the applicable exchange rate and subject to the applicable spread. Where an investor redeems Units denominated in a non-rmb currency, the Manager will sell the Sub-Fund s investments denominated in RMB and convert such proceeds into non-rmb currency at the applicable exchange rate and subject to the applicable spread. Currency conversion is also subject to the Sub-Fund s ability to convert the proceeds denominated in RMB into non-rmb currency which, in turn, might affect the Sub-Fund s ability to meet redemption requests from the Unitholders or delay the payment of redemption proceeds. In calculating the net asset value of Units of non-rmb class, the Manager will apply the CNH rate (i.e. the exchange rate for the offshore RMB market in Hong Kong). The CNH rate may be at a premium or discount to the exchange rate for the onshore RMB market in the PRC (i.e. the CNY exchange rate); there may be significant bid and offer spreads for the offshore RMB market in Hong Kong. Consequently, there may be significant trading costs incurred and investing in classes of Units denominated in a non-rmb currency may suffer losses. 6. Settlement risk There are various transaction settlement methods in the interbank bond market. Although the Manager may endeavour to negotiate terms which are favourable to the Sub-Fund (e.g. requiring simultaneous delivery of security and payment), there is no assurance that settlement risks can be eliminated. Where its counterparty does not perform its obligations under a transaction, the Sub-Fund will sustain losses. Although it is the intention of China Securities Depository and Clearing Corporation Limited to deliver payment and listed securities to delivering participant and receiving participants, respectively, a delay may occur if either party fails to fulfill its payment or delivery obligation and the Sub-Fund may be adversely affected. 7. PRC / single country risk The Fund invests primarily in the PRC markets which involve concentration and other risks and special considerations not typically associated with investment in more developed economies or markets, such as greater political, tax, economic, foreign exchange, liquidity, policy, legal and regulatory risk. The value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments. 8. PRC tax risk There are risks and uncertainties associated with changes in current PRC tax laws, regulations and practice in respect of capital gains realised by RQFII on its investment in the PRC, which may have retrospective effect and may adversely affect the Sub-Fund. After careful consideration of the Manager s reassessment and having taken and considered independent professional tax advice regarding the Sub-Fund s eligibility for treaty relief in the relevant double taxation arrangements between Hong Kong and the PRC and acting in accordance with such advice, the Manager 7
considers that the Sub-Fund should be regarded as a Hong Kong tax resident and should be able to enjoy the treaty relief, i.e. a PRC withholding income tax ( WIT ) exemption on capital gains derived from PRC RMB Fixed Income Securities. As such the Manager has determined that, with effect from 18 August 2014 no WIT provision will be made on the gross realized and unrealized capital gains derived from the investment in PRC RMB Fixed Income Securities. The Manager has been making WIT provision at a rate of 10% for the account of the Sub-Fund in respect of interest income from PRC RMB Fixed Income Securities, which will be deducted from the Sub-Fund s assets. The Manager will continue to adopt the same tax provisioning policy in respect of such interest income. Based on professional and independent tax advice, the Manager has determined to make a WIT provision at 10% of the Sub-Fund s gross realised capital gains derived from trading of PRC A-Shares since the Sub-Fund s date of inception up to and including 14 November 2014. This excludes the realised gains derived from the Sub-Fund s trading of PRC A-Shares issued by land rich companies (for which a provision had already been made previously). Land rich companies refers to PRC companies in which at least 50% of their assets are comprised, directly or indirectly, of immovable properties situated in the PRC. It is possible that the applicable tax laws, regulations and practice may be changed, that the PRC tax authorities may hold a different view as to the enforcement of the PRC WIT collection on capital gains, that the assessment of land rich companies by the Manager may be incorrect or that the PRC tax authorities may require the Sub-Fund to provide a Hong Kong Tax Resident Certificate ( HKTRC ) (the Sub-Fund has not currently obtained a HKTRC) and the Manager may not be able to obtain a HKTRC on behalf of the Sub-Fund. In such case, the Sub-Fund may have greater tax liabilities in the PRC than provided for. Any shortfall between the provision and actual tax liabilities, which will be deducted from the Sub-Fund s assets, will cause the Sub-Fund s net asset value to be adversely affected. In this case, existing and subsequent investors will be disadvantaged as they will bear a disproportionately higher amount of tax liabilities as compared to the liability at the time of investment in the Sub-Fund. The actual tax liabilities may be lower than the tax provision made. Depending on the timing of their subscriptions and/or redemptions, investors may be disadvantaged as a result of any shortfall of tax provision and will have no right to claim any part of the overprovision (as the case may be). 9. Risks associated with distributions out of capital The Manager may at its discretion pay distributions out of the capital of the Sub-Fund or pay distributions out of gross income while charging / paying all or part of the Sub-Fund s fees and expenses to / out of capital of the Sub-Fund. Where distributions are paid out of gross income while charging/ paying all or part of the Sub-Fund s fees and expenses to/ out of the capital of the Sub-Fund, this will result in an increase in distributable income for the payment of distributions by the Sub-Fund and therefore, the Sub-Fund may effectively pay distributions out of capital. Unitholders should note that the distributions paid out of capital or effectively out of capital amount to a return or withdrawal of part of a Unitholder s original investment or from any capital gains attributable to that original investment. Any distributions involving payment of distributions out of the Sub-Fund s capital or payment of distributions effectively out of a Sub-Fund s capital (as the case may be) may result in an immediate reduction of the net asset value per Unit. The Manager may amend the distribution policy subject to SFC s prior approval and by giving not less than one month s prior notice to Unitholders. 10. Sovereign debt risk Investment in sovereign debt obligations issued or guaranteed by governments or their agencies of certain developing countries and certain developed countries involves a higher degree of political, social and economic risks. A government entity s willingness or ability to repay principal and interest due in a timely manner may be affected by various factors. In adverse situations, the sovereign issuers may not be able or willing to repay the principal and/or interest when due or may request the Sub-Fund to participate in restructuring such debts. The Sub-Fund may suffer significant losses when there is a default of sovereign debt issuers. 8
How has the Sub-Fund performed? Note: The performance for 2013 was achieved under circumstances that may no longer apply, the investment policy has been changed on 11 April 2014 to remove the flexibility of investing in China A-Shares. Past performance information is not indicative of future performance. Investors may not get back the full amount invested. The computation basis of the performance is based on the calendar year end, NAV-To- NAV, with dividend reinvested. These figures show by how much the Class A-DIST-RMB Units increased or decreased in value during the calendar year being shown. Performance data has been calculated in RMB including ongoing charges and excluding subscription fee and redemption fee you might have to pay. When no past performance is shown there was insufficient data available in that year to provide performance. Sub-Fund launch date: 21 February 2012 Class A-DIST-RMB launch date: 21 February 2012 Class A-DIST-RMB is selected as the most appropriate representative unit class as it has the longest track record and is denominated in the Sub-Fund s base currency. For further information on the performance of other unit classes, please refer to www.chinaamc.com.hk 1 Is there any guarantee? The Sub-Fund makes no guarantee of investment return or avoidance of loss. You may not get back the full amount of money you invest. What are the fees and charges? Charges which may be payable by you You may have to pay the following fees when dealing in the units of the Sub-Fund. Fee Subscription fee* Conversion or switching fee* Redemption fee What you pay Up to 5% of the amount you buy^ Up to 1% of the total redemption proceeds of the original Class of Units^ None ^ investor should check with distributor for current level of the subscription, conversion or switching fee. Note that no subscription fee is payable in respect of subscription for Class I HKD Units, Class I RMB Units and Class I USD Units. 1 This website has not been reviewed by the SFC. 9
Ongoing fees payable by the Sub-Fund The following expenses will be paid out of the Sub-Fund. They affect you because they reduce the return you get on your investments. Annual rate (as a % p.a. of the net asset value) Management fee*: Up to 1.75% per annum (current level at 1.25% per annum for Class A-DIST-HKD Units, Class A-DIST- RMB Units and Class A- DIST-USD Units and 0.75% per annum for Class I HKD Units, Class I RMB Units and Class I USD Units ) of the Sub-Fund s value Trustee fee*: Up to 0.5% per annum (current level up to 0.15% per annum) of the Sub-Fund s value and subject to a minimum monthly fee of RMB40,000 Custody fee*: Performance fee: Administration fee: Up to 0.3% per annum of the Sub-Fund s value (current level at 0.1% per annum) (custody fee includes that of RQFII Local Custodian) Not applicable Not applicable * You should note that the subscription fee, conversion / switching fee, management fee, trustee fee, and custody fee might be increased up to the specified permitted maximum level by providing not less than one month s prior notice to Unitholders. Other fees You may have to pay other fees when dealing in the units of the Sub-Fund. Additional Information China Asset Management Co., Ltd. (the parent company of the Manager located in Beijing, China) has been appointed as the Investment Adviser for this Sub-Fund which provides non-binding investment advice in connection with the Sub-Fund s investments. You generally buy and redeem units at the Sub-Fund s next-determined net asset value after the trustee receives your request in good order on or before 4:00 p.m. (Hong Kong time) being the dealing cut-off time. Different distributors may impose different dealing deadlines for receiving requests from investors. The net asset value is calculated and the price of units is published each HK & PRC Business Day in the South China Morning Post and in the Hong Kong Economic Times and/or any other newspapers the Manager may determine and notify the Unitholders. Compositions of the distributions (if any) (i.e. the relative amounts / percentages paid out of (i) net distributable income and (ii) capital) for the last 12 months are available by the Manager on request and also on the following website: www.chinaamc.com.hk. This website has not been reviewed by the SFC. For further information on the past performance of other unit classes offered to Hong Kong investors, please refer to following website: www.chinaamc.com.hk. This website has not been reviewed by the SFC. 10
Important If you are in doubt, you should seek professional advice. The SFC takes no responsibility for the contents of this statement and makes no representation as to its accuracy or completeness. 11