Db Advisory Multibrands - Sales Prospectus An investment company with variable capital (SICAV) incorporated under Luxembourg law September 30 ...

 
DWS Investment S.A.

db Advisory Multibrands
Sales Prospectus
An investment company with variable capital (SICAV)
incorporated under Luxembourg law
September 30, 2020
Contents

A. Sales Prospectus – General Section                                                                                                                                   2
General information                                                                                                                                                     2
Investor profiles                                                                                                                                                      18
Investment Company                                                                                                                                                     19
Management Company                                                                                                                                                     30
Depositary                                                                                                                                                             31

B. Sales Prospectus – Special Section                                                                                                                                  36
db Advisory Multibrands – AMUNDI Smart Absolute Return                                                                                                                 36
db Advisory Multibrands – db Credit Selection                                                                                                                          38
db Advisory Multibrands – AMUNDI ESG Sustainable Balanced                                                                                                              40
db Advisory Multibrands – db World Selection Plus                                                                                                                      42
db Advisory Multibrands – DWS StepIn ESG Global Equities                                                                                                               44
db Advisory Multibrands – DWS StepIn Global Equities Evolution                                                                                                         47
db Advisory Multibrands – Franklin Templeton Global Conservative Portfolio                                                                                             49
db Advisory Multibrands – Invesco Multi Asset Risk Diversified                                                                                                         51
db Advisory Multibrands – JPMorgan Emerging Markets Active Allocation                                                                                                  53
db Advisory Multibrands – Nordea Sustainable Global Stars                                                                                                              55
db Advisory Multibrands – Pictet Multi Asset Flexible Allocation                                                                                                       57
db Advisory Multibrands – Pictet Thematic New Trends                                                                                                                   59
db Advisory Multibrands – PIMCO Euro Coupon Bond Fund                                                                                                                  61
db Advisory Multibrands – PIMCO High Income Global Credit Fund                                                                                                         63

Legal structure:
Umbrella SICAV according to Part I of the Law of December 17, 2010, on Undertakings
for Collective Investment.

General information
The investment company described in this              ing eligible assets for investment by UCITS,” as       The following provisions apply to all of the sub-
Sales Prospectus (“Investment Company”) is an         amended, provide a set of additional explanations      funds set up under db Advisory Multibrands. The
open-ended investment company with variable           that are to be observed in relation to the financial   respective special regulations for each of the
capital (“Société d’Investissement à Capital Vari-    instruments that are applicable for UCITS falling      individual sub-funds are contained in the special
able” or “SICAV”) established in Luxembourg in        under Directive 2009/65/EC, as amended.3               section of the Sales Prospectus.
accordance with Part I of the Luxembourg law on       The Investment Company may offer the investor
Undertakings for Collective Investment of Decem-      one or more sub-funds (umbrella structure) at its
ber 17, 2010 (“Law of 2010”), and in compliance       own discretion. The aggregate of the sub-funds
with the provisions of 2014/91/EU (amending Di-       produces the umbrella fund. In relation to third
rective 2009/65/EC) (UCITS), as well as the provi-    parties, the assets of a sub-fund are only liable
sions of the Grand-Ducal Regulation of February 8,    for the liabilities and payment obligations involv-    1
                                                                                                               Replaced by the Law of 2010.
2008, relating to certain definitions of the Law of   ing such sub-fund. Additional sub-funds may be         2
                                                                                                               Commission Directive 2007/16/EC of March 19, 2007,
December 20, 2002, on Undertakings for Collec-        established and/or one or more existing sub-              implementing Council Directive 85/611/EEC on the co-
tive Investment, as amended1 (“Grand-Ducal Reg-       funds may be dissolved or merged at any time.             ordination of laws, regulations and administrative provi-
ulation of February 8, 2008”), and implementing       One or more share classes can be offered to the           sions relating to undertakings for collective investment in
Directive 2007/16/EC2 (“Directive 2007/16/EC”) in     investor within each sub-fund (multi-share-class          transferable securities (UCITS) as regards the clarification
                                                                                                                of certain definitions (“Directive 2007/16/EC”).
Luxembourg law.                                       construction). The aggregate of the share classes      3
                                                                                                                See CSSF circular 08-339 in the currently applicable
With regard to the provisions contained in Direc-     produces the sub-fund. Additional share classes
                                                                                                                 version: CESR’s guidelines concerning eligible assets for
tive 2007/16/EC and in the Grand-Ducal Regulation     may be established and/or one or more existing             investment by UCITS – March 2007, ref.: CESR/07-044;
of February 8, 2008, the guidelines of the Commit-    share classes may be dissolved or merged at any            CESR’s guidelines concerning eligible assets for invest-
tee of European Securities Regulators (CESR) set      time. Share classes may be consolidated into               ment by UCITS – The classification of hedge fund indices
out in the document “CESR’s guidelines concern-       categories of shares.                                      as financial indices – July 2007, ref.: CESR/07-434.

                                                                                                                                                                          1
A. Sales Prospectus – General Section

1. General information                                    Market risk                                           Sub-funds offering non-base currency share
                                                          The price or market performance of financial          classes might be exposed to positive or negative
The following provisions apply to all of the sub-         products depends, in particular, on the perform­      currency impacts due to time lags attached to
funds set up under db Advisory Multibrands,               ance of the capital markets, which in turn are        necessary order processing and booking steps.
SICAV (the “Investment Company”). The respec-             affected by the overall economic situation and
tive special regulations for each of the individual       the general economic and political framework in       Custody risk
sub-funds are contained in the special section of         individual countries. Irrational factors such as      The custody risk describes the risk resulting from
this Sales Prospectus.                                    sentiment, opinions and rumors have an effect         the basic possibility that, in the event of insol-
                                                          on general price performance, particularly on an      vency, violation of due diligence or improper
                                                          exchange.                                             conduct on the part of the Depositary or any
Notes                                                                                                           sub-depositary, the investments in custody may
                                                          Country or transfer risk                              be removed in whole or in part from the Invest-
The legal basis for the sale of sub-fund shares is        A country risk exists when a foreign borrower,        ment Company’s access to its loss.
the current Sales Prospectus, to be read in               despite ability to pay, cannot make payments at
conjunction with the Investment Company’s                 all, or not on time, because of the inability or      Concentration risk
articles of incorporation.                                unwillingness of its country of domicile to exe-      Additional risks may arise from a concentration
                                                          cute transfers. This means that, for example,         of investments in particular assets or markets.
It is prohibited to provide any information or            payments to which the respective sub-fund is          The Investment Company`s assets then become
deliver any statements other than those of this           entitled may not occur, or be in a currency that is   particularly heavily dependent on the perform­
Sales Prospectus. The Investment Company shall            no longer convertible due to restrictions on          ance of these assets or markets.
not be liable if such divergent information or            currency exchange.
explanations are supplied.                                                                                      Risk of changes in interest rates
                                                          Settlement risk                                       Investors should be aware that investing in
This Sales Prospectus, the Key Investor Informa-          Especially when investing in unlisted securities,     shares may involve interest rate risks. These
tion Document (“KIID”) and the annual and                 there is a risk that settlement via a transfer        risks may occur in the event of interest rate
semi-annual reports may be obtained free of               system is not executed as expected because a          fluctuations in the denomination currency of the
charge from the Investment Company, the                   payment or delivery did not take place in time or     securities or the respective sub-fund.
Management Company or the paying agents.                  as agreed.
Other important information will be communi-                                                                    Legal and political risks
cated to shareholders in a suitable form by the           Legal and tax risk                                    Investments may be made for the Investment
Management Company.                                       The legal and tax treatment of the sub-funds may      Company in jurisdictions in which Luxembourg
                                                          change in ways that cannot be predicted or            law does not apply, or, in the event of legal
                                                          influenced. In case of a correction with tax          disputes, the place of jurisdiction is located
General risk warnings                                     consequences that are essentially disadvanta-         outside of Luxembourg. The resulting rights and
                                                          geous for the investor, changes to the sub-fund’s     obligations of the Investment Company may vary
Investing in the shares of the Investment Com-            taxation bases for preceding fiscal years made        from its rights and obligations in Luxembourg, to
pany involves risks. These can encompass or               because these bases are found to be incorrect         the detriment of the Investment Company and/or
involve equity or bond market risks, interest rate,       can result in the investor having to bear the tax     the investor.
credit, default, liquidity and counterparty risks as      burden resulting from the correction of preceding
well as ex­change rate, volatility, or political risks.   fiscal years, even though he may not have had an      The Investment Company may be unaware of
Any of these risks may also occur along with              investment in the sub-fund at the time. On the        political or legal developments (or may only
other risks. Some of these risks are addressed            other hand, the investor may also not benefit         become aware of them at a later date), including
briefly below. Potential investors should possess         from an essentially advantageous correction for       amendments to the legislative framework in
experience of investing in instruments that are           the current or preceding fiscal years during which    these jurisdictions. Such developments may also
employed within the scope of the proposed                 he had an investment in the sub-fund if the           lead to limitations regarding the eligibility of
investment policy. Investors should also have a           shares are redeemed or sold before the correc-        assets that may be, or already have been,
clear picture of the risks involved in investing in       tion takes place.                                     acquired. This situation may also arise if the
the shares and should not make a decision to                                                                    Luxembourg legislative framework governing the
invest until they have fully consulted their legal,       In addition, a correction of tax data can result in   Investment Company and/or the management of
tax and financial advisors, auditors or other             a situation where taxable income or tax benefits      the Investment Company is amended.
advis­ors about (a) the suitability of investing in       are actually assessed for tax in a different
the shares, taking into account their personal            assessment period to the applicable one and           Operational risk
financial and tax situation and other circum-             that this has a negative effect on the individual     The Investment Company may be exposed to a
stances, (b) the information contained in this            investor.                                             risk of loss, which can arise, for example, from
Sales Prospectus, and (c) the respective sub-                                                                   inadequate internal processes and from human
fund’s investment policy.                                 Currency risk                                         error or system failures at the Investment Com-
                                                          To the extent that the sub-fund’s assets are          pany, the Management Company or at external
It must be noted that investments made by a               invested in currencies other than the respective      third parties. These risks can affect the perform­
sub-fund also contain risks in addition to the            sub-fund currency, the respective sub-fund will       ance of a sub-fund, and can thus also adversely
opportunities for price increases. The Investment         receive income, repayments and proceeds from          affect the net asset value per share and the
Company’s shares are securities, the value of             such investments in these other currencies. If        capital invested by the investor.
which is determined by the price fluctuations of          the value of this currency depreciates in relation
the assets contained in the respective sub-fund.          to the sub-fund currency, the value of the sub-       Inflation risk
Accordingly, the value of the shares may rise or          fund’s assets is reduced.                             All assets are subject to a risk of devaluation
fall in comparison with the purchase price.                                                                     through inflation.

No assurance can therefore be given that the
investment objectives will be achieved.

2
Key individual risk                                       Risks connected to derivative                           After a trigger event, the recovery of the principal
The exceptionally positive performance of a               transactions                                            value mainly depends on the structure of the
sub-fund during a particular period is also attribut-     Buying and selling options, as well as the conclu-      CoCo, according to which nominal losses of the
able to the abilities of the individuals acting in the    sion of futures contracts or swaps (including total     CoCo can be fully or partially absorbed using one
interests of the sub-fund, and therefore to the           return swaps), involves the following risks:            of the three different methodologies: Equity
correct decisions made by their respective                                                                        Conversion, Temporary Write-Down or Perma-
management. Fund management personnel can                 –– Price changes in the underlying instrument           nent Write-Down. In case of temporary write-
change, however. New decision-makers might                   can cause a decrease in the value of the             down feature, the write-down is fully discretion-
not be as successful.                                        option or future contract, and even result in a      ary and subject to certain regulatory restrictions.
                                                             total loss. Changes in the value of the assets       Any distributions of remaining capital payable
Change in the investment policy                              underlying a swap or total return swap can           after the trigger event will be based on the
The risk associated with the sub-fund’s assets               also result in losses for the respective sub-        reduced principal. A CoCo investor may suffer
may change in terms of content due to a change               fund assets.                                         losses before equity investors and other debt
in the investment policy within the range of              –– Any necessary back-to-back transactions              holders in relation to the same issuer.
investments permitted for the respective sub-                (closing of position) incur costs which can
fund’s assets.                                               cause a decrease in the value of the sub-            CoCo terms structures may be complex and may
                                                             fund’s assets.                                       vary from issuer to issuer and bond to bond,
Changes to this Sales Prospectus;                         –– The leverage effect of options swaps, futures        following minimum requirements as laid out in
liquidation or merger                                        contracts or other derivatives may alter the         the EU Capital Requirements Directive IV /
The Investment Company reserves the right to                 value of the sub-fund’s assets more strongly         Capital Requirements Regulation (CRD IV / CRR).
change this Sales Prospectus for the respective              than the direct purchase of the underlying           There are additional risks which are associated
sub-fund(s). In addition, the Investment Company             instruments would.                                   with investing in CoCos like:
may, in accordance with the provisions of its             –– The purchase of options entails the risk that
articles of incorporation and Sales Prospectus,              the options are not exercised because the            a)	Risk of falling below the specified trigger level
liquidate the sub-fund entirely or merge it with             prices of the underlying instruments do not              (trigger level risk)
another fund’s assets. For the investor, this                change as expected, meaning that the sub-
entails the risk that the holding period planned             fund’s assets lose the option premium they           The probability and the risk of a conversion or of
by the investor will not be realized.                        paid. If options are sold, there is the risk that    a write-down are determined by the difference
                                                             the sub-fund may be obliged to buy assets at         between the trigger level and the capital ratio of
Credit risk                                                  a price that is higher than the current market       the CoCo issuer currently required for regulatory
Bonds or debt instruments involve a credit risk              price, or obliged to deliver assets at a price       purposes.
with regard to the issuers, for which the issuer’s           which is lower than the current market price.
credit rating can be used as a benchmark. Bonds              In that case, the sub-fund will suffer from a        The mechanical trigger is at least 5.125% of the
or debt instruments issued by issuers with a                 loss amounting to the price difference minus         regulatory capital ratio or higher, as set out in the
lower rating are generally viewed as securities              the option premium which had been received.          issue prospectus of the respective CoCo. Espe-
with a higher credit risk and greater risk of             –– Futures contracts also entail the risk that the      cially in the case of a high trigger, CoCo investors
default on the part of the issuer than those                 sub-fund’s assets may make losses due to             may lose the capital invested, for example in the
instruments that are issued by issuers with a                market prices not having developed as                case of a write-down of the nominal value or
better rating. If an issuer of bonds or debt instru-         expected at maturity.                                conversion into equity capital (shares).
ments runs into financial or economic difficulties,
this can affect the value of the bonds or debt            Risk connected to the acquisition                       At sub-fund level, this means that the actual risk
instruments (this value could drop to zero) and           of shares of investment funds                           of falling below the trigger level is difficult to
the payments made on the basis of these bonds             When investing in shares of target funds, it must       assess in advance because, for example, the
or debt instruments (these payments could drop            be taken into consideration that the fund managers      capital ratio of the issuer may only be published
to zero).                                                 of the individual target funds act independently of     quarterly and therefore the actual gap between
                                                          one another and that therefore multiple target          the trigger level and the capital ratio is only
Additionally, some bonds or debt instruments are          funds may follow investment strategies which are        known at the time of publication.
subordinated in the financial structure of an             identical or contrary to one another. This can result
issuer, so that in the event of financial difficulties,   in a cumulative effect of existing risks, and any       b)	Risk of suspension of the coupon payment
the losses can be severe and the likelihood of            opportunities might be offset.                              (coupon cancellation risk)
the issuer meeting these obligations may be
lower than other bonds or debt instruments,               Risks relating to investments                           The issuer or the supervisory authority can
leading to greater volatility in the price of these       in contingent convertibles                              suspend the coupon payments at any time. Any
instruments.                                              Contingent convertibles (“CoCos”) are a form of         coupon payments missed out on are not made
                                                          hybrid capital security that are from the perspec-      up for when coupon payments are resumed. For
Risk of default                                           tive of the issuer part of certain capital require-     the CoCo investor, there is a risk that not all of
In addition to the general trends on capital              ments and capital buffers. Depending on their           the coupon payments expected at the time of
markets, the particular performance of each               terms & conditions, CoCos intend to either              acquisition will be received.
individual issuer also affects the price of an            convert into equity or have their principal written
investment. The risk of a decline in the assets of        down upon the occurrence of certain ‘triggers’          c)	Risk of a change to the coupon
issuers, for example, cannot be eliminated even           linked to regulatory capital thresholds or the              (­coupon ­calculation / reset risk)
by the most careful selection of the securities.          conversion event can be triggered by the super-
                                                          visory authority beyond the control of the issuer,      If the CoCo is not called by the CoCo issuer on
                                                          if supervisory authorities question the continued       the specified call date, the issuer can redefine
                                                          viability of the issuer or any affiliated company as    the terms and conditions of issue. If the issuer
                                                          a going-concern.                                        does not call the CoCo, the amount of the cou-
                                                                                                                  pon can be changed on the call date.

                                                                                                                                                                      3
d)	Risk due to prudential requirements                 i)	Yield valuation risk                                In most cases, the securities markets in the
    ­(conversion and write down risk)                                                                           emerging markets are still in their primary stage
                                                        Due to the callable nature of CoCos it is not           of development. This may result in risks and
A number of minimum requirements in relation            certain what calculation date to use in yield           practices (such as increased volatility) that usu­
to the equity capital of banks were defined in          calculations. At every call date there is the risk      ally do not occur in developed securities markets
CRD IV. The amount of the required capital buffer       that the maturity of the bond will be extended          and which may have a negative influence on the
differs from country to country in accordance           and the yield calculation needs to be changed to        securities listed on the stock exchanges of these
with the respective valid regulatory law appli­         the new date, which can result in a yield change.       countries. Moreover, the markets in emerging­-
cable to the issuer.                                                                                            market countries are frequently characterized by
                                                        j)	Unknown risk                                        illiquidity in the form of low turnover of some of
At sub-fund level, the different national require­                                                              the listed securities.
ments have the consequence that the conver­             Due to the innovative character of the CoCos and
sion as a result of the discretionary trigger or        the ongoing changing regulatory environment for         In comparison to other types of investment that
the suspension of the coupon payments can be            financial institutions, there could occur risks         carry a smaller risk, it is important to note that
triggered accordingly depending on the regula­          which cannot be foreseen at the current stage.          exchange rates, securities and other assets from
tory law applicable to the issuer and that an                                                                   emerging markets are more likely to be sold as a
additional uncertainty factor exists for the CoCo       For further details, please refer to the ESMA           result of the “flight into quality” effect in times
investor, or the invest­or, depending on the            statement (ESMA/2014/944) from July 31, 2014            of economic stagnation.
national conditions and the sole judgment of the        ‘Potential Risks Associated with Investing in
respective competent supervisory authority.             Contingent Convertible Instruments’.                    Investments in Russia
                                                                                                                If provided for in the special section of the Sales
Moreover, the opinion of the respective supervi­        Liquidity risk                                          Prospectus for a particular sub-fund, sub-funds
sory authority, as well as the criteria of relevance    Liquidity risks arise when a particular security is     may, within the scope of their respective invest­
for the opinion in the individual case, cannot be       difficult to dispose of. In principle, acquisitions     ment policies, invest in securities that are traded
conclusively assessed in advance.                       for a sub-fund must only consist of securities          on the Moscow Exchange (MICEX-RTS). The
                                                        that can be sold again at any time. Nevertheless,       exchange is a recognized and regulated market
e)	Call risk and risk of the competent                 it may be difficult to sell particular securities at    as defined by article 41(1) of the Law of 2010.
    ­supervisory authority preventing a call            the desired time during certain phases or in            Additional details are specified in the respective
     (call extension risk)                              particular exchange segments. There is also the         special section of the Sales Prospectus.
                                                        risk that securities traded in a rather narrow
CoCos are perpetual long-term debt securities           market segment will be subject to considerable          Custody and registration risk in Russia
that are callable by the issuer at certain call dates   price volatility.                                       –– Even though commitments in the Russian
defined in the issue prospectus. The decision to                                                                   equity markets are well covered through the
call is made at the discretion of the issuer, but it    Assets in the emerging markets                             use of GDRs and ADRs, individual sub-funds
does require the approval of the issuer’s compe­        Investing in assets from the emerging markets              may, in accordance with their investment
tent supervisory authority. The supervisory             generally entails a greater risk (potentially includ­      policies, invest in securities that might
authority makes its decision in accordance with         ing considerable legal, economic and political             require the use of local depositary and/or
applicable regulatory law.                              risks) than investing in assets from the markets           custodial services. At present, the proof of
                                                        of industrialized countries.                               legal ownership of equities in Russia is
The CoCo investor can only resell the CoCo on a                                                                    delivered in book-entry form.
secondary market, which in turn is associated           Emerging markets are markets that are, by               –– The Shareholder Register is of decisive
with corresponding market and liquidity risks.          definition, “in a state of transition” and are             importance in the custody and registration
                                                        therefore exposed to rapid political change and            procedure. Registrars are not subject to any
f)	Equity risk and subordination risk                  economic declines. During the past few years,              real government supervision, and the sub-
    ­(capital structure inversion risk)                 there have been significant political, economic            fund could lose its registration through fraud,
                                                        and societal changes in many emerging-market               negligence or just plain oversight. Moreover,
In the case of conversion to equities, CoCo             countries. In many cases, political considerations         in practice, there was and is no really strict
investors become shareholders when the trigger          have led to substantial economic and societal              adherence to the regulation in Russia under
occurs. In the event of insolvency, claims of           tensions, and in some cases these countries                which companies having more than
shareholders may have subordinate priority and          have experienced both political and economic               1,000 shareholders must employ their own
be dependent on the remaining funds available.          instability. Political or economic instability can         independent registrars who fulfill the legally
Therefore, the conversion of the CoCo may lead          influence investor confidence, which in turn can           prescribed criteria. Given this lack of inde­
to a total loss of capital.                             have a negative effect on exchange rates, secu­            pendence, the management of a company
                                                        rity prices or other assets in emerging markets.           may be able to exert potentially considerable
g)	Industry concentration risk                                                                                    influence over the compilation of the share­
                                                        The exchange rates and the prices of securities            holders of the Investment Company.
Industry concentration risk can arise from              and other assets in the emerging markets are            –– Any distortion or destruction of the register
uneven distribution of exposures to financials          often extremely volatile. Among other things,              could have a material adverse effect on the
due to the specific structure of CoCos. CoCos           changes to these prices are caused by interest             interest held by the sub-fund in the corre­
are required by law to be part of the capital           rates, changes to the balance of demand and                sponding shares of the Investment Company
structure of financial institutions.                    supply, external forces affecting the market               or, in some cases, even completely eliminate
                                                        (especially in connection with important trading           such a holding. Neither the sub-fund nor the
h)	Liquidity risk                                      partners), trade-related, tax-related or monetary          fund manager nor the Depositary nor the
                                                        policies, governmental policies as well as inter­          Management Company nor the board of
CoCos bear a liquidity risk in stressed market          national political and economic events.                    directors of the Investment Company (the
conditions due to a specialized investor base and                                                                  “Board of Directors”) nor any of the sales
lower overall market volume compared to plain-­                                                                    agents is in a position to make any repre­
vanilla bonds.                                                                                                     sentations or warranties or provide any

4
guarantees with respect to the actions or          PRC are relatively new and their application is       be subject to a risk of price fluctuations in
   services of the registrar. This risk is borne by   uncertain. Such regulations also empower the          A-shares during the time when the Stock
   the sub-fund.                                      CSRC and the State Administration of Foreign          ­Connect is not trading as a result.
                                                      Exchange (“SAFE”) to exercise discretion in their
At present, Russian law does not provide for the      respective interpretation of the regulations,         Restrictions on selling imposed by
concept of the good-faith acquirer as it is usually   which may result in increased uncertainties in        front-end monitoring
the case in western legislation. As a result of       their application.                                    PRC regulations require that before an investor
this, under Russian law, an acquirer of securities                                                          sells any share, there should be sufficient shares
(with the exception of cash instruments and           d)	Shenzhen and Shanghai-Hong Kong                   in the account; otherwise SSE will reject the sell
bearer instruments), accepts such securities              Stock Connect risks                               order concerned. SEHK will carry out pre-trade
subject to possible restrictions of claims and                                                              checking on A-shares sell orders of its participants
ownership that could have existed with respect        With Stock Connect, foreign investors (including      (i.e. the stock brokers) to ensure there is no
to the seller or previous owner of these securi-      the Sub-Fund) may directly trade certain eligible     over-selling.
ties. The Russian Federal Commission for Securi-      A-Shares through the so-called Northbound
ties and Capital Markets is currently working on      Trading Link, subject to published laws and regula-   Clearing, settlement and custody risks
draft legislation to provide for the concept of the   tions in their respective applicable version. Stock   The Hong Kong Securities Clearing Company
good-faith acquirer. However, there is no assur-      Connect currently includes Shanghai-Hong Kong         Limited, a wholly-owned subsidiary of HKEx (the
ance that such a law will apply retroactively to      Stock Connect and Shenzhen-Hong Kong Stock            “HKSCC”) and ChinaClear establish the clearing
purchases of shares previously undertaken by          Connect. Shanghai-Hong Kong Stock Connect is a        links and each is a participant of each other
the sub-fund. Accordingly, it is possible at this     securities trading and clearing system developed      to facilitate clearing and settlement of
point in time that the ownership of equities by a     by Hong Kong Exchanges and Clearing Limited           cross-boundary trades. As the national central
sub-fund could be contested by a previous owner       (“HKEx”), China Securities Depository and Clear-      counterparty of the PRC’s securities market,
from whom the equities were acquired; such an         ing Corporation Limited (“China Clear”) and           ChinaClear operates a comprehensive network
event could have an adverse effect on the assets      Shanghai Stock Exchange (“SSE”) with the aim to       of clearing, settlement and stock holding infra-
of that sub-fund.                                     connect the stock markets of Shanghai and Hong        structure. ChinaClear has established a risk
                                                      Kong. Similarly, Shenzhen-Hong Kong Stock             management framework and measures that are
Investments in                                        Connect is a securities trading and clearing sys-     approved and supervised by the CSRC. The
People’s Republic of China (PRC)                      tem developed by HKEx, ChinaClear and Shen-           chances of ChinaClear default are considered to
                                                      zhen Stock Exchange (“SZSE”) with the aim of          be remote. Should the remote event of China-
a) Political, Economic and Social Risks               connecting the stock markets of Shenzhen and          Clear default occur and ChinaClear be declared
                                                      Hong Kong.                                            as a defaulter, HKSCC will in good faith, seek
Any political changes, social instability and                                                               recovery of the outstanding stocks and monies
unfavourable diplomatic developments which            Stock Connect comprises two Northbound                from ChinaClear through available legal channels
may take place in or in relation to the PRC could     Trading Links (for investment in A-shares), one       or through ChinaClear’s liquidation. In that event,
result in the imposition of additional governmen-     between SSE and the Stock Exchange of Hong            the sub-fund may suffer delay in the recovery
tal restrictions including expropriation of assets,   Kong Limited (“SEHK”), and the other between          process or may not be able to fully recover its
confiscatory taxes or nationalisation of some of      SZSE and SEHK. Investors may place orders to          losses from ChinaClear.
the constituents of the Reference Index. In­­         trade eligible A-shares listed on SSE (such securi-   The A-shares traded through Shenzhen-Hong
vestors should also note that any change in the       ties, “SSE Securities”) or on SZSE (such securi-      Kong or Shanghai-Hong Kong Stock Connect are
policies of the PRC may adversely impact on the       ties, “SZSE Securities”, and SSE Securities and       issued in scripless form, so investors such as
securities markets in the PRC as well as the          SZSE Securities collectively, “Stock Connect          the sub-fund will not hold any physical A-Shares.
performance of the sub-fund.                          Securities”).                                         Hong Kong and overseas investors, such as the
                                                                                                            sub-fund, who have acquired SSE Securities
b) PRC Economic Risks                                 Quota limitations risk                                through Northbound trading should maintain the
                                                      The Stock Connect is subject to quota limitations     SSE Securities with their brokers’ or depositar-
The economy in the PRC has experienced rapid          on investment, which may restrict the sub-fund’s      ies’ stock accounts with the Central Clearing and
growth in recent years. However, such growth          ability to invest in A-shares through the Stock       Settlement System operated by HKSCC for the
may or may not continue, and may not apply            Connect on a timely basis, and the sub-fund may       clearing securities listed or traded on SEHK.
evenly across different sectors of the PRC            not be able to effectively pursue their investment    Further information on the custody set-up
economy. The PRC government has also imple-           policies.                                             ­relating to the Stock Connect is available upon
mented various measures from time to time to                                                                 request at the registered office of the Manage-
prevent overheating of the economy. Further-          Suspension risk                                        ment Company.
more, the transformation of the PRC from a            Both SEHK and SSE reserve the right to suspend
socialist economy to a more market-oriented           trading if necessary for ensuring an orderly and      Operational risk
economy has led to various economic and social        fair market and managing risks prudently which        The Stock Connect provides a new channel for
disruptions in the PRC and there can be no            would adversely affect the sub-fund’s ability to      investors from Hong Kong and overseas, such as
assurance that such transformation will continue      access the PRC market.                                the sub-fund, to access the China stock market
or be successful. All these may have an adverse                                                             directly. The Stock Connect is premised on the
impact on the performance of the sub-fund.            Differences in trading day                            functioning of the operational systems of the
                                                      The Stock Connect operates on days when both          relevant market participants. Market participants
c) Legal System of the PRC                            the PRC and Hong Kong markets are open for            are able to participate in this program subject to
                                                      trading and when banks in both markets are            meeting certain information technology capabil-
The legal system of the PRC is based on written       open on the corresponding settlement days. So it      ity, risk management and other requirements as
laws and regulations. However, many of these          is possible that there are occasions when it is a     may be specified by the relevant exchange and/
laws and regulations are still untested and the       normal trading day for the PRC market but Hong        or clearing house.
enforceability of such laws and regulations           Kong investors (such as the sub-fund) cannot
remains unclear. In particular, the PRC regula-       carry out any A-shares trading. The sub-fund may
tions which govern currency exchange in the

                                                                                                                                                               5
It should be appreciated that the securities              Investor compensation                                system to allow the value of CNY to fluctuate
regimes and legal systems of the two markets              Investments of the sub-fund through Northbound       within a regulated band based on market supply
differ significantly and in order for the trial pro-      trading under the Stock Connect will not be          and demand and by reference to a basket of
gram to operate, market participants may need             covered by Hong Kong’s Investor Compensation         currencies. There can be no assurance that the
to address issues arising from the differences on         Fund. Hong Kong’s Investor Compensation Fund         CNY exchange rate will not fluctuate widely
an on-going basis.                                        is established to pay compensation to investors      against the USD or any other foreign currency in
Further, the “connectivity” in the Stock Connect          of any nationality who suffer pecuniary losses as    the future. Any appreciation of CNY against USD
program requires routing of orders across the             a result of default of a licensed intermediary or    is expected to lead to an increase in the Net
border. This requires the development of new              authorised financial institution in relation to      Asset Value of the sub-fund which will be
information technology systems on the part of the         ex­change-traded products in Hong Kong.              denominated in USD.
SEHK and exchange participants (i.e. a new order          Since default matters in Northbound trading via
routing system (“China Stock Connect System”)             the Stock Connect do not involve products listed     f)	Onshore versus offshore Renminbi
to be set up by SEHK to which exchange partici-           or traded in SEHK or Hong Kong Futures Exchange          ­differences risk
pants need to connect). There is no assurance that        Limited, they will not be covered by the Investor
the systems of the SEHK and market participants           Compensation Fund. On the other hand, since          While both onshore Renminbi (“CNY”) and off-
will function properly or will continue to be             the sub-fund is carrying out Northbound trading      shore Renminbi (“CNH”) are the same currency,
adapted to changes and developments in both               through securities brokers in Hong Kong but not      they are traded in different and separated markets.
markets. In the event that the relevant systems           PRC brokers, therefore they are not protected by     CNY and CNH are traded at different rates and
failed to function properly, trading in both markets      the China Securities Investor Protection Fund in     their movement may not be in the same direction.
through the program could be disrupted. The               the PRC.                                             Although there has been a growing amount of
sub-fund’s ability to access the A-share market                                                                Renminbi held offshore (i.e. outside the PRC),
(and hence to pursue their investment strategy)           Trading costs                                        CNH cannot be freely remitted into the PRC and is
will be adversely affected.                               In addition to paying trading fees and stamp         subject to certain restrictions, and vice versa.
                                                          duties in connection with A-share trading, the       Investors should note that subscriptions and
Nominee arrangements in holding A-shares                  sub-fund may be subject to new portfolio fees,       redemptions will be in USD and will be converted
HKSCC is the “nominee holder” of the SSE                  dividend tax and tax concerned with income           to/from CNH and the investors will bear the forex
securities acquired by overseas investors (includ-        arising from stock transfers which are yet to be     expenses associated with such conversion and
ing the sub-fund) through the Stock Connect. The          determined by the relevant authorities.              the risk of a potential difference between the CNY
CSRC Stock Connect rules expressly provide that                                                                and CNH rates. The liquidity and trading price of
investors enjoy the rights and benefits of the            Regulatory risk                                      the sub-fund may also be adversely affected by
SSE securities acquired through the Stock Con-            The CSRC Stock Connect rules are departmental        the rate and liquidity of the Renminbi outside the
nect in accordance with applicable laws. How-             regulations having legal effect in the PRC. How-     PRC.
ever, the courts in the PRC may consider that             ever, the application of such rules is untested,
any nominee or depositary as registered holder            and there is no assurance that PRC courts will       g)	Dependence upon Trading Market
of SSE securities would have full ownership               recognize such rules, e.g. in liquidation proceed-       for A-shares
thereof, and that even if the concept of beneficial       ings of PRC companies. The Stock Connect is
owner is recognized under PRC law those SSE               novel in nature, and is subject to regulations       The existence of a liquid trading market for the
securities would form part of the pool of assets          promulgated by regulatory authorities and imple-     A-shares may depend on whether there is supply
of such entity available for distribution to credit­      mentation rules made by the stock exchanges in       of, and demand for, A-shares. Investors should
ors of such entities and/or that a beneficial owner       the PRC and Hong Kong. Further, new regula-          note that the Shanghai Stock Exchange and
may have no rights whatsoever in respect                  tions may be promulgated from time to time by        Shenzhen Stock Exchange on which A-shares are
thereof. Consequently, the sub-fund and the               the regulators in connection with operations and     traded are undergoing development and the
Depositary cannot ensure that the Sub- Fund’s             cross-border legal enforcement in connection         market capitalisation of, and trading volumes on,
ownership of these securities or title thereto is         with cross-border trades under the Stock Con-        those exchanges may be lower than those in
assured in all circumstances.                             nect. The regulations are untested so far and        more developed financial markets. Market
Under the rules of the Central Clearing and Settle-       there is no certainty as to how they will be         volatility and settlement difficulties in the A-share
ment System operated by HKSCC for the clearing            applied. Moreover, the current regulations are       markets may result in significant fluctuation in
of securities listed or traded on SEHK, HKSCC as          subject to change. There can be no assurance         the prices of the securities traded on such
nominee holder shall have no obligation to take           that the Stock Connect will not be abolished. The    markets and thereby changes in the Net Asset
any legal action or court proceeding to enforce any       sub-fund which may invest in the PRC markets         Value of the sub-fund.
rights on behalf of the investors in respect of the       through the Stock Connect may be adversely
SSE securities in the PRC or elsewhere. There-            affected as a result of such changes.                h) Interest Rate Risk
fore, although the relevant sub-fund’s ownership
may be ultimately recognised, the sub-fund may            Further information about the Stock Connect is       Sub-funds investing in PRC fixed-income
suffer difficulties or delays in enforcing their rights   available online at the website: http://www.hkex.    ­securities are subject to interest rate risk.
in A-shares.                                              com.hk/eng/market/sec_tradinfra/chinaconnect/
To the extent that HKSCC is deemed to be                  chinaconnect.htm.                                    Sub-funds investing in bonds issued by the
performing safekeeping functions with respect to                                                               government of the PRC (PRC Government
assets held through it, it should be noted that           e)	Government Control of Currency Conversion        Bonds) are additionally subject to policy risk as
the Depositary and the Sub- Fund will have no                 and Future Movements in Exchange Rates           changes in macro-economic policies in the PRC
legal relationship with HKSCC and no direct legal                                                              (including monetary policy and fiscal policy) may
recourse against HKSCC in the event that the              Since 1994, the conversion of CNY into USD has       have an influence over the PRC’s capital markets
sub-fund suffers losses resulting from the per­           been based on rates set by the People’s Bank of      and affect the pricing of the bonds in the sub-
formance or insolvency of HKSCC.                          China, which are set daily based on the previous     fund’s portfolio, which may in turn adversely
                                                          day’s PRC interbank foreign exchange market          affect the return of such Sub-Fund.
                                                          rate. On July 21, 2005, the PRC government
                                                          introduced a managed floating exchange rate

6
i)	Dependence upon Trading Market 		                    impossible to ascertain. In such circumstances,        p) Operational and Settlement Risk
    for PRC Bonds                                        valuation of the Sub-Fund’s investments may
                                                         involve uncertainties as there is a possibility that   Settlement procedures in the PRC are less
The existence of a liquid trading market for PRC         independent pricing information may at times be        developed and may differ from those in countries
Bonds may depend on whether there is supply              unavailable.                                           that have more developed financial markets. The
of, and demand for, PRC Bonds. Investors should                                                                 sub-fund may be subject to a risk of substantial
note that the Shanghai Stock Exchange, Shen-             If such valuations should prove to be incorrect,       loss if an appointed agent (such as a broker or a
zhen Stock Exchange and PRC inter-bank bond              the Net Asset Value of the sub-fund may need to        settlement agent) defaults in the performance of
market on which PRC Bonds are traded are                 be adjusted and may be adversely affected. Such        its responsibilities. The sub-fund may incur
undergoing development and the market capital-           events or credit rating downgrades may also            substantial losses if its counterparty fails to pay
isation of, and trading volumes on, those markets        subject the sub-fund to increased liquidity risk as    for securities the sub-fund has delivered, or for
may be lower than those in more developed                it may become more difficult for the sub-fund to       any reason fails to complete its contractual
financial markets. Market volatility and settle-         dispose of its holdings of bonds at a reasonable       obligations owed to the sub-fund. On the other
ment difficulties in the PRC Bond markets may            price or at all.                                       hand, significant delays in settlement may occur
result in significant fluctuation in the prices of the                                                          in certain markets in registering the transfer of
securities traded on such markets and thereby            m) Restricted markets risk                             securities. Such delays could result in substantial
changes in the Net Asset Value of the sub-fund.                                                                 losses for the sub-fund if investment opportuni-
                                                         The sub-fund may invest in securities in respect       ties are missed or if the sub-fund is unable to
j)   Liquidity Risk                                      of which the PRC imposes limitations or restric-       acquire or dispose of a security as a result.
                                                         tions on foreign ownership or holdings. Such
The sub-fund is subject to liquidity risk as contin-     legal and regulatory restrictions or limitations       Trading in the PRC inter-bank bond market may
ued regular trading activity and active secondary        may have adverse effects on the liquidity and          expose investors to certain risks associated with
market for PRC securities (including PRC Bonds)          performance of the sub-fund holdings as com-           settlement procedures and the default of counter-
is not guaranteed. The sub-fund may suffer               pared to the performance of the Reference              parties. Much of the protection afforded to inves-
losses in trading in such instruments. The bid and       Index. This may increase the risk of tracking error    tors in securities listed on more developed
offer spread of the price of PRC securities may          and, at the worst, the sub-fund may not be able        exchanges may not be available in connection with
be large, so that the sub-fund may incur signifi-        to achieve its investment objective and/or the         transactions on the PRC inter-bank bond market
cant trading and realisation costs and may suffer        sub-fund may have to be closed for further             which is an over-the-counter market. All trades
losses accordingly.                                      subscriptions.                                         settled through CCDC, the central clearing for the
                                                                                                                PRC inter-bank bond market, are settled on a
k) Issuer Counterparty Risk                              n) A-share market trading hours difference risk        delivery versus payment basis i.e. if the sub-fund
                                                                                                                is buying certain securities, the sub-fund will only
Investment in bonds by the sub-fund is exposed           Differences in trading hours between foreign           pay the counterparty upon receipt of such securi-
to the credit/insolvency risk of the issuers which       stock exchanges (e.g. Shanghai Stock Exchange          ties. If a counterparty defaults in delivering the
may be unable or unwilling to make timely                and Shenzhen Stock Exchange) and the relevant          securities, the trade may be can­celled and this
payments on principal and/or interest. PRC               stock exchange may increase the level of pre-          may adversely affect the value of the sub-fund.
Bonds held by the sub-fund are issued on an              mium/discount of the Share price to its Net
unsecured basis without collateral. An issuer            Asset Value because if a PRC stock exchange is         q) Changes in PRC taxation risk
suffering an adverse change in its financial             closed while the relevant stock exchange is
condition could lower the credit quality of a            open, the Reference Index level may not be             The PRC Government has implemented a num-
security, leading to greater price volatility of the     available.                                             ber of tax reform policies in recent years. The
security. A lowering of the credit rating of a                                                                  current tax laws and regulations may be revised
security or its issuer may also affect the securi-       The prices quoted by the relevant stock exchange       or amended in the future. Any revision or amend-
ty’s liquidity, making it more difficult to sell. In     market maker would therefore be adjusted to            ment in tax laws and regulations may affect the
the event of a default or credit rating downgrad-        take into account any accrued market risk that         after-taxation profit of PRC companies and
ing of the issuers of the bonds, the bonds and           arises from such unavailability of the Reference       foreign investors in such companies.
the sub-fund’s value may be adversely affected           Index level and as a result, the level of premium
and investors may suffer a substantial loss as a         or discount of the Share price of the sub-fund to      r)   Government intervention and restriction risk
result. The sub-fund may also encounter difficul-        its Net Asset Value may be higher.
ties or delays in enforcing its rights against the                                                              Governments and regulators may intervene in
issuer of bonds as the issuer is located in the          o) A-share market suspension risk                      the financial markets, such as by the imposition
PRC and is subject to PRC laws and regulations.                                                                 of trading restrictions, a ban on “naked” short
                                                         A-shares may only be bought from, or sold to,          selling or the suspension of short selling for
l)   Valuation Risk                                      the sub-fund from time to time where the rele-         certain stocks. This may affect the operation and
                                                         vant A-shares may be sold or purchased on the          market making activities of the sub-fund, and
Where the trading volumes of an underlying               Shanghai Stock Exchange or the Shenzhen Stock          may have an unpredictable impact on the
security is low, it may be more difficult to achieve     Exchange, as appropriate. Given that the A-share       sub-fund.
fair value when purchasing or selling such under-        market is considered volatile and unstable (with
lying security because of the wider bid-ask              the risk of suspension of a particular stock or        Furthermore, such market interventions may
spread. The inability to transact at advantageous        government intervention), the subscription and         have a negative impact on the market sentiment
times or prices may result in a reduction in the         redemption of Shares may also be disrupted. An         which may in turn affect the performance of the
sub-fund’s returns. Further, changing market             Authorised Participant is unlikely to redeem or        Reference Index and/or the sub-fund.
conditions or other significant events, such as          subscribe Shares if it considers that A-shares
credit rating downgrades affecting issuers, may          may not be available.
also pose valuation risk to the sub-fund as the
value of the sub-fund’s portfolio of fixed income
instruments may become more difficult or

                                                                                                                                                                  7
s) PRC taxation risk                                    When a sub-fund conducts over-the-counter                counterparties, the lack of any meaningful and
                                                        (OTC) transactions, it may be exposed to risks           independent evaluation of such counterparties’
Any changes in tax policies may reduce the              relating to the credit standing of its counter­          financial capabilities and the absence of a regu-
after-taxation profits of the investments in PRC        parties and to their ability to fulfill the conditions   lated market to facilitate settlement may
Bonds to which the performance of the sub-fund          of the contracts it enters into with them. The           increase the potential for losses by the
is linked. Whilst it is clear that interests on PRC     respective sub-fund may consequently enter into          sub-funds.
Bonds are specifically exempted from PRC Corpo-         futures, options and swap transactions or use
rate Income Tax pursuant to the prevailing Corpo-       other derivative techniques, for example total           Risks related to securities lending and
rate Income Tax Law, uncertainties remain on PRC        return swaps, which will expose that sub-fund to         (reverse) repurchase agreements
indirect tax treatment on interest from PRC             the risk of a counterparty not fulfilling its obliga-    If the other party to a (reverse) repurchase agree­
Bonds, as well as PRC Corporate Income Tax and          tions under a ­particular contract.                      ment or securities lending transaction should
Indirect Tax treatments on capital gains derived by                                                              default, the sub-fund might suffer a loss to the
the sub-fund from investments in PRC Bonds.             In the event of a bankruptcy or insolvency of a          extent that the proceeds from the sale of the
                                                        counterparty, the respective sub-fund could              underlying securities and/or other collateral held
In light of the uncertainties on the PRC tax            experience delays in liquidating the position and        by the sub-fund in connection with the securities
treatments on PRC Bonds and in order to meet            significant losses, including declines in the value      lending transaction or (reverse) repurchase agree-
any such potential PRC tax liabilities that may         of its investment during the period in which the         ment are less than the repurchase price or, as the
arise from investments in PRC Bonds, the Board          fund seeks to enforce its rights, inability to           case may be, the value of the underlying securi-
of Directors reserves the right to put in place a       realise any gains on its investment during such          ties. In addition, in the event of bankruptcy or
tax provision (“Capital Gains Tax Provision” or         period and fees and expenses incurred in enforc-         similar proceedings of the party to a (reverse)
“CGTP”) on the relevant gains or income and             ing its rights. There is also a possibility that the     repurchase agreement or a securities lending
withhold the tax for the account of the sub-fund.       above agreements and derivative techniques are           transaction or its failure otherwise to perform its
The Board of Directors determines at present not        terminated due, for instance, to bankruptcy,             obligations on the repurchase date, the sub-fund
to make any provision for the account of the            supervening illegality or change in the tax or           could suffer losses, including loss of interest on or
sub-fund in respect of any potential tax on capital     accounting laws relative to those at the time the        principal of the securities and costs associated
gains from investments of the sub-fund in PRC           agreement was originated.                                with delay and enforcement of the (reverse)
Bonds. In the event that actual tax is collected by                                                              repurchase agreement or securities lending
the SAT and the sub-fund is required to meet            Sub-funds may participate in transactions on             transaction. Although it is expected that the use of
actual PRC tax liabilities, the Net Asset Value of      over-the-counter markets and interdealer mar-            repurchase agreements, reverse repurchase
the sub-fund may be adversely affected. Further,        kets. The participants in such markets are               agreements and securities lending transactions
there is a possibility of the tax rules being           ­typically not subject to credit evaluation and          will generally not have a material impact on a
changed and taxes being applied retrospectively.         regulatory oversight as are members of                  sub-fund’s perform­ance, the use of such tech-
As such, any provision for taxation made by the          “exchange-based” markets. To the extent a               niques may have a significant effect, either nega-
Board of Directors may be excessive or inade-            sub-fund invests in swaps, derivative or synthetic      tive or positive, on a sub-fund’s NAV.
quate to meet final PRC tax liabilities.                 instruments, or other over-the-counter transac-
                                                         tions, on these markets, such sub-fund may take         Risks associated with the receipt
Consequently, Shareholders may be advantaged             credit risk with regard to parties with whom it         of collateral
or disadvantaged depending upon the final tax            trades and may also bear the risk of settlement         The Investment Company may receive collateral
liabilities, the level of provision and when they        default. These risks may differ materially from         for OTC derivatives transactions, securities
subscribed and/or redeemed their Shares.                 those entailed in exchange-traded transactions          lending transactions and reverse repurchase
                                                         which generally are backed by clearing organisa-        agreements. Derivatives, as well as securities
t)   Accounting and Reporting Standards                  tion guarantees, daily marking-to-market and            lent and sold, may increase in value. Therefore,
                                                         settlement, and segregation and minimum                 collateral received may no longer be sufficient to
Accounting, auditing and financial reporting             capital requirements applicable to intermediaries.      fully cover the Investments Company’s claim for
standards and practices applicable to companies          Transactions entered directly between two               delivery or redemption of collateral against a
in the PRC may differ from those in countries            counterparties generally do not benefit from            counterparty.
that have more developed financial markets.              such protections.
These differences may lie in areas such as                                                                       The Investment Company may deposit cash
different valuation methods of the properties and       This exposes the respective sub-fund to the risk         collateral in blocked accounts, or invest it in high
assets, and the requirements for disclosure of          that a counterparty will not settle a transaction in     quality government bonds or in money market
information to investors.                               accordance with its terms and conditions                 funds with a short-term maturity structure.
                                                        because of a dispute over the terms of the               Though, the credit institution that safe keeps the
Counterparty risk                                       contract (whether or not bona fide) or because of        deposits may default; the performance of govern-
Risks may arise for the Investment Company as           a credit or liquidity problem, thus causing the          ment bonds and money market funds may be
a result of a contractual commitment with               sub-fund to suffer a loss. Such “counterparty            negative. Upon completion of the transaction, the
another party (a “counterparty”). In this context,      risk” is accentuated for contracts with longer           collateral deposited or invested may no longer be
there is a risk that the contracting party will no      maturities where events may intervene to pre-            available to the full extent, although the Invest-
longer be able to fulfil its contractual obligations.   vent settlement, or where the fund has concen-           ment Company is obligated to redeem the collat-
These risks may compromise the sub-fund’s               trated its transactions with a single or small           eral at the amount initially granted. Therefore, the
performance, and may therefore have a detri-            group of counterparties. In addition, in the case        Investment Company may be obliged to increase
mental effect on the share value and the capital        of a default, the respective sub-fund could              the collateral to the amount granted and thus
invested by the investor.                               become subject to adverse market movements               compensate the losses incurred by the deposit or
                                                        while replacement transactions are executed.             investment of collateral.
                                                        The sub-funds are not restricted from dealing
                                                        with any particular counterparty or from concen-
                                                        trating any or all of their transactions with one
                                                        counterparty. The ability of the sub-funds to
                                                        transact business with any one or a number of

8
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