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Prospective investors should review this Prospectus, the Relevant Supplement(s) and the key investor information document (“KIID”) carefully and in their entirety and, before making any investment decision with respect to an investment in a Fund, should co nsult a stockbroker, bank manager, lawyer, accountant or other financial adviser for independent advice in relation to: (a) the legal requirements within their own countries for the purchase, holding, exchanging, redeeming or disposing of Shares; (b) any f oreign exchange restrictions to which they are subject in their own countries in relation to the purchase, holding, exchanging, redeeming or disposing of Shares; (c) the legal, tax, financial or other consequences of subscribing for, purchasing, holding, e xchanging, redeeming or disposing of Shares; and (d) the provisions of this Prospectus and the Relevant Supplement(s).
STATE STREET ICAV
An Irish collective asset - management vehicle constituted as an umbrella fund with segregated liability between Sub - Funds with registration number C143488 under the laws of Ireland and authorised by the Central Bank of Ireland (the “Central Bank”) pursuant to the Irish Collective Asset - management Vehicles Act 2015 and the European Communit ies (Undertakings for Collective Investment in Transferable Securities) Regulations 2011
PROSPECTUS
24 September 202 5
State Street ICAV (the “ Fund ”) and the directors of the Fund (the “ Directors ”) whose names appear in the section entitled “ Management ” below accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Fund and the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the accuracy of such information. The Fund and the Directors accept responsibility accordingly.
The KIID for each of the Sub - Funds provides important information in respect of the Sub - Funds, including the applicable synthetic risk and reward indicator, charges and, where available, the historical performance associated with the Sub - Funds. Before sub scribing for Shares in a Sub - Fund, each investor will be required to confirm that they have received the relevant KIID . The KIIDs and the latest annual and any semi - annual reports of the Fund are available to download on the Website.
Investors should be aware that the price of Shares may fall as well as rise, and investors may not get back any of the amount invested. The difference at any one time between the subscription and redemption price of Shares means that an investment in any S ub - Fund should be viewed as medium to long term. Risk factors for each investor to consider are set out in the section entitled “Risk Information” below. Risk factors of particular relevance to the Sub - Funds are also described in the Relevant Supplement(s).
Authorisation of the Fund is not an endorsement or guarantee of the Fund by the Central Bank nor is the Central Bank responsible for the contents of the Prospectus. The authorisation of the Fund by the Central Bank shall not constitute a warranty as to the performance of the Fund and the Central Bank shall not be liable for th e performance o r default of the Fund.
The Fund is empowered to levy a redemption fee not exceeding 2% of the Redemption Price. Unless otherwise specified in a Relevant Supplement for a Sub - Fund, it is not the current intention to charge a redemption fee. If it is at any stage in the future pro posed to charge a redemption fee, reasonable notice shall be given to Shareholders. In the event of a redemption fee being charged, Shareholders should view their investment as medium to long term.
Shares are not and may not be, offered, sold or delivered directly or indirectly in the United States of America, its territories or possessions or in any State or the District of Columbia (the “U.S.”) or to or for the account or benefit of any U.S. Person as defined in Schedule I hereto. Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or under the securities laws of any of the States of the U.S. and the Fund will
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not be registered under the U.S. Investment Company Act of 1940, as amended. Any re - offer or resale of any of the Shares in the U.S. or to U.S. Persons may constitute a violation of U.S. law.
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TABLE OF CONTENTS
DIRECTORY 4 GENERAL INFORMATION 5 OTHER INFORMATION 18 INVESTMENT RESTRICTIONS 20 RISK INFORMATION 25 PURCHASE AND SALE INFORMATION 51 DETERMINATION OF NET ASSET VALUE 56 DISTRIBUTIONS 60 FEES AND EXPENSES 61 TAX INFORMATION 64 MANAGEMENT 7 3 WHERE TO LEARN MORE ABOUT THE SUB - FUNDS 80 SCHEDULE I DEFINITIONS 81 SCHEDULE II RECOGNISED MARKETS State Street Emerging Markets ESG Screened Hard Currency Government Bond Index Fund State Street Emerging Markets ESG Screened Local Currency Government Bond Index Fund State Street World Quality Equity Index Fund
89 101 11 7 13 4 Information for Swiss investors 1 40
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DIRECTORY
The Fund: State Street ICAV 78 Sir John Rogerson’s Quay Dublin 2 Ireland
Management Company, Investment Manager and Distributor: State Street Global Advisors Europe Limited 1 78 Sir John Rogerson’s Quay Dublin 2 Ireland
Directors of the Fund: Mr Eric Linnane Mr Terry O’Gara Ms Victoria Parry
Board of Directors of the Management Company: Mr Nigel Wightman Ms Ann Prendergast Mr Eric Linnane Mr Scott Sanderson Dr Margaret Cullen Ms Marie - Anne Heeren
Depositary: State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson’s Quay Dublin 2 Ireland
Administrator: State Street Fund Services (Ireland) Limited 78 Sir John Rogerson’s Quay Dublin 2 Ireland
Auditors: PricewaterhouseCoopers One Spencer Dock North Wall Quay Dublin 1 Ireland
Legal Advisors in Ireland: Matheson LLP 70 Sir John Rogerson’s Quay Dublin 2 Ireland
ICAV Secretary: Matsack Trust Limited 70 Sir John Rogerson’s Quay Dublin 2 Ireland
1 Trading as State Street Investment Management since June 2025.
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Information Classification: General
GENERAL INFORMATION
This section is an introduction to this Prospectus and any decision to invest in the Shares should be based upon consideration of the Prospectus as a whole, including the Relevant Supplements. Capitalised terms used in this Prospectus are defined in Schedule I hereto.
THE FUND – CORPORATE INFORMATION
The Fund was registered in Ireland pursuant to the Irish Collective Asset - management Vehicles Act 2015 (the “ Act ”) on 14 August 2015 under registration number C143488 and is authorised by the Central Bank as a UCITS. The object of the Fund is the collective investment in transferable securities and/or other liquid financial assets of capit al raised from the public, operating on the principle of risk spreading in accordance with the UCITS Regulations. The Fund has been structured as an umbrella fund, with segregated liability between Sub - Funds, in that the Directors may from time to time, with the prior approval of th e Central Bank, create different series of Shares effected in accordance with the requirements of the Central Bank representing separate portfolios of assets, each such series comprising a Sub - Fund. Each Sub - Fund will bear its own liabilities and, under Ir ish law, none of the Fund, any of the service providers appointed to the Fund, the Directors, any receiver, examiner or liquidator, nor any other person will have access to the assets of a Sub - Fund in satisfaction of a liability of any other Sub - Fund.
T HE F UND . The Fund is registered in Ireland and is therefore subject to the Act and is required to comply with the corporate governance requirements of the UCITS Regulations. The Directors have committed to maintain a high standard of corporate governance and will seek to comply with the Act, the UCITS Regulations and the Central Bank’s requirements for UCITS.
T HE S UB - F UNDS . The portfolio of assets maintained for each series of Shares and comprising a Sub - Fund will be invested in accordance with the investment objective and policies applicable to such Sub - Fund as specified in the Relevant Supplement. Shares may be divided int o different Classes to accommodate different dividend policies, charges, fee arrangements (including different total expense ratios), currencies, projected retirement dates, or to provide for foreign exchange hedging in accordance with the policies and requirements of the Central Bank from time to time.
As of the date of this Prospectus, the Fund has the following Sub - Funds:
• State Street Emerging Markets ESG Screened Hard Currency Government Bond Index Fund; • State Street Emerging Markets ESG Screened Local Currency Government Bond Index Fund; • State Street World Quality Equity Index Fund
The Fund is promoted by the Investment Manager. Details of the Investment Manager may be found under “ The Investment Manager ” description in the section entitled “ Management ”.
INVESTMENT OBJECTIVES AND POLICIES
I NVESTMENT O BJECTIVE AND P OLICY OF A S UB - F UND . The investment objective, strategies and policies for each Sub - Fund are set out in the Relevant Supplement.
The assets of each Sub - Fund are invested in accordance with the investment restrictions contained in the UCITS Regulations which are summaris ed in the “Investment Restrictions” section below and such additional investment restrictions, if any, as may be adopted by the Management Company for any Sub - Fund and specified in the Relevant Supplement. The Directors may establish Sub - Funds that seek to track an Index (“ Index Tracking Funds ”), outperform an Index (“ Actively Managed Funds ”) or follow an asset allocation strategy designed for investors with a projected time until their retirement date (“ Target Date Funds ”) by:
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• Investing solely in Index Securities, transferable securities and money market instruments other than Index Securities; • Investing solely in financial derivative instruments (“ FDI ”); • Investing solely in the units of Underlying Funds, including as a feeder fund into another fund authorised under the UCITS Regulations; or • Investing in a combination of Index Securities, transferable securities and money market instruments other than Index Securities, FDI and units in Underlying Funds.
Information in relation to the investment objective and types of instruments or securities in which the relevant Sub - Fund will invest will be set out below and/or in the Relevant Supplement.
I NDEX T RACKING F UNDS . Index Tracking Funds seek to track the performance of an Index while seeking to minimise as far as possible the tracking difference between the Sub - Fund’s performance and that of its applicable Index. Some Index Tracking Funds seek to achieve this objectiv e by using a replication strategy, an optimisation strategy, a stratified sampling strategy or other strategy as determined to be the most appropriate strategy for the particular Sub - Fund by the Investment Manager. The Relevant Supplement specifies and de scribes the strategy the applicable Sub - Fund uses and provides details of where information on the Index tracked by that Fund may be obtained.
The following is a summary description of each of the replication strategy, optimisation strategy and stratified sampling strategy. More detailed information on each strategy is set out in the Relevant Supplement.
• Replication Strategy – this strategy seeks to physically hold all or close to all of the securities of the particular Index, with the approximate weightings as in that Index. Essentially, the portfolio of the Sub - Fund would be a near mirror - image of the particular Index.
• Optimisation Strategy – this strategy seeks to build a representative portfolio that matches the risk and return characteristics of the applicable Index, including risks related to currencies, countries, sectors, industries and size. Optimisation is typically used because the applicable Index contains too many securities to efficiently purchase and, at times, certain securities included in the Index may be difficult to purchase in the open markets. Consequently, a Sub - Fund using this strategy will typically hold only a subset of the securities included in the Index.
• Stratified Sampling Strategy – this strategy seeks to build a representative portfolio that matches the risk and return characteristics of the Index in the most cost efficient way, including but not limited to, risks related to currencies, countries, sectors, quality, maturity durati on and issuers. Stratified sampling is typically used because the Index contains too many securities to efficiently purchase and, at times, certain securities included in the Index may be difficult, or too costly, to purchase in the open markets. Conseque ntly, a Sub - Fund using this strategy will typically hold only a subset of the securities included in the Index. The Investment Manager may consider certain ESG criteria when building a representative portfolio, as described in the section “ ESG Investing ”.
Changes to the composition and/or weighting of the securities constituting the Index which is tracked by a Sub - Fund will ordinarily require corresponding adjustments or rebalancings to the Sub - Fund’s investments in order to seek to track the Index. The In vestment Manager will accordingly seek to rebalance the composition and/or weighting of the securities held by a Sub - Fund or to which a Sub - Fund is exposed from time to time to the extent practicable to conform to changes in the composition and/or weightin g of the Index. A Sub - Fund may also, on occasion, hold or take exposure to securities which are not included in its Index where the Investment Manager believes it is appropriate in light of the investment objective an d investment restrictions of the Sub - F und, or other factors. The Sub - Fund’s ability to make any such proposed investment will be disclosed in the Relevant Supplement. Other rebalancing measures may be taken from time to time to seek to maintain the correspondence between the performance of a Sub - Fund and the performance of the Index. Examples of such measures include the use of forward foreign exchange contracts or futures to hedge exposures where an Index Security cannot be purchased, investing in other collective investment schemes (where pe rmitted in the Relevant Supplement) or buying or selling securities which are not currently, but are likely to be included in or removed from the Index, based on information provided by the Index Provider. The risk warning headed “ Index Tracking Risk ” in the “ Risk Information ” section provides further details on factors which may limit the Sub - Fund’s ability to track the performance of an Index. Information on the anticipated level of tracking error in respect of a Sub - Fund can be found in the Relevant Supplement. Details of t he level of tracking error experienced by a Sub - Fund are contained in the Fund’s most recent financial statements.
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The Investment Manager will rely solely on each Index Provider for information as to the composition and/or weighting of the securities that constitute each Index (“ Index Securities ”). If the Investment Manager cannot obtain or process such information in relation to any Index on any Business Day, then the most recently published composition and/or weighting of that Index will be used for the purpose of all adjustments.
I NDEX S TRATEGIES AND S USTAINABILITY I NTEGRATION . With these index strategies, the decision of the Investment Manager as to whether or not to take exposure to a particular security will primarily be driven by the constituents of the relevant i ndex which the Sub - Fund is tracking. For this reason, Sustaina bility Risks are not generally taken into account in the investment decisions. However, certain Sub - Funds applying an index strategy will track Indices constructed to promote a combination of environmental and social characteristics. In this instance, Sust ainability Risks are integrated into the Index construction. Where Sub - Funds track such an Index, this will be set out in the Relevant Supplement.
Where an ESG Screen is applied to the Sub - Fund, as indicated in the Relevant Supplement, the Investment Manager may consider ESG criteria when building a representative portfolio, as described in the section “ ESG Investing ”.
A CTIVELY M ANAGED F UNDS . An Actively Managed Fund’s investments will be actively managed by the Investment Manager or its delegates to seek to achieve its investment objective, for example, to seek to outperform an Index rather than just to track it. Where a Sub - Fund is actively managed, the Investment Manager will have greater discretion in relation to the composition of the Sub - Fund’s portfolio, subject to the investment objectives and policies stated in the Relevant Supplement.
T ARGET D ATE F UNDS . The Target Date Funds are a range of Sub - Funds designed as a long term default investment solution for retirement savers with projected retirement dates at 5 year intervals. Retirement savers are mapped to the Target Date Fund closest to their projected r etirement date.
The Target Date Funds will follow a Glidepath proprietary to State Street IM , which is described in further detail in the Relevant Supplements, to determine an appropriate asset allocation based on the number of years until the projected retirement date of a typical investor. In following the Glidepath, the Target Date Funds will seek to achieve a long only diversified portfolio built through investments in Underlying Funds managed by the Investment Manager or its affiliates.
Subject to the section of this Prospectus below headed, “Changes to Investment Objective and Policies of a Sub - Fund”, the Glidepath and risk profile of the Target Date Funds may be amended from time to time depending upon the Investment Manager's view of m arket conditions, changes in average life expectancy, inflation, applicable law and regulation or other circumstances deemed relevant by the Investment Manager. A copy of the Glidepath is available on the Website.
The Investment Manager expects to review and adjust the Glidepath for each Target Date Fund annually, but may do so more regularly if the Investment Manager believes this is appropriate. The Investment Manager will seek to re - allocate Target Date Fund investments in accordance with the Glidepath as and when it deems this to be appropriate. In determining which Underlying Funds are appropriate investments for the Target Date Funds, the Investment Manager does not take into account any individual’s personal circumstances.
The Investment Manager and/or Sub - Investment Manager may consider ESG criteria in its investment process, including the allocation to Underlying Funds that integrate Sustainability Risk as described in the section “ESG Investing”.
C HANGES TO I NVESTMENT O BJECTIVE AND P OLICIES OF A S UB - F UND . Any change in the investment objective and any material change in the investment policies of a Sub - Fund will require approval by ordinary resolution of the Shareholders in that Sub Fund either in a general meeting or in writing. A non - material change in t he investment policy will not require Shareholder approval, however a reasonable notification period will be provided by the Sub - Fund to enable Shareholders to redeem their Shares prior to implementation of the change.
Any proposal by the Management Company to change an Index, for the reasons outlined below, will be subject to prior approval of the Shareholders of the relevant Sub - Fund by ordinary resolution only if it is deemed to be a change of investment objective or a material change of investment policy. Otherwise, it will simply be notified to Shareholders, in accordance with the Central Bank’s requirements.
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The Management Company may in its absolute discretion decide to change or substitute a Sub - Fund’s Index if they consider it to be in the interests of any Sub - Fund. The Management Company may, for instance, substitute an Index where:
(a) the transferable securities, swaps or other techniques or instruments described under “ Investment Restrictions ” which are necessary for the implementation of the relevant Sub - Fund’s investment objective cease to be sufficiently liquid or otherwise be available for investment in a manner which is regarded as acceptable by the Management Company;
(b) the quality, accuracy and availability of data of a particular Index has deteriorated;
(c) the components of the applicable Index would make the Sub - Fund (if it were to follow the Index closely) breach the limits set out under “Investment Restrictions” and/or materially affect the taxation or fiscal treatment of the Fund or any of its Shareholde rs;
(d) the particular Index ceases to exist or, in the determination of the Management Company, there is, or is expected to be, a material change in the formula for or the method of calculating a component of the Index or there is, or is expected to be, a materia l modification of a component of the Index;
(e) the Index Provider increases its licence fees to a level which the Management Company consider excessive;
(f) there is a change of ownership of the relevant Index Provider to an entity not considered acceptable by the Management Company and/or a change of name of the relevant Index; or
(g) a new index becomes available which is regarded as the market standard for investors in the particular market and/or would be regarded as of greater benefit to the Shareholders than the existing Index.
The above list is indicative only and cannot be understood as being exhaustive in respect of the ability of the Management Company to change the Index in any other circumstances as it considers appropriate. The Prospectus and any of the Relevant Supplements will be updated in the case of substitution or change of the existing Index of a Sub - Fund for another Index.
Investors should note that, in accordance with the requirements of Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the perfo rmance of investment funds (the “Benchmark Regulation”), the Management Company has adopted a benchmark contingency plan applicable to the ICAV to set out the actions which the ICAV would take in the event that a benchmark used by a Sub - Fund materially changes or ceases to be provided (the “Benchmark Contingency Plan”). Actions taken by the ICAV on the foot of the Benchmark Contingency Plan may re sult in changes to the investment objectives or investment policies of a Sub - Fund and any such changes will be notified to investors and implemented in accordance with the requirements for the Central Bank and the terms of this Prospectus.
The Directors may change the name of a Sub - Fund if its Index is changed. Any change to the name of a Sub - Fund will be approved in advance by the Central Bank and the relevant documentation will be updated.
U SE OF F INANCIAL D ERIVATIVE I NSTRUMENTS . The use of FDI by any Sub - Fund for investment purposes or for efficient portfolio management will be described in the Relevant Supplement. Efficient portfolio management means the reduction of risks, including the reduction of costs to the Fund, the ge neration of additional capital or income for the Fund and hedging against market movements, currency exchange or interest rate risks, subject to the general restrictions outlined in the “Investment Restrictions” section. Hedging is a technique used to minimise an exposure created from an underlying position by counteracting the exposure by acquiring an offsetting position. The positions taken for hedging purposes will not be allowed to materially exceed the valu e of the assets they seek to offset. To the extent that a Sub - Fund uses FDI, there may be a risk that the volatility of the Sub - Fund’s Net Asset Value may increase. Where FDI are traded by a Fund on a stock exchange, such exchanges must also be Recognised Markets.
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The following is a summary description of each of the types of FDI, which may be used for investment purposes or for efficient portfolio management by a Sub - Fund. More information on the types of FDI used by each Sub - Fund is set forth in the Relevant Suppl ement.
• Futures – Futures contracts are agreements to buy or sell a fixed amount of an index, equity, bond or currency at a fixed date in the future. Futures contracts are exchange - traded instruments and their dealing is subject to the rules of the exchanges on w hich they are dealt.
• Forward foreign exchange contracts – Forward foreign exchange contracts are agreements between parties to exchange fixed amounts of different currencies at an agreed exchange rate at an agreed time in the future. Forward foreign exchange contracts are sim ilar to currency futures, except that they are not exchange - traded, but are instead over the counter instruments. Non - deliverable forward foreign exchange contracts may be used for the same reasons. They differ from standard forward foreign exchange cont racts in that at least one of the currencies in the transaction is not permitted to be delivered in settlement of any profit or loss resulting from the transaction. Typically, profit or loss i n this case will be delivered in US Dollars or Euro.
• Warrants – Warrants grant the right to acquire an underlying security from the issuer (as opposed to an option where a third party grants a right to acquire an underlying security as described below) at a fixed price. A Sub - Fund may hold warrants on securities as a substitute for taking a position in the underlying security and/or to gain an exposure within the Central Bank’s limits.
• Options – Options are contracts in which the writer (seller) promises that the contract buyer has the right, but not the obligation, to buy or sell a certain index, equity, bond or currency at a certain price (the strike price) on or before a certain expir ation date, or exercise date. An option giving the buyer the right to buy at a certain price is called a call, while one that gives him/her the right to sell is called a put. The Sub - Fund may purchase and write call and put options on securities (including straddles), securities indices and currencies and use options on futures cont racts (including straddles) and swap a greements, and/or hedge against changes in interest rates, currency exchange rates or securities prices. A Sub - Fund may also use options as a substitute for taking a position in other securities and funds and/or to gain an exposure within the limits laid down by the Central Bank .
• Swaps - A swap is an agreement between two parties whereby one party makes payments to the other based on an agreed rate, while the other party makes payments to the first party based on the return of an underlying asset or assets, such as one or more securities, a currency, an index or an interest rate.
• Total Return Swaps - A Sub - Fund may enter into a total return swap in order to exchange the exposure of an asset, a basket of assets or an index for an exposure or cashflow generally referring commonly observed cash rates (e.g SONIA, EURIBOR etc), or vice versa . The terms of the cashflows to be exchanged (paid or received) by a Sub - Fund will be negotiated prior to entering the total return swap and will remain fixed throughout the term of the swap. A Sub Fund may enter into total return swaps in order to manage market exposure in circumstances where it is not practical or economical to use direct investments or other forms of derivatives such as futures. The counterparties to the total return swaps will be institutions subject to prudential supervision and within categories approved by the Central Bank, and will not have discretion over the assets of the relevant Sub - Fund. Further information in relation to total return swaps will be included in the Relevan t Supplement for any Sub - Fund entering into same.
Please see “Collateral” below for details of the policy of the Fund in relation to collateral received under FDI.
U SE OF R EPURCHASE /R EVERSE R EPURCHASE A GREEMENTS /S ECURITIES L ENDING A GREEMENTS . The Fund may enter into repurchase agreements, reverse repurchase agreements and securities lending agreements subject to the conditions and limits set out in the Central Bank UCITS Regulations . Repurchase agreements and securities lending agreements may be used for efficient portfolio management. Investors should review the Relevant Supplement for confirmation of whether or not a Sub - Fund uses such techniques. In order to limit the exposure of a Sub - Fund to the risk of default of the counterparty under a securities lending or repurchase transaction, the Sub - Fund will receive collateral, as further specified below.
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Details of the exposures obtained through efficient portfolio management techniques, the identity of the counterparties used, the type and amount of collateral received to reduce such exposures and any income and expenses, whether direct or indirect, gener ated by efficient portfolio management techniques will be disclosed in the periodic reports of the Fund. A repurchase agreement is an agreement between a seller and a buyer of specified securities under which the seller agrees to repurchase securities at an agreed price and, usually, at a stated time if the Fund is the seller, the agreement is categorised by the Fund as a repurchase agreement if the Fund is the buyer, the agreement is categorised by the Fund as a reverse repurchase agreement. The difference between the purchase price and the repurchase price represents the yield to the buyer from the repurchas e transaction. When the Sub - Fund enters into a reverse repurchase agreement, it should ensure that it is able at any time to recall the full amount of cash or to terminate the reverse repurchase agreement on eith er an accrued basis or a marked to market da ily basis. When the cash is recallable at any time on a marked to market basis, the marked to market value of the reverse repurchase agreement should be used for the calculation of the Sub - Fund’s Net Asset Value.
In contrast, in a securities lending transaction, the lender makes a loan of securities to the borrower on terms that require the borrower to return equivalent securities to the lender within a specified period and the borrower pays the lender a fee for th e use of the securities during the period that they are on loan. The Sub - Fund should ensure that it can at any time recall any security lent out or terminate any securities lending agreement it has entered. Each Sub - Fund may lend its portfolio securities via a securities lending program through an appointed securities lending agent, including State Street International GmbH, London Branch and any of its affiliates, to brokers, dealers and other financial institutions desiring to borrow securities to comple te transactions and for other purposes. Investors should read the risk warning headed “Conflicts of Interest Risk” in the “Risk Information” section for further information regarding the risks associated with the use of affiliates to provide securities lending agency services to the Fund .
Participating in a securities lending programme allows a Fund to receive the net income generated by lending its securities. All revenues from efficient portfolio management techniques and securities lending, net of direct and indirect operational costs (i ncluding the fee paid to the securities lending agent), will be returned to the relevant Fund. Pursuant to the terms of the relevant securities lending agreement, the appointed lending agent (State Street Bank and Trust Company, acting through its London b ranch, or any affiliates) will be entitled to retain a portion of up to 25% of the securities lending revenue to cover all fees and costs associated with the securities lending activity, including the delivery of loans, the management of collateral and the provision of the securities lending indemnity and such fees paid will be at normal commercial rates. The Fund will be entitled to at least 75% of the securities lending gross revenues. Information on direct and indirect operational costs and fees incurred by each Fund in this respect, as well as the identity of the entities to which such costs and fees are paid and any affiliation they may have with the Depositary or the Management Company, if applicable, will be available in the Annual Report. The securi ties lending arrangements and associated costs will be reviewed at least annually. The securities lending agent (ie State Street Bank and Trust Company) is a related party to the Management Company. Investors should also read the risk warning headed “ Securities Lending Risk ” in the “ Risk Information ” section .
A Sub - Fund may only enter into OTC derivatives, securities lending agreements and repurchase agreements with counterparties which (i) are financial institutions with any type of legal personality and typically located in an OECD membe r state (and which may or may not be related to the Management Company, Investment Manager, Depositary or their delegates), (ii) subject to prudential supervision rules considered by the Central Bank as equivalent to those provided by European Union law, (iii) be of good reputa tion, and (iii) where a credit assessment has been undertaken. Where the counterparty is subject to a credit rating by any agency registered and supervised by the European Securities and Markets Authority, that rating shall be taken into account in the cre dit assessment. Where a counterparty is downgraded to A2 or below (or comparable rating) by such a credit rating agency, a new credit assessment in respect of the counterparty will be undertaken without delay.
Use of the efficient portfolio management techniques described above could adversely affect the liquidity of a Sub - Fund’s portfolio and will be taken into account by the Investment Manager in managing the Sub - Fund’s liquidity risk and in this respect, inve stors should also read the risk warning headed “ Liquidity Risk ” in the “ Risk Information ” section.
COLLATERAL . A Sub - Fund may enter securities lending agreements, repurchase agreements and reverse repurchase agreements only where it acts in accordance with normal market practice, in the best interests of Fund and provided that all collateral received under the sec urities lending contract, repurchase or reverse repurchase agreement (and also under any FDI) meet, at all times, the following criteria:
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• Liquidity . Collateral (other than cash) should be transferable securities or money market instruments (of any maturity) which are highly liquid and traded on a regulated market or multi - lateral trading facility with transparent pricing in order that it can be sold quickly at a price that is close to its pre - sale valuation. Collateral should comply with the provisions of Regulation 7 4 of the UCITS Regulations and shall be used in accordance with the requirements of this Prospectus and the UCITS Regulations.
• Valuation . Collateral should be valued on a daily basis (and may be subject to variation margin requirements) and as sets that exhibit high price volatility should not be accepted as collateral unless suitably conservative haircuts are in place . Collateral may be marked to market daily by the counterparty using its procedures, subject to any agreed haircuts, reflecting market values and liquidity risk and may be subject to daily variation margin requirements.
• Issuer Credit Quality . Collateral should be of high quality. A Sub - Fund must ensure that where one or more credit rating agencies registered and supervised by ESMA have provided a rating of the issuer, the credit quality assessment process employed on behalf of the Sub - Fund has regard inter alia to those ratings. While there will be no mechanistic reliance on such external ratings, a downgrade below the two highest short - term credit ratings by any agency registered and supervised by ESMA that has rated the issuer must lead to a new assessment of the credit quality of the issuer to ensure the collater al continues to be of high quality.
• Correlation . Collateral should be issued by an entity that is independent from the counterparty and is expected not to display a high correlation with the performance of the counterparty.
• Diversification . Collateral should be sufficiently diversified in terms of count ry, markets and issuers. Non - cash collateral will be considered to be sufficiently diversified if the relevant Sub - Fund receives from a counterparty a basket of collateral with a maximum exposure to any one issuer of 20% of the Sub - Fund’s Net Asset Value. When the Sub - Fund is exposed to a variety of different counterparties, the various baskets of collateral are aggregated to ensure exposure to a single issuer does not exceed 20% of the Sub - Fund ’s Net Asset Value.
Notwithstanding the above, a Sub - Fund may be fully collateralised in different transferable securities and money market instruments issued or guaranteed by a EU Member State, one or more of its local authorities, a third country, or a public international body to which one or more EU Member States belong, as disclosed in the section of the Prospectus entitled “Investment Restrictions”. Such a Sub - Fund will receive securities from at least six different issues and securities from any single issue will not ac count for more than 30% of the Sub - Fund’s Net Asset Value.
• Immediately available . Assets received as collateral should be capable of being fully enforced by the Fund at any time without reference to or approval from the counterparty.
It is proposed that each Sub - Fund will accept the following types of collateral:
• cash; • government or other public securities; • corporate bonds issued by Relevant Institutions or by non - bank issuers where the issue or the issuer meet the Investment Manager’s eligibility criteria to ensure the collateral is of high quality; and • equity securities traded on a stock exchange in the EEA, Switzerland, Canada, Japan, the United Kingdom, the United States, Jersey, Guernsey, the Isle of Man, Australia, New Zealand, Hong Kong or Singapore.
The Management Company has implemented a haircut policy in respect of each class of assets received as collateral. This policy takes account of the characteristics of the relevant asset class, including the credit standing of the issuer of the collateral, the price volatility of t he collateral and the results of any stress tests which may be performed in accordance with the stress testing policy. The value of the collateral, adjusted in light of the haircut policy, shall equal or exceed, in va lue, at all times, the rel evant counterparty exposure.
Until the expiry of the repurchase agreement, reverse repurchase agreement or securities lending agreement, collateral obtained under such agreement: (a) must be marked to market daily (as valued by the counterparty using its procedures,
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s ubject to any agreed haircuts, reflecting market values and liquidity risk); and (b) must equal or exceed, in value, at all times the value of the amount invested or securities loaned.
Collateral must be held by the Depositary, or its agent (where there is title transfer). This is not applicable in the event that there is no title transfer in which case the collateral can be held by a third party custodian which is subject to prudential supervision, and which is unrelated to the provider of the collateral.
Details of the exposures obtained through efficient portfolio management techniques, the counterparties used, the type and amount of collateral received to reduce such exposures and any income and expenses, whether direct or indirect, generated by securiti es lending will be disclosed in the periodic reports of the Fund.
Any Sub - Fund receiving collateral for at least 30% of its assets will undergo regular stress testing in accordance with the Fund’s liquidity stress - testing policy to assess the liquidity risk attached to the collateral it has received.
REINVESTMENT OF COLLATERAL . Non - cash collateral received cannot be sold, pledged or reinvested by the Fund . Cash collateral received should only be invested in:
• deposits with, or certificates of deposit issued by, an EU credit institution, a bank authorised in the remaining Member States of the European Economic Area (EEA) (Norway, Iceland, Liechtenstein), a bank authorised by a signatory state, other than an EU M ember State or a Member State of EEA, to the Basle Capital Convergence Agreement of July 1988 (S witzerland, Canada, Japan, United Kingdom, United States) or credit institutions authorised in a third country deemed equivalent pursuant to Article 107(4) of Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) 648/2012 (“ Relevant Institutions ”) ; • high quality government bonds; • reverse repurchase transactions, provided the transactions are with Relevant Institutions and the Sub - Fund is able to recall the full amount of cash on accrued basis at any time; and • short term money market funds, provided that if investments are made in a fund which is managed by an affiliate of the Investment Manager, no subscription or redemption charge can be made by the underlying money market fund.
Cash collateral which is received and invested at the risk of a Sub - Fund must be invested in a diversified manner so that no more than 20% of the Sub - Fund’s Net Asset Value is exposed to any one issuer through such investment. Invested cash collateral may not be placed on deposit with, or invested in securities issued by, the counterparty or an entity related to the counterparty. The Fund must be satisfied, at all times, that investment of cash collateral will enable it to meet its repayment obligations. Any interest or dividends paid on securities which are the subject of such securities lending agreements shall accrue for the benefit of the relevant Sub - Fund. Investors should note that any cash collateral invested will be subject to the normal market an d other risks of investment. See “Securities Lending Risk” in the “Risk Information” section.
R ISK M ANAGEMENT . The contribution of FDI and the use of the other efficient portfolio management techniques described above to the risk profile of a Sub - Fund will be disclosed in its investment policies. Any use of efficient portfolio management techniques by a Sub - Fund sh all not result in a change to the Sub - Fund’s investment objective nor substantially increase the risk profile of the Sub - Fund. Although a Sub - Fund may be leveraged as a result of its use of FDI and efficient portfolio management techniques, the Sub - Fund’s resulting global exposure will not exceed its total net assets, i.e., the Sub - Fund may not be leveraged in excess of 100% of its Net Asset Value unless otherwise specified in the Relevant Supplement for a Sub - Fund.
Unless otherwise specified in a Relevant Supplement, each Sub - Fund’s global exposure and leverage is calculated using the commitment approach. This approach converts each Sub - Fund’s FDI positions into the equivalent positions in the underlying assets, and seeks to ensure that the FDI risk is monitored in terms of any future “commitments” to which it is (or may be) obligated. Investors should refer to the “ Risk Information ” section for information in relation to the risks associated with the use of FDI. The Manage ment Company employs a risk management process in respect of each Sub - Fund which enables it to accurately measure, monitor and manage the various risks associated with FDI, the use of efficient portfolio management techniques and the management of collateral. The Inve stment Manager will employ only FDI that are covered by the risk management process, as amended from time to time. A statement of this risk management process has been
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submitted to and cleared by the Central Bank. In the event of a Sub - Fund proposing to use additional types of FDI, the risk management process and the Relevant Supplement shall be amended to reflect this intention. The Management Company will, on request, provide supplementary information to Shareholders relating to the risk management methods employed including the quantitative limits that are applied and any recent developments in the risk and yield characteristics of the main categories of investment.
B ORROWING M ONEY . Each Sub - Fund may borrow money from a bank up to a limit of 10% of its Net Asset Value, but only on a temporary basis. Where a Sub - Fund has foreign currency borrowings which exceed the value of a back - to - back deposit, the Investment Manager shall ensure th at excess is treated as borrowing for the purpose of Regulation 103 of the UCITS Regulations.
P OOLING . Subject to the general provisions of the Instrument of Incorporation and in accordance with the requirements of the Central Bank, the Management Company may, for the purpose of efficient portfolio management, where the investment policies of the Sub - Funds so permit , choose that the assets of certain Sub - Funds be co - managed together with the assets of other Sub - Funds. This will be done by establishing a pool of assets (“ Pool ”) comprising cash and investments contributed by all Sub - Funds which participate i n the Pool (“ Participating Sub - Funds ”). This technique is known as pooling.
Opportunities to establish pooling arrangements arise wh ere the investment objectives and policies of Participating Sub Funds are sufficiently similar so as to enable the assets contributed by a Participating Sub - Fund to be managed in a manner identical to that of all other Participating Sub - Funds in the Pool. However, it is not essential that the investment objectives and policies of each Participating Sub - Fund in the Pool be identical. It is sufficient that the Investment Manager be in a position to manage the Pool as one portfolio of assets whilst complying with the investment objectives, policies and restrictions applicable to each Participating Sub - Fund.
A Pool is not a separate legal entity and an investor may not invest directly in a Pool. The Investment Manager shall not be permitted to manage the assets of any Sub - Fund on a pooled basis without the prior consent of the Management Company. The Managem ent Company may elect at any time to terminate the participation of a Sub - Fund in the Pool on notice to the Investment Manager, the Administrator and the Depositary. Further details will be specified in Relevant Supplement of any Sub - Fund which engages in “pooling”.
Operational Issues
Assets may be contributed to and withdrawn from the Pool by a Participating Sub - Fund at any time. A record shall be maintained of all the assets contributed to the Pool by a Participating Sub - Fund and the percentage allocation of each of the pooled assets within the Pool that is attributable to each Participating Sub - Fund, which shall be allocated on a pro rata basis on each Dealing Day. This percentage allocation will be applied to all assets held in the Pool. When additional cash or securities are cont ributed to or withdrawn from the Pool by a Participating Sub - Fund the allocation percentage of each Participating Sub - Fund will be adjusted to reflect the change. Where a contribution is made in cash, a deduction may be made where the Investment Manager c onsiders this necessary to discharge transactions, costs and fiscal charges incurred in investing the cash concerned. Similarly, in the case of a cash withdrawal, a deduction may be made to reflect transaction costs in disposing of securities. Any transa ction costs associated with a Participating Sub - Fund joining or withdrawing from the Pool shall be borne by that Participating Sub - Fund. Dividends, interest and any other distribution of income received in respect of assets will be allocated pro - rata to the Participating Sub - Fund’s holding of assets. For the avoidance of doubt, assets and liabilities pertaining to the pooled assets will be allocated amongst the Participating Sub - Fund(s) in accordance with the records maintained by the Participating S ub - Fund through the Administrator and Depositary.
Investors should note that the pooling arrangement may cause the composition of the assets of a Sub - Fund to be altered as a result of subscriptions and redemptions in another Participating Sub - Fund which would cause the Investment Manager to dispose of or acquire assets for the Pool or may cause the Investment Manager to increase the amount of ancillary liquid assets held by a Sub - Fund.
Custody of Assets
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The Depositary shall, by relying on a common set of records produced by the Administrator’s accounting systems, at all times ensure that it is in a position to identify the assets of a Sub - Fund even though the sub - custodian’s records may identify the asset s as being held in a Pool.
Termination
The Management Company may elect at any time to terminate a Sub - Fund’s participation in a Pool on notice to the Investment Manager, the Administrator and the Depositary. Upon such termination each Participating Sub - Fund’s interest in the Pool will be allo cated back to the relevant Participating Sub - Fund.
PRC Investments
As will be provided in the Relevant Supplement, these PRC Investments may be effected as follows: (i) directly into the PRC domestic securities market (China A Shares and other domestic securities including other equities and bonds as permitted) using the licensed RQFII status and RQFII investment quota of the Investment Manager. The RQFII regime is a pol icy initiative of China which allows qualified RQFII Licence Holders to channel RMB funds raised outside the PRC to invest into the Chinese securities markets within quotas granted under and subject to applicable PRC regulatory requirements. As the Sub - Fu nds will not satisfy the qualification criteria for RQFII status in their own right, direct investments will be made through the RQFII Licence Holders, such as the Investment Manager and/or Sub - Investment Manager. The RQFII regime is jointly regulated by the CSRC, SAFE and PBoC from different angles. Their respective duties and authorities are summarised below:
CSRC a) reviews and verifies applicants’ eligibility and issues RQFII licences; and b) regulates and monitors onshore securities investment activities by the RQFIIs.
PBoC a) regulates onshore RMB accounts opened by RQFIIs; b) regulates investment by RQFIIs in the over the counter wholesale market, CIBM; and c) regulates and monitors the remittance and repatriation of RMB funds by the RQFIIs jointly with SAFE.
SAFE a) allocates and regulates the use of RQFII investment quota; and b) regulates and monitors the remittance and repatriation of RMB funds by the RQFIIs jointly with PBoC.
(ii) As set out in the Relevant Supplement, the Investment Manager may pursue a relevant Sub - Fund’s investment objective by investing up to 100% of the Sub - Fund’s Net Asset Value directly in China A Shares through Stock Connect.
Stock Connect is a securities trading and clearing linked programme operational since 17 November 2014 and developed by SEHK, SSE, HKSCC and CSDCC, with an aim to achieve mutual stock market access between mainland China (Shanghai) and Hong Kong. The SZHK Stock Connect is a similar securities trading and clearing linked programme developed by SEHK, SZSE, HKSCC and CSDCC for the establishment of mutual stock market access between mainland China (Shenzhen) and Hong Kong. The SZHK Stock Connect became operati onal since 5 December 2016. The SSE, SZSE and SEHK will enable Funds to trade eligible shares listed on the other’s market, as applicable, through local securities firms or brokers, subject to rules and regulations issued from time to time.
Each of SHHK Stock Connect and SZHK Stock Connect is subject to a Daily Quota. The Daily Quota limits the maximum net buy value of cross - boundary trades under the relevant Stock Connect each day. SEHK will monitor the usage of the Northbound daily quota ( " Northbound Daily Quota ") for each of SHHK Stock Connect and SZHK Stock Connect and publish the remaining balance of the Northbound Daily Quota on
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HKEx’s website. SEHK may include or exclude securities as China Connect Securities (as defined in the rules of exchange of the SEHK) and may change the eligibility of shares for Northbound trading on the SHHK and SZHK Stock Connect. Once the remaining bala nce of the Northbound Daily Quota drops to zero or the Daily Quota is exceeded during the opening call session, new buy orders will be rejected on the relevant Stock Connect (though investors will be allowed to sell their cross - boundary securities regardle ss of the quota balance) and during the continuous auction session (or closing call auction session) for SZSE, no further buy orders will be accepted for the remaining of the day; and/or
(iii) through the CIBM Direct Access Programme. The CIBM is the OTC wholesale market outside the two main stock exchanges (the SSE and SZSE) which was established in 1997 and CIBM together with its market operators are regulated by the PBoC. CIBM is the domina nt trading venue for bonds in the PRC. CFETS is the official bond trading platform of the CIBM. CFETS operates its trading platform with comprehensive functions of trade matching, post trade services and information services. The CCDC and the SHCH are d esignated as the central securities depositaries of the bonds traded on the CIBM, which register, hold and safekeep the bonds in the form of book entry, as well as dealing with interest payment and principal payment for the investors. The trading platform of CFETS is directly linked with the Centralised Bond Book Entry System of CCDC and SHCH to achieve a straight through processing of trading and settlement of bonds on the CIBM. Under PRC regulations, certain qualified overseas investors are eligible to p articipate in the CIBM Direct Access Programme to make investments in the PRC interbank bond market. The Investment Manager, on behalf of each relevant Fund, has registered as a qualified institution under the CIBM Direct Access Programme via an onshore i nterbank bond trade and settlement agent, which has the responsibility for making the relevant filings and account opening with the relevant PRC authorities.
Investors should be aware that use of the Access Programme(s) exposes the Fund to increased risks. Investors should also read the risk warnings headed “ PRC and Greater China Region Risk ”, “ Risks Associated with Investment through Access Programmes ” and “ PRC Taxation Risk ”.” in the section “ Risk Information ”.
PROXY VOTING AND ASSET STEWARDSHIP
Proxy voting and engagement activities in respect of securities held by the ICAV are conducted pursuant to the terms of the Sustainability Stewardship Service Proxy Voting and Engagement Policy available at Sustainability Stewardship Service Proxy Voting and Engagement Policy (the “Sustainability Stewardship Policy”).
The Sustainability Stewardship Policy focuses on risks and opportunities that may impact long - term value creation, with a focus on sustainability priorities such as climate change, nature and human rights.
The Management Company has delegated to the Sub - Investment Manager the responsibility for exercising voting rights and engagement activities pursuant to the Sustainability Stewardship Policy. Subject to its full discretion, the ICAV may from time to time a ppoint and delegate voting authority attached to certain securities held by the Sub - Funds to an independent third party as necessitated by regulatory or other requirements.
Periodic reports on the proxy voting and engagement activities undertaken under the Sustainability Stewardship Policy will be available at Sustainability Stewardship Service Proxy Voting and Engagement Policy .
ESG INVESTING
ESG investing is the assessment of material ESG issues during the investment process. It complements traditional research such as analysing financial statements, industry trends and company growth strategies.
ESG investing can be used by investors in a variety of ways to achieve a wide range of investment goals including risk management, alignment with values and to enhance sustainable long - term performance and may be incorporated into the Investment Policy of a Sub - Fund, as described in the Relevant Supplement, in one or more ways further described below.
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To facilitate the various investment goals of such investors, the Investment Manager may apply ESG criteria as a core part of or ancillary to the investment policy of the Fund described in the Relevant Supplement. That is to say that certain Sub Funds targ et ESG specific outcomes while other Sub - Funds, while they do not primarily target ESG outcomes, incorporate ESG tools, ancillary to their primary objective, to enhance risk management and to facilitate responsible investing. Each Sub - Fund has been classif ied under SFDR. See further each Relevant Supplement.
Additional information regarding State Street IM ’s ESG investment approach can be found on the Website at ssga.com/esg.
At the level of each Sub - Fund, the Management Company does not consider the adverse impacts of investment decisions on sustainability factors, and note that there are still a number of uncertainties regarding this obligation, in particular b ecause at the date of this Prospectus the relevant regulatory technical st andards remain subject to the final stages of the legislative process These technical standards shall set out detailed requirements in relation to the content, methodologies and presentation of sustainability indicators in relation to adverse impacts on t he climate and other environment ‐ related adverse impacts. Following the adoption and coming into force of such regulatory technical standards, currently expected to be from 1 July 2022, the Management Company will reconsider its position in relation to the publication of adverse impacts and, if it determines to provide such information at Sub - Fund level, this Prospectus shall be updated accordingly.
At a firm level, State Street IM does not consider principal adverse impacts of investment decisions on sustainability factors. Details of State Street IM ’s approach in this regard can be found at www.ssga.com.
ESG I NTEGRATION . ESG Integration refers to the integration of qualitative and quantitative ESG information, including Sustainability Risks, in the investment processes with the objective of enhancing investment decision - making. ESG integration aims to improve financial per formance and/or mitigate financial risk. It involves considering ESG factors explicitly and systematically in investment analysis and decisions to lower risk and generate returns. ESG integration is a broad tool, considering material ESG components as a dr iver of risk and/or return. rather than achieving particular environmental, social, or governance goals. Its application to a specific Fund should be tailored depending on the asset class, investment strategy and targeted outcome. In considering the approp riate design, the Investment Manager will assess if and how financially material ESG issues are integrated into their decision - making processes, consider appropriate ESG signals and factors to mitigate risk and identify opportunities for long - term performa nce potential. See further each Relevant Supplement for details on where ESG Integration is embedded.
ESG S CREENING . For certain Sub - Funds, the Investment Manager will apply negative and/or norms - based screening, for example, by excluding securities related to certain sectors, companies or practices based on specific ESG criteria. An example of norms based screening is t he exclusion of securities issued by companies that are found, following research, to contravene international norms in relation to environmental protection, human rights, labour standards and anti - corruption.
An example of a negative screen is the exclusion of securities issued by companies that are found, following research, to be involved in the area of controversial weapons, as set out in the Convention of Cluster Munitions and / or the exclusions of compani es based on other ESG criteria such as ESG rating thresholds.
For Sub - Funds which incorporate an ESG screening approach (other than Index equity funds incorporating an ESG screening approach), the Investment Manager will apply a negative and/or norms - based ESG Screen to the Sub - Fund. That is, prior to the constructio n of the portfolio of the Sub - Fund and on an ongoing basis, the Investment Manager will exclude certain securities from the investment universe based on an assessment of their adherence to certain ESG criteria as laid out in the Relevant Supplement using t he State Street IM ESG Exclusionary Screening Methodology. The State Street IM ESG Exclusionary Screening Methodology outlines the criteria for the assessment and is available on the Website.
For Index equity funds incorporating an ESG screening approach, a negative and/or norms - based ESG Screen is applied to the Index (as set out in the Relevant Supplement) itself. That is, prior to the construction of the Index and on an ongoin g basis, the In dex provider will exclude certain securities from the investment universe based on an assessment of their adherence to certain ESG criteria as laid out in the Relevant Supplement using the ESG exclusionary screening methodology of that Index provider. The ESG exclusionary screening methodology of the Index provider is available on the website shown in the Relevant Supplement. Investors should read the “ Index Strategies and Sustainability Integration ” section for further information.
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Taxonomy Regulation. The Taxonomy Regulation establishes criteria for determining whether an economic activity qualifies as environmentally sustainable in the context of particular environmental objectives. The Taxonomy Regulation also obliges the Management Company to disclose how and to what extent the investments of each Sub - Fund are in economic activities that qualify as environmentally sustainable pursuant to those criteria.
The Taxonomy Regulation requires the Management Company to disclose (i) how and to what extent it has used the Taxonomy Regulation to determine the sustainability of the Sub - Funds’ underlying investments; and (ii) to what environmental objective(s), as set out within the Taxonomy Regulation, the underlying investments contribute. The analysis and disclosure requirements introduced by the Taxonomy Regulation are very detailed and compliance with them requires the availability of multiple, specific data points in respect of each investment which a Sub - Fund may invest. As at the date hereof, due to the delay to the publication of the final regulatory technical standards supplementing the Taxonomy Regulation and the related absence of sufficient reliable, timely and verifiable data in respect of the underlying investments, it is not currently possible to state accurately that the underlying investments of a relevant Sub - Fund contribute to such environmental objectives. Once the regulatory technical standards have been finalised and more reliable data on the underlying investments becomes available, it is possible that this position may change. The Management Company is keeping this situation under active review and where adequate, reliable data on the relevant Sub - Fund’s investments become available, the Management Company may be in a position to provide further details on the extent of which the Sub Fund’s investments are taxonomy aligned, in which case the Prospectus or the Relevant Supplement will be updated.
Unless otherwise stated in the Relevant Supplement, the investments in the Sub - Funds do not take into account the EU criteria for environmentally sustainable economic activities
TAX INFORMATION
The Fund is resident in Ireland for tax purposes and is not subject to Irish taxation charges on income or capital gains. No Irish stamp duty is payable on the issue, redemption or transfer of Shares in the Fund. A Sub - Fund may make distributions that may be taxed as ordinary income or capital gains. The distribution policy of each Sub - Fund is set out in the Relevant Supplement. The tax treatment applicable to a Shareholder will depend on its individual situation. Accordingly, Shareholders and potential investors are advised to consult their professional advisers concerning possible taxation or other consequences of purchasing, holding, selling, exchanging or otherwise disposing of Shares under the laws of their country of incorporation, establishment, c itizenship, residence, ordinary residence or domicile.
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OTHER INFORMATION
R EPORT AND A CCOUNTS . The Fund’s accounting period will end on 31 October in each year. The Fund will publish an annual report and audited annual accounts within four months of the end of the financial period to which they relate, i.e. no rmally in February of each year. The unaudited half - yearly reports of the Fund will be made up to 30 April in each year. The unaudited half yearly reports will be pub lished within two months of the end of the half year period to which they relate, i.e., normally in July of each year. Where a particular Sub - Fund’s accounting period end is different from the abov e, it will be specified in the Relevant Supplement. The annual report and the half - yearly report will be made available at the office of the Administrator, will also be made available to Shareholders on request, and on the Website.
A NNUAL G ENERAL M EETINGS . Pursuant to the Act, the Directors have elected to d ispense with the holding of annual general meetings. Notwithstanding this, one or more Shareholders of the Fund holding, or together holding, not less than 10% of the voting rights in the Fund, or the auditors of the Fund, may require the Fund to hold an a nnual general meeting in a specific year, by giving notice in writing to the Fund in the previous year or at least one month before the end of that year and the Fund shall hold the required meeting.
I NSTRUMENT OF INCORPORATION . Shareholders are entitled to the benefit of, are bound by and are deemed to have notice of, the provisions of the Instrument of Incorporation, copies of which are available as described in the “Where To Learn More About The Sub - Funds” section.
S HARE C APITAL . The authorised share capital of the Fund is 500,000,310,002 (five hundred billion and three hundred and ten thousand and two) Shares of no par value divided into 310,000 (three hundred and ten thousand) capitalisation shares , 2 (two) Subscriber Shares of no par value and 500,000,000,000 (five hundred billion) Shares of no par value. The Directors are empowered to issue up to all of the Shares of the Fund on such terms as they think fit. The Subscriber Shares entitle the holders to attend and vote at general meetings of the Fund but do not entitle the holders to participate in the profits or assets of the Fund except for a return of capital on a winding - up. For the purpose of complying with minimum initial capital requirements, the Fund has issued 300,002 Shares of no par value for €1.00 each ( “Capitalisation Shares” ). The Shares (other than the Subscriber Shares) entitle the holders to attend and vote at general meetings of the Fund and to participate equally (subject to any differences between fees, charges and expenses applicable to different Classes) in the profits and assets of the Sub - Fund to which the Shares relate. The Fund may from time to time by ordinary resolution increase its capital, consolidate the Shares or any of them into a smaller number of Shares, sub - divide the Shares or any of them into a larger number of Shares or cancel any Shares not taken or agreed to be ta ken by any person. The Fund may by special resolution from time to time reduce its share capital in any way permitted by law. At a meeting of Shareholders, on a show of hands, eac h Shareholder shall have one vote and, on a poll, each Shareholder shall have one vote for each whole Sh are held by such Shareholder.
D ISTRIBUTION AND SELLING RESTRICTIONS . The distribution of this Prospectus and the offering or purchase of Shares may be restricted in certain jurisdictions. This Prospectus does not constitute and may not be treated as an offer or solicitation b y or to anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of this Pro spectus and any persons wishing to apply for Shares pursuant to this Prospectus to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdiction.
Shares are offered only on the basis of the information contained in this Prospectus. Any further information or representati ons given or made by any dealer, broker or other person should be disregarded and, accordingly, should not be relied upon. No perso n has been authorised to give any information or to make any representation in connection with the offering of Shares other than those contained in this Prospectus for the Fund and, if given or made, such information or representations must not be relied on as having been authorised by the Directors or the Management Company . Statements in this Prospectus are in accordance with the law and practice in force in Ireland at the date hereof and are subject to change. Neither the delivery o f this Prospectus nor the issue of Shares shall, under any circumstances, create any implica tion or constitute any representation that the affairs of the Fund have not changed since the date hereof.
This Prospectus may also be translated into other languages. Any such translation shall only contain the same information and have the same meaning as the English language Prospectus. To the extent that there is any inconsistency between the English langua ge Prospectus and the Prospectus in another language, this English language Prospectus will prevail,
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except, to the extent (but only to the extent) required by law of any jurisdiction where the Shares are sold, that in an acti on based upon disclosure in a Prospectus in a language other than English, the language of the Prospectus on which such action is b ased shall prevail. All disputes as to the contents of this Prospectus shall be governed in accordance with the laws of Ireland.
T HE S UB - F UNDS . Under the Instrument of Incorporation, the Directors are required to establish a separate Sub - Fund, with separate records, in the following manner:
a) the Fund will keep separate books and records of account for each Sub - Fund. The proceeds from the issue of Shares issued in respect of a Sub - Fund will be applied to the Sub - Fund, and the assets and liabilities and income and expenditure attributable to that Sub - Fu nd will be applied to such Sub - Fund; b) any asset derived from another asset in a Sub - Fund will be applied to the same Sub - Fund as the asset from which it was derived and any increase or diminution in value of such an asset will be applied to the relevant Sub - Fund; c) in the case of any asset which the Directors do not consider as readily attributable to a particular Sub - Fund or Sub Funds, the Directors have the discretion to determine, the basis upon which any such asset will be allocated between Sub - Funds and the Dire ctors may at any time and from time to time vary such basis; d) any liability will be allocated to the Sub - Fund or Sub - Funds to which in the opinion of the Directors it relates or if such liability is not readily attributable to any particular Sub - Fund the Directors will have discretion to determine, acting in a fair a nd equitable manner and with the consent of the Depositary, the basis upon which any liability will be allocated between Sub - Funds and the Directors may at any time and from time to time vary such basis; e) in the event that assets attributable to a Sub - Fund are taken in execution of a liability not attributable to that Sub Fund, and in so far as such assets or compensation in respect thereof cannot otherwise be restored to that Sub Fund affected, the Directo rs, with the consent of the Depositary , shall certify or cause to be certified, the value of the assets lost to the Sub - Fund affected and transfer or pay from the assets of the Sub - Fund or Sub - Funds to which the liability was attributable, in priority to all other claims against such Sub - Fund or Sub - Funds, assets or sums sufficient to restore to the Sub - Fund affected, the value of the assets or sums lost to it; f) where the assets of the Fund (if any) attributable to the Subscriber Shares give rise to any net profit, the Directors may allocate assets representing such net profits to such Sub - Fund or Sub - Funds as they may deem appropriate, acting in a fair and equitable manner; and g) subject as otherwise provided in the Instrument of Incorporation, the assets held for the account of each Sub - Fund shall be applied solely in respect of the Shares to which such Sub - Fund appertains and shall belong exclusively to the relevant Sub - Fund and shall not be used to discharge directly or indirectly the liabilities of or claims against any other Sub - Fund and shall not be available for any such purpose.
Each Class of Shares (other than the Subscriber Shares) entitles the Shareholder to participate equally on a pro rata basis i n the dividends and net assets of the Sub - Fund in respect of which they are issued, save in the case of dividends declared prior to becoming a Shareholder. The Subscriber Shares entitle the Shareholders holding them to attend and vote at all meetings of the Fund , but do not entitle the holders to participate in the dividends or net assets of any Sub - Fund.
I NFORMATION R EQUESTS . The Fund or its duly authorised agent may from time to time require investors to provide them with information relating to: (a) the capacity in which they hold an interest in Shares; (b) the identity of any other person or p ersons t hen or previously interested in such Shares; (c) the nature of any such interests; and (d) any other matter where disclosure of such matter is required to enable compliance by the Fund with applicable laws or the constitutional documents of the Fund.
W INDING U P . Generally, under Irish law, if a company is being wound up, a liquidator is appointed to settle outstanding claims and distribute the remaining assets of the company. The liquidator will use the assets of the company in order to satisfy claims of creditor s. Thereafter, the liquidator will distribute the remaining assets among the shareholders. The Instrument of Incorporation contains provisions that will require, firstly, the distribution of assets to the Shareholders of each Sub - Fund after settlement of the liabilities of that Sub - Fund and, thereafter, distribution to the holders of Subscriber Shares of the nominal amount paid in respect of those Subscriber Shares. The liquidator may, if authorised by a special resolution, distribute assets of the Fund in specie provided that, in such circumstances, Shareholders may request that the assets to be distributed to them be sold, with the net cash proceeds to be paid to them.
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INVESTMENT RESTRICTIONS
The assets of each Sub - Fund will be invested in accordance with the investment restrictions contained in the UCITS Regulations which are summarised below and such additional investment restrictions, if any, as may be adopted by the Management Company. The details of any additional investment restric tions will be set out below and / or in the Relevant Supplement.
1 Permitted Investments
Investments of a Sub - Fund are confined to:
1.1 transferable securities and money market instruments which are either admitted to official listing on a stock exchange in a Member State or non - Member State or which are dealt on a market which is regulated, operates regularly, is recognised and open to th e public in a Member State or non - Member State;
1.2 recently issued transferable securities which will be admitted to official listing on a stock exchange or other market (as described above) within a year;
1.3 money market instruments other than those dealt on a regulated market;
1.4 units of UCITS;
1.5 units of alternative investment funds;
1.6 deposits with credit institutions;
1.7 financial derivative instruments.
2 Investment Restrictions
2.1 A Sub - Fund may invest no more than 10% of its net assets in transferable securities and money market instruments other than those referred to in paragraph 1 above.
2.2 (1) Subject to paragraph (2) a responsible person shall not invest any more than 10% of assets of a Sub Fund in securities of the type to which Regulation 68(1)(d) of the UCITS Regulations apply.
(2) Paragraph (1) does not apply to an investment by a responsible person in US Securities known as “Rule 144 A securities” provided that:
- the relevant securities have been issued with an undertaking to register the securities with the Securities Exchange Commission within 1 year of issue; and
- the securities are not illiquid securities i.e. they may be realised by the Sub - Fund within 7 days at the price, or approximately at the price, which they are valued by the Sub - Fund.
2.3 A Sub - Fund may invest no more than 10% of its net assets in transferable securities or money market instruments issued by the same body provided that the total value of transferable securities and money market instruments held in the issuing bodies in eac h of which it invests more than 5% is no more than 40%.
2.4 Upon the prior approval of the Central Bank, the limit of 10% (in 2.3) is raised to 25% in the case of bonds that are issued by a credit institution which has its registered office in a Member State and is subject by law to special public supervision desig ned to protect bond - holders. If a Sub - Fund invests more than 5% of its
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net assets in these bonds issued by one issuer, the total value of these investments may not exceed 80% of the Net Asset Value of the Sub - Fund.
2.5 The limit of 10% in 2.3 is raised to 35% if the transferable securities or money market instruments are issued or guaranteed by a Member State or its local authorities or by a non - Member State or public international body of which one or more Member States are members.
2.6 The transferable securities and money market instruments referred to in paragraph 2.4 and 2.5 shall not be taken into account for the purpose of applying the limit of 40% referred to in paragraph 2.3.
2.7 A Sub - Fund shall not invest more than 20% of its assets in deposits made with the same body.
2.8 The risk exposure of a Sub - Fund to a counterparty to an over the counter (“ OTC ”) derivative may not exceed 5% of net assets.
This limit is raised to 10% in the case of a credit institution authorised in the EEA; a credit institution authorised within a signatory state (other than an EEA Member State) to the Basle Capital Convergence Agreement of July 1988; or a credit instituti on authorised in Jersey, Guernsey, the Isle of Man, Australia or New Zealand.
2.9 Notwithstanding paragraphs 2.3, 2.7 and 2.8 above, a combination of two or more of the following issued by, or made or undertaken with, the same body may not exceed 20% of net assets:
(i) investments in transferable securities or money market instruments;
(ii) deposits; and/or
(iii) counterparty risk exposures arising from OTC derivatives transactions.
2.10 The limits referred to in 2.3, 2.4, 2.5, 2.7, 2.8 and 2.9 above may not be combined, so that exposure to a single body shall not exceed 35% of the net assets of the relevant Sub - Fund.
2.11 Group companies are regarded as a single issuer for the purposes of paragraphs 2.3, 2.4, 2.5, 2.7, 2.8 and 2.9. However, a limit of 20% of net assets of a Sub - Fund may be applied to investments in transferable securities and money market instruments with in the same group.
2.12 A Sub - Fund may invest up to 100% of net assets in different transferable securities and money market instruments issued or guaranteed by any Member State, its local authorities, non - Member States or public international body of which one or more Member Sta tes are members. The individual issuers must be listed in the Prospectus and may be drawn from the following list:
OECD Governments (provided the relevant issues are investment grade), Government of the People’s Republic of China, Government of Brazil (provided the issues are of investment grade), Government of India (provided the issues are of investment grade), Gover nment of Singapore, European Investment Bank, European Bank for Reconstruction and Development, International Finance Corporation, International Monetary Fund, Euratom, The Asian Development Bank, European Central Bank, Council of Europe, Eurofima, African Development Bank, International Bank for Reconstruction and Development (The World Bank), The Inter American Development Bank, European Union, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Govern ment National Mortgage Association (Ginnie Mae), Student Loan Marketing Association (Sallie Mae), Federal Home Loan Bank, Federal Farm Credit Bank, Tennessee Valley Authority, Straight - A Funding LLC , Export - Import Bank , Kingdom of Saudi Arabia .
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The Sub - Fund must hold securities from at least 6 different issues, with securities from any one issue not exceeding 30% of net assets.
3 Investment in Collective Investment Schemes ( “CIS” )
3.1 A Sub - Fund may not invest more than 20% of net assets in any one CIS.
3.2 Investment in alternative investment funds may not, in aggregate, exceed 30% of net assets.
3.3 The CIS are prohibited from investing more that 10% of net assets in other open - ended CIS.
3.4 Where a Sub - Fund invests in the units of other CIS that are managed directly or by delegation by a UCITS management company or by any other company with which that management company is linked by common management or control, or by a substantial direct or indirect holding, that management company or other company may not charge subscription, conversion or redemption fees on account of the Sub Fund’s investment in the shares of the other CIS.
3.5 Where by virtue of investment in the units of another investment fund the Management Company, an investment manager or an investment advisor receives a commission on behalf of a Sub - Fund (including a rebated commission), the Management Company shall ensure that the relevant commission is paid into the property of the Sub - Fund.
4 Index Tracking UCITS
4.1 A Sub - Fund may invest up to 20% of its net assets in shares and/or debt securities issued by the same body where the investment policy of the relevant Sub - Fund is to replicate an index which satisfies the criteria set out in the Central Bank UCITS Regulati ons and is recognised by the Central Bank.
4.2 The limit in 4.1 may be raised to 35%, and applied to a single issuer, where this is justified by exceptional market conditions.
5 General Provisions
5.1 An investment company, ICAV or management company acting in connection with all of the CIS it manages, may not acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body.
5.2 A Sub - Fund may acquire no more than:
(i) 10% of the non - voting shares of any single issuing body;
(ii) 10% of the debt securities of any single issuing body;
(iii) 25% of the shares or units of any single CIS;
(iv) 10% of the money market instruments of any single issuing body.
The limits laid down in paragraphs (ii), (iii) and (iv) above may be disregarded at the time of acquisition, if at that time, the gross amount of the debt securities or of the money market instruments, or the net amount of the securities in issue cannot be calculated.
5.3 5.1 and 5.2 shall not be applicable to:
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(i) transferable securities and money market instruments issued or guaranteed by a Member State or its local authorities;
(ii) transferable securities and money market instruments issued or guaranteed by a non - Member State;
(iii) transferable securities and money market instruments issued by public international bodies of which one or more Member States are members;
(iv) shares held by a Sub - Fund in the capital of a company incorporated in a non - Member State which invests its assets mainly in the securities of issuing bodies with the registered offices in that non Member State, where under the legislation of that non - Membe r State such a holding represents the only way in which the Sub - Fund can invest in the securities of issuing bodies of that non Member State. This waiver is applicable only if in its investment policies the company from the non Member State complies with t he limits laid down in 2.3 to 2.11, 3.1, 3.2, 5.1, 5.2, 5.4, 5.5 and 5.6 and provided that where these limits are exceeded, paragraphs 5.5 and 5.6 below;
(v) shares held by the Fund in the capital of subsidiary companies carrying on only the business of management, advice or marketing in the country where the subsidiary is located, in regard to the redemption of units at unit - holders’ request exclusively on th eir behalf.
5.4 A Sub - Fund need not comply with the investment restrictions herein when exercising subscription rights attaching to transferable securities or money market instruments, which form part of their assets.
5.5 The Central Bank may allow each Sub - Fund to derogate from the provisions of paragraphs 2.3 to 2.12, 3.1, 3.2, 4.1 and 4.2 for a period of up to six months from the date of approval of such Sub - Fund, provided that such Sub - Fund observes the principle of ris k spreading.
5.6 If the limits laid down herein are exceeded for reasons beyond the control of a Sub - Fund, or as a result of the exercise of subscription rights, that Sub - Fund must adopt as a priority objective for its sales transactions the remedying of that situation, ta king due account of the interests of its Shareholders.
5.7 A Sub - Fund may not carry out uncovered sales of:
(i) transferable securities;
(ii) money market instruments * ;
(iii) units of investment funds; or
(iv) financial derivative instruments.
5.8 A Sub - Fund may hold ancillary liquid assets.
6 FDI
6.1 A Sub - Fund’s global exposure relating to FDI must not exceed its total Net Asset Value.
6.2 Position exposure to the underlying assets of FDI, including embedded FDI in transferable securities or money market instruments, when combined where relevant with positions resulting from direct investments, may not exceed the investment limits set out i n the Central Bank UCITS Regulations/Guidance . This provision does not apply in the case of index based FDI provided the underlying index is one which meets with the criteria set out in the Central Bank UCITS Regulations .
* Any short selling of money market instruments by the Sub - Funds is prohibited.
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6.3 A Sub - Fund may invest in FDI dealt OTC, provided that the counterparties to such OTC transactions are institutions subject to prudential supervision and belonging to categories approved by the Central Bank.
6.4 Investment in FDI are subject to the conditions and limits laid down by the Central Bank.
7 Other Restrictions
7.1 The Fund may acquire real and personal property that is required for the purpose of its business.
7.2 The Fund shall not acquire either precious metals or certificates representing them.
7.3 The Fund shall not make any loan of its assets provided that, for the purpose of this restriction, the holding of ancillary liquid assets such as deposits, and the acquisition of bonds, notes, certificates of deposit, bankers acceptances, and other debt se curities or obligations permitted by the UCITS Regulations, and the acquisition of transferable securities, money market instruments or other financial instruments that are not fully paid, shall not be deemed to constitute the making of a loan.
7.4 A Sub - Fund may borrow up to 10% of its Net Asset Value for temporary purposes.
7.5 For the purposes of the German Investment Tax Act, a Sub - Fund shall not hold 10% or more of the statutory capital of an investee corporation except if such investee corporation is a real estate company ( Immobilien Gesellschaft ) , a public - private partnership company ( ÖPP - Projektgesellschaft ) or a company whose business objective is the production of renewable energy as per § 3 Nummer 3 des Gesetzes über den Vorrang erneuerbarer Energien.
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RISK INFORMATION
This section provides information regarding some of the general risks applicable to an investment in the Sub - Funds. Risk information which is particularly relevant to individual Sub - Funds is specified in the Relevant Supplement. This section is not intended to be a complete explanation and other risks may be relevant from time to time. In particular, the Fund’s and each Sub - Fund’s performance may be affected by changes in market, economic and political conditions, and in legal, regulatory and tax requirements.
Investors should be aware that an investment in a Sub - Fund is not in the nature of a deposit in a bank account and is not protected by any government, government agency or other guarantee scheme.
Before making an investment decision with respect to any Sub - Fund, prospective investors should carefully consider all of the information in this Prospectus and the Relevant Supplement, as well as their own personal circumstances, and should consult their own stockbroker, bank manager, lawyer, accountant and/or financial adviser. An investment in the Shares of any Sub - Fund is only suitable for investors who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evalua ting the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result.
The price of the Shares of a Sub - Fund can go down as well as up and their value is not guaranteed. Shareholders may not receive, at redemption or liquidation, the amount that they originally invested in a Sub - Fund or any amount at all.
PRINCIPAL RISKS
A SSET A LLOCATION R ISK . The investment performance of the Target Date Funds depends upon the successful allocation of the each Sub - Fund’s assets among Underlying Funds, which in turn may target specific asset classes, geographical regions, or investment strategies. There is no guarantee that the Investment Manager’s allocati on techniques and decisions with respect to each Target Date Fund will produce the desired results. It is possible to lose money on an investment in each Sub - Fund as a result of these allocation decisions.
C ASH P OSITION R ISK . A Sub - Fund may hold a significant portion of its assets in cash or cash equivalents at the Investment Manager’s discretion. If a Sub - Fund holds a significant cash position for an extended period of time, its investment returns may be adversely affected an d it may not achieve its investment objective .
C OMMODITIES R ISK . Prices of commodities are influenced by, among other things, various macro - economic factors such as changing supply and demand relationships, weather conditions and other natural phenomena, agricultural, trade, fiscal, monetary, and exchange control progra mmes and policies of governments (including government intervention in certain markets) and other unforeseeable events. The intention of any Sub - Fund to invest in commodities will be disclosed in the Relevant Supplement.
C ONCENTRATION R ISK . A Sub - Fund may invest a relatively large percentage of its assets in issuers located in a single country, a small number of countries, or a particular geographic region. In these cases, the Sub - Fund’s performance will be closely tied to the market, curre ncy, economic, political, or regulatory conditions and developments in that country or region or those countries, and could be more volatile than the performance of more geographically - diversified funds.
In addition, a Sub - Fund may concentrate its investments in companies or issuers in a particular industry, market or economic sector. When a Sub - Fund concentrates its investments in a particular industry, market or economic sector, financial, economic, busi ness, and other developments affecting issuers in that industry, market or economic sector will have a greater effect on the Sub - Fund, and may potentially increase the Sub - Fund’s volatility levels, than if it had not concentrated its assets in that industr y, market or sector. The Sub - Fund’s liquidity may also be affected by such concentration of investment.
Further, investors may buy or sell substantial amounts of a Sub - Fund’s shares in response to factors affecting or expected to affect a particular country, industry, market or economic sector in which the Sub - Fund concentrates its investments, resulting in abnormal inflows or outflows of cash into or out of the Sub - Fund. These abnormal inflows or outflows may cause the Sub - Fund’s cash position or cash requirements to exceed normal levels, and consequently, adversely affect the management of the Sub - Fund and the Sub - Fund’s performance.
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C ONFLICTS O F I NTEREST R ISK : An investment in a Sub - Fund may be subject to a number of actual or potential conflicts of interest. Subject to applicable law, a Sub - Fund may engage in transactions that may trigger or result in a potential conflict of interest. For example: the Investmen t Manager or its affiliates may provide services to the Sub - Fund, such as securities lending agency services, depositary, custodial, administrative, bookkeeping, and accounting services, transfer agency, and shareholder servicing, and other services for wh ich the Sub - Fund would compensate the Investment Manager and/or such affiliates.
A Sub - Fund may enter into securities transactions with the Investment Manager or an affiliate of the Investment Manager where the Investment Manager or an affiliate acts as agent for a Sub - Fund in connection with the purchase or sale of securities, or as p rincipal, where the Investment Manager or an affiliate sells securities to a Sub - Fund or buys securities from a Sub - Fund for its own account.
The Investment Manager on behalf of the Sub - Fund may enter into repurchase agreements and derivatives transactions with or through Investment Manager or one of its affiliates. A Sub - Fund may invest in other pooled investment vehicles sponsored, managed, or otherwise affiliated with the Investment Manager in which event the Sub - Fund may not be charged subscription or redemption fees on account of such investment but will bear a share of the expenses of those other pooled investment vehicles. Those investment vehicles may pay fees and other amounts to the Investment Manager or its affiliates, which might have the effect of increasing the expenses of the Sub - Fund. It is possible that other clients of the Investment Manager will purchase or sell interests in suc h other pooled investments at prices and at times more favourable than those at which the Sub - Fund does so.
There is no assurance that the rates at which a Sub - Fund pays fees or expenses to the Investment Manager or its affiliates, or the terms on which a Sub - Fund enters into transactions with the Investment Manager or its affiliates or on which a Sub Fund inves ts in any investment vehicles sponsored, managed, or otherwise affiliated with the Investment Manager will be the most favourable available in the market generally or as favourable as the rates the Investment Manager makes available to other clients. There will be no independent oversight of prices, fees or expenses paid to, or services provided by, the Investment Manager or its affiliates. Because of its financial interest, the Investment Manager may have an incentive to enter into transactions or arrangem ents on behalf of a Sub - Fund with itself or its affiliates in circumstances where it might not have done so in the absence of that interest. Transactions and services with or through the Investment Manager or its affiliates will, however, be effected in ac cordance with the applicable regulatory requirements.
The Investment Manager and its affiliates serve as investment manager to other clients and may make investment decisions for their own accounts and for the accounts of others that may be different from those that will be made by the Investment Manager on b ehalf of a Sub - Fund. For example, the Investment Manager may provide asset allocation advice to some clients that may include a recommendation to invest in or redeem from a particular issuer while not providing that same recommendation to all clients inves ted in the same or similar issuers.
Other conflicts may arise, for example, when clients of the Investment Manager invest in different parts of an issuer’s capit al structure, so that one or more clients own senior debt obligations of an issuer and other clients own junior debt of the same is suer, as well as circumstances in which clients invest in different tranches of the same structured financing vehicle. In such circumstances, decisions over whether to trigger an event of default or over the terms of any workout may result in conflicts of interest. When making investment decisions where a conflict of interest may arise, the Investment Manager will endeavour to act in a fair and equitable manner, in accordance with its conflicts of interest policy, as between the relevant Sub - Fund and other clients. Subject to the foregoing, (i) the Investment Manager and its affiliates may invest for their own accounts and for the accounts of clients in various securities that are senior, pari passu or junior to, or have interests different from or adverse to, the securities that are owned by a Sub - Fund; and (ii) subject to applicable law, the Investment Manager may, at certain times, simultaneously seek to purchase (or sell) investments for a Sub - Fu nd and to sell (or purchase) the same investment for accounts, funds or structured products for which it serves as investment manager now or in the future, or for other clients or affiliates and may enter into cross trades in such circumstances.
In addition, the Investment Manager and its affiliates may buy securities from or sell securities to a Sub - Fund, if permitted by applicable law. These other relationships may also result in securities laws restrictions on transactions in these instruments by a Sub - Fund and otherwise create potential conflicts of interest for the Investment Manager.
The Investment Manager, in connection with its other business activities, may acquire material non - public confidential information that may restrict the Investment Manager from purchasing securities or selling securities for itself or its clien ts (includin g a Sub - Fund) or otherwise using such information for the benefit of its clients or itself.
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There is no prohibition on dealing in assets of a Sub - Fund by the Depositary, the Management Company, or by any entities related to such parties, provided that such transactions are negotiated at arms’ length and are in the best interest of Shareholders. P ermitted transactions between a Sub - Fund and such parties are subject to (i) a certified valuation by a person approved by the Depositary (or the Management Company in the case of a transaction involving the Depositary) as independent and competent; or (ii) execution on best terms on organised investment exchanges under their rules; or (iii) where (i) and (ii) are not practical, execution on terms the Depositary (or t he Management Company in the case of a transaction involving the Depositary) is satisfied conform to the principles set out above. The Depositary (or the Management Company in the case of a transaction involving the Depositary) shall document how it has complied with (i), (ii) or (iii) above. Where transactions are conducted in accordance with (iii), the Depositary (or the Management Company in the case of a transaction involving the Depositary) shall document its rationale for being satisfied that the transaction conformed to the principles outlined in this paragraph.
There is no prohibition on the Depositary, the Administrator, the Investment Manager or any other party related to a Sub Fund acting as a “competent person” for the purposes of determining the probable realisation value of an asset of the Sub Fund in accor dance with the valuation provisions outlined in the “Determination of Net Asset Value” section of this Prospectus. Investors should note however, that in circumstances where fees payable by a Sub - Fund to such parties are calculated based on the Net Asset V alue, a conflict of interest may arise as such fees will increase if the Net Asset Value increases. Any such party will endeavour to ensure that such conflicts are resolved fairly and in the best interest of the Shareholders.
The Investment Manager will be required to provide best execution when executing orders or transmitting orders on behalf of the Sub - Fund. The Investment Manager will take all sufficient steps to obtain, when executing orders or transmitting orders on the Sub - Fund’s behalf, the best possible res ult for the Sub - Fund, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to execution of the order. When executing or transmitting orders on behalf of the Sub - Fund, the Investment Manage r will take into account any specific instruction from the Directors or their duly authorised delegate regarding execution of the order.
A Director may be a party to, or otherwise interested in, any transaction or arrangement with a Sub - Fund or in which a Sub Fund is interested, provided that she has disclosed to the other Directors prior to the conclusion of any such transaction or arrange ment the nature and extent of any material interest of his therein. The Directors shall endeavour to ensure that any conflict of interest is resolved fairly.
The foregoing does not purport to be a comprehensive list or complete explanation of all potential conflicts of interests whi ch may affect a Sub - Fund. A Sub - Fund may encounter circumstances, or enter into transactions, in which conflicts of interest that a re not listed or discussed above may arise.
C OUNTERPARTY R ISK . The Sub - Funds will be subject to credit risk with respect to the counterparties with which the Fund on behalf of a Sub - Fund enters into derivatives contracts, foreign exchange, currency forward contracts, other transactions such as repurchase agreements or reverse repurchase agreements and securities lending transactions. If a counterparty becomes insolvent or otherwise fails to perform i ts obligations, a Sub - Fund may experience significant delays in obtaining any recovery in an insolvency, bankruptcy, or other reorganization proceeding (including recovery of any collateral posted by it) and may obtain only a limited recovery or may obtain no recovery in such circumstances. In addition, if the credit rating of a derivatives counterparty or potential derivatives counterparty declines, the Fund may determine not to enter into transactions on behalf of a Sub - Fund with that counterpa rty in the future and/or may terminate any transactions currently outstanding between the Sub - Fund and that counterparty; alternatively, the Fund may in its discretion determine on behalf of the Sub - Fund to enter into new transactions with that counterpart y and/or to keep existing transactions in place, in which event the Sub - Fund would be subject to any increased credit risk associated with that counterparty. Regulatory changes adopted or proposed to be adopted by regulators in the U.S. and outside the U. S. may have the effect of increasing certain counterparty risks in connection with over - the - counter transactions entered into by a Sub - Fund.
Under applicable law or contractual provisions, including if a Sub - Fund enters into an investment or transaction with a financial institution and such financial institution (or an affiliate of the financial institution) experiences financial dif ficulties, the Sub - Fund may in certain circumstances be prevented or delayed from exercising its rights to terminate the investment or transaction, or to realize on any collateral and may result in the suspension of payment and delivery obligations of the parties und er such investment or transactions or in another institution being substituted for that financial institution without the consent of the Sub - Fund. Further, the Sub - Fund may be subject to “bail - in” risk under applicable law whereby, if required
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by the financial institution’s authority, the financial institution’s liabilities could be written down, eliminated or conver ted into equity or an alternative instrument of ownership. A bail - in of a financial institution may result in a reduction in value of some or all of its securities and a Sub - Fund that holds such securities or has entered into a transaction with such a financial security when a bail - in occurs may also be similarly impacted.
C URRENCY R ISK . A Sub - Fund may invest in securities that are denominated in currencies that differ from the Sub - Fund’s Base Currency. Changes in the values of those currencies relative to a Sub - Fund’s Base Currency may have a positive or negative effect on the values of the Sub - Fund’s investments denominated in those currencies. A Sub - Fund may, but will not necessarily, invest in currency exchange contracts to help reduce exposure to different currencies; however there is no guarantee that these contracts will successful ly do so. Also, these contracts may reduce or eliminate some or all of the benefit that a Sub - Fund may experience from favorable currency fluctuations.
The values of other currencies relative to a Sub - Fund’s Base Currency may fluctuate in response to, among other factors, interest rate changes, intervention (or failure to intervene) by national governments, central banks, or supranational entiti es such as the International Monetary Fund, the impos ition of currency controls and other political or regulatory developments. Currency values can decrease significantly both in the short term and over the long term in response to these and other developments. Continuing uncertainty as to the status of the Euro and the European Monetary Union (the “EMU” ) has created significant volatility in currency and financial markets generally. Any partial or complete dissolution of the EMU, o r any continued uncertainty as to its status, could have significant adverse effects on currency and financial markets, and o n the values of a Sub - Fund’s portfolio investments.
C URRENCY H EDGING R ISK . The Fund may offer hedged Share Classes (“Hedged Share Classes”) in a Sub - Fund which seek to reduce the impact of exchange rate fluctuations between the Base Currency of the Hedged Share Class and the currency in which Sub - Fund’s un derlying assets are denominated. When a derivative is used as a hedge against a position that a Sub - Fund holds, any g ain generated by the derivative generally should be substantially offset by losses on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matc hing between a derivative and its reference asset. While a Sub - Fund is designed to hedge against currency fluctuations, it is possible that a degree of currency exposure may remain even at the time a hedging transaction is implemented. As a result, the Sub - Fund may not be able to structure its hedging transactions as anticipated or its hedging transactions may not successfully reduce the currency risk included in the Sub - Fund's portfolio. The effectiveness of the Sub - Fund's currency hedging strategy will al so generally be affected by the volatility of both the securities included in the Index, and the volatility of the Base Currency of the Sub - Fund relative to the currencies to be hedged. Increased volatility may reduce the effectiveness of the Sub - Fund's cu rrency hedging strategy and may impact the costs associated with hedging transactions. The effectiveness of the Sub - Fund's currency hedging strategy and the costs associated with hedging transactions may also in general be affected by interest rates. There can be no assurance that the Sub - Fund's hedging transactions will be effective. The effectiveness of a Sub - Fund's currency hedging strategy will also generally be affected by the volatility of both its underlying Index, and the volatility of the Sub - Fund’ s Base Currency relative to the currencies to be hedged. Increased volatility can reduce the effectiveness of the Sub - Fund's currency hedging strategy. The effectiveness of the Sub - Fund's currency hedging strategy will also in general be affected by intere st rates. Significant differences between a Sub - Fund’s Base Currency interest rates and foreign currency interest rates may further impact the effectiveness of the Sub - Fund's currency hedging strategy. The Sub - Fund will bear the costs associated with any s uch hedging transaction, regardless of any gain or loss experienced on the hedging transaction.
Where Classes denominated in different currencies are created within a Sub - Fund and currency hedging transactions are entered into to hedge any relevant currency exposure, each such transaction will be clearly attributable to the specific Clas s and any cos ts shall be for the account of that Class only. It is intended that all gains/losses and expenses arising from such hedging transactions will be borne separately by the Shareholders of the respective Hedged Share Classes and accordingly, all such gains/los ses and expenses will be reflected in the Net Asset Value per Share of the applicable Hedge Share Class; however, as there is no segregation of liabilities between Share Classes of a Sub - Fund , there is a risk that, under certain circumstances, currency he dging transactions in relation to Hedged Share Classes of a Sub - Fund could ultimately result in liabilities which might affect the Sub - Fund as a whole.
There can be no guarantee that the Investment Manager will be successful in such hedging activities and unsuccessful hedging activities may have a material impact on Shareholder’s returns. To the extent that hedging is successful, the performance of the re levant Class is still likely to move in line with the performance of the underlying assets. The use of Hedged Share Classes may substantially limit holders of the relevant Classes from benefiting if the currency of the Class moves unfavourably versus the c urrency in which the assets of the Sub - Fund are denominated. Recent regulatory changes
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in a number of jurisdictions may require that certain currency transactions be subject to collateral requirements. These changes could increase the costs to a Sub - Fund of entering into currency transactions.
C USTODIAL R ISK . There are risks involved in dealing with the Depositary, sub - custodians or brokers who hold or settle a Sub - Fund’s trades. It is possible that, in the event of the insolvency or bankruptcy of a custodian or broker, a Sub - Fund would be delayed or prevented from recovering its assets from the custodian or broker, or i ts estate, and may have only a general unsecured claim against the custodian or broker for those assets. The Depositary will hold assets in compliance with applicable laws and such specific provisions as agreed in the Depositary Agreement. These requirements are designed to protect the assets against the insolvency in bankruptcy of the Depositary but there is no guarantee they will successfully do so. See also “International Investment Risk” . D ERIVATIVES R ISK . The Sub - Funds may use derivative instruments for both efficient portfolio management and for investment purposes. Each Sub - Fund’s Relevant Supplement will indicate how the Sub - Fund intends to use derivative instruments. A Sub - Fund’s use of derivative ins truments involves risks different from, and possibly greater than, the risks associated with investing directly in securities. These risks include:
• Potential changes in value in response to interest rate changes or other market developments or as a result of the counterparty’s credit quality;
• The potential for the derivative transaction to not have the effect the Investment Manager anticipated;
• The failure of the counterparty to the derivative transaction to perform its obligations under the transaction or to settle a trade (see also “Counterparty Risk” );
• Possible mispricing or improper valuation of the derivative instrument;
• Imperfect correlation in the value of a derivative with the asset, rate, or index underlying the derivative;
• The risks specific to the asset underlying the derivative instrument;
• Possible increase in the amount and timing of taxes payable by Shareholders;
• Lack of liquidity for a derivative instrument if a secondary trading market does not exist;
• The potential for reduced returns to a Sub - Fund due to losses on the transaction and an increase in volatility; and
• Legal risks arising from the form of contract used to document derivative trading.
When a Sub - Fund invests in certain derivative instruments, it could lose more than the stated amount of the instrument. In addition, some derivative transactions can create investment leverage and may be highly volatile and speculative in nature.
Further, when a Sub - Fund invests in a derivative instrument, it may not be required to post collateral equal to the amount of the derivative investment. Consequently, the cash held by the Sub - Fund (generally equal to the unfunded amount of the derivative) will typically be invested in money market instruments, and therefore, the performance of the Sub - Fund will be affected by the returns achieved from these investments. It is possible that returns on the investment of this cash may have a negative impact on the performance and/or returns of the Sub - Fund.
EMIR AND OTC DERIVATIVES CONTRACT RISK . As a result of the European Market Infrastructure Regulation (“EMIR”) and other applicable regulations, OTC derivatives markets have been and will be subject to significant regulation, potentially including, without limitation, increased margin, mandatory reporting and centralised clearing requirements. These regulations may result in increased costs and reduced investment opportunities, which may negatively impact the performance of the Sub - Funds.
EMIR imposes requirements to collateralise derivative transactions that are not cleared through a clearing house or traded on an exchange, including in respect of certain FX forward transactions. As a result, collateral may need to be exchanged between a S ub - Fund and trading counterparties to cover daily mark - to - market exposures of either party under impacted an FX forward transactions. The variation margin rules also require certain haircuts to be applied to collateral received for OT C
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derivative contracts, which vary depending on the issuer, credit rating, currency and residual maturity of the collateral. As the variation margin rules are likely to result in an increase in the level of its assets which a Sub - Fund will be required to ret ain in cash or very liquid assets in order to have available for use as collateral, this could result in a reduced proportion of the Sub - Fund’s assets being available for allocation to the Sub - Fund’s investment policy and, consequently, an increase in the potential tracking error for the Sub - Fund.
ESG R ISK . A Sub - Fund's incorporation of ESG considerations in its investment process may cause it to make different investments than funds that have a similar investment universe and/or investment style but that do not incorporate such considerations in their invest ment strategy or processes. In applying ESG criteria to its investment decisions, a Sub - Fund may forgo higher yielding investments that it would invest in, or suffer increased tracking error, absent the application of its ESG investing criteria. A Sub - Fund 's investment process may affect its exposure to certain securities and/or issuers, which may impact its relative investment performance depending on whether such investments are in or out of favour with the market. In addition, a Sub - Fund's investments in certain securities may be susceptible to various factors that may impact their businesses or operations, including costs associated with government budgetary constraints that impact publicly funded projects and clean energy initiatives, the effects of gen eral economic conditions throughout the world, increased competition from other providers of services, unfavourable tax laws or accounting policies and high leverage. The Investment Manager (or sub - investment manager) relies on available information to ass ist in the ESG evaluation process, and the process employed for a Sub - Fund may differ from processes employed for other funds. A Sub - Fund will seek to identify securities and/or issuers that it believes meet its ESG criteria based on the data provided by t hird parties. In evaluating a security and/or issuer, the Investment Manager (or sub - investment manager) is dependent upon information and data that may be incomplete, inaccurate or unavailable, which could cause the Investment Manager (or sub - investment m anager) to incorrectly assess an issuer’s ESG performance. A Sub - Fund may invest in securities and/or issuers that do not reflect the beliefs and values of any particular investor. See also “ Sustainability Risk ”.
E XCHANGE OF SHAREHOLDER INFORMATION . The automatic exchange of information regime known as the “Common Reporting Standard” proposed by the Organisation for Economic Co - operation and Development applies in Ireland. Under these measures, the Fund is expected to be required to report informatio n to the Irish Revenue Commissioners relating to Shareholders, including the identity, residence and tax identification number of Shareholders and details as to the amount of income and sale or redemption proceeds received by Shareholders in respect of the Shares. As a result, Shareholders may be required to provide such information to the Fund. Such information will be collected for compliance reasons only and will not be disclosed to unauthorised persons.
F EES AND E XPENSES R ISK . Whether or not a Sub - Fund is profitable it is required to pay fees and expenses, including organisation and offering expenses, brokerage commissions, management, administrative and operating expenses and custodian fees. A portion of these expenses may be offset by interest income.
F INANCIAL I NSTITUTION R ISK . Some instruments which the Sub - Funds may purchase are issued or guaranteed by financial institutions, such as banks and brokers, or are collateralised by securities issued or guaranteed by financial institutions. Changes in the creditworthiness of any of t he se institutions may adversely affect the values of instruments held by the Sub Fund. Adverse developments in the banking industry may cause a Sub - Fund to underperform relative to a fund that invests more broadly across different industries or has a smaller exposure to financial institutions.
F OREIGN E XCHANGE R ISK . The Fund on behalf of a Sub - Fund may enter into a variety of different foreign currency transactions, including, by way of example, currency forward transactions, spot transactions, futures contracts, swaps, or options. Most of these transactions are enter ed into “over the counter,” and the Sub - Fund assumes the risk that the counterparty may be unable or unwilling to perform its obligations, in addition to the risk of unfavorable or unanticipated changes in the values of the currencies underlying the transa ctions. Over - the - counter currency transactions are typically uncollateralized, and a Sub - Fund may not be able to recover all or any of the assets owed to it under such transactions if the counterparty should default. Many types of currency transactions are expected to continue to be traded over the counter even after implementation of the clearing requirements under the Dodd - Frank Wall Street Reform and Consumer Protection Act. In some markets or in respect of certain currencies, a Sub - Fund may be required , or agree, in the Fund’s discretion, to enter into foreign currency transactions via the Depositary’s relevant sub - custodian. The Fund may be subject to a conflict of interest in agreeing to any such arrangements on behalf of a Sub - Fund. Such transactions executed directly with the sub - custodian are executed at a rate determined solely by such sub - custodian. Accordingly, a Sub - Fund may not receive the best pricing of such currency transactions. Recent regulatory changes in a number of ju risdictions may require that certain currency transactions are subject to central clearing, or be subject to new or increased collateral requirements.
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These changes could increase the costs of currency transactions to a Sub - Fund and may make certain transactio ns unavail able; they may also increase the credit risk of such transactions to a Sub - Fund.
F UTURES C ONTRACTS AND O THER E XCHANGE T RADED D ERIVATIVES R ISKS . Certain Sub - Funds may purchase futures contracts and other exchange - traded derivatives. The ability to establish and close out positions in futures contracts and other exchange - traded derivatives will be subject to the development and maintenance of a liquid secondary market. There is no assurance that a liquid secondary market on an exchange will exist for any particular futures contract or other exchange traded derivative or at any particular time. In the event no such market exists for a particular derivative, it might not be possible to effect closing transactions, and a Sub - Fund will be unable to te rminate its exposure to the derivative. If a Sub Fund uses futures contracts or other exchange - traded derivatives for hedging purposes, there is a risk of imperfect correlation between movements in the prices of the derivatives and movements in the securi ties or index underlying the derivatives or movements in the prices of the Sub - Fund’s securities that are the subject of a hedge. The prices of futures and other exchange - traded derivatives, for a number of reasons, may not correlate perfectly with movemen ts in the securities or index underlying them. A Sub - Fund will incur brokerage fees in connection with its exchange - traded derivatives transactions. A Sub - Fund will typically be required to post margin with its applicable counterparty in connection with i ts transactions in futures contracts and other exchange - traded derivatives. In the event of an insolvency of the counterparty, the Sub - Fund may not be able to recover all (or any) of the margin it has posted with the counterparty, or to realise the value of any increase in the price of its positions.
I NDEX R ISK . The ability of an Index Tracking Fund to achieve significant correlation between the performance of the Sub Fund and the Index it tracks may be affected by changes in securities markets, changes in the composition of the Index, cash flows into and out of the relevant Sub - Fund, and the fees and expenses of the Sub - Fund. An Index Tracking Fund will seek to track Index returns regardless of the current or projected performance of the Index or of the actual securities comprising the Index. Further, the Sub - Fun d generally will not sell a security included in an Index as long as such security is part of the Index regardless of any sudden or material decline in value or foreseeable material decline in value of such security, even though the Investment Manager may make a different investment decision for other accounts or portfolios that hold such security. As a result, the Sub - Fund’s performance may be less favourable than that of a portfolio managed using an active investment strategy. The structure and compositio n of the Index will affect the performance, volatility, and risk of the Index (in absolute terms and by comparison with other indices), and consequently, the performance, volatility, and risk of the Sub - Fund. The Sub - Fund may not be successful in selecting a portfolio of investments that will provide a return that correlates closely with that of the Index.
I NDEX E RROR R ISK . If a Sub - Fund has the investment objective to seek to track the performance of a benchmark index (the “Index”) as published by the relevant index provider, there is a risk that the index provider will not compile or calculate t he Index accurately. Although the i ndex provider provides descriptions of what the Ind ex is designed to achieve, the i ndex provider does not provide any warranty or accept any liability in relation to any error relating to the Index, including any error in respect of the quality, accuracy or completeness of Index data, and does not guarantee that the Index will be in line with the d escribed Index methodology. The Manager and affiliates do not provide any warranty or guarantee for i ndex provider errors and do not have any responsibility for the identification or correction of such errors. Errors in respect of the qual ity, accuracy and/or completeness of Index data may occur from time to time and may not be identified and corrected f or a period of time. Gains, l osses or costs associated with i ndex provider errors will be borne by the relevant Sub - Fund and its investors. For example, during a period where the Index contains incorrect constituents, a Sub - Fund tracking such published Index would have market exposure to such constituents and would be underexposed to the constituents that should have been included in the Index. Therefore, such errors may result in a negative or positive performance impact to the relevant Sub - Fund and its investors. Any gains from i ndex pr ovider errors affecting a Sub - Fund will be kept by th at Sub - Fund and its investors and any losses resulting from such i ndex prov ider errors will be borne by that Sub - Fund and its investors.
I NDEX L ICENCE R ISK . If in respect of an Index, at any time, the licence granted (if required) to the Fund or the Investment Manager (or its affiliates) to replicate or otherwise use the Index for the purposes of a Sub - Fund terminates, or such a licence is otherwise disputed, impaired or ceases (for any reason), the Management Company or Investment Manager may be forced to replace the Index with another index which it determines to track substantially the same market as the Index in question and which they consider to be an ap propriate index for the relevant Sub - Fund to track and such a substitution or any delay in such a substitution may have an adverse impact on the Sub - Fund. In the event that the Management Company or Investment Manager is unable to identify a suitable repla cement for the relevant index, the Directors may be forced to terminate the Sub - Fund.
I NDEX T RACKING R ISK : The investment objective of certain Sub - Funds will be to track the performance of a specified index. While the Investment Manager seeks to track the performance of the index (i.e., achieve a high degree of correlation with
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the index), a Sub - Fund’s return may not match the return of the specified index for a number of reasons. For example, the return on the sample of securities purchased by such Sub - Fund) to replicate the performance of the index may not correlate precisely w ith the return of the index. Each index tracking Sub - Fund incurs a number of operating expenses not applicable to the index (as set out in the “ Fees and Expenses ” section), and incurs costs in buying and selling securities. In addition, each of these Sub - Funds may not be fully invested at times, either as a result of cash flows into or out of the Sub - Fund or reserves of cash held by the Sub - Fund to meet redemption s. Changes in the composition of the index and regulatory requirements also may impact an index tracking Sub - Fund’s ability to match the return of the specified index.
There is no guarantee that the investment objective of any Sub - Fund will be achieved. In particular, no financial instrument enables the returns of any index to be reproduced or tracked exactly or guarantees an outperformance target will be reached. Chang es in the investments of any Sub - Fund and re - weightings of the relevant index may give rise to various transaction costs (including in relation to the settlement of foreign currency transactions), operating expenses or inefficiencies which may adversely im pact a Sub - Fund’s tracking of an Index. Furthermore, the total return on investment in the Shares of a Sub - Fund will be reduced by certain costs and expenses which are not taken into account in the calculation of the applicable index. Moreover, in the eve nt of the temporary suspension or interruption of trading in the Investments comprising the index, or of market disruptions, rebalancing a Sub - Fund’s investment portfolio may not be possible and may result in deviations from the return of the index.
As will be disclosed in the Relevant Supplement, the Investment Manager may apply one or more “screens” or investment techniques to refine or limit the number or types of issuers included in the index in which a Sub - Fund may invest. Application of such scr eens or techniques may result in investment performance below that of the index and may not produce results expected by the Investment Manager. Index tracking risk may be heightened during times of increased market volatility or other unusual market condit ions.
I NTERNATIONAL I NVESTMENT R ISK ; E MERGING M ARKETS R ISK . Investments in securities of companies from multiple countries and/or securities of companies with significant exposure to multiple countries can involve additional risks. Political, soci al, and economic instability, the imposition of currency or capital controls or the expropriation or nationalisation of assets in a particular country can cause dramatic declines in that country’s economy. Less stringent regulatory, accounting, and disclosure requirements for issuers and markets are common in certain coun tries. Enforcing legal rights can be difficult, costly and slow in some countries and can be particularly difficult against governments. Additional risks of investing in various countries include trading, settlement, custodial and other operational risks due to different systems, procedures and requirements in a particular country, and varying laws regarding withholding and other taxes. These factors can make investments in multiple countries, especially investments in emerging or less developed markets, more volatile and less liquid than investments in a single country and could potentially result in an adverse effect on a Sub - Fund’s performance.
Further, investment in emerging markets subjects a Sub - Fund to a greater risk of loss than investments in developed markets. This is due to, among other things:
• greater market volatility;
• lower trading volume and liquidity issues;
• limited securities markets;
• restrictions on purchases of securities by foreign investors;
• political and economic instability;
• economic dependence on a few industries or on international trade or revenue from particular commodities;
• high levels of inflation, deflation or currency devaluation;
• regulatory, financial reporting, accounting and disclosure standards that may be less stringent than those of developed markets;
• settlement and custodial systems that are not as well - developed as those in developed markets that may cause delays in settlement and possible “failed settlements”;
• precarious financial stability of issuers (including governments);
• greater risk of market shut down; and
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• more governmental limitations on foreign investment policy than those typically found in a developed market.
The foregoing factors may cause a Sub - Fund’s investments to be more volatile than if the Sub - Fund invested in more developed markets and may cause a Sub - Fund to realise losses. This risk of increased volatility and losses may be magnified by currency fluct uations relative to the Base Currency of the Sub - Fund.
I NVESTMENT R ISK . A Shareholder may lose the entire principal amount invested in a Sub - Fund. The value of the securities held in a Sub - Fund may increase or decrease, at times rapidly and unexpectedly. An investment in a Sub - Fund may at any point in the future be worth les s than the original amount invested.
I SSUER R ISK . The values of securities purchased by a Sub - Fund may decline for a number of reasons which directly relate to the issuers of those securities, such as, for example, management performance, financial leverage, and reduced demand for the issuer’s goods and services.
L EVERAGING R ISK . Certain transactions, including, for example, when - issued, delayed - delivery, and forward commitment purchases, loans of portfolio securities, and the use of some derivatives, can result in leverage. Leverage generally has the effect of increasing the amoun ts of loss or gain a Sub - Fund might realise, and creates the likelihood of greater volatility of the value of a Sub - Fund's portfolio. In transactions involving leverage, a relatively small market movement or change in other underlying indicator can lead t o significantly larger losses to the Sub - Fund because leverage generally magnifies the effect of any increase or decrease in the value of a Sub - Fund’s underlying assets or creates investment risk with respect to a larger base of assets than a Sub - Fund woul d otherwise have.
L IMITED I NVESTMENT P ROGRAM R ISK . An investment in any Sub - Fund, or even in a combination of Sub - Funds, is not intended to be a complete investment program but rather is intended for investment as part of a diversified investment portfolio. Investors should consult their own advisors as to the role of an investment in any of the Sub - Funds in their overall investment program.
L IQUIDITY R ISK . Certain investments and types of investments are subject to restrictions on resale, may trade in the over the - counter market or in limited volume, or may not have an active trading market. Illiquid securities may trade at a discount from comparable, more l iquid investments and may be subject to wide fluctuations in market value. It may be difficult for a Sub - Fund to value illiquid securities accurately. Also, a Sub - Fund may not be able to dispose of illiquid securities or execute or close out a derivatives transaction readily at a favorable time or price or at prices approximating those at which the Sub Fund currently values them. Illiquid securities also may entail registration expenses and other transaction costs that are higher than those for liquid secur ities. Any use of the efficient portfolio management techniques described in the “Investment Objectives and Policies” section may also adversely affect the liquidity of a Sub - Fund’s portfolio and will be considered by the Investment Manager in managing the Sub - Fund’s liquidity risk.
From time to time, the counterparties with which a Sub - Fund effects transactions might cease making markets or quoting prices in certain of the instruments in which a Sub - Fund has invested. In such instances, a Sub - Fund might be unable to enter into a des ired transaction or to enter into any offsetting transaction with respect to an open position, which might adversely affect its performance.
The Management Company employs an appropriate liquidity risk management process, which takes into account efficient portfolio management transactions employed by the Sub - Funds, to ensure that each Sub - Fund is able to comply with its stated redemption obligations. However, it is possible that in the type of circumstances described above, a Sub - Fund may not be able to realise sufficient assets to meet all redemption requests, or the Management Company may determine that meeting some or all of those requests is not in the best interests of the Shareholders in a Sub - Fund as a whole. In such circumstances, the Fund may take the decision to apply the redemption gate provisions described in the “ Purchase and Sale Information – Redemption Limits ” section or suspend dealings in the relevant Sub - Fund as described in the “ Determination of Net Asset Value – TEMPORARY SUSPENSION OF DEALINGS ” section.
M ANAGEMENT R ISK . If a Sub - Fund is actively managed, the Sub - Fund will be subject to management risk. The Investment Manager’s judgments about the attractiveness, relative value, or potential appreciation of a particular sector, security, or investment strategy may prove to be incorrect, and there can be no assurance that they will produce the desired results. Each Sub - Fund will be dependent to a substantial degree on the continued service of members of the Investment Manager. In the event of the death, disability or dep arture of any such individuals, the performance of the applicable Sub - Fund may be adversely impacted.
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M ARKET D ISRUPTION AND G EOPOLITICAL R ISK . The Sub - Funds are subject to the risk that geopolitical events will disrupt securities markets and adversely affect global economies and markets. War, terrorism and related geopolitical events have led, and in the future may lead, to increased short - ter m market volatility and may have adverse long - term effects on US and world economies and markets generally. Likewise, systemic market dislocations may be highly disruptive to economies and markets. Those events as well as other changes in foreign and dome stic economic and political conditions also could adversely affect individual issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflati on, investor sentiment and other factors affecting the value of a Sub - Fund’s inve stments. Continued uncertainty over the stability of the Euro and the EMU has created significant volatility in currency and financial markets generally. Concerns over the stability of the Euro could also have a broad effect on contractual arrangements de nominated in, or otherwise tied to, the Euro. Any partial or complete dissolution of the EMU, or any continued uncertainty as to its status, could have significant adverse effects on currency and financial markets, and on the values of a Sub - Fund’s portfol io investments.
M ARKET R ISK . The investments of a Sub - Fund are subject to changes in general economic conditions, normal market fluctuations and the risks inherent in investment in international securities markets and there can be no assurances that appreciation in value will occur. Investment markets can be volatile and securities prices can change substantially due to various factors including, but not limited to, economic growth or recession, changes in interest rates, market perception of the creditworthiness of the issuer and ge neral market liquidity. Even if general economic conditions do not change, the value of an investment in a Sub - Fund could decline if the particular industries, sectors or companies in which the Sub - Fund invests do not perform well or are adversely affected by events. In the case of debt securities, the m agnitude of these price fluctuations will be greater when the maturity of the outstanding securities is longer. Since investment in securities may involve currencies other than the Base Currency of a Sub - Fund, the value of a Sub - Fund’s assets may al so be affected by changes in currency rates and exchange control regulations, including currency blockage. Further, legal, political, regulator y and tax changes also may cause fluctuations in markets and securities prices.
The performance of a Sub - Fund will therefore depend in part on the ability of the Investment Manager to respond to such fluctuations in stock prices, market interest rates and currency rates and to utilise appropriate strategies to maximise retu rns, while attempting to reduce the associated risks to investment capital.
N O P RIOR O PERATING H ISTORY R ISK . Upon launch, each Sub - Fund is a newly formed entity with limited operating history and there can be no assurance that it will be successful. Prior performance is no guarantee of future results.
PRC AND G REATER C HINA R EGION R ISKS . One or more Sub - Funds may make PRC Investments through Access Programme(s). By using these Access Programme(s), the Fund may be subject to new, uncertain or untested rules and regulations promulgated by the rel evant regulatory authorities. Moreover, current regulations governing a Sub - Fund’s investment in PRC companies may be subject to change. There can be no guarantee that the PRC regulatory authorities would not provide a requirement in the future affecting t he relevant Sub - Fund's ability to achieve its investment allocation, for example, introducing a mandatory investment allocation requirement under the relevant PRC regulations (e.g. a minimum percentage of the PRC Investments should be invested in a particular type of asset). There can be no assurance that the Access Programmes will not be abolished. Any Sub - Fund investing in securities issued by issuers from the PRC or the greater China region using an Access Programme may be adversely affected as a result of such changes. In addition to the risks pertinent to investment in emerging markets, investors in such Sub - Funds should also consider the following risks.
PRC Foreign Shareholding Restrictions Risk. There are limits on the total shares held by all underlying foreign investors and/or a single foreign investor in one PRC listed company based on thresholds as set out under the PRC regulations (as amended from time to time), and the capacity of the Sub - F und (being a foreign investor) to make investments in China A Shares will be affected by the relevant threshold limits and the activities of all underlying foreign investors. It will be d ifficult in practice to monitor the investments of the underlying for eign investors since an investor may make investment through different permitted channels under PRC laws. Should the shareholding of a single foreign investor in a China A Share listed company exceed the above restrictions, the investor would be required t o unwind his position on the excessive shareholding according to a last - in - first - out basis within a specific period. The SSE/SZSE and the SEHK will issue warnings or restrict the buy orders for the related China A Shares if the percentage of total shareho lding is approaching the upper limit of the aggregate foreign investor shareholding limit. Such disposal will affect the Sub - Funds in making investments in China A Shares, Stock Connect or the RQFII regime.
PRC Short Swing Profit Rule Risk. According to PRC securities law, a Substantial Shareholder has to return any profits obtained from the purchase and sale of shares of such PRC Listco if both transactions occur within a six - month period. In
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the event that a Sub - Fund becomes a Substantial Shareholder by investing in China Connect Securities, the profits that the Sub - Fund may derive from such investments may be limited, and thus the Sub - Fund's returns may be adversely affected depending on the Sub - Fund's size of investment in China Connect Securities.
PRC Disclosure of Interests Risk. Under the PRC disclosure of interest requirements, in the event a Sub - Fund becomes a Substantial Shareholder of a PRC Listco it may be subject to the risk that the Sub - Fund's holdings may have to be reported in aggregate with the holdings of such other per sons mentioned above. This may expose the Sub - Fund's holdings to the public. Under Hong Kong law, where a PRC incorporated company has both H Shares listed on SEHK and A Shares listed on the SSE or SZSE, if an investor is interested in more than a certain threshold (as may be specified from time to time) of any class of voting shares (including China A Shares) in such PRC Listco, the investor is under a duty of disclosure pursuant to Part XV of the SFO.
Suspensions, Limits and Other Disruptions Affecting Trading of China A Shares Risk. In order to mitigate the effects of extreme volatility in the market price of China A Shares, the SSE and SZSE currently limit the amount of fluctuation permitte d in the prices of China A Shares during a single trading day. The daily limit is currently set at 10% and represents the maximum amount that the price of a security (during the current trading session) may vary either up or down from the previous day's settlement price. The daily limit governs only price movements and does not restrict trading with in the relevant limit. However, the limit does not limit potential losses because the limit may work to prevent a liquidation of any relevant securities at the fair or probable realisation value for such securities which means that the relevant Sub - Fund ma y be unable to dispose of unfavourable positions. There can be no assurance that a liquid market on an exchange would exist for any particular China A Share or for any particular time.
P ROVISIONAL A LLOTMENT R ISK . As the Fund may provisionally allot Shares to proposed investors prior to receipt of the requisite subscription monies for those Shares, the Fund may suffer losses as a result of the non - payment of such subscription monies.
P ORTFOLIO T URNOVER R ISK . Portfolio turnover generally involves a number of direct and indirect costs and expenses to the relevant Sub - Fund, including, for example, brokerage commissions, dealer mark - ups and bid/offer spreads, and transaction costs on the sale of securities and rei nvestment in other securities. Nonetheless, a Sub - Fund may engage in frequent trading of investments in furtherance of its investment objective. The costs related to increased portfolio turnover have the effect of reducing a Sub - Fund’s investment return, and the sale of securities by a Sub - Fund may result in the realisation of taxable capital gains, including short - term capital gains.
R EAL E STATE I NVESTMENT T RUSTS AND P ROPERTY S ECURITIES R ISK . Real estate investment trusts (“ REITs ”) are trusts that invest primarily in commercial real estate. If a Sub - Fund invests in REITs, the value of its interests in REITs may be affected by the value of the property owned by the trust. The liquidity of REITs on the major international stoc k exchanges is on average less than the typical stock of international blue chip corporations quoted, listed or traded on a Recognised Market. Please also refer to the risk warning headed “Liquidity Risk” above.
There are special risks associated with investment in securities of companies engaged in property markets including without limitation REITs and real estate operating companies. An investment in a property company may be subject to risks similar to those associated with direct ownership of real estate, the possibility of declines in the value of real estate, l osses from casualty or condemnation, and changes in local and general economic conditions, supply and demand, interest rates, environmental liability, zoning laws, regulatory limitations on rents, property taxes, and operatin g expenses. In addition, an investment in a property company is subject to additional risks, such as poor performance by the manager of the property company, adverse changes in tax laws, and the effect of general declines in stock prices. Some property co mpanies have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property. Also, the organizational documents of a property company may contain provisions that make changes in control of the property investment difficult and time - consuming. As a shareholder in a property company, the Sub - Fund, and indirectly the Sub - Fund’s Shareholders, would bear their pro rata share of the property company's expenses and would at the same time contin ue to pay their own fees and expenses. These factors could negatively affect the performance of the Sub - Fund. In addition to the risks associated with investing in the securities of real property companies, REITs are subject to certain additional risks. Equity REITs may be affected by changes in the values of the underlying properties owned by the trusts, and mor tgage REITs may be affected by the quality of any credit extended. Further, REITs are dependent upon specialized management skills, and their inve stments may be concentrated in relatively few properties, or in a small geographic area or a single property type. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self - liquidation. Those fact ors may also adversely affect a borrower’s or a lessee’s ability to meet its obligations to a
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REIT, thus affecting a Sub - Fund’s returns. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated in protecting its investments. In addit ion, a REIT could possibly fail to qualify for tax free pass - through of income under the Internal Revenue Code, or to maintain their exemptions from registration under the U.S. Investment Company Act of 1940, which could have adverse consequences for a Sub - Fund.
R EGULATORY R ISK . The Fund is regulated by the Central Bank in accordance with the UCITS Regulations. Given the current uncertain and changing regulatory environment and projected changes to the UCITS Regulations and other future regulation to which the Fund may be subject, there can be no guarantee that the Fund will continue to be able to operate in its present manner and such future regulatory changes may adversely affect the performance of the Sub - Funds and/or their ability to deliver their investment objectives.
R EPURCHASE AND R EVERSE R EPURCHASE A GREEMENTS R ISK . The Sub - Funds may enter into repurchase agreements under which a Sub - Fund sells a security and agrees to repurchase it at a mutually agreed upon date and price. Repurchase agreements create the risk that the market value of the securities sold by a Sub - Fun d may decline below the price at which such Sub - Fund is obligated to repurchase such securities under the agreement. In the event that the buyer of securities under a repurchase agreement files for bankruptcy or proves insolvent, a Sub - Fund’s use of proceeds from the agreement may be restricted pending the determination by the other party or its trustee or r eceiver whether to enforce the obligation to repurchase the securities.
The Sub - Funds may also enter into reverse repurchase agreements, by which a Sub - Fund acquires securities from a seller (for example, a bank or securities dealer) who agrees, at the time of sale, to repurchase the securities at a mutually agreed upon date ( usually not more than seven days from the date of purchase) and price, thereby determining the yield to the relevant Sub - Fund during the term of the repurchase agreement. If, in the case of a reverse repurchase agreement, the seller of a repurchase agreement fails to honour its commitment to repurchase the security in accordance with the terms of the agreement, a Sub - Fund may incur a loss to the extent that the proceeds rea lised on the sale of the securities are less than the repurchase price. If the seller becomes insolvent, a bankruptcy court may determine that the securities do not belong to the relevant Sub - Fund and order that the securities are sold to pay off the sell er’s debts. A Sub - Fund may experience both delays in liquidating the underlying securities and losses during the period while it seeks to enforce its rights, inclu ding possible sub - normal level of income and lack of access to income during the period and expenses in e nforcing its rights.
R ISKS A SSOCIATED WITH I NVESTMENT THROUGH A CCESS P ROGRAMMES
Risks related to the Stock Connect Daily Quota . Each of SHHK Stock Connect and SZHK Stock Connect is subject to a Daily Quota. SEHK may include or exclude securities as China Connect Securities (as defined in the rules of exchange of the SEHK) and may change the elgibility of shares for Northbound tr ading on Stock Connect. The quota limitations may restrict a Sub - Fund’s ability to invest in China Connect Securities through Stock Connect on a timely basis. The Daily Quota may change from time to time without prior notice and investors should refer to t he SEHK website and other information published by the SEHK for up - to - date information.
Stock Connect Suspension risk. It is contemplated that SEHK, SSE and SZSE would reserve the right to suspend Northbound (for investment in PRC shares) and/or Southbound (for investment in Hong Kong shares) trading if necessary for ensuring an orderly and fair market and that risks are m anaged prudently. Where a suspension in the Northbound trading through Stock Connect is affected, a Sub - Fund’s ability to access the PRC market will be adversely affected. Securities (including the China Connect Securities) traded through Stock Connect m ay also be more volatile and unstable if suspended from trading. Such suspension may prolong for a considerable period of time and volatility and settlement difficulties relating to the China Connect Securities may also result in significant fluctuations in the prices, and may adversely affect the value, of the China Connect Securities
Differences in trading day. Stock Connect will only operate on days when both the relevant PRC and Hong Kong markets are open for trading and when banks in the relevant markets are open on the corresponding settlement days. By investing through Stock Connect, a Sub - Fund may be subje ct to a risk of price fluctuations in China Connect Securities during the time when the relevant Stock Connect is not trading as a result.
Stock Connect operational risk. Stock Connect is premised on the functioning of the operational systems of the relevant market participants. Market participants are able to participate in the relevant programme subject to meeting certain
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information technology capabilities, risk management and other requirements as may be specified by the relevant exchange and/or clearing house.
Stock Connect requires market participants to configure and adapt their operational and technical systems. Further, it should be appreciated that the securities regimes and legal systems of each of the PRC and Hong Kong markets differ significantly and in order for the trial programme to operate, market participants may need to address issues arising from the differences on an on - going basis.
Further, the "connectivity" in Stock Connect requires routing of orders across PRC and Hong Kong. The SEHK has set up an order routing system to capture, consolidate and route the cross - boundary orders input by exchange participants. There is no assuranc e that the systems of the SEHK and market participants will function properly or will continue to be adapted to changes and developments in each market. In the event that the relevant systems fail to function properly, trading in each market through the p rogramme could be disrupted. In such a case, a Sub - Fund's ability to access the China A Share market (and hence to pursue its investment strategy) through Stock Connect will be adversely affected.
Restrictions on selling imposed by pre - trade monitoring . PRC regulations require that before an investor sells any share, there should be sufficient shares in that investor's account; otherwise the SSE or SZSE will reject the sell order concerned. SEHK will carry out pre - trade checking on China Connect Securi ties sell orders of its participants (i.e. the stock brokers) to ensure there is no over - selling.
If a Sub - Fund wishes to sell certain China Connect Securities it holds, it must transfer those China Connect Securities to the respective accounts of its brokers before the market opens on the day of selling. If it fails to meet this deadline, it will not be able to sell those shares on the trading day. Because of this requirement, the Sub - Fund may not be able to dispose of its holdings of China Connect Securities in a timely manner. PRC regulations may impose certain other restrictions on selling and bu ying which results in a Sub - Fund not being able to dispose of holdings of Connect Securities in a timely manner. This also raises concerns as to counterparty risks as securities may need to be kept by brokers overnight.
To facilitate investors whose SC Securities are maintained with custodians to sell their SC Securities without having to pre deliver the SC Securities from their custodians to their executing brokers, the SEHK introduced an enhanced pre - trade checking mode l in March 2015, under which an investor may request its custodian to open a SPSA. An investor will only need to transfer all relevant SC Securities from its SPSA to its designated broker’s account after execution and not before placing the sell order. I f the Sub - Fund is unable to utilise this model, it would have to deliver SC Securities to brokers before the trading day and the above risks may still apply.
Recalling of eligible stocks. When a stock is recalled from the scope of eligible stocks for trading via Stock Connect, the stock can only be sold but will be restricted from being bought. This may affect the investment portfolio or strategies of a Sub - Fund, for example, when it wish es to purchase a stock which is recalled from the scope of eligible stocks.
Stock Connect clearing and settlement risk. As the national central counterparty of the PRC’s securities market, CSDCC operates a comprehensive network of clearing, settlement and stock holding infrastructure. Should the remote event of CSDCC default occur and CSDCC be declared as a defaulter, HKSC C’s liabilities in Northbound (for investment in China Connect Securities) trades under its market contracts with clearing participants will be limited to assisting clearing participants in pursuing their claims against CSDCC. In such an event, affected S ub - Funds may suffer delay in the recovery process or may not be able to fully recover their losses from CSDCC. Under Stock Connect, the relevant Sub - Funds which have acquired SC Securities should maintain such SC Securities with their brokers' or custodian s' stock accounts with the CCASS operated by HKSCC.
No protection by Investor Compensation Fund. The Fund's investments in SC Securities under SHHK and SZHK Stock Connect are not covered by the Hong Kong’s Investor Compensation Fund or the China Securities Investor Protection Fund. Therefore, a Sub - Fund is exposed to the risks of default of the broke r(s) they engage in their trading in China Connect Securities through the respective programme and the investors will not benefit from compensation under such schemes.
Beneficial ownership. The precise nature and rights of the Hong Kong and overseas investors (including the Fund) as the beneficial owners of PRC Investments through nominees is less well defined under PRC law and the exact nature and methods of enforcement of the rights and int erests of such investors under PRC law are not free from doubt.
In particular, China Connect Securities are held in CSDCC. HKSCC is a participant of CSDCC and China Connect Securities acquired by a Sub - Fund will be (i) recorded in the name of HKSCC in the nominee securities account opened by
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HKSCC with CSDCC, and HKSCC is the "nominee holder" of such China Connect Securities; and (ii) held under the depository of CSDCC and registered in the shareholders' register of the listed companies on the SSE and SZSE.
HKSCC will record interests in such China Connect Securities in the CCASS stock account of the relevant CCASS clearing participant such that a Sub - Fund shall exercise its rights in relation to the China Connect Securities through the CCASS clearing partici pant and HKSCC as the nominee holder. With respect to certain rights and interests of China Connect Securities that can only be exercised via bringing legal actions to PRC competent courts, it is uncertain whether such rights could be enforced since under the CCASS rules, HKSCC as nominee holder shall have no obligation to take any legal action or court proceeding to enforce any rights on behalf of the investors in respect of the China Connect Securities in PRC or elsewhere.
RMB liquidity risk . RMB is currently not a freely convertible currency. The purchase of SSE/SZSE stocks is funded by CNH. The demand for CNH may increase and when there is a net drain of offshore RMB, the liquidity of offshore RMB could tighten. This could lead to the ri se of CNH funding cost. Sub - Funds seeking to invest through the SHHK and SZHK Stock Connect may not able to secure sufficient CNH to execute their transactions or may only be able to do so at significant cost. Also, should the PRC government tighten the foreign exchange controls, such Sub - Funds may be exposed to greater liquidity risk of offshore RMB and may not be able to effectively pursue their investment strategies.
Risks associated with the Offshore Market. RMB which is traded within the Onshore Market (i.e. the CNY) may trade at a different rate compared to RMB which is traded within the Offshore Market (i.e. the CNH). A Sub - Fund’s investments may be exposed to both the CNY and the CNH, and the Sub - Fund may consequently be exposed to greater exchange risks and/or higher costs of investment (for example, when converting other currencies to the RMB at the rate of exchange prevailing in relation to the CNH).
Sub - Funds whose Base Currency is not RMB may also be exposed to currency risk due to the need for the conversion into RMB for investments in SC Securities. During any such conversion, a Sub - Fund may also incur currency conversion costs. The currency exch ange rate may be subject to fluctuation and where RMB has depreciated, a Sub - Fund may incur a loss when it converts the sale proceeds of the SC Securities into its operating currency.
Restriction on Day Trading . Day (turnaround) trading is not permitted on the China A Share market. Therefore, a Sub - Fund buying SC Securities on T day may only sell the shares on and after T+1 day subject to any Stock Connect Scheme Rules. This will limit the Sub - Fund’s investmen t options, in particular where a Sub - Fund wishes to sell any SC Securities on a particular trading day. Settlement and pre - trade checking requirements may be subject to change from time to time.
Order Priority. Where a broker provides Stock Connect trading services to its clients, proprietary trades of the broker or its affiliates may be submitted to the trading system independently and without the traders having information on the status of orders received from clients. There is no guarantee that brokers will observe client order priority (as applicable under relevant laws and regulations).
Best Execution Risk: Pursuant to the relevant PRC regulations, securities trades under Access Programmes may be executed through a limited number of PRC brokers/trading and settlement agents and accordingly may affect best execution of such trades. If, for any reason, the Inv estment Manager is unable to use the relevant broker/trading and settlement agent in the PRC, the operation of the relevant Sub - Fund may be adversely affected. The Sub - Fund may also incur losses due to the acts or omissions of any of the PRC broker(s)/trad ing and settlement agent in the execution or settlement of any transaction or in the transfer of any funds or securities. However, the Investment Manager shall, in the selection of PRC brokers/trading and settlement agent, have regard to factors such as th e competitiveness of commission rates, size of the relevant orders and execution standards. It is possible that a single PRC broker/trading and settlement agent will be appointed and the relevant Sub - Fund may not necessarily pay the lowest commission avail able in the market. There is a risk that the relevant Sub - Fund may suffer losses from the default, insolvency or disqualification of a PRC broker/trading and settlement agent. In such event, the relevant Sub - Fund may be adversely affected in the execution of transactions through such PRC broker/trading and settlement agent. In addition, the broker may aggregate investment orders with its and its affiliates' own orders and those of its other clients, including the Sub - Funds. In some cases, aggregation may op erate to a Sub - Fund’s disadvantage and in other cases aggregation may operate to the Sub - Fund’s advantage.
Limited Off- f- Exchange Trading and Transfers Risk. SC Securities generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with the applicable rules. “Non - trade” transfers (i.e. off exchange trading and transfers) are permitted in limited circumstances suc h as post - trade allocation of China A Shares to different funds/sub - funds by fund managers or correction of trade errors.
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Participation in Corporate Actions and Shareholders' Meetings Risk. Notwithstanding the fact that HKSCC does not claim proprietary interests in the China Connect Securities held in its omnibus stock accounts in CSDCC, HKSCC is the shareholder on record of SSE or SZSE listed companies (in its capacity as nominee holder for Hong Kong and overseas investors) and can attend shareholders’ meeting as shareholder in respect of such China Connect Securities. Where the articles of association of a listed company do not prohibit the appointment of proxy/multiple proxies by its shareh older, HKSCC may make arrangements to appoint one or more investors as its proxies or representatives to attend shareholders’ meetings when instructed. Otherwise, following the existing market practice in the PRC, investors engaged in Northbound trading wi ll generally not be able to attend shareholder meetings by proxy or in person and the Sub - Funds will not be able to exercise the voting rights of the invested company in the same manner as provided in some developed markets.
Any corporate action in respect of China Connect Securities will be announced by the relevant issuer through the SSE or SZSE website and certain officially appointed newspapers. However, SSE and SZSE listed issuers publish corporate documents in Chinese o nly, and English translations will not be available.
HKSCC will keep participants in CCASS informed of corporate actions of China Connect Securities. Hong Kong and overseas investors (including Sub - Funds) will need to comply with the arrangement and deadline specified by their respective brokers or custodia ns (i.e. CCASS participants). The time for them to take actions for some types of corporate actions of China Connect Securities may be as short as one business day only. Therefore, Sub - Funds may not be able to participate in some corporate actions in a t imely manner.
RQFII risk. Repatriations of RMB by RQFIIs for open ended funds are currently permitted on a daily basis and are not subject to repatriation restrictions or prior regulatory approval. The application and interpretation of the relevant invest ment regulations are rel atively untested and there is uncertainty as to how they will be applied as the PRC authorities and regulators have been given wide discretion in such investment regulations and there is limited precedent or certainty as to how such discretion may be exerc ised now or in the future. It is not possible to predict the future development of the RQFII system. Any restrictions on repatriation imposed in respect of the relevant Fund’s RQFII investments may have an adverse effect on the Fund’s ability to meet red emption requests. Any change in the RQFII system generally, including the possibility of the RQFII losing its RQFII status, may affect the relevant Fund’s ability to invest in eligible securities in the PRC dire ctly through the relevant RQFII. In additio n, should the RQFII status be suspended or revoked, the relevant Fund’s performance may be adversely affected as the relevant Fund may be required to dispose of its RQFII eligible securities holdings.
RQFII quota allocation and conflict risk. A Fund may not have the exclusive use of the RQFII Quota and there may be other entities utilising the same RQFII Quota. Situations may arise where the RQFII Licence Holder does not have sufficient RQFII Quota to satisfy all Funds and it allocates RQFII Quota to a particular Fund at the expense of others. There is no assurance that the RQFII Licence Holder will make available RQFII Quota that is sufficient for a Fund’s investment at all times. In extreme circumstances, a Fund may incur substantial loss es due to limited investment capabilities, or may not be able to fully implement or pursue its investment objective or strategy due to insufficiency of RQFII Quota or any applicable investment limit (pursuant to regulatory requirement or otherwise) with re spect to the Fund’s investments through an entity’s status as an RQFII.
For each RQFII Quota approved by SAFE, the relevant RQFII Licence Holder is required to utilise the RQFII Quota effectively within one year from the SAFE approval date. If the RQFII licence holder fails to utilise the RQFII Quota effectively, SAFE could r educe or revoke the RQFII Quota depending on the circumstances. As utilisation of the RQFII Quota may depend on the subscription level of the Fund and redemptions by investors of the Fund, low subscription level or large redemptions by investors of the Fu nd might result in the RQFII Quota being reduced or lost permanently. A reduction in the amount, or revocation, of the RQFII Quota may have a material adverse effect on the Fund and the RQFII’s ability to effectively pursue the investment strategy of the relevant Fund.
The relevant PRC regulations may apply to each RQFII Quota as a whole, and not simply to investments made by a Fund. Thus, investors should be aware that violations of the relevant PRC regulations arising out of activities related to the RQFI I Quota other than with respect to the investments of the Fund could potentially result in the revocation of or other regulatory action in respect of the RQFII Quota as a whole.
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Counterparty risk to the PRC Sub - Custodian and other depositaries for PRC Investments . Any PRC Investments acquired through an Access Programme will be maintained by the PRC Sub - Custodian, in electronic form via the securities account(s) and any cash will be held in RMB cash account(s)) with the PRC Sub - Custodian. Securities account(s) and Renminbi cash account(s) for the relevant Sub - Fund in the PRC are maintained in accordance with market practice. Such account may be in the name of a nominee (for example, the RQFII/applicant under the CIBM Direct Access Programme) and not in the name of such Sub - Fund, and the assets within such account may be held for and on behalf of clients of the nominee including but not limited to such Sub - Fund. Even though the Chinese regulators have affirmed their recognition of the concepts of nominee holders and beneficial owners and applicable PRC rules, regulations and other administration measures and provisions generally provide for the concept of a "nominee holder" and recognise the concept of a "beneficial owner" of securities, these concepts are relatively new in the Chinese legal system and remain untested under the RQFII scheme. Hence, the assets of such Sub - Fund held within such account may be subject to a risk of being treated as part of the assets of the nominee and be vulnerable to claims by creditors of the nominee in the event of the insolvency of the nominee. Whilst the assets held in such accounts are segregated and held separately from the assets of the nominee and belong solely to the relevant Sub - Fund, it is possible that the judicial and regula tory authorities in the PRC may interpret this position differently in the future. In addition, the assets of the Sub - Fund may not be adequately segregated from the assets of other Sub - Funds, funds or clients investing through the nominee. The relevant Su b - Fund may also incur losses due to the acts or omissions of the PRC Sub - Custodian in the execution or settlement of any transaction or in the transfer of any funds or securities.
Cash held by the PRC Sub - Custodian in the RMB cash account(s) will not be segregated in practice but will be a debt owing from the PRC Sub - Custodian to the relevant Sub - Fund as a depositor. Such cash will be co - mingled with cash belonging to other clients of the PRC Sub - Custodian. In the event of insolvency of the PRC Sub - Custodian, the relevant Sub - Fund will not have any proprietary rights to the cash deposited in the cash account opened with the PRC Sub - Custodian, and the Sub - Fund will become an unsecure d creditor, ranking pari passu with all other unsecured creditors, of the PRC Sub Custodian. The Sub - Fund may face difficulties and/or encounter delays in recovering such debt, or may not be able to recover it in full or at all, in which case the relevant Sub - Fund will lose some or all of its cash.
Counterparty risk to PRC broker(s)/trading and settlement agent . Pursuant to the relevant PRC regulations, securities trades under the Access Programme may be executed through a limited number of PRC brokers/trading and settlement agent that may be appointed for trading in any PRC stock exchange or interbank bond mark et for the relevant Sub - Fund. If, for any reason, the relevant broker/trade and settlement agent in the PRC cannot be used, the operation of the relevant Sub - Fund may be adversely affected. The Sub - Fund may also incur losses due to the acts or omissions of any of the PRC broker(s)/trading and settlement agent in the execution or settlement of any transaction or in the transfer of any funds or securities. However, the selection of PRC brokers/trading and settlement agent, should have regard to factors such a s the competitiveness of commission rates, size of the relevant orders and execution standards. It is possible that a single PRC broker/trading and settlement agent will be appointed and the relevant Sub - Fund may not necessarily pay the lowest commission available in the market. There is a risk that the relevant Sub - Fund may suffer losses from the default, insolvency or disqualification of a PRC broker/trading and settlement agent. In such event, the relevant Sub - Fund may be adversely affected in the execu tion of transactions through such PRC broker/trading and settlement agent. A Sub - Fund may be adversely affected, whether directly or indirectly, by (i) the acts or omissions by the broker/trade and settlement agent in the settlement of any transaction or i n the transfer of funds or securities; (ii) the default or bankruptcy of the broker/trade and settlement agent; and (iii) the disqualification of the broker/trade and settlement agent from acting in such capacity either on a temporary or permanent basis. Such acts, omissions, default or disqualification may also adversely affect a Sub - Fund in implementing its investment strategy or disrupt its operations, including causing delays in the settlement of any transact ion or the transfer of any funds or securiti es in the PRC or in recovering assets, which may in turn adversely impact its net asset value. Furthermore, regulatory sanctions can be imposed upon the broker/trade and settlement agent if it violates any provision under the Access Programme regulations. Such sanctions may adversely affect a Sub - Fund's investments in PRC Investments.
Remittance and repatriation of RMB . Applications for subscription, redemption and/or conversion of Shares may be subject to certain restrictions under the relevant Access Programme and other relevant PRC regulations. The repatriation of invested capital and of income and capital gains of a Sub - Fund from the PRC is subject to the relevant PRC regulations in effect from time to time.
Repatriations of RMB by RQFIIs for open ended funds are currently permitted on a daily basis through the RQFII Quota based on the net subscriptions and redemptions of Shares of the relevant Fund (as an open - ended fund) and are not subject to repatriation r estrictions, any lock up period or prior regulatory approval; although there are restrictions on the movement
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of onshore RMB offshore and authenticity and compliance reviews will be conducted, and monthly reports on remittances and repatriations will be submitted to SAFE by the PRC Sub - Custodian. At present, there is no regulatory prior approval requirement for r epatriation of funds from the RQFII Quota under the above circumstances, however there is no assurance that PRC rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Further, such changes to the PRC rul es and regulations may be applied retroactively.
Remittance and repatriation for the account of a Fund under the CIBM Direct Access Programme regulations may currently be effected subject to the following restrictions:
(i) a Fund may remit investment principal in RMB or foreign currency into the PRC for investing through the CIBM Direct Access Programme. If a Fund fails to remit investment principal matching at least 50% of its anticipated investment size within 9 months aft fter filing with PBoOC, an updated filing will need to be made through the onshore interbank bond trade and settlement agent; and
(ii) where a Fund repatriates funds out of the PRC, the ratio of RMB to foreign currency should generally match the original ratio of RMB to foreign currency when the investment principal was remitted into PRC, with a maximum permissible deviation of 10%. Such ratio requirement can be waived for the first repatriation, provided that the foreign currency or RMB capital to be repatriated may not exceed 110% of the foreign currency or RMB amount remitted into the PRC in aggregate. To the extent repatriation is in the same currency as the inward remittance, the currency ratio restriction will not apply. Foreign investment limits, and the regulations relating to the repatriation of capital and profits may potentially be applied in relation to the RQFII Quota as a w hole. Hence the ability of a Fund to make investments and/or repatriate monies from the RQFII Quota may be affected adversely by the investments, performance and/or repatriation of monies invested by other investors through the RQFII Quota.
Any repatriation restrictions as may be applicable under PRC regulations in the future, where applicable, could restrict the Sub - Fund’s ability to satisfy all or any redemption requests in respect of any particular redemption day and accordingly, the Sub - F und may have to manage the liquidity challenges through the maintenance of high cash balances and the imposition of the redemption restrictions referred to above.
Furthermore, as the PRC Sub - Custodian’s review on authenticity and compliance is conducted on each repatriation, the repatriation may be delayed or even rejected by the PRC Sub - Custodian in case of non - compliance with the RQFII rules and regulations. In s uch cases, it is expected that redemption proceeds will be paid to the redeeming Shareholder as soon as practicable and after the completion of the repatriation of funds concerned. The actual time required for the completion of the relevant repatriation w ill be beyond the RQFII’s control.
Effect of PRC regulations on subscriptions, redemptions and conversions. The ability of a Shareholder to redeem Shares of a Sub - Fund depends, inter alia, on the PRC laws and practices affecting the Sub - Fund’s ability to liquidate investments and to repatriate the proceeds thereof out of the PRC. Any repatriation restrictions a s may be applicable under PRC regulations in the future, where applicable, could restrict the Sub - Fund’s ability to satisfy all or any redemption requests in respect of any particular redemption day and accordingly, the Sub - Fund may have to manage the liqu idity challenges through the maintenance of high cash balances and the imposition of the redemption restrictions referred to above. Investors should not invest in the Sub - Fund if they have need of greater liquidity than that offered by the Sub - Fund.
Applications for subscription and/or conversion of Shares may be subject to sufficient available capacity for a Sub - Fund under the relevant Access Programme as combined with the relevant Sub - Fund's investment policy and restrictions. Applications received during a period when there is insufficient available capacity for the relevant Sub - Fund may be suspended and processed for subscription and/or conversion of Shares at the next following subscription date at which sufficient capacity is again available for the Sub - Fund. In addition, the Directors (or their duly authorised delegate(s)) may refuse applications and to temporarily or permanently suspend or limit any applications received during a period when there is insufficient available capacity for the rel evant Sub - Fund under the RQFII Quota/CIBM Direct Access Programme.
Notwithstanding the above, the Directors (or their duly authorised delegate(s)) may determine to temporarily suspend the issue, subscription, redemption, conversion, payment of redemption proceeds and/or valuation of Shares of the relevant Sub - Fund during any period when the Sub - Fund is unable to transmit subscription proceeds to or from the accounts of the Sub - Fund, or dispose of holdings or to repatriate the proceeds of such disposals, subject to certain quota or limits imposed by any regulatory or superv isory, governmental or quasi - governmental authority, any fiscal body or self - regulatory organisation (whether of a governmental nature or otherwise), for example when subscription proceeds cannot be remitted
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to the account of the relevant Sub - Fund due to insufficient RQFII Quota being available to the Sub - distriFund or the Sub Fund is unable to dispose of holdings in the relevant Access Programme, or to repatriate the proceeds of such disposals.
R ISK OF I NVESTMENT IN O THER C OLLECTIVE I NVESTMENT S CHEMES . If a Sub - Fund invests in another collective investment scheme or investment vehicle, it is exposed to the risk that the other investment vehicle will not perform as expected. The Sub - Fund is exposed indirectly to all of the risks applicable to an investm ent in such other investment vehicle. In addition, lack of liquidity in the underlying vehicle could result in its value being more volatile than the underlying portfolio of se curities, and may limit the ability of the Sub - Fund to sell or redeem its intere st in the vehicle at a time or at a price it might consider desirable. Subject to the limit in section 3.1 of “ Investment Restrictions ”, the investment policies and limitations of the other investment vehicle may not be the same as those of the Sub - Fund. As a result, the Sub - Fund may be subject to additional or different risks, or may achieve a reduced investment return, as a result of its investment in another investment vehicle. A Sub - Fund also will bear its proportionate amount of the expenses of any investment vehicle in which it invests. Please see also the risk warning set out above titled “Conflicts of Interest” in relation to the potential conflicts of interest which may arise from investing in another collective investment scheme or investment vehicle. Where a Sub - Fund invests in another collective investment scheme or investment vehicle to the extent that it becomes a feeder fund in respect of such other fund (which shall have broadly similar investment policies and limitations as the relevant Sub - Fund), the risks associated with such an investment as described above will increase commensurately. A Sub - Fund will not be subject to any preliminary/initial/redemption charge in respect of investments made in any other Sub - Fund of the Fund or in any other investment fund whose manager is an affiliate. In addition, any commission that the Investment Mana ger receives by virtue of an investment of a Sub - Fund into another collective investment scheme or other Sub - Fund of the Fund, must be paid into the assets of the investing Sub - Fund. The Investment Manager, where paid out of the assets of a Sub - Fund, may n ot charge any investment management fees in relation to that portion of that Sub - Fund’s assets invested in other Sub - Funds of the Fund.
R ISKS R ELATED TO S CREENING : Certain Sub - Funds use a screen (either within an index or which is applied outside of an index) based on criteria which may include certain sustainability - related or other characteristics of a company or other issuer of securities, (for the purposes of thi s disclosure, each, is an “issuer”). The screen may be fully or partially designed and/or implemented by the benchmark index provider, the Investment Manager, an affiliate of the Investment Manager or by another party, (each referred to as the “screen prov ider”). Any assessment of the screen criteria by a screen provider is based on data provided by third parties. Such data may be incomplete, inaccurate or unavailable, which could cause incorrect assessment of an issuer’s sustainability or other characteris tics. For certain markets and types of issuer there may be significant limitations in the amount of screening data that is available or no screening data may be available such that no screening is performed. In certain situations where screening data is not available for an issuer, the screen provider may, as a proxy, use data relating to a different entity to the issuer, which presents a risk this data may not accurately re flect the sustainability or other characteristics of the issuer. In certain situa tions, even where screening data is available, it may not be used as part of the screen provider’s screening process. The screens used for a Sub - Fund may not be adequate for their intended purpose which could result in the improper inclusion or exclusion o f issuers in the investment decision - making process used for a Sub - Fund. There is a risk that errors may be made in the screening process. Errors may include, but are not limited to, inclusion of incorrect constituents/exclusion of correct constituents, in correct interpretation of issuer characteristics, transcription errors and incorrect assessment and application of the relevant screening criteria. There is a n additional risk that a screen provider may amend or discontinue its screening services or screen ing process and that the data sources used by a screen provider may change or be discontinued. These circumstances could result in the improper inclusion or exclusion of issuers in the investment decision - making process used for a Sub - Fund. In general, scr eening occurs at the level of the issuer rather than at the level of the securities issued by the issuer. Accordingly, there is a r isk that the sustainability or other characteristics of the issuer of a security held by a Sub - Fund are different from the c haracteristics of the security. The foregoing risks associated with screens, screening providers and data sources may result in a Sub - Fund holding securities that it seeks not to hold or excluding securities it seeks to include within its portfolio, and ma y limit the ability of a Sub - Fund to achieve its investment objective . R USSIAN I NVESTMENT R ISK . Although, unless disclosed otherwise in the Relevant Supplement, investments in Russian securities are not generally expected to represent a material proportion of the investments of any of the Sub - Funds, investors should note that there are significant risks inherent in investing in Russia. These risks include:
● delays in settling transactions and the risk of loss arising out of Russia’s system of securities registration and custody;
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● the lack of corporate governance provisions, under - developed or non - existent rules regarding management’s duties to shareholders, and the lack of general rules or regulations relating to investor protection or investments;
● pervasiveness of corruption, insider trading, and crime in the Russian economic system;
● difficulties associated in obtaining accurate market valuations of many Russian securities, based partly on the limited amount of publicly available information;
● the risk of imposition of arbitrary or onerous taxes due to tax regulations that are ambiguous and unclear;
● the general financial condition of Russian companies, which may involve particularly large amounts of inter - company debt;
● banks and other financial systems are not well developed or regulated and as a result tend to be untested and have low credit ratings;
● the lack of local laws and regulations that prohibit or restrict a company’s management from materially changing the company’s structure without shareholder consent,
● difficulties involved with seeking redress in a court of law of breach of local laws, regulations or contracts, arbitrary and inconsistent application of laws and regulations by courts; and
● the risk that the government of Russia or other executive or legislative bodies may decide not to continue to support the economic reform programs implemented since the dissolution of the Soviet Union.
Securities in Russia are issued only in book entry form and ownership records are maintained by registrars who are under contract with the issuers. The registrars are neither agents of, nor responsible to, the Depositary or its local agents in Russia. Transferees of securities have no proprietary rights in respect of securities until their name appears in the register of hol ders of the securities of the issuer. The law and practice relating to registration of holders of s ecurities are not well developed in Russia and registration delays and failures to register securities can occur. Although Russian sub - custodians will maintain copies of the registrar’s records ( “Extracts” ) on its premises, such Extracts may not, however, be legally sufficient to establish ownership of securities. Furthermore, a quantity of forged or otherwise fraudulent securities, Extracts or other documents are in circulation in the Russian markets and t here is therefore a risk that the Sub - Fund’s purchases may be settled with such forged or fraudulent securities. In common with other emerging markets, Russia has no central source for the issuance or publication of corporate actions information. The Depositary therefore cannot guarantee the completeness or timeliness of the distribution of corporate actions notifications.
Investments in securities listed or traded in Russia will only be made in securities that are listed or traded on the Moscow Exchange.
Russia Sanctions Risk. Sanctions threatened or imposed by a number of jurisdictions, including the United States, the EU and the United Kingdom, and other intergovernmental actions that have been or may be undertaken in the future, against Russia, Russian entities or Russian individuals, may result in the devaluation of Russian currency, a downgrade in the country's credit rating, an immediate freeze of Russian assets, a decline in the value and liquidity of Russian securities, property or interests, and/or other adverse consequences to the Russian economy or a Sub - Fund. The scope and scale of sanctions in place at a particular time may be expanded or otherwise modified in a way that have negative effects on a Sub Fund. Sanctions, or the threat of new or modified sanctions, could impair the ability of a Sub - Fund to buy, sell, hold, receive, deliver or otherwise transact in certain affected securities or other investment instruments. Sanctions could also result in Russia taking counter measures or other actions in response, which may further impair the value and liquidity of Russian securities. These sanctions, and the resulting disruption of the Russian economy, may cause volatility in other regional and global markets and may negatively impact the performance of various sectors and industries, as well as companies in other countries, which could have a negative effect on the performance of a Sub - Fund, even if a Sub - Fund does not have direct exposure to securities of Russian issuers. As a collective result of the imposition of sanctions, Russian government countermeasures and the impact that they have had on the trading markets for Russian securities, certain Sub - Funds have used, and may in the future use, fair valuation procedures approved by the Management Company to value certain Russian securities, which could result in such securities being deemed to have a zero value.
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S CREENED I NDICES R ISK . Sub - Funds may track indices that use a screen to identify securities in an Index’s investable universe based on criteria included but not limited to ESG criteria. The screen may by fully or partially designed by the Investment Manager, any affiliate of the Investment Manager or by a third party provider. There is a risk that errors are made in the screening process. Errors may include, but are not limited to, inclusion of incorrect constituents/exclusion of correct constituents, incorrect interpretation of company accounts, transcription errors from company accounts and incorrect assessment of the relevant screening criteria. There is an additional risk that index provider may amend or discontinue its screening services and/or that, the ICAV may change the s creen or screen provider. In such circumstances, there is no guarantee that a replacement screen provided would result in a similar screening process or would be available.
S CREENING R ISK . The Investment Manager may use a screen to identify securities in a Sub - Fund’s investable universe based on criteria relating to the Sub - Fund’s investment objective. The screen may be proprietary or provided by a third party provider. There is a risk that errors are made in the screening process. Errors may include, but are not limited to, inclusion of incorrect constituents/exclusion of correct constituents, incorrect interpretation of company accounts, transcription erro rs from company accounts and incorr ect assessment of the relevant screening criteria. There is an additional risk that a screen provider may amend or discontinue its screening services. In such circumstances, the ICAV may change the screen provider although there is no guarantee that a repl acement screen provided would result in a similar screening process or would be available.
S ECURITIES L ENDING R ISK . If a Sub - Fund engages in securities lending there is a risk that the borrower may become insolvent or otherwise become unable to meet, or refuse to honour, its obligations to return equivalent securities to the loaned securities. In this event, the Sub - F und could experience delays in recovering the securities and may incur a capital loss. There is the risk that, when lending portfolio securities, the securities may not be available to the Sub - Fund on a timely basis and the Sub - Fund may, therefore, lose th e opportunity to sell the securities at a desirable price.
If a counterparty defaults and fails to return equivalent securities to those loaned the Sub - Fund may suffer a loss equal to the shortfall between the value of the realised collateral and the market value of the replacement securities. To the extent that a ny securities lending is not fully collateralised (for example, due to timing lags associated with the posting of collateral) , the Sub - Fund will have a credit risk exposure to the counterparty of a securities lending contract. Investors should also read t he risk warning headed “ Counterparty Risk ” in the “ Risk Information ” section. The Sub - Fund could also lose money if the value of collateral falls. These events could triggers adverse tax consequences for the Sub - Fund.
S ETTLEMENT R ISK . Markets in different countries will have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of transactions, thereby making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of a Sub - Fund remain uninvested and no return is earned thereon. The inability of a Sub - Fund to make intended purchases due to settlement problems could cause it to miss attr active investment opportunities and affect its ability to track an index (where relevant). Inability to dispose of portfolio securities due to settlement problems could result either in losses to a Sub - Fund due to subsequent declines in value of the portf olio security or, if it has entered into a contract to sell the security, it could result in the possible liability of it to the purchaser.
Where cleared funds are not received in a timely fashion in respect of a subscription, overdraft interest may be incurred. Losses could be incurred where the Investment Manager has entered into a contract to purchase securities in anticipation of subscrip tion monies which subsequently do not settle, due to subsequent declines in the value of the portfolio security upon disposal.
SFDR – F UND C LASSIFICATION R ISK . SFDR is an EU Regulation that aims to deliver greater transparency on the degree of sustainability of financial products and to harmonise sustainability - related disclosure requirements in the financial services sector. In the first phase of its implementat ion, information regarding an Investment Manager’s (or sub - investment manager’s) approach to the integration of sustainability risks in investment decisions must be included in the Prospectus. As part of this initial phase, Sub - Funds must also be classifie d under criteria established by SFDR. That is, (i) whether or not Sustainability Risks are integrated into investment decisions made for a Sub - Fund (Article 6 of SFDR) and (ii)(a) if a Sub - Fund promotes environmental and/or social characteristics (Article 8 of SFDR) or (ii)(b) if a Sub - Fund has sustainable investment as its objective (Article 9 of SFDR).
As at the date of this Prospectus, the implementing Regulatory Technical Standards (Level 2) for SFDR have not been adopted by the EU Commission and certain concepts newly introduced by SFDR are not currently the subject of centralised implementing standar ds, local guidance or established market practice. The Sub - Funds have been assessed and classified in good faith based on the relevant information currently available. As these standards and guidance develop, the SFDR
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related disclosures and classification(s) indicated in this Prospectus and the Website are subject to change and may no longer apply.
S HARE C LASS R ISK . As there is no segregation of liabilities between Classes of the Sub - Fund, there is a risk that, under certain limited circumstances, the liabilities of a particular class might affect the Net Asset Value of other Classes. In particular, while the Investm ent Manager will seek to ensure that gains/losses on and the costs of the relevant FDI associated with any currency hedging strategy used for the benefit of particular Class will accrue solely to this class and w ill not be combined with or offset with that of any other Class of the Sub - Fund, there can be no guarantee that the Investment Manager will be successful in this. In addition, over - hedged or under - hedged positions may arise unintentionally due to factors outside the control of the Investment Manage r but the Investment Manager will ensure that over - hedged positions do not exceed 105% of the Net Asset Value of the relevant Class and under - hedged positions shall not fall short of 95% of the portion of the Net Asset Value of the relevant Class. The Inve stment Manager will monitor hedging and such monitoring will incorporate a procedure to ensure that positions materially in excess of 100% will not be carried forward from month to month. To the extent that hedging is successful, the performance of the rel evant Class of Shares is likely to move in line with the performance of the underlying assets. The use of hedged currency Classes of Shares may substantially limit holders of the Class from benefiting if the Share currency falls against the Base Currency and/or the currency in which the assets of the Fund are dominated.
S UBSCRIPTION AND R EDEMPTION C OLLECTION A CCOUNT . Subscription monies received in respect of a Sub - Fund in advance of the issue of Shares will be held in the Umbrella Cash Collection Account in the name of the Fund. Investors will be unsecured creditors of such a Sub - Fund with respect to the amount sub scribed until such Shares are issued, and will not benefit from any appreciation in the Net Asset Value of the Sub - Fund or any other Shareholder rights (including dividend entitlement) until such time as Shares are issued. In the event of an insolvency of the Sub - Fund or the Fund there is no guarantee that the Sub - Fund or the Fund will have sufficient funds to pay unsecured creditors in full.
Payment by a Sub - Fund of redemption proceeds and dividends is subject to receipt by the Administrator of original subscription documents and compliance with all anti - money laundering procedures. Notwithstanding this, redeeming Shareholders will cease to b e Shareholders, with regard to the redeemed Shares, from the relevant redemption date. Redeeming Shareholders and Shareholders entitled to distributions will, from the redemption or distribution date, as appropriate, be unsecured creditors of the relevant Sub - Fund and will not benefit from any appreciation in the Net Asset Value of the Sub - Fund or any other Shareholder rights (including further dividend entitlement), with respect to the redemption or distribution amount. In the event of an insolvency of t he Sub - Fund or the Fund during this period, there is no guarantee that the Sub - Fund or the Fund will have sufficient funds to pay unsecured creditors in full. Redeeming Shareholders and Shareholders entitled to distributions should therefore ensure that a ny outstanding documentation and information is provided to the Administrator promptly. Failure to do so is at such Shareholder’s own risk.
In the event of the insolvency of another Sub - Fund of the Fund, recovery of any amounts to which a Sub - Fund is entitled, but which may have transferred to such other Sub - Fund as a result of the operation of the Umbrella Cash Collection Account, will be subj bject to the principles of Irish trust law and the terms of the operational procedures for the Umbrella Cash Collection Account. There may be delays in effecting and / or disputes as to the recovery of such amounts, and the insolvent Sub Fund may have insu fficient funds to repay amounts due to the relevant Sub - Fund. Accordingly, there is no guarantee that such Sub - Fund or the Fund will recover such amounts. Furthermore, there is no guarantee that in such circumstances the Sub - Fund or the Fund would have s ufficient funds to repay any unsecured creditors.
S UBSTANTIAL R EDEMPTIONS . Subject and without prejudice to the Directors authority to suspend redemptions and/or to limit the Net Asset Value of Shares of any Sub - Fund which may be redeemed on any Dealing Day, substantial redemption requests by Shareholders in a concentrated perio d of time could require a Sub - Fund to liquidate certain of its investments more rapidly than might otherwise be desirable in order to raise cash to fund the redemptions and achieve a portfolio appropriately reflecting a smaller asset base. This may limit the ability of the Investment Manager to successfully implement the investment program of a Sub - Fund and could negatively impact the value of the Shares being redeemed and the value of Shares that remain outstanding. In addition, following receipt of a re demption request, a Sub - Fund may be required to liquidate assets in advance of the applicable Dealing Day, which may result in a Sub - Fund holding cash or highly liquid investments pending such Dealing Day. During any such period, the ability of the Invest ment Manager to successfully implement the investment program of a Sub - Fund may be impaired and the Sub - Fund’s returns may be adversely affected as a result.
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Moreover, regardless of the time period over which substantial redemption requests are made, the resulting reduction in the Net Asset Value of a Sub - Fund could make it more difficult for the Sub - Fund to generate profits or recover losses. Shareholders wil l not receive notification of substantial redemption requests in respect of any particular Dealing Day from a Sub - Fund and, therefore, may not have the opportunity to redeem their Shares or portions thereof prior to or at the same time as the redeeming Sha reholders.
S USTAINABILITY R ISK . A Sub - Fund will indicate that it integrates or does not integrate Sustainability Risk in its Relevant Supplement. Sustainability Risk is defined in SFDR as an environmental, social or governance event or conditions that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment. Integrating Sustainability Risk into the Sub - Fund’s investment process does not assure the mitigation of any or all Sustainability Risk and the degree to which management of Sustainab ility Risk can be integrated into the management of the assets of any Sub - Fund will depend on the characteristics of that Sub - Fund.
A Sustainability Risk event may materially affect the market price or liquidity of an underlying investment. This change to the profile of the underlying investment may only become apparent over time and at the time it is realised in the Sub - Fund’s portfol io, the change in value or liquidity may be sudden and/or material. Investment decisions that integrate Sustainability Risks may include assumptions as to how such risks may materialise in the future. These assumptions may be incorrect or incomplete and th e Sustainability Risk may not manifest at all or as anticipated. Any deterioration in the financial profile of the underlying investment may have a corresponding negative impact on the Net Asset Value and/or performance of the investing Sub - Fund.
The performance of Sub - Funds that do not integrate Sustainability Risk in their investment processes may be more negatively impacted by Sustainability Risk events materialising than those Sub - Funds that do.
T ARGET D ATE R ISK . In relation to the Target Date Funds, there is no guarantee that the Sub - Fund will accumulate sufficient wealth during the accumulation phase to meet an investor’s expectation or needs with regards to income during retirement. A shortfall in wealth accumulation could occur for a number of reasons, including a failure to make sufficient contributions, inflation and investment returns. Assumptions and forecasts used by State Street IM in developing the Glidepath may not be in line with future market returns or changes in average life expectancy, inflation, applicable law and regulation or annu ity rates. Research conducted by the Investment Manager may not accurately reflect the expecta tions and preferences of typical investors. The Sub - Fund’s investment performance depends upon the successful allocation of the Sub - Fund’s assets among the Underlying Funds, which in turn may target specific asset classes, geographical regions, or investme nt strategies. There is no guarantee that the Investment Manager’s allocation techniques and decisions will produce the desired results. It is possible to lose money on an investment in the Sub - Fund as a result of these allocation decisions. Increases in l ife - expectancy may mean that in investor outlives their retirement assets, or may need to drawdown a smaller income from their accumulated assets each year.
T AX R ISK . The tax information provided in the “Tax Information” section is based on the best knowledge of the Directors of tax law and practice as at the date of this Prospectus and is subject to change from time to time. Any change in the taxation legislation in Ireland or in any jurisdiction where a Sub - Fund is regis tered, listed, marketed or invested could affect the tax status of the Fund and any Sub - Fund, affect the value of the relevant Sub - Fund’s investments in the affected jurisdiction, affect the relevant Sub - Fund’s ability to achieve its investment objective, and/or alter the after - tax returns to Shareholders. Where a Sub - Fund invests in derivative contracts, these considerations may also extend to the jurisdiction of the governing law of the derivative contract and/or the relevant counterparty and/or to the ma rkets to which the derivative contract provides exposure. The availability and value of any tax reliefs available to Shareholders depend on the individual circumstances of each Shareholder. The information in the “Tax Information” section is not exhaustive and does not constitute legal or tax advice. Prospective Shareholders should consult their tax advisors with respect to their particular t ax situations and the tax effects of an investment in the Sub - Funds. Where a Sub - Fund invests in a jurisdiction where the tax regime is not fully developed or is not sufficiently certain, the Fund, the relevant Sub - Fund, the Investment Manager, the Depositary and the Administrator shall not be liable to account to any Shareholder for any payment made or suffered by the Fund or the relevant Sub - Fund in good faith to a fiscal authority for taxes or other charges of the Fund or the relevant Sub Fund notwithstandi ng that it is later found that such payments need not or ought not have been made or suffered.
The Fund may be liable to taxes (including withholding taxes) in countries other than Ireland on income earned and capital gains arising on its investments. The Fund may not be able to benefit from a reduction in the rate of such foreign tax by virtue of the double taxation treaties between Ireland and other countries. The Fund may not, therefore, be able to reclaim any foreign withholding tax borne by it in particular countries. If this position changes and the Fund obtains a repayment o f
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foreign tax, the Net Asset Value of a Sub - Fund will not be restated and the benefit will be allocated to the then - existing Shareholders rateably at the time of repayment.
Shareholders should be aware that the performance any Sub - Fund, as compared to an Index, may be adversely affected in circumstances where the assumptions about tax made by the relevant Index Provider in their index calculation methodology differ to the act ual tax treatment of the underlying securities in the Index held within Sub - Funds.
PRC T AXATION R ISK . China Connect Securities traded under SHHK and SZHK Stock Connect currently enjoy a temporary exemption from PRC 'income' tax and PRC business tax. It is uncertain when such exemptions will expire and whether other PRC taxes will be applicable to trading of China Connect Securities under SHHK and SZHK Stock Connect. Dividends derived from China Connect Securities are subject to PRC withholding tax. PRC stamp duty is also payable for transactions in China Connect Securities under SHHK and SZHK Stock Conn ect. However, there is no guarantee on how long the exemption will last and there can be no certainty that the trading of SC Securities will not attract a liability to such tax in the future. The mainland China tax authorities may in the future issue fur ther guidance in this regard and with potential retrospective effect.
Currently there is no specific guidance imposed by the PRC tax authorities on the treatment of income tax and other tax categories payable in respect of trading in the CIBM by foreign investors. Before further guidance is issued and is well established in the administrative practice of the PRC tax authorities, the practices of the PRC tax authorities that collect PRC taxes with respect to the CIBM transactions may differ from or be applied in a manner inconsistent with, the practices with respect to analog ous investments described herein or any further guidance that may be issued. The value of a Fund’s investment in the PRC and the amount of its incomes and gains could be adversely affected by an increase in tax rates or change in the taxation basis.In lig ht of the uncertainty as to how gains or income that may be derived from a Sub - Fund's investments in PRC will be taxed, the Fund reserves the right to provide for withholding tax on such gains or income and withhold tax for the account of the Sub - Fund. Wi thholding tax may already be withheld at broker/custodian level. Any tax provision, if made, will be reflected in the relevant Sub - Fund's account(s) at the time of debit or release of such provision.
If the actual applicable tax levied by PRC tax authorities is greater than that provided for by the relevant Sub - Fund so that there is a shortfall in the tax provision amount, investors should note that the Net Asset Value of the Sub - Fund may suffer more t han the tax provision amount as the relevant Sub - Fund will ultimately have to bear the additional tax liabilities. In this case, the then existing and new investors will be disadvantaged.
On the other hand, if the actual applicable tax levied by PRC tax authorities is less than that provided for by the relevant Sub - Fund so that there is an excess in the tax provision amount, investors who have redeemed Shares before PRC tax authorities' rul ing, decision or guidance in this respect will be disadvantaged as they would have borne the loss from the Sub - Fund's overprovision. In this case, the then existing and new investors may benefit if the difference between the tax provision and the actual t axation liability can be returned to the account of the relevant Sub - Fund as assets thereof.
In addition, investors should be aware that under - accrual or over - accrual for PRC tax liabilities may impact on the performance of a Sub - Fund during the period of such under - accrual or over - accrual and following any subsequent adjustments to the Net Asset Value.
In case of having excess in the tax provision amount (for example, the actual applicable tax levied by PRC tax authorities is less than the tax provision amount or due to a change in provisioning by a Sub - Fund), such excess shall be treated as property of the relevant Sub - Fund and investors who have already transferred or redeemed their Shares in the relevant Sub - Fund will not be entitled or have any right to claim any part of the amount representing the excess.
VA VALUATION R ISK . A Sub - Fund’s investments will typically be valued at the relevant market value, in accordance with the Instrument of Incorporation and applicable law. In certain circumstances, a portion of a Sub - Fund’s assets may be valued by the Management Company at fair value using prices provided by a pricing service or, alternatively, a broker - dealer or other market intermediary (sometimes just one broker - dealer or other market intermediary) when other reliable pricing sources may not be available. If no releva nt information is available from those sources or the Management Company considers available information unreliable, the Management Company may value a Sub - Fund's assets based on such other information as the Management Company may in its discretion consider appropriate. There can be no assurance that such prices will accurately reflect the price a Sub - Fund would receive upon sale of a secur ity, and to the extent a Sub - Fund sells a security at a price lower than the price that has been used to value the security, its Net Asset Value will be adversely affected. When a Sub - Fund invests in other funds or investment pools, the Management Company will generally value the Sub - Fund’s investments in those funds or pools based on the valuations determined by the funds or pools, which may not
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be the same as if the net assets of the Sub - Funds or pools had been valued using the procedures employed by the Management Company to value the Sub - Fund’s assets.
RISKS ASSOCIATED WITH INVESTMENT IN EQUITIES
E QUITY R ISK . Equity securities represent ownership interests in a company or corporation and include common stock, preferred stock and warrants and other rights to acquire such instruments.
Investments in equity securities in general are subject to a num ber of factors which may cause their market prices to fluctuate over time, sometimes rapidly or unpredictably. The value of a security may decline for a number of reasons that may directly relate to the issuer (see “Issuer Risk” above) or due to general ma rket conditions that are not specifically related to a particular company or issuer, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor se ntiment generally. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time. A Sub - Fund may continue to accept new subscriptions and to make additional investments in equity securitie s even under general market conditions that the Investment Manager views as unfavourable for equity securities.
Where a Sub - Fund invests in equity warrants, Shareholders should be aware that the holding of warrants may result in increased volatility of the relevant Sub - Fund’s Net Asset Value per Share. For Sub - Funds investing in convertible equity securities Shareh olders should also be aware that the value of such securities is affected by prevailing interest rates, the credit quality of the issuer and any call provisions. For Index Tracking Funds, fluctuations in the value of equity securitie s comprised in any inde x, the performance of which is replicated by the relevant Sub - Fund, would cause the Net Asset Value of the relevant Sub - Fund to fluctuate.
I NVESTMENT S TYLE R ISK : Equity securities generally fall into four broad categories – large cap, mid - cap, small cap and micro cap. If a Sub - Fund invests primarily in one category, there is a risk that due to current market conditions, the Sub - Fund may perform less well tha n a Sub - Fund that is invested in another category or across several categories. General risks associated with these categories are set forth below:
Large Cap Risk - Returns on investments in stocks of large companies could trail the returns on investments in stocks of smaller and mid - sized companies.
Mid - Cap Risk - Mid - sized companies may be more volatile and more likely than large - capitalisation companies to have relatively limited product lines, markets or financial resources, or depend on a few key employees. Returns on investments in stocks of mid - size companies could trail the returns on investments in stocks of larger or smaller companies.
Small Cap Risk - Small - sized companies may be more volatile and more likely than large - and mid - capitalisation companies to have relatively limited product lines, markets or financial resources, or depend on a few key employees. Returns on investments in stocks of small co mpanies could trail the returns on investments in stocks of larger companies. See also “Small Companies Risk” . Micro - Cap Risk – Micro - cap companies may be newly formed or in the early stages of development with limited product lines, markets or financial resources. Therefore, micro - cap companies may be less financially secure than large - , mid - and small - capitalisation companies and may be more vulnerable to key personnel losses due to reliance on a smaller number of management personnel. In addition, there may be less public information available about these companies. Micro - cap stock prices may be more volatile than large - , mid - an d small - capitalisation companies and such stocks may be more thinly traded and thus difficult for a Sub - Fund to buy and sell in the market. See also “Small Companies Risk” . Investment Style Risk – Geographic Focus - UK : Certain Sub - Funds will take investment exposure to the UK and, consequently, such Sub - Fund's performance is expected to be tied to the social, political, and economic conditions within that country and its exposure to related risks could make its perform ance more volatile than the performance of more geographically diversified funds. The UK has one of the largest economies in Europe and the U.S. and other European countries are substantial trading partners of the UK. As a result, the UK economy may be imp acted by changes to the economic condition of the U.S. and other European countries. The UK economy, along with certain other EU economies, experienced a significant economic slowdown during the recent financial crisis and certain British financial institu tions suffered significant losses, were severely under - capitalized and required government intervention to survive. The UK economy relies heavily on the export of financial services to the U.S.
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and other European countries and, therefore, a prolonged slowdown in the financial services sector may have a negative impact on the UK economy. Continued governmental involvement or control in certain sectors may stifle competition in certain sectors or c ause adverse effects on economic growth. In the past, the UK has been a target of terrorism. Acts of terrorism in the UK or against British interests abroad may cause uncertainty in the UK financial markets and adversely affect the performance of the issue rs to which the Sub - Fund has exposure.
Following the result of the withdrawal of the UK from the EU on 31 January 2020, the UK continued to follow all of the EU rules until the end of the transitional period that ended on 31 December 2020. The negotiation of the UK's continuing relationship wit h the EU is likely to take a number of years. The ongoing uncertainty around the UK’s ongoing relationship with the EU may cause uncertainty in the global financial markets and the impact of this on the UK, the EU and the global financial markets is not cl ear but could be significant and far - reaching.
S MALL C OMPANIES R ISK . Small companies may offer greater opportunities for capital appreciation than larger companies, but they tend to be more vulnerable to adverse developments than larger companies, and investments in these companies may involve certain special risks. Small companies may have limited product lines, markets, or financial resources and may be dependent on a limited management group. In addition, these companies may have been recently organised and have little or no track record of success. Also, the Investment Manager may not have had an opportunity to evaluate such newer companies’ performance in adverse or fluctuating market conditions. The securities of small companies may trade less frequently and in smaller volume than more widely held securities. The pric es of these securities may fluctuate more sharply than those of other securities, and a Sub - Fund may experience some difficulty in establishing or closing out positions in these securities at prevailing market prices. There may be less publicly available information about the issuers of these securities or less market interest in such securities than in the case of larger companies, both of which can cause significa nt price volatility. Some securities of smaller issuers may be illiquid or may be restricted as to resale.
RISKS ASSOCIATED WITH INVESTMENT IN DEBT SECURITIES
D EBT S ECURITIES R ISK . Fixed - income securities and other income - producing securities are obligations of their issuers to make payments of principal and/or interest on future dates. As interest rates rise, the values of debt securities or other income - producing investments are likely to fall. This risk is generally greater for obligations with longer maturities. Debt securities and other income - producing securities also carry the risk that the issuer or the guarantor of a security will be unable or unwilling to make timely prin cipal and/or interest payments or otherwise to honour its obligations. This risk is particularly pronounced for lower - quality, high - yielding debt securities.
Additional general risks that may be part of debt securities include the following:
Credit Risk - The ability, or perceived ability, of the issuer of a debt security to make timely payments of interest and principal on the security will affect the value of the security. It is possible that the ability of an issuer to meet it s obligations will decline substantially during the period when a Sub - Fund owns securities of that issuer or that the issuer will default on its obligations. See also “ Issuer Risk ”. An actual or perceived deterioration of the ability of an issuer to meet its obligations will likely have an adverse effect on the value of the issuer’s securities. With certain exceptions, credit risk is generally greater for investments issued at le ss than their face values and that require the payment of interest only at maturity rather than at intervals during the life of the investment. Credit rating agencies base their ratings largely on the issuer’s historical financial condition and the rating agencies’ investment analysis at the time of rating. The rating assigned to any particular investment does not necessarily reflect the issuer’s current financial condition and does not reflect an assessment of an investment’s volatility or liquidity. Alth ough investment grade securities generally have lower credit risk than securities rated below investment grade, they may share some of the risks of lower - rated investments, including the possibility that the issuers may be unable to make timely payments of interest and principal and thus default. Consequently, there can be no assurance that investment grade securities will not be subject to credit difficulties leading to the loss of some or all of the sums invested in such securities. If a security held by a Sub - Fund loses its rating or its rating is downgraded, the Sub - Fund may nonetheless continue to hold the security in the discretion of the Investment Manager.
Extension Risk - During periods of rising interest rates, the average life of certain types of securities may be extended because of slower - than - expected principal payments. This may lock in a below - market interest rate, increase the security’s duration, and reduce the va lue of the security. Extension risk may be heightened during periods of adverse economic conditions generally, as payment rates decline due to higher unemployment levels and other factors.
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Income Risk - To the extent a Sub - Fund’s income is based on short - term interest rates, which may fluctuate over short periods of time, income received by the Sub - Fund may decrease as a result of a decline in interest rates.
Interest Rate Risk - The values of bonds and other debt instruments usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the values of existing debt instruments, and rising interest rates generally reduce the values of exi sting debt instruments. Interest rate risk is generally greater for investments with longer durations or maturities and may also be greater for certain types of debt securities such as zero coupons and deferred interest bonds. Interest rate risk also is r elevant in situations where an issuer calls or redeems an investment before its maturity date. See also “ Prepayment Risk ” below. Adjustable rate instruments also generally react to interest rate changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including the index chosen, frequency of reset and reset cap s or floors, among other factors).
Lower- r- Rated Securities Risk - Securities rated below investment grade (i.e., high - yield bonds or junk bonds) typically lack outstanding investment characteristics and have speculative characteristics and are subject to greater credit and market risks than higher - rated securities. Th e lower ratings of junk bonds reflect a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments o f interest and principal. If this were to occur, the values of such securities held by a Sub - Fund may become more volatile and the Sub -
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...